As filed with the Securities and Exchange Commission on April 28, 1997
Registration No. ( )
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SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
IMPERIAL CREDIT COMMERCIAL MORTGAGE ACCEPTANCE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware Not Yet Available
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
23550 Hawthorne Boulevard
Building 1, Suite 210
Torrance, California 90505
(310) 442-3300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Stephen Shugerman
Imperial Credit Commercial Mortgage Acceptance Corporation
23550 Hawthorne Boulevard
Building 1, Suite 210
Torrance, California 90505
(310) 442-3300
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Michael S. Gambro, Esq. Carlos A. Rodriguez,Esq.
Cadwalder, Wickersham & Taft Brown & Wood LLP
100 Maiden Lane One World Trade Center
New York, New York 10038 New York, New York 10048
(212) 504-6825 (212) 839-5300
-------------------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /x/
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. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Securities Amount to Be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
to Be Registered Registered Price Per Unit (1) Offering Price(1) Registration Fee
<S> <C> <C> <C> <C>
Commercial Mortgage Pass- $1,000,000 100% $1,000,000 $304
Through Certificates
</TABLE>
(1) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
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 THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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INTRODUCTORY NOTE
This Registration Statement contains a form of Prospectus relating to
the offering of series of Commercial Mortgage Pass-Through Certificates by
various Trusts created from time to time by Imperial Credit Commercial
Mortgage Acceptance Corporation and a form of Prospectus Supplement relating
to the offering by a Trust of the particular series of Commercial Mortgage
Pass-Through Certificates described therein. The form of Prospectus
Supplement relates only to the securities described therein and is a form
that may be used by Imperial Credit Commercial Mortgage Acceptance
Corporation to offer Commercial Mortgage Pass-Through Certificates under this
Registration Statement.
SUBJECT TO COMPLETION, DATED APRIL 28, 1997
Prospectus Supplement
(To Prospectus dated _____________, 199_)
- -------------------------------
DEPOSITOR
$__________
_________________________, SERIES 199_-C_
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 offer to buy be accepted prior to the time the registration
statement becomes effective. This prospectus supplement and the
accompanying prospectus shall not constitute an offer to sell or the
solicitation of an offers 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 such State.
The Series 199_-C_ ____________________________________ (the "Certificates")
will include the following ____ classes of Certificates, designated as the
______________________________________________ Certificates (the "Offered
Certificates"). In addition to the Offered Certificates, the Certificates
will also include the _____________________________________________________
Certificates. Only the Offered Certificates are offered hereby.
(Continued on the following page.)
Prospective investors should review the information appearing under the
caption "Risk Factors" after the section captioned "Summary of Prospectus
Supplement" herein and after the section captioned "Summary of Prospectus" in
the Prospectus before purchasing any Offered Certificates.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, __________
SERVICER, THE SPECIAL SERVICER, THE TRUSTEE, THE UNDERWRITER OR ANY OF THEIR
AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY
OR BY THE DEPOSITOR, THE MASTER SERVICER, ___________ SERVICER, THE SPECIAL
SERVICER, THE TRUSTEE, THE UNDERWRITER OR ANY OF THEIR AFFILIATES.
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
Initial
Class Balance Pass-Through Rate(1)
_____________ ____________________
<S> <C> <C>
Class __ $___________ _____%
Class __ $___________ _____%
Class __ $___________ _____%
Class __ $___________ ______________________________________________________________
Class __ $___________ ______________________________________________________________
Class __ $___________ ______________________________________________________________
Class __ $___________ ________________________________________________________(2)(3)
</TABLE>
(1) In addition to distributions of interest and/or principal, holders of
the Certificates will be entitled to receive a portion of any
Prepayment Premiums as described herein.
(2) Based on the Notional Amount as described herein.
(3) The Pass-Through Rate for the Class __ Certificates will be equal to the
________________________________________________________________________
_______________________________________________________________________.
There is currently no secondary market for the Offered Certificates.
____________________ (the "Underwriter") currently expects to make a
secondary market in the Offered Certificates, but has no obligation to do so.
There can be no assurance that such a market will develop or, if it does
develop, that it will continue. See "Plan of Distribution" herein.
The Offered Certificates will be purchased by the Underwriter in the manner
described under "Plan of Distribution," from the Depositor and will be
offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the Offered Certificates
will be 100% of the initial aggregate principal balance thereof as of
______________, 199_ (the "Cut-off Date") plus accrued interest from the
Cut-off Date. The Underwriter will pay the expenses of the Depositor in
connection with the purchase of the Mortgage Loans and the issuance of the
Certificates.
The Offered Certificates are offered by the Underwriter when, as and if
issued and accepted by the Underwriter and subject to its right to reject
orders in whole or in part. (It is expected that the Offered Certificates
will be delivered in book-entry form through the facilities of The Depository
Trust Company(, Cedel Bank, Societe Anonyme and the Euroclear System) on or
about ______________, 199_, against payment therefor in immediately available
funds.)
(UNDERWRITER)
_____________, 199_
(Continued from the preceding page.)
The Certificates will represent in the aggregate the entire beneficial
interest in a trust fund (the "Trust Fund") to be established by ____________
____________________________ (the "Depositor"). The Trust Fund will consist
primarily of a pool (the "Mortgage Pool") of (fixed rate) (variable rate)
mortgage loans with original terms to maturity of not more than ____ months
secured by (first liens on fee simple or leasehold interests in multifamily,
retail, hotel, nursing home, office and other commercial properties). The
Mortgage Loans were originated by several (___________) (institutions
identified herein (collectively, the "Originators"),) acquired by an
affiliate of the Depositor (in the case of Mortgage Loans not originated by
such affiliate) and will be sold to the Depositor on or prior to the date of
initial issuance of the Certificates.
Distributions on the Certificates will be made, to the extent of
available funds, on the 25th day of each month or, if any such day is not a
business day, on the next succeeding business day, beginning in _____________
199_ (each, a "Distribution Date"). As more fully described herein,
distributions allocable to interest, if any, on the Offered Certificates on
each Distribution Date will be based on the then applicable pass-through rate
(the "Pass-Through Rate") and the Class Balance (as defined herein) (or the
notional balance (the "Notional Amount") in the case of the Class __
Certificates) outstanding immediately prior to such Distribution Date. The
Pass-Through Rates applicable to the Class __, Class ____ and Class __
Certificates will be as set forth above. The Pass-Through Rates for the
Class ___, Class ___, Class __, Class ___ and Class __ Certificates will be
variable and will be calculated as set forth herein. Distributions in
respect of principal, if any, of the Certificates will be made as described
herein under "Description of the Certificates - Distributions" and "-
Priority of Distributions".
The Class ____, Class ___ and Class ___ Certificates will evidence
approximately an initial _____% undivided interest in the Trust Fund. The
Class __ Certificates will evidence approximately an initial ____% undivided
interest in the Trust Fund. The Class ___ Certificates will evidence
approximately an initial ____% undivided interest in the Trust Fund. The
Class __ Certificates will evidence approximately an initial ____% undivided
interest in the Trust Fund. The Class ___ Certificates will evidence
approximately an initial ___% undivided interest in the Trust Fund.
It is a condition of the issuance of the Class __, Class __ and Class __
Certificates that they be rated "______" by _______ and "______" by
____________________________. It is a condition of the issuance of the Class
__ Certificates that they be rated not lower than "___" by ______ and "__" by
____________. It is a condition of the issuance of the Class __ Certificates
that they be rated not lower than "_____" by _______ and "______" by
_______________. It is a condition of the issuance of the Class __
Certificates that they be rated not lower than "___" by ___________ and "___"
by _________________. The ratings on the Class ____ Certificates do not
address any prepayment or loss scenarios with respect to the Mortgage Loans
or the likelihood of receipt of Prepayment Premiums. See "Rating" herein.
____________________________________ will act as master servicer (in
such capacity, the "Master Servicer") and as special servicer (in such
capacity, the "Special Servicer") of the Mortgage Loans. The obligations of
the Master Servicer and the Special Servicer with respect to the Certificates
will be limited to their contractual servicing obligations and the obligation
under certain circumstances to make P&I Advances (as defined herein) to the
Certificateholders. See "Servicing." It is possible that the Special
Servicer or one or more of its affiliates may purchase a portion of the Class
__ Certificates.
(As described herein, a "real estate mortgage investment conduit"
("REMIC") elections will be made in connection with the Trust Fund for
federal income tax purposes. The Certificates, other than the Class __ and
Class R Certificates, will constitute "regular interests" in the related
REMIC and the Class R Certificates will constitute the sole class of
"residual interest" in the related REMIC. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.)
(The Offered Certificates initially will be represented by certificates
registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), as further described herein. The interests of beneficial
owners of the Offered Certificates will be represented by book entries on the
records of participating members of DTC. Definitive certificates will be
available for the Offered Certificates only under the limited circumstances
described herein. See "Description of the Certificates - Book-Entry
Registration of the Offered Certificates" herein.)
The yield to maturity on the Offered Certificates will depend on the
rate and timing of principal payments (including prepayments, defaults and
liquidations) on the Mortgage Loans. The yield to maturity on each class of
Offered Certificates will be sensitive to losses due to defaults on the
Mortgage Loans (and the timing thereof), to the extent that such losses are
not covered by any Class of Certificates having a lower payment priority, as
described herein. The yield to investors on the Class ___ Certificates will
be sensitive to the rate and timing of prepayments, defaults and liquidations
on the Mortgage Loans. The rates of prepayments, defaults and liquidations
on the Mortgage Loans may fluctuate significantly over time. An extremely
rapid rate of prepayments, defaults and liquidations on the Mortgage Loans
could result in the failure of investors in the Class ___ Certificates to
recover their initial investments. See "Summary - Special Prepayment
Considerations" and "- Special Yield Considerations", and "Certain Yield,
Prepayment and Maturity Considerations" herein and "Yield Considerations" in
the Prospectus.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE OFFERED CERTIFICATES. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS, DATED _____________, 199_ AND ATTACHED HERETO.
PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS IN FULL. SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement and the accompanying Prospectus and if given or made,
such information or representations must not be relied upon as having been
authorized by the Depositor or the Underwriter. This Prospectus Supplement
and the accompanying Prospectus shall not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction in which, or to any person to whom, it is unlawful to make such
offer or solicitation in such jurisdiction. The delivery of this Prospectus
Supplement and the accompanying Prospectus at any time does not imply that
the information herein or therein is correct as of any time subsequent to the
date hereof.
UNTIL ________________, 199_, ALL DEALERS EFFECTING TRANSACTIONS IN THE
OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
page
____
SUMMARY OF PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . S-1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
DESCRIPTION OF THE MORTGAGE POOL . . . . . . . . . . . . . . . . . . . S-31
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . S-48
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS . . . . . . . . . S-58
SERVICING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT . . . . . . . . . . S-67
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . S-70
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . S-71
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . S-71
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . S-73
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . S-73
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-74
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-74
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . S-76
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary
are defined elsewhere in this Prospectus Supplement or in the Prospectus.
See "Index of Principal Definitions" herein and in the Prospectus.
Title of Certificates ___________________________, Series 199_-C_ (the
"Certificates").
Depositor ________________________________, a __________
corporation. See "The Depositor" in the
Prospectus.
Originators % _____, _____ %, and _____% of the Mortgage
Loans by outstanding principal balance as of the
Cut-off Date (as defined herein) were originated,
respectively, by: ______________________________
_______________, a ___________ corporation;
_______________, a ___________ corporation;
______________________________________________
, a _______________.
Master Servicer ___________________, a ______________ corporation
(" "). See "Servicing -- The Master
Servicer" _____ herein.
(________ Servicers The ________ Servicers are ______________________
______________, with respect to _________________
_______________________________________; _________
, with
________________________________________
respect to of the Mortgage Loans
__________
representing % of the Mortgage Pool by
_______
aggregate principal balance as of the Cut-off
Date; and , with respect to all other
________
Mortgage Loans. See "Servicing - ________
Servicers" herein.)
Special Servicer _____ (which serves as Master Servicer) will be
the Special Servicer with respect to all the
Mortgage Loans. The Special Servicer may be
removed without cause under certain
circumstances described herein under
"Servicing - Responsibilities of Special
Servicer."
Trustee ____________________, a ________________________
banking corporation.
Custodian ______________________, a _____________________
banking corporation, in its capacity as custodian
for the Trustee.
Cut-off Date ______________, 199_.
Delivery Date On or about ______________, 199_.
Distribution Dates Distributions on the Certificates will be made by
the Trustee, to the extent of available funds, on
the 25th day of each month or, if any such 25th
day is not a business day, on the next succeeding
business day, beginning in ___________, 199_
(each, a "Distribution Date"), to the holders of
record as of the close of business on the last
business day of the month preceding the month of
each such distribution (each, a "Record Date").
Notwithstanding the above, the final distribution
on any Certificate will be made after due notice
by the Trustee of the pendency of such
distribution and only upon presentation and
surrender of such Certificates at the location to
be specified in such notice.
Rated Final Distribution
Date _______ ___, ____, which is the first Distribution
Date following the second anniversary of the
date at which all the Mortgage Loans have
zero balances, assuming no prepayments and
that the Mortgage Loans which are Balloon
Mortgage Loans fully amortize according to their
amortization schedule and no Balloon Payment is
made.
Registration of the
Offered Certificates (The Offered Certificates initially will be
issued in book-entry form. Persons acquiring
beneficial ownership interests in the Offered
Certificates (the "Certificateholders") may elect
to hold their Certificate interests through The
Depository Trust Company ("DTC"), in the United
States, or through Centrale de Livraison de
Valeurs Mobilieres S.A. ("CEDEL") or the
Euroclear System ("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.
The Offered Certificates (the "DTC Registered
Certificates") will be represented by one or more
global certificates registered in the name of
Cede & Co., as nominee of DTC. No person
acquiring an interest in the DTC Registered
Certificates (any such person, a "Beneficial
Owner") will be entitled to receive a Certificate
of such class in fully registered, certificated
form (a "Definitive Certificate"), except
under the limited circumstances described in
the Prospectus under "Description of the
Certificates - Book-Entry Registration and
Definitive Certificates". Instead, DTC will
effect payments and transfers in respect of
the DTC Registered Certificates by means of its
electronic recordkeeping services, acting through
certain participating organizations ("DTC
Participants" and together with the CEDEL and
Euroclear participating organizations, the
"Participants"). This may result in certain
delays in receipt of payments by an investor
and may restrict an investor's ability to
pledge its securities. Unless and until
Definitive Certificates are issued, the
rights of Beneficial Owners may only be
exercised through DTC and its Participants
and will be subject to procedures established
thereby, except as otherwise specified herein.
See "Description of the Certificates - General"
herein, "Annex C" hereto and "Description of the
Certificates - Book-Entry Registration and
Definitive Certificates" in the Prospectus.)
Denominations (The DTC Registered Certificates will be issuable on
the book-entry records of DTC and its Participants in
denominations of (except in the case of the Class __
Certificates) $________ and integral multiples of $1
in excess thereof. The Class ___ Certificates will be
issuable in denominations of $_______ Notional Amount
and integral multiples of $1 Notional Amount.)
The Mortgage Pool The Mortgage Pool will consist of (fixed rate)
(floating rate) (partially fixed-partially floating
rate) Mortgage Loans secured by first liens on
(retail)(multifamily)(industrial)(hotel)
(retail/office)(office)(commercial) properties (the "Mortgaged
Properties") located in __ different states. The Mortgage Pool
will also include (mortgage participations,) (mortgage pass-through
certificates) (or other mortgage-backed securities) evidencing
interests in or secured by commercial and/or multifamily mortgage
loans (collectively, the "CMBS"). The Mortgage Loans will have an
aggregate principal balance as of the Cut-off Date of $_________
and individual principal balances at origination of at least
$______________ but not more than $__________, with an average
principal balance at origination of approximately $_________. The
Mortgage Loans will have terms to maturity from the date of
origination or modification of not more than ____ years, and a
weighted average remaining term to maturity of approximately _____
months as of the Cut-off Date. The Mortgage Loans will bear
interest at Mortgage Rates of at least _____% per annum but not
more than _____% per annum, with a weighted average Mortgage Rate
of approximately ____% per annum as of the Cut-off Date. The
Mortgage Loans will be acquired by the Depositor on or before the
Delivery Date. In connection with its acquisition of the Mortgage
Loans, the Depositor will be assigned (and will in turn assign to
the Trustee for the benefit of the holders of the Certificates)
certain rights in respect of representations and warranties
described herein that were made by the Originators.
..........
(_____ of the Mortgage Loans, representing _____% of the
Mortgage Loans by aggregate principal balance as of the Cut-off
Date, provide for scheduled payments of principal and/or
interest ("Monthly Payments") to be due on the _____ day of
each month; the remainder of the Mortgage Loans provide for
Monthly Payments to be due on the __th, __th or __th day of
each month (the date in any month on which a Monthly Payment on
a Mortgage Loan is first due, the "Due Date"). (The rate per
annum at which interest accrues on each
Mortgage Loan is subject to adjustment on specified Due Dates (each
such date, an "Interest Rate Adjustment Date") by adding a fixed
percentage amount (a "Gross Margin") to the value of the
then-applicable Index (as described below) subject, in the case of
substantially all of the Mortgage Loans, to maximum and minimum
lifetime Mortgage Rates as described herein. ___ of the Mortgage
Loans, representing ___% of the Mortgage Loans by aggregate
principal balance as of the Cut-off Date, provide for Interest Rate
Adjustment Dates to occur (monthly); the remainder of the Mortgage
Loans provide for adjustments to the Mortgage Rate to occur
quarterly, semi-annually or annually. (Each of the Mortgage Loans
provides for an initial fixed interest rate period;) of
__________
the Mortgage Loans, representing _____% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date, have not yet
experienced their first Interest Rate Adjustment Date. The latest
initial Interest Rate Adjustment Date for any Mortgage Loan is
scheduled to occur on ________.))
(The amount of the Monthly Payment on each Mortgage Loan is
also subject to adjustment on specified Due Dates (each such
date, a "Payment Adjustment Date") to an amount that would
amortize the outstanding principal balance of the Mortgage Loan
over its then remaining amortization schedule and pay interest
at the applicable Mortgage Rate, (without affecting the amount
of the originally scheduled monthly principal payments)
(subject, in the case of several Mortgage Loans, to payment
caps, which limit the amount by which the Monthly Payment may
adjust on any Payment Adjustment Date as described herein.
_______ of the Mortgage Loans, representing __% of the Mortgage
Loans (by aggregate principal balance as of the Cut-off Date,
provide for Payment Adjustment Dates to occur annually, while
the remainder of the Mortgage Loans provide for adjustments of
the Monthly
Payment to occur monthly, quarterly or semi-annually.)
(Only in the case of Mortgage Loans, representing
____________
____% of the Mortgage Loans by aggregate principal balance as
of the Cut-off Date, does a Payment Adjustment Date immediately
follow each Interest Rate Adjustment Date. As a result, and
because the application of payment caps may limit the amount by
which the Monthly Payments may adjust in respect of certain
Mortgage Loans, the amount of a Monthly Payment may be more or
less than the amount necessary to amortize the remaining
principal balance of the Mortgage Loan over its then remaining
amortization schedule and pay interest at the then-applicable
Mortgage Rate. Accordingly, Mortgage Loans may be subject to
slower amortization (if the Monthly Payment due on a Due Date
is sufficient to pay interest accrued to such Due Date at the
then-applicable Mortgage Rate but is not sufficient to reduce
principal in accordance with the applicable amortization
schedule), to negative amortization (if interest accrued to a
Due Date at the applicable Mortgage Rate is greater than the
entire Monthly Payment due on such Due Date) or to accelerated
amortization (if the Monthly Payment due on a Due Date is
greater than the amount necessary to pay interest accrued to
such Due Date at the then-applicable Mortgage Rate and to
reduce principal in accordance with the applicable amortization
schedule).)
(__ Mortgage Loans, representing ____% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date, permit
negative amortization. Substantially all of the Mortgage Loans
that permit negative amortization contain provisions that limit
the extent to which the amount of their respective original
principal balances may be exceeded as a result thereof.)
(All of the Mortgage Loans provide for monthly payments of
principal based on amortization schedules significantly longer
than the
remaining term of such Mortgage Loans, thereby leaving substantial
outstanding principal amounts due and payable (each such payment, a
"Balloon Payment") on their respective maturity dates, unless
prepaid prior thereto.)
For a further description of the Mortgage Loans, see
"Description of the Mortgage Pool" herein.
(The (Index) (Indices) As of any Interest Rate Adjustment Date, the
(Index) (Indices) used to determine the
Mortgage Rate on each Mortgage Loan will be
the ____________. See "Description of the
Mortgage Pool -- The Index" herein.)
(Conversion of Mortgage Loans Approximately __% of the Mortgage Loans
(by aggregate principal balance as of
the Cut-off Date) (the "Convertible
Mortgage Loans") provide that, at the
option of the related mortgagor (the
"Mortgagor"), the adjustable interest
rate on such Mortgage Loans may be
converted to a fixed interest rate,
provided that certain conditions have
been satisfied. Upon notification from
a Mortgagor of such Mortgagor's intent
to convert from an adjustable interest
rate to a fixed interest rate, and prior
to the conversion of any such Mortgage
Loan, the related Warrantying Party (as
defined herein) will be obligated to
purchase the Converting Mortgage Loan
(as defined herein) at the Conversion
Price (as defined herein). (In the
event of a failure by a Subservicer to
purchase a "Converting Mortgage Loan"),
the Master Servicer is required to use
its best efforts to purchase such
Converted Mortgage Loan (as defined
herein) from the Mortgage Pool at the
Conversion Price during the one-month
period following the date of
conversion.) In the event that neither
the related Warrantying Party nor the
Master Servicer purchases a Converting
or Converted Mortgage Loan, the Mortgage
Pool will thereafter include both fixed-
rate and adjustable-rate Mortgage Loans.
See "Certain Yield and Prepayment
Considerations" herein.)
The Offered Certificates The Certificates will be issued pursuant to
a pooling and servicing agreement, to be
dated as of the Cut-off Date, among the
Depositor, the Master Servicer, the Special
Servicer and the Trustee (the "Pooling and
Servicing Agreement"). The Offered
Certificates will have the initial Class
Balances set forth on the cover hereof. The
Class __ Certificates will not have a Class
Balance.
Pass-Through Rate on
the Certificates The Pass-Through Rates on the Class __, Class __ and
Class __ Certificates are fixed and are set forth on
the cover hereof. The Pass-Through Rates on the
Class ___, Class ___, Class ___ and Class ___
Certificates will equal ___ % per annum, ___ % per
annum, ___ % per annum and ___ % per annum,
respectively. The Pass-Through Rate on the Class __
Certificates will be equal to ______________________
________________________________________________. The
Mortgage Interest Rate for each of the Mortgage Loans
which provide for the computation of interest other
than on the basis of a 360-day year consisting of
twelve 30-day months (a "30/360 basis") (that is the
basis on which interest on the Certificates accrues)
will be adjusted to reflect that difference.
Interest Distributions on
the Certificates Subject to the distribution of the Principal
Distribution Amount to the Holders of classes of
Certificates of a higher priority as described under
"Priority of Distributions" below, Holders of each
class of Offered Certificates will be entitled to
receive on each Distribution Date in the order
described herein, to the extent of the Available
Distribution Amount (as defined herein) for such
Distribution Date net of any Net Prepayment Premium
(as defined herein) (the "Adjusted Available
Distribution Amount"), distributions allocable to
interest in an amount (the "Interest Distribution
Amount") equal to the interest accrued during the
period from and including the first day of the month
preceding the month of the Distribution Date (or from
the Cut-off Date, in the case of the
initial Distribution Date) to and including the last day of the
month preceding the month of the Distribution Date (based on a
360-day year consisting of twelve 30-day months) on the related
Class Balance (or the Notional Amount, in the case of the Class _
Certificates) immediately prior to such Distribution Date at the
then-applicable Pass-Through Rate (the "Interest Accrual Amount"),
plus any shortfall as described in the last sentence of this
paragraph, less such class' pro rata share, according to the
Interest Accrual Amount for each such class for the Distribution
Date, of any interest shortfall not related to a Mortgagor
delinquency or default, such as Prepayment Interest Shortfalls to
the extent not offset as described herein, and shortfalls
associated with exemptions provided by the Relief Act (as defined
in the Prospectus), and less (a) with respect to each class of
Certificates other than the Class ___ Certificates, any Collateral
Value Adjustment Capitalization Amount (as defined herein)
allocated to such class as described under "- Subordination" below
and (b) with respect to the Class ___ Certificates, the portion of
the Interest Accrual Amount therefor accrued on the portion of the
Notional Amount corresponding to any Collateral Value Adjustment or
Collateral Value Adjustment Capitalization Amount allocated to the
Class Balance of any class of Certificates (and not reversed) (the
"Collateral Value Adjustment Reduction Amount"). The "Notional
Amount" of the Class __ Certificates will equal the aggregate Class
Balance of all the Certificates. The Notional Amount does not
entitle the Class __ Certificates to any distributions of
principal. If the Adjusted Available Distribution Amount for any
Distribution Date is less than the Interest Distribution Amount for
such Distribution Date, the shortfall will be part of the Interest
Distribution Amount distributable to holders of Offered
Certificates on subsequent Distribution Dates.
In addition to the related Interest Distribution Amount, the Class
Certificates will receive
__% of any Net Prepayment Premium and the remaining Certificates
will receive __% of any Net Prepayment Premium, as more fully
described herein, to the extent not necessary to reimburse the
Master Servicer for reductions in its compensation due to
Prepayment Interest Shortfalls. See "Special Prepayment
Considerations" below and "Description of the Certificates -
Distributions - Interest Distributions on the Certificates" herein.
The Available Distribution Amount for any Distribution Date
generally includes: (i) scheduled payments on the Mortgage Loans
due on or prior to the related Due Date immediately preceding, and
collected as of, the related Determination Date (to the extent not
distributed on previous Distribution Dates) and unscheduled
payments and other collections on the Mortgage Loans collected
during the related Remittance Period, net of amounts payable or
reimbursable to the Trustee, the related ________ Servicer, the
Master Servicer or the Special Servicer therefrom and (ii) any P&I
Advances made by the Trustee, the Master Servicer, the Special
Servicer, or the related ________ Servicer for the related
Distribution Date. The "Determination Date" for any Distribution
Date is the __th business day preceding such Distribution Date.
The "Remittance Period" for any Distribution Date is the period
beginning after a Determination Date in the immediately preceding
month (or the Cut-off Date, in the case of the first Distribution
Date) through the related Determination Date. See "Description of
the Certificates - Distributions - Interest Distributions on the
Certificates" herein.
Principal Distributions
on the Certificates Holders of a class of Certificates will be
entitled to receive on each Distribution Date in
reduction of the related Class Balance in the
order described herein until the related Class
Balance is reduced to zero, to the extent of the
balance of the Adjusted Available Distribution
Amount remaining after the payment of the
Interest Distribution Amount for such Distribution Date for such
class of Certificates and each other class of Certificates with a
higher priority of payment for interest payments (as described
under "Priority of Distributions" below) distributions in respect
of principal in an amount (the "Principal Distribution Amount")
equal to the aggregate of (i) all scheduled payments of principal
(other than Balloon Payments) due on the Mortgage Loans on the
related Due Date whether or not received and all scheduled Balloon
Payments received, (ii) if the scheduled Balloon Payment is not
received, with respect to any Balloon Mortgage Loans on and after
the Maturity Date thereof, the principal payment that would need to
be received in the related month in order to fully amortize such
Balloon Mortgage Loan with level monthly payments by the end of the
term used to derive scheduled payments of principal due prior to
the related Maturity Date, (iii) to the extent not previously
advanced, any unscheduled principal recoveries received during the
related Remittance Period in respect of the Mortgage Loans, whether
in the form of liquidation proceeds, insurance proceeds,
condemnation proceeds or amounts received as a result of the
purchase of any Mortgage Loan out of the Trust Fund to the extent
not required to be otherwise applied pursuant to the terms of the
related Mortgage Loan and (iv) any other portion of the Adjusted
Available Distribution Amount remaining undistributed after payment
of any interest payable on the Certificates, including any
Prepayment Interest Excess (as defined herein) not offset by any
Prepayment Interest Shortfall occurring during the related
Remittance Period or otherwise required to reimburse the Master
Servicer, as described herein, and interest distributions on the
Mortgage Loans, in excess of interest distributions on the
Certificates, resulting from the application of the amounts
described in this clause (iv) to principal distributions on the
Certificates. See "Description of the Certificates - Distributions
- Principal Distri- butions on the Offered Certificates" herein.
The Class ___ Certificates do not have a Class Balance and are
therefore not entitled to any principal distributions.
Priority of Distributions The Adjusted Available Distribution Amount
for any Distribution Date will be applied
(a) first, to distributions of the Interest
Distribution Amounts on the classes of
Certificates outstanding with highest
priority for interest payment (as described
in the immediately succeeding sentence), (b)
second, to distributions of the Principal
Distribution Amount to the classes of
Certificates then entitled to distributions
of principal as described below, and (c)
third, to distributions of interest on each
class of Certificates other than the classes
then entitled to interest distributions
pursuant to clause (a) above, in the order
of priority described below; provided that
on any Distribution Date on which the Class
Balance of the class of Certificates with
the highest priority for interest payment is
reduced to zero pursuant to clause (b)
above, interest distributions pursuant to
clause (a) above will be made to the class
of Certificates outstanding with the next
highest priority for interest payments prior
to making further distributions of the
Principal Distribution Amount pursuant to
clause (b) above. The priority for interest
payments for purposes of clauses (a) and
(c), above, is: first to distributions of
interest on the Class ___, Class __, Class __
and Class ___ Certificates, pro rata, based
on their respective Interest Distribution
Amounts; second, to the Class ___
Certificates; third, to the Class ___
Certificates; fourth, to the Class ___
Certificates; fifth, to the Class ___
Certificates; and then to the Other
Certificates (as defined herein) up to their
respective Interest Distribution Amounts,
all as described under "Interest
Distributions on the Certificates" above.
The Principal Distribution Amount for such
Distribution Date will be applied to the
payment of principal of the Class __, Class __
, Class ___, Class __, Class __, Class __ and
Class __ Certificates, in that order, and
then to the remaining classes of
Certificates, until their respective Class
Balances have been
reduced to zero. After reduction of the Class Balances of all the
Certificates to zero, any remaining portion of the Available
Distribution Amount will be distributed to the holders of the Class
__ Certificates up to an aggregate amount equal to the sum of all
prior Collateral Value Adjustment Reduction Amounts (as defined
herein) allocated thereto. Any Net Prepayment Premium for any
Distribution Date will be applied to reimburse the Master Servicer
for reductions in its compensation due to Prepayment Interest
Shortfalls, as described herein, and then to distributions on the
Certificates, as described herein.
P&I Advances The Master Servicer, the Special Servicer and the ________
Servicers (each, a "Servicer") are required to make
advances ("P&I Advances") for delinquent Monthly Payments
on the Mortgage Loans, subject to the limitations
described herein. None of the Servicers will be required
to advance the full amount of any Balloon Payment not made
by the related Mortgagor. To the extent a Servicer is
required to make a P&I Advance on and after the Due Date
for a Balloon Payment, such P&I Advance shall not exceed
an amount equal to the monthly payment calculated by the
Special Servicer necessary to fully amortize the related
Mortgage Loan over the period used for purposes of
calculating the scheduled monthly payments thereon prior
to the related Maturity Date. As more fully described
herein, each Servicer making a P&I Advance (or any other
advance) will be entitled to reimbursement thereof and
interest thereon at the prime rate determined in
accordance with the Pooling and Servicing Agreement to the
extent provided therein. See "Description of the
Certificates - P&I Advances" herein and "Description of
the Certificates - P&I Advances in Respect of
Delinquencies" in the Prospectus.
Other Certificates The Class __, Class ___, Class ____ and Class R
Certificates are not offered hereby (the "Other
Certificates"). The Pass-Through Rate on each of
the Class __, Class __ and Class R
Certificates will be ____ % per annum. The Class Balances on the
Class ___, Class __ and Class __ Certificates will equal $ _______,
$ _________ and $ ____________ , respectively, and approximately
$ _________ , in the aggregate. The Class R Certificates will not
have a Pass-Through Rate or a Class Balance.
Subordination Neither the Offered Certificates nor the Mortgage
Loans are insured or guaranteed against losses
suffered on the Mortgage Loans by any government
agency or instrumentality or by the Depositor, the
Trustee, the Underwriter, the Master Servicer, the
Special Servicer, the ________ Servicers or any
affiliate thereof.
Realized Losses and Collateral Value Adjustments (as defined
herein) on the Mortgage Loans will be allocated, first, to the
Other Certificates, second, to the Class __ Certificates, third, to
the Class __ Certificates, fourth, to the Class ___ Certificates,
fifth to the Class ___ Certificates, and thereafter, to the Class
__, Class ___ and Class __ Certificates, on a pro rata basis, based
on Class Balance, in each case until the related Class Balance is
reduced to zero. Any allocation of a Realized Loss to a class of
Certificates will result in a reduction of the related Class
Balance and the Notional Amount of the Class ___ Certificates.
Interest accrued for any Distribution Date on any Collateral Value
Adjustment or Collateral Value Adjustment Capitalization Amount
allocated to the Class Balance (or to the Notional Amount, with
respect to the Class __ Certificates) of any class of Certificates
will not be distributed to such class on such Distribution Date as
interest and, except for interest accrued thereon with respect to
the Class ___ Certificates, will be added to the Class Balance
thereof. Under certain circumstances, a Collateral Value
Adjustment may be reversed. Such reversal will reduce the accrual
of the Collateral Value Adjustment Capitalization Amount and
therefore the amount otherwise available to make distributions of
principal on the more senior classes of Certificates. In addition,
the Adjusted Available Distribution Amount will be applied in the
order set forth under "Priority of Distributions" above.
In addition to Realized Losses and Collateral Value Adjustments,
shortfalls may also occur as a result of each Servicer's right to
receive payments of interest with respect to unreimbursed advances,
the Special Servicer's right to compensation with respect to
Mortgage Loans which are or have been Specially Serviced Mortgage
Loans and as a result of other Trust Fund expenses. Such
shortfalls will be allocated to the classes of Certificates with
the lowest payment priority for purposes of the application of the
Adjusted Available Distribution Amount in the order described
herein.
Optional Termination At its option, (the Master Servicer, the Special
Servicer, any holder of a Class R Certificate and
the holders of an aggregate Percentage Interest
in excess of __% of the Most Subordinate Class of
Certificates (as defined herein) may purchase all
of the Mortgage Loans, at the price set forth
under "Description of the Agreement -
Termination," 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 (as defined herein) of the Mortgage Loans
remaining in the Trust Fund is less than __% of
the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date. See "Pooling and
Servicing Agreement - Termination" herein and
"Description of the Certificates - Termination"
in the Prospectus.
Special Principal Payment
Considerations The rate and timing of principal payments, if any, on
the Offered Certificates will depend, among other
things, on the rate and timing of principal payments
(including prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach of a
representation and warranty) on the Mortgage
Loans. As described herein, each of the Mortgage Loans prohibits,
and/or requires the payment of a Prepayment Premium in connection
with, any voluntary prepayment during certain specified times. See
"The Mortgage Pool" above and "Description of the Mortgage Pool"
herein.
All classes of Offered Certificates entitled to payments of
principal are subject to priorities for payment of principal as
described herein. Distributions of principal on classes having an
earlier priority of payment will be directly affected by the rates
of prepayments of the Mortgage Loans. The timing of commencement
of principal distributions and the weighted average lives of
classes of Certificates with a later priority of payment will be
affected by the rates of prepayments experienced both before and
after the commencement of principal distributions on such classes.
In addition, a portion of collections on the Mortgage Loan in
excess of scheduled and unscheduled principal distributions will be
allocated to the classes of Certificates then entitled to
distributions of principal. Any such allocation may result in a
faster amortization of such class of Certificates.
Special Yield Considerations The yield to maturity on each class of
the Offered Certificates will depend on,
among other things, the rate and timing
of principal payments (including
prepayments, defaults, liquidations and
purchases of Mortgage Loans due to
breaches of representations and
warranties) on the Mortgage Loans and
the allocation thereof to reduce the
Class Balance or Notional Amount of such
class. The yield to maturity on each
class of the Offered Certificates will
also depend on the Pass-Through Rate and
the purchase price for such
Certificates. The yield to investors on
any class of Offered Certificates will
be adversely affected by any allocation
thereto of Prepayment Interest
Shortfalls on the Mortgage
Loans, which may result from the distribution of interest only to
the date of a prepayment occurring during any month following the
related Determination Date (rather than a full month's interest).
See "Description of the Certificates - Distributions - Interest
Distributions on the Certificates" herein.
In general, if a class of Offered Certificates is purchased at a
premium and principal distributions thereon occur at a rate faster
than anticipated at the time of purchase, the investor's actual
yield to maturity will be lower than that assumed at the time of
purchase. Conversely, if a class of Offered Certificates 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 that assumed
at the time of purchase.
The multiple class structure of the Offered Certificates causes the
yield of certain classes to be particularly sensitive to changes in
the rates of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of a
representation and warranty) of the Mortgage Loans and other
factors.
The yield to investors on the Class ___ Certificates will be
sensitive to the rate and timing of prepayments, defaults and
liquidations on the Mortgage Loans. The rate of such prepayments,
defaults and liquidations on the Mortgage Loans may fluctuate
significantly over time. A significantly faster than expected rate
of such prepayments, defaults and liquidations on the Mortgage Pool
will have a negative effect on the yield to such investors and
could result in the failure of investors in the Class __
Certificates to recover their initial investments. In addition, because
holders of the Class ___ Certificates have rights to relatively larger
portions of interest payments on Mortgage Loans with higher Mortgage Interest
Rates than on Mortgage Loans with lower
Mortgage Interest Rates, and because Mortgage Loans with higher
Mortgage Interest Rates are generally likely to prepay at a faster
rate than Mortgage Loans with lower Mortgage Interest Rates, the
yield on the Class ___
Certificates will be materially and adversely affected to a greater extent
than the yields on other Offered Certificates if the Mortgage Loans with
higher Mortgage Interest Rates prepay faster than the Mortgage Loans with
lower Mortgage Interest Rates. See "Certain Yield, Prepayment and Maturity
Considerations," especially "- Class ___ Certificate Yield Considerations"
herein.
The yield to investors on any of the Certificates will be sensitive
to losses due to defaults on the Mortgage Loans (and the timing
thereof), because the amount of such losses will be allocable to
such class to the extent such losses are not covered by a
subordinate class of Certificates, as described herein.
Furthermore, as described herein, the timing of receipt of
principal and interest by any such class of Certificates may be
adversely affected by losses even if such class does not ultimately
bear such loss.
Each Servicer making a advance will be entitled to interest thereon
at the prime rate determined in accordance with the Pooling and
Servicing Agreement to the extent provided therein. Therefore
losses may be allocated to a class of Offered Certificates with
respect to any delinquent Monthly Payment and certain other
expenses advanced by such Servicer.
The Special Servicer will be entitled to receive compensation in
the form of a percentage of collections of any Mortgage Loan which
is being serviced or has been serviced by the Special Servicer (a
"Specially Serviced Mortgage Loan") prior to the right of
Certificateholders to receive distributions on the Certificates.
Such compensation will result in shortfalls which will be allocated
to the classes of Certificates with the lowest payment priority for
purposes of application of the Adjusted
Available Distribution Amount in the order described herein.
Consequently, it is possible that losses will be allocated to the
Offered Certificates with respect to any Specially Serviced
Mortgage Loan notwithstanding the fact that such Mortgage Loan is
returned to a performing status. See "Servicing-Servicing and
Other Compensation and Payment of Expenses" herein.
See "Certain Yield, Prepayment and Maturity Considerations,"
especially "- Class ___ , Class __, Class ___ and Class __
Certificates Yield Considerations" herein, and "Yield
Considerations" in the Prospectus.
Certain Federal Income Tax
Consequences ( A real estate mortgage investment conduit ("REMIC")
election will be made with respect to the Trust Fund for
federal income tax purposes. Upon the issuance of the
Offered Certificates, Cadwalader, Wickersham & Taft,
counsel to the Depositor, will deliver its opinion
generally to the effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Offered Certificates will
be treated as "regular interests" in a REMIC under
Sections 860A through 860G of the Internal Revenue Code of
1986 (the "Code") and the Class R Certificates will be
treated as "residual interests" in a REMIC. For federal
income tax purposes the Class __ Certificates will consist
of _______ components, each related to one of the other
classes of Certificates constituting "regular interests.")
(The Class __ Certificates will, and the other Offered Certificates
may, be treated as having been issued with original issue discount
for federal income tax purposes. For purposes of computing the
accrual of original issue discount, market discount and premium, if
any, for federal income tax purposes it will be assumed that there
are no prepayments on the Mortgage Loans. However, no representation
is made that the Mortgage Loans will not prepay at another rate.)
For further information regarding the federal income tax
consequences of investing in the Offered Certificates, see "Certain
Federal Income Tax Consequences" herein and in the Prospectus.
ERISA Considerations A fiduciary of any employee benefit plan or other
retirement arrangement subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code
should review carefully with its legal advisors
whether the purchase or holding of any class of
Offered Certificates could give rise to a
transaction that is prohibited or is not
otherwise permitted either under ERISA or Section
4975 of the Code or whether there exists any
statutory or administrative exemption applicable
to an investment therein. The U.S. Department of
Labor has issued individual exemption, Prohibited
Transaction Exemption _______, to
______________________ that generally exempts
from the application of certain of the prohibited
transition provisions of Section 406 of ERISA,
and the excise taxes imposed on such prohibited
transactions by Section 4975(a) and (b) of the
Code and Section 502(i) of ERISA, transactions
relating to the purchase, sale and holding of
pass-through certificates underwritten by
________________, such as the Class __, Class __,
Class ___ and Class ___ Certificates and the
servicing and operation of asset pools, provided
that certain conditions are satisfied.
Purchasers using insurance company general
account funds to effect such purchase should
consider the availability of Prohibited
Transaction Class Exemption 95-60 (60 Fed. Reg.
35925, July 12, 1995) issued by the U.S.
Department of Labor. See "ERISA Considerations"
herein and in the Prospectus.
Rating It is a condition of the issuance of the Class __, Class __ and
Class __ Certificates that they be rated "____" by _______ and
"______" by ________. It is a condition of the issuance of the
Class __ Certificates that they be rated not lower than "___" by
______ and "_____" by ___________. It is a condition of the
issuance of the Class __ Certificates that they be rated not
lower than "_____" by _______ and "_____" by ______________.
It is a condition of the issuance of the Class __ Certificates
that they be rated not lower than "_______" by ________
and " " 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. A security rating does not address the
frequency or likelihood of prepayments (whether voluntary or
involuntary) of Mortgage Loans, or the degree to which such
prepayments might differ from those originally anticipated, or the
likelihood of collection of Prepayment Premiums, or the
corresponding effect on yield to investors. A rating of any of the
Class ___ Certificates does not address the possibility that the
holders of such Certificates may fail to recover fully their
initial investments due to a rapid rate of prepayments, defaults or
liquidations. See "Certain Yield, Prepayment and Maturity
Considerations" herein, "Risk Factors," and "Rating" herein and in
the Prospectus and "Yield Considerations" in the Prospectus.
Legal Investment The Class __, Class __, Class __, Class __ and Class __
Certificates will (not) be "mortgage related
securities" within the meaning of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA") (so
long as they are rated in one of the two highest
rating categories by at least one nationally
recognized statistical rating organization). The
Class __, Class __ and Class __ Certificates will not
be "mortgage related securities" within the meaning of
SMMEA. The appropriate characterization of the
Offered Certificates under various legal investment
restrictions, and thus the ability of investors
subject to these restrictions to purchase any Class of
Offered Certificates, may be subject to significant
interpretative uncertainties.
In addition, institutions whose investment activities are subject
to review by certain
regulatory authorities may be or may become subject to
restrictions, which may be retroactively imposed by such regulatory
authorities, on the investment by such institutions in certain
forms of mortgage-backed securities. Furthermore, certain states
have enacted legislation overriding the legal investment provisions
of SMMEA. Accordingly, investors should consult their own legal
advisors to determine whether and to what extent the Offered
Certificates constitute legal investments for them. See "Legal
Investment" herein and in the Prospectus.
RISK FACTORS
Prospective purchasers of the Offered Certificates should consider,
among other things, the following risk factors (as well as the risk factors
set forth under "Risk Factors" in the Prospectus) in connection with an
investment in the Offered Certificates.
Special Prepayment Considerations. The rate and timing of principal
payments on the Offered Certificates will depend, among other things, on the
rate and timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of
representation and warranty) on the Mortgage Loans. The rate at which
principal payments 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, the availability of mortgage credit
and economic, demographic, geographic, tax, legal and other factors. In
general, however, if prevailing interest rates fall significantly below the
Mortgage Interest Rates on the Mortgage Loans, such Mortgage Loans are likely
to be the subject of higher principal prepayments than if prevailing rates
remain at or above the rates borne by such Mortgage Loans. The rate of
principal payments on the Offered Certificates will correspond to the rate of
principal payments on the Mortgage Loans and is likely to be affected by the
Lock-out Periods (as defined herein) 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 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. See "Description of the Mortgage
Pool," "Description of the Certificates - Distributions - Priority" and
"Certain Yield, Prepayment and Maturity Considerations" herein and "Yield
Considerations" in the Prospectus.
Special Yield Considerations. The yield to maturity on each class of
the Offered Certificates will depend, among other things, on the rate and
timing of principal payments (including prepayments, defaults, liquidations
and purchases of Mortgage Loans due to a breach of representation and
warranty) on the Mortgage Pool and the allocation thereof to reduce the Class
Balance of such class. Mortgage Loans with higher Mortgage Interest Rates
will have higher Remittance Rates, and therefore, the yield on the Class __,
Class ___, Class ___, Class __ and Class __ Certificates could be adversely
affected if Mortgage Loans with higher Mortgage Interest Rates pay faster
than the Mortgage Loans with lower Mortgage Interest Rates. The yield to
investors on the Offered Certificates will be adversely affected by any
allocation thereto of interest shortfalls on the Mortgage Loans, such as
Prepayment Interest Shortfalls. Neither the Certificates nor the Mortgage
Loans are guaranteed by any governmental entity or instrumentality or any
other entity.
In general, if a Certificate is purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a 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. See "Yield, Prepayment
and Maturity Considerations" herein and "Yield Considerations" in the
Prospectus.
Risks Associated with Certain of the Mortgage Loans and Mortgaged
Properties. The Mortgage Loans are secured by a fee simple or leasehold
interest in multifamily, retail, hotel, nursing home, office and other
commercial properties. Commercial and multifamily lending is generally
viewed as exposing the lender to a greater risk of loss than one- to
four-family residential lending. Commercial and multifamily lending
typically involves larger loans to single borrowers or groups of related
borrowers
than residential one- to four-family mortgage loans. Further, the repayment
of loans secured by income producing properties is typically dependent upon
the successful operation of the related property. If the cash flow from the
property is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired. Commercial and
multifamily real estate can be affected significantly by the supply and
demand in the market for the type of property securing the loan and,
therefore, may be subject to adverse economic conditions. Market values may
vary as a result of economic events or governmental regulations outside the
control of the borrower or lender, such as rent control laws in the case of
multifamily mortgage loans, which impact the future cash flow of the
property. See "Nonrecourse Mortgage Loans" below.
The successful operation of a real estate project is also dependent on
the performance and viability of the property manager of such project. The
property manager is responsible for responding to changes in the local
market, planning and implementing the rental structure, including
establishing appropriate rental rates, and advising the borrowers so that
maintenance and capital improvements can be carried out in a timely fashion.
There is no assurance regarding the performance of any operators and/or
managers or persons who may become operators and/or managers upon the
expiration or termination of leases or management agreements or following any
default or foreclosure under a Mortgage Loan.
An appraisal of each of the Mortgaged Properties was made between ______
_____ and _____________ _____. It is possible that the market value of a
Mortgaged Property securing a Mortgage Loan has declined since the most
recent appraisal for such Mortgaged Property. Commercial and multifamily
property values and net operating income are subject to volatility. The net
operating income and value of the Mortgaged Properties may be adversely
affected by a number of factors, including but not limited to 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, office or self-storage
space, hotel rooms or nursing homes); changes or continued weakness in
specific industry segments; 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; construction quality, age and design; demographic factors;
retroactive changes to building or similar codes; and increases in operating
expenses (such as energy costs). 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.
The aggregate principal balance as of the Cut-off Date related to
Mortgage Loans secured by (multifamily, retail, hotel, nursing home, office
and other properties) represent approximately %, %, %, %,
_____ _____ _____ _____
% and % of the Cut-off Date aggregate principal balance of the
____ _______
Mortgage Pool, respectively.
(Risks Associated with Hotel Properties. of the Mortgage Loans
_______
representing % of the aggregate principal balance of the Mortgage Loans
_____
as of the Cut-off Date are secured by hotel properties. Like any income
producing property, the income generated by a hotel property is subject to
several factors such as local, regional and national economic conditions and
competition. However, because such income is primarily generated by room
occupancy and such occupancy is usually for short periods of time, the level
of such income may respond more quickly to conditions such as those described
above. Such sensitivity to competition may require more frequent
improvements and renovations than other properties. To the extent a hotel is
affiliated to, or associated with, a regional, national or international
chain, changes in the public perception of such chain may have an impact on
the income generated by the related property. Finally, the hotel industry is
generally seasonal. This will result in fluctuation in the income generated
by hotel properties.)
(Risks Associated with Nursing Homes. ______ of the Mortgage Loans
representing
% of the aggregate principal balance of the Mortgage Loans as of the
_____
Cut-off Date are secured by residential health care facilities. Mortgage
Loans secured by liens on residential health care facilities pose risks not
associated with loans secured by liens on other types of income-producing
real estate. Providers of long-term nursing care, assisted living 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 reimbursement policies of government programs and private
insurers. The failure of any of the borrowers to maintain or renew any
required license or regulatory approval could prevent it from continuing
operations (in which case no revenues would be received from the related
Mortgaged Property or the portion thereof requiring licensing) or, if
applicable, bar it from participation in certain reimbursement programs.
Furthermore, in the event of foreclosure, there can be no assurance that the
Trustee or any other purchaser at 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. In addition, to the extent any nursing home receives a significant
portion of its revenues from government reimbursement programs, primarily
Medicaid and Medicare, such revenue may be 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 that could
materially change or curtail those payments. Accordingly, there can be no
assurances that payments under government 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
substantial revenues from those sources, and consequently the ability of the
related borrowers to meet their Mortgage Loan obligations, could be adversely
affected. Under applicable federal and state laws and regulations, including
those that govern Medicare and Medicaid programs, only the provider who
actually furnished the related medical goods and services may sue for or
enforce its rights to reimbursement. Accordingly, in the event of
foreclosure, none of the Trustee, the Master 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.)
Nonrecourse Mortgage Loans. 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 related Mortgaged Property.
Consequently, payment of each such 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 upon the acceleration of such maturity after
default), upon the then market value of the related Mortgaged Property, or
the ability to refinance such Mortgage Loan.
Concentration of Mortgage Loans. The average principal balance of the
Mortgage Loans as of the Cut-off Date is approximately $ , which is
__________
equal to % of the aggregate principal balance as of the Cut-off Date of
_____
the Mortgage Loans. A mortgage pool consisting of fewer loans each having a
relatively higher outstanding principal balance may result in losses that are
more severe, relative to the size of the pool, than would be the case if the
pool consisted of a greater number of mortgage loans each having a relatively
smaller outstanding principal balance. In addition, the concentration of any
mortgage
pool in 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 substantially more severe, relative to the size of the pool,
than would be the case if the aggregate balance of the pool were more evenly
distributed among the loans in such pool. The Mortgage Loan secured by the
_________________________________________________ represents _______ % of the
aggregate principal balance of the Mortgage Loans. No other Mortgage Loan
represents more than __% of the aggregate principal balance as of the Cut-off
Date of the Mortgage Loans and no other Mortgage Loans with related
Mortgagors represent in the aggregate more than ______ % of the aggregate
principal balance as of the Cut-off Date of the Mortgage Loans. See
"Description of the Mortgage Pool - Certain Characteristics of the Mortgage
Loans - Related Borrowers and Other Issues" herein.
Risks of Different Timing of Mortgage Loan Amortization. If and as
principal payments, property releases, or prepayments are made on a Mortgage
Loan, the remaining Mortgage Pool may be subject to more concentrated risk
with respect to the diversity of properties, types of properties and property
characteristics and with respect to the number of borrowers. See the table
entitled "Year of Scheduled Maturity" under "Description of the Mortgage Pool
- - Certain Characteristics of the Mortgage Loans" for a description of the
respective maturity dates of the Mortgage Loans. Because principal on the
Offered Certificates is payable in sequential order, and no class receives
principal until the Class Balance of the preceding class or classes has been
reduced to zero, classes that have a lower sequential priority are more
likely to be exposed to the risk of concentration discussed under "-
Concentration of Mortgage Loans and Borrowers" above than classes with a
higher sequential priority.
Geographic Concentration. , , , , , and
______ ______ _____ _____ _____ ____
of the Mortgaged Properties, representing approximately %, %,
______ _____ ____
%, %, % and %, respectively, of the aggregate principal
______ _______ _______
balance of the Mortgage Loans as of the Cut-off Date, are located in
________
, , , , and , respectively. Except
________ ________ ________ ________ _________
as indicated in the immediately preceding sentence, no more than % of
______
the Mortgage Loans, by aggregate principal balance of the Mortgage Loans as
of the Cut-off Date are secured by Mortgaged Properties in any one state.
Repayments by borrowers and the market value of the Mortgaged Properties
could be affected by economic conditions generally or in regions where the
borrowers and the Mortgaged Properties are located, conditions in the real
estate market where the Mortgaged Properties are located, changes in
governmental rules and fiscal policies, acts of nature, including earthquakes
(which may result in uninsured losses), and other factors which are beyond
the control of the borrowers.
Environmental Risks. 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 and
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. 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 borrow 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 into the air and third
parties may seek recovery from owners or operators of real properties for
personal injury associated with exposure to asbestos.
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 agents or employees of a lender are deemed to
have participated in the management of the borrower's property, 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.
An environmental site assessment ("ESA") of each of the Mortgaged
Properties was performed (or prior assessments were updated) in connection
with the initial underwriting and origination of the Mortgage Loans. In
certain cases, environmental testing in addition to the ESA was performed.
The following information is based on the ESAs and has not been
independently verified by the Depositor, the Servicers, the Trustee, the
Underwriter, or by any of their respective affiliates. With respect to a
number of the Mortgaged Properties, the ESAs revealed the existence or
possible existence of asbestos-containing materials, possible radon gas and
other environmental matters at the related Mortgaged Properties, none of
which constituted a material violation of any environmental law in the
judgment of the assessor. In these cases, the Mortgagors agreed to establish
and maintain operations and maintenance programs or had other remediation
agreements or escrows in place, except with respect to Mortgage Loans
_____
representing % of the aggregate principal balance of the Mortgage Loans
_____
as of the Cut-off Date with respect to which the existence or possible
existence of asbestos did not create an environmental concern on the part of
the related Originator. With respect to several Mortgaged Properties, the
ESAs identified the presence of above-ground or underground storage tanks and
the related Mortgagors have agreed to make periodic visual inspections or
other testing for any petroleum releases.
It is possible that the ESAs did not reveal all environmental
liabilities, that there are material environmental liabilities of which
neither the Seller nor the Depositor are aware and that the environmental
condition of the Mortgaged Properties in the future could be affected by
tenants and occupants or by third parties unrelated to the Mortgagors.
Each Mortgagor has represented that each Mortgaged Property either was,
or to the best of its knowledge was, in compliance with applicable
environmental laws and regulations on the date of the origination of the
related Mortgage Loan; that, except as described in the environmental reports
referred to above, no actions, suits or proceedings have been commenced or
are pending or, to the best knowledge of the Mortgagor, are threatened with
respect to any applicable environmental laws and that such Mortgagor has not
received notice of any violation of a legal requirement relating to the use
and occupancy of any Mortgaged Property. The principal security for the
obligations under each Mortgage Loan consists of the Mortgaged Property and,
accordingly, if any such representations are breached, there can be no
assurance that any other assets of the Mortgagor would be available in
connection with any exercise of remedies in respect of such breach.
Moreover, most Mortgagors are structured as single asset entities and
therefore have no assets other than the related Mortgaged Property.
The Pooling and Servicing Agreement provides that the Special Servicer,
acting on behalf of the Trust Fund, may not acquire, through foreclosure or
deed in lieu thereof, title to a Mortgaged Property or take over its
operation unless the Special Servicer has previously determined, based on a
report prepared by a qualified person who regularly conducts environmental
audits, that (i) the Mortgaged Property is in compliance with applicable
environmental laws or that taking the actions necessary to
comply with such laws is reasonably likely to produce a greater recovery on a
present value basis than not taking such actions and (ii) there are no
circumstances known to the Special Servicer relating to the use of hazardous
substances or petroleum-based materials which require investigation or
remediation, or that if such circumstances exist, taking such remedial
actions is reasonably likely to produce a greater recovery on a present value
basis than not taking such actions.
Litigation. There may be legal proceedings pending and, from time to
time, threatened against the Mortgagors and the managers of the Mortgaged
Properties and their respective affiliates arising out of the ordinary
business of the Mortgagor, the managers and such affiliates. There can be no
assurance that such litigation may not have a material adverse effect on
distributions to Certificateholders. Other Financings. Each Mortgagor is
restricted from incurring any indebtedness secured by the related Mortgaged
Property other than the related Mortgage Loan without the consent of the
mortgagee. _________ Mortgage Loans representing approximately _____% of the
Mortgage Pool by aggregate principal balance as of the Cut-off Date were made
to single-purpose entities, which are restricted from incurring any
indebtedness other than the Mortgage Loan, normal trade accounts payable and
certain purchase financing debt. The remaining Mortgage Loans were not made
to single purpose entities. _____ Mortgage Loans representing approximately
_____% of the Mortgage Pool by aggregate principal balance as of the Cut-off
Date have unsecured subordinate debt that is subject, in each case, to
subordination and standstill agreements limiting in varying degrees the
rights of the holder of such additional indebtedness including limitations on
its right to commence any enforcement or foreclosure proceeding.
In cases where one or more junior liens are imposed on a Mortgaged
Property or the Mortgagor incurs other indebtedness, the Trust Fund is
subjected to additional risks, including, without limitation, the risks that
the Mortgagor may have greater incentives to repay the junior or unsecured
indebtedness first and that it may be more difficult for the Mortgagor to
refinance the Mortgage Loan or to sell the Mortgaged Property for purposes of
making the Balloon Payment upon the maturity of the Mortgage Loan.
Effect of Mortgagor Delinquencies and Defaults. The aggregate amount of
distributions on the Offered Certificates, the yield to maturity of the
Offered Certificates, the rate of principal payments on the Offered
Certificates and the weighted average lives of the Offered Certificates will
be affected by the rate and the timing of delinquencies and defaults on the
Mortgage Loans. If a purchaser of a class of Offered Certificates 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 extreme scenarios, be
negative. The timing of any loss on a liquidated Mortgage Loan will also
affect the actual yield to maturity of the class of Offered 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.
As and to the extent described herein, each Servicer will be entitled to
receive interest on unreimbursed P&I Advances and unreimbursed advances of
servicing expenses until such advances (i) are recovered out of amounts
received on the Mortgage Loan as to which such advances were made pursuant to
the Pooling and Servicing Agreement, which amounts are in the form of late
payments, 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 otherwise recovered following a determination that
such advance is a nonrecoverable advance. Each Servicer's right to receive
such
payments of interest is prior to the rights of Certificateholders to receive
distributions on the Certificates and, consequently, is likely to result in
losses being allocated to the Offered Certificates that would not otherwise
have resulted absent the accrual of such interest.
The Special Servicer will be entitled to receive, with respect to each
Mortgage Loan which is or was at some time a Specially Serviced Mortgage
Loan, compensation in the form of a percentage of collections of any such
Specially Serviced Mortgage Loan prior to the right of Certificateholders to
receive distributions on the Certificates. Consequently, it is possible that
shortfalls will be allocated to the Offered Certificates with respect to any
Mortgage Loan which is or was at some time a Specially Serviced Mortgage Loan
notwithstanding the fact that such Mortgage Loan is returned to a performing
status. See "Servicing - Servicing and Other Compensation and Payment of
Expenses" herein.
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 class of Offered Certificates, to the extent that
P&I Advances or the subordination of another class of Certificates does not
fully offset the effects of any such delinquency or default. The Special
Servicer has the ability to extend and modify Mortgage Loans that are in
default or as to which a payment default is imminent, including the ability
to extend the date on which a Balloon Payment is due, subject to certain
conditions described in the Pooling and Servicing Agreement. A Servicer's
obligation to make P&I Advances in respect of a Mortgage Loan that is
delinquent as to its Balloon Payment is limited, however, to the extent
described under "Description of the Certificates - Advances." Until such
time as any Mortgage Loan delinquent in respect of its Balloon Payment is
liquidated, the entitlement of the holders of any class of Offered
Certificates on each Distribution Date in respect of principal of such
Mortgage Loan will be limited to any payment made by the related Mortgagor
and any related P&I Advance made by a Servicer. Consequently, any delay in
the receipt of a Balloon Payment that is payable, in whole or in part, to
holders of the Offered Certificates will extend the weighted average life of
the Offered Certificates.
As described under "Description of the Certificates - Distributions"
herein, if the portion of the Adjusted Available Distribution Amount
distributable in respect of interest on any class of Offered Certificates on
any Distribution Date is not sufficient to distribute the Interest
Distribution Amount then payable for such class, the shortfall will be
distributable to holders of such class of Certificates on subsequent
Distribution Dates, to the extent of available funds.
Balloon Payments. Mortgage Loans, representing %
________________ ______
of the aggregate principal balance of the Mortgage Loans as of the Cut-off
Date, are Balloon Mortgage Loans. Balloon Mortgage Loans involve a greater
degree of risk because the ability of a Mortgagor to make a Balloon Payment
typically depends on his ability either to refinance the loan or to sell the
related Mortgaged Property. See "Risk Factors - Balloon Payments" in the
Prospectus.
(Ground Leases and Other Leasehold Interests. Mortgage Loan
______
representing
% of the aggregate principal balance of the Mortgage Loans as of the
_____
Cut-off Date, is secured in part by a leasehold interest in one Mortgaged
Property. Pursuant to Section 365(h) of the Bankruptcy Code, ground lessees
are currently afforded rights not to treat a ground lease as terminated and
to remain in possession of their leased premises upon the bankruptcy of their
ground lessor and the rejection of the ground lease by the representative of
such ground lessor's bankruptcy estate. The leasehold mortgages provide that
the Mortgagor may not elect to treat the ground lease as terminated on
account of any such bankruptcy of, and rejection by, the ground lessor
without the consent of the Servicer. In the event of a bankruptcy of a
ground lessee/borrower, the ground lessee/borrower under the protection of
the Bankruptcy Code has the right to assume (continue) or reject (terminate)
any or all of its ground leases.
In the event of concurrent bankruptcy proceedings involving the ground lessor
and the ground lessee/Mortgagor, the Trustee may be unable to enforce the
bankrupt ground lessee/Mortgagor'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.)
Attornment Considerations. Some of the tenant leases, including the
anchor tenant leases, contain certain provisions that require the tenant to
attorn to (that is, recognize as landlord under the lease) a successor owner
of the property following foreclosure. Some of the leases, including the
anchor tenant leases, may be either subordinate to the liens created by the
Mortgage Loans or else contain a provision that requires the tenant to
subordinate the lease if the mortgagee agrees to enter into a non-disturbance
agreement. In some states, if tenant leases are subordinate to the liens
created by the Mortgage Loans and such leases do not contain attornment
provisions, such leases may terminate upon the transfer of the property to a
foreclosing lender or purchaser at foreclosure. Accordingly, in the case of
the foreclosure of a Mortgaged Property located in such a state and leased to
one or more desirable tenants under leases that do not contain attornment
provisions, such Mortgaged Property could experience a further decline in
value if such tenants' leases were terminated (e.g., if such tenants were
paying above-market rents). If a Mortgage is subordinate to a lease, the
lender will not (unless it has otherwise agreed with the tenant) possess the
right to dispossess the tenant upon foreclosure of the property, and if the
lease contains provisions inconsistent with the Mortgage (e.g., provisions
relating to application of insurance proceeds or condemnation awards), the
provisions of the lease will take precedence over the provisions of the
Mortgage.
(Liquor License Considerations. Mortgage Loans representing
______ ____
% of the aggregate principal balance of the Mortgage Loans as of the Cut-off
Date are secured by hotel properties. The liquor licenses for some of such
properties may be held by the property manager rather than by the related
Mortgagor. The applicable laws and regulations relating to such licenses
generally prohibit the transfer of such licenses to any person. In the event
of a foreclosure of a hotel property it is unlikely that the Trustee (or
Special Servicer) or purchaser in any such sale would be entitled to the
rights under the liquor license for such hotel property and such party would
be required to apply in its own right for such license.)
Special Servicer Actions. In connection with the servicing of Specially
Serviced Mortgage Loans, the Special Servicer may take actions with respect
to such Mortgage Loans that could adversely affect the holders of some or all
of the classes of Offered Certificates. As described herein under "Servicing
- - The Special Servicer" and "- The Directing Certificateholder," the actions
of the Special Servicer will be subject to review and may be rejected by a
representative of the holders of the Monitoring Certificates (as defined
herein), who may have interests in conflict with those of the holders of the
other classes of Certificates. As a result, it is possible that such
representative may cause the Special Servicer to take actions which conflict
with the interests of certain classes of Certificates. In addition, the
Special Servicer may be removed without cause by the Directing
Certificateholders as described under "Servicing - Responsibilities of
Special Servicer," herein.
Servicer May Purchase Certificates. The Special Servicer may purchase,
either directly or through an affiliate, a portion of the Class ___
Certificates. Such a purchase by the Special Servicer could cause a conflict
between the Special Servicer's duties pursuant to the Pooling and Servicing
Agreement and the Special Servicer's interest as a holder of a Certificate.
The Pooling and Servicing Agreement provides that each Servicer shall
administer the Mortgage Loans in accordance with the servicing standard
set forth therein without regard to ownership of any Certificate by such
Servicer or any affiliate of such Servicer.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of a pool of (fixed rate) Mortgage
Loans (including the Crown Participation) with an aggregate principal balance
as of the Cut-off Date, after deducting payments of principal due on such
date, of approximately $ . Each Mortgage Loan is evidenced by a
____________
promissory note (a "Mortgage Note") and secured by a mortgage, deed of trust
or other similar security instrument (a "Mortgage") creating a first lien on
a fee simple or leasehold interest in a multifamily, retail, hotel, office,
industrial, or other commercial property (a "Mortgaged Property"). All of
the Mortgage Loans are nonrecourse loans. Therefore, in the event of a
Mortgagor default, recourse may be had only against the specific property and
such limited other assets as have been pledged to secure a Mortgage Loan, and
not against the Mortgagor's other assets. Except as otherwise indicated all
percentages of the Mortgage Loans described herein are approximate
percentages by aggregate principal balance as of the Cut-off Date.
Of the Mortgage Loans to be included in the Trust Fund, % were
______
originated by , a corporation;
________________________________ __________ ___
% by , a corporation;
_____________________________________________ _________
% by , a ____________________________; %
_____ ___________________________ _____
by a corporation;
______________________________________________ ________ ___
% by , a ____________________________; and %
____________________________ _____
by , a ____________________________.
_________________________________________
The originators of the Mortgage Loans are referred to herein as the
"Originators".
The Mortgage Loans not originated by the Seller were originated for sale
to the Seller. All the Mortgage Loans were underwritten generally in
conformity with certain guidelines provided by the Seller. See "-
Underwriting Guidelines" below. Except for the Mortgage Loans originated by
it, the Seller purchased the Mortgage Loans to be included in the Mortgage
Pool prior to the Delivery Date from each Originator pursuant to a mortgage
loan purchase agreement (the "Mortgage Loan Purchase Agreement"). The
Depositor will acquire the Mortgage Loans to be included in the Mortgage Pool
on or before the Delivery Date from the Seller. The Depositor will cause the
Mortgage Loans in the Mortgage Pool to be assigned to the Trustee pursuant to
the Pooling and Servicing Agreement. will be
_______________________________
the ________ Servicer with respect to all the Mortgage Loans originated by
__
. will be the ________
______________________________ __________________
Servicer with respect to of the Mortgage Loans representing % of the
_____ ___
Mortgage Pool by aggregate principal balance as of the Cut-off Date. ________
_________ will be the Master Servicer and Special Servicer with respect to
all of the Mortgage Loans and the ___________ Servicer with respect to the
Mortgage Loans not serviced by ___________________________ or ________________.
Each Servicer will service the Mortgage Loans pursuant to the Pooling and
Servicing Agreement.
REPRESENTATIONS AND WARRANTIES
(Under each Mortgage Loan Purchase Agreement, _______________, as seller
of the Mortgage Loans, will make certain representations, warranties and
covenants. Pursuant to the terms of each Mortgage Loan Purchase Agreement,
the Originator will be obligated to repurchase any Mortgage Loans
..........
as to which there exists deficient documentation or an uncured material
breach of any such representation, warranty or covenant.) (In connection
with the transfer of the Mortgage Loans to the Depositor, the Originator's
..........
representations, warranties and covenants shall be assigned to the Depositor,
along with the related remedies in the event of a breach thereof. The
Depositor will make no representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase for Mortgage Loans
with deficient documentation or which are otherwise defective.) (Under the
Pooling and Servicing Agreement the Depositor will make certain
representations, warranties and covenants to the Trustee for the Trust Fund.)
(_____________, as seller of the Mortgage Loans, 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 such
representations, warranties, covenants and repurchase obligations.) See
"Description of the Agreements -- Representations and Warranties;
Repurchases" in the Prospectus.
(In general, (the Depositor) (each Originator) will represent and
warrant as of the date of origination, among other things, that: ((i) such
Mortgage Loan is not one month or more delinquent in payment of principal and
interest and has not been so delinquent more than once in a twelve-month
period prior to the Delivery Date and there is no payment default and no
other material default under the Mortgage Loan; (ii) such Mortgage Loan is
secured by a Mortgage that is a valid and subsisting first priority lien on
the Mortgaged Property (or a leasehold interest therein) free and clear of
any liens, claims or encumbrances, subject only to certain permitted
encumbrances; (iii) such Mortgage, together with any separate security
agreements, establishes a first priority security interest in favor of the
Seller in all the related Mortgagor's personal property used in, and
reasonably necessary to operate the Mortgaged Property, and to the extent a
security interest may be created therein, the proceeds arising from the
Mortgaged Property and any other collateral securing such Mortgage subject
only to certain permitted encumbrances; (iv) there is an assignment of leases
and rents provision creating a first priority security interest in leases and
rents arising in respect of the related Mortgaged Property, subject only to
certain permitted encumbrances; (v) there are no mechanics' or other similar
liens affecting the Mortgaged Property which are or may be prior or equal to
the lien of the Mortgage, except those insured against pursuant to the
applicable title insurance policy; (vi) the related Mortgagor has good and
indefeasible title in fee simple or leasehold interest to, and no person has
any outstanding exercisable rights of record with respect to the purchase or
sale of all or a portion of, the related Mortgaged Property, except for
rights of first refusal and purchase options; (vii) the Mortgaged Property is
covered by a title insurance policy insuring that the Mortgage is a valid
first lien, subject only to certain permitted encumbrances; (viii) no claims
have been made under the related title insurance policy and such policy is in
full force and effect and will provide that the insured includes the owner of
the Mortgage Loan; (ix) at the time of the assignment of such Mortgage Loan
to the Depositor, the Seller had good title to and was the sole owner of such
Mortgage Loan free and clear of any pledge, lien or encumbrance and such
assignment validly transfers ownership of such Mortgage Loan to the Depositor
free and clear of any pledge, lien or encumbrance; (x) the related assignment
of mortgage and related assignment of the assignment of rents and leases is
legal, valid and binding and has been recorded or submitted for recording in
the applicable jurisdiction; (xi) the Seller's endorsement of the related
Mortgage Note constitutes the legal and binding assignment of such Mortgage
Note and together with an assignment of mortgage and the assignment of the
assignment of leases and rents, legally and validly conveys all right, title
and interest in such Mortgage Loan and related Mortgage Loan documents; (xii)
each Mortgage Loan document is a legal, valid and binding obligation of the
parties thereto, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by applicable state law and by
bankruptcy, insolvency, reorganization or other laws relating to creditors'
rights and general equitable principles and except that certain provisions of
such Mortgage Loan documents are or may be unenforceable in whole or in part,
but the inclusion of such provisions does not render the Mortgage Loan
documents invalid as a whole, and such Mortgage Loan documents taken as a
whole are enforceable to the extent necessary and
customary for the practical realization of the rights and benefits afforded
thereby; (xiii) the Seller has not modified the terms of such related
Mortgage Loan and related Mortgage Loan documents have not been modified or
waived in any material respect except as set forth in the Loan Sale
Agreement; (xiv) such Mortgage Loan has not been satisfied, canceled,
subordinated, released or rescinded and the related Mortgagor has not been
released from its obligations under any Mortgage Loan document; (xv) none of
the Mortgage Loan documents is subject to any right of rescission, set-off,
valid counterclaim or defense; (xvi) each Mortgage Loan document complied in
all material respects with all material applicable state or federal laws
including usury; (xvii) the related Mortgaged Property is, in all material
respects, in compliance with, and is used and occupied in accordance with
applicable law; (xviii) the related Mortgaged Property is in good repair and
no condemnation proceedings are pending; (xix) the environmental site
assessment prepared in connection with the origination thereof reveals no
known circumstances or conditions with respect to the Mortgaged Property that
would constitute or result in a material violation of any environmental laws,
require any expenditure material in relation to the principal balance of such
Mortgage Loan to achieve or maintain compliance in all material respects with
any environmental laws or require substantial cleanup or remedial action or
any other extraordinary action in excess of the amount escrowed for such
purposes; (xx) the Mortgaged Property is covered by insurance policies
providing coverage against certain losses or damage; (xxi) all amounts
required to be deposited by the borrower at origination have been deposited;
(xxii) to the Seller's knowledge, all significant leases are in full force
and effect, and there has been no material default by the related Mortgagor
or lessee; and (xxiii) to the Seller's knowledge, there are no pending or
threatened actions, suits or proceedings by or before any court or other
governmental authority against or affecting the related Mortgagor under such
Mortgage Loan or the Mortgaged Property which, if determined against such
Mortgagor or property would materially and adversely affect the value of such
property or ability of the Mortgagor to pay principal, interest and other
amounts due under such Mortgage Loan.)
(CONVERTIBLE MORTGAGE LOANS
____% of the Mortgage Loans ("Convertible Mortgage Loans") provide that,
at the option of the related Mortgagors, the adjustable interest rate on such
Mortgage Loans may be converted to a fixed interest rate. The first month in
which any of the Mortgage Loans may convert is ____________, and the last
month in which any of the Mortgage Loans may convert is _____________. Upon
conversion, the Mortgage Rate will be converted to a fixed interest rate
determined in accordance with the formula set forth in the related Mortgage
Note which formula is intended to result in a Mortgage Rate which is not less
than the then current market interest rate (subject to applicable usury
laws). After such conversion, the monthly payments of principal and interest
will be adjusted to provide for full amortization over the remaining term to
scheduled maturity. Upon notification from a Mortgagor of such Mortgagor's
intent to convert from an adjustable interest rate to a fixed interest rate
and prior to the conversion of any such Mortgage Loan (a "Converting Mortgage
Loan"), the related Warrantying Party will be obligated to purchase the
Converting Mortgage Loan at a price equal to the outstanding principal
balance thereof plus accrued interest thereon net of any subservicing fees
(the "Conversion Price"). In the event of a failure by a Warrantying Party
to purchase a converting Mortgage Loan, the Master Servicer is required to
use its best efforts to purchase such Mortgage Loan following its conversion
(a "Converted Mortgage Loan") during the one-month period following the date
of conversion at the Conversion Price.
In the event that the related Warrantying Party fails to purchase a
Converting Mortgage Loan and the Master Servicer does not purchase a
Converted Mortgage Loan, neither the Depositor nor any of its affiliates nor
any other entity is obligated to purchase or arrange for the purchase of any
Converted Mortgage Loan. Any such Converted Mortgage Loan will remain in the
Mortgage Pool as a fixed-rate
Mortgage Loan and will result in the Mortgage Pool's having both fixed rate
and floating rate Mortgage Loans. See "Certain Yield and Prepayment
Considerations" herein.
Following the purchase of any Converted Mortgage Loan as described
above, the purchaser will be entitled to receive an assignment from the
Trustee of such Mortgage Loan and the purchaser will thereafter own such
Mortgage Loan free of any further obligation to the Trustee or the
Certificateholders with respect thereto.)
(HYBRID RATE MORTGAGE LOANS
__% of the Mortgage Loans are partially fixed-partially floating rate
Mortgage Loans (the "Hybrid Rate Mortgage Loans").)
(THE (INDEX) (INDICES)
As of any Payment Adjustment Date, the (Index) (Indices) applicable to
the determination of the related Mortgage Rate will be a per annum rate equal
to ______________, as most recently available as of the date days prior
____
to the Payment Adjustment Date (the "Index"). Such average yields reflect
the yields for the week prior to that week in which the information is
reported. In the event that (the Index) (any related Index) is no longer
available, an index reasonably acceptable to the Trustee that is based on
comparable information will be selected by the Master Servicer.
The Index is currently calculated based on information reported in
___________. Listed below are the weekly average yields on actively traded
______________ as reported in ____________ on the date that would have been
applicable to mortgage loans having the following adjustment dates for the
indicated years. Such average yields may fluctuate significantly from week
to week as well as over longer periods and may not increase or decrease in a
constant pattern from period to period. The following does not purport to be
representative of future average yields. No assurance can be given as to the
average yields on such _______________ on any Payment Adjustment Date or
during the life of any Mortgage Loan.)
(name of Index)
Adjustment Date 199_ 199_ 199_ 200_ 200_ 200_ 200_
_______________ ____ ____ ____ ____ ____ ____ ____
January ( )
February ( )
March ( )
April ( )
May ( )
June ( )
July ( )
August ( )
September ( )
October ( )
November ( )
December ( )
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
All of the Mortgage Loans have Due Dates that occur on the first day of
each month. All of the Mortgage Loans are secured by first liens on fee
simple or leasehold interests in the related Mortgaged Properties. As of the
Cut-off Date, the Mortgage Loans had characteristics set forth below. The
totals in the following tables may not add due to rounding.
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Mortgage Mortgage the Cut-off Principal Balance as
Mortgage Rates Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
7.2501%- 7.5000% . . . . % $ %
7.7501%- 8.0000% . . . .
8.0001%- 8.2500% . . . .
8.2501%- 8.5000% . . . .
8.5001%- 8.7500% . . . .
8.7501%- 9.0000% . . . .
9.0001%- 9.2500% . . . .
9.2501%- 9.5000% . . . .
9.5001%- 9.7500% . . . .
9.7501%-10.0000% . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Mortgage Interest Rate: ______ %
Interest with respect to the Mortgage Loans is computed on the basis of
a 360-day year consisting of twelve 30-day months.
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Principal Balances Mortgage Mortgage the Cut-off Principal Balance as
as of the Cut-off Date Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
Under $ . . . . . . . . . % $ %
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
$ . . . . . . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Average Principal Balance as of the Cut-off Date: $_________
ORIGINAL TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Mortgage Mortgage the Cut-off Principal Balance as
Original Term in Months Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
.................... % $ %
...................
....................
....................
....................
Total.................. % $ %
</TABLE>
Weighted Average Original Term to Maturity in Months: _______
REMAINING TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Mortgage Mortgage the Cut-off Principal Balance as
Remaining Term in Months Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
................. % $ %
.................
.................
................
Total................... % $ %
</TABLE>
Weighted Average Remaining Term to Maturity in Months: _______
MONTH AND YEAR OF ORIGINATION
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Mortgage Mortgage the Cut-off Principal Balance as
Month/Year Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
. . . . . . . . . . . . . % $ %
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
YEAR OF SCHEDULED MATURITY
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Mortgage Mortgage the Cut-off Principal Balance as
Year Loans Loans Date of the Cut-off Date
% $ %
<S> <C> <C> <C> <C>
Total % $ %
</TABLE>
______________ of the Mortgage Loans, representing _______ % of the
Mortgage Loans, as a percentage of the aggregate Principal Balance as of the
Cut-off Date, are Balloon Mortgage Loans.
BALLOON MORTGAGE LOANS
ORIGINAL TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Mortgage Mortgage the Cut-off Principal Balance as
Original Term in Months Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
. . . . . . . . . . . . % $ %
. . . . . . . . . . . .
. . . . . . . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Original Term to Maturity in Months: _____
BALLOON MORTGAGE LOANS
REMAINING TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Mortgage Mortgage the Cut-off Principal Balance as
Remaining Term in Months Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
. . . . . . . . . . . . % $ %
. . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Remaining Term to Maturity in Months: _____
The following table sets forth the range of remaining amortization terms
of each Balloon Mortgage Loan. The remaining amortization term of a Balloon
Mortgage Loan represents the number of months required to fully amortize the
Cut-off Balance of each Balloon Mortgage Loan.
BALLOON MORTGAGE LOANS
REMAINING AMORTIZATION TERM
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Remaining Amortization Mortgage Mortgage the Cut-off Principal Balance as
Term in Months Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
............... % $ %
...............
...............
Total................. % $ %
</TABLE>
Weighted Average Remaining Amortization Term in Months: _____
The following two tables set forth the range of Cut-off Date LTV Ratios
and Maturity Date LTV Ratios of the Mortgage Loans. A "Cut-off Date LTV
Ratio" is a fraction, expressed as a percentage, the numerator of which is
the Cut-off Date Balance of a Mortgage Loan, and the denominator of which is
the appraised value of the related Mortgaged Property as determined by an
appraisal thereof obtained in connection with the origination of such
Mortgage Loan. A "Maturity Date LTV Ratio" is a fraction, expressed as a
percentage, the numerator of which is the principal balance of a Mortgage
Loan on the related Maturity Date assuming all scheduled payments due prior
thereto are made and there are no principal prepayments, and the denominator
of which is the appraised value of the related Mortgaged Property as
determined by an appraisal thereof obtained in connection with the
origination of such Mortgage Loan. Because the value of Mortgaged Properties
at the Maturity Date may be different than such appraisal value, there can be
no assurance that the loan-to-value ratio for any Mortgage Loan determined at
any time following origination thereof will be lower than the Cut-off Date
LTV Ratio or Maturity Date LTV Ratio, notwithstanding any positive
amortization of such Mortgage Loan. It is also possible that the market
value of a Mortgaged Property securing a Mortgage Loan may decline between
the origination thereof and the related Maturity Date.
An appraisal of each of the Mortgaged Properties was made between ______
____ and ________ _____. It is possible that the market value of a Mortgaged
Property securing a Mortgage Loan has declined since the most recent
appraisal for such Mortgaged Property. All appraisals were obtained by the
related Originator in accordance with the requirements of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
("FIRREA").
CUT-OFF DATE LTV RATIOS
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Cut-Off Date Mortgage Mortgage the Cut-off Principal Balance as
LTV Ratios Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
50% or less . . . . . . . % $ %
50.01%-55.00% . . . . . .
55.01%-60.00% . . . . . .
60.01%-65.00% . . . . . .
65.01%-70.00% . . . . . .
70.01%-75.00% . . . . . .
75.01%-80.00% . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Cut-off Date LTV Ratio: ______ %
BALLOON MORTGAGE LOAN
MATURITY DATE LTV RATIOS
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Maturity Date Mortgage Mortgage the Cut-off Principal Balance as
LTV Ratio Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
50% or less . . . . . . . % $ %
50.01%-55.00% . . . . . .
55.01%-60.00% . . . . . .
60.01%-65.00% . . . . . .
65.01%-70.00% . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Maturity Date LTV Ratio: _____ %
The following table sets forth the range of partial year 199_ Debt
Service Coverage Ratios for the Mortgage Loans. The "Debt Service Coverage
Ratio" or "DSCR" for any Mortgage Loan for any period is the ratio of Net
Operating Income produced by the related Mortgaged Property for such period
covered by the operating statement for such period to the amounts of
principal and interest due under such Mortgage Loan for the same period. The
DSCRs for 199_ are for periods that range from _____ to _____ months. The
DSCRs for 199_ and 199_ for each Mortgage Loan are set forth in Annex A
hereto. The DSCRs for 199_ and 199_ are for the entire fiscal year, except
for the 199_ DSCRs for ___ Mortgage Loans which are partial year DSCRs.
Generally, "Net Operating Income" for a Mortgaged Property equals the
operating revenues for such Mortgaged Property minus its operating
expenses and replacement reserves, but without giving effect to debt service,
depreciation, non-recurring capital expenditures, tenant improvements,
leasing commissions and similar items. The operating statements for the
Mortgaged Properties used in preparing the following table were obtained from
the respective Mortgagors. The information contained therein has not been
audited, and the Depositor has made no attempt to verify its accuracy. The
information derived from these sources was not uniform among the Mortgage
Loans. In addition, partial year operations may not necessarily be
representative of full year operating results. In some instances,
adjustments were made to such operating statements principally for real
estate tax and insurance expenses resulting in increases or decreases in net
operating income stated therein based upon the Depositor's evaluation that
more appropriate information was available. In addition, obvious capital
expenditures were eliminated and replacement reserve estimates were
incorporated for each property based on the Seller's standard underwriting
ranges considering property age and improvements. The following ranges were
utilized (by property type) in estimating the replacement reserve: office, $
to $ per net rentable square foot; multifamily, $ to $ per
__ _____ _____ ___
unit; retail, $ to $ per net rentable square foot; industrial, $
_____ ____ ___
to $ per net rentable square foot; hotel, % to % of gross income;
____ ____ ____
self-storage, $ to $ per net rentable square foot; nursing home, $
____ ____ ___
to $ per bed; cooperative/vacation homes, $ per unit; and mobile home
____ ____
park, $ per home/pad.
____
PARTIAL YEAR 199_ DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Debt Service Mortgage Mortgage the Cut-off Principal Balance as
Coverage Ratio Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
1.0000x or less . . . . . % $ %
1.0001x-1.2000x . . . . .
1.2001x-1.4000x . . . . .
1.4001x-1.6000x . . . . .
1.6001x-1.8000x . . . . .
1.8001x-2.0000x . . . . .
2.0001x-2.2000x . . . . .
2.2001x-2.4000x . . . . .
over 2.4001 . . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Debt Service Coverage Ratio: _____x
There is ___ Mortgage Loan with a partial year 199_ DSCR below 1.00x.
The Mortgage Loans are secured by Mortgaged Properties located in ____
different states. The table below sets forth the states in which the
Mortgaged Properties are located:
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Mortgage Mortgage the Cut-off Principal Balance as
State Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
California . . . . . . . % $ %
Texas . . . . . . . . . .
New York . . . . . . . .
Florida . . . . . . . . .
Georgia . . . . . . . . .
Arizona . . . . . . . . .
Pennsylvania . . . . . .
Illinois . . . . . . . .
Colorado . . . . . . . .
Michigan . . . . . . . .
Massachusetts . . . . . .
New Jersey . . . . . . .
North Carolina . . . . .
Kentucky . . . . . . . .
Minnesota . . . . . . . .
Maryland . . . . . . . .
Nevada . . . . . . . . .
Wisconsin . . . . . . . .
Oklahoma . . . . . . . .
Virginia . . . . . . . .
Louisiana . . . . . . . .
South Dakota . . . . . .
Tennessee . . . . . . . .
South Carolina . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
PROPERTY TYPES
<TABLE>
<CAPTION> Aggregate Percent by
Percent by Principal Aggregate
Number of Number of Balance as of Principal Balance
Mortgage Mortgage the Cut-off as of the Cut-off
Type Loans Loans Date Date
<S> <C> <C> <C> <C>
Multifamily . . . . . . . . . . % $ %
Retail-with anchor tenant (1) .
Retail-without anchor tenant
(1) . . . . . . . . . . . . . .
Hotel . . . . . . . . . . . . .
Nursing Home . . . . . . . . .
Office . . . . . . . . . . . .
Self Storage . . . . . . . . .
Industrial . . . . . . . . . .
Mobile Home Park . . . . . . .
Cooperative/Vacation Homes . .
Total . . . . . . . . . . . . . % $ %
</TABLE>
(1) For purposes of this table, the properties with an anchor tenant are as
designated in Annex A. The anchor tenant, if any, is set forth in Annex
A.
YEARS SINCE THE MORTGAGED PROPERTIES WERE BUILT (1)
<TABLE>
<CAPTION> Aggregate Percent by
Percent by Principal Aggregate
Number of Number of Balance as of Principal Balance
Mortgage Mortgage the Cut-off as of the Cut-off
Property Age in Years Loans Loans Date Date
<S> <C> <C> <C> <C>
6 or less . . . . . . . % $ %
7-11 . . . . . . . . . .
12-16 . . . . . . . . . .
17-21 . . . . . . . . . .
22-26 . . . . . . . . . .
27-31 . . . . . . . . . .
Over 31 . . . . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Property Age in Years: _____
(1) See Annex A for the date on which the Mortgaged Property most recently
underwent some degree of capital improvements.
PHYSICAL OCCUPANCY PERCENTAGES (1)
MULTIFAMILY, MOBILE HOME PARK AND COOPERATIVE/VACATION HOMES
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Occupancy Mortgage Mortgage the Cut-off Principal Balance as
Percentages Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
80.1%- 85.0% . . . . . . % $ %
85.1%- 90.0% . . . . . .
90.1%-36.86% . . . . . .
95.1%-100.0% . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Occupancy Percentage: _____ %
(1) See Annex A for dates as of which occupancy percentages were calculated
for each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
RETAIL
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Occupancy Mortgage Mortgage the Cut-off Principal Balance as
Percentages Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
70.1%- 75.0% . . . . . . % $ %
80.1%- 85.0% . . . . . .
85.1%- 90.0% . . . . . .
90.1%- 95.0% . . . . . .
95.1%-100.0% . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Occupancy Percentage: _____ %
(1) See Annex A for dates as of which occupancy percentages were calculated
for each Mortgaged Property.
PHYSICAL DAILY OCCUPANCY PERCENTAGES (1)
HOTEL
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Occupancy Mortgage Mortgage the Cut-off Principal Balance as
Percentages Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
60.1%-65.0% . . . . . . . % $ %
65.1%-70.0% . . . . . . .
70.1%-75.0% . . . . . . .
75.1%-80.0% . . . . . . .
80.1%-85.0% . . . . . . .
85.1%-90.0% . . . . . . .
90.1%-95.0% . . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Occupancy Percentage: _____ %
(1) See Annex A for the period over which occupancy percentages were
calculated for each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
OFFICE
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Occupancy Mortgage Mortgage the Cut-off Principal Balance as
Percentages Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
90.1%- 95.0% . . . . . . % $ %
95.1%-100.0% . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Occupancy Percentage: _____ %
(1) See Annex A for dates as of which occupancy percentages were calculated
for each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES
OTHER
<TABLE>
<CAPTION> Aggregate
Percent by Principal
Number of Number of Balance as of Percent by Aggregate
Occupancy Mortgage Mortgage the Cut-off Principal Balance as
Percentages Loans Loans Date of the Cut-off Date
<S> <C> <C> <C> <C>
85.1%- 90.0% . . . . . . % $ %
90.1%- 95.0% . . . . . .
95.1%-100.0% . . . . . .
Total . . . . . . . . . . % $ %
</TABLE>
Weighted Average Occupancy Percentage: _____ %
(1) See Annex A for dates as of which occupancy percentages were calculated
for each Mortgaged Property.
With certain limited exceptions relating to casualty and condemnation
proceeds, or other prepayments beyond the borrower's control, all of the
Mortgage Loans prohibit the prepayment thereof until a date specified in the
related Mortgage Note (such period, the "Lock-out Period" and the date of
expiration thereof, the "Lock-out Date") and/or provide that upon any
voluntary principal prepayment of a Mortgage Loan, the related Mortgagor will
be required to pay a prepayment premium or yield maintenance penalty (a
"Prepayment Premium"). The following table sets forth the percentage of the
declining aggregate balance of all the Mortgage Loans that on February 1 of
each of the years indicated will be within their related Lock-out Period
and/or in which a principal prepayment must be accompanied by a Prepayment
Premium.
PREPAYMENT LOCK-OUT/PREPAYMENT PREMIUM ANALYSIS
PERCENTAGE OF MORTGAGE LOANS BY OUTSTANDING PRINCIPAL BALANCE
AS OF THE DATE INDICATED ASSUMING NO PREPAYMENTS
<TABLE>
<CAPTION> June June June June June June June June June June
Current 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
_______ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lock-out % % % % % % % % % % %
Prepayment Premium
Yield Maintenance
(1) . . . . . . . .
7.00-7.99% (2) . .
6.00-6.99% (2) . .
5.00-5.99% (2) . .
4.00-4.99% (2) . .
3.00-3.99% (2) . .
2.00-2.99% (2) . .
1.00-1.99% (2) . .
0.01-0.99% (2) . .
No Prepayment
Premium . . . . . .
_______ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
Total . . . . . . .
_______ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
</TABLE>
(1) The Mortgage Loans generally require the payment of a Prepayment Premium
in connection with any principal prepayment, in whole or in part. Any
Prepayment Premium will equal the present value, as of the date of
prepayment, of the remaining Monthly Payments from such date of
prepayment through the related stated maturity (including the Balloon
Payment), determined by discounting such payments at a U.S. Treasury
rate specified therein, minus the then outstanding balance, subject to a
minimum Prepayment Premium equal to __% of the principal balance of such
Mortgage Loan being prepaid.
(2) Mortgage Loan requires a Prepayment Premium equal to indicated
percentage of amount prepaid.
(3) Millions of dollars.
BORROWER CONCENTRATION
RELATED BORROWERS
ESCROWS
All of the Mortgage Loans provide for monthly escrows to cover property
taxes on the Mortgaged Properties. Monthly escrows to cover insurance
premiums on the Mortgaged Properties are also generally required.
________ of the Mortgage Loans, which represent _____ % of the Mortgage
Loans, also require monthly escrows to cover ongoing replacements and capital
repairs.
________ of the Mortgage Loans, which represent ______ % by principal
balance of the Mortgage Loans secured by retail, industrial or office
properties, also required upfront or monthly escrows for the full term or a
portion of the term of the related Mortgage Loan to cover anticipated
re-leasing costs, including tenant improvements and leasing commissions.
See Annex A for additional information on the monthly escrows on the
Mortgage Loans.
UNDERWRITING GUIDELINES
All of the Mortgage Loans were originated or acquired by
_______________, generally in accordance with the underwriting criteria
described herein.
(Description of underwriting guidelines.)
The Mortgage Loans selected for inclusion in the Mortgage Pool from
loans in the Depositor's portfolio were not so selected on any basis which
would have a material adverse effect on the Certificateholders.
ADDITIONAL INFORMATION
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates and will be filed, together with the
Pooling and Servicing Agreement, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the Offered Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will include the following _________ classes of Offered
Certificates designated as the Class __, Class __, Class __, Class __, Class
__, Class __, Class __ and Class __ Certificates. In addition to the Offered
Certificates, the Certificates will also include the Class __, Class __,
Class __ and Class R Certificates.
Only the Offered Certificates are offered hereby. The Certificates represent
in the aggregate the entire beneficial ownership interest in a Trust Fund
consisting of: (i) a pool of (fixed rate) Mortgage Loans (including the
Crown Participation as a Mortgage Loan) and all payments under and proceeds
of the Mortgage Loans received after the Cut-off Date (exclusive of payments
of principal and interest due on or before the Cut-off Date); (ii) any
Mortgaged Property acquired on behalf of the Trust Fund through foreclosure
or deed in lieu of foreclosure (upon acquisition, an "REO Property"); (iii)
such funds or assets as from time to time are deposited in the Collection or
Certificate Accounts or any account established in connection with REO
Properties (the "REO Account"); and (iv) the rights of the mortgagee under
all insurance policies with respect to the Mortgage Loans. The term
"Mortgage Loan" herein shall include the Crown Participation, provided,
however, that any calculation based on the principal balance of one or more
Mortgage Loans shall include only the percentage interest in the Crown Hotel
Notes represented by the Crown Participation.
The Class ____, Class ___ and Class ___ Certificates will evidence
approximately an initial ____ % undivided interest in the Trust Fund. The
Class __ Certificates will evidence approximately an initial ___ % undivided
interest in the Trust Fund. The Class ___ Certificates will evidence
approximately an initial _____ % undivided interest in the Trust Fund. The
Class __ Certificates will evidence approximately an initial _____%
undivided interest in the Trust Fund. The Class ___ Certificates will
evidence approximately an initial ___ % undivided interest in the Trust Fund.
(The Offered Certificates (the "DTC Registered Certificates") will be
issued, maintained and transferred on the book-entry records of The
Depository Trust Company ("DTC") and its Participants. The DTC Registered
Certificates, other than the Class ___ Certificates, will be issued in minimum
denominations of $__________ and integral multiples of $1 in excess thereof.
The Class ___ Certificates will be issued in denominations of $__________
Notional Amount and integral multiples of $1 Notional Amount.)
(The DTC Registered Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Company has
been informed by DTC that DTC's nominee will be Cede & Co. ("Cede"). No
person acquiring an interest in the DTC Registered Certificates (a
"Beneficial Owner") will be entitled to receive a certificate representing
such person's interest (a "Definitive Certificate"), except as set forth
below under "- Book-Entry Registration of Certain of the Senior Certificates
- - Definitive Certificates." Unless and until Definitive Certificates are
issued for the DTC Registered Certificates under the limited circumstances
described herein, all references to actions by Certificateholders with
respect to the DTC Registered Certificates shall refer to actions taken by
DTC upon instructions from its Participants, and all references herein to
distributions, notices, reports and statements to Certificateholders with
respect to the DTC Registered Certificates shall refer to distributions,
notices, reports and statements to DTC or Cede, as the registered holder of
the DTC Registered Certificates, for distribution to Beneficial Owners by DTC
in accordance with DTC procedures.)
(BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
The Offered Certificates will be initially issued to Certificateholders
through the book-entry facilities of DTC, or Cedel Bank, societe anonyme
("CEDEL") or the Euroclear System ("Euroclear") (in Europe) if such
Certificateholders are participants of such systems, or indirectly through
organizations which are participants in such systems. As to any such class
of Offered Certificates, the record holder of such Certificates will be DTC's
nominee. CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositories (the
"Depositories"), which in turn will hold such positions in customers'
securities accounts in Depositories' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, which holds securities for its participating organizations
("DTC Participants," and together with the CEDEL and Euroclear participating
organizations, the "Participants") and facilitates the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes in the accounts of Participants. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Other institutions
that are not Participants but clear through or maintain a custodial
relationship with Participants (such institutions, "Indirect Participants")
have indirect access to DTC's clearance system.
Because of time zone differences, the securities account of a CEDEL or
Euroclear Participant (each as defined below) as a result of a transaction
with a DTC Participant (other than a depositary holding on behalf of CEDEL or
Euroclear) will be credited during the securities settlement processing day
(which must be a business day for CEDEL or Euroclear, as the case may be)
immediately following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear Participant or CEDEL 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 Euroclear Participant to a
DTC Participant (other than the depository for CEDEL or Euroclear) 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.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants or Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly 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 the relevant Depositories; 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 Depository 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 or Euroclear Participants may not deliver
instructions directly to the Depositories.
CEDEL, as a professional depository, 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. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute.
Euroclear was created to hold securities for participants of Euroclear
("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. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian co-operative corporation
(the "Clearance 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 Clearance
Cooperative. The Clearance Cooperative establishes policies for Euroclear on
behalf of Euroclear Participants. 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 Euroclear, withdrawals of securities and cash from
Euroclear, and receipts of payments with respect to securities in Euroclear.
All securities in Euroclear are held on a fungible basis without attribution
of specific certificates to specific securities clearance accounts.
Distributions in respect of the DTC Registered Certificates will be
forwarded by the Trustee to DTC, and DTC will be responsible for forwarding
such payments to Participants, each of which will be responsible for
disbursing such payments to the Beneficial Owners it represents or, if
applicable, to Indirect Participants. Accordingly, Beneficial Owners may
experience delays in the receipt of payments in respect of their
Certificates. Under DTC's procedures, DTC will take actions permitted to be
taken by holders of any class of DTC Registered Certificates under the
Pooling and Servicing Agreement only at the direction of one or more
Participants to whose account the DTC Registered Certificates are credited
and whose aggregate holdings represent no less than any minimum amount of
Percentage Interests or voting rights required therefor. DTC may take
conflicting actions with respect to any action of Certificateholders of any
class to the extent that Participants authorize such actions. None of the
Depositor, the Trustee or any of their respective affiliates will have any
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the DTC Registered Certificates
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Beneficial Owners will not be recognized by the Trustee or the Master
Servicer as Certificateholders, as such term is used in the Pooling and
Servicing Agreement; provided, however, that Beneficial Owners will be
permitted to request and receive information furnished to Certificateholders
by the Trustee subject to receipt by the Trustee of a certification in form
and substance acceptable to the Trustee stating that the person requesting
such information is a Beneficial Owner. Otherwise, the Beneficial Owners
will be permitted to receive information furnished to Certificateholders and
to exercise the rights of Certificateholders only indirectly through DTC, its
Participants and Indirect Participants.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the Offered Certificates among
Participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Definitive Certificates. Certificates initially issued in book-entry
form will be issued in fully registered, certificated form to Beneficial
Owners or their nominees ("Definitive Certificates"), rather than to DTC or
its nominee only if (i) the Depositor advises the Trustee in writing that DTC
is no longer willing or able to properly discharge its responsibilities as
depository with respect to the Certificates and the Depositor is unable to
locate a qualified successor or (ii) the Depositor, at its option, elects to
terminate the book-entry system through DTC. Definitive Certificates will be
issued to Beneficial Owners or their nominees, respectively, rather than to
DTC or its nominee, only under the limited conditions set forth in the
Prospectus under "Description of the Certificates - Book-Entry Registration
and Definitive Certificates."
Upon the occurrence of an event described in the Prospectus in the
seventh paragraph under "Description of the Certificates - Book-Entry
Registration and Definitive Certificates," the Trustee is required to notify,
through DTC, Participants who have ownership of DTC Registered Certificates
as indicated on the records of DTC of the availability of Definitive
Certificates for their DTC Registered Certificates. Upon surrender by DTC of
the definitive certificates representing the DTC Registered Certificates and
upon receipt of instructions from DTC for re-registration, the Trustee will
reissue the DTC Registered Certificates as Definitive Certificates issued in
the respective principal amounts owned by individual Beneficial Owners, and
thereafter the Trustee and the Master Servicer will recognize the holders of
such Definitive Certificates as Certificateholders under the Pooling and
Servicing Agreement.
For additional information regarding DTC and the DTC Registered
Certificates, see Annex C and "Description of the Certificates - Book-Entry
Registration and Definitive Certificates" in the Prospectus.)
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be
made on the 25th day of each month or, if such 25th day is not a business
day, then on the next succeeding business day, commencing in _____________,
199_ (each, a "Distribution Date"). 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
each Record Date, which will be the last business day of the month preceding
the month in which the related Distribution Date occurs. Such distributions
will be made 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 will have provided
the Trustee with wiring instructions as provided in the Pooling and Servicing
Agreement and is the registered holder of Certificates with an initial
aggregate denomination of at least $__________ or, otherwise, by check. The
final distribution on any Certificate will be made in like manner, but only
upon presentment or surrender 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 Certificate is equal to the
initial denomination thereof as of the Delivery Date, divided by the initial
Class Balance or Notional Amount, as applicable, for such class. The
aggregate distribution to be made on the Certificates on any Distribution
Date shall equal the Available Distribution Amount.
The "Available Distribution Amount" for any Distribution Date is an
amount equal to (a) the sum of (i) the amount on deposit in the Primary
Collection Account (as defined herein) as of the close of business on the
related Determination Date, which amount will include scheduled payments on
the Mortgage Loans due on or prior to the related Due Date immediately
preceding, and collected as of, such Determination Date (to the extent not
distributed on previous Distribution Dates) and unscheduled payments and
other collections on the Mortgage Loans collected during the related
Remittance Period and (ii) the aggregate amount of any P&I Advances made by
each Servicer in respect of such Distribution Date (not otherwise included in
clause (i) above) net of (b) the portion of the amount described in clause
(a)(i) hereof that represents (i) Monthly Payments due on a Due Date
subsequent to the end of the related Remittance Period, (ii) any amounts
payable or reimbursable therefrom to any Servicer or the Trustee or (iii) any
servicing and trustee compensation.
Pass-Through Rate on the Certificates. The "Pass-Through Rates" on the
Class _, Class __ and Class __ Certificates are fixed and are set forth on the
cover hereof. The Pass-Through Rates on the Class __, Class __, Class __ and
Class __ Certificates will equal the weighted average of the Remittance Rates
in effect from time to time on the Mortgage Loans minus ____ %, _____%, ___%
and ________ %, respectively. The Pass-Through Rate on the Class ___
Certificates will be equal to the weighted average of the Remittance Rates in
effect from time to time on the Mortgage Loans minus the weighted average of
the Pass-Through Rates on the Certificates (including the Other
Certificates). The Pass-Through Rate on the Class ___
Certificates for the initial Distribution Date will be ____ % per annum.
The "Remittance Rate" for any Mortgage Loan is equal to the excess of the
Mortgage Interest Rate thereon (without giving effect to any modification or
other reduction thereof following the Cut-off Date) over the sum of the
applicable Servicing Fee Rate and the per annum fee payable to the Trustee.
The Mortgage Interest Rate for each of the Mortgage Loans which provide for
the computation of interest other than on the basis of a 360-day year
consisting of twelve 30-day months (a "30/360 basis") (that is the basis on
which interest on the Certificates accrues) will be adjusted to reflect that
difference.
Interest Distributions on the Certificates. Subject to the distribution
of the Principal Distribution Amount to the Holders of classes of
Certificates of a higher priority, as described under "Priority of
Distributions" below, Holders of each class of Certificates will be entitled
to receive on each Distribution Date, to the extent of the Available
Distribution Amount for such Distribution Date (net of any Net Prepayment
Premium) (the "Adjusted Available Distribution Amount"), distributions
allocable to interest in an amount (the "Interest Distribution Amount") equal
to the sum of interest accrued during the period from and including the first
day of the month preceding the month of the Distribution Date (or from the
Cut-off Date in the case of the initial Distribution Date) to and including
the last day of the month preceding the month of the Distribution Date
(calculated on the basis of a 360-day year consisting of twelve 30-day
months) on the Class Balance (or the Notional Amount, in the case of the
Class ___ Certificates) of such class of Certificates outstanding immediately
prior to such Distribution Date, at the then-applicable Pass-Through Rate
(the "Interest Accrual Amount"), plus any shortfall as described in the
penultimate sentence of this paragraph, less such class' pro rata share,
according to the Interest Accrual Amount, of any interest shortfall not
related to a Mortgagor delinquency or default, such as Prepayment Interest
Shortfalls (as defined herein) and shortfalls associated with exemptions
provided by the Relief Act (as defined in the Prospectus), and less (a) with
respect to each class of Certificates other than the Class __ Certificates,
any Collateral Value Adjustment Capitalization Amount (as defined herein)
allocated to such class as described under "-Subordination" below and (b)
with respect to the Class ___ Certificates, the portion of the Interest
Accrual Amount therefor accrued on the portion of the related Notional Amount
corresponding to any Collateral Value Adjustment or Collateral Value
Adjustment Capitalization Amount allocated to the Class Balance of any class
of Certificates (and not reversed) (the "Collateral Value Adjustment
Reduction Amount"). The "Notional Amount" of the Class __ Certificates
will equal the aggregate of the Class Balances of all the Certificates. The
Notional Amount does not entitle the Class ____ Certificates to any
distributions of principal. If the Adjusted Available Distribution Amount
for any Distribution Date is less than the Interest Distribution Amount for
such Distribution Date, the shortfall will be part of the Interest
Distribution Amount distributable to holders of Certificates affected by such
shortfall on subsequent Distribution Dates. Any such shortfall will bear
interest at the related Pass-Through Rate.
To the extent not necessary to reimburse the Master Servicer for
reductions in its compensation to cover Prepayment Interest Shortfalls, in
addition to the related Interest Distribution Amount, the Class __
Certificates will receive __%, and the remaining Certificates will receive
__%, of any Net Prepayment Premium paid with respect to the Mortgage Loans.
On each Distribution Date, the Net Prepayment Premium not payable to the
Master Servicer or the holders of the Class __ Certificates will be paid the
holders of the class of Certificates then outstanding with the highest
principal payment priority.
To the extent any Mortgage Loan is prepaid in full or in part between a
Determination Date and the related Due Date immediately following such
Determination Date, an interest shortfall may result on the second
Distribution Date following such Determination Date because interest on
prepayments in full or in part will only accrue to the date of payment (such
shortfall, a "Prepayment Interest Shortfall"). To the extent any Mortgage
Loan is prepaid in full or in part between the related Due Date and the
Determination Date immediately following such Due Date, the interest on such
prepayment will be included in the Available Distribution Amount for the
immediately succeeding Distribution Date (the "Prepayment Interest Excess").
If a Mortgage Loan is prepaid in full or in part during any Remittance
Period, any related Prepayment Interest Shortfall shall be offset to the
extent of any Prepayment Interest Excess and any Prepayment Premium collected
during such Remittance Period. If the Prepayment Interest Shortfall for any
Remittance Period exceeds any Prepayment Interest Excess and any Prepayment
Premiums collected during such period, such shortfall shall only be offset by
an amount up to the portion of the Servicing Fee payable to the Master
Servicer on the related Distribution Date. To the extent that any such
shortfall shall have been offset by a portion of the Servicing Fee, the
Master Servicer shall be entitled to any excess of the Prepayment Interest
Excess and Prepayment Premiums over the Prepayment Interest Shortfall for any
subsequent period.
The "Net Prepayment Premium" with respect to any Distribution Date will
equal the excess of (a) the total amount of Prepayment Premiums received
during the related Remittance Period over (b) the Prepayment Interest
Shortfall for any Remittance Period over the Prepayment Interest Excess for
any Remittance Period.
The Pass-Through Rates on the Certificates with weighted average
Pass-Through Rates will not be affected by the deferral of interest or
reduction of the Mortgage Interest Rate on any Mortgage Loan by the Special
Servicer or by the occurrence of either such event in connection with any
bankruptcy proceeding involving the related borrower. The amount of any
resulting interest shortfall will be allocated to the Certificates, in the
order described under "Subordination" below.
Principal Distributions on the Offered Certificates. Holders of a class
of Certificates will be entitled to receive on each Distribution Date in
reduction of the related Class Balance in the order described herein until
the related Class Balance is reduced to zero, to the extent of the balance of
the Adjusted Available Distribution Amount remaining after the payment of the
Interest Distribution Amount for such Distribution Date for such class of
Certificates and each other class of Certificates with a higher priority for
interest payments (as described under "Priority of Distributions" below),
distributions in respect of principal in an amount (the "Principal
Distribution Amount") equal to the aggregate of (i) all
scheduled payments of principal (other than Balloon Payments) due on the
Mortgage Loans on the related Due Date whether or not received and all
scheduled Balloon Payments received, (ii) if the scheduled Balloon Payment is
not received, with respect to any Balloon Mortgage Loans on and after the
Maturity Date thereof, the principal payment that would need to be received
in the related month in order to fully amortize such Balloon Mortgage Loan
with level monthly payments by the end of the term used to derive scheduled
payments of principal due prior to the related Maturity Date, (iii) to the
extent not previously advanced any unscheduled principal recoveries received
during the related Remittance Period in respect of the Mortgage Loans,
whether in the form of liquidation proceeds, insurance proceeds, condemnation
proceeds or amounts received as a result of the purchase of any Mortgage Loan
out of the Trust Fund and (iv) any other portion of the Adjusted Available
Distribution Amount remaining undistributed after payment of any interest
payable on the Certificates for the related or any prior Distribution Date,
including any Prepayment Interest Excess not offset by any Prepayment
Interest Shortfall occurring during the related Remittance Period or
otherwise required to reimburse the Master Servicer, as described herein, and
interest distributions on the Mortgage Loans, in excess of interest
distributions on the Certificates, resulting from the allocation of amounts
described in this clause (iv) to principal distributions on the Certificates.
The "Class Balance" for any class of Certificates on any Distribution Date
will equal the initial Class Balance thereof reduced by distributions in
reduction thereof and Realized Losses allocated thereto, as described under
"- Subordination" below, and increased by any Collateral Value Adjustment
Capitalization Amounts allocated thereto as described under "- Subordination"
below. The Class _ Certificates do not have a Class Balance and are
therefore not entitled to any principal distributions.
PRIORITY OF DISTRIBUTIONS
The Adjusted Available Distribution Amount for each Distribution Date
will be applied (a) first to distributions of the Interest Distribution
Amounts on the classes of Certificates outstanding with the highest priority
for interest payment (as described in the immediately succeeding sentence),
(b) second to distributions of the Principal Distribution Amount to the
classes of Certificates then entitled to distribution of principal as
described below, and (c) third, to distributions of interest on each class of
Certificates other than the classes then entitled to interest distributions
pursuant to clause (a), above, in the order of priority described below;
provided that on any Distribution Date on which the Class Balance of the
class of Certificates with the highest priority for interest payment is
reduced to zero pursuant to clause (b) above, interest distributions pursuant
to clause (a) above will be made to the class of Certificates outstanding
with the next highest priority for interest payments prior to making further
distributions of the Principal Distribution Amount pursuant to clause (b)
above. The priority for interest payments for purposes of clauses (a) and
(c), above, is: first to distributions of interest on the Class __, Class
__, Class ___ and Class __ Certificates, pro rata, based on their respective
Interest Distribution Amounts; second, to the Class ___ Certificates; third,
to the Class __ Certificates; fourth, to the Class __ Certificates; fifth, to
the Class __ Certificates; and then to the Other Certificates up to their
respective Interest Distribution Amounts, all as described under "-
Distributions - Interest Distributions on the Certificates" above. The
Principal Distribution Amount for such Distribution Date will be applied to
distributions of principal of the Class ___, Class ___, Class __, Class __,
Class __ , Class ___ and Class __ Certificates, in that order, and then to
distributions of principal of the Other Classes of Certificates until their
respective Class Balances have been reduced to zero. After reduction of the
Class Balances of all the Certificates to zero any remaining portion of the
Available Distribution Amount will be distributed to the holders of the Class
__ Certificates up to an aggregate amount equal to the sum of all prior
Collateral Value Adjustment Reduction Amounts allocated thereto.
OTHER CERTIFICATES
The Class __, Class ___, Class ___ and Class R Certificates are not
offered hereby. The Pass-Through Rate on each of the Class __, Class __ and
Class __ Certificates will equal ___ % per annum. The Class Balances on the
Class __, Class __ and Class __ Certificates will equal $ _______, $_______
and $________, respectively, and approximately $________, in the aggregate.
The Class R Certificates will not have a Pass-Through Rate or a Class Balance.
SUBORDINATION
Neither the Offered Certificates nor the Mortgage Loans are insured or
guaranteed against losses suffered on the Mortgage Loans by any government
agency or instrumentality or by the Depositor, the Trustee, the Master
Servicer, the Special Servicer, the ________ Servicers, or any affiliate
thereof.
In addition to the payment priorities described under "- Priority of
Distributions" above, certain Certificates will be subordinated to other
Certificates with respect to the allocation of Realized Losses. Realized
Losses on the Mortgage Loans will be allocated, first, to the Other
Certificates, second, to the Class __ Certificates, third, to the Class __
Certificates, fourth, to the Class __ Certificates, fifth, to the Class __
Certificates, in each case until the related Class Balance is reduced to
zero; and thereafter, pro rata, to the Class __, Class __ and Class __
Certificates. The Class Balance of a class of Certificates will be reduced
by the principal portion of any Realized Losses allocated to such class.
In addition to Realized Losses, shortfalls will also occur as a result
of each Servicer's right to receive payments of interest with respect to
unreimbursed advances, the Special Servicer's right to compensation with
respect to Mortgage Loans which are or have been Specially Serviced Mortgage
Loans and as a result of other Trust Fund expenses. Such shortfalls will be
allocated as described above to the classes of Certificates with the lowest
payment priority for purposes of the application of Available Distribution
Amount in the order described herein.
(Within 30 days after the earliest to occur of (i) 90 days after the
date on which an uncured delinquency occurs in respect of a Mortgage Loan,
(ii) 60 days after the date on which a receiver is appointed (if such
appointment remains in effect during such 60-day period) in respect of a
Mortgaged Property, (iii) as soon as reasonably practical after the date on
which a Mortgaged Property becomes an REO Property or (iv) the date on which
a change in the payment rate, Mortgage Interest Rate, principal balance,
amortization terms or Maturity Date of any Specially Serviced Mortgage Loan
becomes effective, (the earliest of such dates, a "Required Appraisal Date")
an appraisal will be obtained by the Special Servicer from an independent MAI
appraiser at the expense of the Trust Fund (except if an appraisal has been
conducted within the 12 month period preceding such event). As a result of
such appraisal, a Collateral Value Adjustment may result, which Collateral
Value Adjustment will be allocated, for purposes of determining distributions
of interest to the Certificates, in the manner and priority described above
with respect to Realized Losses. Notwithstanding the foregoing, a Collateral
Value Adjustment will be zero with respect to such a Mortgage Loan if (i) the
event giving rise to such Collateral Value Adjustment is the extension of the
maturity of such Mortgage Loan, (ii) the payments on such Mortgage Loan were
not delinquent during the twelve month period immediately preceding such
extension and (iii) the payments on such Mortgage Loan are then current,
provided, that if at any later date there occurs a delinquency in payment
with respect to such Mortgage Loan, the Collateral Value Adjustment will be
recalculated and applied as described above. In addition, in any case, upon
the occurrence of any event giving rise to a subsequent Collateral Value
Adjustment (including the
delinquency referred to in the immediately preceding sentence) more than
twelve months after an appraisal was obtained with respect to a Collateral
Value Adjustment, the Special Servicer will order a new appraisal as
described above, within 30 days of the occurrence of any such event giving
rise to a subsequent Collateral Value Adjustment and will adjust the amount
of the Collateral Value Adjustment in accordance therewith.)
(The "Collateral Value Adjustment" for any Distribution Date with
respect to any Mortgage Loan will be an amount equal to the excess of (a) the
principal balance of such Mortgage Loan over (b) the excess of (i) 90% of the
current appraised value of the related Mortgaged Property as determined by an
independent MAI appraisal of such Mortgaged Property over (ii) the sum of (A)
to the extent not previously advanced by a Servicer, all unpaid interest on
such Mortgage Loan at a per annum rate equal to the Mortgage Interest Rate,
(B) all unreimbursed Advances and interest thereon, (C) any unpaid Servicing
and Trustee fees and (D) all currently due and delinquent real estate taxes
and assessments, insurance premiums and, if applicable, ground rents in
respect of such Mortgaged Property (net of any amount escrowed or otherwise
available for payment of the amount due on such Mortgage Loan). The excess
of the principal balance of any Mortgage Loan over the related Collateral
Value Adjustment is referred to herein as the "Adjusted Collateral Value." A
Collateral Value Adjustment shall result in a reduction of the Interest
Distribution Amount of one or more classes of Certificates and shall not be a
permanent reduction of the Class Balance (or Notional Amount) of any class of
Certificates prior to the occurrence of a Realized Loss.)
A "Realized Loss," in the case of any Mortgage Loan described in clause
(a) or clause (b) of the succeeding sentence, is equal to the sum of (a) the
Stated Principal Balance of any Loss Mortgage Loan, (b) interest thereon not
previously distributed to Certificateholders through the last day of the
month in which such Mortgage Loan became a Loss Mortgage Loan, (c) any
advances made by any Servicer which remain unreimbursed and (d) any interest
accrued on such advances (see "- Advances" below) as of such time, reduced by
any amounts recovered thereon as of such time and, in the case of any
Mortgage Loan described in clause (c) of the succeeding sentence, is the
amount determined to have been permanently forgiven as described in such
clause (c). A "Loss Mortgage Loan" is any Mortgage Loan (a) which is finally
liquidated, (b) with respect to which the Master Servicer or the Special
Servicer has determined that an advance which has been made or would
otherwise be required to be made, is not, or, if made, would not be,
recoverable out of proceeds on such Mortgage Loan or (c) with respect to
which a portion of the principal balance thereof has been permanently
forgiven whether pursuant to a modification or a valuation resulting from a
proceeding initiated under the Bankruptcy Code. The "Stated Principal
Balance" of any Mortgage Loan as of any date of determination is the
principal balance as of the Cut-off Date minus the sum of (i) the principal
portion of each Monthly Payment due on such Mortgage Loan after the Cut-off
Date, to the extent received from the Mortgagor or advanced and distributed
to Certificateholders, and (ii) any unscheduled amounts of principal received
with respect to such Mortgage Loans, to the extent distributed to
Certificateholders.
(The Collateral Value Adjustment will be allocated on each Distribution
Date, for purposes of determining distributions in respect of interest on
such Distribution Date, to the Class Balance of the most subordinate class of
Certificates that would otherwise receive distributions of interest, up to an
aggregate amount (net of any positive adjustments) equal to the Class Balance
thereof. For so long as a more senior class of Certificates is outstanding,
the amount of interest otherwise distributable on such Distribution Date to
each class of Certificates to which a Collateral Value Adjustment has been
allocated (to the extent not reversed) with respect to prior Distribution
Dates will be reduced by interest accrued at the related Pass-Through Rate on
the portion of the Class Balance of such class equal to the sum of the
aggregate Collateral Value Adjustment allocated to such class for such
Distribution Date and accrued and unpaid
interest at the related Pass-Through Rate on such Collateral Value Adjustment
amount for prior Distribution Dates. Such accrued and unpaid interest (the
"Collateral Value Adjustment Capitalization Amount") will be added to the
Certificate Balance of such class or classes of Certificates, and an equal
amount will be included in the Principal Distribution Amount to be
distributed to holders of the most senior classes of Certificates on such
Distribution Date as described herein, to the extent actually paid by the
Mortgagor or received as interest in respect of any REO Property. On each
Distribution Date on or after the allocation of a Collateral Value
Adjustment, the amount of interest otherwise distributable on such
Distribution Date to the Class
___ Certificates will be reduced by an amount equal to interest accrued on the
portion of the Notional Amount thereof corresponding to the sum of any
Collateral Value Adjustments and Collateral Value Adjustment Capitalization
Amounts allocated to any class of Certificates for such Distribution Date or
any prior Distribution Date and not previously reversed.)
(The Special Servicer is required, within 30 days of each anniversary of
the Required Appraisal Date, to order an update of the prior appraisal (the
cost of which will be advanced by the Special Servicer and reimbursed thereto
from the Trust Fund). The Special Servicer will determine and report to the
Trustee the updated appraisal. A lower appraisal value will increase the
Collateral Value Adjustment. Such increase will be allocated as described
above. A higher appraised value will reverse the Collateral Value Adjustment
by the amount of the reported increase. Any such reversal or reduction will
reduce the accrual of the Collateral Value Adjustment Capitalization Amount
and therefore reduce the amount otherwise available to make distributions of
principal on the classes of Certificates senior to the class of Certificates
to which such reversal is allocated. However, in neither case will the Class
Balance (or Notional Amount) of the affected class or classes of Certificates
be reduced by such reversal or reduction. In such event, the total
Collateral Value Adjustment Capitalization Amount previously added to the
related Class Balance shall be reduced in proportion to the Collateral Class
Adjustment reversal.)
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances out of its own funds or
funds held in the Master Collection Account (as defined herein) that are not
required to be part of the Available Distribution Amount for such
Distribution Date or to remit any advances made by the related ________
Servicer or the Special Servicer (each, a "P&I Advance"), in an amount equal
to the excess of all Monthly Payments (net of the Servicing Fee) due over the
amount actually received, subject to the limitations described herein. In
addition, each Servicer will be required to advance certain property related
expenses. The Servicers generally may not advance any amounts, other than
P&I Advances, unless such advance is contemplated in the related Asset
Strategy Report (as defined herein) for the related Mortgage Loan or such
advance is for one of several purposes specified in the Pooling and Servicing
Agreement as "Property Protection Expenses." All such advances will be
reimbursable to the related Servicer from late payments, insurance proceeds,
liquidation proceeds, condemnation proceeds or amounts paid in connection
with the purchase of such Mortgage Loan or, as to any such advance that is
deemed not otherwise recoverable, from any amounts required to be deposited
in the Primary Collection Account or the Master Collection Account.
Notwithstanding the foregoing, a Servicer will be obligated to make any such
advance only to the extent that it determines in its reasonable good faith
judgment that such advance, if made, would be recoverable out of net proceeds
(including any amounts escrowed with respect to the related Mortgage Loan net
of any reasonably anticipated expenses payable therefrom) on the related
Mortgage Loan. None of the Servicers will be required to advance the full
amount of any Balloon Payment not made by the related Mortgagor. To the
extent a Servicer is required to make a P&I Advance on and after the Due Date
for such Balloon Payment, such P&I Advance shall not exceed an amount equal
to a monthly payment calculated by the Special Servicer necessary to fully
amortize the related Mortgage Loan over the period used for purposes
of calculating the scheduled monthly payments thereon prior to the related
Maturity Date. Any failure by the Master Servicer to make an advance as
required under the Pooling and Servicing Agreement will constitute an event
of default thereunder, in which case the Trustee will be obligated to make
any required advance, in accordance with the terms of the Pooling and
Servicing Agreement.
Each Servicer shall be entitled to interest on the aggregate amount of
all advances made by such Servicer at a per annum rate equal to the prime
rate reported in The Wall Street Journal. See "Risk Factors - Effect of
Mortgagor Delinquencies and Defaults" herein.
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity on the Offered Certificates will be affected by
the rate of principal payments on the Mortgage Loans including, for this
purpose, prepayments, which may include amounts received by virtue of
repurchase, condemnation, casualty or foreclosure. The rate of principal
payments on the Offered Certificates will correspond to the rate of principal
payments (including prepayments) on the related Mortgage Loans.
Each Mortgage Loan either prohibits voluntary prepayments during a
certain number of years following the origination thereof and/or allows the
related Mortgagor to prepay the principal balance thereof in whole during a
certain number of years following the origination if accompanied by payment
of a Prepayment Premium. See Annex A hereto and the table entitled
"Prepayment Lock-out/Prepayment Premium Analysis" under "Description of the
Mortgage Pool - Certain Characteristics of the Mortgage Loan" herein. Any
Net Prepayment Premium collected on a Mortgage Loan will be distributed to
the holders of the Class ___ Certificates as described herein. See "Special
Prepayment Considerations" below, "Description of the Certificates -
Distributions - Interest Distributions on the Certificates" and "Certain
Yield, Prepayment and Maturity Considerations" herein, and "Yield
Considerations" in the Prospectus.
The yield to maturity on each class of the Offered Certificates will
depend on, among other things, the rate and timing of principal payments
(including prepayments, defaults, liquidations and purchases of Mortgage
Loans due to a breach of a representation and warranty) on the Mortgage Loans
and the allocation thereof to reduce the Class Balance or Notional Amount of
such class. The yield to maturity on each class of the Offered Certificates
will also depend on the Pass-Through Rate and the purchase price for such
Certificates. The yield to investors on any Class of Offered Certificates
will be adversely affected by any allocation thereto of Prepayment Interest
Shortfalls on the Mortgage Loans, which may result from the distribution of
interest only to the date of a prepayment occurring during any month
following the related Determination Date (rather than a full month's
interest) to the extent any such interest shortfall is not offset by
Prepayment Premiums, any Prepayment Interest Excess or the portion of the
Servicing Fee for such Distribution Date allocable to the Master Servicer.
In general, if a class of Offered Certificates is purchased at a premium
and principal distributions thereon occur at a rate faster than anticipated
at the time of purchase, the investor's actual yield to maturity will be
lower than that assumed at the time of purchase. Conversely, if a class of
Offered Certificates 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 that assumed at the
time of purchase.
If a Mortgage Loan becomes a Specially Serviced Mortgage Loan, the
Special Servicer may adopt a servicing strategy which affects the yield to
maturity of one or more classes of Offered Certificates. The "Rated Final
Distribution Date" for the Certificates will be _________ __, _____, which is
the first Distribution Date following the second anniversary of the date at
which all the Mortgage Loans have zero balances, assuming no prepayments and
that the Mortgage Loans which are Balloon Loans fully amortize according to
their amortization schedule and no Balloon Mortgage Payment is made.
WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Offered
Certificates will be influenced by the rate at which principal payments
(including scheduled payments, principal prepayments and payments made
pursuant to any applicable policies of insurance) on the Mortgage Loans are
made. Principal payments on the Mortgage Loans may be in the form of
scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments, partial prepayments and liquidations due
to a default or other dispositions of the Mortgage Loans).
The table of Percent of Initial Certificate Balance Outstanding for the
Class __, Class __, Class __, Class _, Class _, Class _ and Class _
Certificates at the respective percentages of CPR set forth below indicates
the weighted average lives of such Certificates and sets forth the percentage
of the initial principal amount of such Certificates that would be
outstanding after each of the dates shown at the indicated percentages of
CPR. The table has been prepared on the basis of the characteristics of the
Mortgage Loans set forth in Annex A and on the basis of the following
assumptions: (i) the Mortgage Loans prepay at the indicated percentage of
CPR when the Mortgage Loans are no longer in their respective Lock-out
Periods; (ii) the maturity date of each of the Balloon Mortgage Loans is not
extended and none of the related Hotel Properties are sold; (iii)
distributions on the Offered Certificates are received in cash, on the 25th
day of each month, commencing in ______________, 199_; (iv) no defaults or
delinquencies in, or modifications, waivers or amendments respecting, the
payment by the Mortgagors of principal and interest on the Mortgage Loans
occur; (v) prepayments represent payment in full of individual Mortgage Loans
and are received on the respective Due Dates and include a month's interest
thereon; (vi) there are no repurchases of Mortgage Loans due to breaches of
any representation and warranty, or pursuant to an optional termination as
described under "Description of the Pooling and Servicing Agreement -
Termination" or otherwise; and (vii) the Offered Certificates are purchased
on _______, 199_.
Based on the foregoing assumptions, the table indicates the weighted
average lives of the Class __, Class __, Class __, Class _, Class _, Class _
and Class _ Certificates and sets forth the percentages of the initial Class
Balance of each such class of Offered Certificates that would be outstanding
after the Distribution Date in February of each of the years indicated, at
various percentages of CPR. Neither CPR nor any other prepayment model or
assumption purports to be a historical description of prepayment experience
or a prediction of the anticipated rate of prepayment of any pool of mortgage
loans, including the Mortgage Loans included in the Mortgage Pool.
Variations in the actual prepayment experience and the balance of the
Mortgage Loans that prepay may increase or decrease the percentage of initial
Class Balance (and weighted average life) shown in the following table. Such
variations may occur even if the average prepayment experience of all such
Mortgage Loans is the same as any of the specified assumptions.
PERCENT OF INITIAL CLASS BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
Class __ Class __ Class __ Class __ Class __ Class __ Class __
______________ ______________ ______________ ______________ ______________ ______________ ______________
Distribution Date 0% 2% 4% 6% 0% 2% 4% 6% 0% 2% 4% 6% 0% 2% 4% 6% 0% 2% 4% 6% 0% 2% 4% 6% 0% 2% 4% 6%
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
June 1998 .
June 1999 .
June 2000 .
June 2001 .
June 2002 .
June 2003 .
June 2004 .
June 2005 .
June 2006 .
June 2006 .
Weighted Average
Life in years (1)
</TABLE>
(1) The weighted average life of a class of Offered Certificates is
determined by (i) multiplying the amount of each distribution of
principal by the number of years from the date of issuance to the
related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the total principal distributions on such class of
Certificates.
CLASS _ CERTIFICATES YIELD CONSIDERATIONS
The sensitivity of the yield to maturity on the Class _ Certificates to
both the timing of receipt of prepayments and the overall rate of principal
prepayments and defaults on the Mortgage Loans will be offset to some extent
by the payment of a portion of any Net Prepayment Premium to the Class _
Certificates entitled thereto. No such offset is available following a
default on a Mortgage Loan or a reduction of the Interest Distribution Amount
thereof as a result of a Collateral Value Adjustment or the allocation of any
Collateral Value Adjustment Capitalization Amount to any other class of
Certificates.
The following table indicate the sensitivity of the pre-tax yield to
maturity on the Class _ Certificates to various constant rates of prepayment
on the Mortgage Loans by projecting the monthly aggregate payments on the
Class _ Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis, based on the assumptions
described in clauses (i) through (vii) in the second paragraph preceding the
table entitled "Percent of Initial Class Balance Outstanding at the Following
Percentages of CPR" under the heading "Certain Yield, Prepayment and Maturity
Considerations - Weighted Average Life of the Offered Certificates" herein,
including the assumptions regarding the performance of the Mortgage Loans
which may differ from the actual performance thereof and assuming the
aggregate purchase price and Pass-Through Rate set forth below and assuming
further that the initial Notional Amount of the Class _ Certificates is as
set forth herein. The yield maintenance calculations are based on the market
yield on ___________, 199_ of actively traded Treasury securities of
appropriate maturities. __% of any Net Prepayment Premium will be allocated
to the Class _ Certificates. Any differences between such assumptions and
the actual characteristics and performance of the Mortgage Loans and of the
Certificates may result in yields being different from those shown in such
table. Discrepancies between assumed and actual characteristics and
performance underscore the hypothetical nature of the tables, which are
provided only to give a general sense of the sensitivity of yields in varying
prepayment scenarios.
PRE-TAX YIELD TO MATURITY OF THE CLASS __ CERTIFICATES
<TABLE>
<CAPTION>
Assumed Purchase Price as
a Percentage of Notional Assumed Pass-
Amount Through Rate(1) 0% 2% 4% 6%
_________________________ _______________ __ __ __ __
<S> <C> <C> <C> <C> <C>
_____% ______% ___% ___% ___% ___%
</TABLE>
(1) Calculated based on the weighted average of the Remittance Rates on the
Mortgage Loans as of the Cut-off Date and the initial weighted average
of the Pass-Through Rates of the Certificates. The Pass-Through Rate on
the Class __ Certificates will be subject to adjustment on each
Distribution Date.
Each pre-tax yield to maturity set forth in the preceding tables was
calculated by determining the monthly discount rate which, when applied to
the assumed stream of cash flows to be paid on the Class _ Certificates would
cause the discounted present value of such assumed stream of cash flows to
equal the assumed purchase price listed in the table. Accrued interest is
included in the assumed purchase price of the Class _ Certificates and is
used in computing the corporate bond equivalent yields shown. These yields
do not take into account the different interest rates at which investors may
be able to reinvest funds received by them as distributions on the Class _
Certificates, and thus do not reflect the return on any investment in the
Class _ Certificates when, as applicable, any reinvestment rates other than
the discount rates set forth in the preceding table are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
table, it is highly unlikely that the Mortgage Loans will be prepaid
according to one particular pattern. For this reason and because the timing
of cash flows is critical to determining yields, the pre-tax yield to
maturity on the Class __ Certificates is likely to differ from those shown in
the table, even if all of the Mortgage Loans prepay at the indicated constant
percentages of CPR over any given time period or over the entire life of the
Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Class _ Certificates will conform to
the yields described herein. Moreover, the various remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the preceding table at the various constant
percentages of CPR specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is as assumed. Investors are urged to make
their investment decisions based on their determinations as to anticipated
rates of prepayment under a variety of scenarios. Investors in the Class _
Certificates should fully consider the risk that an extremely rapid rate of
prepayments on the Mortgage Loans could result in the failure of such
investors to fully recover their investments. In addition, holders of the
Class _ Certificates generally have rights to relatively larger portions of
interest payments on Mortgage Loans with higher Mortgage Interest Rates;
thus, the yield on the Class _ Certificates will be materially and adversely
affected to a greater extent than on the other Offered Certificates if the
Mortgage Loans with higher Mortgage Interest Rates prepay faster than the
Mortgage Loans with lower Mortgage Rates.
For additional considerations relating to the yield on the Certificates,
see "Yield Considerations" in the Prospectus.
Class _, Class _, Class _ and Class _ Certificates Yield Considerations
If the Class Balances of the Other Certificates are reduced to zero, the
yield to maturity on the Class _ Certificates will become extremely sensitive
to losses on the Mortgage Loans (and the timing thereof), because the entire
amount of such losses will be allocated to the Class _ Certificates. The
aggregate initial Class Balance of the Other Certificates is equal to
approximately ____% of the aggregate principal balance of the Mortgage Loans
as of the Cut-off Date. If the Class Balances of the Other Certificates and
the Class _ Certificates are reduced to zero, the yield to maturity on the
Class _ Certificates will become extremely sensitive to losses on the
Mortgage Loans (and the timing thereof), because the entire amount of such
losses will be allocated to the Class _ Certificates. The aggregate initial
Class Balance of the Class _ and the Other Certificates is equal to
approximately ____% of the aggregate principal balance of the Mortgage Loans
as of the Cut-off Date. If the Class Balances of the Other Certificates, the
Class __ and the Class __ Certificates are reduced to zero, the yield to
maturity on the Class __ Certificates will become extremely sensitive to
losses on the Mortgage Loans (and the timing thereof), because the entire
amount of such losses will be allocated to the Class __ Certificates. The
aggregate initial Class Balance of the Class __, Class __ and Other
Certificates is equal to approximately ____% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date.
The yield to maturity on the Class _ Certificates will be extremely
sensitive to losses on the Mortgage Loans (and the timing thereof) because
any such losses will be allocated to reduce the Class Balance of the
Certificates and therefore will reduce the Notional Amount of the Class _
Certificates.
The Special Servicer will be entitled to receive, with respect to each
Specially Serviced Mortgage Loan compensation in the form of a percentage of
collections and a percentage of the outstanding
principal balance of any Specially Serviced Mortgage Loan which is returned
to a performing status prior to the right of Certificateholders to receive
distributions on the Certificates. Such compensation will result in
shortfalls which will be allocated to the Certificates in the manner provided
for Realized Losses. Consequently it is possible that shortfalls will be
allocated to the Offered Certificates with respect to any Specially Serviced
Mortgage Loan notwithstanding the fact that such Mortgage Loan is returned to
a performing status. See "Servicing - Servicing and Other Compensation and
Payment of Expenses" herein.
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of principal payments and Realized
Losses. Investors in the Class _ Certificates and particularly the Class _,
Class _ and Class _ Certificates should fully consider to risk that Realized
Losses on the Mortgage Loans could result in a failure of such investors to
fully recover their investments. See "Yield Considerations" in the
Prospectus.
SERVICING
SERVICERS
The information set forth herein concerning the Servicers has been
provided by the related Servicer. Neither the Depositor nor any other person
makes any representation or warranty as to the accuracy or completeness of
such information.
RESPONSIBILITIES OF MASTER SERVICER AND ________ SERVICER
Under the Pooling and Servicing Agreement, the Master Servicer and each
________ Servicer are required to service and administer the Mortgage Loans
solely on behalf of and in the best interests of and for the benefit of the
Certificateholders, in accordance with the terms of the Pooling and Servicing
Agreement and the Mortgage Loans and to the extent consistent with such
terms, with the higher of (a) the standard of care, skill, prudence and
diligence with which the Master Servicer and each ________ Servicer,
respectively, service and administer mortgage loans that are held for other
portfolios that are similar to the Mortgage Loans and (b) the standard of
care, skill, prudence and diligence with which the Master Servicer and each
Servicer, respectively, service and administer mortgage loans for their own
portfolio and are similar to the Mortgage Loans, in either case, giving due
consideration to customary and usual standards of practice of prudent
institutional multifamily and commercial mortgage lenders, loan servicers and
asset managers.
RESPONSIBILITIES OF SPECIAL SERVICER
The servicing responsibility on a particular Mortgage Loan will be
transferred to the Special Servicer upon the occurrence of certain servicing
transfer events (each, a "Servicing Transfer Event"), including the
following: (i) the Mortgage Loan becomes a "Defaulted Mortgage Loan" because
it is more than 60 days delinquent in whole or in part in respect of any
monthly payment or is delinquent in whole or in part in respect of the
related Balloon Payment; (ii) the related Mortgagor has entered into or
consented to bankruptcy, appointment of a receiver or conservator or a
similar insolvency or similar proceeding, or the Mortgagor has become the
subject of a decree or order for such a proceeding which shall have remained
in force undischarged or unstayed for a period of 60 days; (iii) the Master
Servicer or the ________ Servicer shall have received notice of the
foreclosure or proposed foreclosure of any other lien on the Mortgaged
Property; (iv) the related Mortgagor admits in writing its inability to pay
its
debts generally as they become due, files a petition to take advantage of any
applicable insolvency or reorganization statute, makes an assignment for the
benefit of its creditors, or voluntarily suspends payment of its obligations;
(v) any other default has occurred which has materially and adversely
affected the value of the related Mortgaged Loan and has continued unremedied
for the applicable grace period specified in the related mortgage; (vi) the
related Mortgaged Property becomes an REO Property; or (vii) if for any
reason, the ________ Servicer cannot enter into an assumption agreement upon
the transfer by the related Mortgagor of the mortgage. A Mortgage Loan
serviced by the Special Servicer is referred to herein as a "Specially
Serviced Mortgage Loan". The Special Servicer will collect certain payments
on such Specially Serviced Mortgage Loans and make certain remittances to,
and prepare certain reports for the Master Servicer with respect to such
Mortgage Loans. The Master Servicer shall have no responsibility for the
performance by the Special Servicer of its duties under the Pooling and
Servicing Agreement provided that the Master Servicer continues to perform
certain servicing functions on such Specially Serviced Mortgage Loans and,
based on the information provided to it by the Special Servicer, prepares
certain reports to the Trustee with respect to such Specially Serviced
Mortgage Loans. To the extent that any Mortgage Loan, in accordance with its
original terms or as modified in accordance with the Pooling and Servicing
Agreement, becomes a performing Mortgage Loan for a least three consecutive
months, the Special Servicer will return servicing of such Mortgage Loan to
the ________ Servicer.
Under the Pooling and Servicing Agreement the Special Servicer is
required to service, administer and dispose of Specially Serviced Mortgage
Loans solely in the best interests of and for the benefit of the
Certificateholders, in accordance with the Pooling and Servicing Agreement
and the Mortgage Loans and to the extent consistent with such terms, with the
higher of (a) the standard of care, skill, prudence and diligence with which
the Special Servicer services, administers and disposes of, distressed
mortgage loans and related real property that are held for other portfolios
that are similar to the Mortgage Loans, Mortgaged Property and REO Property
and (b) the standard of care, skill, prudence and diligence with which the
Special Servicer services, administers and disposes of distressed mortgage
loans and related real property for its own portfolio and are similar to the
Mortgage Loans, Mortgage Property and REO Property, giving due consideration
to customary and usual standards of practice of prudent institutional
multifamily and commercial mortgage lenders, loan servicers and asset
managers, so as to maximize the net present value of recoveries on the
Mortgage Loans.
The Special Servicer shall have full power and authority to do any and
all things in connection with servicing and administering a Mortgage Loan
that it may deem in its best judgment necessary or advisable, including,
without limitation, to execute and deliver on behalf of the Trust Fund any
and all instruments of satisfaction or cancellation or of partial release or
full release or discharge and all other comparable instruments, to reduce the
related Mortgage Interest Rate, and to defer or forgive payment of interest
and/or principal with respect to any Specially Serviced Mortgage Loan or any
Mortgaged Property. The Special Servicer may not permit a modification of
any Mortgage Loan to extend the scheduled maturity date of any Specially
Serviced Mortgage Loan more than three years beyond the scheduled maturity
date thereof as of the Cut-off Date without the consent of the Extension
Advisor. See "- Extension Advisor" below. Notwithstanding the forgoing, the
Special Servicer may not permit any such modification with respect to a
Balloon
Mortgage Loan if it results in the extension of such maturity date
beyond the amortization term of such Balloon Mortgage Loan absent the related
Balloon Payment. The Special Servicer will prepare a report (an "Asset
Strategy Report") for each Mortgage Loan which becomes a Specially Serviced
Mortgage Loan not later than thirty (30) days after the servicing of such
Mortgage Loan is transferred to the Special Servicer. Each Asset Strategy
Report will be delivered to each holder of a Class _, Class _ and Class __
Certificate upon request. The holders of the fewest number of classes of
Certificates
representing the most subordinate interests in the Trust Fund that equals at
least a __% interest therein (the "Monitoring Certificateholders") will
designate one Monitoring Certificateholder pursuant to the Pooling and
Servicing Agreement (the "Directing Certificateholder"). Each Asset Strategy
Report will be delivered to the Directing Certificateholder. The Directing
Certificateholder may object to any Asset Strategy Report within 10 business
days of receipt. If the Directing Certificateholder does not disapprove an
Asset Strategy Report within 10 business days, the Special Servicer shall
implement the recommended action as outlined in such Asset Strategy Report.
If the Directing Certificateholder disapproves such Asset Strategy Report and
the Special Servicer has not made the affirmative determination described
below, the Special Servicer will revise such Asset Strategy Report as soon as
practicable. The Special Servicer will revise such Asset Strategy Report
until the Directing Certificateholder fails to disapprove such revised Asset
Strategy Report; provided, however, that the Special Servicer shall implement
the recommended action as outlined in such Asset Strategy Report if it makes
an affirmative determination that such objection is not in the best interest
of all Certificateholders. In connection with making such affirmative
determination, the Special Servicer may request a vote by all the
Certificateholders. Any Certificateholder may request and obtain a copy of
any Asset Strategy Report subject to delivery of a certificate acknowledging
certain possible limitations with respect to the use of such report imposed
by U.S. securities laws.
The Directing Certificateholder may at any time terminate the Special
Servicer and appoint a replacement (a "Replacement Special Servicer") to
perform such duties under substantially the same terms and conditions as
applicable to the Special Servicer. Such holder(s) shall designate a
replacement to so serve by the delivery to the Trustee of a written notice
stating such designation. The Trustee shall, promptly after receiving any
such notice, so notify the Rating Agencies. If the designated replacement is
acceptable to the Trustee on the basis of its financial and servicing
ability, which approval may not be unreasonably withheld, the designated
replacement shall become the Replacement Special Servicer as of the date the
Trustee shall have received: (i) written confirmation from each Rating
Agency stating that if the designated replacement were to serve as Special
Servicer under the Pooling and Servicing Agreement, none of the then-current
rating or ratings of all outstanding classes of the Certificates would be
qualified, downgraded or withdrawn as a result thereof; (ii) a written
acceptance of all obligations of the Replacement Special Servicer, executed
by the designated replacement; and (iii) an opinion of counsel to the effect
that the designation of such replacement to serve as Replacement Special
Servicer is in compliance with the Pooling and Servicing Agreement, that the
designated replacement will be bound by the terms of the Pooling and
Servicing Agreement and that the Pooling and Servicing Agreement will be
enforceable against such designated replacement in accordance with its terms.
The Special Servicer shall be deemed to have resigned from its duties
simultaneously with such designated replacement's becoming the Replacement
Special Servicer under the Pooling and Servicing Agreement. Any Replacement
Special Servicer may be similarly so replaced by the Directing
Certificateholder.
Notwithstanding such replacement, the resigning Special Servicer shall
be entitled to receive the Special Servicing Fee for any Mortgage Loan which
became a Specially Serviced Mortgage Loan and was subsequently returned to a
performing status prior to such resignation; provided that if such Mortgage
Loan once again becomes a Specially Serviced Mortgage Loan, the Replacement
Special Servicer shall thereafter be entitled to such fee. The Replacement
Special Servicer shall be entitled to the Special Servicing Fee for all other
Specially Serviced Mortgage Loans.
EXTENSION ADVISOR
The "Extension Advisor" will be responsible for approving any proposed
Mortgage Loan modification that extends the maturity date of a Mortgage Loan
by more than three (3) years beyond the
scheduled maturity date of such loan as of the Cut-off Date. The initial
Extension Advisor, acting on behalf of the holders of the Offered
Certificates, shall only grant such approvals if it shall have determined
that the decision of the Special Servicer to so modify the Mortgage Loan is
consistent with the Special Servicer standard set forth in the Pooling and
Servicing Agreement. Any subsequent Extension Advisor may grant such
approvals if it shall have determined that the decision of the Special
Servicer to so modify the Mortgage Loan is in the best interest of the
Holders of the Offered Certificates.
The initial Extension Advisor will be State Street Bank and Trust
Company. The responsibility of State Street Bank and Trust Company as
Extension Advisor shall be carried out by the Real Estate Division of the
Commercial Banking Services Area of such bank. At any time, the holders of a
majority of the outstanding aggregate Certificate Principal Balance of the
Offered Certificates may remove the Extension Advisor. In such event, the
Trustee will so inform such Certificateholders, and a majority of Certificate
Principal Balance of the holders of such Certificates shall have the right to
appoint a replacement Extension Advisor.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer and each
respective ________ Servicer in respect of their servicing activities will be
the "Servicing Fee." The Servicing Fee will be payable monthly and will
accrue at the applicable "Servicing Fee Rate" and will be computed on the
basis of the principal balance (after giving effect to all scheduled (whether
or not received) and unscheduled payments of principal in reduction thereof)
and for the same period respecting which any related interest payment on each
Mortgage Loan is computed. The Servicing Fee Rate for any Mortgage Loan will
be the sum of the fee payable to the Master Servicer and the fee payable to
the ________ Servicer as described below. _____ will be the ________
Servicer for _____% of the Mortgage Loans by aggregate principal balance as
of the Cut-off Date. _____ will receive a combined fee equal to ____% per
annum as Master Servicer and ________ Servicer for _____% of such Mortgage
Loans (the "Combined Servicing Mortgage Loans"). During such time as such
Mortgage Loans are outstanding, _____ shall be required under the Pooling and
Servicing Agreement to resign as both Master Servicer and ________ Servicer
if it shall resign or be removed as Master Servicer or ________ Servicer.
The fee payable to the Master Servicer with respect to the Mortgage Loans
other than the Combined Servicing Mortgage Loans will equal ____% per annum.
The fee payable to ___ and _____ as ________ Servicers with respect to the
Mortgage Loans other than the Combined Servicing Mortgage Loans will equal
____% per annum. The fee payable to _____ as ________ Servicer of the Crown
Loan will equal _____% per annum. The fee payable to ______ as ________
Servicer will equal _____% per annum.
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Special Servicing Fee. The
Special Servicing Fee will be payable monthly only from amounts received in
respect of each Specially Serviced Mortgage Loan. The Special Servicing Fee
will equal ____% of all amounts collected with respect to any Specially
Serviced Mortgage Loans and any Mortgage Loan which became a Specially
Serviced Mortgage Loan and was subsequently returned to a performing status.
The Pooling and Servicing Agreement will provide that the Servicers will
be entitled to indemnification from the Trust Fund for any and all costs,
expenses, losses, damages, claims and liabilities incurred in connection with
any legal action relating to any Mortgage Loan and the Pooling and Servicing
Agreement, other than any cost, expense, damage, claim or liability incurred
by reason of willful misfeasance, bad faith or negligence of such Servicer in
the performance of duties thereunder or by reason of reckless disregard of
such obligations and duties.
CONFLICTS OF INTEREST
The Special Servicer or its affiliates own and are in the business of
acquiring assets similar to the Mortgage Loans held by the Trust Fund. To
the extent that any mortgage loans owned and/or serviced by the Special
Servicer or its affiliates are similar to the Mortgage Loans held by the
Trust Fund, the mortgaged properties related to such mortgage loans may,
depending upon certain circumstances such as the location of the mortgaged
property, compete with the Mortgaged Properties related to the Mortgage Loans
held by the Trust Fund for tenants, purchasers, financing and similar
resources.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of ____________, 199_ (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Master Servicer, the Special
Servicer, the ________ Servicers and the Trustee. Following are summaries of
certain provisions of the Pooling and Servicing Agreement. The summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the provisions of the Pooling and Servicing
Agreement. The Trustee will provide to a prospective or actual
Certificateholder without charge, upon written request, a copy (without
exhibits) of the Pooling and Servicing Agreement. Requests should be
addressed to _____________________________________________________.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Delivery Date, the Seller will assign or cause to be
assigned the Mortgage Loans, without recourse, to the Trustee for the benefit
of the Certificateholders. On or prior to the Delivery Date, the Depositor
will, as to each Mortgage Loan (other than the Crown Hotel Notes), deliver to
the Trustee (or the Custodian), among other things, the following documents
(collectively, as to such Mortgage Loan, the "Mortgage Loan File"): (i) the
original Mortgage, and any intervening assignments thereof, in each case with
evidence of recording thereon or in case such documents have not been
returned by the applicable recording office, certified copies thereof; (ii)
the original or, if accompanied by a "lost note" affidavit, a copy of the
Mortgage Note, endorsed by the Seller, without recourse, in blank or to the
order of Trustee; (iii) an assignment of the Mortgage, executed by the
Seller, in blank or to the order of the Trustee, in recordable form; (iv)
originals or certified copies of any related assignment of leases, rents and
profits and any related security agreement (if, in either case, such item is
a document separate from the Mortgage) and any intervening assignments of
each such document or instrument; (v) assignments of any related assignment
of leases, rents and profits and any related security agreement (if, in
either case, such item is a document separate from the Mortgage), executed by
the Seller, in blank or to the order of the Trustee; (vi) originals or
certified copies of all assumption, modification and substitution agreements
in those instances where the terms or provisions of the Mortgage or Mortgage
Note have been modified or the Mortgage or Mortgage Note has been assumed;
and (vii) the originals or certificates of a lender's title insurance policy
issued on the date of the origination of such Mortgage Loan or, with respect
to each Mortgage Loan not covered by a lender's title insurance policy, an
attorney's opinion of title given by an attorney licensed to practice law in
the jurisdiction where the Mortgaged Property is located; (viii) originals or
copies of any UCC financing statements; (ix) originals or copies of any
guaranties related to such Mortgage Loan; (x) originals or copies of
insurance policies related to the Mortgaged Property; (xi) originals or
certified copies of any environmental liabilities
agreement; (xii) originals or copies of any escrow agreements; (xiii)
original or certified copies of any prior assignments of mortgage if the
Originator is not the originator of record; (xiv) any collateral assignments
of property management agreements and other servicing agreements; (xv) the
documents specified in the Underwriting Guidelines for the due diligence
investigation to be performed by or on behalf of the Originator pursuant to
the Mortgage Loan Purchase Agreement; (xvi) any appraisals of the Mortgaged
Property; (xvii) a physical assessment report of the Mortgaged Property;
(xviii) an environmental site assessment of the Mortgaged Property; (xix)
originals or certified copies of any lease subordination agreements and
tenant estoppels; and (xx) any opinions of borrower's counsel. The Pooling
and Servicing Agreement will require the Depositor to cause each assignment
of the Mortgage described in clause (iii) above to be submitted for recording
in the real property records of the jurisdiction in which the related
Mortgaged Property is located. Any such assignment delivered in blank will
be completed to the order of the Trustee prior to recording. The Pooling and
Servicing Agreement will also require the Depositor to cause the endorsements
on the Mortgage Notes delivered in blank to be completed to the order of the
Trustee.
TRUSTEE
The fee payable to the Trustee will be _____% per annum calculated on
the same basis as interest on the Certificates. The Trustee will be entitled
to indemnification from the Trust Fund for any loss, liability or expense
incurred by the Trustee with respect to the Pooling and Servicing Agreement
or the Certificates; provided, however, that such indemnification will not
extend to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence of the Trustee in the performance of its
duties thereunder.
COLLECTION ACCOUNTS AND CERTIFICATE ACCOUNT
The ________ Servicer is required to deposit all amounts received with
respect to the Mortgage Loans, net of certain amounts retained by the
________ Servicer as additional servicing compensation and certain amounts to
be deposited into escrow accounts, into a separate Collection Account (the
"Primary Collection Account") maintained by the ________ Servicer for the
Trust Fund. On the third business day preceding each Distribution Date, the
________ Servicer shall remit all amounts in the Primary Collection Account
to the Master Servicer for deposit into a separate Collection Account (the
"Master Collection Account") maintained by the Master Servicer for the Trust
Fund. The Master Servicer is required to deposit on the business day
preceding each Distribution Date all amounts received with respect to the
Mortgage Loans into a separate account (the "Certificate Account") maintained
with the Trustee. Interest or other income earned on funds in the Primary
Collection Account or the Master Collection Account will be paid to the
Servicer maintaining such account as additional servicing compensation. See
"Description of the Trust Funds - Mortgage Loans" and "Description of the
Agreements - Distribution Account and Other Collection Accounts" in the
Prospectus. Reports to Certificateholders
On each Distribution Date the Trustee shall furnish to each
Certificateholder, to the Depositor and to each Rating Agency a statement
setting forth certain information with respect to the Mortgage Loans and the
Certificates required pursuant to the Pooling and Servicing Agreement and in
the form of Annex B hereto. In addition, within a reasonable period of time
after each calendar year, the Trustee shall furnish to each person who at any
time during such calendar year was the holder of a Certificate a statement
containing certain information with respect to the Certificates required
pursuant to the Pooling and Servicing Agreement, aggregated for such calendar
year or portion thereof during which such person was a Certificateholder.
Unless and until Definitive Certificates are issued, such statements or
reports
will be furnished only to Cede & Co., as nominee for DTC; provided, however,
that the Trustee shall furnish a copy of any such statement or report to any
Beneficial Owner which requests such copy and certifies to the Trustee that
it is the Beneficial Owner of a Certificate. The Trustee shall furnish a
copy of any such statement or report to any person who requests it for a
nominal charge. Any person may call the Master Servicer at ____________ in
order to inquire as to how to obtain such statement or report. Such
statement or report may be available to Beneficial Owners upon request to DTC
or their respective Participant or Indirect Participants. Any Asset Strategy
Report shall be delivered by the Trustee upon request to any Beneficial Owner
of an Offered Certificate subject to receipt by the Trustee and the Special
Servicer of evidence satisfactory to them that the request is made by a
Beneficial Owner and the receipt by the Trustee of a certificate
acknowledging certain limitations with respect to the use of such statement
or report. See "Description of the Certificates - Reports to
Certificateholders" in the Prospectus. The Directing Certificateholder shall
receive all reports prepared or received by the Master Servicer or the
Special Servicer. In addition, each other Certificateholder (or a Beneficial
Owner, subject to the second preceding sentence) may obtain all such reports
at its expense as described in the Pooling and Servicing Agreement.
VOTING RIGHTS
At all times during the term of this Agreement, ____% of all Voting
Rights shall be allocated among the classes of Certificates (other than the
Class _ Certificates) in proportion to the respective Class Balances, ____%
of all Voting Rights shall be allocated to the Class _ Certificates and
______% of all Voting Rights shall be allocated to the Class R Certificates.
Voting Rights allocated to a class of Certificates shall be allocated among
the holders of such class in proportion to the Percentage Interests evidenced
by their respective Certificates.
As described under "Description of the Certificates - Book-Entry
Registration and Definitive Certificates" in the Prospectus, unless and until
Definitive Certificates are issued, except as otherwise expressly provided
herein, Certificate Owners may only exercise their rights as owners of
Certificates indirectly through DTC or their respective Participant or
Indirect Participant.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment or other
liquidation of the last Mortgage Loan or REO Property subject thereto, and
(ii) the purchase of all of the assets of the Trust Fund by any of the Master
Servicer, the Special Servicer, any holder of a Class R Certificate, the
holders of an aggregate Percentage Interest in excess of 50% of the Most
Subordinate Class of Certificates and (to the extent all of the remaining
Mortgage Loans are being serviced thereby as ________ Servicer) any ________
Servicer. The "Most Subordinate Class of Certificates" at the time of
determination shall be the class of Certificates to which Realized Losses
would be allocated at such time as described under "Description of the
Certificates - Subordination" herein. 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 the office of the ____________________.
CERTIFICATE REGISTRAR SPECIFIED IN SUCH NOTICE OF TERMINATION.
Any such purchase of all the Mortgage Loans and other assets in the
Trust Fund is required to be made at a price equal to the greater of (1) the
aggregate fair market value of all the Mortgage Loans and REO Properties then
included in the Trust Fund, determined pursuant to the Pooling and Servicing
Agreement, and (2) the aggregate Class Balance of all the Certificates plus
accrued and unpaid interest thereon. Such purchase will effect early
retirement of the then outstanding Certificates, but the right to effect such
termination is subject to the requirement that the aggregate Stated Principal
Balance of the Mortgage Loans then in the Trust Fund is less than __% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered
Certificates is based on the advice of Cadwalader, Wickersham & Taft, counsel
to the Depositor. This summary is based on laws, regulations, including the
REMIC regulations promulgated by the Treasury Department (the "REMIC
Regulations"), rulings and decisions now in effect or (with respect to
regulations) proposed, all of which are subject to change either
prospectively or retroactively. This summary does not address the federal
income tax consequences of an investment in Offered Certificates applicable
to all categories of investors, some of which (for example, banks and
insurance companies) may be subject to special rules. Prospective investors
should consult their tax advisors regarding the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of
Offered Certificates.
A real estate mortgage investment conduit ("REMIC") election will be
made with respect to the Trust Fund for federal income tax purposes. Upon
the issuance of the Certificates, Cadwalader, Wickersham & Taft, counsel to
the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes, the Offered Certificates will be
treated as "regular interests" in a REMIC, and the Class R Certificate will
be treated as a "residual interest" in a REMIC. For federal income tax
purposes the Class _ Certificates will consist of ten components, each
related to one of the other classes of Certificates constituting "regular
interests."
See "Certain Federal Income Tax Consequences - REMICs" in the
Prospectus.
The Class _ Certificates will, and the other classes of Offered
Certificates may, be treated as having been issued with original issue
discount for federal income tax reporting purposes. For purposes of
computing the rate of accrual of original issue discount, market discount and
premium, if any, for federal income tax purposes it will be assumed that
there are no prepayments on the Mortgage Loans. No representation is made
that the Mortgage Loans will not prepay at another rate. See "Certain
Federal Income Tax Consequences - REMICs - Taxation of Owners of REMIC
Regular Certificates" and "- Original Issue Discount" in the Prospectus.
Prepayment Premiums allocated to the Certificates will be taxable to the
holders of such Certificates on the date the amount of such premiums becomes
fixed.
The Offered Certificates may be treated for federal income tax purposes
as having been issued at a premium. Whether any holder of such a class of
Certificates will be treated as holding a certificate with amortizable bond
premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such class of Certificates
should consult their own tax advisors regarding the possibility of making an
election to amortize such premium. See "Certain Federal Income Tax
Consequences - REMICs - Taxation of Owners of REMIC Regular Certificates" and
"- Premium" in the Prospectus.
The Offered Certificates will be treated as "real estate assets" within
the meaning of Section 856(c)(6)(B) of the Code generally in the same
proportion that the assets of the REMIC underlying such Certificates would be
so treated. In addition, interest (including original issue discount) on the
Offered Certificates will be interest described in Section 856(c)(3)(B) of
the Code to the extent that such Offered Certificates are treated as "real
estate assets" under Section 856(c)(6)(B) of the Code. Moreover, the Offered
Certificates will be "obligation(s) . . . which . . . (are) principally
secured by an interest in real property" within the meaning of Section
860G(a)(3)(C) of the Code. The Offered Certificates will not be considered
to represent an interest in "loans . . . secured by an interest in real
property" within the meaning of Section 7701(a)(19)(C)(v) of the Code except
in the proportion that the assets of the Trust Fund are represented by
Mortgage Loans secured by multifamily apartment buildings. See "Certain
Federal Income Tax Consequences - REMICs - Characterization of Investments in
REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Certificates, see "Certain Federal Income Tax Consequences"
in the Prospectus.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Offered Certificates. State income tax law may differ substantially
from the corresponding federal law, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore,
potential investors should consult their own tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Code should carefully review with its legal advisors whether the
purchase or holding of any Class of Offered Certificates could give rise to a
transaction that is prohibited or is not otherwise permitted either under
ERISA or Section 4975 of the Code.
The U.S. Department of Labor issued an individual exemption, Prohibited
Transaction Exemption ______ (the "Exemption"), on ___________________ to
_______________________, which generally exempts from the application of the
prohibited transaction provisions of Section 406 of ERISA, and the
excise taxes imposed on such prohibited transactions pursuant to Sections
4975(a) and (b) of the Code and Section 501(i) of ERISA, certain
transactions, among others, relating to the servicing and operation of
mortgage pools and the purchase, sale and holding of mortgage pass-through
certificates underwritten by an Underwriter (as hereinafter defined),
provided that certain conditions set forth in the Exemption are satisfied.
For purposes of this Section "ERISA Considerations", the term "Underwriter"
shall include (a) _________________________, (b) any person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with _________________________ and (c) any member of the
underwriting syndicate or selling group of which a person described in (a) or
(b) is a manager or co-manager with respect to the Class __, Class __, Class
__ or Class _ Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of such Classes of
Offered Certificates to be eligible for exemptive relief thereunder. First,
the acquisition of such Classes of Offered Certificates by certain employee
benefit plans subject to Section 4975 of the Code (each, a "Plan"), must be
on terms (including the price) that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party.
Second, the rights and interests evidenced by such Classes of Offered
Certificates must not be subordinate to the rights and interests evidenced by
the other certificates of the same trust. Third, such Classes of Offered
Certificates at the time of acquisition by the Plan must be rated in one of
the three highest generic rating categories by Standard & Poor's Corporation,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch
Investors Service, Inc. Fourth, the Trustee cannot be an affiliate of any
member of the "Restricted Group," which consists of the Underwriter, the
Depositor, the Master Servicer, the Special Servicer, each ________ Servicer
and any Mortgagor with respect to Mortgage Loans constituting more than __%
of the aggregate unamortized principal balance of the Mortgage Loans as of
the date of initial issuance of such Classes of Offered Certificates. Fifth,
the sum of all payments made to and retained by the Underwriter must
represent not more than reasonable compensation for underwriting such Classes
of Offered Certificates; the sum of all payments made to and retained by the
Depositor pursuant to the assignment of the Mortgage Loans to the Trust Fund
must represent not more than the fair market value of such obligations; and
the sum of all payments made to and retained by the Master Servicer, the
Special Servicer and any ________ Servicer must represent not more than
reasonable compensation for such person's services under the Agreements and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the investing Plan must be an accredited investor as defined in Rule
501 (a)(1) of Regulation D of the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
Because the Class __, Class __, Class __ and Class _ Certificates are
not subordinate to any other class of Certificates, the second general
condition set forth above is satisfied with respect to such Certificates. It
is a condition of the issuance of such Classes of Certificates that they be
rated "___" by ___________ or "___" by _________________. A fiduciary of a
Plan contemplating purchasing any such Class of Certificates in the secondary
market must make its own determination that at the time of such acquisition,
any such Class of Certificates continues to satisfy the third general
condition set forth above. The Depositor expects that the fourth general
condition set forth above will be satisfied with respect to each of such
Classes of Certificates. A fiduciary of a Plan contemplating purchasing any
such Class of Certificate must make its own determination that the first,
third, fifth and sixth general conditions set forth above will be satisfied
with respect to any such Class of Certificate.
The Class _, Class _, Class _ and Class _ Certificates do not satisfy
the second condition described above because they are subordinated to other
classes of Offered Certificates, and furthermore the Class _ and Class _
Certificates are not expected to satisfy the third condition described above.
Before purchasing any such Class of Certificate, a fiduciary of a Plan
should itself confirm (a) that such Certificates constitute "certificates"
for purposes of the Exemption and (b) that the specific and general
conditions of the Exemption and the other requirements set forth in the
Exemption would be satisfied. In addition to making its own determination as
to the availability of the exemptive relief provided in the Exemption, the
Plan fiduciary should consider the availability of any other prohibited
transaction exemptions.
Purchasers using insurance company general account funds to effect such
purchase should consider the availability of Prohibited Transaction Class
Exemption 95-60 (60 Fed. Reg. 35925, July 12, 1995) issued by the U.S.
Department of Labor.
Any Plan fiduciary considering whether to purchase any such Class of
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. See "ERISA
Considerations" in the Prospectus.
LEGAL INVESTMENT
The Class __, Class __, Class __, Class _ and Class B Certificates will
be "mortgage related securities" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") for so long as they are rated in one
of the two highest rating categories by at least one nationally recognized
statistical rating organization. The Class _, Class _ and Class _
Certificates will not be "mortgage related securities" within the meaning of
SMMEA.
In addition, institutions whose investment activities are subject to
review by certain regulatory authorities may be or may become subject to
restrictions, which may be retroactively imposed by such regulatory
authorities, on the investment by such institutions in certain forms of
mortgage-backed securities. Furthermore, certain states have enacted
legislation overriding the legal investment provisions of SMMEA.
The Depositor makes no representations as to the proper characterization
of the Offered Certificates for legal investment or other purposes, or as to
the ability of particular investors to purchase the Offered Certificates
under applicable legal investment restrictions. These uncertainties may
adversely affect the liquidity of the Offered 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 Offered Certificates constitute a legal
investment or is subject to investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriter, the Depositor has agreed
to sell to the Underwriter and the Underwriter has agreed to purchase from
the Depositor, upon issuance, the Offered Certificates.
The obligations of the Underwriter under the Underwriting Agreement are
subject to certain conditions precedent and the Underwriter will be obligated
to purchase all of the Offered Certificates if any are purchased.
Distribution of the Offered Certificates will be made by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. Proceeds to the Depositor from the
Offered Certificates will be 100% of the initial aggregate principal balance
thereof as of the Cut-off Date, plus accrued interest from the Cut-off Date
before deducting expenses payable by the Depositor. In connection with the
purchase and sale of the Offered Certificates, the Underwriter may be deemed
to have received compensation from the Depositor in the form of underwriting
discounts, commissions or concessions.
The Depositor also has been advised by the Underwriter that it currently
expects to make a market in the Offered Certificates; however, it has no
obligation to do so, any market making may be discontinued at any time, and
there can be no assurance that an active public market for the Offered
Certificates will develop, or if it does develop, that it will continue.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933.
The Underwriter has agreed to pay the expenses of the Depositor in
connection with the purchase of the Mortgage Loans and the issuance of the
Certificates. The Underwriter is an affiliate of the Depositor.
LEGAL MATTERS
The validity of the Certificates and certain federal income tax
consequences of investing in the Certificates will be passed upon for the
Depositor by Cadwalader, Wickersham & Taft, New York, New York and certain
legal matters will be passed upon for the Underwriter by Brown & Wood LLP,
New York, New York.
RATING
It is a condition of the issuance of the Class __, Class __ and Class __
Certificates that they be rated "______" by _______ and "______" by
____________________________. It is a condition of the issuance of the Class
__ Certificates that they be rated not lower than "__" by ______ and "__" by
____________. It is a condition of the issuance of the Class __ Certificates
that they be rated not lower than "_____" by _______ and "_____" by
_______________. It is a condition of the issuance of the Class __
Certificates that they be rated not lower than "___" by _____________ and
"_____" by _________________.
The ratings on mortgage pass-through certificates address the likelihood
of the receipt by holders thereof of payments to which they are entitled
including the receipt of all principal payments by the Rated Final
Distribution Date. Such 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. Such ratings
on the Offered Certificates do not, however, constitute a statement regarding
frequency or likelihood of prepayments (whether voluntary or involuntary) of
the Mortgage Loans, or the degree to which such prepayments might differ from
those originally anticipated, or the likelihood of the collection of
Prepayment Premiums, and do not address the possibility that
Certificateholders might suffer a lower than
anticipated yield. The rating of the Class _ Certificates does not address
the possibility that the holders of such Certificates may fail to fully
recover their initial investments due to a rapid rate of prepayments,
defaults or liquidations. See "Risk Factors" herein.
There can be no assurance as to whether any rating agency not requested
to rate the Offered Certificates will nonetheless issue a rating and, if so,
what such rating would be. A rating assigned to the Offered Certificates by
a rating agency that has not been requested by the Depositor to do so may be
lower than the rating assigned by Fitch, Moody's or Standard & Poor's
pursuant to the Depositor's request. The Depositor only requested that Fitch
issue a rating with respect to the Class _ Certificates.
The rating of the Offered 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. Each
security rating should be evaluated independently of any other security
rating. A security rating does not address the frequency or likelihood of
prepayments (whether voluntary or involuntary) of Mortgage Loans, or the
corresponding effect on the yield to investors.
The ratings do not address the fact that the Pass-Through Rates on the
Offered Certificates, to the extent determined based on the Remittance Rates,
may be affected by changes therein.
INDEX OF PRINCIPAL DEFINITIONS
30/360 basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Adjusted Available Distribution Amount . . . . . . . . . . . . . . . . . S-
Adjusted Collateral Value . . . . . . . . . . . . . . . . . . . . . . . . S-
Asset Strategy Report . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . . . S-
Balloon Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Balloon Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Class Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Clearance Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Collateral Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . S-
Collateral Value Adjustment Capitalization Amount . . . . . . . . . . . . S-
Collateral Value Adjustment Reduction Amount . . . . . . . . . . . . . . S-
Combined Servicing Mortgage Loans . . . . . . . . . . . . . . . . . . . . S-
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cut-off Date LTV Ratio . . . . . . . . . . . . . . . . . . . . . . . . . S-
Debt Service Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . S-
Defaulted Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . S-
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . . . S-
Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . . S-
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depositories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Directing Certificateholder . . . . . . . . . . . . . . . . . . . . . . . S-
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DSCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DTC Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
DTC Participants, . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
DTC Registered Certificates . . . . . . . . . . . . . . . . . . . . . . . S-
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
ESA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . S-
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Extension Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
FIRREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Fitch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Interest Accrual Amount . . . . . . . . . . . . . . . . . . . . . . . . . S-
Interest Distribution Amount . . . . . . . . . . . . . . . . . . . . . . S-
Loan Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Lock-out Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Lock-out Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Loss Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Master Collection Account . . . . . . . . . . . . . . . . . . . . . . . . S-
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity Date LTV Ratio . . . . . . . . . . . . . . . . . . . . . . . . . S-
Monitoring Certificateholders . . . . . . . . . . . . . . . . . . . . . . S-
Monthly Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Mortgage Loan File . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Mortgage Loan Purchase Agreement . . . . . . . . . . . . . . . . . . . . S-
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Most Subordinate Class of Certificates . . . . . . . . . . . . . . . . . S-
Net Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Net Prepayment Premium . . . . . . . . . . . . . . . . . . . . . . . . . S-
Notional Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Originators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
P&I Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
P&I Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
PAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass-Through Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . S-
Prepayment Interest Excess . . . . . . . . . . . . . . . . . . . . . . . S-
Prepayment Interest Shortfall . . . . . . . . . . . . . . . . . . . . . . S-
Prepayment Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Primary Collection Account . . . . . . . . . . . . . . . . . . . . . . . S-
Principal Distribution Amount . . . . . . . . . . . . . . . . . . . . . . S-
Priority of Distributions . . . . . . . . . . . . . . . . . . . . . . . . S-
Property Protection Expenses. . . . . . . . . . . . . . . . . . . . . . S-
Rated Final Distribution Date . . . . . . . . . . . . . . . . . . . . . . S-
Realized Loss, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Remittance Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Remittance Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
REO Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
REO Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Replacement Special Servicer . . . . . . . . . . . . . . . . . . . . . . S-
Required Appraisal Date . . . . . . . . . . . . . . . . . . . . . . . . . S-
Restricted Group, . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Special Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specially Serviced Mortgage Loan . . . . . . . . . . . . . . . . . . . . S-
Standard & Poor's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stated Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . S-
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-
ANNEX C
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
___________________________________, Series 199_-C_ (the "Global Securities")
will be available only in book-entry form. Investors in the Global Securities
may hold such Global Securities through any of DTC, CEDEL or Euroclear. The
Global Securities will be tradeable 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. Capitalized terms used but not defined
in this Annex I have the meanings assigned to them in the Prospectus
Supplement and the Prospectus.
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 day 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 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 or 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.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to similar issues of pass-through
certificates. Investors' 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
payments 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 using the procedures applicable to similar
issues of pass-through certificates 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 ease 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. 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 Global 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 or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the 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. 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 that 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 of 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:
Exemption 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.
Exemption 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 residing
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 Beneficial Owner 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 Beneficial Owner 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 or (iii) an estate the
income of which is includible in gross income for United States tax purposes,
regardless of its source or a trust if a court within the United States is
able to exercise primary supervision of the administration of the trust and
one or more United States fiduciaries have the authority to control all
substantial decisions of the trust. 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.
SUBJECT TO COMPLETION, DATED APRIL 28, 1997
PROSPECTUS
Mortgage Pass-Through Certificates
(Issuable in Series)
IMPERIAL CREDIT COMMERCIAL MORTGAGE ACCEPTANCE CORPORATION
DEPOSITOR
Information contained herein is subject to completion or amendment. A
registration statement relating to these seucrities 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 the registration
statement becomes efffective. 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 such State.
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in one or more
series (each, a "Series"). Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with
respect to any Series, the "Trust Fund") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans, or
mortgage participations (the "Mortgage Loans"), mortgage pass-through
certificates or other mortgage-backed securities evidencing interests in or
secured by multifamily or commercial mortgage loans (collectively, the
"CMBS") or a combination of Mortgage Loans and/or CMBS (with respect to any
Series, collectively, the "Mortgage Assets"). If so specified in the related
Prospectus Supplement, some or all of the Mortgage Loans will include
assignments of the leases of the related Mortgaged Properties (as defined
herein) and/or assignments of the rental payments due from the lessees under
such leases (each type of assignment, a "Lease Assignment"). A significant or
the sole source of payments on certain Commercial Loans (as defined herein)
and, therefore, of distributions on certain Series of Certificates, will be
such rent payments. If so specified in the related Prospectus Supplement, the
Trust Fund for a Series of Certificates may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit
support, or any combination thereof (with respect to any Series,
collectively, "Credit Support"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with
respect to any Series, collectively, "Cash Flow Agreements"). See
"Description of the Trust Funds," "Description of the Certificates" and
"Description of Credit Support."
Each Series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based
on fixed, variable or floating rates; (ii) be senior or subordinate to one or
more other classes of Certificates in respect of certain distributions on
the Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be
entitled to interest distributions, with disproportionately low, nominal
or no principal distributions;(v) provide for distributions of accrued
interest thereon commencing only following the occurrence of certain
events, such as the retirement of oneor more other classes of Certificates
of such Series; (vi) provide for distributions of principal sequentially,
based on specified paymentschedules or other methodologies; and/or
(vii) provide for distributions based on a combination of two or more
components thereof with one or more of the characteristics described
in this paragraph, to the extent of available funds, in each case as
described in the related Prospectus Supplement. Any such classes may include
classes of Offered Certificates. See "Description of the Certificates."
(Continued on next page)
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" HEREIN AND SUCH INFORMATION AS MAY BE SET FORTH UNDER
THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE
PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates of any
Series and there can be no assurance that a secondary market for any Offered
Certificates will develop or that, if it does develop, it will continue. This
Prospectus may not be used to consummate sales of the Offered Certificates of
any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more different
methods, including offerings through underwriters as more fully described
under "Method of Distribution" herein and in the related Prospectus
Supplement.
___________, 199__
Principal and interest with respect to Certificates will be
distributable monthly, quarterly, semi-annually or at such other intervals
and on the dates specified in the related Prospectus Supplement.
Distributions on the Certificates of any Series will be made only from the
assets of the related Trust Fund.
The Certificates of each Series will not represent an obligation of or
interest in the Depositor, any Master Servicer, any Special Servicer or any
of their respective affiliates, except to the limited extent described herein
and in the related Prospectus Supplement. Neither the Certificates nor any
assets in the related Trust Fund will be guaranteed or insured by any
governmental agency or instrumentality or by any other person, unless
otherwise provided in the related Prospectus Supplement. The Assets in each
Trust Fund will be held in trust for the benefit of the holders of the
related Series of Certificates pursuant to a Pooling and Servicing Agreement,
or a Trust Agreement, as more fully described herein.
The yield on each class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein
and in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" for federal income tax
purposes. See also "Certain Federal Income Tax Consequences" herein.
TABLE OF CONTENTS
Page
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PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . 2
SUMMARY OF PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DESCRIPTION OF THE TRUST FUNDS . . . . . . . . . . . . . . . . . . . . . 24
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 31
THE DEPOSITOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 36
DESCRIPTION OF THE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 45
DESCRIPTION OF CREDIT SUPPORT . . . . . . . . . . . . . . . . . . . . . . 63
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES . . . . . . . 65
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . 83
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 111
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 111
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 115
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 116
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 118
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus and
Prospectus Supplement when acting as underwriters and with respect to their
unsold allotments or subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Offered Certificates or an offer of the Offered 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.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to the Offered Certificates of each Series will, among other things,
set forth with respect to such Certificates, as appropriate: (i) a
description of the class or classes of Certificates, the payment provisions
with respect to each such class and the Pass-Through Rate or method of
determining the Pass-Through Rate with respect to each such class; (ii) the
aggregate principal amount and distribution dates relating to such Series
and, if applicable, the initial and final scheduled distribution dates for
each class; (iii) information as to the assets comprising the Trust Fund,
including the general characteristics of the assets included therein,
including the Mortgage Assets and any Credit Support and Cash Flow Agreements
(with respect to the Certificates of any Series, the "Trust Assets"); (iv)
the circumstances, if any, under which the Trust Fund may be subject to early
termination; (v) additional information with respect to the method of
distribution of such Certificates; (vi) whether one or more REMIC elections
will be made and designation of the regular interests and residual interests;
(vii) the aggregate original percentage ownership interest in the Trust Fund
to be evidenced by each class of Certificates; (viii) information as to any
Master Servicer, any Special Servicer (or provision for the appointment
thereof) and the Trustee, as applicable; (ix) information as to the nature
and extent of subordination with respect to any class of Certificates that is
subordinate in right of payment to any other class; and (x) whether such
Certificates will be initially issued in definitive or book-entry form.
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 Securities Act of 1933, as amended, with respect to the
Offered Certificates. This Prospectus and the Prospectus Supplement relating
to each Series of Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do 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, Chicago, Illinois 60661; and New York Regional Office, Seven
World Trade Center, New York, New York 10048. The Commission maintains a Web
site at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including Imperial
Credit Commercial Mortgage Acceptance Corporation, that file electronically
with the Commission.
To the extent described in the related Prospectus Supplement, some or
all of the Mortgage Loans may be secured by an assignment of the lessors'
(i.e., the related Mortgagors') rights in one or more leases (each, a
"Lease") on the related Mortgaged Property. Unless otherwise specified in the
related Prospectus Supplement, no Series of Certificates will represent
interests in or obligations of any lessee (each, a "Lessee") under a Lease.
If indicated, however, in the Prospectus Supplement for a given Series, a
significant or the sole source of payments on the Mortgage Loans in such
Series, and, therefore, of distributions on such Certificates, will be rental
payments due from specified Lessees under the Leases, under such
circumstances, prospective investors in the related Series of Certificates
may wish to consider publicly available information, if any, concerning the
Lessees. Reference should be made to the related Prospectus Supplement for
information concerning the Lessees and whether any such Lessees are subject
to the periodic reporting requirements of the Securities Exchange Act of
1934, as amended.
A Master Servicer or the Trustee will be required to mail to holders of
Definitive Certificates (as defined herein) of each Series periodic unaudited
reports concerning the related Trust Fund. Unless and until Definitive
Certificates are issued, or unless otherwise provided in the related
Prospectus Supplement, such reports will be sent on behalf of the related
Trust Fund to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC") and registered holder of the Offered Certificates, pursuant to the
applicable Agreement. Such reports may be available to Beneficial Owners (as
defined herein) in the Certificates upon request to their respective DTC
Participants or Indirect Participants (as defined herein). See "Description
of the Certificates-Reports to Certificateholders" and "Description of the
Agreements-Evidence as to Compliance."
The Depositor will file or cause to be filed with the Commission such
periodic reports with respect to each Trust Fund as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder, for so long as such
reports are required to be filed. Because of the limited number of
Certificateholders expected for each series, the Depositor anticipates that a
significant portion of such reporting requirements will be permanently
suspended following the first fiscal year for the related Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to
the termination of an offering of Offered Certificates evidencing interests
therein. The Depositor will provide or cause to be provided without charge to
each person to whom this Prospectus is delivered in connection with the
offering of one or more classes of Offered Certificates, a copy of any or all
documents or reports incorporated herein by reference, in each case to the
extent such documents or reports relate to one or more of such classes of
such Offered Certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests to the Depositor should be directed in writing
to Imperial Credit Commercial Mortgage Acceptance Corporation, 23550
Hawthorne Boulevard, Building One, Torrance, CA 90505, Attention: Secretary.
The Depositor has determined that its financial statements are not material
to the offering of any Offered Certificates.
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the more detailed information appearing
elsewhere in this Prospectus and by reference to the information with respect
to each Series of Certificates contained in the Prospectus Supplement to be
prepared and delivered in connection with the offering of such Series. An
Index of Principal Definitions is included at the end of this Prospectus.
Title of Certificates Mortgage Pass-Through Certificates, issuable in
Series (the "Certificates").
Depositor Imperial Credit Commercial Mortgage Acceptance Corporation, an
indirect wholly-owned subsidiary of Southern Pacific Thrift &
Loan Association. See "The Depositor."
Master Servicer The master servicer (the "Master Servicer"), if any,
for each Series of Certificates, which may be an
affiliate of the Depositor, will be named in the
related Prospectus Supplement. See "Description of
the Agreements-Collection and Other Servicing
Procedures."
Special Servicer The special servicer (the "Special Servicer"), if
any, for each Series of Certificates, which may be
an affiliate of the Depositor, will be named, or the
circumstances in accordance with which a Special
Servicer will be appointed will be described, in the
related Prospectus Supplement. See "Description of
the Agreements-Special Servicers."
Trustee The trustee (the "Trustee") for each Series of Certificates
will be named in the related Prospectus Supplement. See
"Description of the Agreements-The Trustee."
The Trust Assets Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest
in a Trust Fund consisting primarily of:
(a) Mortgage Assets The Mortgage Assets with respect to each Series of
Certificates will consist of a pool of multifamily
and/or commercial mortgage loans and mortgage
participations (collectively, the "Mortgage Loans")
and mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in
or secured by Mortgage Loans (collectively, the
"CMBS") or a combination of Mortgage Loans and CMBS.
The Mortgage Loans will not be guaranteed or insured
by the Depositor or any of its affiliates or,
unless otherwise provided in the Prospectus Supplement, by any
governmental agency or instrumentality or other person. The CMBS
may be guaranteed or insured by an affiliate of the Depositor,
the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association, the Government National Mortgage
Association, or any other person specified in the
related Prospectus Supplement. As more
specifically described herein, the Mortgage Loans will be secured
by first or junior liens on, or security interests in, properties
consisting of (i) residential properties consisting of five or more
rental or cooperatively owned dwelling units (the "Multifamily
Properties") or (ii) office buildings, retail centers, hotels or
motels, nursing homes, congregate care facilities, industrial
properties, mini-warehouse facilities or self-storage facilities,
mobile home parks, mixed use or other types of commercial
properties (the "Commercial Properties"). The term "Mortgaged
Properties" shall refer to Multifamily Properties or Commercial
Properties, or both.
To the extent described in the related Prospectus Supplement, some
or all of the Mortgage Loans may also be secured by an assignment
of one or more leases (each, a "Lease") of one or more lessees
(each, a "Lessee") of all or a portion of the related Mortgaged
Properties. Unless otherwise specified in the related Prospectus
Supplement, a significant or the sole source of payments on certain
Commercial Loans (as defined herein) will be the rental payments
due under specified Leases. In certain circumstances, with respect
to Commercial Properties, the material terms and conditions of the
related Leases may be set forth in the related Prospectus
Supplement. See "Description of the Trust Funds-Mortgage
Loans-Leases" and "Risk Factors-Limited Assets" herein.
The Mortgaged Properties may be located in or outside the United
States. All Mortgage Loans will have been originated by persons
other than the Depositor, and all Mortgage Assets will have been
purchased or otherwise acquired, either directly or indirectly, by
the Depositor on or before the date of initial issuance of the
related Series of Certificates. The related Prospectus Supplement
will indicate if any such persons are affiliates of the Depositor.
Each Mortgage Loan may provide for no accrual of interest or for
accrual of interest thereon at an interest rate (a "Mortgage
Interest Rate") that is fixed over its term or that adjusts from
time to time, or is partially fixed and partially floating or that
may be converted from a floating to a fixed Mortgage Interest Rate,
or from a fixed to a floating Mortgage Interest Rate, from time to
time at the Mortgagor's election, in each case as described in the
related Prospectus Supplement. The floating Mortgage Interest Rates
on the Mortgage Loans in a Trust Fund may be based on one or more
indices. Each Mortgage Loan may provide for scheduled payments to
maturity, payments that adjust from time to time to accommodate
changes in the Mortgage Interest Rate or to reflect the occurrence
of certain events, and may provide for negative amortization or
accelerated amortization, in each case as described in the related
Prospectus Supplement. Each Mortgage Loan may be fully amortizing
or require a balloon payment due on its stated maturity date, in
each case as described in the related Prospectus Supplement. Each
Mortgage Loan may contain prohibitions on prepayment or require
payment of a premium or a yield maintenance penalty in connection
with a prepayment, in each case as described in the related
Prospectus Supplement. The Mortgage Loans may provide for payments
of principal, interest or both, on due dates that occur monthly,
quarterly, semi-annually or at such other interval as is specified
in the related Prospectus Supplement. See "Description of the Trust
Funds-Assets."
(b) Collection Accounts Each Trust Fund will include one or more
accounts established and maintained on behalf
of the Certificateholders into which the person
or persons designated in the related Prospectus
Supplement will, to the extent described herein
and in such Prospectus Supplement, deposit all
payments and collections received or advanced
with respect to the Mortgage Assets and other
assets in the Trust Fund. Such an account may
be maintained as an interest bearing or a
non-interest bearing account, and funds held
therein may be held as cash or invested in
certain short-term, investment grade
obligations, in each case as described in the
related Prospectus Supplement. See "Description
of the Agreements- Distribution Account and
Other Collection Accounts."
(c) Credit Support If so provided in the related Prospectus Supplement,
partial or full protection against certain defaults
and losses on the Mortgage Assets in the related
Trust Fund may be provided to one or more classes of
Certificates of the related Series in the form of
subordination of one or more other classes of
Certificates of such Series, which other classes may
include one or more classes of Offered Certificates,
or by one or more other types of credit support,
such as a letter of credit, insurance policy,
guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage
with respect to the Certificates of any Series,
"Credit Support"). The amount and types of coverage,
the identification of the entity providing the
coverage (if applicable) and related information
with respect to each type of Credit Support, if any,
will be described in the Prospectus Supplement for a
Series of Certificates. The Prospectus Supplement
for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will
describe any similar forms of credit support that
are provided by or with respect to, or are included
as part of the trust fund evidenced by or providing
security for, such CMBS. See "Risk Factors-Credit
Support Limitations" and "Description of Credit
Support."
(d) Cash Flow Agreements If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related Series will be
invested at a specified rate. The Trust Fund
may also include certain other agreements, such
as interest rate exchange agreements, interest
rate cap or floor agreements, currency exchange
agreements or similar agreements provided to
reduce the effects of interest rate or currency
exchange rate fluctuations on the Mortgage
Assets of one or more classes of Certificates.
The principal terms of any such guaranteed
investment contract or other agreement (any
such agreement, a "Cash Flow Agreement"),
including, without limitation, provisions
relating to the timing, manner and amount of
payments thereunder and provisions relating to
the termination thereof, will be described in
the Prospectus Supplement for the related
Series. In addition, the related Prospectus
Supplement will provide certain information
with respect to the obligor under any such Cash
Flow Agreement. The Prospectus
Supplement for any Series of Certificates evidencing an interest in
a Trust Fund that includes CMBS will describe any cash flow
agreements that are included as part of the trust fund evidenced by
or providing security for such CMBS. See "Description of the Trust
Funds-Cash Flow Agreements."
Description of Certificates Each Series of Certificates evidencing an
interest in a Trust Fund that includes
Mortgage Loans as part of its assets will
be issued pursuant to a pooling and
servicing agreement, and each Series of
Certificates evidencing an interest in a
Trust Fund that does not include Mortgage
Loans will be issued pursuant to a trust
agreement. The Mortgage Loans shall be
serviced pursuant to a pooling and
servicing agreement. Pooling and trust
agreements are referred to herein as the
"Agreements." Each Series of Certificates
will include one or more classes. Each
Series of Certificates (including any
class or classes of Certificates of such
Series not offered hereby) will represent
in the aggregate the entire beneficial
ownership interest in the Trust Fund. Each
class of Certificates (other than certain
Stripped Interest Certificates, as defined
below) will have a stated principal amount
(a "Certificate Balance") and (other than
certain Stripped Principal Certificates,
as defined below), will accrue interest
thereon based on a fixed, variable or
floating interest rate (a "Pass-Through
Rate"). The related Prospectus Supplement
will specify the Certificate Balance, if
any, and the Pass-Through Rate, if any,
for each class of Certificates or, in the
case of a variable or floating
Pass-Through Rate, the method for
determining the Pass-Through Rate.
Distributions on Certificates Each Series of Certificates will consist
of one or more classes of Certificates
that may (i) provide for the accrual of
interest thereon based on fixed, variable
or floating rates; (ii) be senior
(collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate
Certificates") to one or more other
classes of Certificates in respect of
certain distributions on the Certificates;
(iii) be entitled to principal
distributions, with disproportionately
low, nominal or no interest distributions
(collectively, "Stripped Principal
Certificates"); (iv) be entitled to
interest distributions, with
disproportionately low, nominal or no
principal distributions (collectively,
"Stripped Interest Certificates"); (v)
provide for distributions of accrued
interest thereon commencing only following the occurrence of
certain events, such as the retirement of one or more other classes
of Certificates of such Series (collectively, "Accrual
Certificates"); (vi) provide for distributions of principal
sequentially, based on specified payment schedules or other
methodologies; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of
the characteristics described in this paragraph, including a
Stripped Principal Certificate component and a Stripped Interest
Certificate component, to the extent of available funds, in each
case as described in the related Prospectus Supplement. With
respect to Certificates with two or more components, references
herein to Certificate Balance, notional amount and Pass-Through
Rate refer to the principal balance, if any, notional amount, if
any, and the Pass-Through Rate, if any, for any such component.
The Certificates will not be guaranteed or insured by the Depositor
or any of its affiliates, by any governmental agency or
instrumentality or by any other person, unless otherwise provided
in the related Prospectus Supplement. See "Risk Factors-Limited
Assets" and "Description of the Certificates."
(a) Interest Interest on each class of Offered Certificates (other
than Stripped Principal Certificates and certain classes
of Stripped Interest Certificates) of each Series will
accrue at the applicable Pass-Through Rate on the
outstanding Certificate Balance thereof and will be
distributed to Certificateholders as provided in the
related Prospectus Supplement (each of the specified
dates on which distributions are to be made, a
"Distribution Date"). Distributions with respect to
interest on Stripped Interest Certificates may be made on
each Distribution Date on the basis of a notional amount
as described in the related Prospectus Supplement.
Distributions of interest with respect to one or more
classes of Certificates may be reduced to the extent of
certain delinquencies, losses, prepayment interest
shortfalls, and other contingencies described herein and
in the related Prospectus Supplement. Stripped Principal
Certificates with no stated Pass-Through Rate will not
accrue interest. See "Risk Factors-Average Life of
Certificates; Prepayments; Yields," "Yield
Considerations" and "Description of the Certificates-
Distributions of Interest on the Certificates."
(b) Principal The Certificates of each Series initially will have an
aggregate Certificate Balance no greater than the
outstanding principal balance of the Mortgage Assets as
of, unless the related Prospectus Supplement provides
otherwise, the close of business on the first day of the
month of formation of the related Trust Fund (the
"Cut-off Date"), after application of scheduled payments
due on or before such date, whether or not received. The
Certificate Balance of a Certificate outstanding from
time to time represents the maximum amount that the
holder thereof is then entitled to receive in respect of
principal from future cash flow on the assets in the
related Trust Fund. Unless otherwise provided in the
related Prospectus Supplement, distributions of principal
will be made on each Distribution Date to the class or
classes of Certificates entitled thereto until the
Certificate Balances of such Certificates have been
reduced to zero. Unless otherwise specified in the
related Prospectus Supplement, distributions of principal
of any class of Certificates will be made on a pro rata
basis among all of the Certificates of such class or by
random selection, as described in the related Prospectus
Supplement or otherwise established by the related
Trustee. Stripped Interest Certificates with no
Certificate Balance will not receive distributions in
respect of principal. See "Description of the
Certificates-Distributions of Principal of the
Certificates."
Advances Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer or the Special Servicer (each,
a "Servicer") will be obligated as part of its servicing
responsibilities to make certain advances with respect to
delinquent scheduled payments on the Whole Loans in such Trust
Fund which it deems recoverable. Any such advances will be
made under and subject to any determinations or conditions set
forth in the related Prospectus Supplement. Neither the
Depositor nor any of its affiliates will have any
responsibility to make such advances. Advances made by a
Servicer are reimbursable generally from subsequent recoveries
in respect of such Whole Loans and otherwise to the extent
described herein and in the related Prospectus Supplement. If
and to the extent provided in the Prospectus Supplement for
any "Series," each Servicer will be entitled to receive
interest on its outstanding advances, payable from amounts
in the related Trust Fund. The Prospectus Supplement for
any Series of Certificates evidencing an interest in
a Trust Fund that includes CMBS will describe any corresponding
advancing obligation of any person in connection with such CMBS.
See "Description of the Certificates-Advances in Respect of
Delinquencies."
Termination If so specified in the related Prospectus Supplement, a
Series of Certificates may be subject to optional early
termination through the repurchase of the Mortgage Assets
in the related Trust Fund by the party specified therein,
under the circumstances and in the manner set forth
therein. If so provided in the related Prospectus
Supplement, upon the reduction of the Certificate Balance
of a specified class or classes of Certificates by a
specified percentage or amount or on and after a date
specified in such Prospectus Supplement, the party
specified therein will solicit bids for the purchase of
all of the Mortgage Assets of the Trust Fund, or of a
sufficient portion of such Mortgage Assets to retire such
class or classes, or purchase such Mortgage Assets at a
price set forth in the related Prospectus Supplement. In
addition, if so provided in the related Prospectus
Supplement, certain classes of Certificates may be
purchased subject to similar conditions. See "Description
of the Certificates-Termination."
Registration of Certificates If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as
the nominee of DTC. No person acquiring an
interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such
person's interest except in the event that
definitive certificates are issued under
the limited circumstances described
herein. See "Risk Factors-Book-Entry
Registration" and "Description of the
Certificates-Book-Entry Registration and
Definitive Certificates."
Tax Status of the Certificates The Certificates of each Series will
constitute either (i) "regular
interests" ("REMIC Regular
Certificates") or "residual
interests" ("REMIC Residual
Certificates") in a Trust Fund
treated as a real estate mortgage
investment conduit ("REMIC") under
Sections 860A through 860G of the
Code, or (ii) interests ("Grantor
Trust Certificates") in a Trust Fund treated as a grantor trust
under applicable provisions of the Code.
The Certificates will be treated as (i) "loans" within the meaning
of the assets described in section 7701(a)(19)(C) of the Internal
Revenue Code of 1986, as amended (the "Code") and (ii) "real estate
assets" within the meaning of section 856(c)(5)(A) of the Code, in
each case to the extent described herein and in the Prospectus. See
"Certain Federal Income Tax Consequences" herein and in the
Prospectus.
(a) REMIC REMIC Regular Certificates generally will be treated as debt
obligations of the applicable REMIC for federal income tax
purposes. Certain REMIC Regular Certificates may be issued
with original issue discount for federal income tax purposes.
See "Certain Federal Income Tax Consequences" in the
Prospectus Supplement.
(b) Grantor Trust If no election is made to treat the Trust Fund
relating to a Series of Certificates as a REMIC, the
Trust Fund will be classified as a grantor trust and
not as an association taxable as a corporation for
federal income tax purposes, and therefore holders
of Certificates will be treated as the owners of
undivided pro rata interest in the Mortgage Pool or
pool of securities and any other assets held by the
Trust Fund.
Investors are advised to consult their tax advisors and to review
"Certain Federal Income Tax Consequences" herein and in the related
Prospectus Supplement.
ERISA Considerations A fiduciary of any employee benefit plan
subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code should
carefully review with its own legal advisors
whether the purchase or holding of Certificates
could give rise to a transaction prohibited or
otherwise impermissible under ERISA or the
Code. See "ERISA Considerations."
Legal Investment The related Prospectus Supplement will specify
whether the Offered Certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984.
Investors whose investment authority is subject to
legal
restrictions should consult their own legal advisors to determine
whether and to what extent the Offered Certificates constitute
legal investments for them. See "Legal Investment" herein and in
the related Prospectus Supplement.
Rating At the date of issuance, as to each Series, each class of
Offered Certificates will be rated not lower than investment
grade by one or more nationally recognized statistical rating
agencies (each, a "Rating Agency"). See "Rating" herein and in
the related Prospectus Supplement.
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.
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any Series will develop or, if it does develop, that it will provide
holders with liquidity of investment or will continue while Certificates of
such Series remain outstanding. Any such secondary market may provide less
liquidity to investors than any comparable market for securities evidencing
interests in single family mortgage loans. The market value of Certificates
will fluctuate with changes in prevailing rates of interest. Consequently,
sale of Certificates by a holder in any secondary market that may develop may
be at a discount from 100% of their original principal balance or from their
purchase price. Furthermore, secondary market purchasers may look only
hereto, to the related Prospectus Supplement and to the reports to
Certificateholders delivered pursuant to the related Agreement as described
herein under the heading "Description of the Certificates-Reports to
Certificateholders," "-Book-Entry Registration and Definitive Certificates"
and "Description of the Agreements-Evidence as to Compliance" for information
concerning the Certificates. Except to the extent described herein and in the
related Prospectus Supplement, Certificateholders will have no redemption
rights and the Certificates are subject to early retirement only under
certain specified circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates-Termination."
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, any Servicer, or any of their affiliates. The only obligations
with respect to the Certificates or the Mortgage Assets will be the
obligations (if any) of the Depositor (or, if otherwise provided in the
related Prospectus Supplement, the person identified therein as the person
making certain representations and warranties with respect to the Mortgage
Loans, as applicable, the "Warrantying Party") pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans. Since
certain representations and warranties with respect to the Mortgage Assets
may have been made and/or assigned in connection with transfers of such
Mortgage Assets prior to the Closing Date, the rights of the Trustee and the
Certificateholders with respect to such representations or warranties will be
limited to their rights as an assignee thereof. Unless otherwise specified in
the related Prospectus Supplement, none of the Depositor, any Servicer or any
affiliate thereof will have any obligation with respect to representations or
warranties made by any other entity. Unless otherwise specified in the
related Prospectus Supplement, neither the Certificates nor the underlying
Mortgage Assets will be guaranteed or insured by any governmental agency or
instrumentality, or by the Depositor, any Servicer or any of their
affiliates. Proceeds of the assets included in the related Trust Fund for
each Series of Certificates (including the Mortgage Assets and any form of
credit enhancement) will be the sole source of payments on the Certificates,
and there will be no recourse to the Depositor or any other entity in the
event that such proceeds are insufficient or otherwise unavailable to make
all payments provided for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement
Certificateholders of a Series will not have any claim against or security
interest in the Trust Funds for any other Series. If the related Trust Fund
is insufficient to make payments on such Certificates, no other assets will
be available for payment of the deficiency. Additionally, certain amounts
remaining in certain funds or accounts, including the Distribution Account,
the Collection Account and REO Account and any accounts maintained as Credit
Support, may be withdrawn under certain conditions, as described in the
related Prospectus Supplement. In the event of such withdrawal, such amounts
will not be available for future payment of principal of or interest on the
Certificates. If so provided in the Prospectus Supplement for a Series of
Certificates consisting of one or more classes of Subordinate Certificates,
on any Distribution Date in respect of which losses or shortfalls in
collections on the Trust Assets have been incurred, the amount of such losses
or shortfalls will be borne first by one or more classes of the Subordinate
Certificates, and, thereafter, by the remaining classes of Certificates in
the priority and manner and subject to the limitations specified in such
Prospectus Supplement.
PREPAYMENTS AND EFFECT ON AVERAGE LIFE OF CERTIFICATES AND YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets
in any Trust Fund generally will result in a faster rate of principal
payments on one or more classes of the related Certificates than if payments
on such Mortgage Assets were made as scheduled. Thus, the prepayment
experience on the Mortgage Assets may affect the average life of each class
of related Certificates. The rate of principal payments on pools of mortgage
loans varies between pools and from time to time is influenced by a variety
of economic, demographic, geographic, social, tax, legal and other factors.
There can be no assurance as to the rate of prepayment on the Mortgage Assets
in any Trust Fund or that the rate of payments will conform to any model
described herein or in any Prospectus Supplement. If prevailing interest
rates fall significantly below the interest rates on the applicable Mortgage
Assets, principal prepayments are likely to be higher than if prevailing
rates remain at or above the rates borne by the Mortgage Loans underlying or
comprising the Mortgage Assets in any Trust Fund. As a result, the actual
maturity of any class of Certificates could occur significantly earlier than
expected. A Series of Certificates may include one or more classes of
Certificates with priorities of payment and, as a result, yields on other
classes of Certificates, including classes of Offered Certificates, of such
Series may be more sensitive to prepayments on Mortgage Assets. A Series of
Certificates may include one or more classes offered at a significant premium
or discount. Yields on such classes of Certificates will be sensitive, and
in some cases extremely sensitive, to prepayments on Mortgage Assets and,
where the amount of interest payable with respect to a class is
disproportionately high, as compared to the amount of principal, as with
certain classes of Stripped Interest Certificates, a holder might, in some
prepayment scenarios, fail to recoup its original investment. A Series of
Certificates may include one or more classes of Certificates, including
classes of Offered Certificates, that provide for distribution of principal
thereof from amounts attributable to interest accrued but not currently
distributable on one or more classes of Accrual Certificates and, as a
result, yields on such Certificates will be sensitive to (a) the provisions
of such Accrual Certificates relating to the timing of distributions of
interest thereon and (b) if such Accrual Certificates accrue interest at a
variable or floating Pass-Through Rate, changes in such rate. See "Yield
Considerations" herein and,if applicable, in the related Prospectus
Supplement.
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 related Agreement. Such rating
will not constitute an assessment of the likelihood that principal
prepayments (including those caused by defaults) on the related Mortgage
Assets 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 Series of Certificates. Such rating
will not address the possibility that prepayment at higher or lower rates
than anticipated by an investor may cause such investor to experience a lower
than anticipated yield or that an investor purchasing a Certificate at a
significant premium might fail to recoup its initial investment under certain
prepayment scenarios. Each Prospectus Supplement will identify any payment
to which holders of Offered Certificates of the related Series are entitled
that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a Series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of such Series.
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 any particular pool of Mortgage Assets. 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 underlying or comprising
the Mortgage Assets in a particular Trust Fund and any secondary financing on
the related Mortgaged Properties become equal to or greater than the value of
the Mortgaged 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 any Trust Fund. To the extent that such losses are not covered by the
Credit Support, if any, described in the related Prospectus Supplement, such
losses will be borne, at least in part, by the holders of one or more classes
of the Certificates of the related Series. See "Description of Credit
Support" and "Rating".
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the
event thereof, that are greater than similar risks associated with single
family property. See "Description of the Trust Funds-Assets." The ability
of a Mortgagor to repay a loan secured by an income-producing property
typically is dependent primarily upon the successful operation of such
property rather than any independent income or assets of the Mortgagor; thus,
the value of an income-producing property is directly related to the net
operating income derived from such property. In contrast, the ability of a
Mortgagor to repay a single family loan typically is dependent primarily upon
the Mortgagor's household income, rather than the capacity of the property to
produce income; thus, other than in geographical areas where employment is
dependent upon a particular employer or an industry, the Mortgagor's income
tends not to reflect directly the value of such property. A decline in the
net operating income of an income-producing property will likely affect both
the performance of the related loan as well as the liquidation value of such
property, whereas a decline in the income of a Mortgagor on a single family
property will likely affect the performance of the related loan but may not
affect the liquidation value
of such property. Moreover, a decline in the value of a Mortgaged Property
will increase the risk of loss particularly with respect to any related
junior Mortgage Loan. See "-Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing
property leased by the Mortgagor to tenants as well as the liquidation value
of such property may be dependent upon the business operated by such tenants
in connection with such property, the creditworthiness of such tenants or
both. The risks associated with such loans may be offset by the number of
tenants or, if applicable, a diversity of types of business operated by such
tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
Mortgagor default, recourse may be had only against the specific property and
such other assets, if any, as have been pledged to secure the related
Mortgage Loan. With respect to those Mortgage Loans that provide for
recourse against the Mortgagor and its assets generally, there can be no
assurance that such recourse will ensure a recovery in respect of a defaulted
Mortgage Loan greater than the liquidation value of the related Mortgaged
Property.
Further, the concentration of default, foreclosure and loss risks in
individual Mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of
single family loans both because the Mortgage Assets in a Trust Fund will
generally consist of a smaller number of loans than would a single family
pool of comparable aggregate unpaid principal balance and because of the
higher principal balance of individual Mortgage Loans. Mortgage Assets in a
Trust Fund may consist of only a single or limited number of Mortgage Loans
and/or relate to Leases to only a single Lessee or a limited number of
Lessees.
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each Mortgagor
under a Commercial Loan may be an entity created by the owner or purchaser of
the related Commercial Property solely to own or purchase such property, in
part to isolate the property from the debts and liabilities of such owner or
purchaser. Unless otherwise specified, each such Commercial Loan will
represent a nonrecourse obligation of the related Mortgagor secured by the
lien of the related Mortgage and the related Lease Assignments. Whether or
not such loans are recourse or nonrecourse obligations, it is not expected
that the Mortgagors will have any significant assets other than the
Commercial Properties and the related Leases, which will be pledged to the
Trustee under the related Agreement. Therefore, the payment of amounts due
on any such Commercial Loans, and, consequently, the payment of principal of
and interest on the related Certificates, will depend primarily or solely on
rental payments by the Lessees. Such rental payments will, in turn, depend
on continued occupancy by, and/or the creditworthiness of, such Lessees,
which in either case may be adversely affected by a general economic downturn
or an adverse change in their financial condition. Moreover, to the extent a
Commercial Property was designed for the needs of a specific type of tenant
(e.g., a nursing home, hotel or motel), the value of such property in the
event of a default by the Lessee or the early termination of such Lease may
be adversely affected because of difficulty in re-leasing the property to a
suitable substitute lessee or, if re-leasing to such a substitute is not
possible, because of the cost of altering the property for another more
marketable use. As a result, without the benefit of the Lessee's continued
support of the Commercial Property, and absent significant amortization of
the Commercial Loan, if such loan is foreclosed on and the Commercial
Property liquidated following a lease default, the net proceeds might be
insufficient to cover the outstanding principal and interest owing on such
loan, thereby increasing the risk that holders of the Certificates will
suffer some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and,
thus, will require substantial principal payments (i.e., balloon payments) at
their stated maturity. Balloon Mortgage Loans involve a greater degree of
risk because the ability of a Mortgagor to make a balloon payment typically
will depend upon its ability either to timely refinance the loan or to timely
sell the related Mortgaged Property. The ability of a Mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the level of available mortgage interest rates at the time of sale
or refinancing, the Mortgagor's equity in the related Mortgaged Property, the
financial condition and operating history of the Mortgagor and the related
Mortgaged Property, tax laws, rent control laws (with respect to certain
Multifamily Properties and mobile home parks), reimbursement rates (with
respect to certain nursing homes), renewability of operating licenses,
prevailing general economic conditions and the availability of credit for
commercial or multifamily real properties, as the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans may be secured primarily by junior mortgages. In the case
of liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loan would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans
will be greater with respect to junior Mortgage Loans. See "-Risks
Associated with Mortgage Loans and Mortgaged Properties."
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to
maximize recoveries on defaulted Whole Loans, a Master Servicer or a Special
Servicer will be permitted (within prescribed parameters) to extend and
modify Whole Loans that are in default or as to which a payment default is
imminent,including in particular with respect to balloon payments. In
addition, a Master Servicer or a Special Servicer may receive a workout fee
based on receipts from or proceeds of such Whole Loans. While any such
entity generally will be required to determine that any such extension or
modification is reasonably 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 or payment of a workout fee will
increase the present value of receipts from or proceeds of Whole Loans that
are in default or as to which a payment default is imminent. Additionally,
if so specified in the related Prospectus Supplement, certain of the Mortgage
Loans included in the Mortgage Pool for a Series may have been subject to
workouts or similar arrangements following periods of delinquency and
default.
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 Mortgagor's sophistication and form of organization may increase the
likelihood of protracted litigation or bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a Series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of
credit, insurance policies, guarantees, reserve funds or other types of
credit support, or combinations thereof. Use of Credit Support will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such Credit Support may not cover all
potential losses or risks; for example, Credit Support may or may not cover
fraud or negligence by a mortgage loan originator or other parties.
A Series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce
the risk to holders of Senior Certificates of delinquent distributions or
ultimate losses, the amount of subordination will be limited and may decline
under certain circumstances. In addition, if principal payments on one or
more classes of Certificates of a Series are made in a specified order of
priority, any limits with respect to the aggregate amount of claims under any
related Credit Support may be exhausted before the principal of the lower
priority classes of Certificates of such Series has been repaid. As a
result, the impact of significant losses and shortfalls on the Trust Assets
may fall primarily upon those classes of Certificates having a lower priority
of payment. Moreover, if a form of Credit Support covers more than one
Series of Certificates (each, a "Covered Trust"), holders of Certificates
evidencing an interest in a Covered Trust will be subject to the risk that
such Credit Support will be exhausted by the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria
established by each Rating Agency rating such classes of Certificates based
on an assumed level of defaults, delinquencies, other losses or other
factors. There can, however, be no assurance that the loss experience on the
related Mortgage Assets will not exceed such assumed levels. See "-Limited
Nature of Ratings," "Description of the Certificates" and "Description of
Credit Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. In certain
circumstances, the Trustee or the Master Servicer will be permitted to
reduce, terminate or substitute all or a portion of the credit enhancement
for any Series of Certificates, if the applicable Rating Agency indicates
that the then-current rating thereof will not be adversely affected. The
rating of any Series of Certificates by any applicable Rating Agency may be
lowered following the initial issuance thereof as a result of the downgrading
of the obligations of any applicable credit support provider, or as a result
of losses on the related Mortgage Assets substantially in excess of the
levels contemplated by such Rating Agency at the time of its initial rating
analysis. None of the Depositor, the Trustee, the Master Servicer or any of
their affiliates will have any obligation to replace or supplement any credit
enhancement, or to take any other action to maintain any rating of any Series
of Certificates.
ENFORCEABILITY
Mortgages may 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. Mortgages may also include a debt-acceleration clause,
which permits the lender to accelerate the debt upon a monetary or
non-monetary default of the Mortgagor. Such clauses are generally
enforceable subject to certain exceptions. 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 when an acceleration of the indebtedness would
be inequitable or unjust or the circumstances would render the acceleration
unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
Mortgagor typically assigns 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 defaults, the license terminates and the lender is
entitled to collect rents. Such assignments are typically not perfected as
security interests prior to actual possession of the cash flows. Some state
laws 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 the
Mortgage Loans and the Leases-Leases and Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under federal law, including the Comprehensive
Environmental, Response, and Liability Act of 1980, as amended ("CERCLA"),
and the laws of certain states, failure to perform the remediation required
or demanded by the state or federal government of any condition or
circumstance that (i) may pose an imminent or substantial endangerment to the
public health or welfare or the environment, (ii) may result in a release or
threatened release of any hazardous material, or (iii) may give rise to any
environmental claim or demand (each such condition or circumstance is defined
as an "Environmental Condition"), may give rise to a lien on the property to
ensure the reimbursement of remedial costs incurred by the federal or state
government. In several states, such a lien has priority over the lien of an
existing mortgage against such property. Of particular concern may be those
mortgaged properties which are, or have been, the site of manufacturing,
industrial or disposal activity. Such environmental risks may give rise to
(a) a diminution in value of property securing a mortgage note or the
inability to foreclose against such property or (b) in certain circumstances
as more fully described below, liability for clean-up costs or other remedial
actions, which liability could exceed the value of such property, the
aggregate assets of the owner or operator, or the principal balance of the
related indebtedness.
The state of the law is currently unclear as to whether and under what
circumstances cleanup costs, or the obligation to take remedial actions,
could be imposed on a secured lender such as the Trust Fund. Under the laws
of some states and under CERCLA, a lender may be liable as an "owner" or an
"operator" of a contaminated mortgaged property for the costs of remediation
of releases or threatened releases of hazardous substances at the mortgaged
property. Such liability may attach if the lender or its agents or employees
have participated in the management of the operations of the borrower, even
though the environmental damage or threat was caused by a prior owner,
operator, or other third party.
Excluded from CERCLA's definition of "owner or operator" is any person
"who without participating in management of the facility, holds indicia of
ownership primarily to protect his security interest" (the "secured-creditor
exemption"). This exemption for holders of a security interest such as a
secured lender applies only in circumstances when the lender seeks to protect
its security interest in the contaminated facility or property. Thus, if a
lender's activities encroach on the actual management of such facility or
property, the lender faces potential liability as an "owner or operator"
under CERCLA. Similarly, when a lender forecloses and takes title to a
contaminated facility or property (whether it holds the facility or property
as an investment or leases it to a third party), under some circumstances the
lender may incur potential CERCLA liability.
Recent amendments to CERCLA list permissible actions that may be
undertaken by a lender holding security in a contaminated facility without
exceeding the bounds of the secured-creditor exemption, subject to certain
conditions and limitations. Additionally, the recent amendments provide
certain protections from CERCLA liability as an "owner or operator" to a
lender who forecloses on contaminated property, as long as it seeks to divest
itself of the facility at the earliest practicable commercially reasonable
time on commercially reasonable terms. The protections afforded lenders
under the recent amendments are subject to terms and conditions that have not
been clarified by the courts. Moreover, the CERCLA secured-creditor
exemption does not necessarily affect the potential for liability in actions
under other federal or state laws which may impose liability on "owners or
operators" but do not incorporate the secured-creditor exemption.
Furthermore, the secured-creditor exemption does not protect lenders from
other bases of CERCLA liability, such as that imposed on "generators" or
"transporters" of hazardous substances. See "Certain Legal Aspects of the
Mortgage Loans and the Leases -- Environmental Legislation."
DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for
a particular series of Certificates may include Mortgage Loans that are past
due or are non-performing. Unless otherwise described in the related
Prospectus Supplement, the servicing of such Mortgage Loans as to which a
specified number of payments are delinquent will be performed by the Special
Servicer; however, the same entity may act as both Master Servicer and
Special Servicer. Credit Support provided with respect to a particular
series of Certificates may not cover all losses related to such delinquent or
nonperforming Mortgage Loans, and investors should consider the risk that the
inclusion of such Mortgage Loans in the Trust Fund may adversely affect the
rate of defaults and prepayments on the Mortgage Assets in such Trust Fund
and the yield on the Certificates of such series.
RISKS ASSOCIATED WITH MORTGAGED PROPERTIES NOT LOCATED IN THE UNITED STATES
If so provided in the related Prospectus Supplement, the Trust Fund for
a particular Series of Certificates may include Mortgage Loans secured by
Mortgaged Properties not located in the United States. The related
Prospectus Supplement will set forth certain material risks associated with
such Mortgage Loans which are different and additional to those associated
with similar properties in the United States including restrictions on
enforcement of the rights of the holder of the related Mortgage Notes,
currency exchange rate fluctuations, currency exchange controls and general
trends or conditions in the related real estate market.
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans
and transactions involving the assets of such plans. 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
Offered Certificates of any Series.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on
their federal income tax returns as ordinary income their pro rata share of
the taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Certain Federal Income Tax
Consequences-Federal Income Tax Consequences for REMIC Certificates."
Accordingly, under certain circumstances, holders of Offered Certificates
that constitute REMIC Residual Certificates may have taxable income and tax
liabilities arising from such investment during a taxable year in excess of
the cash received during such period. Individual holders of REMIC Residual
Certificates may be limited in their ability to deduct servicing fees and
other expenses of the REMIC. In addition, REMIC Residual Certificates are
subject to certain restrictions on transfer. Because of the special tax
treatment of REMIC Residual Certificates, the taxable income arising in a
given year on a REMIC Residual Certificate will not be equal to the taxable
income associated with investment in a corporate bond or stripped instrument
having similar cash flow characteristics and pre-tax yield. Therefore, the
after-tax yield on the REMIC Residual Certificate may be significantly less
than that of a corporate bond or stripped instrument having similar cash flow
characteristics. Additionally, prospective purchasers of a REMIC Residual
Certificate should be aware that recently issued regulations provide
restrictions on the ability to mark-to-market REMIC residual interests. See
"Certain Federal Income Tax Consequences-Federal Income Tax Consequences for
REMIC Certificates."
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a Series or a similar means of allocating decision-making
under the related Agreement ("Voting Rights") will be required to direct, and
will be sufficient to bind all Certificateholders of such Series to, certain
actions, including directing the Special Servicer or the Master Servicer with
respect to actions to be taken with respect to certain Mortgage Loans and REO
Properties and amending the related Agreement in certain circumstances. See
"Description of the Agreements-Events of Default," "-Rights Upon Event of
Default," "-Amendment" and "-List of Certificateholders."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be
registered in the names of the Beneficial Owners or their nominees. Because
of this, unless and until Definitive Certificates are issued, Beneficial
Owners will not be recognized by the Trustee as "Certificateholders" (as that
term is to be used in the related Agreement). Hence, until such time,
Beneficial Owners will be able to exercise the rights of Certificateholders
only indirectly through DTC and its participating organizations. See
"Description of the Certificates-Book-Entry Registration and Definitive
Certificates."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund will include (i) one or more
multifamily and/or commercial mortgage loans and mortgage participations (the
"Mortgage Loans"), (ii) pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans
or other similar participations, certificates or securities (collectively,
the "CMBS"), or (iii) a combination of Mortgage Loans and CMBS. As used
herein, "Mortgage Loans" refers to both whole Mortgage Loans and Mortgage
Loans underlying CMBS. Mortgage Loans that secure, or interests in which are
evidenced by, CMBS are herein sometimes referred to as "Underlying Mortgage
Loans." Mortgage Loans that are not Underlying Mortgage Loans are sometimes
referred to as "Whole Loans." Any pass-through certificates or other
asset-backed certificates in which an CMBS evidences an interest or which
secure an CMBS are sometimes referred to herein also as CMBS or as
"Underlying CMBS." Mortgage Loans and CMBS are sometimes referred to herein
as "Mortgage Assets." No CMBS originally issued in a private placement will
be included as an asset of a Trust Fund until the holding period provided for
under Rule 144(k) promulgated under the Securities Act of 1933, as amended,
has expired or such CMBS has been registered under the Securities Act of
1933, as amended. The Mortgage Assets will not be guaranteed or insured by
Imperial Credit Commercial Mortgage Acceptance Corporation (the "Depositor")
or any of its affiliates or, unless otherwise provided in the Prospectus
Supplement, by any governmental agency or instrumentality or by any other
person. Each Mortgage Asset will be selected by the Depositor for inclusion
in a Trust Fund from among those purchased, either directly or indirectly,
from a prior holder thereof (an "Asset Seller"), which may be an affiliate of
the Depositor and, with respect to Mortgage Assets, which prior holder may or
may not be the originator of such Mortgage Loan or the issuer of such CMBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of
any other trust fund established by the Depositor. If specified in the
related Prospectus Supplement, the assets of a Trust Fund will consist of
certificates representing beneficial ownership interests in another trust
fund that contains the Mortgage Assets.
MORTGAGE LOANS
GENERAL
The Mortgage Loans will be secured by liens on, or security interests
in, Mortgaged Properties consisting of (i) residential properties consisting
of five or more rental or cooperatively owned dwelling units in high-rise,
mid-rise or garden apartment buildings ("Multifamily Properties" and the
related loans, "Multifamily Loans") or (ii) office buildings, retail centers,
hotels or motels, nursing homes, congregate care facilities, industrial
properties, mini-warehouse facilities or self-storage facilities, mobile home
parks, mixed use or other types of commercial properties ("Commercial
Properties" and the related loans, "Commercial Loans") located, unless
otherwise specified in the related Prospectus Supplement, in any one of the
fifty states, the District of Columbia or the Commonwealth of Puerto Rico.
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular Series of Certificates may include Mortgage Loans secured by
Mortgagor Properties not located in the United States. To the extent
specified in the related Prospectus Supplement, the Mortgage Loans will be
secured by first mortgages or deeds of trust or other similar
security instruments creating a first lien on Mortgaged Property. The
Mortgaged Properties may include leasehold interests in properties, the title
to which is held by third party lessors. The Prospectus Supplement will
specify whether the term of any such leasehold exceeds the term of the
mortgage note by at least ten years. Each Mortgage Loan will have been
originated by a person (the "Originator") other than the Depositor. The
related Prospectus Supplement will indicate if any Originator is an affiliate
of the Depositor. The Mortgage Loans will be evidenced by promissory notes
(the "Mortgage Notes") secured by mortgages or deeds of trust (the
"Mortgages") creating a lien on the Mortgaged Properties. Mortgage Loans
will generally also be secured by an assignment of leases and rents and/or
operating or other cash flow guarantees relating to the Mortgage Loan.
LEASES
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all
or a portion of such properties. Pursuant to a Lease Assignment, the related
Mortgagor may assign its rights, title and interest as lessor under each
Lease and the income derived therefrom to the related mortgagee, while
retaining a license to collect the rents for so long as there is no default.
If the Mortgagor defaults, the license terminates and the mortgagee or its
agent is entitled to collect the rents from the related Lessee or Lessees for
application to the monetary obligations of the Mortgagor. State law may
limit or restrict the enforcement of the Lease Assignments by a mortgagee
until it takes possession of the related Mortgaged Property and/or a receiver
is appointed. See "Certain Legal Aspects of the Mortgage Loans and the
Leases-Leases and Rents." Alternatively, to the extent specified in the
related Prospectus Supplement, the Mortgagor and the mortgagee may agree that
payments under Leases are to be made directly to a Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to
cover all scheduled payments of principal and interest on the related
Mortgage Loans and, in certain cases, their pro rata share of the operating
expenses, insurance premiums and real estate taxes associated with the
Mortgaged Properties. Certain of the Leases may require the Mortgagor to
bear costs associated with structural repairs and/or the maintenance of the
exterior or other portions of the Mortgaged Property or provide for certain
limits on the aggregate amount of operating expenses, insurance premiums,
taxes and other expenses that the Lessees are required to pay. If so
specified in the related Prospectus Supplement, under certain circumstances
the Lessees may be permitted to set off their rental obligations against the
obligations of the Mortgagors under the Leases. In those cases where
payments under the Leases (net of any operating expenses payable by the
Mortgagors) are insufficient to pay all of the scheduled principal and
interest on the related Mortgage Loans, the Mortgagors must rely on other
income or sources (including security deposits) generated by the related
Mortgaged Property to make payments on the related Mortgage Loan. To the
extent specified in the related Prospectus Supplement, some Commercial
Properties may be leased entirely to one Lessee. In such cases, absent the
availability of other funds, the Mortgagor must rely entirely on rent paid by
such Lessee in order for the Mortgagor to pay all of the scheduled principal
and interest on the related Commercial Loan. To the extent specified in the
related Prospectus Supplement, certain of the Leases may expire prior to the
stated maturity of the related Mortgage Loan. In such cases, upon expiration
of the Leases the Mortgagors will have to look to alternative sources of
income, including rent payment by any new Lessees or proceeds from the sale
or refinancing of the Mortgaged Property, to cover the payments of principal
and interest due on such Mortgage Loans unless the Lease is renewed. As
specified in the related Prospectus Supplement, certain of the Leases may
provide that upon the occurrence of a casualty affecting a Mortgaged
Property, the Lessee will have the right to terminate its Lease, unless the
Mortgagor, as lessor, is able to cause the Mortgaged Property to be restored
within a specified period of time. Certain Leases may provide that it is the
lessor's responsibility, while other Leases provide that it is the Lessee's
responsibility, to restore the Mortgaged Property after a casualty to its
original condition. Certain Leases may provide a right of termination to the
related Lessee if a taking of a material or specified percentage of the
leased space in the Mortgaged Property occurs, or if the ingress or egress to
the leased space has been materially impaired.
DEFAULT AND LOSS CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is
typically dependent upon the successful operation of such property rather
than upon the liquidation value of the real estate. Unless otherwise
specified in the Prospectus Supplement, the Mortgage Loans will be
non-recourse loans, which means that, absent special facts, the mortgagee may
look only to the Net Operating Income from the property for repayment of the
mortgage debt, and not to any other of the Mortgagor's assets, in the event
of the Mortgagor's default. Lenders typically look to the Debt Service
Coverage Ratio of a loan secured by income-producing property as an important
measure of the risk of default on such a loan. The "Debt Service Coverage
Ratio" of a Mortgage Loan at any given time is the ratio of the Net Operating
Income for a twelve-month period to the annualized scheduled payments on the
Mortgage Loan. "Net Operating Income" means, for any given period, unless
otherwise specified in the related Prospectus Supplement, the total operating
revenues derived from a Mortgaged Property during such period, minus the
total operating expenses incurred in respect of such Mortgaged Property
during such period other than (i) non-cash items such as depreciation and
amortization, (ii) capital expenditures and (iii) debt service on loans
secured by the Mortgaged Property. The Net Operating Income of a Mortgaged
Property will fluctuate over time and may be sufficient or insufficient to
cover debt service on the related Mortgage Loan at any given time.
As the primary component of Net Operating Income, rental income is
subject to the vagaries of the applicable real estate market and/or business
climate. Properties typically leased, occupied or used on a short-term
basis, such as health care-related facilities, hotels and motels, and
mini-warehouse and self-storage facilities, tend to be affected more rapidly
by changes in market or business conditions than do properties leased,
occupied or used for longer periods, such as (typically) retail centers,
office buildings and industrial properties. Commercial Loans may be secured
by owner-occupied Mortgaged Properties or Mortgaged Properties leased to a
single tenant. In addition, a decline in the financial condition of the
Mortgagor or single tenant, as applicable, may have a disproportionately
greater effect on the Net Operating Income from such Mortgaged Properties
than would be the case with respect to Mortgaged Properties with multiple
tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal
property tax rates and other operating expenses, including energy costs;
changes in governmental rules, regulations and fiscal policies, including
environmental legislation; and acts of God may also affect the risk of
default on the related Mortgage Loan. As may be further described in the
related Prospectus Supplement, in some cases leases of Mortgaged Properties
may provide that the Lessee rather than the Mortgagor, is responsible for
payment of some or all of these expenses; however, because leases are subject
to default risks as well when a tenant's income is insufficient to cover its
rent and operating expenses, the existence of such "net of expense"
provisions
will only temper, not eliminate, the impact of expense increases on the
performance of the related Mortgage Loan. See "-Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the
latter include mortgage loans secured by health care-related facilities, the
income from which and the operating expenses of which are subject to state
and/or federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of
the property. Low- and moderate-income housing in particular may be subject
to legal limitations and regulations but, because of such regulations, may
also be less sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon
Mortgage Loan, for example, the risk of default as a result of the
unavailability of a source of funds to finance the related balloon payment at
maturity on terms comparable to or better than those of such Balloon Mortgage
Loans could be significant even though the related Debt Service Coverage
Ratio is high.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the
Loan-to-Value Ratio of a mortgage loan as a measure of risk of loss if a
property must be liquidated upon a default by the Mortgagor.
Appraised values of income-producing properties may be based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing
the property at such date), the income capitalization method (a projection of
value based upon the property's projected net cash flow), or upon a selection
from or interpolation of the values derived from such methods. Each of these
appraisal methods presents analytical challenges. It is often difficult to
find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections
of income and expense and the selection of an appropriate capitalization
rate. Where more than one of these appraisal methods are used and create
significantly different results, or where a high Loan-to-Value Ratio
accompanies a high Debt Service Coverage Ratio (or vice versa), the analysis
of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the
Multifamily and Commercial Loans, or that, for any of such Mortgage Loans,
they are complete or relevant. See "Risk Factors-Risks Associated with
Mortgage Loans and Mortgaged Properties," "-Balloon Payments," "-Junior
Mortgage Loans," "-Obligor Default" and "-Mortgagor Type."
LOAN-TO-VALUE RATIO
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance
of the Mortgage Loan to the Value of the related Mortgaged Property. The
"Value" of a Mortgaged Property, other than with respect to Refinance Loans,
is generally the lesser of (a) the appraised value determined in an appraisal
obtained by the originator at origination of such loan and (b) the sales
price for such property. "Refinance Loans" are loans made to refinance
existing loans. Unless otherwise set forth in the related Prospectus
Supplement, the Value of the Mortgaged Property securing a Refinance Loan is
the appraised value thereof determined in an appraisal obtained in connection
with or on or about the time of origination of the Refinance Loan. The Value
of a Mortgaged Property as of the date of initial issuance of the related
Series of Certificates may be less than the value at origination and will
fluctuate from time to time based upon changes in economic conditions and the
real estate market.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable
Cut-off Date, (ii) the type of property securing the Mortgage Loans (e.g.,
Multifamily Property or Commercial Property and the type of property in each
such category), (iii) the weighted average (by principal balance) of the
original and remaining terms to maturity of the Mortgage Loans, (iv) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(v) the weighted average (by principal balance) of the Loan-to-Value Ratios
at origination of the Mortgage Loans, (vi) the Mortgage Interest Rates or
range of Mortgage Interest Rates and the weighted average Mortgage Interest
Rate borne by the Mortgage Loans, (vii) the state or states in which most of
the Mortgaged Properties are located, (viii) information with respect to the
prepayment provisions, if any, of the Mortgage Loans, (ix) the weighted
average Retained Interest, if any, (x) with respect to Mortgage Loans with
floating Mortgage Interest Rates ("ARM Loans"), the index, the frequency of
the adjustment dates, the highest, lowest and weighted average note margin
and pass-through margin, and the maximum Mortgage Interest Rate or monthly
payment variation at the time of any adjustment thereof and over the life of
the ARM Loan and the frequency of such monthly payment adjustments, (xi) the
Debt Service Coverage Ratio either at origination or as of a more recent date
(or both) and (xii) information regarding the payment characteristics of the
Mortgage Loans, including without limitation balloon payment and other
amortization provisions. If specific information respecting the Mortgage
Loans is not known to the Depositor at the time Certificates are initially
offered, more general information of the nature described above will be
provided in the Prospectus Supplement, and specific information will be set
forth in a report which will be available to purchasers of the related
Certificates at or before the initial issuance thereof and will be filed as
part of a Current Report on Form 8-K with the Securities and Exchange
Commission within fifteen days after such initial issuance.
PAYMENT PROVISIONS OF THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will provide for payments of principal, interest or both,
on due dates that occur monthly, quarterly or semi-annually or at such other
interval as is specified in the related Prospectus Supplement. Each Mortgage
Loan may provide for no accrual of interest or for accrual of interest
thereon at an interest rate (a "Mortgage Interest Rate") that is fixed over
its term or that adjusts from time to time, or that is partially fixed and
partially floating, or that may be converted from a floating to a fixed
Mortgage
Interest Rate, or from a fixed to a floating Mortgage Interest Rate, from
time to time pursuant to an election or as otherwise specified on the related
Mortgage Note, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may provide for scheduled payments to
maturity or payments that adjust from time to time to accommodate changes in
the Mortgage Interest Rate or to reflect the occurrence of certain events,
and may provide for negative amortization or accelerated amortization, in
each case as described in the related Prospectus Supplement. Each Mortgage
Loan may be fully amortizing or require a balloon payment due on its stated
maturity date, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may contain prohibitions on prepayment (a
"Lock-out Period" and the date of expiration thereof, a "Lock-out Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Premium") in connection with a prepayment, in each case as described in the
related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated. A Mortgage Loan may also contain provisions
entitling the mortgagee to a share of profits realized from the operation or
disposition of the Mortgaged Property ("Equity Participations"), as described
in the related Prospectus Supplement. In the event that holders of any class
or classes of Offered Certificates will be entitled to all or a portion of an
Equity Participation, the related Prospectus Supplement will specify the
terms and provisions of the Equity Participation and the method or methods by
which distributions in respect thereof will be allocated among such
Certificates.
CMBS
Any CMBS will have been issued pursuant to a pooling and servicing
agreement, a trust agreement, an indenture or similar agreement (an "CMBS
Agreement"). A seller (the "CMBS Issuer") and/or servicer (the "CMBS
Servicer") of the underlying Mortgage Loans (or Underlying CMBS) will have
entered into the CMBS Agreement with a trustee or a custodian under the CMBS
Agreement (the "CMBS Trustee"), if any, or with the original purchaser of the
interest in the underlying Mortgage Loans or CMBS evidenced by the CMBS.
Distributions of any principal or interest, as applicable, will be made on
CMBS on the dates specified in the related Prospectus Supplement. The CMBS
may be issued in one or more classes with characteristics similar to the
classes of Certificates described in this Prospectus. Any principal or
interest distributions will be made on the CMBS by the CMBS Trustee or the
CMBS Servicer. The CMBS Issuer or the CMBS Servicer or another person
specified in the related Prospectus Supplement may have the right or
obligation to repurchase or substitute assets underlying the CMBS after a
certain date or under other circumstances specified in the related Prospectus
Supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the CMBS.
The type, characteristics and amount of such credit support, if any, will be
a function of certain characteristics of the Mortgage Loans or Underlying
CMBS evidenced by or securing such CMBS and other factors and generally will
have been established for the CMBS on the basis of requirements of either any
Rating Agency that may have assigned a rating to the CMBS or the initial
purchasers of the CMBS.
The Prospectus Supplement for a Series of Certificates evidencing
interests in Mortgage Assets that include CMBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the CMBS to be included
in the Trust Fund, (ii) the original and remaining term to stated maturity of
the CMBS, if
applicable, (iii) whether such CMBS is entitled only to interest payments,
only to principal payments or to both, (iv) the pass-through or bond rate of
the CMBS or formula for determining such rates, if any, (v) the applicable
payment provisions for the CMBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the CMBS
Issuer, CMBS Servicer and CMBS Trustee, as applicable, (vii) certain
characteristics of the credit support, if any, such as subordination, reserve
funds, insurance policies, letters of credit or guarantees relating to the
related Underlying Mortgage Loans, the Underlying CMBS or directly to such
CMBS, (viii) the terms on which the related Underlying Mortgage Loans or
Underlying CMBS for such CMBS or the CMBS may, or are required to, be
purchased prior to their maturity, (ix) the terms on which Mortgage Loans or
Underlying CMBS may be substituted for those originally underlying the CMBS,
(x) the servicing fees payable under the CMBS Agreement, (xi) to the extent
available to the Depositor, the type of information in respect of the
Underlying Mortgage Loans described under "-Mortgage Loans-Mortgage Loan
Information in Prospectus Supplements" above, and the type of information in
respect of the Underlying CMBS described in this paragraph, (xii) the
characteristics of any cash flow agreements that are included as part of the
trust fund evidenced or secured by the CMBS and (xiii) whether the CMBS is in
certificated form, book-entry form or held through a depository such as The
Depository Trust Company or the Participants Trust Company.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or
persons designated in the related Prospectus Supplement will, to the extent
described herein and in such Prospectus Supplement deposit all payments and
collections received or advanced with respect to the Mortgage Assets and
other assets in the Trust Fund. Such an account may be maintained as an
interest bearing or a non-interest bearing account, and funds held therein
may be held as cash or invested in certain short-term, investment grade
obligations, in each case as described in the related Prospectus Supplement.
See "Description of the Agreement-Distribution Account and Other Collection
Accounts."
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Trust Assets in the
related Trust Fund may be provided to one or more classes of Certificates in
the related Series in the form of subordination of one or more other classes
of Certificates in such Series or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee, reserve
fund or another type of credit support, or a combination thereof (any such
coverage with respect to the Certificates of any Series, "Credit Support").
The amount and types of coverage, the identification of the entity providing
the coverage (if applicable) and related information with respect to each
type of Credit Support, if any, will be described in the Prospectus
Supplement for a Series of Certificates. See "Risk Factors-Credit Support
Limitations" and "Description of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related Series will be invested at a
specified rate. The Trust Fund may also include certain other agreements,
such as interest rate exchange agreements, interest rate cap or floor
agreements, currency exchange agreements or similar agreements provided to
reduce the effects of interest rate or currency
exchange rate fluctuations on the Mortgage Assets or on one or more classes
of Certificates. The principal terms of any such guaranteed investment
contract or other agreement (any such agreement, a "Cash Flow Agreement"),
including, without limitation, provisions relating to the timing, manner and
amount of payments thereunder and provisions relating to the termination
thereof, will be described in the Prospectus Supplement for the related
Series. In addition, the related Prospectus Supplement will provide certain
information with respect to the obligor under any such Cash Flow Agreement.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds to be received from the sale of the Certificates will be applied by
the Depositor to the purchase of Trust Assets and to pay for certain expenses
incurred in connection with such purchase of Trust Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to
time, but the timing and amount of offerings of Certificates will depend on a
number of factors, including the volume of Mortgage Assets acquired by the
Depositor, prevailing interest rates, availability of funds and general
market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate, the receipt
and timing of receipt of distributions on the Certificate and the weighted
average life of the Mortgage Assets in the related Trust Fund (which may be
affected by prepayments, defaults, liquidations or repurchases). See "Risk
Factors."
PASS-THROUGH RATE
Certificates of any class within a Series may have fixed, variable or
floating Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Mortgage Assets in the related Trust Fund. The Prospectus
Supplement with respect to any Series of Certificates will specify the
Pass-Through Rate for each class of such Certificates or, in the case of a
variable or floating Pass-Through Rate, the method of determining the
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage
Asset on the Pass-Through Rate of one or more classes of Certificates; and
whether the distributions of interest on the Certificates of any class will
be dependent, in whole or in part, on the performance of any obligor under a
Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the
applicable Pass-Through Rate and purchase price of such Certificate because,
while interest may accrue on each Mortgage Asset during a certain period, the
distribution of such interest will be made on a day which may be several
days, weeks or months following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution
Date will include interest accrued during the Interest
Accrual Period for such Distribution Date. As indicated above under "-The
Pass-Through Rate," if the Interest Accrual Period ends on a date other than
a Distribution Date for the related Series, the yield realized by the holders
of such Certificates may be lower than the yield that would result if the
Interest Accrual Period ended on such Distribution Date. In addition, if so
specified in the related Prospectus Supplement, interest accrued for an
Interest Accrual Period for one or more classes of Certificates may be
calculated on the assumption that distributions of principal (and additions
to the Certificate Balance of Accrual Certificates) and allocations of losses
on the Mortgage Assets may be made on the first day of the Interest Accrual
Period for a Distribution Date and not on such Distribution Date. Such
method would produce a lower effective yield than if interest were calculated
on the basis of the actual principal amount outstanding during an Interest
Accrual Period. The Interest Accrual Period for any class of Offered
Certificates will be described in the related Prospectus Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate
of principal payments on the Mortgage Assets (including principal prepayments
on Mortgage Loans resulting from voluntary prepayments by the Mortgagors,
insurance proceeds, condemnations and involuntary liquidations). Such
payments may be directly dependent upon the payments on Leases underlying
such Mortgage Loans. The rate at which principal prepayments occur on the
Mortgage Loans will be affected by a variety of factors, including, without
limitation, the terms of the Mortgage Loans, the level of prevailing interest
rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Interest Rates on the
Mortgage Loans comprising or underlying the Mortgage Assets in a particular
Trust Fund, such Mortgage Loans are likely to be the subject of higher
principal prepayments than if prevailing rates remain at or above the rates
borne by such Mortgage Loans. In this regard, it should be noted that
certain Mortgage Assets may consist of Mortgage Loans with different Mortgage
Interest Rates and the stated pass-through or pay-through interest rate of
certain CMBS may be a number of percentage points higher or lower than
certain of the underlying Mortgage Loans. The rate of principal payments on
some or all of the classes of Certificates of a Series will correspond to the
rate of principal payments on the Mortgage Assets in the related Trust Fund
and is likely to be affected by the existence of Lock-out Periods and
Prepayment Premium provisions of the Mortgage Loans underlying or comprising
such Mortgage Assets, and by the extent to which the servicer of any such
Mortgage Loan 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.
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
Assets, the actual yield to maturity will be lower than that so calculated.
Conversely, if the purchaser of a Certificate offered at a premium calculates
its anticipated yield to maturity based on an assumed rate of distributions
of principal that is slower than that actually experienced on the Mortgage
Assets, the actual yield to maturity will be lower than that so calculated.
In either case, if so provided in the Prospectus Supplement for a Series of
Certificates, the effect on yield on one or more classes of the Certificates
of such Series of prepayments of the Mortgage Assets in the related Trust
Fund may be mitigated or exacerbated by any provisions for sequential or
selective distribution of principal to such classes.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for
the number of days in the month actually elapsed up to the date of the
prepayment. Unless otherwise specified in the related Prospectus Supplement,
the effect of prepayments in full will be to reduce the amount of interest
paid in the following month to holders of Certificates entitled to payments
of interest because interest on the principal amount of any Mortgage Loan so
prepaid will be paid only to the date of prepayment rather than for a full
month. Unless otherwise specified in the related Prospectus Supplement, a
partial prepayment of principal is applied so as to reduce the outstanding
principal balance of the related Mortgage Loan as of the Due Date in the
month in which such partial prepayment is received. As a result, unless
otherwise specified in the related Prospectus Supplement, the effect of a
partial prepayment on a Mortgage Loan will be to reduce the amount of
interest passed through to holders of Certificates in the month following the
receipt of such partial prepayment by an amount equal to one month's interest
at the applicable Pass-Through Rate on the prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even
if the average rate of distributions of principal is consistent with an
investor's expectation. In general, the earlier a principal payment is
received on the Mortgage Assets and distributed on a Certificate, the greater
the effect on such investor's yield to maturity. The effect on an investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS-MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage
Assets included in or comprising a Trust Fund and the rate at which payments
are made from any Credit Support or Cash Flow Agreement for the related
Series of Certificates may affect the ultimate maturity and the weighted
average life of each class of such Series. Prepayments on the Mortgage Loans
comprising or underlying the Mortgage Assets in a particular Trust Fund will
generally accelerate the rate at which principal is paid on some or all of
the classes of the Certificates of the related Series.
If so provided in the Prospectus Supplement for a Series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis
of the assumptions applicable to such Series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a Series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets
is paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the CMBS. If any Mortgage Loans comprising or underlying the
Mortgage Assets in a particular Trust Fund have actual terms to maturity of
less than those assumed in calculating final scheduled Distribution Dates for
the classes of Certificates of the related Series, one or more classes of
such Certificates may be fully paid prior to
their respective final scheduled Distribution Dates, even in the absence of
prepayments. Accordingly, the prepayment experience of the Mortgage Assets
will, to some extent, be a function of the mix of Mortgage Interest Rates and
maturities of the Mortgage Loans comprising or underlying such Mortgage
Assets. See "Description of the Trust Funds." Prepayments on loans are also
commonly measured relative to a prepayment standard or model, such as the
Constant Prepayment Rate ("CPR") prepayment model. CPR represents a constant
assumed rate of prepayment each month relative to the then outstanding
principal balance of a pool of loans for the life of such loans.
Neither CPR nor any other prepayment model or assumption purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was
developed based upon historical prepayment experience for single family
loans. Thus, it is likely that prepayment of any Mortgage Loans comprising
or underlying the Mortgage Assets for any Series will not conform to any
particular level of CPR. The Depositor is not aware of any meaningful
publicly available prepayment statistics for multifamily or commercial
mortgage loans.
The Prospectus Supplement with respect to each Series of Certificates
will contain tables, if applicable, setting forth the projected weighted
average life of each class of Offered Certificates of such Series and the
percentage of the initial Certificate Balance of each such class that would
be outstanding on specified Distribution Dates based on the assumptions
stated in such Prospectus Supplement, including assumptions that prepayments
on the Mortgage Loans comprising or underlying the related Mortgage Assets
are made at rates corresponding to various percentages of CPR or at such
other rates specified in such Prospectus Supplement. Such tables and
assumptions are intended to illustrate the sensitivity of weighted average
life of the Certificates to various prepayment rates and will not be intended
to predict or to provide information that will enable investors to predict
the actual weighted average life of the Certificates. It is unlikely that
prepayment of any Mortgage Loans comprising or underlying the Mortgage Assets
for any Series will conform to any particular level of CPR or any other rate
specified in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF MORTGAGE ASSET. A number of Mortgage Loans may 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. In order to minimize losses on
defaulted Mortgage Loans, the Servicer may, to the extent and under the
circumstances set forth in the related Prospectus Supplement be permitted to
modify Mortgage Loans that are in default or as to which a payment default is
imminent. 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.
FORECLOSURES AND PAYMENT PLANS. The number of foreclosures and the principal
amount of the Mortgage Loans comprising or underlying the Mortgage Assets
that are foreclosed in relation to the number and principal amount of
Mortgage Loans that are repaid in accordance with their terms will affect the
weighted average life of the Mortgage Loans comprising or underlying the
Mortgage Assets
and that of the related Series of 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.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE CLAUSES. 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 that may not be reflected in the prepayment standards or models used in
the relevant Prospectus Supplement. A number of the Mortgage Loans
comprising or underlying the Mortgage Assets 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. With respect to any Whole
Loans, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer, on behalf of the Trust Fund, will be required to exercise
(or waive its right to exercise) any such right that the Trustee may have as
mortgagee to accelerate payment of the Whole Loan in a manner consistent with
the Servicing Standard. See "Certain Legal Aspects of the Mortgage Loans and
the Leases-Due-on-Sale and Due-on-Encumbrance" and "Description of the
Agreements-Due-on-Sale and Due-on-Encumbrance Provisions."
SINGLE MORTGAGE LOAN OR SINGLE MORTGAGOR. The Mortgage Assets in a
particular Trust Fund may consist of a single Mortgage Loan or obligations of
a single Mortgagor or related Mortgagors as specified in the related
Prospectus Supplement. Assumptions used with respect to the prepayment
standards or models based upon analysis of the behavior of mortgage loans in
a larger group will not necessarily be relevant in determining prepayment
experience on a single Mortgage Loan or with respect to a single Mortgagor.
THE DEPOSITOR
Imperial Credit Commercial Mortgage Acceptance Corporation, the
Depositor, is an indirect wholly-owned subsidiary of Southern Pacific Thrift
& Loan Association and was incorporated in the State of Delaware on April 28,
1997. The principal executive offices of the Depositor are located at 23550
Hawthorne Boulevard, Building One, Torrance, CA 90505. Its telephone number
is ________________.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each Series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. Each Series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
floating rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled
to principal distributions, with disproportionately low, nominal or no
interest distributions (collectively, "Stripped Principal Certificates");
(iv) be entitled to interest distributions, with disproportionately low,
nominal or no principal distributions (collectively, "Stripped Interest
Certificates"); (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such Series
(collectively, "Accrual Certificates"); (vi) provide for payments of
principal sequentially, based on specified payment schedules, from only a
portion of the Trust Assets in such Trust Fund or based on specified
calculations, to the extent of available funds, in each case as described in
the related Prospectus Supplement; and/or (vii) provide for distributions
based on a combination of two or more components thereof with one or more of
the characteristics described in this paragraph including a Stripped
Principal Certificate component and a Stripped Interest Certificate
component. Any such classes may include classes of Offered Certificates.
Each class of Offered Certificates of a Series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of
Stripped Interest Certificates, notional amounts or percentage interests
specified in the related Prospectus Supplement. The transfer of any Offered
Certificates may be registered and such Certificates may be exchanged without
the payment of any service charge payable in connection with such
registration of transfer or exchange, but the Depositor or the Trustee or any
agent thereof may require payment of a sum sufficient to cover any tax or
other governmental charge. One or more classes of Certificates of a Series
may be issued in definitive form ("Definitive Certificates") or in book-entry
form ("Book-Entry Certificates"), as provided in the related Prospectus
Supplement. See "Risk Factors-Book-Entry Registration" and "Description of
the Certificates-Book-Entry Registration and Definitive Certificates."
Definitive Certificates will be exchangeable for other Certificates of the
same class and Series of a like aggregate Certificate Balance, notional
amount or percentage interest but of different authorized denominations. See
"Risk Factors Limited Liquidity" and "Limited Assets."
DISTRIBUTIONS
Distributions on the Certificates of each Series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such Series
and such Distribution Date. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will
be made to the persons in whose names the Certificates are registered at the
close of business on the last business day of the month preceding the month
in which the Distribution Date occurs (the "Record Date"), and the amount of
each distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date").
All distributions with respect to each class of Certificates on each
Distribution Date will be allocated pro rata among the outstanding
Certificates in such class or by random selection, as described in the
related Prospectus Supplement or otherwise established by the related
Trustee. Payments will be made either by wire transfer in immediately
available funds to the account of a Certificateholder at a bank or other
entity having appropriate facilities therefor, if such Certificateholder has
so notified the Trustee or other person required to make such payments no
later than the date specified in the related Prospectus Supplement (and, if
so provided in the related Prospectus Supplement, holds Certificates in the
requisite amount specified therein), or by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register; provided,
however, that the final distribution in retirement of the Certificates
(whether Definitive Certificates or Book-Entry Certificates) will be made
only upon presentation and surrender of the Certificates at the location
specified in the notice to Certificateholders of such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each Series on each
Distribution Date will be made from the Available Distribution Amount
described below, in accordance with the terms described in the related
Prospectus Supplement. Unless provided otherwise in the related Prospectus
Supplement, the "Available Distribution Amount" for each Distribution Date
equals the sum of the following amounts:
(i) the total amount of all cash on deposit in the related Distribution
Account as of the corresponding Determination Date, including Servicer
advances, net of any scheduled payments due and payable after such
Distribution Date;
(ii) interest or investment income on amounts on deposit in the
Distribution Account, including any net amounts paid under any Cash Flow
Agreements; and
(iii) to the extent not on deposit in the related Distribution Account
as of the corresponding Determination Date, any amounts collected under, from
or in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different
Pass-Through Rate, which will be a fixed, variable or floating rate at which
interest will accrue on such class or a component thereof (the "Pass-Through
Rate"). The related Prospectus Supplement will specify the Pass-Through Rate
for each class or component or, in the case of a variable or floating
Pass-Through Rate, the method for determining the Pass-Through Rate. Unless
otherwise specified in the related Prospectus Supplement, interest on the
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances,
specified in the related Prospectus Supplement, and any class of Stripped
Principal Certificates that are not entitled to any distributions of
interest) based on the Accrued Certificate Interest for such class and such
Distribution Date, subject to the sufficiency of the portion of the Available
Distribution Amount allocable to such class on such Distribution Date. Prior
to the time interest is distributable on any class of Accrual Certificates,
the amount of Accrued Certificate Interest otherwise distributable on such
class will be added to the Certificate Balance thereof on each Distribution
Date. With respect to each class of Certificates and each Distribution Date
(other than certain classes of Stripped Interest Certificates), "Accrued
Certificate Interest" will be equal to interest accrued for a specified
period on the outstanding Certificate Balance thereof immediately prior to
the Distribution Date, at the applicable Pass-Through Rate, reduced as
described below. Unless otherwise provided in the Prospectus Supplement,
Accrued Certificate Interest on Stripped Interest Certificates will be equal
to
interest accrued for a specified period on the outstanding notional amount
thereof immediately prior to each Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. The method of determining the
notional amount for any class of Stripped Interest Certificates will be
described in the related Prospectus Supplement. Reference to notional amount
is solely for convenience in certain calculations and does not represent the
right to receive any distributions of principal. Unless otherwise provided
in the related Prospectus Supplement, the Accrued Certificate Interest on a
Series of Certificates will be reduced in the event of prepayment interest
shortfalls, which are shortfalls in collections of interest for a full
accrual period resulting from prepayments prior to the due date in such
accrual period on the Mortgage Loans comprising or underlying the Mortgage
Assets in the Trust Fund for such Series. The particular manner in which
such shortfalls are to be allocated among some or all of the classes of
Certificates of that Series will be specified in the related Prospectus
Supplement.
The related Prospectus Supplement will also describe the extent to which
the amount of Accrued Certificate Interest that is otherwise distributable on
(or; in the case of Accrual Certificates, that may otherwise be added to the
Certificate Balance of) a class of Offered Certificates may be reduced as a
result of any other contingencies, including delinquencies, losses and
deferred interest on or in respect of the Mortgage Loans comprising or
underlying the Mortgage Assets in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement, any reduction in the amount of
Accrued Certificate Interest otherwise distributable on a class of
Certificates by reason of the allocation to such class of a portion of any
deferred interest on the Mortgage Loans comprising or underlying the Mortgage
Assets in the related Trust Fund will result in a corresponding increase in
the Certificate Balance of such class. See "Risk Factors-Average Life of
Certificates; Prepayments; Yields" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each Series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to
receive in respect of principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a Certificate will be reduced to the extent of
distributions of principal thereon from time to time and, if and to the
extent so provided in the related Prospectus Supplement, by the amount of
losses incurred in respect of the related Mortgage Assets, may be increased
in respect of deferred interest on the related Mortgage Loans to the extent
provided in the related Prospectus Supplement and, in the case of Accrual
Certificates prior to the Distribution Date on which distributions of
interest are required to commence, will be increased by any related Accrued
Certificate Interest. Unless otherwise provided in the related Prospectus
Supplement, the initial aggregate Certificate Balance of all classes of
Certificates of a Series will not be greater than the outstanding aggregate
principal balance of the related Mortgage Assets as of the applicable Cut-off
Date. The initial aggregate Certificate Balance of a Series and each class
thereof will be specified in the related Prospectus Supplement. Unless
otherwise provided in the related Prospectus Supplement, distributions of
principal will be made on each Distribution Date to the class or classes of
Certificates entitled thereto in accordance with the provisions described in
such Prospectus Supplement until the Certificate Balance of such class has
been reduced to zero. Stripped Interest Certificates with no Certificate
Balance are not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two
or more different components as described under "-General" above. To such
extent, the descriptions set forth under "-Distributions of Interests on the
Certificates" and "-Distributions of Principal of the Certificates" above
also relate to components of such a class of Certificates. In such case,
reference in such sections to Certificate Balance and Pass-Through Rate refer
to the principal balance, if any, of any such component and the Pass-Through
Rate, if any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF
EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations that are collected on the
Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a Series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, the amount of such losses or
shortfalls will be borne first by a class of Subordinate Certificates in the
priority and manner and subject to the limitations specified in such
Prospectus Supplement See "Description of Credit Support" for a description
of the types of protection that may be included in shortfalls on Mortgage
Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any Series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, a
Servicer or another entity described therein will be required as part of its
servicing responsibilities to advance on or before each Distribution Date its
own funds or funds held in the Distribution Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount
equal to the aggregate of payments of principal (other than any balloon
payments) and interest (net of related servicing fees and Retained Interest)
that were due on the Whole Loans in such Trust Fund and were delinquent on
the related Determination Date, subject to such Servicer's (or another
entity's) good faith determination that such advances will be reimbursable
from Related Proceeds (as defined below). In the case of a Series of
Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, each Servicer's (or
another entity's) advance obligation may be limited only to the portion of
such delinquencies necessary to make the required distributions on one or
more classes of Senior Certificates and/or may be subject to such Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable not only from Related Proceeds but also from collections on
other Trust Assets otherwise distributable on one or more classes of such
Subordinate Certificates. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Unless
otherwise provided in the related Prospectus Supplement, advances of a
Servicer's (or another entity's) funds will be reimbursable only out of
related recoveries on the Mortgage Loans (including amounts received under
any form of Credit Support) respecting which such advances were made (as to
any Mortgage Loan, "Related Proceeds") and, if so provided in the Prospectus
Supplement, out of any amounts otherwise distributable on one or more classes
of Subordinate Certificates of such Series; provided, however, that any such
advance will be reimbursable from any amounts in the Distribution Account
prior to any distributions being made on the Certificates to the extent that
a Servicer (or such other entity) shall determine in good faith that such
advance (a "Nonrecoverable Advance") is not ultimately recoverable from
Related Proceeds or, if applicable, from collections on other Trust Assets
otherwise distributable on such Subordinate Certificates. If advances have
been made by a Servicer from excess funds in the Distribution Account, such
Servicer is required to replace such funds in the Distribution Account on any
future Distribution Date to the extent that funds in the Distribution Account
on such Distribution Date are less than payments required to be made to
Certificateholders on such date. If so specified in the related Prospectus
Supplement, the obligations of a Servicer (or another entity) to make
advances may be secured by a cash advance reserve fund, a surety bond, a
letter of credit or another form of limited guaranty. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the related Prospectus
Supplement.
If and to the extent so provided in the related Prospectus Supplement, a
Servicer (or another entity) will be entitled to receive interest at the rate
specified therein on its outstanding advances and will be entitled to pay
itself such interest periodically from general collections on the Trust
Assets prior to any payment to Certificateholders or as otherwise provided in
the related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will describe any corresponding
advancing obligation of any person in connection with such CMBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a Series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement,
will forward or cause to be forwarded to each such holder, to the Depositor
and to such other parties as may be specified in the related Agreement, a
statement setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment
Premiums and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by each
Servicer and such other customary information as any such Master Servicer or
the Trustee deems necessary or desirable, or that a Certificateholder
reasonably requests, to enable Certificateholders to prepare their tax
returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of any unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Mortgage Assets at the
close of business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in
respect of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are delinquent
and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more
months, (a) the loan number thereof, (b) the unpaid balance thereof,
(c) whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed advances
in respect thereof, (e) if applicable, the aggregate amount of any interest
accrued and payable on related servicing expenses and related advances
assuming such Mortgage Loan is subsequently liquidated through foreclosure,
(f) whether a notice of acceleration has been sent to the Mortgagor and, if
so, the date of such notice, (g) whether foreclosure proceedings have been
commenced and, if so, the date so commenced and (h) if such Mortgage Loan is
more than three months delinquent and foreclosure has not been commenced, the
reason therefor;
(ix) with respect to any Whole Loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number thereof, (b) the
manner in which it was liquidated and (c) the aggregate amount of liquidation
proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or reimbursable
to each Servicer (or any other entity) in respect of such Mortgage Loan and
(b) the amount of any loss to Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
loan number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such Mortgage
Loan were still outstanding taking into account certain limited modifications
to the terms thereof specified in the Agreement), (c) the aggregate amount of
unreimbursed servicing expenses and unreimbursed advances in respect thereof
and (d) if applicable, the aggregate amount of interest accrued and payable
on related servicing expenses and related advances;
(xiii) with respect to any such REO Property sold during the related
Due Period (a) the loan number of the related Mortgage Loan, (b) the
aggregate amount of sale proceeds, (c) the portion of such sales proceeds
payable or reimbursable to each Servicer in respect of such REO Property or
the related Mortgage Loan and (d) the amount of any loss to
Certificateholders in respect of the related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case
may be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to the
allocation of any loss and increase in the Certificate Balance of a class of
Accrual Certificates in the event that Accrued Certificate Interest has been
added to such balance;
(xv) the aggregate amount of principal prepayments made during the
related Due Period;
(xvi) the aggregate Accrued Certificate Interest and unpaid Accrued
Certificate Interest, if any, on each class of Certificates at the close of
business on such Distribution Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate,
the Pass-Through Rate applicable to such Distribution Date, and, if
available, the immediately succeeding Distribution Date, as calculated in
accordance with the method specified in the related Prospectus Supplement;
(xviii) in the case of Certificates with a floating Pass-Through Rate,
for statements to be distributed in any month in which an adjustment date
occurs, the floating Pass-Through Rate applicable to such Distribution Date
and the immediately succeeding Distribution Date as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xix) as to any Series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xx) the aggregate amount of payments by the Mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees collected
during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xvi) and (xvii) above, such amounts shall also be provided with
respect to each component, if any, of a class of Certificates. The Master
Servicer or the Trustee, as specified in the related Prospectus Supplement,
will forward or cause to be forwarded to each holder, to the Depositor and to
such other parties as may be specified in the Agreement, a copy of any
statements or reports received by the Master Servicer or the Trustee, as
applicable, with respect to any CMBS. The Prospectus Supplement for each
Series of Offered Certificates will describe any additional information to be
included in reports to the holders of such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall
be provided by the Master Servicer or the Trustee pursuant to any
requirements of the Code as are from time to time in force.
Unless and until Definitive Certificates are issued, or unless otherwise
provided in the related Prospectus Supplement, such statements or reports
will be forwarded by the Master Servicer or the Trustee to Cede. Such
statements or reports may be available to Beneficial Owners upon request to
DTC or their respective Participant or Indirect Participant. In addition,
the Trustee shall furnish a copy of any such statement or report to any
Beneficial Owner which requests such copy and certifies
to the Trustee or the Master Servicer, as applicable, that it is the
Beneficial Owner of a Certificate. See "Description of the
Certificates-Book-Entry Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreements for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the Distribution Account or by any Servicer, if
any, or the Trustee and required to be paid to them pursuant to such
Agreements following the earlier of (i) the final payment or other
liquidation of the last Mortgage Asset subject thereto or the disposition of
all property acquired upon foreclosure of any Whole Loan subject thereto and
(ii) the purchase of all of the assets of the Trust Fund by the party
entitled to effect such termination, under the circumstances and in the
manner set forth in the related Prospectus Supplement. In no event, however,
will the trust created by the Agreements continue beyond the date specified
in the related Prospectus Supplement. Written notice of termination of the
Agreements will be given to each Certificateholder, and the final
distribution will be made only upon presentation and surrender of the
Certificates at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a Series of
Certificates may be subject to optional early termination through the
repurchase of the assets in the related Trust Fund by the party specified
therein, under the circumstances and in the manner set forth therein. If so
provided in the related Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount, the party specified therein will solicit bids
for the purchase of all assets of the Trust Fund, or of a sufficient portion
of such assets to retire such class or classes or purchase such class or
classes at a price set forth in the related Prospectus Supplement, in each
case, under the circumstances and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any Series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ("Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. 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").
Unless otherwise provided in the related Prospectus Supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in
Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, such investors ("Beneficial Owners") will receive
all distributions on the
Book-Entry Certificates through DTC and its Participants. Under a book-entry
format, Beneficial Owners will receive payments after the related
Distribution Date because, while payments are required to be forwarded to
Cede & Co., as nominee for DTC ("Cede"), on each such date DTC will forward
such payments to its Participants which thereafter will be required to
forward them to Indirect Participants or Beneficial Owners. Unless otherwise
provided in the related Prospectus Supplement, the only "Certificateholder"
(as such term is used in the Agreement) will be Cede, as nominee of DTC, and
the Beneficial Owners will not be recognized by the Trustee as
Certificateholders under the Agreements. Beneficial Owners will be permitted
to exercise the rights of Certificateholders under the related Agreements
only indirectly through the Participants who in turn will exercise their
rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit distributions of
principal of and interest on the Book-Entry Certificates. Participants and
Indirect Participants with which Beneficial Owners have accounts with respect
to the Book-Entry Certificates similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their
respective Beneficial Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Beneficial Owner to pledge its interest in the Book-Entry Certificates to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of its interest in the Book-Entry Certificates, may
be limited due to the lack of a physical certificate evidencing such
interest.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under an Agreement only at the direction of
one or more Participants to whose account with DTC interests in the
Book-Entry Certificates are credited. Under DTC's procedures, DTC will take
actions permitted to be taken by Holders of any class of Book-Entry
Certificates under the Pooling and Servicing Agreement only at the direction
of one or more Participants to whose account the Book-Entry Certificates are
credited and whose aggregate holdings represent no less than any minimum
amount of Voting Rights required therefor. Therefore, Beneficial Owners will
only be able to exercise their Voting Rights to the extent permitted, and
subject to the procedures established, by their Participant and/or Indirect
Participant, as applicable. DTC may take conflicting actions with respect to
any action of Certificateholders of any Class to the extent that Participants
authorize such actions. None of the Servicers, the Depositor, the Trustee or
any of their respective affiliates will have any liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Book-Entry Certificates, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Beneficial Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i)
the Depositor advises the Trustee in writing that DTC is no longer willing or
able to properly discharge its responsibilities as depository with respect to
the Certificates and the Depositor is unable to locate a qualified successor
or (ii) the Depositor, at its option, elects to terminate the book-entry
system through DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Beneficial
Owners. Upon surrender by DTC of the certificate or certificates
representing the Book-Entry Certificates, together with instructions for
reregistration, the Trustee will issue (or cause to be issued) to the
Beneficial Owners identified in such instructions the Definitive Certificates
to which they are entitled, and thereafter the Trustee will recognize the
holders of such Definitive Certificates as Certificateholders under the
Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each Series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, if specified in the related
Prospectus Supplement, a Special Servicer and the Trustee. The Certificates
of each Series evidencing interests in a Trust Fund not including Whole Loans
will be issued pursuant to a Trust Agreement between the Depositor and a
Trustee. The Master Servicer, any Special Servicer and the Trustee with
respect to any Series of Certificates will be named in the related Prospectus
Supplement. In lieu of appointing a Master Servicer, a servicer may be
appointed pursuant to the Pooling and Servicing Agreement for any Trust Fund.
The Mortgage Loans shall be serviced pursuant to the terms of the Pooling and
Servicing Agreement. A manager or administrator may be appointed pursuant to
the Trust Agreement for any Trust Fund to administer such Trust Fund. The
provisions of each Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust
Fund. A form of a Pooling and Servicing Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Any Trust Agreement will generally conform to the form of Pooling and
Servicing Agreement filed herewith, but will not contain provisions with
respect to the servicing and maintenance of Whole Loans. The following
summaries describe certain provisions that may appear in the Pooling and
Servicing Agreement. The Prospectus Supplement for a Series of Certificates
will describe any provision of the Agreements relating to such Series that
materially differs from the description thereof contained in this Prospectus.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Agreements for each Trust Fund and the description of such provisions in the
related Prospectus Supplement. As used herein with respect to any Series,
the term "Certificate" refers to all of the Certificates of that Series,
whether or not offered hereby and by the related Prospectus Supplement,
unless the context otherwise requires. The Depositor will provide a copy of
the Agreements (without exhibits) relating to any Series of Certificates
without charge upon written request of a holder of a Certificate of such
Series addressed to the Trustee specified in the related Prospectus
Supplement.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any Series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Trust
Assets to be included in the related Trust Fund, together with all principal
and interest to be received on or with respect to such Trust Assets after the
Cut-off Date, other than principal and interest due on or before the Cut-off
Date and other than any Retained Interest. The Trustee will, concurrently
with such assignment, deliver the Certificates to the Depositor in exchange
for the Trust Assets and the other assets comprising the Trust Fund for such
Series. Each Mortgage Asset will be identified in a schedule appearing as an
exhibit to the related Agreement. Unless otherwise provided in the related
Prospectus Supplement, such schedule will include detailed information (i) in
respect of each Whole Loan included in the related Trust Fund,
including without limitation, the address of the related Mortgaged Property
and type of such property, the Mortgage Interest Rate and, if applicable, the
applicable index, margin, adjustment date and any rate cap information, the
original and remaining term to maturity, the original and outstanding
principal balance and balloon payment, if any, the Value, Loan-to-Value Ratio
and the Debt Service Coverage Ratio as of the date indicated and payment and
prepayment provisions, if applicable, and (ii) in respect of each CMBS
included in the related Trust Fund, including without limitation, the CMBS
Issuer, CMBS Servicer and CMBS Trustee, the pass-through or bond rate or
formula for determining such rate, the issue date and original and remaining
term to maturity, if applicable, the original and outstanding principal
amount and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which unless otherwise specified in the related
Prospectus Supplement will include the original Mortgage Note endorsed,
without recourse, in blank or to the order of the Trustee, the original
Mortgage (or a certified copy thereof) with evidence of recording indicated
thereon and an assignment of the Mortgage to the Trustee in recordable form.
Notwithstanding the foregoing, a Trust Fund may include Mortgage Loans where
the original Mortgage Note is not delivered to the Trustee if the Company
delivers to the Trustee or the custodian a copy or a duplicate original of
the Mortgage Note, together with an affidavit certifying that the original
thereof has been lost or destroyed. With respect to such Mortgage Loans, the
Trustee (or its nominee) may not be able to enforce the Mortgage Note against
the related borrower. Unless otherwise provided in the related Prospectus
Supplement, the related Agreements will require that the Depositor or another
party specified therein promptly cause each such assignment of Mortgage to be
recorded in the appropriate public office for real property records, except
in states where, in the opinion of counsel acceptable to the Trustee, such
recording is not required to protect the Trustee's interest in the related
Whole Loan against the claim of any subsequent transferee or any successor to
or creditor of the Depositor, the Master Servicer, the relevant Asset Seller
or any other prior holder of the Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or
a custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify
the Depositor. If the Depositor cannot cure the omission or defect within a
specified number of days after receipt of such notice, then unless otherwise
specified in the related Prospectus Supplement, the Depositor will be
obligated, within a specified number of days of receipt of such notice, to
repurchase the related Whole Loan from the Trustee at the Purchase Price or
substitute for such Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement, this repurchase or substitution obligation constitutes
the sole remedy available to the Certificateholders or the Trustee for
omission of, or a material defect in, a constituent document. To the extent
specified in the related Prospectus Supplement, in lieu of curing any
omission or defect in the Mortgage Asset or repurchasing or substituting for
such Mortgage Asset, the Depositor may agree to cover any losses suffered by
the Trust Fund as a result of such breach or defect.
If so provided in the related Prospectus Supplement, the Depositor will,
as to some or all of the Mortgage Loans, assign or cause to be assigned to
the Trustee the related Lease Assignments. In certain cases, the Trustee, or
Sub-Servicer, as applicable, may collect all moneys under the related Leases
and distribute amounts, if any, required under the Lease for the payment of
maintenance, insurance and taxes, to the extent specified in the related
Lease agreement. The Trustee, or if so
specified in the Prospectus Supplement, the Master Servicer, as agent for the
Trustee, may hold the Lease in trust for the benefit of the
Certificateholders.
With respect to each CMBS in certificated form, the Depositor will
deliver or cause to be delivered to the Trustee (or the custodian) the
original certificate or other definitive evidence of such CMBS together with
bond power or other instruments, certifications or documents required to
transfer fully such CMBS to the Trustee for the benefit of the
Certificateholders. With respect to each CMBS in uncertificated or
book-entry form or held through a "clearing corporation" within the meaning
of the UCC the Depositor and the Trustee will cause such CMBS to be
registered directly or on the books of such clearing corporation or of a
financial intermediary in the name of the Trustee for the benefit of the
Certificateholders. Unless otherwise provided in the related Prospectus
Supplement, the related Agreement will require that either the Depositor or
the Trustee promptly cause any CMBS in certificated form not registered in
the name of the Trustee to be re-registered, with the applicable persons, in
the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign
representations and warranties, as of a specified date (the person making
such representations and warranties, the "Warranting Party") covering, by way
of example, the following types of matters: (i) the accuracy of the
information set forth for such Whole Loan on the schedule of Mortgage Assets
appearing as an exhibit to the related Agreement; (ii) the existence of title
insurance insuring the lien priority of the Whole Loan; (iii) the authority
of the Warranting Party to sell the Whole Loan; (iv) the payment status of
the Whole Loan and the status of payments of taxes, assessments and other
charges affecting the related Mortgaged Property; (v) the existence of
customary provisions in the related Mortgage Note and Mortgage to permit
realization against the Mortgaged Property of the benefit of the security of
the Mortgage; and (vi) the existence of hazard and extended perils insurance
coverage on the Mortgaged Property.
Any Warranting Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the
Depositor and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have been
made as of a date prior to the applicable Cut-off Date. A substantial period
of time may have elapsed between such date and the date of initial issuance
of the related Series of Certificates evidencing an interest in such Whole
Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warranting
Party will be obligated to either cure such breach or repurchase or replace
the affected Whole Loan as described below. Since the representations and
warranties may not address events that may occur following the date as of
which they were made, the Warranting Party will have a cure, repurchase or
substitution obligation in connection with a breach of such a representation
and warranty only if the relevant event that causes such breach occurs prior
to such date. Such party would have no such obligations if the relevant
event that causes such breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, the
Agreements will provide that the Master Servicer and/or Trustee will be
required to notify promptly the relevant Warranting Party of any breach of
any representation or warranty made by it in respect of a Whole Loan that
materially and adversely affects the value of such Whole Loan or the
interests therein of the Certificateholders. If such Warranting Party cannot
cure such breach within a specified period following the date on which such
party was notified of such breach, then such Warranting Party will
be obligated to repurchase such Whole Loan from the Trustee within a
specified period from the date on which the Warranting Party was notified of
such breach, at the Purchase Price therefor. As to any Whole Loan, unless
otherwise specified in the related Prospectus Supplement, the "Purchase
Price" is equal to the sum of the unpaid principal balance thereof, plus
unpaid accrued interest thereon at the Mortgage Interest Rate from the date
as to which interest was last paid to the due date in the Due Period in which
the relevant purchase is to occur, plus certain servicing expenses that are
reimbursable to each Servicer. If so provided in the Prospectus Supplement
for a Series, a Warranting Party, rather than repurchase a Whole Loan as to
which a breach has occurred, will have the option, within a specified period
after initial issuance of such Series of Certificates, to cause the removal
of such Whole Loan from the Trust Fund and substitute in its place one or
more other Whole Loans, in accordance with the standards described in the
related Prospectus Supplement. If so provided in the Prospectus Supplement
for a Series, a Warranting Party, rather than repurchase or substitute a
Whole Loan as to which a breach has occurred, will have the option to
reimburse the Trust Fund or the Certificateholders for any losses caused by
such breach. Unless otherwise specified in the related Prospectus
Supplement, this reimbursement, repurchase or substitution obligation will
constitute the sole remedy available to holders of Certificates or the
Trustee for a breach of representation by a Warranting Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor any Servicer will be obligated to purchase or substitute for a
Whole Loan if a Warranting Party defaults on its obligation to do so, and no
assurance can be given that Warranting Parties will carry out such
obligations with respect to Whole Loans.
Unless otherwise provided in the related Prospectus Supplement the
Warranting Party will, with respect to a Trust Fund that includes CMBS, make
or assign certain representations or warranties, as of a specified date, with
respect to such CMBS, covering (i) the accuracy of the information set forth
therefor on the schedule of Mortgage Assets appearing as an exhibit to the
related Agreement and (ii) the authority of the Warranting Party to sell such
Mortgage Assets. The related Prospectus Supplement will describe the
remedies for a breach thereof.
Each Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations
under, the related Agreement. A breach of any such representation in a
Pooling and Servicing Agreement of a Master Servicer or Special Servicer
which materially and adversely affects the interests of the
Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to such Servicer by the Trustee or
the Depositor, or to such Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights
(unless otherwise specified in the related Prospectus Supplement), will
constitute an Event of Default under such Pooling and Servicing Agreement.
ACCOUNTS
GENERAL. Each Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Mortgage
Assets (collectively, the "Accounts"), which must be either (i) an account or
accounts the deposits in which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC") (to the limits established by the FDIC) and the
uninsured deposits in which are otherwise secured such that the
Certificateholders have a claim with respect to the funds an Account or a
perfected first priority security interest against
any collateral securing such funds that is superior to the claims of any
other depositors or general creditors of the institution with which such
Account is maintained or (ii) otherwise maintained with a bank or trust
company, and in a manner, satisfactory to the Rating Agency or Agencies
rating any class of Certificates of such Series. The collateral eligible to
secure amounts in an Account is limited to United States government
securities and other investment grade obligations specified in the Agreement
("Permitted Investments"). An Account may be maintained as an interest
bearing or a non-interest bearing account and the funds held therein may be
invested pending each succeeding Distribution Date in certain short-term
Permitted Investments. Unless otherwise provided in the related Prospectus
Supplement, any interest or other income earned on funds in an Account will
be paid to a Servicer or its designee as additional servicing compensation.
An Account may be maintained with an institution that is an affiliate of a
Servicer provided that such institution meets the standards imposed by the
Rating Agency or Agencies. If permitted by the Rating Agency or Agencies and
so specified in the related Prospectus Supplement, an Account may contain
funds relating to more than one Series of mortgage pass-through certificates
and may contain other funds respecting payments on mortgage loans belonging
to a Servicer or serviced or master serviced by it on behalf of others.
DEPOSITS. Unless otherwise provided in the related Prospectus Supplement,
the appropriate Servicer will deposit or cause to be deposited in an Account
on a daily basis, unless otherwise provided in the related Agreement, the
following payments and collections received, or advances made, by such
Servicer:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets,
including any default interest collected, in each case net of any portion
thereof retained by a Servicer as its servicing compensation;
(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each Mortgaged
Property securing a Whole Loan in the Trust Fund (to the extent such proceeds
are not applied to the restoration of the property or released to the
Mortgagor in accordance with the normal servicing procedures of a Servicer,
subject to the terms and conditions of the related Mortgage and Mortgage
Note) and all proceeds of rental interruption policies, if any, insuring
against losses arising from the failure of Lessees under a Lease to make
timely rental payments because of certain casualty events (collectively,
"Insurance Proceeds") and all other amounts received and retained in
connection with the liquidation of defaulted Mortgage Loans in the Trust
Fund, by foreclosure, condemnation or otherwise ("Liquidation Proceeds"),
together with the net proceeds on a monthly basis with respect to any
Mortgaged Properties acquired for the benefit of Certificateholders by
foreclosure or by deed in lieu of foreclosure or otherwise;
(iv) any advances made as described under "Description of the
Certificates-Advances in Respect of Delinquencies";
(v) any amounts representing Prepayment Premiums;
(vi) any amounts received from another Servicer;
but excluding any REO Proceeds and penalties or modification fees which may
be retained by such Servicer. Unless otherwise provided in the related
Agreement, REO Proceeds shall be maintained in an Account by the Special
Servicer.
Once a month the Special Servicer and any Sub-Servicer remit funds on
deposit in the Account each maintains together with any P&I Advances to the
Master Servicer for deposit in an Account maintained by the Master Servicer.
WITHDRAWALS. A Servicer may, from time to time, unless otherwise provided in
the related Agreement and described in the related Prospectus Supplement,
make withdrawals from an Account for each Trust Fund for any of the following
purposes:
(i) to reimburse a Servicer for unreimbursed amounts advanced as
described under "Description of the Certificates-Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by such Servicer as late collections of interest
on and principal of the particular Whole Loans with respect to which the
advances were made;
(ii) to reimburse a Servicer for unpaid servicing fees earned and
certain unreimbursed servicing expenses incurred with respect to Whole Loans
and properties acquired in respect thereof, such reimbursement to be made out
of amounts that represent Liquidation Proceeds and Insurance Proceeds
collected on the particular Whole Loans and properties, and net income
collected on the particular properties, with respect to which such fees were
earned or such expenses were incurred;
(iii) to reimburse a Servicer for any advances described in clause (i)
above and any servicing expenses described in clause (ii) above which, in the
Master Servicer's good faith judgment, will not be recoverable from the
amounts described in clauses (i) and (ii), respectively, such reimbursement
to be made from amounts collected on other Trust Assets or, if and to the
extent so provided by the related Agreement and described in the related
Prospectus Supplement, just from that portion of amounts collected on other
Trust Assets that is otherwise distributable on one or more classes of
Subordinate Certificates, if any, remain outstanding, and otherwise any
outstanding class of Certificates, of the related Series;
(iv) if and to the extent described in the related Prospectus
Supplement, to pay a Servicer interest accrued on the advances described in
clause (i) above and the servicing expenses described in clause (ii) above
while such remain outstanding and unreimbursed;
(v) unless otherwise provided in the related Prospectus Supplement, to
pay a Servicer, as additional servicing compensation, interest and investment
income earned in respect of amounts held in the Account; and
(vi) to make any other withdrawals permitted by the related Agreement
and described in the related Prospectus Supplement.
If and to the extent specified in the Prospectus Supplement amounts may
be withdrawn from any Account to cover additional costs, expenses or
liabilities associated with: the preparation of environmental site
assessments with respect to, and for containment, clean-up or remediation of
hazardous wastes and materials, the proper operation, management and
maintenance of any Mortgaged Property acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise, such payments to be made out of income received on
such property; if one or more elections have been made to treat the Trust
Fund or designated portions thereof as a REMIC, any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions, as and to the
extent described under "Certain Federal Income Tax Consequences-Federal
Income Tax Consequences for REMIC Certificates--Taxes That May Be Imposed on
the REMIC Pool-Prohibited Transactions"; retaining an independent appraiser
or other expert in real estate matters to determine a fair sale price for a
defaulted Whole Loan or a property acquired in respect thereof in connection
with the liquidation of such Whole Loan or property; and obtaining various
opinions of counsel pursuant to the related Agreement for the benefit of
Certificateholders.
DISTRIBUTION ACCOUNT. Unless otherwise specified in the related Prospectus
Supplement, the Trustee will, as to each Trust Fund, establish and maintain,
or cause to be established and maintained, one or more separate Accounts for
the collection of payments from the Master Servicer immediately preceding
each Distribution Date (the "Distribution Account"). The Trustee will also
deposit or cause to be deposited in a Distribution Account the following
amounts:
(i) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related Series of Certificates as
described under "Description of Credit Support";
(ii) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds-Cash Flow Agreements";
(iii) all proceeds of any Trust Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person, and all proceeds of any Mortgage Asset
purchased as described under "Description of the Certificates-Termination"
(also, "Liquidation Proceeds");
(iv) any other amounts required to be deposited in the Distribution
Account as provided in the related Agreement and described in the related
Prospectus Supplement.
The Trustee may, from time to time, unless otherwise provided in the
related Agreements and described in the related Prospectus Supplement, make a
withdrawal from a Distribution Account to make distributions to the
Certificateholders on each Distribution Date.
OTHER COLLECTION ACCOUNTS. Notwithstanding the foregoing, if so specified in
the related Prospectus Supplement, the Agreement for any Series of
Certificates may provide for the establishment and maintenance of a separate
collection account into which a Servicer will deposit on a daily basis the
amounts described under "-Deposits" above for one or more Series of
Certificates. Any amounts on deposit in any such collection account will be
withdrawn therefrom and deposited into the appropriate Distribution Account
by a time specified in the related Prospectus Supplement. To the extent
specified in the related Prospectus Supplement, any amounts which could be
withdrawn from the Distribution Account as described under "-Withdrawals"
above, may also be withdrawn from any such collection account. The
Prospectus Supplement will set forth any restrictions with respect to any
such collection account, including investment restrictions and any
restrictions with respect to financial institutions with which any such
collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
MASTER SERVICER. The Master Servicer is required under the Pooling and
Servicing Agreement to make reasonable efforts to collect all scheduled
payments under the Mortgage Loans and will follow or cause to be followed
such collection procedures as it would follow with respect to mortgage loans
that are comparable to the Mortgage Loans and held for its own account,
provided such procedures are consistent with (i) the terms of the Pooling and
Servicing Agreement, (ii) applicable law and (iii) the general servicing
standard specified in the related Prospectus Supplement or, if no such
standard is so specified, its normal servicing practices (in either case, the
"Servicing Standard").
The Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or
causing the Mortgagor or Lessee on each Mortgage or Lease to maintain)
hazard, business interruption and general liability insurance policies (and,
if applicable, rental interruption policies) as described herein and in any
related Prospectus Supplement, and filing and settling claims thereunder;
maintaining escrow or impoundment accounts of Mortgagors for payment of
taxes, insurance and other items required to be paid by any Mortgagor
pursuant to the Mortgage Loan; processing assumptions or substitutions in
those cases where the applicable Servicer has determined not to enforce any
applicable due-on-sale clause; attempting to cure delinquencies; supervising
foreclosures; inspecting and managing Mortgaged Properties under certain
circumstances; and maintaining accounting records relating to the Mortgage
Loans.
The Master Servicer shall monitor the actions of the Special Servicer to
confirm compliance with the Agreements.
Unless otherwise specified in the related Prospectus Supplement, a
Master Servicer, as servicer of the Mortgage Loans, on behalf of itself, the
Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Mortgage Loans. See "Description of Credit Support."
SPECIAL SERVICER. A Mortgagor's failure to make required payments may
reflect inadequate income or the diversion of that income from the service of
payments due under the Mortgage Loan, and may call into question such
Mortgagor's ability to make timely payment of taxes and to pay for necessary
maintenance of the related Mortgaged Property. Unless otherwise provided in
the related Prospectus Supplement, upon the occurrence of any of the
following events (each a "Servicing Transfer Event") with respect to a
Mortgage Loan, servicing for such Mortgage Loan (thereafter, a "Specially
Serviced Mortgage Loan") will be transferred from the Master Servicer to the
Special Servicer:
(a) such Mortgage Loan becomes a defaulted Mortgage Loan,
(b) the occurrence of certain events indicating the possible insolvency
of the Mortgagor,
(c) the receipt by the Master Servicer of a notice of foreclosure of
any other lien on the related Mortgaged Property,
(d) the Master Servicer determines that a payment default is imminent,
(e) with respect to a Balloon Mortgage Loan, no assurances have been
given as to the ability of the Mortgagor to make the final payment thereon,
or
(f) the occurrence of certain other events constituting defaults under
the terms of such Mortgage Loan.
The Special Servicer is required to monitor any Mortgage Loan which is
in default, contact the Mortgagor concerning the default, evaluate whether
the causes of the default can be cured over a reasonable period without
significant impairment of the value of the Mortgaged Property, initiate
corrective action in cooperation with the Mortgagor if cure is likely,
inspect the Mortgaged Property and take such other actions as are consistent
with the Servicing Standard. A significant period of time may elapse before
the Special Servicer is able to assess the success of such corrective action
or the need for additional initiatives.
The time within which the Special Servicer makes the initial
determination of appropriate action evaluates the success of corrective
action, develops additional initiatives, institutes foreclosure proceedings
and actually forecloses (or takes a deed to a Mortgaged Property in lieu of
foreclosure) on behalf of the Certificateholders, may vary considerably
depending on the particular Mortgage Loan, the Mortgaged Property, the
Mortgagor, the presence of an acceptable party to assume the Mortgage Loan
and the laws of the jurisdiction in which the Mortgaged Property is located.
Under federal bankruptcy law, the Special Servicer in certain cases may not
be permitted to accelerate a Mortgage Loan or to foreclose on a Mortgaged
Property for a considerable period of time. See "Certain Legal Aspects of
the Mortgage Loans and the Leases."
Any Agreement relating to a Trust Fund that includes Mortgage Loans may
grant to the Master Servicer and/or the holder or holders of certain classes
of Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Mortgage Loan as to which a specified
number of scheduled payments thereunder are delinquent. Any such right
granted to the holder of an Offered Certificate will be described in the
related Prospectus Supplement. The related Prospectus Supplement will also
describe any such right granted to any person if the predetermined purchase
price is less than the Purchase Price described under "Representations and
Warranties; Repurchases."
The Special Servicer may agree to modify, waive or amend any term of any
Specially Serviced Mortgage Loan in a manner consistent with the Servicing
Standard so long as the modification, waiver or amendment will not (i) affect
the amount or timing of any scheduled payments of principal or interest on
the Mortgage Loan or (ii) in its judgment, materially impair the security for
the Mortgage Loan or reduce the likelihood of timely payment of amounts due
thereon. The Special Servicer also may agree to any modification, waiver or
amendment that would so affect or impair the payments on, or the security
for, a Mortgage Loan if, unless otherwise provided in the related Prospectus
Supplement, (i) in its judgment, a material default on the Mortgage Loan has
occurred or a payment default is imminent and (ii) in its judgment, such
modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Mortgage Loan on a present value basis than
would liquidation. The Special Servicer is required to notify the Trustee in
the event of any modification, waiver or amendment of any Mortgage Loan.
The Special Servicer, on behalf of the Trustee, may at any time
institute foreclosure proceedings, exercise any power of sale contained in
any mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire
title to a Mortgaged Property securing a Mortgage Loan by operation of law or
otherwise, if such action is consistent with the Servicing Standard and a
default on such Mortgage Loan has occurred or, in the Special Servicer's
judgment, is imminent. Unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may not acquire title to
any related Mortgaged Property or take any other action that would cause the
Trustee, for the benefit of Certificateholders, or any other specified person
to be considered to hold title to, to be a "mortgagee-in-possession" of, or
to be an "owner" or an "operator" of such Mortgaged Property within the
meaning of certain federal environmental laws, unless the Special Servicer
has previously determined, based on a report prepared by a person who
regularly conducts environmental audits (which report will be an expense of
the Trust Fund), that:
(i) the Mortgaged Property is in compliance with applicable
environmental laws; or if not, that taking such actions as are necessary to
bring the Mortgaged Property in compliance therewith is reasonably likely to
produce a greater recovery on a present value basis, after taking into
account any risks associated therewith, than not taking such actions; and
(ii) and there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, wastes, or petroleum-based materials for which
investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation or
that, if any such materials are present, taking such action with respect to
the affected Mortgaged Property is reasonably likely to produce a greater
recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions.
Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Special Servicer, on behalf of the Trust Fund,
will be required to sell the Mortgaged Property within two years of
acquisition, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives 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 Fund or cause the Trust Fund to fail to
qualify as a REMIC under the Code at any time that any Certificate is
outstanding. Subject to the foregoing, the Special Servicer will be required
to (i) solicit bids for any Mortgaged Property so acquired in such a manner
as will be reasonably likely to realize a fair price for such property and
(ii) accept the first (and, if multiple bids are contemporaneously received,
the highest) cash bid received from any person that constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Special
Servicer, on behalf of the Trust Fund, may retain an independent contractor
to manage and operate such property. The retention of an independent
contractor, however, will not relieve the Special Servicer of any of its
obligations with respect to the management and operation of such Mortgaged
Property. Unless otherwise specified in the related Prospectus Supplement,
any such property acquired by the Trust Fund will be managed in a manner
consistent with the management and operation of similar property by a prudent
lending institution.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) 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 the Mortgage Loans and the Leases-Foreclosure."
If recovery on a defaulted Mortgage Loan under any related instrument of
Credit Support is not available, the Special Servicer nevertheless will be
obligated to follow or cause to be followed
such normal practices and procedures as it deems necessary or advisable to
realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the property securing the defaulted Mortgage Loan are less than the
outstanding principal balance of the defaulted Mortgage Loan plus interest
accrued thereon at the Mortgage Interest Rate plus the aggregate amount of
expenses incurred by the Special Servicer in connection with such proceedings
and which are reimbursable under the Agreement, the Trust Fund will realize a
loss in the amount of such difference. The Special Servicer will be entitled
to withdraw or cause to be withdrawn from a related Account out of the
Liquidation Proceeds recovered on any defaulted Mortgage Loan, prior to the
distribution of such Liquidation Proceeds to Certificateholders, amounts
representing its normal servicing compensation on the Mortgage Loan,
unreimbursed servicing expenses incurred with respect to the Mortgage Loan
and any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient
to restore the damaged property to a condition sufficient to permit recovery
under the related instrument of Credit Support, if any, the Special Servicer
is not required to expend its own funds to restore the damaged property
unless it determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, the
Pooling and Servicing Agreement for a Trust Fund that includes Whole Loans
will require the Master Servicer to cause the Mortgagor on each Whole Loan to
maintain a hazard insurance policy providing for such coverage as is required
under the related Mortgage. Unless otherwise specified in the related
Prospectus Supplement, such coverage will be in general in an amount equal to
the amount necessary to fully compensate for any damage or loss to the
improvements on the Mortgaged Property on a replacement cost basis, but not
less than the amount necessary to avoid the application of any co-insurance
clause contained in the hazard insurance policy. The ability of the Master
Servicer to assure that hazard insurance proceeds are appropriately applied
may be dependent upon its being named as an additional insured under any
hazard insurance policy and under any other insurance policy referred to
below, or upon the extent to which information in this regard is furnished by
Mortgagors. All amounts collected by the Master Servicer under any such
policy (except for amounts to be applied to the restoration or repair of the
Mortgaged Property or released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures, subject to the terms and conditions
of the related Mortgage and Mortgage Note) will be deposited in a related
Account.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property
by fire, lightning, explosion, smoke, windstorm and hail, and riot, strike
and civil commotion, subject to the conditions and exclusions specified in
each policy. Although the policies relating to the Whole Loans will be
underwritten by different insurers under different state laws in accordance
with different applicable state forms, and therefore will not contain
identical terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do 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.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount of any
partial loss. If the insured's coverage falls below this specified
percentage, such clause generally provides that the insurer's liability in
the event of partial loss does not exceed the lesser of (i) the replacement
cost of the improvements less physical depreciation and (ii) such proportion
of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Each Pooling and Servicing Agreement will require the Master Servicer to
cause the Mortgagor on each Whole Loan, or, in certain cases, the related
Lessee, to maintain all such other insurance coverage with respect to the
related Mortgaged Property as is consistent with the terms of the related
Mortgage, which insurance may typically include flood insurance (if the
related Mortgaged Property was located at the time of origination in a
federally designated flood area).
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the Mortgagor or related Lessee to maintain other forms
of insurance including, but not limited to, loss of rent endorsements,
business interruption insurance and comprehensive public liability insurance.
Any cost incurred by the Master Servicer in maintaining any such insurance
policy will be added to the amount owing under the Mortgage Loan where the
terms of the Mortgage Loan so permit; provided, however, that the addition of
such cost will not be taken into account for purposes of calculating the
distribution to be made to Certificateholders. Such costs may be recovered
by a Servicer from a related Account, with interest thereon, as provided by
the Agreements.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related Prospectus Supplement, the Master
Servicer or the Mortgagors will maintain rental interruption insurance
policies in full force and effect with respect to some or all of the Leases.
Although the terms of such policies vary to some degree, a rental
interruption insurance policy typically provides that, to the extent that a
Lessee fails to make timely rental payments under the related Lease due to a
casualty event, such losses will be reimbursed to the insured. If so
specified in the related Prospectus Supplement, the Master Servicer will be
required to pay from its servicing compensation the premiums on the rental
interruption policy on a timely basis. If so specified in the Prospectus
Supplement, if such rental interruption policy is canceled or terminated for
any reason (other than the exhaustion of total policy coverage), the Master
Servicer will exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to the rental interruption policy
with a total coverage that is equal to the then existing coverage of the
terminated rental interruption policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated rental
interruption policy, the amount of coverage under the replacement policy
will, unless otherwise specified in the related Prospectus Supplement, be
reduced to a level such that the applicable premium does not exceed, by a
percentage that may be set forth in the related Prospectus Supplement, the
cost of the rental interruption policy that was replaced. Any amounts
collected by the Master Servicer under the rental interruption policy in the
nature of insurance proceeds will be deposited in a related Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related Prospectus Supplement, the
Agreements will require that the Servicers obtain and maintain in effect a
fidelity bond or similar form of insurance coverage
(which may provide blanket coverage) or any combination thereof insuring
against loss occasioned by fraud, theft or other intentional misconduct of
the officers, employees and agents of such Servicer. The related Agreements
will allow a Servicer to self-insure against loss occasioned by the errors
and omissions of the officers, employees and agents of the Master Servicer or
the Special Servicer so long as certain criteria set forth in the Agreements
are met.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged
Property, or due-on-sale clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon any sale or other transfer of the related
Mortgaged Property. Certain of the Whole Loans may contain clauses requiring
the consent of the mortgagee to the creation of any other lien or encumbrance
on the Mortgaged Property or due-on-encumbrance clauses entitling the
mortgagee to accelerate payment of the Whole Loan upon the creation of any
other lien or encumbrance upon the Mortgaged Property. Unless otherwise
provided in the related Prospectus Supplement, the Master Servicer, on behalf
of the Trust Fund, will exercise any right the Trustee may have as mortgagee
to accelerate payment of any such Whole Loan or to withhold its consent to
any transfer or further encumbrance. Unless otherwise specified in the
related Prospectus Supplement, any fee collected by or on behalf of the
Master Servicer for entering into an assumption agreement will be retained by
or on behalf of the Master Servicer as additional servicing compensation.
See "Certain Legal Aspects of the Mortgage Loans and the Leases-Due-on-Sale
and Due-on-Encumbrance."
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a Series of Certificates will specify
whether there will be any Retained Interest in the Mortgage Assets, and, if
so, the initial owner thereof. If so, the Retained Interest will be
established on a loan-by-loan basis and will be specified on an exhibit to
the related Agreement. A "Retained Interest" in a Mortgage Asset represents
a specified portion of the interest payable thereon. The Retained Interest
will be deducted from Mortgagor payments as received and will not be part of
the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, each
Servicer's primary servicing compensation with respect to a Series of
Certificates will come from the periodic payment to it of a portion of the
interest payment on each Mortgage Asset. Since any Retained Interest and a
Servicer's primary compensation are percentages of the principal balance of
each Mortgage Asset, such amounts will decrease in accordance with the
amortization of the Mortgage Assets. The Prospectus Supplement with respect
to a Series of Certificates evidencing interests in a Trust Fund that
includes Whole Loans may provide that, as additional compensation, a Servicer
may retain all or a portion of assumption fees, modification fees, late
payment charges or Prepayment Premiums collected from Mortgagors and any
interest or other income which may be earned on funds held in a related
Account.
The Master Servicer may, to the extent provided in the related
Prospectus Supplement, pay from its servicing compensation certain expenses
incurred in connection with its servicing and managing of the Mortgage
Assets, including, without limitation, payment of the fees and disbursements
of the Trustee and independent accountants, payment of expenses incurred in
connection with distributions and reports to Certificateholders, and payment
of any other expenses described in the related Prospectus Supplement.
Certain other expenses, including certain expenses
relating to defaults and liquidations on the Whole Loans and, to the extent
so provided in the related Prospectus Supplement, interest thereon at the
rate specified therein, and the fees of any Special Servicer, may be borne by
the Trust Fund.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Mortgage Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from
the Distribution Account out of such proceeds, prior to distribution thereof
to Certificateholders, amounts representing its normal servicing compensation
on such Mortgage Loan, unreimbursed servicing expenses incurred with respect
to the Mortgage Loan and any unreimbursed advances of delinquent payments
made with respect to the Mortgage Loan. See "Hazard Insurance Policies" and
"Description of Credit Support."
EVIDENCE AS TO COMPLIANCE
Each Pooling and Servicing Agreement will provide that on or before a
specified date in each year, beginning on a date specified therein, a firm of
independent public accountants will furnish a statement to the Trustee to the
effect that, on the basis of the examination by such firm conducted
substantially in compliance with either the Uniform Single Attestation
Program for Mortgage Bankers, the servicing by or on behalf of each Servicer
was conducted in compliance with the terms of such agreements except for any
exceptions the Uniform Single Attestation Program for Mortgage Bankers
requires it to report.
Each Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by an
officer of each Servicer to the effect that such Servicer has fulfilled its
obligations under the Agreement throughout the preceding calendar year or
other specified twelvemonth period.
Unless otherwise provided in the related Prospectus Supplement, copies
of such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders and Beneficial Owners without charge upon
written request to the Master Servicer at the address set forth in the
related Prospectus Supplement; provided that such Beneficial Owner shall have
certified to the Master Servicer that it is the Beneficial Owner of a
Certificate.
CERTAIN MATTERS REGARDING EACH SERVICER AND THE DEPOSITOR
The Master Servicer and the Special Servicer, or a servicer for
substantially all the Whole Loans under a Pooling and Servicing Agreement
will be named in the related Prospectus Supplement. Each entity serving as
Servicer may be an affiliate of the Depositor and may have other normal
business relationships with the Depositor or the Depositor's affiliates.
Unless otherwise specified in the related Prospectus Supplement, the
related Pooling and Servicing Agreement will provide that any Servicer may
resign from its obligations and duties thereunder only with the consent of
the Trustee, which may not be unreasonably withheld or upon a determination
that its duties under the Agreement are no longer permissible under
applicable law. No such resignation will become effective until a successor
servicer has assumed such Servicer's obligations and duties under the related
Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Pooling and Servicing Agreement will further provide that none of the
Servicers, or any officer, employee, or agent thereof
will be under any liability to the related Trust Fund or Certificateholders
for any action taken, or for refraining from the taking of any action in
accordance with the Servicing standards set forth in the Pooling and
Servicing Agreement, in good faith pursuant to the Pooling and Servicing
Agreement; provided, however, that no Servicer nor any such person will be
protected against any breach of a representation or warranty made in such
Pooling and Servicing Agreement, or against any liability specifically
imposed thereby, or against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. Unless otherwise specified in the related Prospectus
Supplement, the Depositor shall be liable only to the extent of its
obligations specifically imposed upon and undertaken by the Depositor.
Unless otherwise specified in the related Prospectus Supplement, the Pooling
and Servicing Agreement will further provide that each Servicer will be
entitled to indemnification by the related Trust Fund against any loss,
liability or expense incurred in connection with any legal action relating to
the related Pooling and Servicing Agreement or the Mortgage Loans; provided,
however, that such indemnification will not extend to any loss, liability or
expense incurred by reason of misfeasance, bad faith or negligence in the
performance of obligations or duties thereunder, or by reason of reckless
disregard of such obligations or duties. In addition, the Pooling and
Servicing Agreement will provide that no Servicer will be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its responsibilities under the Pooling and Servicing Agreement
and which in its opinion may involve it in any expense or liability. Any
Servicer may, however, with the consent of the Trustee undertake any such
action which it may deem necessary or desirable with respect to the Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders 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 Certificateholders, and the Servicer will be entitled
to be reimbursed therefor.
Any person into which a Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to
which a Servicer or the Depositor is a party, or any person succeeding to the
business of a Servicer or the Depositor will be the successor of such
Servicer or the Depositor, as applicable, under the related Agreements.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a
Trust Fund that includes Whole Loans, Events of Default with respect to a
Servicer under the related Agreements will include (i) any failure by such
Servicer to distribute or cause to be distributed to the Trustee, another
Servicer or the Certificateholders, any required payment within one Business
Day of the date due; (ii) any failure by such Servicer to timely deliver a
report that continues unremedied for two days after receipt of notice of such
failure has been given to such Servicer by the Trustee or another Servicer;
(iii) any failure by such Servicer duly to observe or perform in any material
respect any of its other covenants or obligations under the Agreement which
continues unremedied for thirty days after written notice of such failure has
been given to such Servicer; (iv) any breach of a representation or warranty
made by such Servicer under the Agreement which materially and adversely
affects the interests of Certificateholders and which continues unremedied
for thirty days after written notice of such breach has been given to such
Servicer; (v) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings and certain actions by or on
behalf of such Servicer indicating its insolvency or inability to pay its
obligations; and (vi) any failure by such Servicer to maintain a required
license to do business or service the Mortgage Loans pursuant to the related
Agreements. Material variations to the foregoing Events of Default (other
than to shorten cure periods or eliminate notice requirements) will be
specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the Trustee
shall, not later than the later of 60 days after the occurrence of any event
which constitutes or, with notice or lapse of time or both, would constitute
an Event of Default and five days after certain officers of the Trustee
become aware of the occurrence of such an event, transmit by mail to the
Depositor and all Certificateholders of the applicable Series notice of such
occurrence, unless such default shall have been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under a Pooling and Servicing Agreement
remains unremedied, the Depositor or the Trustee may, and at the direction of
holders of Certificates evidencing not less than 25% of the Voting Rights,
the Trustee shall, terminate all of the rights and obligations of the related
Servicer under the Agreement and in and to the Mortgage Loans (other than as
a Certificateholder or as the owner of any Retained Interest), whereupon the
Master Servicer (or if such Servicer is the Master Servicer, the Trustee)
will succeed to all of the responsibilities, duties and liabilities of such
Servicer under the Agreement and will be entitled to similar compensation
arrangements. Unless otherwise specified in the related Prospectus
Supplement, in the event that the Trustee is unwilling or unable so to act,
it may or, at the written request of the holders of Certificates entitled to
at least 25% of the Voting Rights, it shall appoint, or petition a court of
competent jurisdiction for the appointment of, a loan servicing institution
acceptable to the Rating Agency with a net worth at the time of such
appointment of at least $15,000,000 to act as successor to the Master
Servicer under the 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, which in no event may be
greater than the compensation payable to the Master Servicer under the
Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default involving a failure to distribute a required payment
to Certificateholders described in clause (i) under "Events of Default" may
be waived only by all of the Certificateholders. Upon any such waiver of an
Event of Default, such Event of Default shall cease to exist and shall be
deemed to have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to
institute any proceeding with respect thereto unless such holder previously
has given to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights have made
written request upon the Trustee to institute such proceeding in its own name
as Trustee thereunder and have offered to the Trustee reasonable indemnity,
and the Trustee for sixty days has neglected or refused to institute any such
proceeding. The Trustee, however, is under no obligation to exercise any of
the trusts or powers vested in it by any Agreement or to make any
investigation of matters arising thereunder 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 covered by such Agreement,
unless such Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby. As described under "Description of the
Certificates-Book-Entry Registration and Definitive Certificates," unless and
until Definitive Certificates are issued, Beneficial Owners may only exercise
their rights as owners of Certificates indirectly through DTC, or their
respective Participants and Indirect Participants.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, an
Agreement may be amended by the parties thereto, without the consent of any
of the holders of Certificates covered by the Agreement, (i) to cure any
ambiguity, (ii) to correct, modify or supplement any provision therein which
may be inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, or (iv) to comply
with any requirements imposed by the Code; provided that such amendment
(other than an amendment for the purpose specified in clause (iv) above) will
not (as evidenced by an opinion of counsel to such effect) adversely affect
in any material respect the interests of any holder of Certificates covered
by the Agreement. Unless otherwise specified in the related Prospectus
Supplement, the Agreement may also be amended by the Depositor, the Master
Servicer, if any, and the Trustee, with the consent of the holders of
Certificates affected thereby evidencing not less than 51% of the Voting
Rights, for any purpose; provided, however, that unless otherwise specified
in the related Prospectus Supplement, no such amendment may (i) reduce in any
manner the amount of or delay the timing of, payments received or advanced on
Mortgage Loans which are required to be distributed on any Certificate
without the consent of the holder of such Certificate, (ii) adversely affect
in any material respect the interests of the holders of any class of
Certificates in a manner other than as described in (i), without the consent
of the holders of all Certificates of such class or (iii) modify the
provisions of such Agreement described in this paragraph without the consent
of the holders of all Certificates covered by such Agreement then
outstanding. However, with respect to any Series of Certificates as to which
a REMIC election is to be made, the Trustee will not consent to any amendment
of the Agreement unless it shall first have received an opinion of counsel to
the effect that such amendment will not result in the imposition of a tax on
the related Trust Fund or cause the related Trust Fund to fail to qualify as
a REMIC at any time that the related Certificates are outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking
relationship with the Depositor and its affiliates and with any Master
Servicer and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Trust Asset or related
document and is not accountable for the use or application by or on behalf of
any Servicer of any funds paid to such Servicer or its designee in respect of
the Certificates or the Trust Assets, or deposited into or withdrawn from any
Account or any other account by or on behalf of any Servicer. If no Event of
Default has occurred and is continuing, the Trustee is required to perform
only those duties specifically required under the related Agreements.
However, 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 to the
requirements of the Agreements.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Distribution Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in
settlement) incurred in connection with the Trustee's (i) enforcing its
rights and remedies and protecting the interests, and enforcing the rights
and remedies, of the Certificateholders during the continuance of an Event of
Default, (ii) defending or prosecuting any legal action in respect of the
related Agreement or Series of Certificates, (iii) being the mortgagee of
record with respect to the Mortgage Loans in a Trust Fund and the owner of
record with respect to any Mortgaged Property acquired in respect thereof for
the benefit of Certificateholders, or (iv) acting or refraining from acting
in good faith at the direction of the holders of the related Series of
Certificates entitled to not less than 25% (or such higher percentage as is
specified in the related Agreement with respect to any particular matter) of
the Voting Rights for such Series; provided, however, that such
indemnification will not extend to any loss, liability or expense that
constitutes a specific liability of the Trustee pursuant to the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a
breach of any representation, warranty or covenant of the Trustee made
therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor
trustee acceptable to the Master Servicer, if any. If no successor trustee
shall have been so appointed and have accepted appointment within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a
successor trustee. If at any time the Trustee shall cease to be eligible to
continue as such under the related Agreements, or if at any time the Trustee
shall become incapable of acting, or shall be adjudged bankrupt or insolvent,
or a receiver of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation,
then the Depositor may remove the Trustee and appoint a successor trustee
acceptable to the Master Servicer, if any. Holders of the Certificates of
any Series entitled to at least 51% of the Voting Rights for such Series may
at any time remove the Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any Series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Mortgage Assets.
Credit Support may be in the form of the subordination of one or more classes
of Certificates, letters of credit, insurance policies, guarantees, the
establishment of one or more reserve funds or another method of Credit
Support described in the related Prospectus Supplement, or any combination of
the foregoing. If so provided in the related
Prospectus Supplement, any form of Credit Support may be structured so as to
be drawn upon by more than one Series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
Series of Certificates, the Credit Support will not provide protection
against all risks of loss and will not guarantee repayment of the entire
Certificate Balance of the Certificates and interest thereon. If losses or
shortfalls occur that exceed the amount covered by Credit Support or that are
not covered by Credit Support, Certificateholders will bear their allocable
share of deficiencies. Moreover, if a form of Credit Support covers more
than one Series of Certificates (each, a "Covered Trust"), holders of
Certificates evidencing interests in any of such Covered Trusts will be
subject to the risk that such Credit Support will be exhausted by the claims
of other Covered Trusts prior to such Covered Trust receiving any of its
intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a Series, or the related Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the nature and amount
of coverage under such Credit Support, (b) any conditions to payment
thereunder not otherwise described herein, (c) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and
under which such Credit Support may be terminated or replaced and (d) the
material provisions relating to such Credit Support. Additionally, the
related Prospectus Supplement will set forth certain information with respect
to the obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of
its business and (iv) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement. See "Risk Factors-Credit Support Limitations."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a Series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the
holders of Subordinate Certificates to receive distributions of principal and
interest from the Distribution Account on any Distribution Date will be
subordinated to such rights of the holders of Senior Certificates. If so
provided in the related Prospectus Supplement, the subordination of a class
may apply only in the event of (or may be limited to) certain types of losses
or shortfalls. The related Prospectus Supplement will set forth information
concerning the amount of subordination of a class or classes of Subordinate
Certificates in a Series, the circumstances in which such subordination will
be applicable and the manner, if any, in which the amount of subordination
will be effected.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a Series are divided into separate groups,
each supporting a separate class or classes of Certificates of a Series,
credit support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a Series that includes a cross-support
provision will describe the manner and conditions for applying such
provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a Series of
Certificates, the Whole Loans in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees. A copy of any
such material instrument for a Series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of
issuance of the Certificates of the related Series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates
or certain classes thereof will be covered by one or more letters of credit,
issued by a bank or financial institution specified in such Prospectus
Supplement (the "L/C Bank"). Under a letter of credit, the L/C Bank will be
obligated to honor draws thereunder in an aggregate fixed dollar amount, net
of unreimbursed payments thereunder, generally equal to a percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of the Mortgage Assets on the related Cut-off Date or of the initial
aggregate Certificate Balance of one or more classes of Certificates. If so
specified in the related Prospectus Supplement, the letter of credit may
permit draws in the event of only certain types of losses and shortfalls.
The amount available under the letter of credit will, in all cases, be
reduced to the extent of the unreimbursed payments thereunder and may
otherwise be reduced as described in the related Prospectus Supplement. The
obligations of the L/C Bank under the letter of credit for each Series of
Certificates will expire at the earlier of the date specified in the related
Prospectus Supplement or the termination of the Trust Fund. A copy of any
such letter of credit for a Series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of
issuance of the Certificates of the related Series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates
or certain classes thereof will be covered by insurance policies and/or
surety bonds provided by one or more insurance companies or sureties. Such
instruments may cover, with respect to one or more classes of Certificates of
the related Series, timely distributions of interest and/or full
distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the
related Prospectus Supplement. A copy of any such instrument for a Series
will be filed with the Commission as an exhibit to a Current Report on Form
8-K to be filed with the Commission within 15 days of issuance of the
Certificates of the related Series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates
or certain classes thereof will be covered by one or more reserve funds in
which cash, a letter of credit, Permitted Investments, a demand note or a
combination thereof will be deposited, in the amounts so specified in such
Prospectus Supplement. The reserve funds for a Series may also be funded
over time by depositing therein a specified amount of the distributions
received on the related Trust Assets as specified in the related Prospectus
Supplement.
Amounts on deposit in any reserve fund for a Series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely
distributions of principal of and interest on the Certificates. If so
specified in the related Prospectus Supplement, reserve funds may be
established to provide limited protection against only certain types of
losses and shortfalls. Following each Distribution Date amounts in a reserve
fund in excess of any amount required to be maintained therein may be
released from the reserve fund under the conditions and to the extent
specified in the related Prospectus Supplement and will not be available for
further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
any reinvestment income or other gain from such investments will be credited
to the related Reserve Fund for such Series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may
be payable to any related Master Servicer or another service provider as
additional compensation. The Reserve Fund, if any, for a Series will not be
a part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund
may be applied to make distributions to Certificateholders and use of
investment earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO CMBS
If so provided in the Prospectus Supplement for a Series of
Certificates, the CMBS in the related Trust Fund and/or the Mortgage Loans
underlying such CMBS may be covered by one or more of the types of Credit
Support described herein. The related Prospectus Supplement will specify as
to each such form of Credit Support the information indicated above with
respect thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
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. See "Description of the Trust Funds-Assets."
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, security deeds 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 security
deed or 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. 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
Sailors' Civil Relief Act of 1940) and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property
such as a tenant's interest in a lease of land or improvements, or both, and
the leasehold estate created by such lease. An instrument covering an
interest in real property other than the fee estate requires special
provisions in the instrument creating such interest or in the mortgage, deed
of trust, security deed or deed to secure debt, to protect the mortgagee
against termination of such interest before the mortgage, deed of trust,
security deed or deed to secure debt is paid. The Warrantying Party will
make certain representations and warranties in the Agreement with respect to
the Mortgage Loans which are secured by an interest in a leasehold estate.
Such representation and warranties will be set forth in the Prospectus
Supplement if applicable.
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 default. Under such
assignments, the Mortgagor typically assigns its right, title and interest as
lessor under each lease and the income derived therefrom to the mortgagee,
while retaining a license to collect the rents for so long as there is no
default under the mortgage loan documentation. The manner of perfecting the
mortgagee's interest in rents may depend on whether the Mortgagor's
assignment was absolute or one granted as security for the loan. Failure to
properly perfect the mortgagee's interest in rents may result in the loss of
substantial pool of funds, which could otherwise serve as a source of
repayment for such loan. If the Mortgagor defaults, 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 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 loan. 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.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs
and other risks inherent in property ownership. See "Environmental
Legislation" below.
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.
FORECLOSURE
GENERAL. 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, 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 several 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 foreclose is contested, the legal proceedings can be
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.
EQUITABLE LIMITATIONS ON ENFORCEABILITY OF CERTAIN PROVISIONS. 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
or remedy 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. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court
determines that the sale was for less than fair consideration and such sale
occurred while the Mortgagor was insolvent (or the Mortgagor was rendered
insolvent as a result of such sale) and within one year (or within the state
statute of limitations if the trustee in bankruptcy elects to proceed under
state fraudulent conveyance law) of the filing of bankruptcy.
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.
PUBLIC SALE. 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. For these reasons, it is common for the
lender to purchase the mortgaged property for an amount equal to or less than
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,
restaurants, 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
applied first to the costs, fees and expenses of sale 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. In connection with a Series of Certificates for which an
election is made to qualify the Trust Fund, or a portion thereof, as a REMIC,
the REMIC Provisions and the Agreement may require the Master Servicer to
hire an independent contractor to operate any foreclosed property relating to
Whole Loans.
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 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 Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. Unless
otherwise provided in the related Prospectus Supplement, with respect to a
Series of Certificates for which an election is made to qualify the Trust
Fund or a part thereof as a REMIC, the Agreement will permit foreclosed
property to be held for more than two years if the Internal Revenue Service
grants an extension of time within which to sell such property or independent
counsel renders an opinion to the effect that holding such property for such
additional period is permissible under the REMIC Provisions.
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 (Title 11 of the United States Code) (the "Bankruptcy Code"),
although the enforceability of such clause has not been established. Without
the protections described above, 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. In
many jurisdictions, 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 pre-petition 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.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or
modified at any time after the commencement of a case under the Bankruptcy
Code solely on the basis of a provision in the lease to such effect or
because of certain other similar events. This prohibition on so-called "ipso
facto clauses" could limit the ability of the Trustee for a Series of
Certificates to exercise certain contractual remedies with respect to the
Leases. In addition, Section 362 of the Bankruptcy Code operates as an
automatic stay of, among other things, any act to obtain possession of
property from a debtor's estate, which may delay a Trustee's exercise of such
remedies for a related Series of Certificates in the event that a related
Lessee or a related Mortgagor becomes the subject of a proceeding under the
Bankruptcy Code. For example, a mortgagee would be stayed from enforcing a
Lease Assignment by a Mortgagor related to a Mortgaged Property if the
related Mortgagor was in a bankruptcy proceeding. The legal proceedings
necessary to resolve the issues could be time-consuming and might result in
significant delays in the receipt of the assigned rents. Similarly, the
filing of a petition in bankruptcy by or on behalf of a Lessee of a Mortgaged
Property would result in a stay 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. Rents and
other proceeds of a Mortgage Loan may also escape an assignment thereof if
the assignment is not fully perfected under state law prior to commencement
of the bankruptcy proceeding. See "-Leases and Rents" above.
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 in bankruptcy on behalf of the lessee,
or the lessee as debtor-in-possession, or the 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, such
rejection generally constitutes a breach of the executory contract or
unexpired lease immediately before the date of filing the petition. As a
consequence, the other party or parties to such lease, such as the Mortgagor,
as lessor under a Lease, would have only an unsecured claim against the
debtor for damages resulting from such breach, which could adversely affect
the security for the related Mortgage Loan. 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.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative,
the lessee may remain in possession of the leasehold for the balance of such
term and for any renewal or extension of such term that is enforceable by the
lessee under applicable nonbankruptcy law. The Bankruptcy Code provides that
if a lessee elects to remain in possession after such a rejection of a lease,
the lessee may offset against rents reserved under the lease for the balance
of the term after the date of rejection of the lease, and any such renewal or
extension thereof, any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such
date. To the extent provided in the related Prospectus Supplement, the
Lessee will agree under certain Leases to pay all amounts owing thereunder
the Master Servicer without offset. To the extent that such a contractual
obligation remains enforceable against the Lessee, the Lessee would not be
able to avail itself of the rights of offset generally afforded to lessees of
real property under the Bankruptcy Code.
In a bankruptcy or similar proceeding of a Mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds,
of any payments made by the Mortgagor, or made directly by the related
Lessee, 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.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships
in certain states provide that the commencement of a case under the
Bankruptcy Code with respect to a general partner will cause a person to
cease to be a general partner of the limited partnership, unless otherwise
provided in writing in the limited partnership agreement. This provision may
be construed as an "ipso facto" clause and, in the event of the general
partner's bankruptcy, may not be enforceable. To the extent described in the
related Prospectus Supplement, certain limited partnership agreements of the
Mortgagors may provide that the commencement of a case under the Bankruptcy
Code with respect to the related general partner constitutes an event of
withdrawal (assuming the enforceability of the clause is not challenged in
bankruptcy proceedings or, if challenged, is upheld) that might trigger the
dissolution of the limited partnership, the winding up of its affairs and the
distribution of its assets, unless (i) at the time there was at least one
other general partner and the written provisions of the limited partnership
permit the business of the limited partnership to be carried on by the
remaining general partner and that general partner does so or (ii) the
written provisions of the limited partnership agreement permit the limited
partners to agree within a specified time frame (often 60 days) after such
withdrawal to
continue the business of the limited partnership and to the appointment of
one or more general partners and the limited partners do so. In addition,
the laws governing general partnerships in certain states provide that the
commencement of a case under the Bankruptcy Code or state bankruptcy laws
with respect to a general partner of such partnerships triggers the
dissolution of such partnership, the winding up of its affairs and the
distribution of its assets. Such state laws, however, may not be enforceable
or effective in a bankruptcy case. The dissolution of a Mortgagor, the
winding up of its affairs and the distribution of its assets could result in
an acceleration of its payment obligation under a related Mortgage Loan,
which may reduce the yield on the related Series of Certificates in the same
manner as a principal prepayment.
In addition, 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 first
bankrupt entity extended to the second and the rights of creditors of the
second 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. In such a case, the respective Mortgaged Property, for
example, would become property of the estate of such bankrupt affiliate. Not
only would the Mortgaged Property be available to satisfy the claims of
creditors of such affiliate, but an automatic stay would apply to any attempt
by the Trustee to exercise remedies with respect to such Mortgaged Property.
However, such an occurrence should not affect the Trustee's status as a
secured creditor with respect to the Mortgagor or its security interest in
the Mortgaged Property.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial, or disposal activity. Such environmental liabilities may give
rise to (i) a diminution in value of property securing any Mortgage Loan,
(ii) limitation on the ability to foreclose against such property or (iii) in
certain circumstances as more fully described below, liability for cleanup
costs or other remedial activities, which liability could exceed the value of
the principal balance of the related Mortgage Loan or of such Mortgaged
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 these states, the lien of a mortgage
contemplated by this transaction may lose its priority to such a superlien.
The presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of
the property, as well as the owner's ability to sell or use the real estate
or to borrow using the real estate as collateral. In addition, certain
environmental laws and common law principles govern the responsibility for
the removal, encapsulation or disturbance of asbestos containing materials
("ACMs") when these ACMs are in poor condition or when a property with ACMs
is undergoing repair, renovation or demolition. Such laws could also be used
to impose liability upon owners and operators of real properties for release
of ACMs into the air that cause personal injury or other damage. In addition
to cleanup and natural
resource damages actions brought by federal, state, and local agencies and
private parties, the presence of hazardous substances on a property may lead
to claims of personal injury, property damage, or other claims by private
plaintiffs.
Under the federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, ("CERCLA"), and under state law
in certain states, a secured party which takes a deed-in-lieu of foreclosure,
purchases a mortgaged property at a foreclosure sale, or operates a mortgaged
property may become liable in certain circumstances for the costs of cleaning
up hazardous substances regardless of whether or not that secured party
contaminated the property. Liability under some federal or state statutes
may not be limited to the original or unamortized principal balance of a loan
or to the value of the property securing a loan. 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.
Lenders may be held liable under CERCLA as owners or operators of a
contaminated property unless they qualify for the secured-creditor exemption
of CERCLA. This exemption for holders of a security interest such as a
secured lender applies only in circumstances where the lender acts to protect
its security interest in the contaminated facility or property. Thus, if a
lender's activities encroach on the actual management of such facility or
property, the lender faces potential liability as an "owner or operator"
under CERCLA. Similarly, when a lender forecloses and takes title to a
contaminated facility or property (whether it holds the facility or property
as an investment or leases it to a third party), the lender may incur
potential CERCLA liability. This ambiguity appears to have been resolved by
the enactment of the Asset Conservation, Lender Liability and Deposit
Insurance Protection Act of 1996 (the "Asset Conservation Act"), which took
effect on September 30, 1996. The Asset Conservation Act provides that in
order to be deemed to have participated in the management of a secured
property, a lender must actually participate in the operational affairs of
the property or the borrower. The Asset Conservation Act also provides that
participation in the management of the property does not include "merely
having the capacity to influence, or unexercised right to control"
operations. Rather, a lender will lose the protection of the secured
creditor exclusion only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all or substantially
all operational functions of the secured property.
Other federal and state laws in certain circumstances may impose
liability on a secured party which takes a deed-in-lieu of foreclosure,
purchases a mortgaged property at a foreclosure sale, or operates a mortgaged
property on which contaminants other than CERCLA hazardous substances are
present. Moreover, certain federal and state statutes impose a lien for any
cleanup costs incurred by the applicable governmental agency on the property
that is the subject of such cleanup costs (an "environmental lien"). All
subsequent liens on such property generally are subordinated to such
environmental liens and, in some states, even prior recorded liens are
subordinated to environmental liens.
It should be noted that the secured creditor exclusion does not govern
liability for cleanup costs under other federal environmental statutes.
CERCLA's jurisdiction extends to the investigation and remediation of
releases of "hazardous substances." The definition of "hazardous substances"
under CERCLA specifically excludes petroleum products. Under federal law,
the operation and management of underground petroleum storage tanks
(excluding heating oil) is governed by Subtitle I of the Resource
Conservation and Recovery Act ("RCRA"). The Asset Conservation Act amended
RCRA to accord the holders of security interests in underground storage tanks
similar protections provided to secured creditors under CERCLA. However,
liability for cleanup of petroleum contamination will most likely be governed
by state law, which may not provide any specific protection for secured
creditors.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental
hazard, 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.
The related Agreement will provide that the Special Servicer, acting on
behalf of the Trustee, may not acquire title to a Mortgaged Property or take
over its operation unless the Special Servicer has previously determined,
based on a report prepared by a person who regularly conducts environmental
assessments, that: (i) such Mortgaged Property is in compliance with
applicable environmental laws, or, if not, that taking such actions as are
necessary to bring the Mortgaged Property in compliance therewith is likely
to produce a greater recovery on a present value basis, after taking into
account any risks associated therewith, than not taking such actions and (ii)
there are no circumstances present at the 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 federal, state or local law or regulation. This
requirement effectively precludes enforcement of the security for the related
Mortgage Note until a satisfactory environmental inquiry is undertaken, or
that, if any Hazardous Materials are present for which such action could be
required, taking such actions with respect to the affected Mortgaged Property
is reasonably likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking
such actions, reducing the likelihood that a given Trust Fund will become
liable for any condition or circumstance that may give rise to any
environmental claim (an "Environmental Hazard Condition") affecting a
Mortgaged Property, but making it more difficult to realize on the security
for the Mortgage Loan. However, there can be no assurance that any
environmental assessment obtained by the Special Servicer will detect all
possible Environmental Hazard Conditions, that any estimate of the costs of
effecting compliance at any Mortgaged Property and the recovery thereon will
be correct, or that the other requirements of the Agreement, even if fully
observed by the Master Servicer or Special Servicer, as the case may be, will
in fact insulate a given Trust Fund from liability for Environmental Hazard
Conditions. Any additional restrictions on acquiring titles to a Mortgaged
Property may be set forth in the related Prospectus Supplement. See
"Description of the Agreements Realization Upon Defaulted Whole Loans."
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental
assessments have been conducted with respect to the Mortgaged Properties
relating to the Mortgage Loans included in the Mortgage Pool for a Series,
and it is likely that any environmental assessments which would have been
conducted with respect to any of the Mortgaged Properties would have been
conducted at the time of the origination of the related Mortgage Loans and
not thereafter. If specified in the related Prospectus Supplement, a
Warranting Party will represent and warrant that based on an environmental
audit commissioned by Warranting Party, as of the date of the origination of
a Mortgage Loan, the related Mortgaged Property is not affected by a
Disqualifying Condition (as defined below). No such person will however, be
responsible for any Disqualifying Condition which may arise on a Mortgaged
Property after the date of origination of the related Mortgage Loan, whether
due to actions of the Mortgagor, the Master Servicer, the Special Servicer or
any other person. It may not always be possible to determine
whether a Disqualifying Condition arose prior or subsequent to the date of
the origination of the related Mortgage Loan.
A "Disqualifying Condition" is defined generally as a condition which
would reasonably be expected to (1) constitute or result in a violation of
applicable environmental laws, (2) require any expenditure material in
relation to the principal balance of the related Mortgage Loan to achieve or
maintain compliance in all material respects with any applicable
environmental laws, or (3) require substantial cleanup, remedial action or
other extraordinary response under any applicable environmental laws in
excess of a specified escrowed amount.
"Hazardous Materials" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants,
chemicals, wastes or substances, including, without limitation, those so
identified pursuant to CERCLA, and specifically including, asbestos and
asbestos containing materials, polychlorinated biphenyls, radon gas,
petroleum and petroleum products and urea formaldehyde.
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.
Unless otherwise provided in the related Prospectus Supplement, a Master
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 a manner consistent with the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain
circumstances, be eliminated in any modified mortgage resulting from such
bankruptcy proceeding.
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.
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 Interest Rates, may increase
the likelihood of refinancing or other early retirements of the Mortgage
Loans.
ACCELERATION ON DEFAULT
Unless otherwise specified in the related Prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. 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 the 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 Mortgagor 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.
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.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
Mortgage Loan originated after the date of such state
action will be eligible for inclusion in a Trust Fund unless (i) such
Mortgage Loan provides for such interest rate, discount points and charges as
are permitted in such state or (ii) such Mortgage Loan provides that the
terms thereof shall be construed in accordance with the laws of another state
under which such interest rate, discount points and charges would not be
usurious and the Mortgagor's counsel has rendered an opinion that such choice
of law provision would be given effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this
statutory scheme, the borrower may cancel the recorded mortgage or deed of
trust upon paying its debt with lawful interest, and the lender may
foreclose, but only for the debt plus lawful interest. A second group of
statutes is more severe. A violation of this type of usury law results in
the invalidation of the transaction, thereby permitting the borrower to
cancel the recorded mortgage or deed of trust without any payment or
prohibiting the lender from foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
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 Mortgage Property which could, together
with the possibility of limited alternative uses for a particular Mortgaged
Property (e.g., a nursing or convalescent home or hospital), result in a
failure to realize the full principal amount of the related Mortgage Loan.
Mortgages on Mortgaged Properties which are owned by the Mortgagor 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 in that
hotels and motels are typically operated pursuant to franchise, management
and operating agreements which may be terminable by the operator, and the
transferability of the hotel's operating, liquor and other licenses to the
entity acquiring the hotel either through purchases or foreclosure is subject
to the vagaries of local law requirements. In addition, Mortgaged Properties
which are multifamily residential 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 Mortgagor 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 Mortgagor as owner of 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 Mortgagor of complying with the
requirements of the ADA may be subject to more stringent requirements than
those to which the Mortgagor is subject.
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 related Series of Certificates, and would not be covered
by advances or, unless otherwise specified in the related Prospectus
Supplement, any form of Credit Support 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 FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
Certificates. 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. 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
Internal Revenue Code of 1986, as amended (the "Code"), as well as
regulations (the "REMIC Regulations") promulgated by the U.S. Department of
Treasury (the "Treasury"). Investors should
consult their own tax advisors in determining the federal, state, local and
other tax consequences to them of the purchase, ownership and disposition of
Certificates.
For purposes of this discussion, (i) references to the Mortgage
Loans include references to the mortgage loans underlying CMBS included in
the Mortgage Assets and (ii) where the applicable Prospectus Supplement
provides for a fixed retained yield with respect to the Mortgage Loans
underlying a series of Certificates, references to the Mortgage Loans will be
deemed to refer to that portion of the Mortgage Loans held by the Trust Fund
which does not include the Retained Interest. References to a "holder" or
"Certificateholder" in this discussion generally mean the beneficial owner of
a Certificate.
Federal Income Tax Consequences for REMIC Certificates
_______________________________________________________
General
With respect to a particular series of Certificates, an election
may be made to treat the Trust Fund or one or more segregated pools of assets
therein as one or more REMICs within the meaning of Code Section 860D. A
Trust Fund or a portion thereof as to which a REMIC election will be made
will be referred to as a "REMIC Pool". For purposes of this discussion,
Certificates of a series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more Classes
of "REMIC Regular Certificates" and one Class of "REMIC Residual
Certificates" in the case of each REMIC Pool. Qualification as a REMIC
requires ongoing compliance with certain conditions. With respect to each
series of REMIC Certificates, Cadwalader, Wickersham & Taft, special counsel
to the Depositor, has advised the Depositor that in the firm's opinion,
assuming (i) the making of such an election, (ii) compliance with the Pooling
Agreement and (iii) compliance with any changes in the law, including any
amendments to the Code or applicable Treasury regulations thereunder, each
REMIC Pool will qualify as a REMIC. In such case, the REMIC Regular
Certificates will be considered to be "regular interests" in the REMIC Pool
and generally will be treated for federal income tax purposes as if they were
newly originated debt instruments, and the REMIC Residual Certificates will
be considered to be "residual interests" in the REMIC Pool. The Prospectus
Supplement for each series of Certificates will indicate whether one or more
REMIC elections with respect to the related Trust Fund will be made, in which
event references to "REMIC" or "REMIC Pool" herein shall be deemed to refer
to each such REMIC Pool. If so specified in the applicable Prospectus
Supplement, the portion of a Trust Fund as to which a REMIC election is not
made may be treated asa grantor trust for federal income taxpurposes. See "--
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election Is Made".
STATUS OF REMIC CERTIFICATES
REMIC Certificates held by a domestic building and loan association
will constitute "a regular or residual interest in a REMIC" within the
meaning of Code Section 7701(a)(19)(C)(xi), but only in the same proportion
that the assets of the REMIC Pool would be treated as "loans . . . secured by
an interest in real property which is . . . residential real property" (such
as single family or multifamily properties, but not commercial properties)
within the meaning of Code Section 7701(a)(19)(C)(v) or as other assets
described in Code Section 7701(a)(19)(C), and otherwise will not qualify for
such treatment. REMIC Certificates held by a real estate investment trust
will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest on the REMIC Regular Certificates and income with
respect to REMIC Residual 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 REMIC Pool would
be so treated. If at all times 95% or more of the assets of the REMIC Pool
qualify for each of the foregoing respective treatments, the REMIC
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
the Mortgage Loans that are reinvested pending distribution to holders of
REMIC Certificates qualify for such treatment. Where two REMIC Pools are a
part of a tiered structure they will be treated as one REMIC for purposes of
the tests described above respecting asset ownership of more or less than
95%. In addition, if the assets of the REMIC include Buy-Down Mortgage Loans,
it is possible that the percentage of such assets constituting "loans . . .
secured by an interest in real property which is . . . residential real
property" for purposes of Code Section 7701(a)(19)(C)(v) may be required to
be reduced by the amount of the related Buy-Down Funds. REMIC Certificates
held by a regulated investment company will not constitute "Government
Securities" within the meaning of Code Section 851(b)(4)(A)(i). REMIC
Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1). The
Small Business Job Protection Act of 1996 (the "SBJPA of 1996") repealed the
reserve method for bad debts of domestic building and loan associations and
mutual savings banks, and thus has eliminated the asset category of
"qualifying real property loans" in former Code Section 593(d) for taxable
years beginning after December 31, 1995. The requirement in the SBJPA of 1996
that such institutions must "recapture" a portion of their existing bad debt
reserves is suspended if a certain portion of their assets are maintained in
"residential loans" under Code Section 7701(a)(19)(C)(v), but only if such
loans were made to acquire, construct or improve the related real property
and not for the purpose of refinancing. However, no effort will be made to
identify the portion of the Mortgage Loans of any Series meeting this
requirement, and no representation is made in this regard.
QUALIFICATION AS A REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be
ongoing compliance on the part of the REMIC Pool with the requirements set
forth in the Code. The REMIC Pool must fulfill an asset test, which requires
that no more than a de minimis portion of the assets of the REMIC Pool, as of
the close of the third calendar month beginning after the "Startup Day"
(which for purposes of this discussion is the date of issuance of the REMIC
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 requirement is met if
at all times the aggregate adjusted basis of the nonqualified assets is less
than 1% of the aggregate adjusted basis of all the REMIC Pool's assets. An
entity that fails to meet the safe harbor may nevertheless demonstrate that
it holds no more than a de minimis amount of nonqualified assets. A REMIC
also must provide "reasonable arrangements" to prevent its residual interest
from being held by "disqualified organizations" and must furnish applicable
tax information to transferors or agents that violate this requirement. The
Pooling Agreement for each Series will contain a provision designed to meet
this requirement. See "Taxation of REMIC Residual Certificates--Tax-Related
Restrictions on Transfer of REMIC Residual Certificates--Disqualified
Organizations".
A qualified mortgage is any obligation that is principally secured
by an interest in real property and that is either transferred to the REMIC
Pool on the Startup Day or is purchased by the REMIC Pool 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, certificates of beneficial interest in a grantor trust
that holds mortgage loans, including certain of the CMBS, regular interests
in another REMIC, such as CMBS in a trust as to which a REMIC election has
been made, loans secured by timeshare interests and loans secured by shares
held by a tenant stockholder in a cooperative housing corporation, 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 or mortgage loan
underlying the Mortgage Certificate 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 loan 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 or underlying 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 or at closing. A qualified mortgage includes a
qualified replacement mortgage, which is any property that would have been
treated as a qualified mortgage if it were transferred to the REMIC Pool on
the Startup Day and that is received either (i) in exchange for any qualified
mortgage within a three-month period thereafter or (ii) in exchange for a
"defective obligation" within a two-year period thereafter. A "defective
obligation" includes (i) a mortgage in default or as to which default is
reasonably foreseeable, (ii) a mortgage as to which a customary
representation or warranty made at the time of transfer to the REMIC Pool has
been breached, (iii) a mortgage that was fraudulently procured by the
mortgagor, and (iv) a mortgage that was not in fact principally secured by
real property (but only if such mortgage is disposed of within 90 days of
discovery). A Mortgage Loan that is "defective" as described in clause (iv)
that is not sold or, if within two years of the Startup Day, exchanged,
within 90 days of discovery, 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 Pool. A qualified reserve asset is any intangible
property held for investment that is part of any reasonably required reserve
maintained by the REMIC Pool to provide for payments of expenses of the REMIC
Pool or amounts due on the regular or residual interests in the event of
defaults (including delinquencies) on the qualified mortgages, lower than
expected reinvestment returns, prepayment interest shortfalls and certain
other contingencies. The reserve fund will be disqualified if more than 30%
of the gross income from the assets in such fund for the year is derived from
the sale or other disposition of property held for less than three months,
unless required to prevent a default on the regular interests caused by a
default on one or more qualified mortgages. A reserve fund must be reduced
"promptly and appropriately" as payments on the Mortgage Loans are received.
Foreclosure property is real property acquired by the REMIC Pool in
connection with the default or imminent default of a qualified mortgage and
generally held for not more than two years, with extensions granted by the
Internal Revenue Service (the "Service").
In addition to the foregoing requirements, the various interests in
a REMIC Pool also must meet certain requirements. All of the interests in a
REMIC Pool 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 Pool 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 qualified mortgages. Such a specified portion may consist of a fixed
number of basis points, a fixed percentage of the total interest, or a fixed
or qualified variable or inverse variable rate on some or all of the
qualified mortgages minus a different fixed or qualified variable rate. 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 Pool other than a regular interest that is issued on the Startup Day
and that is designated as a residual interest.
An interest in a REMIC Pool 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
Pool, and are dependent on the absence of defaults or delinquencies on
qualified mortgages or permitted investments, lower than reasonably expected
returns on permitted investments, unanticipated expenses incurred by the
REMIC Pool or prepayment interest shortfalls. Accordingly, the REMIC Regular
Certificates of a series will constitute one or more classes of regular
interests, and the REMIC Residual Certificates with respect to that series
will constitute a single class of residual interests on which distributions
are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or
more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a
REMIC for such year and thereafter. In this event, an entity with multiple
classes of ownership interests may be treated as a separate association
taxable as a corporation under Treasury regulations, and the REMIC Regular
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, and disqualification of the
REMIC Pool would occur absent regulatory relief. 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 REMIC
Pool's income for the period of time in which the requirements for REMIC
status are not satisfied.
Taxation of REMIC Regular Certificates
General
_______
In general, interest, original issue discount and market discount
on a REMIC Regular Certificate will be treated as ordinary income to a holder
of the REMIC Regular Certificate (the "REMIC Regular Certificateholder") as
they accrue, and principal payments on a REMIC Regular Certificate will be
treated as a return of capital to the extent of the REMIC Regular
Certificateholder's basis in the REMIC Regular Certificate allocable thereto.
REMIC Regular Certificateholders must use the accrual method of accounting
with regard to REMIC Regular Certificates, regardless of the method of
accounting otherwise used by such REMIC Regular Certificateholders.
ORIGINAL ISSUE DISCOUNT
Accrual Certificates and principal-only Certificates will be, and
other Classes of REMIC Regular Certificates may be, issued with "original
issue discount" within the meaning of Code Section 1273(a). Holders of any
Class of REMIC Regular Certificates having original issue discount generally
must include original issue discount in ordinary income for federal income
tax purposes as it accrues, in accordance with the constant yield 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 temporary and final Treasury regulations issued on February 2, 1994, as
amended on June 14, 1996 (the "OID Regulations") under Code Sections 1271
through 1273 and 1275 and in part on the provisions of the 1986 Act. REMIC
Regular Certificateholders should be aware, however, that the OID Regulations
do not adequately address certain issues relevant to prepayable securities,
such as the REMIC Regular Certificates. To the extent such issues are not
addressed in such regulations, the Depositor intends to apply the methodology
described in the Conference Committee Report to the 1986 Act. No assurance
can be provided that the 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 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 REMIC Regular Certificates.
Each REMIC Regular Certificate (except to the extent described
below with respect to a REMIC Regular Certificate on which principal is
distributed by random lot ("Random Lot Certificates")) will be treated as a
single installment obligation for purposes of determining the original issue
discount includible in a REMIC Regular Certificateholder's income. The total
amount of original issue discount on a REMIC Regular Certificate is the
excess of the "stated redemption price at maturity" of the REMIC Regular
Certificate over its "issue price". The issue price of a Class of REMIC
Regular Certificates offered pursuant to this Prospectus generally is the
first price at which a substantial amount of REMIC Regular Certificates of
that Class is sold to the public (excluding bond houses, brokers and
underwriters). Although unclear under the OID Regulations, the Depositor
intends to treat the issue price of a Class as to which there is no
substantial sale as of the issue date or that is retained by the Depositor as
the fair market value of that Class as of the issue date. The issue price of
a REMIC Regular Certificate also includes the amount paid by an initial REMIC
Regular Certificateholder for accrued interest that relates to a period prior
to the issue date of the REMIC Regular Certificate, unless the REMIC Regular
Certificateholder elects on its federal income tax return to exclude such
amount from the issue price and to recover it on the first Distribution Date.
The stated redemption price at maturity of a REMIC Regular Certificate always
includes the original principal amount of the REMIC Regular Certificate, but
generally will not include distributions of stated interest if such interest
distributions constitute "qualified stated interest". Under the OID
Regulations, qualified stated interest generally means interest payable at a
single fixed rate or a qualified variable rate (as described below) provided
that such interest payments are unconditionally payable at intervals of one
year or less during the entire term of the REMIC Regular Certificate. Because
there is no penalty or default remedy in the case of nonpayment of interest
with respect to a REMIC Regular Certificate, it is possible that no interest
on any Class of REMIC Regular Certificates will be treated as qualified
stated interest. However, except as provided in the following three sentences
or in the applicable Prospectus Supplement, because the underlying Mortgage
Loans provide for remedies in the event of default, the Depositor intends to
treat interest with respect to the REMIC Regular Certificates as qualified
stated interest. Distributions of interest on an Accrual Certificate, or on
other REMIC Regular Certificates with respect to which deferred interest will
accrue, will not constitute qualified stated interest, in which case the
stated redemption price at maturity of such REMIC Regular Certificates
includes all distributions of interest as well as principal thereon.
Likewise, the Depositor intends to treat an "interest only" class, or a class
on which interest is substantially disproportionate to its principal amount
(a so-called "super-premium" class) as having no qualified stated interest.
Where the interval between the issue date and the first Distribution Date on
a REMIC Regular Certificate is shorter than the interval between subsequent
Distribution Dates, the interest attributable to the additional days will be
included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a REMIC Regular
Certificate will be considered to be zero if such original issue discount is
less than 0.25% of the stated redemption price at maturity of the REMIC
Regular Certificate multiplied by the weighted average maturity of the REMIC
Regular Certificate. For this purpose, the weighted average maturity of the
REMIC Regular Certificate 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 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 REMIC Regular Certificate and the denominator of which is the stated
redemption price at maturity of the REMIC Regular Certificate. The Conference
Committee Report to the 1986 Act provides that the schedule of such
distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Loans (the "Prepayment Assumption") and the
anticipated reinvestment rate, if any, relating to the REMIC Regular
Certificates. The Prepayment Assumption with respect to a Series of REMIC
Regular Certificates will be set forth in the related Prospectus Supplement.
Holders generally must report de minimis original issue discount pro rata as
principal payments are received, and such income will be capital gain if the
REMIC Regular Certificate is held as a capital asset. However, under the OID
Regulations, REMIC Regular Certificateholders may elect to accrue all de
minimis original issue discount as well as market discount and market premium
under the constant yield method. See "Election to Treat All Interest Under
the Constant Yield Method".
A REMIC Regular Certificateholder generally must include in gross
income for any taxable year the sum of the "daily portions," as defined
below, of the original issue discount on the REMIC Regular Certificate
accrued during an accrual period for each day on which it holds the REMIC
Regular Certificate, including the date of purchase but excluding the date of
disposition. The Depositor will treat the monthly period ending on the day
before each Distribution Date as the accrual period. With respect to each
REMIC Regular Certificate, a calculation will be made of the original issue
discount that accrues during each successive full accrual period (or shorter
period from the date of original issue) that ends on the day before the
related Distribution Date on the REMIC Regular Certificate. The Conference
Committee Report to the 1986 Act states that the rate of accrual of original
issue discount is intended to be based on the Prepayment Assumption. Other
than as discussed below with respect to a Random Lot Certificate, the
original issue discount accruing in a full accrual period would 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 REMIC Regular Certificate as of the
end of that accrual period that are included in the REMIC Regular
Certificate's stated redemption price at maturity and (b) the distributions
made on the REMIC Regular Certificate during the accrual period that are
included in the REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of the REMIC Regular Certificate
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 REMIC Regular Certificate at the issue date,
(ii) events (including actual prepayments) that have occurred prior to the
end of the accrual period and (iii) the Prepayment Assumption. For these
purposes, the adjusted issue price of a REMIC Regular Certificate at the
beginning of any accrual period equals the issue price of the REMIC Regular
Certificate, increased by the aggregate amount of original issue discount
with respect to the REMIC Regular Certificate that accrued in all prior
accrual periods and reduced by the amount of distributions included in the
REMIC Regular Certificate's stated redemption price at maturity that were
made on the REMIC Regular Certificate in such prior periods. The original
issue discount accruing during any accrual period (as determined in this
paragraph) will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
period. With respect to an initial accrual period shorter than a full accrual
period, the daily portions of original issue discount must be determined
according to an appropriate allocation under any reasonable method.
Under the method described above, the daily portions of original
issue discount required to be included in income by a REMIC Regular
Certificateholder generally will increase to take into account prepayments on
the REMIC Regular Certificates as a result of prepayments on the Mortgage
Loans that exceed the Prepayment Assumption, and generally will decrease (but
not below zero for any period) if the prepayments are slower than the
Prepayment Assumption. An increase in prepayments on the Mortgage Loans with
respect to a Series of REMIC Regular Certificates can result in both a change
in the priority of principal payments with respect to certain Classes of
REMIC Regular Certificates and
either an increase or decrease in the daily portions of original issue
discount with respect to such REMIC Regular Certificates.
In the case of a Random Lot Certificate, the Depositor intends to
determine the yield to maturity of such Certificate based upon the
anticipated payment characteristics of the Class as a whole under the
Prepayment Assumption. In general, the original issue discount accruing on
each Random Lot Certificate in a full accrual period would be its allocable
share of the original issue discount with respect to the entire Class, as
determined in accordance with the preceding paragraph. However, in the case
of a distribution in retirement of the entire unpaid principal balance of any
Random Lot Certificate (or portion of such unpaid principal balance), (a) the
remaining unaccrued original issue discount allocable to such Certificate (or
to such portion) will accrue at the time of such distribution, and (b) the
accrual of original issue discount allocable to each remaining Certificate of
such Class (or the remaining unpaid principal balance of a partially redeemed
Random Lot Certificate after a distribution of principal has been received)
will be adjusted by reducing the present value of the remaining payments on
such Class and the adjusted issue price of such Class to the extent
attributable to the portion of the unpaid principal balance thereof that was
distributed. The Depositor believes that the foregoing treatment is
consistent with the "pro rata prepayment" rules of the OID Regulations, but
with the rate of accrual of original issue discount determined based on the
Prepayment Assumption for the Class as a whole. Investors are advised to
consult their tax advisors as to this treatment.
Acquisition Premium
___________________
A purchaser of a REMIC Regular Certificate at a price greater than
its adjusted issue price but less than its stated redemption price at
maturity will be required to include in gross income the daily portions of
the original issue discount on the REMIC Regular Certificate 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".
VARIABLE RATE REMIC REGULAR CERTIFICATES
REMIC Regular Certificates may provide for interest based on a
variable rate. Under the OID Regulations, interest is treated as payable at a
variable rate if, generally, (i) the issue price does not exceed the original
principal balance by more than a specified amount and (ii) the interest
compounds or is payable at least annually at current values of (a) one or
more "qualified floating rates", (b) a single fixed rate and one or more
qualified floating rates, (c) a single "objective rate", or (d) a single
fixed rate and a single objective rate that is a "qualified inverse floating
rate". A floating rate is a qualified floating rate if variations in the rate
can reasonably be expected to measure contemporaneous variations in the cost
of newly borrowed funds, where such rate is subject to a fixed multiple that
is greater than 0.65, but not more than 1.35. Such rate may also be increased
or decreased by a fixed spread or subject to a fixed cap or floor, or a cap
or floor that is not reasonably expected as of the issue date to affect the
yield of the instrument significantly. An objective rate (other than a
qualified floating rate) is a rate that is determined using a single fixed
formula and that is based on objective financial or economic information,
provided that such information is not (i) within the control of the issuer or
a related party or (ii) unique to the circumstances of the issuer or a
related party. A qualified inverse floating rate is a rate equal to a fixed
rate minus a qualified floating rate that inversely reflects contemporaneous
variations in the cost of newly borrowed funds; an inverse floating rate that
is not a qualified floating rate may nevertheless be an
objective rate. A Class of REMIC Regular Certificates may be issued under
this Prospectus that does not have a variable rate under the OID Regulations,
for example, a Class that bears different rates at different times during the
period it is outstanding such that it is considered significantly
"front-loaded" or "back-loaded" within the meaning of the OID Regulations. It
is possible that such a Class may be considered to bear "contingent interest"
within the meaning of the OID Regulations. The OID Regulations, as they
relate to the treatment of contingent interest, are by their terms not
applicable to REMIC Regular Certificates. However, if final regulations
dealing with contingent interest with respect to REMIC Regular Certificates
apply the same principles as the OID Regulations, such regulations may lead
to different timing of income inclusion than would be the case under the OID
Regulations. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest REMIC Regular
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate treatment of any REMIC Regular Certificate that
does not pay interest at a fixed rate or variable rate as described in this
paragraph.
Under the REMIC Regulations, a REMIC Regular Certificate (i)
bearing a rate that qualifies as a variable rate under the OID Regulations
that is tied to current values of a variable rate (or the highest, lowest or
average of two or more variable rates), including a rate based on the average
cost of funds of one or more financial institutions, or a positive or
negative multiple of such a rate (plus or minus a specified number of basis
points), or that represents a weighted average of rates on some or all of the
Mortgage Loans, including such a rate that is subject to one or more caps or
floors, or (ii) bearing one or more such variable rates for one or more
periods or one or more fixed rates for one or more periods, and a different
variable rate or fixed rate for other periods qualifies as a regular interest
in a REMIC. Accordingly, unless otherwise indicated in the applicable
Prospectus Supplement, the Depositor intends to treat REMIC Regular
Certificates that qualify as regular interests under this rule in the same
manner as obligations bearing a variable rate for original issue discount
reporting purposes.
The amount of original issue discount with respect to a REMIC
Regular Certificate bearing a variable rate of interest will accrue in the
manner described above under "Original Issue Discount" with the yield to
maturity and future payments on such REMIC Regular Certificate generally to
be determined by assuming that interest will be payable for the life of the
REMIC Regular Certificate based on the initial rate (or, if different, the
value of the applicable variable rate as of the pricing date) for the
relevant Class. Unless otherwise specified in the applicable Prospectus
Supplement, the Depositor intends to treat such variable interest as
qualified stated interest, other than variable interest on an interest-only
or super-premium Class, which will be treated as non-qualified stated
interest includible in the stated redemption price at maturity. Ordinary
income reportable for any period will be adjusted based on subsequent changes
in the applicable interest rate index.
Although unclear under the OID Regulations, unless required
otherwise by applicable final regulations, the Depositor intends to treat
REMIC Regular Certificates bearing an interest rate that is a weighted
average of the net interest rates on Mortgage Loans or Mortgage Certificates
having fixed or adjustable rates, as having qualified stated interest, except
to the extent that initial "teaser" rates cause sufficiently "back-loaded"
interest to create more than de minimis original issue discount. The yield on
such REMIC Regular Certificates for purposes of accruing original issue
discount will be a hypothetical fixed rate based on the fixed rates, in the
case of fixed rate Mortgage Loans, and initial "teaser rates" followed by
fully indexed rates, in the case of adjustable rate Mortgage Loans. In the
case of adjustable rate Mortgage Loans, the applicable index used to compute
interest on the Mortgage Loans in effect on the pricing date (or possibly the
issue date) will be deemed to be in effect beginning with the period in which
the first weighted average adjustment date occurring after the issue date
occurs. Adjustments will be made in each accrual period either increasing or
decreasing the amount of ordinary income reportable to reflect the actual
Pass-Through Rate on the REMIC Regular Certificates.
Deferred Interest
_________________
Under the OID Regulations, all interest on a REMIC Regular
Certificate as to which there may be Deferred Interest is includible in the
stated redemption price at maturity thereof. Accordingly, any Deferred
Interest that accrues with respect to a Class of REMIC Regular Certificates
may constitute income to the holders of such REMIC Regular Certificates prior
to the time distributions of cash with respect to such Deferred Interest are
made.
MARKET DISCOUNT
A purchaser of a REMIC Regular Certificate also may be subject to
the market discount rules of Code Section 1276 through 1278. Under these Code
sections and the principles applied by the OID Regulations in the context of
original issue discount, "market discount" is the amount by which the
purchaser's original basis in the REMIC Regular Certificate (i) is exceeded
by the then-current principal amount of the REMIC Regular Certificate or (ii)
in the case of a REMIC Regular Certificate having original issue discount, is
exceeded by the adjusted issue price of such REMIC Regular Certificate at the
time of purchase. Such purchaser generally will be required to recognize
ordinary income to the extent of accrued market discount on such REMIC
Regular Certificate 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 Assumption.
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) in the ratio of stated interest
allocable to the relevant period to the sum of the interest for such period
plus the remaining interest as of the end of such period, or in the case of a
REMIC Regular Certificate issued with original issue discount, in the ratio
of original issue discount accrued for the relevant period to the sum of the
original issue discount accrued for such period plus the remaining original
issue discount 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
REMIC Regular Certificate 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 a REMIC Regular Certificate over the interest
distributable thereon. The deferred portion of such interest expense in any
taxable year generally will not exceed the accrued market discount on the
REMIC Regular Certificate 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 REMIC Regular Certificate
is disposed of. As an alternative to the inclusion of market discount in
income on the foregoing basis, the REMIC Regular Certificateholder may elect
to include market discount in income currently as it accrues on all market
discount instruments acquired by such REMIC Regular 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 REMIC Regular Certificate 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 REMIC Regular
Certificate multiplied by the weighted average maturity of the REMIC Regular
Certificate (determined as described above in the third paragraph under
"Original Issue Discount") remaining after the date of purchase. It appears
that de minimis market discount would be reported in a manner similar to de
minimis original issue discount. See "Original Issue Discount" above.
Treasury
regulations implementing the market discount rules have not yet been issued,
and therefore investors should consult their own tax advisors regarding the
application of these rules. 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 the constant yield method.
Premium
_______
A REMIC Regular Certificate purchased at a cost greater than its
remaining stated redemption price at maturity generally is considered to be
purchased at a premium. If the REMIC Regular Certificateholder holds such
REMIC Regular Certificate as a "capital asset" within the meaning of Code
Section 1221, the REMIC Regular Certificateholder may elect under Code
Section 171 to amortize such premium under the constant yield method. 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 REMIC Regular
Certificates, although it is unclear whether the alternatives to the constant
yield method described above under "Market Discount" are available.
Amortizable bond premium will be treated as an offset to interest income on a
REMIC Regular Certificate 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 REMIC Regular Certificate
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 original issue discount, 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. It is unclear
whether, for this purpose, the initial Prepayment Assumption would continue
to apply or if a new prepayment assumption as of the date of the holder's
acquisition would apply. 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 Service. Investors should
consult their own tax advisors regarding the advisability of making such an
election.
SALE OR EXCHANGE OF REMIC REGULAR CERTIFICATES
If a REMIC Regular Certificateholder sells or exchanges a REMIC
Regular Certificate, the REMIC Regular Certificateholder will recognize gain
or loss equal to the difference, if any, between the amount received and its
adjusted basis in the REMIC Regular Certificate. The adjusted basis of a
REMIC Regular Certificate generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any original issue discount or market
discount previously included in the seller's gross income with respect to the
REMIC Regular Certificate and reduced by amounts included in the stated
redemption price at maturity of the REMIC Regular Certificate that were
previously received by the seller, by any amortized premium and by previously
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 REMIC Regular Certificate realized by an investor who holds the
REMIC Regular Certificate as a capital asset will be capital gain or loss and
will be long-term or short-term depending on whether the REMIC Regular
Certificate has been held for the long-term capital gain holding period
(currently more than one year). Such gain will be treated as ordinary income
(i) if a REMIC Regular Certificate 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 REMIC Regular Certificateholder'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
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior distribution of property that was
held as a part of such transaction, (ii) in the case of a 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
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 REMIC Regular Certificate 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
the REMIC Regular Certificate. In addition, gain or loss recognized from the
sale of a REMIC Regular Certificate 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
maximum 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.
TREATMENT OF LOSSES
Holders of REMIC Regular Certificates will be required to report
income with respect to REMIC Regular Certificates on the accrual method of
accounting, without giving effect to delays or reductions in distributions
attributable to defaults or delinquencies on the Mortgage Loans allocable to
a particular class of REMIC Regular Certificates, except to the extent it can
be established that such losses are uncollectible. Accordingly, the holder of
a REMIC Regular Certificate 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 uncollectibility 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 holders of REMIC Regular
Certificates that are corporations or that otherwise hold the REMIC Regular
Certificates in connection with a trade or business should in general be
allowed to deduct as an ordinary loss any such loss sustained during the
taxable year on account of any such REMIC Regular Certificates becoming
wholly or partially worthless, and that, in general, holders of REMIC Regular
Certificates that are not corporations and do not hold the REMIC Regular
Certificates in connection with a trade or business will be allowed to deduct
as a short-term capital loss any loss with respect to principal sustained
during the taxable year on account of a portion of any class or subclass of
such REMIC Regular Certificates becoming wholly worthless. Although the
matter is not free from doubt, non-corporate holders of REMIC Regular
Certificates should be allowed a bad debt deduction at such time as the
principal balance of any class or subclass of such REMIC Regular Certificates
is reduced
to reflect losses resulting from any liquidated Mortgage Loans. The Service,
however, could take the position that non-corporate holders will be allowed a
bad debt deduction to reflect such losses only after all Mortgage Loans
remaining in the Trust Fund have been liquidated or such class of REMIC
Regular Certificates has been otherwise retired. The Service could also
assert that losses on the REMIC Regular Certificates 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" original issue discount which
would be deductible only against future positive original issue discount or
otherwise upon termination of the Class. Holders of REMIC Regular
Certificates are urged to consult their own tax advisors regarding the
appropriate timing, amount and character of any loss sustained with respect
to such REMIC Regular Certificates. 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 REMIC Regular Certificates.
Taxation of REMIC Residual Certificates
Taxation of REMIC Income
________________________
Generally, the "daily portions" of REMIC taxable income or net loss
will be includible as ordinary income or loss in determining the federal
taxable income of holders of REMIC Residual Certificates ("REMIC Residual
Certificateholders"), and will not be taxed separately to the REMIC Pool. The
daily portions of REMIC taxable income or net loss of a REMIC Residual
Certificateholder are determined by allocating the REMIC Pool's taxable
income or net loss for each calendar quarter ratably to each day in such
quarter and by allocating such daily portion among the Residual
Certificateholders in proportion to their respective holdings of REMIC
Residual Certificates in the REMIC Pool on such day. REMIC taxable income is
generally determined in the same manner as the taxable income of an
individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses for
the production of income do not apply, (ii) all bad loans will be deductible
as business bad debts and (iii) the limitation on the deductibility of
interest and expenses related to tax-exempt income will apply. The REMIC
Pool's gross income includes interest, original issue discount income and
market discount income, if any, on the Mortgage Loans, reduced by
amortization of any premium on the Mortgage Loans, plus income from
amortization of issue premium, if any, on the REMIC Regular Certificates,
plus income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
REMIC Regular Certificates. The REMIC Pool's deductions include interest and
original issue discount expense on the REMIC Regular Certificates, servicing
fees on the Mortgage Loans, other administrative expenses of the REMIC Pool
and realized losses on the Mortgage Loans. The requirement that REMIC
Residual Certificateholders report their pro rata share of taxable income or
net loss of the REMIC Pool will continue until there are no Certificates of
any class of the related series outstanding.
The taxable income recognized by a REMIC Residual Certificateholder
in any taxable year will be affected by, among other factors, the
relationship between the timing of recognition of interest and original issue
discount or market discount income or amortization of premium with respect to
the Mortgage Loans, on the one hand, and the timing of deductions for
interest (including original issue discount) on the REMIC Regular
Certificates or income from amortization of issue premium on the REMIC
Regular Certificates, on the other hand. In the event that an interest in the
Mortgage Loans is
acquired by the REMIC Pool at a discount, and one or more of such Mortgage
Loans is prepaid, the REMIC Residual Certificateholder may recognize taxable
income without being entitled to receive a corresponding amount of cash
because (i) the prepayment may be used in whole or in part to make
distributions in reduction of principal on the REMIC Regular Certificates and
(ii) the discount on the Mortgage Loans which is includible in income may
exceed the deduction allowed upon such distributions on those REMIC Regular
Certificates on account of any unaccrued original issue discount relating to
those REMIC Regular Certificates. When there is more than one class of REMIC
Regular Certificates that distribute principal sequentially, this mismatching
of income and deductions is particularly likely to occur in the early years
following issuance of the REMIC Regular Certificates when distributions in
reduction of principal are being made in respect of earlier classes of REMIC
Regular Certificates to the extent that such classes are not issued with
substantial discount. If taxable income attributable to such a mismatching is
realized, in general, losses would be allowed in later years as distributions
on the later classes of REMIC Regular Certificates are made. Taxable income
may also be greater in earlier years than in later years as a result of the
fact that interest expense deductions, expressed as a percentage of the
outstanding principal amount of such a series of REMIC Regular Certificates,
may increase over time as distributions in reduction of principal are made on
the lower yielding classes of REMIC Regular Certificates, whereas to the
extent that the REMIC Pool includes fixed rate Mortgage Loans, interest
income with respect to any given Mortgage Loan will remain constant over time
as a percentage of the outstanding principal amount of that loan.
Consequently, REMIC Residual Certificateholders must have sufficient other
sources of cash to pay any federal, state or local income taxes due as a
result of such mismatching or unrelated deductions against which to offset
such income, subject to the discussion of "excess inclusions" below under
"Limitations on Offset or Exemption of REMIC Income". The timing of such
mismatching of income and deductions described in this paragraph, if present
with respect to a series of Certificates, may have a significant adverse
effect upon the REMIC Residual Certificateholder's after-tax rate of return.
In addition, a REMIC Residual Certificateholder's taxable income during
certain periods may exceed the income reflected by such REMIC Residual
Certificateholder for such periods in accordance with generally accepted
accounting principles. Investors should consult their own accountants
concerning the accounting treatment of their investment in REMIC Residual
Certificates.
Basis and Losses
________________
The amount of any net loss of the REMIC Pool that may be taken into
account by the REMIC Residual Certificateholder is limited to the adjusted
basis of the REMIC Residual Certificate as of the close of the quarter (or
time of disposition of the REMIC Residual Certificate if earlier), determined
without taking into account the net loss for the quarter. The initial
adjusted basis of a purchaser of a Residual Certificate is the amount paid
for such Residual Certificate. Such adjusted basis will be increased by the
amount of taxable income of the REMIC Pool reportable by the Residual
Certificateholder and will be decreased (but not below zero), first, by a
cash distribution from the REMIC Pool and, second, by the amount of loss of
the REMIC Pool reportable by the Residual Certificateholder. Any loss that is
disallowed on account of this limitation may be carried over indefinitely
with respect to the Residual Certificateholder as to whom such loss was
disallowed and may be used by such Residual Certificateholder only to offset
any income generated by the same REMIC Pool.
A REMIC Residual Certificateholder will not be permitted to
amortize directly the cost of its REMIC Residual Certificate as an offset to
its share of the taxable income of the related REMIC Pool. However, that
taxable income will not include cash received by the REMIC Pool that
represents a recovery of the REMIC Pool's basis in its assets. Such recovery
of basis by the REMIC Pool will have the effect of amortization of the issue
price of the REMIC Residual Certificates over their life. However, in view of
the possible acceleration of the income of REMIC Residual Certificateholders
described above
under "Taxation of REMIC Income", the period of time over which such issue
price is effectively amortized may be longer than the economic life of the
REMIC Residual Certificates.
A REMIC Residual Certificate may have a negative value if the net
present value of anticipated tax liabilities exceeds the present value of
anticipated cash flows. The REMIC Regulations appear to treat the issue price
of such a residual interest as zero rather than such negative amount for
purposes of determining the REMIC Pool's basis in its assets. The preamble to
the REMIC Regulations states that the Service may provide future guidance on
the proper tax treatment of payments made by a transferor of such a residual
interest to induce the transferee to acquire the interest, and REMIC Residual
Certificateholders should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a REMIC
Residual Certificateholder (other than an original holder) in the REMIC
Residual Certificate is greater that the corresponding portion of the REMIC
Pool's basis in the Mortgage Loans, the REMIC Residual Certificateholder will
not recover a portion of such basis until termination of the REMIC Pool
unless future Treasury regulations provide for periodic adjustments to the
REMIC income otherwise reportable by such holder. The REMIC Regulations
currently in effect do not so provide. See "Treatment of Certain Items of
REMIC Income and Expense--Market Discount" below regarding the basis of
Mortgage Loans to the REMIC Pool and "Sale or Exchange of a REMIC Residual
Certificate" below regarding possible treatment of a loss upon termination of
the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
______________________________________________________
Although the Depositor intends to compute REMIC income and expense
in accordance with the Code and applicable regulations, the authorities
regarding the determination of specific items of income and expense are
subject to differing interpretations. The Depositor makes no representation
as to the specific method that it will use for reporting income with respect
to the Mortgage Loans and expenses with respect to the REMIC Regular
Certificates, and different methods could result in different timing of
reporting of taxable income or net loss to REMIC Residual Certificateholders
or differences in capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount and income from amortization of issue
premium will be determined in the same manner as original issue discount
income on REMIC Regular Certificates as described above under "Taxation of
REMIC Regular Certificates--Original Issue Discount" and "--Variable Rate
REMIC Regular Certificates", without regard to the de minimis rule described
therein, and "--Premium".
Deferred Interest. Any Deferred Interest that accrues with respect
to any adjustable rate Mortgage Loans held by the REMIC Pool will constitute
income to the REMIC Pool and will be treated in a manner similar to the
Deferred Interest that accrues with respect to REMIC Regular Certificates as
described above under "Taxation of REMIC Regular Certificates--Deferred
Interest".
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool
allocable to such Mortgage Loans is exceeded by their unpaid principal
balances. The REMIC Pool's basis in such Mortgage Loans is generally the fair
market value of the Mortgage Loans immediately after the transfer thereof to
the REMIC Pool. The REMIC Regulations provide that such basis is equal in the
aggregate to the issue prices of all regular and residual interests in the
REMIC Pool (or the fair market value thereof at the Closing Date, in the case
of a retained Class). In respect of Mortgage Loans that have market discount
to which Code Section 1276 applies, the accrued portion of such market
discount would be recognized
currently as an item of ordinary income in a manner similar to original issue
discount. Market discount income generally should accrue in the manner
described above under "Taxation of REMIC Regular Certificates--Market
Discount".
Premium. Generally, if the basis of the REMIC Pool in the Mortgage
Loans exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate
of the issue prices (or the fair market value of retained Classes) of the
regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of REMIC Regular Certificates--Premium", a REMIC Pool
that holds a Mortgage Loan as a capital asset under Code Section 1221 may
elect under Code Section 171 to amortize premium on whole mortgage loans or
mortgage loans underlying CMBS that were originated after September 27, 1985
or CMBS that are REMIC regular interests under the constant yield method.
Amortizable bond premium will be treated as an offset to interest income on
the Mortgage Loans, rather than as a separate deduction item. To the extent
that the mortgagors with respect to the Mortgage Loans are individuals, Code
Section 171 will not be available for premium on Mortgage Loans (including
underlying mortgage loans) originated on or prior to September 27, 1985.
Premium with respect to such Mortgage Loans may be deductible in accordance
with a reasonable method regularly employed by the holder thereof. The
allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the Service may argue that such
premium should be allocated in a different manner, such as allocating such
premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
__________________________________________________
A portion or all of the REMIC taxable income includible in
determining the federal income tax liability of a REMIC Residual
Certificateholder will be subject to special treatment. That portion,
referred to as the "excess inclusion", is equal to the excess of REMIC
taxable income for the calendar quarter allocable to a REMIC Residual
Certificate over the daily accruals for such quarterly period of (i) 120% of
the long-term applicable Federal rate that would have applied to the REMIC
Residual Certificate (if it were a debt instrument) on the Startup Day under
Code Section 1274(d), multiplied by (ii) the adjusted issue price of such
REMIC Residual Certificate at the beginning of such quarterly period. For
this purpose, the adjusted issue price of a REMIC Residual Certificate at the
beginning of a quarter is the issue price of the REMIC Residual Certificate,
plus the amount of such daily accruals of REMIC income described in this
paragraph for all prior quarters, decreased by any distributions made with
respect to such REMIC Residual Certificate prior to the beginning of such
quarterly period. Accordingly, the portion of the REMIC Pool's taxable income
that will be treated as excess inclusions will be a larger portion of such
income as the adjusted issue price of the REMIC Residual Certificates
diminishes.
The portion of a REMIC Residual Certificateholder's REMIC taxable
income consisting of the excess inclusions generally may not be offset by
other deductions, including net operating loss carryforwards, on such REMIC
Residual Certificateholder's return. However, net operating loss carryovers
are determined without regard to excess inclusion income. Further, if the
REMIC Residual Certificateholder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the REMIC Residual
Certificateholder's excess inclusions will be treated as unrelated business
taxable income of such REMIC Residual Certificateholder for purposes of Code
Section 511. In addition, REMIC taxable income is subject to 30% withholding
tax with respect to certain persons who are not U.S. Persons (as defined
below under "Tax-Related Restrictions on Transfer of REMIC Residual
Certificates--Foreign Investors"), and the portion thereof attributable to
excess inclusions is not eligible
for any reduction in the rate of withholding tax (by treaty or otherwise).
See "Taxation of Certain Foreign Investors--REMIC Residual Certificates"
below. Finally, if a real estate investment trust or a regulated investment
company owns a REMIC Residual Certificate, a portion (allocated under
Treasury regulations yet to be issued) of dividends paid by the real estate
investment trust or a regulated investment company could not be offset by net
operating losses of its shareholders, would constitute unrelated business
taxable income for tax-exempt shareholders, and would be ineligible for
reduction of withholding to certain persons who are not U.S. Persons. The
SBJPA of 1996 has eliminated the special rule permitting Section 593
institutions ("thrift institutions") to use net operating losses and other
allowable deductions to offset their excess inclusion income from REMIC
Residual Certificates that have "significant value" within the meaning of the
REMIC Regulations, effective for taxable years beginning after December 31,
1995, except with respect to REMIC Residual Certificates continuously held by
thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining
the effect of excess inclusions on the alternative minimum taxable income of
a REMIC Residual Certificateholder. First, alternative minimum taxable income
for a REMIC Residual Certificateholder is determined without regard to the
special rule, discussed above, that taxable income cannot be less than excess
inclusions. Second, a REMIC Residual Certificateholder's alternative minimum
taxable income for a taxable year cannot be less than the excess inclusions
for the year. Third, the amount of any alternative minimum tax net operating
loss deduction must be computed without regard to any excess inclusions.
These rules are effective for taxable years beginning after December 31,
1996, unless a REMIC Residual Certificateholder elects to have such rules
apply only to taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of REMIC Residual Certificates
___________________________________________________________________
Disqualified Organizations. If any legal or beneficial interest in
a REMIC Residual Certificate is transferred to a Disqualified Organization
(as defined below), a tax would be imposed in an amount equal to the product
of (i) the present value of the total anticipated excess inclusions with
respect to such REMIC Residual Certificate for periods after the transfer and
(ii) the highest marginal federal income tax rate applicable to corporations.
The REMIC Regulations provide that the anticipated excess inclusions are
based on actual prepayment experience to the date of the transfer and
projected payments based on the Prepayment Assumption. The present value rate
equals the applicable Federal rate under Code Section 1274(d) as of the date
of the transfer for a term ending with the last calendar quarter in which
excess inclusions are expected to accrue. Such a tax generally would be
imposed on the transferor of the REMIC Residual Certificate, except that
where such transfer is through an agent (including a broker, nominee or other
middleman) for a Disqualified Organization, the tax would instead be imposed
on such agent. However, a transferor of a REMIC Residual Certificate would in
no event be liable for such tax with respect to a transfer if the transferee
furnishes to the transferor an affidavit that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may
be waived by the Treasury Department if the Disqualified Organization
promptly disposes of the residual interest and the transferor pays income tax
at the highest corporate rate on the excess inclusions for the period the
REMIC Residual Certificate is actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has
excess inclusion income with respect to a REMIC Residual Certificate during a
taxable year and a Disqualified Organization is the record holder of an
equity interest in such entity, then a tax is imposed on such entity equal to
the product of (i) the amount of excess inclusions on the REMIC Residual
Certificate that are allocable to the interest in the Pass-Through Entity
during the period such interest is held by such Disqualified Organization,
and (ii) the highest marginal federal corporate income tax rate. Such tax
would be
deductible from the ordinary gross income of the Pass-Through Entity for the
taxable year. The Pass-Through Entity would not be liable for such tax if it
has received an affidavit from such record holder that it is not a
Disqualified Organization or stating such holder's taxpayer identification
number and, during the period such person is the record holder of the REMIC
Residual Certificate, the Pass-Through Entity does not have actual knowledge
that such affidavit is false.
For these purposes, (i) "Disqualified Organization" means the
United States, any state or political subdivision thereof, any foreign
government, any international organization, any agency or instrumentality of
any of the foregoing (provided, that such term does not include an
instrumentality if all of its activities are subject to tax and a majority of
its board of directors is not selected by any such governmental entity), any
cooperative organization furnishing electric energy or providing telephone
service to persons in rural areas as described in Code Section 1381(a)(2)(C),
and any organization (other than a farmers' cooperative described in Code
Section 521) that is exempt from taxation under the Code unless such
organization is subject to the tax on unrelated business income imposed by
Code Section 511, and (ii) "Pass-Through Entity" means any regulated
investment company, real estate investment trust, common trust fund,
partnership, trust or estate and certain corporations operating on a
cooperative basis. Except as may be provided in Treasury regulations, any
person holding an interest in a Pass-Through Entity as a nominee for another
will, with respect to such interest, be treated as a Pass-Through Entity.
The Pooling Agreement with respect to a series of Certificates will
provide that no legal or beneficial interest in a REMIC Residual Certificate
may be transferred unless (i) the proposed transferee provides to the
transferor and the Trustee an affidavit providing its taxpayer identification
number and stating that such transferee is the beneficial owner of the REMIC
Residual Certificate, is not a Disqualified Organization and is not
purchasing such REMIC Residual Certificates on behalf of a Disqualified
Organization (i.e., as a broker, nominee or middleman thereof), and (ii) the
transferor provides a statement in writing to the Depositor and the Trustee
that it has no actual knowledge that such affidavit is false. Moreover, the
Pooling Agreement will provide that any attempted or purported transfer in
violation of these transfer restrictions will be null and void and will vest
no rights in any purported transferee. Each REMIC Residual Certificate with
respect to a series will bear a legend referring to such restrictions on
transfer, and each REMIC Residual Certificateholder will be deemed to have
agreed, as a condition of ownership thereof, to any amendments to the related
Pooling Agreement required under the Code or applicable Treasury regulations
to effectuate the foregoing restrictions. Information necessary to compute an
applicable excise tax must be furnished to the Service and to the requesting
party within 60 days of the request, and the Depositor or the Trustee may
charge a fee for computing and providing such information.
Noneconomic REMIC Residual Interests. The REMIC Regulations would
disregard certain transfers of REMIC Residual Certificates, in which case the
transferor would continue to be treated as the owner of the REMIC Residual
Certificates and thus would continue to be subject to tax on its allocable
portion of the net income of the REMIC Pool. Under the REMIC Regulations, a
transfer of a "noneconomic residual interest" (as defined below) to a REMIC
Residual Certificateholder (other than a REMIC Residual Certificateholder who
is not a U.S. Person, as defined below under "Foreign Investors") is
disregarded for all federal income tax purposes if a significant purpose of
the transferor is to impede the assessment or collection of tax. A residual
interest in a REMIC (including a residual interest with a positive value at
issuance) is a "noneconomic residual interest" unless, at the time of the
transfer, (i) the present value of the expected future distributions on the
residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. The
anticipated excess
inclusions and the present value rate are determined in the same manner as
set forth above under "Disqualified Organizations". The REMIC Regulations
explain that a significant purpose to impede the assessment or collection of
tax exists if the transferor, at the time of the transfer, either knew or
should have known that the transferee would be unwilling or unable to pay
taxes due on its share of the taxable income of the REMIC. A safe harbor is
provided if (i) the transferor conducted, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and
found that the transferee historically had paid its debts as they came due
and found no significant evidence to indicate that the transferee would not
continue to pay its debts as they came due in the future, and (ii) the
transferee represents to the transferor that it understands that, as the
holder of the noneconomic residual interest, the transferee may incur tax
liabilities in excess of cash flows generated by the interest and that the
transferee intends to pay taxes associated with holding the residual interest
as they become due. The Pooling Agreement with respect to each series of
Certificates will require the transferee of a REMIC Residual Certificate to
certify to the matters in the preceding sentence as part of the affidavit
described above under the heading "Disqualified Organizations". The
transferor must have no actual knowledge or reason to know that such
statements are false.
Foreign Investors. The REMIC Regulations provide that the transfer
of a REMIC Residual Certificate that has "tax avoidance potential" to a
"foreign person" will be disregarded for all federal tax purposes. This rule
appears intended to apply to a transferee who is not a "U.S. Person" (as
defined below), unless such transferee's income is effectively connected with
the conduct of a trade or business within the United States. A REMIC Residual
Certificate is deemed to have tax avoidance potential unless, at the time of
the transfer, (i) the future value of expected distributions equals at least
30% of the anticipated excess inclusions after the transfer, and (ii) the
transferor reasonably expects that the transferee will receive sufficient
distributions from the REMIC Pool at or after the time at which the excess
inclusions accrue and prior to the end of the next succeeding taxable year
for the accumulated withholding tax liability to be paid. If the non-U.S.
Person transfers the REMIC Residual Certificate back to a U.S. Person, the
transfer will be disregarded and the foreign transferor will continue to be
treated as the owner unless arrangements are made so that the transfer does
not have the effect of allowing the transferor to avoid tax on accrued excess
inclusions.
The Prospectus Supplement relating to a series of Certificates may
provide that a REMIC Residual Certificate may not be purchased by or
transferred to any person that is not a U.S. Person or may describe the
circumstances and restrictions pursuant to which such a transfer may be made.
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 United States 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.
Sale or Exchange of a REMIC Residual Certificate
________________________________________________
Upon the sale or exchange of a REMIC Residual Certificate, the
REMIC Residual Certificateholder will recognize gain or loss equal to the
excess, if any, of the amount realized over the adjusted basis (as described
above under "Taxation of REMIC Residual Certificates--Basis and Losses") of
such REMIC Residual Certificateholder in such REMIC Residual Certificate at
the time of the sale or exchange. In addition to reporting the taxable income
of the REMIC Pool, a REMIC Residual Certificateholder will have taxable
income to the extent that any cash distribution to it from the REMIC Pool
exceeds such adjusted basis on that Distribution Date. Such income will be
treated as gain from the sale or exchange of the REMIC Residual Certificate.
It is possible that the termination of the REMIC Pool may be treated as a
sale or exchange of a REMIC Residual Certificateholder's REMIC Residual
Certificate, in which case, if the REMIC Residual Certificateholder has an
adjusted basis in such REMIC Residual Certificateholder's REMIC Residual
Certificate remaining when its interest in the REMIC Pool terminates, and if
such REMIC Residual Certificateholder holds such REMIC Residual Certificate
as a capital asset under Code Section 1221, then such REMIC Residual
Certificateholder will recognize a capital loss at that time in the amount of
such remaining adjusted basis.
Any gain on the sale of a REMIC Residual Certificate will be
treated as ordinary income (i) if a REMIC Residual Certificate 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 REMIC Residual
Certificateholder's net investment in the conversion transaction at 120% of
the appropriate applicable Federal rate in effect at the time the taxpayer
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 or (ii) in the case of a 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.
In addition, gain or loss recognized from the sale of a REMIC Residual
Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c).
The Conference Committee Report to the 1986 Act provides that,
except as provided in Treasury regulations yet to be issued, the wash sale
rules of Code Section 1091 will apply to dispositions of REMIC Residual
Certificates where the seller of the REMIC Residual Certificate, during the
period beginning six months before the sale or disposition of the REMIC
Residual Certificate and ending six months after such sale or disposition,
acquires (or enters into any other transaction that results in the
application of Section 1091) any residual interest in any REMIC or any
interest in a "taxable mortgage pool" (such as a non-REMIC owner trust) that
is economically comparable to a REMIC Residual Certificate.
Mark to Market Regulations
__________________________
The Service has issued regulations (the "Mark to Market
Regulations") under Code Section 475 relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities of a dealer, except to
the extent that the dealer has specifically identified a security as held for
investment. The Mark to Market Regulations provide that, for purposes of this
mark-to-market requirement, a REMIC Residual Certificate is not treated as a
security and thus may not be marked to market. The Mark to Market Regulations
apply to all REMIC Residual Certificates acquired on or after January 4,
1995.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions
________________________
Income from certain transactions by the REMIC Pool, called
prohibited transactions, will not be part of the calculation of income or
loss includible in the federal income tax returns of REMIC Residual
Certificateholders, but rather will be taxed directly to the REMIC Pool 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 Pool 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 Pool 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 Pool property to prevent a default on REMIC Regular
Certificates as a result of a default on qualified mortgages or to facilitate
a clean-up call (generally, an optional termination to save administrative
costs when no more than a small percentage of the Certificates is
outstanding). 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, the waiver of a due-on-sale or due-on-encumbrance clause
or the conversion of an interest rate by a mortgagor pursuant to the terms of
a convertible adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
_____________________________________________________
In general, the REMIC Pool will be subject to a tax at a 100% rate
on the value of any property contributed to the REMIC Pool after the Startup
Day. Exceptions are provided for cash contributions to the REMIC Pool (i)
during the three months following the Startup Day, (ii) made to a qualified
reserve fund by a REMIC Residual Certificateholder, (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.
Net Income from Foreclosure Property
____________________________________
The REMIC Pool 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 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.
It is not anticipated that the REMIC Pool will receive income or
contributions subject to tax under the preceding three paragraphs, except as
described in the applicable Prospectus Supplement with respect to net income
from foreclosure property on a commercial or multifamily residential property
that secured a Mortgage Loan. In addition, unless otherwise disclosed in the
applicable Prospectus Supplement, it is not anticipated that any material
state income or franchise tax will be imposed on a REMIC Pool.
Liquidation of the REMIC Pool
If a REMIC Pool 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 Pool'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 the date of the adoption of the plan of
liquidation, the REMIC Pool will not be subject to the prohibited transaction
rules on the sale of its assets, provided that the REMIC Pool credits or
distributes in liquidation all of the sale proceeds plus its cash (other than
amounts retained to meet claims) to holders of REMIC Regular Certificates and
REMIC Residual Certificateholders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar
year basis and to file federal income tax returns for federal income tax
purposes in a manner similar to a partnership. The form for such income tax
return is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return. The Trustee will be required to sign the REMIC Pool's returns.
Treasury regulations provide that, except where there is a single REMIC
Residual Certificateholder for an entire taxable year, the REMIC Pool will be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination by the Service of any adjustments
to, among other things, items of REMIC income, gain, loss, deduction or
credit in a unified administrative proceeding. The REMIC Residual
Certificateholder owning the largest percentage interest in the REMIC
Residual Certificates will be obligated to act as "tax matters person", as
defined in applicable Treasury regulations, with respect to the REMIC Pool.
Each REMIC Residual Certificateholder will be deemed, by acceptance of such
REMIC Residual Certificates, to have agreed (i) to the appointment of the tax
matters person as provided in the preceding sentence and (ii) to the
irrevocable designation of the Master Servicer as agent for performing the
functions of the tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be subject
to limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a
taxable year of an individual taxpayer will be reduced by the lesser of (i)
3% of the excess, if any, of adjusted gross income over $100,000 ($50,000 in
the case of a married individual filing a separate return) (subject to
adjustments for inflation) or (ii) 80% of the amount of itemized deductions
otherwise allowable for such year. In the case of a REMIC Pool, such
deductions may include deductions under Code Section 212 for the servicing
fee and all administrative and other expenses relating to the REMIC Pool, or
any similar expenses allocated to the REMIC Pool with respect to a regular
interest it holds in another REMIC. Such investors who hold REMIC
Certificates either directly or indirectly through certain pass-through
entities may have their pro rata share of such expenses allocated to them as
additional gross income, but may be subject to such limitation on deductions.
In addition, such expenses are not deductible at all for purposes of
computing the alternative minimum tax, and may cause such investors to be
subject to significant additional tax liability. Temporary Treasury
regulations provide that the additional gross income and corresponding amount
of expenses generally are to be allocated entirely to the holders of REMIC
Residual Certificates in the case of a REMIC Pool that would not qualify as a
fixed investment trust in the absence of a REMIC election. However, such
additional gross income and limitation on deductions will apply to the
allocable portion of such expenses to holders of REMIC Regular Certificates,
as well as holders of
REMIC Residual Certificates, where such REMIC Regular Certificates are issued
in a manner that is similar to pass-through certificates in a fixed
investment trust. In general, such allocable portion will be determined based
on the ratio that a REMIC Certificateholder's income, determined on a daily
basis, bears to the income of all holders of REMIC Regular Certificates and
REMIC Residual Certificates with respect to a REMIC Pool. As a result,
individuals, estates or trusts holding REMIC Certificates (either directly or
indirectly through a grantor trust, partnership, S corporation, REMIC, or
certain other pass-through entities described in the foregoing temporary
Treasury regulations) may have taxable income in excess of the interest
income at the pass-through rate on REMIC Regular Certificates that are issued
in a single Class or otherwise consistently with fixed investment trust
status or in excess of cash distributions for the related period on REMIC
Residual Certificates. Unless otherwise indicated in the applicable
Prospectus Supplement, all such expenses will be allocable to the REMIC
Residual Certificates.
Taxation of Certain Foreign Investors
REMIC Regular Certificates
Interest, including original issue discount, distributable to
Regular Certificateholders who are non-resident aliens, foreign corporations,
or other Non-U.S. Persons (as defined below), will be considered "portfolio
interest" and, therefore, generally will not be subject to 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 REMIC
Regular 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 REMIC Regular 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. Prepayment Premiums distributable
to REMIC Regular Certificateholders who are Non-U.S. Persons may be subject
to 30% United States withholding tax. Investors who are Non-U.S. Persons
should consult their own tax advisors regarding the specific tax consequences
to them of owning a REMIC Regular Certificate. The term "Non-U.S. Person"
means any person who is not a U.S. Person.
REMIC RESIDUAL CERTIFICATES
The Conference Committee Report to the 1986 Act indicates that
amounts paid to REMIC Residual Certificateholders who are Non-U.S. Persons
are treated as interest for purposes of the 30% (or lower treaty rate) United
States withholding tax. Treasury regulations provide that amounts distributed
to REMIC Residual Certificateholders may qualify as "portfolio interest",
subject to the conditions described in "REMIC Regular Certificates" above,
but only to the extent that (i) the Mortgage Loans (including mortgage loans
underlying CMBS) were issued after July 18, 1984 and (ii) the Trust Fund or
segregated pool of assets therein (as to which a separate REMIC election will
be made), to which the REMIC Residual Certificate relates, consists of
obligations issued in "registered form" within the meaning of Code Section
163(f)(1). Generally, whole mortgage loans will not be, but CMBS and regular
interests in another REMIC Pool will be, considered obligations issued in
registered form. Furthermore, a REMIC Residual Certificateholder will not be
entitled to any exemption from the 30% withholding tax (or lower treaty rate)
to the extent of that portion of REMIC taxable income that constitutes an
"excess inclusion". See "Taxation of REMIC Residual Certificates--Limitations
on Offset or Exemption of
REMIC Income". If the amounts paid to REMIC Residual Certificateholders who
are Non-U.S. Persons are effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Persons, 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
Non-U.S. Persons will be subject to United States federal income tax at
regular rates. If 30% (or lower treaty rate) withholding is applicable, such
amounts generally will be taken into account for purposes of withholding only
when paid or otherwise distributed (or when the REMIC Residual Certificate is
disposed of) under rules similar to withholding upon disposition of debt
instruments that have original issue discount. See "Tax-Related Restrictions
on Transfer of REMIC Residual Certificates--Foreign Investors" above
concerning the disregard of certain transfers having "tax avoidance
potential". Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning REMIC
Residual Certificates.
Backup Withholding
Distributions made on the REMIC Regular Certificates, and proceeds
from the sale of the REMIC Regular Certificates to or through certain
brokers, may be subject to a "backup" withholding tax under Code Section 3406
of 31% on "reportable payments" (including interest distributions, original
issue discount, and, under certain circumstances, principal distributions)
unless the REMIC Regular 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 REMIC Regular Certificate, or such Certificateholder is
otherwise an exempt recipient under applicable provisions of the Code. Any
amounts to be withheld from distribution on the REMIC Regular Certificates
would be refunded by the Service or allowed as a credit against the REMIC
Regular Certificateholder's federal income tax liability.
Reporting Requirements
Reports of accrued interest, original issue discount and
information necessary to compute the accrual of any market discount on the
REMIC Regular Certificates will be made annually to the Service and to
individuals, estates, non-exempt and non-charitable trusts, and partnerships
who are either holders of record of REMIC Regular Certificates or beneficial
owners who own REMIC Regular Certificates through a broker or middleman as
nominee. All brokers, nominees and all other non-exempt holders of record of
REMIC Regular Certificates (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 Service Publication 938
with respect to a particular series of REMIC Regular Certificates. Holders
through nominees must request such information from the nominee.
The Service's Form 1066 has an accompanying Schedule Q, Quarterly
Notice to REMIC Residual Interest Holders of REMIC Taxable Income or Net Loss
Allocation. Treasury regulations require that Schedule Q be furnished by the
REMIC Pool to each REMIC Residual Certificateholder by the end of the month
following the close of each calendar quarter (41 days after the end of a
quarter under proposed Treasury regulations) in which the REMIC Pool is in
existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to REMIC Residual
Certificateholders, furnished annually, if applicable, to holders of REMIC
Regular Certificates, and filed annually with the Service concerning Code
Section 67 expenses (see "Limitations on Deduction of Certain Expenses"
above) allocable to such holders.
Furthermore, under such regulations, information must be furnished quarterly
to REMIC Residual Certificateholders, furnished annually to holders of REMIC
Regular Certificates, and filed annually with the Service concerning the
percentage of the REMIC Pool's assets meeting the qualified asset tests
described above under "Status of REMIC Certificates".
Federal Income Tax Consequences For Certificates as
___________________________________________________
to Which No REMIC Election Is Made
__________________________________
Grantor Trust Certificates
General
_______
In the event that no election is made to treat a Trust Fund (or a
segregated pool of assets therein) with respect to a series of Certificates
that are not designated as "Stripped Certificates", as described below, as a
REMIC (Certificates of such a series hereinafter referred to as "Grantor
Trust Certificates"), the Trust Fund will be classified as a grantor trust
under subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i). Where there is no fixed retained yield with respect to
the Mortgage Loans underlying the Grantor Trust Certificates, the holder of
each such Grantor Trust Certificates (a "Grantor Trust Certificateholder") in
such series will be treated as the owner of a pro rata undivided interest in
the ordinary income and corpus portions of the Trust Fund represented by its
Grantor Trust Certificate and will be considered the beneficial owner of a
pro rata undivided interest in each of the Mortgage Loans, subject to the
discussion below under "Recharacterization of Servicing Fees". Accordingly,
the holder of a Grantor Trust Certificate of a particular series will be
required to report on its federal income tax return its pro rata share of the
entire income from the Mortgage Loans represented by its Grantor Trust
Certificate, including interest at the coupon rate on such Mortgage Loans,
original issue discount (if any), prepayment fees, assumption fees, and late
payment charges received by the Master Servicer, in accordance with such
Grantor Trust Certificateholder's method of accounting. A Grantor Trust
Certificateholder generally will be able to deduct its share of the servicing
fee and all administrative and other expenses of the Trust Fund in accordance
with its method of accounting, provided that such amounts are reasonable
compensation for services rendered to that Trust Fund. However, investors who
are individuals, estates or trusts who own Grantor Trust Certificates, either
directly or indirectly through certain pass-through entities, will be subject
to limitation with respect to certain itemized deductions described in Code
Section 67, including deductions under Code Section 212 for the servicing fee
and all such administrative and other expenses of the Trust Fund, to the
extent that such deductions, in the aggregate, do not exceed two percent of
an investor's adjusted gross income. In addition, Code Section 68 provides
that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $100,000 ($50,000 in the case of a married
individual filing a separate return) (subject to adjustments for inflation),
or (ii) 80% of the amount of itemized deductions otherwise allowable for such
year. As a result, such investors holding Grantor Trust Certificates,
directly or indirectly through a pass-through entity, may have aggregate
taxable income in excess of the aggregate amount of cash received on such
Grantor Trust Certificates with respect to interest at the pass-through rate
on such Grantor Trust Certificates. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and
may cause such investors to be subject to significant additional tax
liability. Moreover, where there is fixed retained yield with respect to the
Mortgage Loans underlying a series of Grantor Trust Certificates or where the
servicing fee is in excess of reasonable servicing compensation, the
transaction will be subject to the application of the "stripped bond" and
"stripped
coupon" rules of the Code, as described below under "Stripped Certificates"
and "Recharacterization of Servicing Fees", respectively.
Tax Status
__________
Grantor Trust Certificates will have the following status for
federal income tax purposes:
1. A Grantor Trust Certificate owned by a "domestic building and
loan association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans . . . secured by an interest in real property
which is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing the Mortgage
Loans represented by that Grantor Trust Certificate is of the type described
in such section of the Code.
2. A Grantor Trust Certificate owned by a real estate investment
trust will be considered to represent "real estate assets" within the meaning
of Code Section 856(c)(5)(A) to the extent that the assets of the related
Trust Fund consist of qualified assets, and interest income on such assets
will be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Grantor Trust Certificate owned by a REMIC will be considered
to represent an "obligation . . . which is principally secured by an interest
in real property" within the meaning of Code Section 860G(a)(3)(A) to the
extent that the assets of the related Trust Fund consist of "qualified
mortgages" within the meaning of Code Section 860G(a)(3).
Premium and Discount
____________________
Grantor Trust Certificateholders are advised to consult with their
tax advisors as to the federal income tax treatment of premium and discount
arising either upon initial acquisition of Grantor Trust Certificates or
thereafter.
Premium. The treatment of premium incurred upon the purchase of a
Grantor Trust Certificate will be determined generally as described above
under "Certain Federal Income Tax Consequences for REMIC Certificates--
Taxation of REMIC Residual Certificates--Treatment of Certain Items of REMIC
Income and Expense--Premium".
Original Issue Discount. The original issue discount rules will be
applicable to a Grantor Trust Certificateholder's interest in those Mortgage
Loans as to which the conditions for the application of those sections are
met. Rules regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated
after July 1, 1982, and mortgages of individuals originated after March 2,
1984. Under the OID Regulations, such original issue discount could arise by
the charging of points by the originator of the mortgages in an amount
greater than a statutory de minimis exception, including a payment of points
currently deductible by the borrower under applicable Code provisions or,
under certain circumstances, by the presence of "teaser rates" on the
Mortgage Loans.
Original issue discount must generally be reported as ordinary
gross income as it accrues under a constant interest method that takes into
account the compounding of interest, in advance of the cash attributable to
such income. Unless indicated otherwise in the applicable Prospectus
Supplement, no prepayment assumption will be assumed for purposes of such
accrual. However, Code Section 1272 provides for a reduction in the amount of
original issue discount includible in the income of a holder of
an obligation that acquires the obligation after its initial issuance at a
price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal.
Accordingly, if such Mortgage Loans acquired by a Grantor Trust
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Loans, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Loans (i.e., points) will be includible by such holder.
Market Discount. Grantor Trust Certificateholders also will be
subject to the market discount rules to the extent that the conditions for
application of those sections are met. Market discount on the Mortgage Loans
will be determined and will be reported as ordinary income generally in the
manner described above under "Certain Federal Income Tax Consequences for
REMIC Certificates--Taxation of REMIC Regular Certificates--Market Discount",
except that the ratable accrual methods described therein will not apply and
it is unclear whether a Prepayment Assumption would apply. Rather, the holder
will accrue market discount pro rata over the life of the Mortgage Loans,
unless the constant yield method is elected. Unless indicated otherwise in
the applicable Prospectus Supplement, no prepayment assumption will be
assumed for purposes of such accrual.
Recharacterization of Servicing Fees
____________________________________
If the servicing fee paid to the Master Servicer were deemed to
exceed reasonable servicing compensation, the amount of such excess would
represent neither income nor a deduction to Certificateholders. In this
regard, there are no authoritative guidelines for federal income tax purposes
as to either the maximum amount of servicing compensation that may be
considered reasonable in the context of this or similar transactions or
whether, in the case of the Grantor Trust Certificate, the reasonableness of
servicing compensation should be determined on a weighted average or
loan-by-loan basis. If a loan-by-loan basis is appropriate, the likelihood
that such amount would exceed reasonable servicing compensation as to some of
the Mortgage Loans would be increased. Service guidance indicates that a
servicing fee in excess of reasonable compensation ("excess servicing") will
cause the Mortgage Loans to be treated under the "stripped bond" rules. Such
guidance provides safe harbors for servicing deemed to be reasonable and
requires taxpayers to demonstrate that the value of servicing fees in excess
of such amounts is not greater than the value of the services provided.
Accordingly, if the Service's approach is upheld, a servicer who
receives a servicing fee in excess of such amounts would be viewed as
retaining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from the right to receive some or all of the principal payments on
the obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds". Subject to the de minimis rule discussed below
under "--Stripped Certificates", each stripped bond or stripped coupon could
be considered for this purpose as a non-interest bearing obligation issued on
the date of issue of the Grantor Trust Certificates, and the original issue
discount rules of the Code would apply to the holder thereof. While Grantor
Trust Certificateholders would still be treated as owners of beneficial
interests in a grantor trust for federal income tax purposes, the corpus of
such trust could be viewed as excluding the portion of the Mortgage Loans the
ownership of which is attributed to the Master Servicer, or as including such
portion as a second class of equitable interest. Applicable Treasury
regulations treat such an arrangement as a fixed investment trust, since the
multiple classes of trust interests should be treated as merely facilitating
direct investments in the trust assets and the existence of multiple classes
of ownership interests is incidental to that purpose. In general, such a
recharacterization should not have any significant effect upon the timing or
amount of income reported by a Grantor Trust Certificateholder, except that
the income
reported by a cash method holder may be slightly accelerated. See "Stripped
Certificates" below for a further description of the federal income tax
treatment of stripped bonds and stripped coupons.
Sale or Exchange of Grantor Trust Certificates
______________________________________________
Upon sale or exchange of a Grantor Trust Certificate, a Grantor
Trust Certificateholder will recognize gain or loss equal to the difference
between the amount realized on the sale and its aggregate adjusted basis in
the Mortgage Loans and the other assets represented by the Grantor Trust
Certificate. In general, the aggregate adjusted basis will equal the Grantor
Trust Certificateholder's cost for the Grantor Trust Certificate, increased
by the amount of any income previously reported with respect to the Grantor
Trust Certificate and decreased by the amount of any losses previously
reported with respect to the Grantor Trust Certificate and the amount of any
distributions received thereon. Except as provided above with respect to
market discount on any Mortgage Loans, and except for certain financial
institutions subject to the provisions of Code Section 582(c), any such gain
or loss would be capital gain or loss if the Grantor Trust Certificate was
held as a capital asset. However, gain on the sale of a Grantor Trust
Certificate will be treated as ordinary income (i) if a Grantor Trust
Certificate 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
Grantor Trust Certificateholder's net investment in the conversion
transaction at 120% of the appropriate applicable Federal rate in effect at
the time the taxpayer 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 or (ii) in the case
of a 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. Capital gains of certain non-corporate
taxpayers are subject to a lower maximum 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.
Stripped Certificates
General
_______
Pursuant to Code Section 1286, the separation of ownership of the
right to receive some or all of the principal payments on an obligation from
ownership of the right to receive some or all of the interest payments
results in the creation of "stripped bonds" with respect to principal
payments and "stripped coupons" with respect to interest payments. For
purposes of this discussion, Certificates that are subject to those rules
will be referred to as "Stripped Certificates". Stripped Certificates include
"Stripped Interest Certificates" and "Stripped Principal Certificates" (as
defined in this Prospectus) as to which no REMIC election is made.
The Certificates will be subject to those rules if (i) the
Depositor or any of its affiliates retains (for its own account or for
purposes of resale), in the form of fixed retained yield or otherwise, an
ownership interest in a portion of the payments on the Mortgage Loans, (ii)
the Master Servicer is treated as having an ownership interest in the
Mortgage Loans to the extent it is paid (or retains) servicing compensation
in an amount greater than reasonable consideration for servicing the Mortgage
Loans (see "Grantor Trust Certificates--Recharacterization of Servicing Fees"
above) and (iii) Certificates are issued in two or more classes or subclasses
representing the right to non-pro-rata percentages of the interest and
principal payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered
to own "stripped bonds" with respect to its pro rata share of all or a
portion of the principal payments on each Mortgage Loan
and/or "stripped coupons" with respect to its pro rata share of all or a
portion of the interest payments on each Mortgage Loan, including the
Stripped Certificate's allocable share of the servicing fees paid to the
Master Servicer, to the extent that such fees represent reasonable
compensation for services rendered. See discussion above under "Grantor Trust
Certificates--Recharacterization of Servicing Fees". Although not free from
doubt, for purposes of reporting to Stripped Certificateholders, the
servicing fees will be allocated to the Stripped Certificates in proportion
to the respective entitlements to distributions of each class (or subclass)
of Stripped Certificates for the related period or periods. The holder of a
Stripped Certificate generally will be entitled to a deduction each year in
respectof theservicingfees,as describedaboveunder"Grantor TrustCertificates--
General", subject to the limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects
at this time, particularly where such Stripped Certificates are issued with
respect to a Mortgage Pool containing variable-rate Mortgage Loans, the
Depositor has been advised by counsel that (i) the Trust Fund will be treated
as a grantor trust under subpart E, Part 1 of subchapter J of the Code and
not as an association taxable as a corporation or a "taxable mortgage pool"
within the meaning of Code Section 7701(i), and (ii) each Stripped
Certificate should be treated as a single installment obligation for purposes
of calculating original issue discount and gain or loss on disposition. This
treatment is based on the interrelationship of Code Section 1286, Code
Sections 1272 through 1275, and the OID Regulations. While under Code Section
1286 computations with respect to Stripped Certificates arguably should be
made in one of the ways described below under "Taxation of Stripped
Certificates--Possible Alternative Characterizations," the OID Regulations
state, in general, that two or more debt instruments issued by a single
issuer to a single investor in a single transaction should be treated as a
single debt instrument for original issue discount purposes. The Pooling
Agreement requires that the Trustee make and report all computations
described below using this aggregate approach, unless substantial legal
authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide
for the treatment of a Stripped Certificate as a single debt instrument
issued on the date it is purchased for purposes of calculating any original
issue discount. In addition, under these regulations, a Stripped Certificate
that represents a right to payments of both interest and principal may be
viewed either as issued with original issue discount or market discount (as
described below), at a de minimis original issue discount, or, presumably, at
a premium. This treatment suggests that the interest component of such a
Stripped Certificate would be treated as qualified stated interest under the
OID Regulations. Further, these final regulations provide that the purchaser
of such a Stripped Certificate will be required to account for any discount
as market discount rather than original issue discount if either (i) the
initial discount with respect to the Stripped Certificate was treated as zero
under the de minimis rule, or (ii) no more than 100 basis points in excess of
reasonable servicing is stripped off the related Mortgage Loans. Any such
market discount would be reportable as described under "Certain Federal
Income Tax Consequences for REMIC Certificates--Taxation of REMIC Regular
Certificates--Market Discount," without regard to the de minimis rule
therein, assuming that a prepayment assumption is employed in such
computation.
STATUS OF STRIPPED CERTIFICATES
No specific legal authority exists as to whether the character of
the Stripped Certificates, for federal income tax purposes, will be the same
as that of the Mortgage Loans. Although the issue is not free from doubt,
counsel has advised the Depositor that Stripped Certificates owned by
applicable
holders should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(5)(A), "obligation(s) principally secured by
an interest in real property" within the meaning of Code Section
860G(a)(3)(A), and "loans . . . secured by an interest in real property which
is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), and interest (including original issue discount) income
attributable to Stripped Certificates should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), provided that in each case the Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment.
Taxation of Stripped Certificates
_________________________________
Original Issue Discount. Except as described above under "General",
_______________________
each Stripped Certificate will be considered to have been issued at an
original issue discount for federal income tax purposes. Original issue
discount with respect to a Stripped Certificate must be included in ordinary
income as it accrues, in accordance with a constant interest method that
takes into account the compounding of interest, which may be prior to the
receipt of the cash attributable to such income. Based in part on the OID
Regulations and the amendments to the original issue discount sections of the
Code made by the 1986 Act, the amount of original issue discount required to
be included in the income of a holder of a Stripped Certificate (referred to
in this discussion as a "Stripped Certificateholder") in any taxable year
likely will be computed generally as described above under "Federal Income
TaxConsequences forREMIC Certificates--Taxationof REMICRegular Certificates--
Original Issue Discount" and "--Variable Rate REMIC Regular Certificates".
However, with the apparent exception of a Stripped Certificate qualifying as
a market discount obligation, as described above under "General", the issue
price of a Stripped Certificate will be the purchase price paid by each
holder thereof, and the stated redemption price at maturity will include the
aggregate amount of the payments, other than qualified stated interest to be
made on the Stripped Certificate to such Stripped Certificateholder,
presumably under the Prepayment Assumption.
If the Mortgage Loans prepay at a rate either faster or slower than
that under the Prepayment Assumption, a Stripped Certificateholder's
recognition of original issue discount will be either accelerated or
decelerated and the amount of such original issue discount will be either
increased or decreased depending on the relative interests in principal and
interest on each Mortgage Loan represented by such Stripped
Certificateholder's Stripped Certificate. While the matter is not free from
doubt, the holder of a Stripped Certificate should be entitled in the year
that it becomes certain (assuming no further prepayments) that the holder
will not recover a portion of its adjusted basis in such Stripped Certificate
to recognize an ordinary loss equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some
or all of the interest payments with respect to the Stripped Certificates
will not be made if the Mortgage Loans are prepaid could lead to the
interpretation that such interest payments are "contingent" within the
meaning of the OID Regulations. The OID Regulations, as they relate to the
treatment of contingent interest, are by their terms not applicable to
prepayable securities such as the Stripped Certificates. However, if final
regulations dealing with contingent interest with respect to the Stripped
Certificates apply the same principles as the OID Regulations, such
regulations may lead to different timing of income inclusion that would be
the case under the OID Regulations. Furthermore, application of such
principles could lead to the characterization of gain on the sale of
contingent interest Stripped Certificates as ordinary income. Investors
should consult their tax advisors regarding the appropriate tax treatment of
Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a
Stripped Certificate prior to its maturity will result in gain or loss equal
to the difference, if any, between the amount received and
the Stripped Certificateholder's adjusted basis in such Stripped Certificate,
as described above under "Certain Federal Income Tax Consequences for REMIC
Certificates--Taxation of REMIC Regular Certificates--Sale or Exchange of
REMIC Regular Certificates". To the extent that a subsequent purchaser's
purchase price is exceeded by the remaining payments on the Stripped
Certificates, such subsequent purchaser will be required for federal income
tax purposes to accrue and report such excess as if it were original issue
discount in the manner described above. It is not clear for this purpose
whether the assumed prepayment rate that is to be used in the case of a
Stripped Certificateholder other than an original Stripped Certificateholder
should be the Prepayment Assumption or a new rate based on the circumstances
at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of the rules described above.
Possible Alternative Characterizations. The characterizations of
the Stripped Certificates discussed above are not the only possible
interpretations of the applicable Code provisions. For example, the Stripped
Certificateholder may be treated as the owner of (i) one installment
obligation consisting of such Stripped Certificate's pro rata share of the
payments attributable to principal on each Mortgage Loan and a second
installment obligation consisting of such Stripped Certificate's pro rata
share of the payments attributable to interest on each Mortgage Loan, (ii) as
many stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Mortgage Loan or (iii) a separate
installment obligation for each Mortgage Loan, representing the Stripped
Certificate's pro rata share of payments of principal and/or interest to be
made with respect thereto. Alternatively, the holder of one or more classes
of Stripped Certificates may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Certificate, or classes of Stripped Certificates in the aggregate, represent
the same pro rata portion of principal and interest on each such Mortgage
Loan, and a stripped bond or stripped coupon (as the case may be), treated as
an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations
less likely to be applicable. The preamble to those regulations states that
they are premised on the assumption that an aggregation approach is
appropriate for determining whether original issue discount on a stripped
bond or stripped coupon is de minimis, and solicits comments on appropriate
rules for aggregating stripped bonds and stripped coupons under Code Section
1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income
tax purposes.
Reporting Requirements and Backup Withholding
The Trustee will furnish, within a reasonable time after the end of
each calendar year, to each Grantor Trust Certificateholder or Stripped
Certificateholder at any time during such year, such information (prepared on
the basis described above) as the Trustee deems to be necessary or desirable
to enable such Certificateholders to prepare their federal income tax
returns. Such information will include the amount of original issue discount
accrued on Certificates held by persons other than Certificateholders
exempted from the reporting requirements. The amounts required to be reported
by the Trustee may not be equal to the proper amount of original issue
discount required to be reported as taxable income by a Certificateholder,
other than an original Certificateholder that purchased at the issue price.
In particular, in the case of Stripped Certificates, unless provided
otherwise in the applicable Prospectus Supplement, such reporting will be
based upon a representative initial offering price of each class of Stripped
Certificates. The Trustee will also file such original issue discount
information with the Service. If a Certificateholder fails to supply an
accurate taxpayer identification number or if the Secretary of the Treasury
determines that a Certificateholder has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
describedaboveunder"CertainFederalIncomeTaxConsequencesforREMICCertificates--
Backup Withholding".
Taxation of Certain Foreign Investors
To the extent that a Certificate evidences ownership in Mortgage
Loans that are issued on or before July 18, 1984, interest or original issue
discount paid by the person required to withhold tax under Code Section 1441
or 1442 to nonresident aliens, foreign corporations, or other Non-U.S.
Persons generally will be subject to 30% United States withholding tax, or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued original issue discount recognized by the Grantor Trust
Certificateholder or Stripped Certificateholder on original issue discount
recognized by the Grantor Trust Certificateholder or Stripped
Certificateholders on the sale or exchange of such a Certificate also will be
subject to federal income tax at the same rate.
Treasury regulations provide that interest or original issue
discount paid by the Trustee or other withholding agent to a Non-U.S. Person
evidencing ownership interest in Mortgage Loans issued after July 18, 1984
will be "portfolio interest" and will be treated in the manner, and such
persons will be subject to the same certification requirements, described
above under "Certain Federal Income Tax Consequences for REMIC Certificates--
Taxation of Certain Foreign Investors--REMIC Regular Certificates".
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Offered Certificates. State income tax law may differ substantially
from the corresponding federal law, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore,
potential investors should consult their own tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
Title I of ERISA imposes certain fiduciary and prohibited
transaction restrictions on employee pension and welfare benefit plans
subject thereto ("ERISA Plans"). Section 4975 of the Code
imposes similar prohibited transaction restrictions on tax-qualified
retirement plans described in Section 401(a) of the Code ("Qualified
Retirement Plans") and on Individual Retirement Accounts ("IRAs") described
in Section 408 of the Code (collectively, "Tax-Favored Plans") Tax-Favored
Plans and ERISA Plans, collectively, "Plans".
Certain employee benefit plans, such as governmental plans (as
defined in Section 3(32) of ERISA), and, if no election has been made under
Section 410(d) of the Code, church plans (as defined in Section 3(33) of
ERISA), are not subject to the ERISA requirements discussed herein.
Accordingly, assets of such plans may be invested in Certificates without
regard to the ERISA considerations described below, subject to the provisions
of applicable federal and state law. Any such plan that is a Qualified
Retirement Plan and exempt from taxation under Sections 401(a) and 501(a) of
the Code, however, is subject to the prohibited transaction rules set forth
in Section 503 of the Code.
In addition to the general fiduciary requirements imposed under
Section 404 of ERISA, including those of investment prudence and
diversification and the requirement that a Plan's investment be made in
accordance with the documents governing the Plan, Section 406 of ERISA and
Section 4975 of the Code prohibit a broad range of transactions involving
"plan assets" of Plans and persons ("parties in interest" under Section 3(14)
of ERISA or "disqualified persons" under Section 4975(e)(2) of the Code;
collectively, "Parties In Interest") who have certain specified relationships
to the Plans, unless a statutory or administrative exemption is available.
Certain Parties in Interest that participate in a prohibited transaction may
be subject to a penalty, or an excise tax, imposed pursuant to Section 502(i)
of ERISA or Section 4975 of the Code, unless a statutory or administrative
exemption is available.
Plan Asset Regulations. A Plan's investment in Certificates may
cause the underlying Mortgage Assets and other assets included in a related
Trust Fund to be deemed assets of such Plan. Section 2510.3-101 of the
regulations (the "Plan Asset Regulations") of the United States Department of
Labor (the "DOL") provides that, for purposes of applying the general
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and the Code, when a Plan acquires an equity interest in
an entity (such as a Certificate), the Plan's assets include both such equity
interest and an undivided interest in each of the underlying assets of the
entity, unless certain exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors" (i.e., Plans
and certain employee benefit plans not subject to ERISA) is not
"significant", both as defined therein. For this purpose, in general, equity
participation by benefit plan investors will be "significant" on any date if
25% or more of the value of any class of equity interests in the entity is
held by benefit plan investors. Equity participation in a Trust Fund will be
significant on any date if immediately after the most recent acquisition of
any Certificate, 25% or more of any class of Certificates is held by benefit
plan investors.
Any person who has discretionary authority or control respecting
the management or disposition of Plan assets, and any person who provides
investment advice with respect to such assets for a fee, is a fiduciary of
the investing Plan. If the Mortgage Assets and other assets included in a
Trust Fund constitute Plan assets, then any party exercising management or
discretionary control regarding those assets, such as the Master Servicer,
the Special Servicer, any sub-servicer, the Trustee, the obligor under any
credit enhancement mechanism, or certain affiliates thereof may be deemed to
be a Plan "fiduciary" and thus subject to the fiduciary responsibility
provisions and prohibited transaction provisions of ERISA and the Code with
respect to the investing Plan. In addition, if the Mortgage Assets and other
assets included in a Trust Fund constitute Plan assets, the purchase of
Certificates by a Plan, as well as the operation of the Trust Fund, may
constitute or involve a prohibited transaction under ERISA or the Code.
Prohibited Transaction Exemption. The DOL has granted individual
prohibited transaction exemptions (individually and collectively, the
"Exemption") to certain underwriters (each, an "Underwriter") which generally
exempts from the application of the prohibited transaction provisions of
Section 406 of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Section 4975(a) and (b) of the Code, certain
transactions, among others, relating to the servicing and operation of
mortgage pools and the purchase, sale and holding of mortgage pass-through
certificates underwritten by an Underwriter, provided that certain conditions
set forth in the Exemption are satisfied.
The Exemption sets forth six general conditions which must be
satisfied for a transaction involving the purchase, sale and holding of
Certificates underwritten by an Underwriter to be eligible for exemptive
relief thereunder. First, the acquisition of Certificates by a Plan or with
Plan assets must be on terms that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party. Second,
the Exemption only applies to Certificates evidencing rights and interests
that are not subordinated to the rights and interests evidenced by the other
Certificates of the same Trust Fund. Third, the Certificates at the time of
acquisition by or with Plan assets must be rated in one of the three highest
generic rating categories by Standard and Poor's, a Division of the McGraw-
Hill Companies, Inc. ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch Investors
Service, L.P. ("Fitch"). Fourth, the Trustee cannot be an affiliate of any
other member of the "Restricted Group" which consists of the Depositor, the
Underwriter, the Master Servicer, the Special Servicer, any sub-servicer, the
Trustee, any obligor with respect to assets of a related Trust Fund
constituting more than 5% of the aggregate unamortized principal balance of
the assets in the Trust Fund as of the date of initial issuance of the
Certificates, and any affiliates of the aforementioned persons. Fifth, the
sum of all payments made to and retained by the Underwriter must represent
not more than reasonable compensation for underwriting the Certificates; the
sum of all payments made to and retained by the Depositor pursuant to the
assignment of the assets to the related Trust Fund must represent not more
than the fair market value of such obligations, and the sum of all payments
made to and retained by the Master Servicer, the Special Servicer and any
sub-servicer must represent not more than reasonable compensation for such
person's services under the related Agreement and reimbursement of such
person's reasonable expenses in connection therewith. Sixth, the Exemption
requires that the investing Plan be an accredited investor as defined in
Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
The Exemption also requires that a Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type
that have been included in other investment pools; (ii) certificates in such
other investment pools must have been rated in one of the three highest
categories of Standard & Poor's, Moody's, DCR or Fitch for at least one year
prior to the Plan's acquisition of Certificates; and (iii) certificates in
such other investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of Certificates.
A fiduciary of any Plan or other investor of Plan assets
contemplating purchasing a Certificate must make its own determination that
the general conditions set forth above will be satisfied with respect to such
Certificate.
If the general conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407 of ERISA (as well as the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code) in connection with the direct or indirect sale, exchange,
transfer, holding or the direct or indirect acquisition or disposition in the
secondary market of Certificates by Plans or with Plan assets. However, no
exemption is provided from the restrictions of Sections 406(a)(1)(E) and
406(a)(2) of ERISA for the acquisition or holding of a Certificate on behalf
of an "Excluded Plan" (as hereinafter defined) by any
person who has discretionary authority or renders investment advice with
respect to Plan assets of such Excluded Plan. For purposes of the
Certificates, an Excluded Plan is a Plan sponsored by any member of the
Restricted Group.
If certain specific conditions of the Exemption are also satisfied,
the Exemption may provide an exemption from the restrictions imposed by
Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section
4975(c)(1)(E) of the Code in connection with (i) the direct or indirect sale,
exchange or transfer of Certificates in the initial issuance of Certificates
between the Depositor or an Underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of the relevant Plan assets in the Certificates is (a) a mortgagor
with respect to 5% or less of the fair market value of the assets of the
related Trust Fund or (b) an affiliate of such a person, (ii) the direct or
indirect acquisition or disposition in the secondary market of Certificates
by Plans or with Plan assets and (iii) the holding of Certificates acquired
by Plans or with Plan assets.
Further, if certain specific conditions of the Exemption are
satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(a), 406(b) and 407 of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation
of the Trust Funds. The Depositor expects that the specific conditions of an
applicable Exemption required for this purpose will be satisfied with respect
to the Certificates so that the Exemption would provide an exemption from the
restrictions imposed by Sections 406(a) and (b) of ERISA (as well as the
excise taxes imposed by Sections 4975(a) and (b) of the Code by reason of
Section 4975(c) of the Code) for transactions in connection with the
servicing, management and operation of the Trust Funds, provided that the
general conditions of the Exemption are satisfied.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by
Section 4975(a) and (b) of the Code by reason of Sections
4975(c)(1)(A) through (D) of the Code if such restrictions are deemed to
otherwise apply merely because a person is deemed to be a Party In Interest
with respect to an investing Plan (or the investing entity holding Plan
assets) by virtue of providing services to the Plan (or by virtue of having
certain specified relationships to such a service provider) solely as a
result of the ownership of Certificates by a Plan or the investment of Plan
assets in Certificates.
Before purchasing a Certificate, a fiduciary of a Plan or other
investor of Plan assets should itself confirm (a) that the Certificates
constitute "certificates" for purposes of any applicable Exemption and
(b) that the specific and general conditions set forth in the Exemption and
the other requirements set forth in the Exemption would be satisfied. In
addition to making its own determination as to the availability of the
exemptive relief provided in the Exemption, the fiduciary or other Plan
investor should consider its general fiduciary obligations under ERISA in
determining whether to purchase any Certificates on behalf of a Plan or with
Plan assets.
Any fiduciary or other Plan investor which proposes to purchase
Certificates on behalf of a Plan or with Plan assets should consult with its
counsel with respect to the potential applicability of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions
of ERISA and the Code to such investment and the availability of an Exemption
or any other prohibited transaction exemption in connection therewith. In
particular, such fiduciary or other Plan investor should consider the
availability of Prohibited Transaction Class Exemption ("PTCE") 95-60,
regarding investments by insurance company general accounts, PTCE 90-1,
regarding investments by insurance company pooled separate accounts, PTCE 91-
38, regarding investments by bank collective investment funds, PTCE 84-14,
regarding transactions effected by "qualified professional asset managers,"
and PTCE 96-23, regarding transactions effected by "in-house asset managers."
The Prospectus Supplement with respect to a series of Certificates may
contain additional information regarding the application of an Exemption, or
any other exemption, with respect to the Certificates offered thereby. There
can be no assurance that any of these exemptions will apply with respect to
any particular Plan's or other Plan investor's investment in the Certificates
or, even if an exemption were deemed to apply, that any exemption would apply
to all prohibited transactions that may occur in connection with such
investment.
Tax Exempt Investors. A Plan that is exempt from federal income
taxation pursuant to Section 501 of the Code (a "Tax Exempt Investor")
nonetheless will be subject to federal income taxation to the extent that its
income is "unrelated business taxable income" ("UBTI") within the meaning of
Section 512 of the Code. All "excess inclusions" of a REMIC allocated to a
REMIC Residual Certificate held by a Tax-Exempt Investor will be considered
UBTI and thus will be subject to federal income tax. See "Certain Federal
Income Tax Consequences--Federal Income Tax Consequences for REMIC
Certificates Taxation of REMIC Residual Certificates--Limitations on Offset
or Exemption of REMIC Income."
Consultation With Counsel. Due to the complexity of these rules
and the penalties imposed upon persons involved in prohibited transactions,
it is particularly important that potential investors who are Plan
fiduciaries or are otherwise investing the assets of a Plan consult with
their counsel regarding the consequences under ERISA and the Code of their
acquisition and ownership of Certificates.
THE SALE OF CERTIFICATES TO A PLAN IS IN NO RESPECT A
REPRESENTATION BY THE DEPOSITOR OR THE UNDERWRITER THAT THIS INVESTMENT MEETS
ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS
GENERALLY OR BY ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE
FOR PLANS GENERALLY OR FOR ANY PARTICULAR PLAN.
LEGAL INVESTMENT
The Offered Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"), only if so specified in the related Prospectus
Supplement. The appropriate characterization of those Certificates not
qualifying as "mortgage related securities" ("Non-SMMEA Certificates") under
various legal investment restriction, and thus the ability of investors
subject to these restrictions to purchase such Certificates, may be subject
to significant interpretive uncertainties. Accordingly, investors whose
investment authority is subject to legal restrictions should consult their
own legal advisors to determine whether and to what extent the Non-SMMEA
Certificates constitute legal investments for them.
Generally, only classes of Offered Certificates that (i) are rated
in one of the two highest rating categories by one or more Rating Agencies
and (ii) are part of a series evidencing interests in a Trust Fund consisting
of loans originated by certain types of Originators as specified in SMMEA,
will be "mortgage related securities" for purposes of SMMEA. As "mortgage
related securities," such classes will constitute legal investments for
persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including depository institutions, insurance
companies, trustees and pension funds) created pursuant to or existing under
the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof constitute legal investments for such
entities. Under SMMEA, a number of states enacted legislation on or prior to
the October 3, 1991 cut-off for such enactments limiting to various extents
the ability of certain entities (in particular, insurance companies) to
invest in "mortgage related securities," secured by liens on residential, or
mixed residential and commercial properties, in most cases by requiring the
affected investors to rely solely upon existing state law, and not SMMEA.
Pursuant to Section 347 of the Riegle Community Development and Regulatory
Improvement Act of 1994, which amended the definition of "mortgage related
security" (effective December 31, 1996) to include, in relevant part,
Certificates satisfying the rating and qualified Originator requirements for
"mortgage related securities," but evidencing interests in a Trust Fund
consisting, in whole or in part, of first liens on one or more parcels of
real estate upon which are located one or more commercial structures, states
were authorized to enact legislation, on or before September 23, 2001,
specifically referring to Section 347 and prohibiting or restricting the
purchase, holding or investment by state regulated entities in such types of
Certificates. Accordingly, the investors affected by such legislation will be
authorized to invest in Offered Certificates qualifying as "mortgage related
securities" only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and
loan associations and federal savings banks may invest in, sell or otherwise
deal in "mortgage related securities" without limitation as to the percentage
of their assets represented thereby, federal credit unions may invest in such
securities, and national banks may purchase such securities for their own
account without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. Section 24 (Seventh), subject in each case
to such regulations as the applicable federal regulatory authority may
prescribe. In this connection, effective December 31, 1996, the Office of the
Comptroller of the Currency (the "OCC") has amended 12 C.F.R. Part 1 to
authorize national banks to
purchase and sell for their own account, without limitation as to a
percentage of the bank's capital and surplus (but subject to compliance with
certain general standards in 12 C.F.R. Section1.5 concerning "safety and
soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. Section1.2(1) to include certain
"commercial mortgage-related securities" and "residential mortgage-related
securities." As so defined, "commercial mortgage-related security" and
"residential mortgage-related security" mean, in relevant part, "mortgage
related security" within the meaning of SMMEA, provided that, in the case of
a "commercial mortgage-related security," it "represents ownership of a
promissory note or certificate of interest or participation that is directly
secured by a first lien on one or more parcels of real estate upon which one
or more commercial structures are located and that is fully secured by
interests in a pool of loans to numerous obligors." In the absence of any
rule or administrative interpretation by the OCC defining the term "numerous
obligors," no representation is made as to whether any class of Certificates
will qualify as "commercial mortgage-related securities," and thus as "Type
IV securities," for investment by national banks. Federal credit unions
should review NCUA Letter to Credit Unions No. 96, as modified by Letter to
Credit Unions No. 108, which includes guidelines to assist federal credit
unions in making investment decisions for mortgage related securities. The
NCUA has adopted rules, codified as 12 C.F.R. SectionSection703.5(f)-(k),
which prohibit federal credit unions from investing in certain mortgage
related securities (including securities such as certain classes of the
Offered Certificates), except under limited circumstances.
All depository institutions considering an investment in the
Offered 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 OCC, the Federal Depository
Insurance Company and the Office of Thrift Supervision,
and by the NCUA (with certain modifications), prohibits depository
institutions from investing in certain "high-risk mortgage securities"
(including securities such as certain classes of the Offered Certificates),
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 class of
the Offered Certificates, as certain classes may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
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, with regard to any class of
the Offered Certificates issued in book-entry form, provisions which may
restrict or prohibit investments in securities which are issued in book-entry
form.
Except as to the status of certain classes of Offered Certificates
as "mortgage related securities," no representations are made as to the
proper characterization of any class of Offered Certificates for legal
investment purposes, financial institution regulatory purposes, or other
purposes, or as to the ability of particular investors to purchase any class
of Offered Certificates under applicable legal investment restrictions. These
uncertainties (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Offered
Certificates) may adversely affect the liquidity of any class of Offered
Certificates.
Accordingly, all investors 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 Offered Certificates of any
class constitute legal investments or are subject to investment, capital or
other restrictions.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "Model Law") which sets forth
model investment guidelines for the insurance industry. Institutions subject
to insurance regulatory authorities may be subject to restrictions on
investment similar to those set forth in the Model Law and other
restrictions.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization
of this Offered Certificate under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase such
Offered Certificates, may be subject to significant interpretive
uncertainties.
Notwithstanding SMMEA, there may be other restrictions on the ability of
certain investors, including depository institutions, either to purchase any
Offered Certificates or to purchase Offered Certificates representing more
than a special percentage of the investors' assets.
Except as to the status of SMMEA Certificates identified in the
Prospectus Supplement for a Series as "mortgage related securities" under
SMMEA, the Depositor will make no representations as to the proper
characterization of the Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase any Offered 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 Certificates) may adversely affect the
liquidity of the Certificates.
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 and
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or
to purchase Offered Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own
legal advisors in determining whether and to what extent the Offered
Certificates constitute legal investments for such investors.
PLAN OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates
may be effected from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying
prices to be determined at the time of sale or at the time of commitment
therefor. If so specified in the related Prospectus Supplement, the Offered
Certificates will be distributed in a firm commitment underwriting, subject
to the terms and conditions of the underwriting agreement, by an underwriter
or underwriters named therein. In such event, the Prospectus Supplement may
also specify that the underwriters will not be obligated to pay for any
Offered Certificates agreed to be purchased by purchasers pursuant to
purchase agreements acceptable to the Depositor. In connection with the sale
of Offered Certificates, underwriters may receive compensation from the
Depositor or from purchasers of Offered Certificates in the form of
discounts, concessions or commissions.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by an underwriter acting as agent or in some
cases as principal with respect to Offered Certificates that it has
previously purchased or agreed to purchase. If the underwriter acts as agent
in the sale of Offered Certificates, the underwriter will receive a selling
commission with respect to such Offered Certificates, depending on market
conditions, expressed as a percentage of the aggregate Certificate Balance or
notional amount of such Offered Certificates as of the Cut-off Date. The
exact percentage for each Series of Certificates will be disclosed in the
related Prospectus Supplement. To the extent that the underwriter elects to
purchase Offered Certificates as principal, the underwriter may realize
losses or profits based upon the difference between its purchase price and
the sales price. The Prospectus Supplement with respect to any Series
offered other than through underwriters will contain information regarding
the nature of such offering and any agreements to be entered into between the
Depositor and purchasers of Offered Certificates of such Series.
The Depositor will indemnify any underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, or will
contribute to payments any underwriters may be required to make in respect
thereof.
In the ordinary course of business, the Depositor and any such
underwriter, agent or purchaser may engage in various securities and
financing transactions, including repurchase agreements to provide interim
financing of the Depositor's mortgage loans pending the sale of such mortgage
loans or interests therein, including the Certificates.
Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 in connection with reoffers
and sales by them of Offered Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
The validity of the Certificates will be passed upon for the Depositor
by Cadwalader, Wickersham & Taft, New York, New York.
Certain legal matters will be passed upon for the Underwriter by Brown &
Wood LLP.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will he included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related
aspects associated with such certificates, the nature of the underlying
mortgage loans and the credit quality of the guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by Mortgagors or of the degree by which
such prepayments might differ from those originally anticipated. As a
result, certificateholders might suffer a lower than anticipated yield, and,
in addition, holders of stripped interest certificates in extreme cases might
fail to recoup their initial investments.
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. Each security rating should be evaluated
independently of any other security rating.
INDEX OF PRINCIPAL DEFINITIONS
Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
1986 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Certificate Interest . . . . . . . . . . . . . . . . . . . . . . . .
ADA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizable Bond Premium Regulations . . . . . . . . . . . . . . . . . . . .
Applicable Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARM Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . .
Balloon Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficial Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificateholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contributions Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cooperative Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Crime Control Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Service Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disqualifying Condition . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environmental Hazard Condition . . . . . . . . . . . . . . . . . . . . . . .
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
L/C Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lock-out Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lock-out Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Master REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Model Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily Properties . . . . . . . . . . . . . . . . . . . . . . . . . . .
NCUA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . . . . .
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Originator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment Lag Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposed Mark-to-Market Regulations . . . . . . . . . . . . . . . . . . . . .
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RCRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refinance Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Regular Certificateholders . . . . . . . . . . . . . . . . . . . . . .
REMIC Regular Certificates . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REMIC Residual Certificateholder . . . . . . . . . . . . . . . . . . . . . .
REMIC Residual Certificates . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing Transfer Event . . . . . . . . . . . . . . . . . . . . . . . . . .
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SMMEA Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specially Serviced Mortgage Loan . . . . . . . . . . . . . . . . . . . . . .
Stripped ARM Obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Stripped Bond Certificates . . . . . . . . . . . . . . . . . . . . . . . . .
Stripped Coupon Certificates . . . . . . . . . . . . . . . . . . . . . . . .
Stripped Interest Certificates . . . . . . . . . . . . . . . . . . . . . . .
Stripped Principal Certificates . . . . . . . . . . . . . . . . . . . . . . .
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Super-Premium Certificates . . . . . . . . . . . . . . . . . . . . . . . . .
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underlying CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underlying Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranting Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Whole Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*+
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Certificates, other than underwriting
discounts and commissions:
SEC Registration Fee $304
Printing and Engraving Fees $
Legal Fees and Expenses $
Accounting Fees and Expenses $
Trustee Fees and Expenses $
Rating Agency Fees $
Miscellaneous $
Total $304
-------------
* All amounts except the SEC Registration Fee are estimates of
expenses incurred or to be incurred in connection with the issuance
and distribution of Certificates in an aggregate principal amount
assumed for these purposes to be equal to $1,000,000 of
Certificates registered hereby.
+ To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the proposed form of Underwriting Agreement, the Underwriter is
obligated under certain circumstances to indemnify officers and directors of
Imperial Credit Commercial Mortgage Acceptance Corporation (the "Company")
who sign the Registration Statement, and certain controlling persons of the
Company, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended and the Securities Exchange Act of 1934,
as amended.
The Company's Certificate of Incorporation provides for indemnification
of directors and officers of the Company to the full extent permitted by
Delaware law.
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 Delaware
General Corporation Law also provides that the Registrant may purchase
insurance on behalf of any such director, officer, employee or agent.
The Pooling and Servicing Agreement will provide that no director,
officer, employee or agent of the Company will be liable to the Trust Fund or
the Certificateholders for any action taken or for refraining from the taking
of any action pursuant to the Pooling and Servicing Agreement, except for
such person's own misfeasance, bad faith or gross negligence in the
performance of duties. The Pooling and Servicing Agreement will provide
further that, with the exceptions stated above, any director, officer,
employee or agent of the Company will be indemnified and held harmless by the
Trust Fund against 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 (i) related to any
specific Mortgage Loan or Mortgage Loans (except as any such loss, liability
or expense shall be otherwise reimbursable pursuant to the Pooling and
Servicing Agreement), (ii) incurred in connection with any violation by him
or her of any state or federal securities law or (iii) imposed by any taxing
authority if such loss, liability or expense is not specifically reimbursable
pursuant to the terms of the Pooling and Servicing Agreement.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of Pooling and Servicing Agreement*
5.1 Opinion of Cadwalder, Wickersham & Taft as to legality of
the Certificates*
8.1 Opinion of Cadwalder, Wickersham & Taft as to certain tax
matters (included in Exhibit 5.1)*
24.1 Consent of Cadwalder, Wickersham & Taft (included in
Exhibits 5.1 and 8.1 hereto)*
25.1 Powers of Attorney (included on page II-3 of the
Registration Statement)
________________
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
A. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, 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 against the Registrant by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel 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. Other Undertakings.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Act;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the Registration Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment 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;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering; and
(4) That, for purposes of determining any liability under the Act,
each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities and Exchange Act of 1934 that is
incorporated by reference in this registration statement 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Diego, State of California, on
April 25, 1997.
IMPERIAL CREDIT COMMERCIAL MORTGAGE ACCEPTANCE CORPORATION
By: /s/ Joseph Parise
--------------------------------------------------
Joseph Parise
Executive Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Stephen Shugerman, Joseph Parise,
H. Wayne Snaverly and Lake Setzler each whose signature appears below
constitutes and appoints Stephen Shugerman, Joseph Parise, H. Wayne Snaverly
and Lake Setzler, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and his or her
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and any other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 25, 1997.
SIGNATURE TITLE
/s/ Stephen Shugerman Director,Chairman of the Board
- ----------------------------
Stephen Shugerman (Principal Executive Officer)
/s/ Joseph Parise Director, Secretary
- -----------------------------
Joseph Parise
/s/ H. Wayne Snaverly Director, Treasurer
- -----------------------------
H. Wayne Snaverly (Principal Financial Officer)
/s/ Lake Setzler Controller
- -----------------------------
Lake Setzler (Principal Accounting Officer)
Registration No. ( )
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
IMPERIAL CREDIT COMMERCIAL MORTGAGE ACCEPTANCE CORPORATION
(Exact name of Registrant as specified in its charter)
_____________________
EXHIBIT VOLUME
- -----------------------------------------------------------------------------
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of Pooling and Servicing Agreement*
5.1 Opinion of Cadwalder, Wickersham & Taft as to legality of
the Certificates*
8.1 Opinion of Cadwalder, Wickersham & Taft as to certain tax
matters (included in Exhibit 5.1)*
24.1 Consent of Cadwalder, Wickersham & Taft (included in
Exhibits 5.1 and 8.1 hereto)*
25.1 Powers of Attorney (included on page II-3 of the
Registration Statement)
________________
* To be filed by amendment.
