As filed with the Securities and Exchange Commission on October 7, 1998
Registration No. 333-61305
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
IMPERIAL CREDIT COMMERCIAL MORTGAGE ACCEPTANCE CORP.
(Exact name of Registrant as specified in its charter)
California 95-4649530
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11601 Wilshire Boulevard
No. 2080
Los Angeles, California 90025
(310) 231-1280
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Norbert M. Seifert, Esq.
Imperial Credit Commercial Mortgage Acceptance Corp.
11601 Wilshire Boulevard
No. 2080
Los Angeles, California 90025
(310) 231-1280
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Michael S. Gambro, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
(212) 504-6825
---------------
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.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
Title of Proposed
Securities Amount Maximum Proposed Amount of
to Be to Be Offering Price Maximum Aggregate Registration
Registered(1) Registered Per Unit(2) Offering Price(2) Fee
------------- ---------- -------------- ----------------- ------------
Collateralized
Mortgage Bonds $1,000,000 100% $1,000,000 $295(3)
============== ========== ==== ========== =======
(1) This Registration Statement and the registration fee pertain to the initial
offering of Collateralized Mortgage Bonds registered hereunder by the
Registrant and to offers and sales relating to market-making transactions
by Imperial Capital Group, LLC, an affiliate of the Registrant. The amount
of Collateralized Mortgage Bonds that may be initially offered hereunder
and the registration fee shall not be affected by any offers and sales
relating to any such market making transactions.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
(3) Previously paid.
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.
<PAGE>
INTRODUCTORY NOTE
This Registration Statement contains a form of Prospectus relating to the
offering of series of Collateralized Mortgage Bonds by various Owner Trusts
created from time to time by Imperial Credit Commercial Mortgage Acceptance
Corp. and a form of Prospectus Supplement relating to the offering by an Owner
Trust of the particular series of Collateralized Mortgage Bonds 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 Corp. to offer Collateralized Mortgage Bonds under this
Registration Statement.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1998
PROSPECTUS
Collateralized Mortgage Bonds
(Issuable in Series)
IMPERIAL CREDIT COMMERCIAL MORTGAGE ACCEPTANCE CORP.
Depositor
The Collateralized Mortgage Bonds (the "Bonds") offered hereby and by
Supplements to this Prospectus (the "Offered Bonds") will be offered from time
to time in one or more series (each, a "Series"). Each Series of Bonds will be
issued by an owner trust (an "Owner Trust") established by Imperial Credit
Commercial Mortgage Acceptance Corp. (the "Depositor") pursuant to an Indenture.
Each Series of Bonds will be secured by a pledge of some or all of the assets of
the Owner Trust (with respect to any Series, the "Collateral") consisting of,
among other things, one or more segregated pools of various types of multifamily
or commercial mortgage loans (collectively, the "Mortgage Loans"). 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 payments on certain Series of Bonds, will be
such rental payments. If so specified in the related Prospectus Supplement, the
Collateral for a Series of Bonds 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 Collateral," "Description of
the Bonds" and "Description of Credit Support."
Each Series of Bonds will consist of one or more classes of Bonds 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
Bonds in respect of certain payments on the Bonds; (iii) be entitled to
principal payments, with disproportionately low, nominal or no interest
payments; (iv) be entitled to interest payments, with disproportionately low,
nominal or no principal payments; (v) provide for payments of accrued interest
thereon commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Bonds of such Series; (vi) provide
for payments of principal sequentially, based on specified payment schedules or
other methodologies; and/or (vii) provide for payments 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 Bonds. See "Description of the Bonds."
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 consider the material risks discussed under
the caption "Risk Factors" beginning on page 23 herein and discussed under the
caption "Risk Factors" in the related Prospectus Supplement before purchasing
any Offered Bond.
Prior to issuance there will have been no market for the Bonds of any
Series and there can be no assurance that a secondary market for any Offered
Bonds will develop or that, if it does develop, it will continue. It is not
expected that any application will be made to list the Bonds of a Series on any
securities exchange or quote the Bonds in the automated quotation system of any
registered securities association. Accordingly, the liquidity of the Bonds may
be limited. This Prospectus may not be used to consummate sales of the Offered
Bonds of any Series unless accompanied by the Prospectus Supplement for such
Series.
Offers of the Offered Bonds may be made through one or more different
methods, including offerings through underwriters as more fully described herein
and in the related Prospectus Supplement.
Principal and interest with respect to Bonds will be payable monthly,
quarterly, semi-annually or at such other intervals and on the dates specified
in the related Prospectus Supplement. Payments on the Bonds of any Series will
be made only from the assets of the related Collateral.
The Bonds 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 that the Bonds of each
Series will represent limited recourse obligations of one or more Owner Trusts.
The Bonds or the Mortgage Loans will be guaranteed or insured by a governmental
agency or instrumentality or by any other person if and only to the extent
expressly provided in the related Prospectus Supplement. The Collateral will be
held in trust for the benefit of the holders of the related Series of Bonds
pursuant to an Indenture, as more fully described herein.
The yield on each class of Bonds of a Series will be affected by, among
other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the related Mortgage Loans and the timing of receipt
of such payments as described under the caption "Yield Considerations" herein
and in the related Prospectus Supplement. The Bonds of any Series may be subject
to optional redemption prior to Stated Maturity (as defined herein) under the
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Bonds--Optional Redemption."
The Date of this Prospectus is October 7, 1998
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT.......................................................
AVAILABLE INFORMATION.......................................................
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...........................
SUMMARY OF PROSPECTUS.......................................................
RISK FACTORS................................................................
Limited Assets for Payment of Bonds.........................................
Limited Liquidity for Bonds............................................
Rate of Prepayments on Mortgage Loans May Adversely Affect
Average Lives and Yields of Bonds.................................
Optional Redemption of Bonds May Adversely Affect Average Lives
and Yields of Bonds...............................................
Limited Nature of Ratings..............................................
Subordination of Subordinate Bonds.....................................
Pass-Through Rate Considerations.......................................
Pass-Through Rate Considerations.......................................
Pass-Through Rate Considerations.......................................
Limited Issuer Events of Default.......................................
Bondholders Have Limited Ability to Force Sale of Collateral
following Non-Payment of Principal or Interest....................
Bankruptcy or Insolvency of the Issuer.................................
Factors Which May Increase the Risk of Losses on Mortgage
Loans Secured by Multifamily/Commercial Property Versus
Single Family Property............................................
Increased Risk of Losses in Connection with Commercial Loans
and Leases........................................................
Risks Particular to Multifamily Properties.............................
Risks Particular to Retail Properties..................................
Risks Particular to Office Properties..................................
Risks Particular to Industrial Properties..............................
Risks of Loss on Balloon Payment Loan if Obligor is Unable to
Refinance or Sell Related Property................................
Increased Risk of Losses on Foreclosure of Junior Mortgage
Loans.............................................................
Risks Associated with Obligor Default..................................
Risks Associated with Mortgagor Type...................................
Credit Support Limitations.............................................
Risk of Unenforceability of Certain Mortgage Provisions................
Environmental Risks....................................................
Increased Risk of Loss if Mortgage Loans Include Delinquent
Mortgage Loans....................................................
ERISA Considerations...................................................
Risks Associated with Control of Voting Rights.........................
Owners of Book-Entry Bonds Not Entitled to Exercise Rights
of Holders of Bonds...............................................
Risk of Default Under Derivative Contracts.............................
Owners of Book-Entry Bonds Not Entitled to Exercise Rights
of Holders of Bonds...............................................
DESCRIPTION OF THE COLLATERAL...............................................
General................................................................
Mortgage Loans.........................................................
Leases............................................................
Default and Loss Considerations with Respect to the
Mortgage Loans...............................................
Loan-to-Value Ratio...............................................
Mortgage Loan Information in Prospectus Supplements...............
Payment Provisions of the Mortgage Loans..........................
Accounts..........................................................
Credit Support....................................................
Cash Flow Agreements..............................................
USE OF PROCEEDS.............................................................
YIELD CONSIDERATIONS........................................................
General................................................................
Interest Rate..........................................................
Timing of Payment of Interest..........................................
Payments of Principal; Prepayments.....................................
Prepayments, Maturity and Weighted Average Life........................
Other Factors Affecting Weighted Average Life..........................
Type of Mortgage Loan.............................................
Foreclosures and Payment Plans....................................
Due-on-Sale and Due-on-Encumbrance Clauses........................
Single Mortgage Loan or Single Mortgagor..........................
THE DEPOSITOR...............................................................
THE OWNER TRUST.............................................................
DESCRIPTION OF THE BONDS....................................................
General................................................................
Payments...............................................................
Available Payment Amount...............................................
Payments of Interest on the Bonds......................................
Payments of Principal of the Bonds.....................................
Components.............................................................
Payments on the Bonds of Prepayment Premiums or in Respect
of Equity Participations..........................................
Allocation of Losses and Shortfalls....................................
Advances in Respect of Delinquencies...................................
Reports to Bondholders.................................................
Special Redemption of Bonds............................................
Optional Redemption of Bonds...........................................
Book-Entry Registration and Definitive Bonds...........................
DESCRIPTION OF THE AGREEMENTS...............................................
Pledge of Mortgage Loans; Deposit of Release Price or
Substitution......................................................
Representations and Warranties; Repurchases and Other
Remedies..........................................................
Accounts...............................................................
General...........................................................
Deposits..........................................................
Withdrawals.......................................................
Payment Account...................................................
Other Collection Accounts.........................................
Collection and Other Servicing Procedures..............................
Master Servicer...................................................
Special Servicer..................................................
Hazard Insurance Policies..............................................
Rental Interruption Insurance Policy...................................
Fidelity Bonds and Errors and Omissions Insurance......................
Due-on-Sale and Due-on-Encumbrance Provisions..........................
Retained Interest; Servicing Compensation and Payment
of Expenses.......................................................
Evidence as to Compliance..............................................
Certain Matters Regarding each Servicer and the Depositor..............
Servicer Events of Default.............................................
Rights Upon Servicer Event of Default..................................
Amendment..............................................................
The Indenture Trustee..................................................
Duties of the Indenture Trustee........................................
Certain Matters Regarding the Indenture Trustee........................
Resignation and Removal of the Indenture Trustee.......................
Certain Terms of the Indenture.........................................
Issuer Events of Default..........................................
Control by Bondholders............................................
Satisfaction and Discharge of the Indenture.......................
Release of Collateral.............................................
List of Bondholders...............................................
Meetings of Bondholders...........................................
Indenture Trustee's Annual Report.................................
Administrator.....................................................
DESCRIPTION OF CREDIT SUPPORT...............................................
General................................................................
Subordinate Bonds......................................................
Cross-Support Provisions...............................................
Insurance or Guarantees with Respect to the Mortgage Loans.............
Letter of Credit.......................................................
Insurance Policies and Surety Bonds....................................
Reserve Funds..........................................................
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES..................
General................................................................
Types of Mortgage Instruments..........................................
Interest in Real Property..............................................
Leases and Rents.......................................................
Personalty.............................................................
Foreclosure............................................................
General...........................................................
Judicial Foreclosure..............................................
Equitable Limitations on Enforceability of Certain
Provisions...................................................
Non-Judicial Foreclosure/Power of Sale............................
Public Sale.......................................................
Rights of Redemption...................................................
Anti-Deficiency Legislation............................................
Leasehold Risks........................................................
Bankruptcy Laws........................................................
Environmental Legislation..............................................
Due-on-Sale and Due-on-Encumbrance.....................................
Subordinate Financing..................................................
Default Interest, Prepayment Premiums and Lockouts.....................
Acceleration on Default................................................
Applicability of Usury Laws............................................
Certain Laws and Regulations; Types of Mortgaged Properties............
Americans With Disabilities Act........................................
Soldiers' and Sailors' Civil Relief Act of 1940........................
Forfeitures in Drug and RICO Proceedings...............................
FEDERAL INCOME TAX CONSEQUENCES.............................................
General................................................................
Status as Real Property Loans..........................................
Taxation of Bonds......................................................
General...........................................................
Original Issue Discount...........................................
Acquisition Premium...............................................
Variable Rate Bonds...............................................
Market Discount...................................................
Premium...........................................................
Election to Treat All Interest Under the Constant
Yield Method.................................................
Sale or Exchange of Bonds.........................................
Treatment of Losses...............................................
Taxation of Certain Foreign Investors..................................
Backup Withholding.....................................................
STATE TAX CONSIDERATIONS....................................................
CERTAIN ERISA CONSIDERATIONS................................................
LEGAL INVESTMENT............................................................
PLAN OF DISTRIBUTION........................................................
LEGAL MATTERS...............................................................
FINANCIAL INFORMATION.......................................................
RATING......................................................................
INDEX OF PRINCIPAL DEFINITIONS..............................................
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Bonds 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 Bonds or
an offer of the Offered Bonds 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 Bonds of each Series will, among other things, set forth with
respect to such Bonds, as appropriate: (i) a description of the class or classes
of Bonds, the payment provisions with respect to each such class and the
interest rate or method of determining the interest rate with respect to each
such class; (ii) the aggregate principal amount and payment dates relating to
such Series and, if applicable, the initial and final scheduled payment dates
for each class; (iii) information as to the assets of the Owner Trust (with
respect to the Bonds of any Series, the "Trust Assets") constituting the related
Collateral, including the general characteristics of the assets included
therein, including the Mortgage Loans and any Credit Support and Cash Flow
Agreements; (iv) the circumstances, if any, under which the Bonds may be subject
to call; (v) additional information with respect to the method of distribution
of such Bonds; (vi) information as to any Master Servicer, any Special Servicer
(or provision for the appointment thereof) and the Indenture Trustee, as
applicable; (vii) information as to the nature and extent of subordination with
respect to any class of Bonds that is subordinate in right of payment to any
other class; and (viii) whether such Bonds 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 Bonds.
This Prospectus and the Prospectus Supplement relating to each Series of Bonds
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 Corp., that file
electronically with the Commission.
To the extent described in the related Prospectus Supplement, some or all
of the Mortgage Loans may, in addition to the related Mortgage, 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. 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
payments on such Bonds, will be rental payments due from specified lessees under
the Leases, under such circumstances prospective investors in the related Series
of Bonds may wish to consider publicly available information, if any, concerning
such lessees. Reference should be made to the related Prospectus Supplement for
information concerning such lessees and whether any such lessees are subject to
the periodic reporting requirements of the Securities Exchange Act of 1934, as
amended.
The Master Servicer or the Indenture Trustee will be required to mail to
holders of Definitive Bonds (as defined herein) of each Series periodic
unaudited reports concerning such Bonds and the related Trust Assets. Unless and
until Definitive Bonds are issued, such reports will be sent on behalf of the
related Issuer to Cede & Co. ("Cede"), as nominee of The Depository Trust
Company ("DTC") and registered holder of the Offered Bonds or such other person
as specified in the related Prospectus Supplement, pursuant to the applicable
Agreement. Such reports may be available to Beneficial Owners (as defined
herein) in the Bonds upon request to their respective DTC Participants or
Indirect Participants (as defined herein). See "Description of the
Bonds--Reports to Bondholders" 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 the Offered Bonds of each Series and the
related Trust Assets 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 Bondholders 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 Issuer.
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 the Offered Bonds of each
Series and the related Trust Assets pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, prior to the termination of an offering of such
Offered Bonds. 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 Bonds, 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
Bonds, 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 Corp., 11601 Wilshire Boulevard, No. 2080, Los Angeles, California
90025, Attention: Secretary. The Depositor has determined that its financial
statements are not material to the offering of any Offered Bonds.
<PAGE>
SUMMARY OF PROSPECTUS
The following summary 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 Bonds 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 beginning on page 123.
Title of Bonds.................... Collateralized Mortgage Bonds (the "Bonds"),
issuable in Series.
Depositor......................... Imperial Credit Commercial Mortgage
Acceptance Corp., a direct wholly-owned
subsidiary of Imperial Credit Commercial
Mortgage Investment Corp., a Maryland
corporation ("ICCMIC"). See "The Depositor."
Issuer............................ With respect to each Series of Bonds, the
Owner Trust that will act as the issuer of
such Series of Bonds (in such capacity, the
"Issuer"), to be formed pursuant to a deposit
trust agreement.
Master Servicer................... The master servicer (the "Master Servicer"),
if any, for each Series of Bonds, 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 Bonds,
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."
Indenture Trustee................. The indenture trustee (the "Indenture
Trustee") for each Series of Bonds will be
named in the related Prospectus Supplement.
The Indenture Trustee will be a bank or trust
company qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"). See
"Description of the Agreements--The Indenture
Trustee."
Collateral........................ Each Series of Bonds will represent
indebtedness of the related Issuer and will
be secured by the Collateral which will
consist primarily of:
(a) Special Payment Provisions.... The Mortgage Loans with respect to each
Series of Bonds may be subject to various
types of payment provisions as specified in
the related Prospectus Supplement, and may
include Balloon Payment Loans. See
"Description of the Collateral--Payment
Provisions of the Mortgage Loans."
(b) Mortgage Loans................ The Mortgage Loans with respect to each
Series of Bonds will consist of a pool of
multifamily and/or commercial mortgage loans
(collectively, the "Mortgage Loans"). The
Mortgage Loans will not be guaranteed or
insured by the Depositor or any of its
affiliates. The Mortgage Loans will be
guaranteed or insured by a governmental
agency or instrumentality or other person
only if and to the extent expressly provided
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 stores and establishments,
hotels or motels, nursing homes, assisted
living facilities, continuum care facilities,
day care centers, schools, hospitals or other
healthcare related facilities, industrial
properties, warehouse facilities,
mini-warehouse facilities, self-storage
facilities, distribution centers,
transportation centers, parking facilities,
entertainment and/or recreation facilities,
movie theaters, restaurants, golf courses,
car washes, automobile dealerships, mobile
home parks, mixed use (including mixed
commercial uses and mixed commercial and
residential uses) and/or unimproved land (the
"Commercial Properties"). It is anticipated
that the Mortgagors will be required to
maintain hazard insurance on the Mortgaged
Properties in accordance with the terms of
the underlying Mortgage Loan documents. 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. A significant or the
sole source of payments on certain Commercial
Loans (as defined herein) will be the rental
payments due under specified Leases. The
Commercial Loans will have significant
sources of payments thereon other than the
rental payments due under the Leases only if
and to the extent expressly provided in the
related Prospectus Supplement. 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 Collateral--Mortgage
Loans--Leases" and "Risk Factors--Limited
Assets" herein.
The Mortgaged Properties may be located in
any one of the fifty states, the District of
Columbia, Guam, the Commonwealth of Puerto
Rico or any other territory of the United
States. All Mortgage Loans will have been
originated by persons other than the
Depositor, and all Mortgage Loans 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 Bonds. 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
constituting the Collateral for a Series of
Bonds 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 Collateral--Payment
Provisions of the Mortgage Loans."
(c) Collection Accounts........... The Collateral for each Series of Bonds will
include one or more accounts established and
maintained on behalf of the Bondholders 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 Loans and other
Collateral. 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--Payment Account and Other
Collection Accounts."
(d) Credit Support................ If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Loans constituting the related
Collateral may be provided to one or more
classes of Bonds of the related Series in the
form of subordination of one or more other
classes of Bonds of such Series, which other
classes may include one or more classes of
Offered Bonds, or by one or more other types
of credit support, such as a letter of
credit, insurance policy, reserve fund or
another type of credit support, or a
combination thereof (any such coverage with
respect to the Bonds 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
Bonds. See "Risk Factors--Credit Support
Limitations" and "Description of Credit
Support."
If the Mortgage Loans collateralizing a
Series of Bonds are divided into separate
groups, each supporting a separate class or
classes of Bonds of the Series, credit
support may be provided by cross-support
provisions requiring that payments be made on
Senior Bonds backed by interests in one group
of Mortgage Loans prior to payments on
Subordinate Bonds backed by interests in a
different group of Mortgage Loans for the
same Series. The Prospectus Supplement for a
Series that includes a cross-support
provision will describe the manner in which
such provisions will work. See "Description
of Credit Support--Cross-Support Provisions."
(e) Cash Flow Agreements.......... If so provided in the related Prospectus
Supplement, the Collateral 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. Such guaranteed
investment contracts will not provide more
than 20% of the anticipated cash flow of the
Collateral for any Series. The Collateral 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 Loans of one or
more classes of Bonds. 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. See "Description of the
Collateral--Cash Flow Agreements."
Description of Bonds.............. Each Series of Bonds will be issued pursuant
to an indenture (each, an "Indenture"), will
represent indebtedness of the related Issuer
(which will be formed pursuant to a deposit
trust agreement (each, a "Deposit Trust
Agreement") between the Depositor and the
Owner Trustee specified in the Prospectus
Supplement, and will be secured by, among
other things, a pledge of Collateral that
includes Mortgage Loans (or a specified group
thereof). The Mortgage Loans shall be
serviced pursuant to a servicing agreement.
Indentures, deposit trust agreements and
servicing agreements are referred to herein
as the "Agreements".
Each Series of Bonds will include one or more
classes. Each class of Bonds (other than
Interest Only Bonds, as defined below) will
have a Bond Principal Amount and (other than
Principal Only Bonds, as defined below) will
accrue interest thereon based on a fixed,
variable or floating interest rate. The
related Prospectus Supplement will further
specify the Bond Principal Amount, if any,
and the interest rate, if any, for each class
of Bonds or, in the case of a variable or
floating interest rate, the method for
determining the interest rate.
Payments on Bonds................. Each Series of Bonds will consist of one or
more classes of Bonds that may (i) provide
for the accrual of interest thereon based on
fixed, variable or floating rates; (ii) be
senior (collectively, "Senior Bonds") or
subordinate (collectively, "Subordinate
Bonds") to one or more other classes of Bonds
in respect of certain payments on the Bonds;
(iii) be entitled to principal payments, with
disproportionately low, nominal or no
interest payments (collectively, "Principal
Only Bonds"); (iv) be entitled to interest
payments, with disproportionately low,
nominal or no principal payments
(collectively, "Interest Only Bonds"); (v)
provide for payments of accrued interest
thereon commencing only following the
occurrence of certain events, such as the
retirement of one or more other classes of
Bonds of such Series (collectively, "Accrual
Bonds"); (vi) provide for payments of
principal sequentially, based on specified
payment schedules or other methodologies;
and/or (vii) provide for payments based on a
combination of two or more components thereof
with one or more of the characteristics
described in this paragraph, including a
Principal Only Bond component and a Interest
Only Bond component, to the extent of
available funds, in each case as described in
the related Prospectus Supplement. With
respect to Bonds with two or more components,
references herein to Bond Principal Amount,
notional amount and interest rate refer to
the principal balance, if any, notional
amount, if any, and the interest rate, if
any, for any such component.
The Bonds or the underlying Mortgage Loans
will be guaranteed or insured by a
governmental agency or instrumentality, the
Depositor, any Servicer or any of their
affiliates only if and to the extent
expressly provided in the related Prospectus
Supplement. See "Risk Factors--Limited Assets
for Payment of Bonds" and "Description of the
Bonds."
(a) Interest...................... Interest on each class of Offered Bonds
(other than Principal Only Bonds and certain
classes of Interest Only Bonds) of each
Series will accrue at the applicable interest
rate on the outstanding Bond Principal Amount
thereof and will be paid to Bondholders as
provided in the related Prospectus Supplement
(each of the specified dates on which
payments are to be made, a "Payment Date").
Payments with respect to interest on Interest
Only Bonds may be made on each Payment Date
on the basis of a notional amount as
described in the related Prospectus
Supplement. Payments of interest with respect
to one or more classes of Bonds may be
reduced to the extent of certain
delinquencies, losses, prepayment interest
shortfalls, and other contingencies described
herein and in the related Prospectus
Supplement. Principal Only Bonds with no
stated interest rate will not accrue
interest. See "Risk Factors--Rate of
Prepayments on Mortgage Loans and Priority of
Payment of Bonds May Adversely Affect Average
Lives and Yields of Bonds," "Yield
Considerations" and "Description of the
Bonds--Payments of Interest on the Bonds."
(b) Principal..................... The Bonds of each Series initially will have
an aggregate Bond Principal Amount specified
in the related Prospectus Supplement. The
Bond Principal Amount of a Bond 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 related
Collateral. Payments of principal will be
made on each Payment Date or such other date
specified in the related Prospectus
Supplement to the class or classes of Bonds
entitled thereto in accordance with the
provisions described in such Prospectus
Supplement. Payments of principal of any
class of Bonds will be made on a pro rata
basis among all of the Bonds of such class or
by random selection or such other basis as
specified in the related Prospectus
Supplement, as described in the related
Prospectus Supplement or otherwise
established by the related Indenture Trustee.
Interest Only Bonds with no Bond Principal
Amount will not receive payments in respect
of principal. See "Description of the
Bonds--Payments of Principal of the Bonds."
Advances.......................... If so specified 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 Mortgage Loans constituting such
Collateral. If so specified in the related
Prospectus Supplement, another entity will be
required to make such advances in the event
the Servicer fails to do so. 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 are reimbursable generally
from subsequent recoveries in respect of such
Mortgage 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 or another entity will
be entitled to receive interest on its
outstanding advances, payable from the
sources specified in such Prospectus
Supplement. See "Description of the
Bonds--Advances in Respect of Delinquencies."
Stated Maturity of the Bonds...... The "Stated Maturity" for each class of Bonds
is the date as of which all the Bonds of such
class will be required to be fully paid.
However, the actual maturity of any Bond may
occur earlier, and even significantly
earlier, than its Stated Maturity, depending,
in part, on the rate of principal payments on
the related Mortgage Loans. The rate of
principal payments (and of principal
prepayments in particular) on the Mortgage
Loans pledged as security for any Series of
Bonds will depend on a variety of factors,
including the characteristics of such
Mortgage Loans and the prevailing level of
interest rates from time to time, as well as
on a variety of economic, demographic,
geographic, tax, legal and other factors. No
assurance can be given as to the actual
prepayment experience of such Mortgage Loans.
The Stated Maturity for each class of Offered
Bonds will be set forth in the related
Prospectus Supplement. See "Yield and
Maturity Considerations".
Special Redemption of Bonds....... If so specified in the related Prospectus
Supplement, a Series of Bonds will be subject
to a special redemption (any date on which a
special redemption may and does occur, a
"Special Redemption Date"), in whole or in
part, if, as a result of prepayment
experience on the related Mortgage Loans or
low reinvestment yields or both, the
Indenture Trustee determines (based on
assumptions, if any, specified in the related
Indenture and after giving effect to the
amounts, if any, available to be withdrawn
from or under any reserve fund or instrument
constituting Credit Support or a Cash Flow
Agreement for such Series) that the amount
anticipated to be available in the Payment
Account for such Series on the date specified
in the related Prospectus Supplement, will be
insufficient to meet debt service
requirements on any portion of the Bonds. Any
such redemption would be limited to certain
collections, including the aggregate amount
of all scheduled principal payments and
prepayments, received on the related Mortgage
Loans since the last Payment Date or Special
Redemption Date, whichever is later, and may
shorten the maturity of any Bond so redeemed
by no more than the period between the date
of such special redemption and the next
Payment Date. All payments of principal
pursuant to any special redemption will be
made in the order of priority and manner
specified in the related Prospectus
Supplement. Bonds subject to special
redemption shall be redeemed on the
applicable Special Redemption Date at a price
(the "Redemption Price") equal to 100% (or
such other percentage specified in the
related Prospectus Supplement) of the
principal amount of such Bonds, or portions
thereof, so redeemed, plus accrued interest
thereon to the date specified in the related
Prospectus Supplement. To the extent
described in the related Prospectus
Supplement, a Series of Bonds may be subject
to special redemption in whole or in part
following certain defaults under an agreement
constituting Credit Support and upon the
occurrence of certain other events, at the
Redemption Price. See "Description of the
Bonds--Special Redemption of Bonds".
Optional Redemption of Bonds...... If and to the extent specified in the related
Prospectus Supplement, one or more classes of
Bonds of any Series may be redeemed in whole
or in part, at the Issuer's option, on any
Payment Date on or after the date specified
in the related Prospectus Supplement and at
the Redemption Price equal to 100% of the
principal amount of such Bonds, or portions
thereof, so redeemed, plus accrued interest
thereon to the date specified in the related
Prospectus Supplement. Any such optional
redemption may occur at a time when a
significant portion of the aggregate Bond
Principal Amount of all the classes of Bonds
that will be so redeemed, remains outstanding
(that is, a time when the aggregate Bond
Principal Amount of such classes of Bonds is
greater than 25% of the initial aggregate
Bond Principal Amount thereof). See
"Description of the Bonds--Optional
Redemption of Bonds".
Registration of Bonds............. If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Bonds will initially be represented
by one or more Bonds, registered in the name
of Cede & Co., as the nominee of DTC. No
person acquiring an interest in Offered Bonds
so registered will be entitled to receive a
definitive bond, representing such person's
interest except in the event that definitive
bonds are issued under the limited
circumstances described herein. See "Risk
Factors--Owners of Book-Entry Bonds Not
Entitled to Exercise Rights of Holders of
Bonds" and "Description of the
Bonds--Book-Entry Registration and Definitive
Bonds."
Material Tax Consequences......... In the opinion of Cadwalader, Wickersham &
Taft, special counsel to the Depositor, the
Bonds of each Series will constitute
evidences of indebtedness of the related
Issuer treated as debt instruments for
federal income tax purposes. For further
information regarding federal income tax
consequences of an investment in the Bonds,
see "Federal Income Tax Consequences" herein.
Certain ERISA Considerations...... A fiduciary of any retirement plan or other
employee benefit plan or arrangement subject
to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Section
4975 of the Internal Revenue Code of 1986, as
amended (the "Code") (each, a "Plan") should
carefully review with its legal advisors
whether the purchase or holding of the Bonds
could give rise to a transaction prohibited
or not otherwise permissible under ERISA or
Section 4975 of the Code. See "Certain ERISA
Considerations" herein and in the related
Prospectus Supplement.
Legal Investment.................. The related Prospectus Supplement will
specify whether the Offered Bonds will
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended. The
appropriate characterization of the Offered
Bonds under various legal investment
restrictions, and thus the ability of
investors subject to these restrictions to
purchase the Offered Bonds, may be subject to
significant interpretive uncertainties.
Investors whose investment authority is
subject to legal restrictions should consult
their own legal advisors to determine whether
and to what extent the Offered Bonds
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 Bonds will be rated in
one of the four highest rating categories 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.
Material Risks.................... Prospective investors are urged to read "Risk
Factors" herein and in the applicable
Prospectus Supplement for a discussion of the
material risks associated with an investment
in the Bonds.
No Listing of Bonds............... It is not expected that any application will
be made to list the Bonds of a Series or any
securities exchange or quote the Bonds in the
automated quotation system of any registered
securities association.
<PAGE>
RISK FACTORS
Investors should carefully consider the following material risks and
certain other factors as may be set forth in the Prospectus Supplement under
"Risk Factors" before making an investment decision. In particular, payment on
the Offered Bonds will depend on payments received on and other recoveries with
respect to the Mortgage Loans. Therefore, you should carefully consider the risk
factors relating to the mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones relating
to the Offered Bonds. Additional risks and uncertainties not presently known to
the Depositor or that the Depositor currently deems immaterial may also impair
your investment.
If any of the following risks actually occur, your investment could be
materially and adversely affected.
Limited Assets for Payment of Bonds
Since the Issuer's only assets will generally be those securing the Bonds
of a Series, investors should look to such assets as the sole source of payments
on their Bonds. The Bonds 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 that the Bonds of each
Series will represent limited recourse obligations of one or more Owner Trusts.
The only other obligations with respect to the Bonds or the Mortgage Loans will
be the obligations (if any) of the Depositor (or, if 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 Loans may have been
made and/or assigned in connection with transfers of such Mortgage Loans prior
to the Closing Date, the rights of the Indenture Trustee and the Bondholders
with respect to such representations or warranties will be limited to their
rights as an assignee thereof. The Depositor, any Servicer or any affiliate
thereof will have an obligation with respect to the representations and
warranties made by another entity only if and to the extent expressly provided
in the related Prospectus Supplement.
The Bonds or the underlying Mortgage Loans will be guaranteed or insured by
a governmental agency or instrumentality, the Depositor, any Servicer or any of
their affiliates only if and to the extent expressly provided in the related
Prospectus Supplement. Proceeds of the related Collateral for each Series of
Bonds (including the Mortgage Loans and any form of credit enhancement) will be
the sole source of payments on the Bonds, 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 Bonds.
Bondholders of a Series will have a claim against or security interest in
the Collateral for any other Series of Bonds if and only to the extent expressly
provided in the related Prospectus Supplement. If the related Trust Assets
constituting the Collateral is insufficient to make payments on such Bonds, no
other assets (including any Trust Assets not constituting the Collateral, if
any) will be available for payment of the deficiency. Additionally, certain
amounts remaining in certain funds or accounts, including the Payment 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 Bonds. If so
provided in the Prospectus Supplement for a Series of Bonds consisting of one or
more classes of Subordinate Bonds, on any Payment Date in respect of which
losses or shortfalls in collections on the Collateral have been incurred, the
amount of such losses or shortfalls will be borne first by one or more classes
of the Subordinate Bonds, and, thereafter, by the remaining classes of Bonds in
the priority and manner and subject to the limitations specified in such
Prospectus Supplement.
Limited Liquidity for Bonds
There can be no assurance that a secondary market for the Bonds of any
Series will develop or, if it does develop, that it will provide holders with
liquidity of investment or will continue while Bonds of such Series remain
outstanding. Any such secondary market may provide less liquidity to investors
than any comparable market for securities evidencing interests in or secured by
single family mortgage loans. The market value of Bonds will fluctuate with
changes in prevailing rates of interest. Consequently, sale of Bonds 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 to this Prospectus, to the related Prospectus
Supplement and to the reports to Bondholders delivered pursuant to the related
Agreement as described in this Prospectus under the heading "Description of the
Bonds--Reports to Bondholders," "--Book-Entry Registration and Definitive Bonds"
and "Description of the Agreements--Evidence as to Compliance" for information
concerning the Bonds.
As may be further described in the related Prospectus Supplement, the Bonds
are subject to early retirement only under certain specified circumstances
described in this Prospectus and in the related Prospectus Supplement, and
Bondholders will only have redemption rights to the extent described in the
related Prospectus Supplement. See "Description of the Bonds--Optional
Redemption of Bonds" and "Description of the Bonds--Special Redemption of
Bonds." It is not expected that any application will be made to list the Bonds
of a Series on any securities exchange or quote the Bonds in the automated
quotation system of any registered securities association.
Accordingly, the liquidity of the Bonds may be limited.
Rate of Prepayments on Mortgage Loans May Adversely Affect Average Lives and
Yields of Bonds
The investor's yield to maturity on their Bonds will be affected by the
rate of payments on their Bonds. Prepayments (including those caused by
defaults) on the Mortgage Loans constituting the related Collateral for any
Series of Bonds generally will result in a faster rate of principal payments on
one or more classes of the related Bonds than if payments on such Mortgage Loans
were made as scheduled. Thus, the prepayment experience on the Mortgage Loans
may affect the average life of each class of related Bonds. 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 is no assurance as to the rate of prepayment
on the related Mortgage Loans with respect to any Series of Bonds 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 Loans, principal prepayments are likely to be
higher than if prevailing rates remain at or above the rates borne by such
Mortgage Loans. As a result, the actual maturity of any class of Bonds could
occur significantly earlier than expected.
A Series of Bonds may include one or more classes of Bonds with priorities
of payment and, as a result, yields on other classes of Bonds, including classes
of Offered Bonds, of such Series may be more sensitive to prepayments on
Mortgage Loans. A Series of Bonds may include one or more classes offered at a
significant premium or discount. Yields on such classes of Bonds will be
sensitive, and in some cases extremely sensitive, to prepayments on Mortgage
Loans 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 Interest Only Bonds, a holder might, in some prepayment scenarios,
fail to recoup its original investment. A Series of Bonds may include one or
more classes of Bonds, including classes of Offered Bonds, that provide for
payment of principal thereof from amounts attributable to interest accrued but
not currently payable on one or more classes of Accrual Bonds and, as a result,
yields on such Bonds will be sensitive to (a) the provisions of such Accrual
Bonds relating to the timing of payments of interest thereon and (b) if such
Accrual Bonds accrue interest at a variable or floating interest rate, changes
in such rate. See "Yield Considerations" herein and, if applicable, in the
related Prospectus Supplement.
Optional Redemption of Bonds May Adversely Affect Average Lives and Yields of
Bonds
The timing of an optional redemption of Bonds of a Series may affect the
investors' yield to maturity of their Bonds. The Issuer may, at its option and
if so specified in the related Prospectus Supplement, redeem in whole or in
part, one or more classes of Bonds of any Series on any Payment Date for such
Series on or after the date or dates, if any, specified in such Prospectus
Supplement. Notice of such redemption will be given by the Issuer or Indenture
Trustee for such Series prior to the expected date thereof. The Redemption Price
for any Bond so redeemed will be equal to 100% of the outstanding principal
amount of such Bond, or portion thereof, so redeemed, together with interest
accrued thereon to the date specified in the related Prospectus Supplement. Any
such optional redemption may occur at a time when a significant portion of the
aggregate Bond Principal Amount of all the classes of Bonds that will be so
redeemed, remains outstanding (that is, a time when the aggregate Bond Principal
Amount of such classes of Bonds is greater than 25% of the initial aggregate
Bond Principal Amount thereof).
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a Series of Bonds will not
constitute an assessment of the likelihood that principal prepayments (including
those caused by defaults) on the related Mortgage Loans will be made, the degree
to which the rate of such prepayments might differ from that originally
anticipated or the likelihood of early optional termination of the Series of
Bonds. 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 Bond
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 Bonds of the related Series are entitled
that is not covered by the applicable rating. Instead, such rating will reflect
such Rating Agency's assessment solely of the likelihood that holders of Bonds
of such class will receive payments to which such Bondholders are entitled under
the related Agreement.
The amount, type and nature of credit support, if any, established with
respect to a Series of Bonds 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. Each Rating Agency determines the amount of credit support
required with respect to each such class using such analysis. 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 Loans. No
assurance can be given that values of any Mortgaged Properties have remained or
will remain at their levels on the respective dates of origination of the
related Mortgage Loans. Moreover, there is no assurance that appreciation of
real estate values generally will limit loss experiences on the Mortgaged
Properties. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans with respect to a
particular Series of Bonds 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 such Mortgage Loans. 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 Bonds of the related Series. See
"Description of Credit Support" and "Rating."
Subordination of Subordinate Bonds
To the extent described in the Prospectus Supplement, the rights of the
holders of the Subordinate Bonds of a Series to receive distributions of amounts
collected or advanced on or in respect of the Mortgage Loans will be
subordinated to those of the holders of the Senior Bonds. If any losses or
delinquencies occur with respect to Mortgage Loans such that the total amounts
collected or advanced in respect of the Mortgage Loans is not sufficient to make
all the required payments with respect to a Series of Bonds, to the extent set
forth in the Prospectus Supplement, such shortfall will be allocated first to
the holders of the Subordinate Bonds.
Risks of Floating Rate Bonds
The yield to investors in the Floating Rate Bonds of a Series will be
highly sensitive to changes in the index (the "Index") set forth in the
Prospectus Supplement. Investors in such Floating Rate Bonds should consider the
risk that lower than anticipated levels of the Index could result in actual
yields that are lower than anticipated yields on such Floating Rate Bonds. In
general, the earlier a change in the Index, the greater the effect on such
investor's yield to maturity. As a result, the effect on such investor's yield
to maturity of an Index that is higher (or lower) than the rate anticipated by
such investor during the period immediately following the issuance of the
Floating Rate Bonds is not likely to be offset by a subsequent like reduction
(or increase) in the Index.
Risks of Interest Only Bonds
The yield to maturity to investors in Interest Only Bonds of a Series will
be extremely sensitive to the rate and timing of principal payments (including
prepayments), principal losses and interest rate decreases. Investors should
fully consider the associated risks, including the risk that a rapid rate of
principal payments and/or principal losses on the Mortgage Loans could result in
the failure by investors in the Interest Only Bonds to fully recoup their
initial investments.
Risks of Principal Only Bonds
The yield to maturity to investors in Principal Only Bonds of a Series will
be extremely sensitive to the rate and timing of principal payments (including
prepayments). Investors should fully consider the associated risks, including
the risk that a slower than anticipated rate of principal payments on the
Mortgage Loans could result in the failure by investors in the Principal Only
Bonds to fully recoup their initial investments.
Limited Issuer Events of Default
With certain exceptions described herein and to the extent provided in the
related Prospectus Supplement, the holders of Bonds of any Series will have no
independent ability to declare a default unless the Issuer shall fail to pay
such Bonds in full by their Stated Maturity. As may be further specified in the
Prospectus Supplement for any Series of Bonds, interest will be payable on the
respective classes of Bonds of such Series on each Payment Date only to the
extent that there are funds available for such purpose in the related Payment
Account, and the Issuer's failure to pay interest on such Bonds on a current
basis will not constitute an Issuer Event of Default (as defined herein). In
addition, as may be further specified in the Prospectus Supplement for any
Series of Bonds, if the aggregate principal amount of the related Collateral
declines below the aggregate Bond Principal Amount of such Bonds or of any
particular class or classes thereof, it will not be an Issuer Event of Default.
See "Description of the Agreements--Issuer Events of Default".
Bondholders Have Limited Ability to Force Sale of Collateral following
Non-Payment of Principal or Interest
As may be further specified in the related Prospectus Supplement, following
an Issuer Event of Default in respect of any Series of Bonds, the Indenture
Trustee for such Series may, and, at the direction of a percentage of holders of
Bonds specified in the related Prospectus Supplement, shall be required to,
declare all the Bonds of such Series to be due and payable. In addition, as may
be further specified in the related Prospectus Supplement, following any such
declaration of acceleration, the Indenture Trustee for such Series may,
generally with the consent or at the direction of a percentage of holders of
Bonds specified in the related Prospectus Supplement, liquidate the related
Mortgage Loans. As may be further specified in the related Prospectus
Supplement, any such declaration of acceleration and its consequences may be
rescinded and annulled under certain circumstances by a percentage of holders of
Bonds specified in the related Prospectus Supplement. For purposes of the
foregoing, Bonds held by the Issuer or any affiliate thereof will be deemed not
to be outstanding. See "Description of the Agreements--Issuer Events of
Default".
In general, upon an Issuer Event of Default, declaration of acceleration
and liquidation of Collateral pursuant to the foregoing procedures (or any
alternative procedures described in the related Prospectus Supplement) will be
the sole remedy against the Issuer.
Each holder of an Offered Bond will be deemed to have agreed by the
acceptance of its Bond not to file a bankruptcy petition or commence similar
proceedings in respect of the Issuer.
The market value of the Mortgage Loans pledged to secure any Series of
Bonds will fluctuate as general interest rates fluctuate, among other things.
Following an Issuer Event of Default, there is no assurance that the market
value of the Mortgage Loans pledged to secure the affected Series of Bonds will
be equal to or greater than the unpaid principal and accrued interest due on the
Bonds of such Series, together with any other expenses or liabilities payable
from the sales proceeds. The holders of certain classes of Bonds may have a
disincentive to authorize the sale of the related Mortgage Loans following an
Issuer Event of Default because the net proceeds of such sale may be
insufficient to pay in full the principal of and interest on their Bonds.
Holders of one or more classes of Bonds may be adversely affected by the
inability of a particular class of Bonds to independently force the sale of the
related Mortgage Loans even though an Issuer Event of Default has occurred that
affects such class of Bondholders, and the inability of Bondholders generally to
force a sale of the related Mortgage Loans regardless of a substantial decline
in the aggregate principal amount of the related Collateral and notwithstanding
that interest may not have been timely paid on a class of Bonds.
Bankruptcy or Insolvency of the Issuer
The bankruptcy or insolvency of the Issuer of any Series of Bonds could
adversely affect payments on the Offered Bonds of such Series. The automatic
stay imposed by Title 11 of the United States Code (the "Bankruptcy Code") could
prevent enforcement of obligations of such Issuer, including under such Bonds
and the related Indenture, or actions against any of such Issuer's property,
including the related Collateral, prior to modification of the stay. In
addition, the trustee in bankruptcy for such Issuer may be able to accelerate
payment of such Bonds and liquidate the related Mortgage Loans. In the event the
principal of the Bonds of such Series is declared due and payable, the holders
of any Offered Bonds of such Series issued at a discount from par ("original
issue discount") may be entitled, under applicable provisions of the Bankruptcy
Code, to receive no more than an amount equal to the unpaid principal amount
thereof less unamortized original issue discount ("accreted value"). There is no
assurance as to how such accreted value would be determined if such event
occurred. The Issuer of each Series of Bonds will be structured to limit the
likelihood of bankruptcy or insolvency, but there can be no assurance that such
bankruptcy or insolvency will not occur.
Factors Which May Increase the Risk of Losses on Mortgage Loans Secured by
Multifamily/Commercial Property Versus Single Family Property
The Bonds of a Series will be adversely affected by higher than anticipated
defaults on the Mortgage Loans collateralizing such Bonds. 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 Collateral--Default and Loss Considerations with Respect to
the Mortgage Loans." 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 "--Increased Risk of Losses on
Foreclosure of 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.
The Mortgage Loans with respect to any Series of Bonds may be nonrecourse
loans or loans for which recourse may be limited. With respect to those limited
recourse Mortgage Loans, 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 with respect to a particular Series of
Bonds or the related Mortgaged Properties will generally be greater than for
pools of single family loans both because the related Mortgage Loans 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 Loans with respect to
any Series of Bonds 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.
Increased Risk of Losses in Connection 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.
If specified in the related Prospectus Supplement, 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 Indenture 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 Bonds, 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 Bonds will
suffer some loss.
Risks Particular to Multifamily Properties
The successful operation of a multifamily property will depend on, among
other factors, its reputation, the ability of management to provide adequate
maintenance and insurance, and the types of services it provides. In some cases,
that operation may be affected by circumstances outside the control of the
borrower or lender, such as the deterioration of the surrounding neighborhood,
the development of competitive projects, the imposition of rent control or
changes in tax laws. All of these conditions and events may increase the
possibility that a borrower may be unable to meet its obligation under its
Mortgage Loan.
Certain states regulate the relationship of landlord and its tenants.
Commonly, these laws require a written lease, good cause for eviction and
disclosure of fees, while prohibiting unreasonable rules and retaliatory
evictions. Apartment building owners have been the subject of suits under state
"Unfair and Deceptive Practices Acts" and other general consumer protection
statutes for coercive, abusive or unconscionable leasing and sales practices. A
few states offer more significant protection. For example, there are provisions
that limit the basis on which a landlord may terminate a tenancy or increase its
rent or prohibit a landlord from terminating a tenancy solely by reason of the
sale of the building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control or rent stabilization
regulations on apartment buildings. These ordinances may limit rent increases to
fixed percentages, to percentages of increases in the consumer price index, to
increases set or approved by a governmental agency, or to increases determined
through mediation or binding arbitration. In many cases, the rent control or
rent stabilization laws do not permit vacancy decontrol or destabilization. Any
limitations on a borrower's ability to raise property rents may impair such
borrower's ability to repay its Mortgage Loan from its net cash flow or the
proceeds of a sale or refinancing of the related Mortgaged Property.
Risks Particular to Retail Properties
Significant factors determining the value of retail properties are the
quality of the tenants as well as fundamental aspects of real estate such as
location and market demographics. The correlation between the success of tenant
businesses and property value is more direct with respect to retail properties
than other types of commercial property because a component of the total rent
paid by retail tenants may be tied to a percentage of gross sales. Whether a
retail property is "anchored" or "unanchored" by a large retail tenant is also
an important distinction. Retail properties that are anchored have traditionally
been perceived to be less risky. While there is no strict definition of an
anchor, it is generally understood that a retail anchor tenant is
proportionately larger in size and is vital in attracting customers to the
retail property, whether or not such retail anchor is located on the related
Mortgaged Property. Furthermore, the correlation between the success of tenant
businesses and property value is increased when the property is a single tenant
property.
Unlike office or hotel properties, retail properties also face competition
from sources outside a given real estate market. Catalogue retailers, home
shopping networks, the Internet, telemarketing and outlet centers all compete
with more traditional retail properties for consumer dollars spent on products
and services sold in retail stores. Continued growth of these alternative retail
outlets (which are often characterized by lower operating costs) could adversely
affect the rents collectible at retail properties.
Risks Particular to Office Properties
Significant factors determining the value of office properties are the
quality of the tenants in the building, the physical attributes of the building
in relation to competing buildings and the strength and stability of the market
area as a desirable business location. Office properties may be adversely
affected if there is an economic decline in the business operated by the
tenants. The risk of such an adverse effect is increased if revenue is dependent
on a single tenant or if there is a significant concentration of tenants in a
particular business or industry.
Risks Particular to Industrial Properties
Significant factors determining the value of industrial properties are the
quality of tenants, building design and adaptability and the location of the
property. Concerns about the quality of tenants, particularly major tenants, are
similar in both office properties and industrial properties, although industrial
properties are more frequently dependent on a single tenant.
Aspects of building site design and adaptability affect the value of an
industrial property. Site characteristics which are valuable to an industrial
property include clear heights, column spacing, number of bays and bay depths,
divisibility, truck turning radius and overall functionality and accessibility.
Location is also important because an industrial property requires the
availability of labor sources, proximity to supply sources and customers and
accessibility to rail lines, major roadways and other distribution channels.
Risks of Loss on Balloon Payment Loan if Obligor is Unable to Refinance or Sell
Related Property
Certain of the Mortgage Loans (the "Balloon Payment Loans") as of the close
of business on the date specified in the Prospectus Supplement as the cut-off
date (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 Payment Loans involve a greater
degree of risk because the ability of an obligor to make a balloon payment
typically will depend upon its ability either to timely refinance the loan or to
timely sell the related property. The ability of an obligor 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
obligor's equity in the related property, the financial condition and operating
history of the obligor and the related 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.
Increased Risk of Losses on Foreclosure of 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 Bonds would bear such loss. Therefore, any
risks of deficiencies associated with first Mortgage Loans will be greater with
respect to junior Mortgage Loans. See "--Factors Which May Increase the Risk of
Losses on Mortgage Loans Secured by Multifamily/Commercial Property Versus
Single Family Property."
Risks Associated with Obligor Default
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Mortgage Loans, a Master Servicer or a Special Servicer
will be permitted (within prescribed parameters) to extend the maturity date of
and modify the terms of Mortgage 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 Mortgage 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 Mortgage 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. See
"Description of the Agreements--Collection and other Servicing
Procedures--Special Servicer."
Risks Associated with 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 Credit Support for a Series of Bonds may be insufficient to assure
payment in full of such Bonds. The Prospectus Supplement for a Series of Bonds
will describe any Credit Support included in the related Collateral, 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 Bonds may include one or more classes of Subordinate Bonds
(which may include Offered Bonds), if so provided in the related Prospectus
Supplement. Although subordination is intended to reduce the risk to holders of
Senior Bonds of delinquent payments 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 Bonds 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 Bonds of such Series has been repaid.
As a result, those classes of Bonds having a lower priority of payment will be
adversely affected by significant losses and shortfalls on the Collateral before
classes of Bonds having a higher payment priority. Moreover, if a form of Credit
Support covers more than one Series of Bonds (each, a "Covered Trust"), holders
of Bonds 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 Bonds, including the subordination of one or more classes of Bonds,
will be determined on the basis of criteria established by each Rating Agency
rating such classes of Bonds based on an assumed level of defaults,
delinquencies, other losses or other factors. However, there can be no assurance
that the loss experience on the related Mortgage Loans will not exceed such
assumed levels. See "--Limited Nature of Ratings," "Description of the Bonds"
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 Indenture 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 Bonds, if the applicable Rating Agency indicates that the then-current
rating thereof will not be adversely affected. The rating of any Series of Bonds
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 Loans
substantially in excess of the levels contemplated by such Rating Agency at the
time of its initial rating analysis. None of the Depositor, the Indenture
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 Bonds.
Risk of Unenforceability of Certain Mortgage Provisions
If certain provisions in Mortgage Loans collateralizing a Series of Bonds
are held to be unenforceable, the Series of Bonds collateralized by such
Mortgage Loans could be adversely affected. 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
Bondholders of a Series could be adversely affected by environmental
conditions affecting the Mortgaged Properties backing the Mortgage Loans
collateralizing such Series. 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 Issuer. 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 the management of a... 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."
Increased Risk of Loss if Mortgage Loans Include Delinquent Mortgage Loans
If so provided in the related Prospectus Supplement, the Collateral for a
particular Series of Bonds may include Mortgage Loans that are past due. The
servicing of such Mortgage Loans as to which a specified number of payments are
delinquent will be performed by the Special Servicer or another entity as
specified in the related Prospectus Supplement; however, the same entity may act
as both Master Servicer and Special Servicer. Credit Support provided with
respect to a particular Series of Bonds may not cover all losses related to such
delinquent Mortgage Loans, and investors should consider the risk that the
inclusion of such Mortgage Loans as Collateral for a particular Series of Bonds
may adversely affect the rate of defaults and prepayments on the related
Mortgage Loans and the yield on the Bonds of such Series.
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 Bonds of any Series,
including the possibility that such an investment may be inconsistent with the
duties imposed on the Plan's fiduciary under ERISA and may give rise to
prohibited transactions under ERISA. See "Certain ERISA Considerations" herein.
Risks Associated with Control of Voting Rights
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Bond Principal Amount of all outstanding
Bonds of a Series or a similar means of allocating decision-making under the
related Agreement ("Voting Rights") will be required to direct certain actions.
Such a specified percentage will be sufficient to bind all Bondholders 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--Servicer Events of Default,"
"--Rights Upon Servicer Event of Default," "--Amendment" and "--List of
Bondholders."
Owners of Book-Entry Bonds Not Entitled to Exercise Rights of Holders of Bonds
If so provided in the Prospectus Supplement, one or more classes of the
Bonds will be initially represented by one or more bonds 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 Bonds are
issued in fully registered, certificated form ("Definitive Bonds") are issued,
Beneficial Owners will not be recognized by the Indenture Trustee as
"Bondholders" (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
Bondholders only indirectly through DTC and its participating organizations. See
"Description of the Bonds--Book-Entry Registration and Definitive Bonds."
Risk of Default Under Derivative Contracts
If a default occurs under a swap contract, interest rate cap contract or
interest rate floor contract (each, a "Derivative Contract") entered into in
connection with a Series of Bonds (which may be caused by, among other things, a
downgrade of the counterparty's credit rating) or if a Derivative Contract
terminates prior to its stated termination date (which under the terms thereof
may occur in certain circumstances), the Trust may be required under such
Derivative Contract to pay a breakage fee. The amount of such breakage fee, if
any, and the party obligated to pay such breakage fee will be based on
prevailing market conditions for an agreement such as the Derivative Contract.
In the event that the counterparty is required to pay a termination fee to the
Trust (other than in connection with the liquidation or prepayment of a Mortgage
Loan), the Master Servicer, to the extent described in the Prospectus
Supplement, may be required to apply such termination fee to the purchase of a
substitute Derivative Contract. No party is obligated to fund the purchase of a
substitute Derivative Contract should the amount paid by the counterparty in
respect of any such breakage fee be insufficient to purchase a substitute
Derivative Contract having substantially similar terms to the original
Derivative Contract. In any event, there can be no assurance that a substitute
Derivative Contract may be acquired (utilizing the proceeds of a termination
payment or otherwise) or, if it is able to do so, that such contract would be
from a sufficiently creditworthy counterparty. Accordingly, the occurrence of a
default under or any other termination of a Derivative Contract may adversely
affect the payment to the Bondholders.
Risks Associated With Year 2000 Compliance
The Depositor is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. the "year
2000 problem" is pervasive and complex; virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. In the event that the computer systems of the Indenture Trustee, the
Master Servicer or the Special Servicer, with respect to any Series of Bonds,
are not fully year 2000 compliant, the resulting disruptions in the collection
or distribution of receipts on the related Mortgage Loans could materially
adversely affect the holders of the Offered Bonds.
DESCRIPTION OF THE COLLATERAL
General
The primary assets included as part of the Collateral for any Series of
Bonds will include one or more multifamily and/or commercial mortgage loans
(collectively, the "Mortgage Loans"). The Mortgage Loans will not be guaranteed
or insured by Imperial Credit Commercial Mortgage Acceptance Corp. (the
"Depositor") or any of its affiliates. The Mortgage Loans will be guaranteed or
insured by a governmental agency or instrumentality or other person only if and
to the extent expressly provided in the related Prospectus Supplement. Each
Mortgage Loan will be selected by the Depositor for inclusion as part of the
Collateral for a Series of Bonds 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 Loans, which prior
holder may or may not be the originator of such Mortgage Loan.
The Bonds will be entitled to payments in respect of the assets of an owner
trust established by the Depositor other than the related Owner Trust, if and
only to the extent expressly provided in the related Prospectus Supplement.
Mortgage Loans
The Mortgage Loans will be secured by liens on, or security interests in,
Mortgaged Properties consisting of (i) primarily residential properties
consisting of five or more rental or cooperatively owned dwelling units in
high-rise, mid-rise or garden apartment buildings and which may include limited
retail, office or other commercial space ("Multifamily Properties" and the
related loans, "Multifamily Loans") or (ii) office buildings, retail stores and
establishments, hotels or motels, nursing homes, assisted living facilities,
continuum care facilities, day care centers, schools, hospitals or other
healthcare related facilities, industrial properties, warehouse facilities,
mini-warehouse facilities, self-storage facilities, distribution centers,
transportation centers, parking facilities, entertainment and/or recreation
facilities, movie theaters, restaurants, golf courses, car washes, automobile
dealerships, mobile home parks, mixed use (including mixed commercial uses and
mixed commercial and residential uses) and/or unimproved land ("Commercial
Properties" and the related loans, "Commercial Loans") located in any one of the
fifty states, the District of Columbia, Guam, the Commonwealth of Puerto Rico or
any other territory of 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. It is anticipated that the
Mortgagors will be required to maintain hazard insurance on the Mortgaged
Properties in accordance with the terms of the underlying Mortgage Loan
documents.
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. The Mortgage Loans may be nonrecourse
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. The Mortgage Loans will be full recourse loans if and to the extent
provided in the related Prospectus Supplement. 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" generally means, for any given
period, 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 Payment 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--Factors Which May Increase the Risk of Losses on
Mortgage Loans Secured By Multifamily/Commercial Property Versus Single Family
Property," "--Risks of Loss on Balloon Payment Loans if Obligor Is Unable to
Refinance or Sell Related Property," "--Increased Risk of Losses on Foreclosure
of Junior Mortgage Loans," "--Risks Associated with Obligor Default" and
"--Risks Associated with 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. 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 or upon some other basis as
specified in the related Prospectus Supplement. The Value of a Mortgaged
Property as of the date of initial issuance of the related Series of Bonds 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 Bonds 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 Bonds 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. There will be no
more than a 5% variance between the aggregate unpaid principal amount of the
Mortgage Loans referred to in the Prospectus Supplement for a Series of Bonds
and the aggregate unpaid principal balance of the Mortgage Loans that actually
collateralize such Series upon issuance of the Bonds of such Series.
Payment Provisions of the Mortgage Loans
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 prepayment premium or a yield maintenance charge
(in each case, 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 Bonds 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 Bonds 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
payments in respect thereof will be allocated among such Bonds.
Accounts
The Collateral for any Series of Bonds will include one or more accounts
established and maintained on behalf of the Bondholders 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 Loans and other
Collateral. 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--Payment 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 any Collateral may be provided
to one or more classes of Bonds in the related Series in the form of
subordination of one or more other classes of Bonds in such Series or by one or
more other types of credit support, such as a letter of credit, insurance
policy, reserve fund or another type of credit support, or a combination thereof
(any such coverage with respect to the Bonds 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 Bonds. See "Risk Factors--Credit Support Limitations" and "Description
of Credit Support."
Cash Flow Agreements
If so provided in the related Prospectus Supplement, the Collateral for any
Series of Bonds 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. Such guaranteed investment contracts will not
provide more than 20% of the anticipated cash flow of the Collateral for any
Series. The Collateral 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
Loans or on one or more classes of Bonds. 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
The net proceeds to be received from the sale of the Bonds will be applied
by the Depositor to the purchase of Trust Assets, or the repayment of the
financing incurred in such purchase, and to pay for certain expenses incurred in
connection with such purchase of Trust Assets and sale of Bonds. The Depositor
expects to sell the Bonds from time to time, but the timing and amount of
offerings of Bonds will depend on a number of factors, including the volume of
Mortgage Loans acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
YIELD CONSIDERATIONS
General
The yield on any Offered Bond will depend on the price paid by the
Bondholder, the interest rate of the Bond, the receipt and timing of receipt of
payments on the Bond and the weighted average life of the Mortgage Loans
constituting the related Collateral (which may be affected by prepayments,
defaults, liquidations or repurchases). See "Risk Factors."
Interest Rate
Bonds of any class within a Series may have fixed, variable or floating
interest rates, which may or may not be based upon the interest rates borne by
the Mortgage Loans constituting the related Collateral. The Prospectus
Supplement with respect to any Series of Bonds will specify the interest rate
for each class of such Bonds or, in the case of a variable or floating interest
rate, the method of determining the interest rate; the effect, if any, of the
prepayment of any Mortgage Loan on the interest rate of one or more classes of
Bonds; and whether the payments of interest on the Bonds 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 Bonds entitled to
payments of interest will be below that otherwise produced by the applicable
interest rate and purchase price of such Bond because, while interest may accrue
on each Mortgage Loan during a certain period, the payment 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 Bonds (or addition to the Bond Principal
Amount of a class of Accrual Bonds) on a Payment Date will include interest
accrued during the Interest Accrual Period for such Payment Date. As indicated
above under "-- Interest Rate," if the Interest Accrual Period ends on a date
other than a Payment Date for the related Series, the yield realized by the
holders of such Bonds may be lower than the yield that would result if the
Interest Accrual Period ended on such Payment Date. In addition, if so specified
in the related Prospectus Supplement, interest accrued for an Interest Accrual
Period for one or more classes of Bonds may be calculated on the assumption that
payments of principal (and additions to the Bond Principal Amount of Accrual
Bonds) and allocations of losses on the Mortgage Loans may be made on the first
day of the Interest Accrual Period for a Payment Date and not on such Payment
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
Bonds will be described in the related Prospectus Supplement.
Payments of Principal; Prepayments
The yield to maturity on the Bonds will be affected by the rate of
principal payments on the Mortgage Loans (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 with respect to a
particular Series of Bonds, 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 Collateral may consist of Mortgage Loans with different Mortgage
Interest Rates. The rate of principal payments on some or all of the classes of
Bonds of a Series will correspond to the rate of principal payments on the
related Mortgage Loans and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of such Mortgage Loans, 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 Bond offered at a discount calculates its anticipated
yield to maturity based on an assumed rate of payments of principal that is
faster than that actually experienced on the Mortgage Loans, the actual yield to
maturity will be lower than that so calculated. Conversely, if the purchaser of
a Bond offered at a premium calculates its anticipated yield to maturity based
on an assumed rate of payments of principal that is slower than that actually
experienced on the Mortgage Loans, 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 Bonds, the effect on yield on one or more classes of
the Bonds of such Series of prepayments of the Mortgage Loans with respect to
such Series may be mitigated or exacerbated by any provisions for sequential or
selective payment 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 or such
other period specified in the related Prospectus Supplement. Generally, the
effect of prepayments in full will be to reduce the amount of interest paid in
the following month to holders of Bonds 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. 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 or such other date as is specified in the
related Prospectus Supplement. As a result, the effect of a partial prepayment
on a Mortgage Loan will be generally to reduce the amount of interest passed
through to holders of Bonds in the month following the receipt of such partial
prepayment by an amount equal to one month's interest at the applicable interest
rate on the prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Loans may significantly affect an investor's actual yield to maturity, even if
the average rate of payments of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Loans and paid on a Bond, 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 Loans
with respect to a particular Series of Bonds and the rate at which payments are
made from any Credit Support or Cash Flow Agreement for such Series of Bonds may
affect the ultimate maturity and the weighted average life of each class of such
Series. Prepayments on the Mortgage Loans with respect to a particular Series of
Bonds will generally accelerate the rate at which principal is paid on some or
all of the classes of the Bonds of such Series.
If so provided in the Prospectus Supplement for a Series of Bonds, one or
more classes of Bonds may have a final scheduled Payment Date, which is the date
on or prior to which the Bond Principal Amount 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
Bonds of a Series will be influenced by the rate at which principal on the
Mortgage Loans with respect to such Series 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).
If any Mortgage Loans with respect to a particular Series of Bonds have
actual terms to maturity of less than those assumed in calculating final
scheduled Payment Dates for the classes of Bonds of such Series, one or more
classes of such Bonds may be fully paid prior to their respective final
scheduled Payment Dates, even in the absence of prepayments. Accordingly, the
prepayment experience of the Mortgage Loans will, to some extent, be a function
of the mix of Mortgage Interest Rates and maturities of such Mortgage Loans. See
"Description of the Collateral." 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 with respect to a particular Series of Bonds. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it is
likely that prepayment of any Mortgage Loans with respect to any Series of Bonds
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 Bonds will contain
tables, if applicable, setting forth the projected weighted average life of each
class of Offered Bonds of such Series and the percentage of the initial Bond
Principal Amount of each such class that would be outstanding on specified
Payment Dates based on the assumptions stated in such Prospectus Supplement,
including assumptions that prepayments on the Mortgage Loans with respect to
such Series 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 Bonds 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 Bonds. It is unlikely that prepayment of any Mortgage Loans
with respect to any Series of Bonds 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 Loan. 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 Bonds, thereby lengthening the period
of time elapsed from the date of issuance of a Bond until it is retired.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans with respect to any Series of Bonds 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 such Mortgage Loans and that of the related Series of Bonds. 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 Bonds.
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 with respect to a
particular Series of Bonds 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 Mortgage Loans, the Master
Servicer or such other person specified in the related Prospectus Supplement, on
behalf of the Indenture Trustee, will be required to exercise (or waive its
right to exercise) any such right that the Indenture Trustee may have as
mortgagee to accelerate payment of the Mortgage 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 Loans with respect
to a particular Series of Bonds 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 Corp., the Depositor, is a
direct wholly-owned subsidiary of Imperial Credit Commercial Mortgage Investment
Corp. ("ICCMIC") and was incorporated in the State of California. The principal
executive offices of the Depositor are located at 11601 Wilshire Boulevard, No.
2080, Los Angeles, California 90025. Its telephone number is (310) 231-1280.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
THE OWNER TRUST
Each Owner Trust established to act as Issuer of a Series of Bonds will be
created pursuant to a Deposit Trust Agreement between the Depositor, which will
act as depositor, and a bank, trust company or other fiduciary named in the
related Prospectus Supplement, which will act solely in its fiduciary capacity
as Owner Trustee. Under the terms of each Deposit Trust Agreement, the Depositor
will convey to the Owner Trust Mortgage Loans and other Collateral to secure one
or more Series of Bonds in return for certificates or other instruments
evidencing beneficial ownership in the Owner Trust, Bonds and/or the net
proceeds from the sale of Bonds. The Depositor may in turn sell or assign the
certificates of beneficial interest and any Bonds so received to another entity
or entities, including affiliates of the Depositor.
Each Deposit Trust Agreement and/or Indenture will provide that the related
Owner Trust may not conduct any activities other than those related to the
issuance and sale of one or more Series of Bonds. The holders of the beneficial
interest in an Owner Trust which issues a Series of Bonds will not be liable for
payment of principal of or interest on such Bonds, and each holder of such Bonds
will be deemed to have released such beneficial owners from any such liability.
DESCRIPTION OF THE BONDS
General
The Bonds of each Series (including any class of Bonds not offered hereby)
will represent indebtedness of the related Issuer, will be issued pursuant to an
indenture (an "Indenture"), and will be secured by, among other things, a pledge
of the Collateral that includes Mortgage Loans. Each Series of Bonds will
consist of one or more classes of Bonds that may (i) provide for the accrual of
interest thereon based on fixed rates (collectively, "Fixed Rate Bonds") or
variable or floating rates (collectively, "Floating Rate Bonds"); (ii) be senior
(collectively, "Senior Bonds") or subordinate (collectively, "Subordinate
Bonds") to one or more other classes of Bonds in respect of certain payments on
the Bonds; (iii) be entitled to principal payments, with disproportionately low,
nominal or no interest payments (collectively, "Principal Only Bonds"); (iv) be
entitled to interest payments, with disproportionately low, nominal or no
principal payments (collectively, "Interest Only Bonds"); (v) provide for
payments of accrued interest thereon commencing only following the occurrence of
certain events, such as the retirement of one or more other classes of Bonds of
such Series (collectively, "Accrual Bonds"); (vi) provide for payments of
principal sequentially (collectively, "Sequential Pay Bonds"), based on
specified payment schedules, from only a portion of the related Collateral 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
payments based on a combination of two or more components thereof with one or
more of the characteristics described in this paragraph including a Principal
Only Bond component and a Interest Only Bond component. Any such classes may
include classes of Offered Bonds.
Floating Rate Bonds will accrue interest at a floating interest rate which
will be determined in accordance with the method specifically set forth in the
Prospectus Supplement. If so provided in the Prospectus Supplement, the rights
of the holders of the Subordinate Bonds of a Series to receive payments of
amounts collected or advanced on or in respect of the Mortgage Loans will be
subordinated to such rights of the holders of the Senior Bonds of such Series.
Holders of Principal Only Bonds will be entitled to receive payments of amounts
collected or advanced on or in respect of the Mortgage Loans which represent
principal payments on such Bonds as may be further described in the Prospectus
Supplement, with disproportionately low, nominal or no interest payments
accruing on such Bonds. Holders of Interest Only Bonds will be entitled to
receive payments of amounts collected or advanced on or in respect of the
Mortgage Loans which represent interest payments on a notional amount described
in the Prospectus Supplement, with disproportionately low, nominal or no
principal payments to be made on such Bonds. Holders of Accrual Bonds will be
entitled to receive payments of amounts collected or advanced on or in respect
of the Mortgage Loans which represents payments of accrued interest thereon
commencing only following the occurrence of certain events, specified in the
Prospectus Supplement, such as the retirement of one or more other classes of
Bonds of such Series. Holders of Sequential Pay Bonds will be entitled to
receive payments of principal on such Bonds, sequentially, based on specified
payment schedules or other methodologies set forth in the Prospectus Supplement.
Each class of Offered Bonds of a Series will be issued in minimum
denominations corresponding to the Bond Principal Amounts or, in case of
Interest Only Bonds, notional amounts specified in the related Prospectus
Supplement. The transfer of any Offered Bonds may be registered and such Bonds
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
Indenture 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 Bonds of a
Series may be issued as Definitive Bonds or in book-entry form ("Book-Entry
Bonds"), as provided in the related Prospectus Supplement. See "Risk
Factors--Owner of Book-Entry Bonds Not Entitled to Exercise Rights of Holders of
Bonds" and "Description of the Bonds--Book-Entry Registration and Definitive
Bonds." Definitive Bonds will be exchangeable for other Bonds of the same class
and Series of a like aggregate Bond Principal Amount or notional amount but of
different authorized denominations. See "Risk Factors--Limited Liquidity for
Bonds" and "Limited Assets for Payment of Bonds."
Payments
Payments on the Bonds of each Series will be made by or on behalf of the
Indenture Trustee on each Payment Date as specified in the related Prospectus
Supplement from the Available Payment Amount for such Series and such Payment
Date. Payments (other than the final payment) will be made to the persons in
whose names the Bonds are registered at the close of business on the last
business day of the month preceding the month in which the Payment Date occurs
or such other date specified in the applicable Prospectus Supplement (the
"Record Date"), and the amount of each payment will be determined as of the
close of business on the date specified in the related Prospectus Supplement
(the "Determination Date"). All payments with respect to each class of Bonds on
each Payment Date will be allocated pro rata among the outstanding Bonds in such
class or by random selection, as described in the related Prospectus Supplement
or otherwise established by the related Indenture Trustee. Payments will be made
either by wire transfer in immediately available funds to the account of a
Bondholder at a bank or other entity having appropriate facilities therefor, if
such Bondholder has so notified the Indenture 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
Bonds in the requisite amount specified therein), or by check mailed to the
address of the person entitled thereto as it appears on the bond register;
provided, however, that the final payment in retirement of the Bonds (whether
Definitive Bonds or Book-Entry Bonds) will be made only upon presentation and
surrender of the Bonds at the location specified in the notice to Bondholders of
such final payment.
Available Payment Amount
All payments on the Bonds of each Series on each Payment Date will be made
from the Available Payment Amount described below, in accordance with the terms
described in the related Prospectus Supplement. Generally, the "Available
Payment Amount" for each Payment Date equals the sum of the following amounts:
(i) the total amount of all cash on deposit in the related Payment Account
as of the corresponding Determination Date, including Servicer advances, net of
any scheduled payments due and payable after such Payment Date;
(ii) interest or investment income on amounts on deposit in the Payment
Account, including any net amounts paid under any Cash Flow Agreements; and
(iii) to the extent not on deposit in the related Payment Account as of the
corresponding Determination Date, any amounts collected under, from or in
respect of any Credit Support with respect to such Payment Date.
As described below, the entire Available Payment Amount will be paid among
the related Bonds (including any Bonds not offered hereby) on each Payment Date,
and accordingly will be released from the lien of the related Indenture and will
not be available for any future payments.
Payments of Interest on the Bonds
Each class of Bonds (other than classes of Principal Only Bonds that have
no interest rate) may have a different interest rate, which will be a fixed,
variable or floating rate at which interest will accrue on such class or a
component thereof. The related Prospectus Supplement will specify the interest
rate for each class or component or, in the case of a variable or floating
interest rate, the method for determining the interest rate. Interest on the
Bonds will be calculated on the basis of a 360-day year consisting of twelve
30-day months or on such other basis specified in the related Prospectus
Supplement.
Payments of interest in respect of the Bonds of any class will be made on
each Payment Date (other than any class of Accrual Bonds, which will be entitled
to payments of accrued interest commencing only on the Payment Date, or under
the circumstances, specified in the related Prospectus Supplement, and any class
of Principal Only Bonds that are not entitled to any payments of interest) based
on the Accrued Bond Interest for such class and such Payment Date, subject to
the sufficiency of the portion of the Available Payment Amount allocable to such
class on such Payment Date. Prior to the time interest is payable on any class
of Accrual Bonds, the amount of Accrued Bond Interest otherwise payable on such
class will be added to the Bond Principal Amount thereof on each Payment Date.
With respect to each class of Bonds and each Payment Date (other than certain
classes of Interest Only Bonds), "Accrued Bond Interest" will be equal to
interest accrued for a specified period on the outstanding Bond Principal Amount
thereof immediately prior to the Payment Date, at the applicable interest rate,
reduced as described below. Generally, Accrued Bond Interest on Interest Only
Bonds will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Payment Date, at
the applicable interest rate, reduced as described below. The method of
determining the notional amount for any class of Interest Only Bonds 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 payments of principal. The Accrued Bond Interest on a Series of
Bonds 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
constituting the Collateral for such Series. The particular manner in which such
shortfalls are to be allocated among some or all of the classes of Bonds 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 Bond Interest that is otherwise payable on (or, in the
case of Accrual Bonds, that may otherwise be added to the Bond Principal Amount
of) a class of Offered Bonds may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Loans constituting the related Collateral. Generally,
any reduction in the amount of Accrued Bond Interest otherwise payable on a
class of Bonds by reason of the allocation to such class of a portion of any
deferred interest on the Mortgage Loans constituting the related Collateral will
result in a corresponding increase in the Bond Principal Amount of such class.
See "Risk Factors--Rate of Prepayments on Mortgage Loans and Priority of Payment
on Bonds May Adversely Affect Average Lives and Yields of Bonds; Prepayments;
Yields" and "Yield Considerations."
Payments of Principal of the Bonds
The Bonds of each Series, other than certain classes of Interest Only
Bonds, will have a "Bond Principal Amount" 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 Loans and other assets
constituting the related Collateral. The outstanding Bond Principal Amount of a
Bond will be reduced to the extent of payments 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 Loans, 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 Bonds prior to the Payment Date on which payments of interest are
required to commence, will be increased by any related Accrued Bond Interest. If
so specified in the related Prospectus Supplement, the initial aggregate Bond
Principal Amount of all classes of Bonds of a Series will be greater than the
outstanding aggregate principal balance of the related Mortgage Loans as of the
applicable Cut-off Date. The initial aggregate Bond Principal Amount of a Series
and each class thereof will be specified in the related Prospectus Supplement.
Payments of principal will be made on each Payment Date to the class or classes
of Bonds entitled thereto in accordance with the provisions described in such
Prospectus Supplement. Interest Only Bonds with no Bond Principal Amount are not
entitled to any payments of principal.
Components
To the extent specified in the related Prospectus Supplement, payment on a
class of Bonds 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 "--Payments of Interests on the Bonds" and "--Payments of Principal of the
Bonds" above also relate to components of such a class of Bonds. In such case,
reference in such sections to Bond Principal Amount and interest rate refer to
the principal balance, if any, of any such component and the interest rate, if
any, on any such component, respectively.
Payments on the Bonds 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
Loans with respect to such Series of Bonds will be paid on each Payment Date to
the class or classes of Bonds 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 Bonds
consisting of one or more classes of Subordinate Bonds, on any Payment Date in
respect of which losses or shortfalls in collections on the Mortgage Loans have
been incurred, the amount of such losses or shortfalls will be borne first by a
class of Subordinate Bonds 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 Loans.
Advances in Respect of Delinquencies
With respect to any Series of Bonds, if so 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
Payment Date its own funds or funds held in the Payment Account that are not
included in the Available Payment Amount for such Payment 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 Mortgage Loans constituting the related Collateral 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 Bonds that includes one or more classes of Subordinate Bonds 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 payments on one or more classes of
Senior Bonds 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 Collateral otherwise payable
on one or more classes of such Subordinate Bonds.
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 Bonds entitled thereto,
rather than to guarantee or insure against losses. 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 from any other amounts specified in the related Prospectus
Supplement, including out of any amounts otherwise payable on one or more
classes of Subordinate Bonds of such Series; provided, however, that any such
advance will be reimbursable from any amounts in the Payment Account prior to
any payments being made on the Bonds 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 Collateral otherwise payable on such Subordinate
Bonds. If advances have been made by a Servicer from excess funds in the Payment
Account, such Servicer is required to replace such funds in the Payment Account
on any future Payment Date to the extent that funds in the Payment Account on
such Payment Date are less than payments required to be made to Bondholders 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 Collateral prior to
any payment to Bondholders or as otherwise provided in the related Agreement and
described in such Prospectus Supplement.
Reports to Bondholders
With each payment to holders of any class of Bonds of a Series, the Master
Servicer or the Indenture 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 some or all of the following items, in each
case to the extent applicable and available:
(i) the amount of such payment to holders of Bonds of such class applied to
reduce the Bond Principal Amount thereof;
(ii) the amount of such payment to holders of Bonds of such class allocable
to Accrued Bond Interest;
(iii) the amount of such payment allocable to (a) Prepayment Premiums and
(b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by each
Servicer;
(v) the aggregate amount of advances included in such payment, and the
aggregate amount of any unreimbursed advances at the close of business on such
Payment Date;
(vi) the aggregate principal balance of the Mortgage Loans at the close of
business on such Payment Date;
(vii) the number and aggregate principal balance of Mortgage 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 Mortgage 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 Mortgage Loan liquidated (other than by payment in
full) during the related Due Period (unless a different period is specified in
the related Prospectus Supplement, a "Due Period" with respect to any Payment
Date will commence on the second day of the month in which the immediately
preceding Payment Date occurs, or the day after the Cut-off Date in the case of
the first Due Period, and will end on the first day of the month of the related
Payment Date), (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 Mortgage 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 Bondholders;
(xi) with respect to each Mortgaged Property acquired on behalf of the
Issuer through foreclosure or deed in lieu of foreclosure (upon acquisition, an
"REO Property") relating to a Mortgage Loan and included as a Trust Asset 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 Mortgage Loan and
included as a Trust Asset 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 Payment 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 Bondholders in respect of the
related Mortgage Loan;
(xiv) the aggregate Bond Principal Amount or notional amount, as the case
may be, of each class of Bonds (including any class of Bonds not offered hereby)
at the close of business on such Payment Date, separately identifying any
reduction in such Bond Principal Amount due to the allocation of any loss and
increase in the Bond Principal Amount of a class of Accrual Bonds in the event
that Accrued Bond Interest has been added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
(xvi) the aggregate Accrued Bond Interest and unpaid Accrued Bond Interest,
if any, on each class of Bonds at the close of business on such Payment Date;
(xvii) in the case of Bonds with a variable interest rate, the interest
rate applicable to such Payment Date, and, if available, the immediately
succeeding Payment Date, as calculated in accordance with the method specified
in the related Prospectus Supplement;
(xviii) in the case of Bonds with a floating interest rate, for statements
to be distributed in any month in which an adjustment date occurs, the floating
interest rate applicable to such Payment Date and the immediately succeeding
Payment 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 Payment 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
Bonds 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 Bonds. The Prospectus Supplement for each Series of Offered
Bonds will describe any additional information to be included in reports to the
holders of such Bonds.
Within a reasonable period of time after the end of each calendar year, the
Master Servicer or the Indenture 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 Bond 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 Bondholder. Such obligation of
the Master Servicer or the Indenture Trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Indenture Trustee pursuant to any
requirements of the Code as are from time to time in force.
Unless and until Definitive Bonds are issued, such statements or reports
will be forwarded by the Master Servicer or the Indenture Trustee to Cede or
such other person specified in the related Prospectus Supplement. Such
statements or reports may be available to Beneficial Owners upon request to DTC
or their respective Participant or Indirect Participant. In addition, the
Indenture Trustee shall furnish a copy of any such statement or report to any
Beneficial Owner which requests such copy and certifies to the Indenture Trustee
or the Master Servicer, as applicable, that it is the Beneficial Owner of a
Bond. See "Description of the Bonds--Book-Entry Registration and Definitive
Bonds."
Special Redemption of Bonds
If so specified in the related Prospectus Supplement, the Bonds of any
Series may be subject to special redemption on the day of any month specified
therein if, as a result of the prepayment experience on the Mortgage Loans
securing such Bonds or the low yield available for reinvestment or both, the
Indenture Trustee determines (based on assumptions specified in the Indenture
and after giving effect to the amounts, if any, available to be withdrawn from
or under any reserve fund or instrument constituting Credit Support or a Cash
Flow Agreement for such Series) that the amount anticipated to be available in
the Payment Account for such Series on the next Payment Date, is anticipated to
be insufficient to pay debt service on the Bonds of such Series on such Payment
Date. The principal amount of Bonds of such Series required to be so redeemed
will not exceed the amount of principal otherwise required to be paid on the
next Payment Date. Therefore, the primary result of such a special redemption of
Bonds is payment of principal prior to the next scheduled Payment Date.
To the extent described in the related Prospectus Supplement, Bonds of any
Series may be subject to special redemption in whole or in part following
certain defaults under an instrument of Credit Support and in certain other
events.
All payments of principal pursuant to any special redemption will be made
in the order of priority and in the manner specified in the related Prospectus
Supplement. Notice of any special redemption will be mailed by the Issuer or the
Indenture Trustee prior to the Special Redemption Date. The Redemption Price for
any Bonds so redeemed will be equal to 100% (or such other percentage specified
in the related Prospectus Supplement) of the principal amount of such Bonds (or
portions thereof) so redeemed, together with interest accrued thereon to the
date specified in the related Prospectus Supplement.
Optional Redemption of Bonds
The Issuer may, at its option and if so specified in the related Prospectus
Supplement, redeem, in whole or in part, one or more classes of Bonds of any
Series on any Payment Date on or after the dates, if any, specified in such
Prospectus Supplement. Notice of such redemption will be given by the Issuer or
Indenture Trustee prior to the anticipated date of redemption. The Redemption
Price for any Bonds so redeemed will be equal to 100% of the principal amount of
such Bonds, or the portions thereof, so redeemed, together with interest accrued
thereon to the date specified in the related Prospectus Supplement. Any such
optional redemption may occur at a time when a significant portion of the
aggregate Bond Principal Amount of all the classes of Bonds that will be so
redeemed, remains outstanding (that is, a time when the aggregate Bond Principal
Amount of such classes of Bonds is greater than 25% of the initial aggregate
Bond Principal Amount thereof). The maximum aggregate Bond Principal Amount of
the Bonds of any Series that may be outstanding before any optional redemption
may be effected will be disclosed in the related Prospectus Supplement. The
Bondholders will have no continuing direct or indirect liability to the Issuer
or any other person as a result of the Issuer exercising its redemption option.
Book-Entry Registration and Definitive Bonds
If so provided in the related Prospectus Supplement, one or more classes of
the Offered Bonds of any Series will be issued as Book-Entry Bonds, and each
such class will be represented by one or more single Bonds 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").
Investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in
Book-Entry Bonds may do so only through Participants and Indirect Participants
or in such other manner as is provided for in the related Prospectus Supplement.
In addition, such investors ("Beneficial Owners") will receive all payments on
the Book-Entry Bonds through DTC and its Participants. Under a book-entry
format, Beneficial Owners will receive payments after the related Payment 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. The only "Bondholder" (as such term is used
in an Agreement) will be Cede, as nominee of DTC or such other entity specified
in the related Prospectus Supplement, and the Beneficial Owners will not be
recognized by the Indenture Trustee as Bondholders under the Agreements.
Beneficial Owners will be permitted to exercise the rights of Bondholders 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 Bonds and is required to
receive and transmit payments of principal of and interest on the Book-Entry
Bonds. Participants and Indirect Participants with which Beneficial Owners have
accounts with respect to the Book-Entry Bonds 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 Bonds 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 Bonds, may be limited due to the lack of a
physical certificate evidencing such interest.
DTC will take action permitted to be taken by a Bondholder under an
Agreement only at the direction of one or more Participants to whose account
with DTC interests in the Book-Entry Bonds are credited. Under DTC's procedures,
DTC will take actions permitted to be taken by Holders of any class of
Book-Entry Bonds under an Agreement only at the direction of one or more
Participants to whose account the Book-Entry Bonds 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 Bondholders of
any class to the extent that Participants authorize such actions. None of the
Servicers, the Depositor, the Indenture 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
Bonds, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Bonds initially issued in book-entry form will be issued as Definitive
Bonds to Beneficial Owners or their nominees, rather than to DTC or its nominee
only (i) if the Depositor advises the Indenture Trustee in writing that DTC is
no longer willing or able to properly discharge its responsibilities as
depository with respect to the Bonds and the Depositor is unable to locate a
qualified successor, (ii) if the Depositor, at its option, elects to terminate
the book-entry system through DTC or (iii) in accordance with such other
provisions described in the related Prospectus Supplement.
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 Bonds for the Beneficial Owners. Upon
surrender by DTC of the certificate or certificates representing the Book-Entry
Bonds, together with instructions for reregistration, the Indenture Trustee will
issue (or cause to be issued) to the Beneficial Owners identified in such
instructions the Definitive Bonds to which they are entitled, and thereafter the
Indenture Trustee will recognize the holders of such Definitive Bonds as
Bondholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Bonds of each Series will be issued by an Owner Trust pursuant to an
indenture (the "Indenture") between the related Owner Trust and an indenture
trustee (the "Indenture Trustee") named in the related Prospectus Supplement.
The Owner Trust will be established pursuant to a deposit trust agreement (each,
a "Deposit Trust Agreement") between the Depositor and an owner trustee (the
"Owner Trustee") named in the Prospectus Supplement relating to such Series of
Bonds. The Mortgage Loans will be serviced in accordance with a servicing
agreement (a "Servicing Agreement") among the Issuer, the Indenture Trustee and
a Master Servicer and a Special Servicer named in the Prospectus Supplement
relating to such Series of Bonds. A manager or administrator will be appointed
pursuant to an administration agreement (the "Administration Agreement") to
administer certain duties of the Issuer relating to each Series of Bonds. The
provisions of each Agreement will vary depending upon the nature of the Bonds to
be issued thereunder and the nature of the related Collateral. Forms of an
Indenture, Deposit Trust Agreement, Servicing Agreement and Administration
Agreement have been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summaries describe certain material
provisions that may appear in the Indenture and the Servicing Agreement. The
Prospectus Supplement for a Series of Bonds 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 relating to each Series of Bonds and
the description of such provisions in the related Prospectus Supplement. As used
herein with respect to any Series, the term "Bond" refers to all of the Bonds 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 Bonds
without charge upon written request of a holder of a Bond of such Series
addressed to the Indenture Trustee specified in the related Prospectus
Supplement.
Pledge of Mortgage Loans; Deposit of Release Price or Substitution
At the time of issuance of any Series of Bonds, the Issuer will grant to
the designated Indenture Trustee to secure payment of the Bonds of such Series a
security interest in, among other things, the Mortgage Loans, to be included as
part of the related Collateral, together with all principal and interest to be
received on or with respect to such Mortgage Loans after the related Cut-off
Date, other than principal and interest due on or before the related Cut-off
Date and other than any Retained Interest (as defined herein). The Indenture
Trustee will hold such Mortgage Loans as security only for that Series of Bonds,
and holders of the Bonds of such Series will be entitled to the equal and
proportionate benefits of such security, subject to the express subordination of
certain classes thereof. In addition, the Indenture Trustee will, concurrently
with such grant, deliver such Bonds to or at the direction of the Issuer. Each
Mortgage Loan to be included as part of the related Collateral will be
identified in a schedule appearing as an exhibit to the related Indenture. Such
schedule generally will include detailed information to the extent available and
relevant in respect of each Mortgage Loan included as part of the related
Collateral, 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.
With respect to each Mortgage Loan to be included as part of the related
Collateral, the Issuer will deliver or cause to be delivered to the Indenture
Trustee (or to the custodian acting on its behalf) certain loan documents, which
will generally include the original Mortgage Note endorsed, without recourse, in
blank or to the order of the Indenture Trustee, the original Mortgage (or a
certified copy thereof) with evidence of recording indicated thereon and an
assignment of the Mortgage to the Indenture Trustee in recordable form.
Notwithstanding the foregoing, the Collateral for a Series of Bonds may include
Mortgage Loans where the original Mortgage Note is not delivered to the
Indenture Trustee if the Issuer delivers to the Indenture Trustee or the
custodian, an affidavit certifying that the original thereof has been lost or
destroyed, together with, if available, a copy or a duplicate original of the
Mortgage Note. With respect to such Mortgage Loans, the Indenture Trustee (or
its nominee) may not be able to enforce the Mortgage Note against the related
borrower. The related Agreements will generally require that the Issuer or
another party specified in the related Prospectus Supplement 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 Indenture Trustee, such recording is not required to protect
the Indenture Trustee's interest in the related Mortgage Loan against the claim
of any subsequent transferee or any successor to or creditor of the Issuer, the
Servicer, the relevant Asset Seller or any other prior holder of the Mortgage
Loan.
The Indenture Trustee (or a custodian) will review such Mortgage Loan
documents within a specified period of days after receipt thereof, and the
Indenture Trustee (or a custodian) will hold such documents in trust for the
benefit of the Bondholders. If any such document is found to be missing or
defective in any material respect, the Indenture Trustee (or such custodian)
shall immediately notify the Issuer or another entity specified in the related
Prospectus Supplement. If the Issuer cannot cure the omission or defect within a
specified number of days after receipt of such notice, then the Issuer or such
other entity specified in the related Prospectus Supplement will be obligated,
within a specified number of days of receipt of such notice, to remove the
related Mortgage Loan as part of the related Collateral and pay to the Indenture
Trustee a cash amount 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 removal is to occur, plus certain servicing expenses that are
reimbursable to each Servicer or such other amount as specified in the related
Prospectus Supplement (the "Release Price") or substitute for such Mortgage
Loan. This deposit and removal or substitution obligation constitutes the sole
remedy available to the Bondholders or the Indenture 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 Loan or paying the Indenture Trustee the Release Price or substituting
for such Mortgage Loan, the Issuer or other named entity may agree to cover any
losses suffered with respect to the Collateral as a result of such breach or
defect.
If so provided in the related Prospectus Supplement, the Issuer will, as to
some or all of the Mortgage Loans, deliver or cause to be delivered to the
Indenture Trustee the related Lease Assignments. In certain cases, the Indenture
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 Indenture Trustee, or if so specified in the
Prospectus Supplement, the Master Servicer, as agent for the Indenture Trustee,
may hold the Lease in trust for the benefit of the Bondholders.
Representations and Warranties; Repurchases and Other Remedies
To the extent provided in the related Prospectus Supplement the Issuer
will, with respect to each Mortgage Loan included as part of the related
Collateral, make or assign, or cause to be made or assigned, certain
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 Mortgage Loan on the schedule of Mortgage Loans appearing as an
exhibit to the related Agreement; (ii) the existence of title insurance insuring
the lien priority of the Mortgage Loan; (iii) the authority of the Warranting
Party to sell the Mortgage Loan; (iv) the payment status of the Mortgage 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 Mortgage 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 Bonds secured by such Mortgage Loan. In the event of a breach of any such
representation or warranty that materially and adversely affects the value of
the applicable Mortgage Loan or the interest of the Bondholders therein, the
Warranting Party will be obligated to either cure such breach or repurchase or
replace the affected Mortgage 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.
The Agreements will provide that the Master Servicer and/or Indenture
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 Mortgage
Loan that materially and adversely affects the value of such Mortgage Loan or
the interests therein of the Bondholders. 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 Mortgage Loan from the Indenture Trustee within a specified
period from the date on which the Warranting Party was notified of such breach,
at a price 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 or such other price as specified in the related Prospectus
Supplement (the "Purchase Price"), or in the case of the Issuer, remove such
Mortgage Loan as part of the Collateral and pay to the Indenture Trustee the
Release Price therefor. If so provided in the Prospectus Supplement for a
Series, a Warranting Party, rather than repurchase a Mortgage Loan as to which a
breach has occurred, will have the option, within a specified period after
initial issuance of such Series of Bonds, to cause the removal of such Mortgage
Loan as part of the related Collateral and substitute in its place one or more
other Mortgage 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 Mortgage Loan as to
which a breach has occurred, will have the option to reimburse the Indenture
Trustee or the Bondholders for any losses caused by such breach. This
reimbursement, repurchase or substitution obligation will constitute the sole
remedy available to holders of Bonds or the Indenture Trustee for a breach of
representation by a Warranting Party.
Neither the Depositor nor the Issuer (except to the extent that either of
them is the Warranting Party) nor any Servicer will be obligated to purchase or
substitute for a Mortgage 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 Mortgage Loans.
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 Servicing
Agreement of a Master Servicer or Special Servicer which materially and
adversely affects the interests of the Bondholders and which continues
unremedied for thirty days after the giving of written notice of such breach to
such Servicer by the Indenture Trustee or the Depositor, or to such Servicer,
the Depositor and the Indenture Trustee by the holders of Bonds evidencing not
less than 25% of the Voting Rights or such other percentage specified in the
related Prospectus Supplement, will constitute a Servicer Event of Default under
such Servicing Agreement.
Accounts
General. Each Servicer and/or the Indenture Trustee will, as to each Series
of Bonds, establish and maintain or cause to be established and maintained one
or more separate accounts for the collection of payments on the related Mortgage
Loans (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 Bondholders 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 Bonds
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 Payment Date in
certain short-term Permitted Investments. Any interest or other income earned on
funds in an Account will be paid to a Servicer or its designee as additional
servicing compensation to the extent provided in the related Prospectus
Supplement. 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-backed securities 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. The appropriate Servicer will deposit or cause to be deposited in
an Account on a daily basis, or such other period 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 Loans;
(ii) all payments on account of interest on the Mortgage Loans, 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 Mortgage Loan included as part of the Collateral (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 included as part of the
Collateral, 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 Bondholders by foreclosure or by deed in
lieu of foreclosure or otherwise;
(iv) any advances made as described under "Description of the
Bonds-Advances in Respect of Delinquencies";
(v) any amounts representing Prepayment Premiums;
(vi) any amounts received from another Servicer;
but excluding any income, rents and profits derived from the ownership,
operation or leasing of any REO Property ("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, make withdrawals from an
Account for each Series of Bonds for one or more of the following purposes:
(i) to reimburse a Servicer for unreimbursed amounts advanced as described
under "Description of the Bonds--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 Mortgage 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 Mortgage 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 Mortgage 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 Collateral 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 Collateral that is
otherwise payable on one or more classes of Subordinate Bonds, if any, remain
outstanding, and otherwise any outstanding class of Bonds, 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) 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 Bondholders by foreclosure or by deed in
lieu of foreclosure or otherwise, such payments to be made out of income
received on such property; retaining an independent appraiser or other expert in
real estate matters to determine a fair sale price for a defaulted Mortgage Loan
or a property acquired in respect thereof in connection with the liquidation of
such Mortgage Loan or property; and obtaining various opinions of counsel
pursuant to the related Agreement for the benefit of Bondholders.
Payment Account. To the extent specified in the related Prospectus
Supplement, the Indenture Trustee will, as to each Series of Bonds, 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 Payment Date (the "Payment Account"). The Indenture Trustee will
also deposit or cause to be deposited in a Payment 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 Bonds as described under
"Description of Credit Support";
(ii) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Collateral--Cash Flow Agreements";
(iii) all proceeds of any Trust Asset or, with respect to a Mortgage Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person, and all proceeds of any Mortgage Loan
purchased as described under "Description of the Bonds--Termination" (also,
"Liquidation Proceeds");
(iv) any other amounts required to be deposited in the Payment Account as
provided in the related Agreement and described in the related Prospectus
Supplement.
The Indenture Trustee or another paying agent may, from time to time, make
a withdrawal from a Payment Account to make payments to the Bondholders on each
Payment Date.
Other Collection Accounts. Notwithstanding the foregoing, if so specified
in the related Prospectus Supplement, the Agreements for any Series of Bonds 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 Bonds. Any amounts on deposit in
any such collection account will be withdrawn therefrom and deposited into the
appropriate Payment 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 Payment 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 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 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.
A Master Servicer, as servicer of the Mortgage Loans, on behalf of itself,
the Indenture Trustee and the Bondholders or such other entity specified in the
related Prospectus Supplement, 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. Upon the occurrence of any of the
following events or such other events as may be specified in the related
Prospectus Supplement (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 Bondholders, 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 Series of Bonds secured by Collateral that
includes Mortgage Loans may grant to the Master Servicer and/or the holder or
holders of certain classes of Bonds a right of first refusal to purchase from
the Owner Trust 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 Bond 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 and Other Remedies ."
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 generally agree to any modification, waiver or
amendment that would so affect or impair the payments on, or the security for, a
Mortgage Loan if, (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 Indenture Trustee in
the event of any modification, waiver or amendment of any Mortgage Loan.
The Special Servicer, on behalf of the Indenture 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.
The Special Servicer generally may not acquire title to any related Mortgaged
Property or take any other action that would cause the Indenture Trustee, for
the benefit of Bondholders, 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 Issuer), 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.
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 Issuer acquires title to any Mortgaged Property, the Special
Servicer, on behalf of the Issuer, may be required to 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. Any such property acquired by the Issuer will be managed in a manner
consistent with the management and operation of similar property by a prudent
lending institution or in such other manner as specified in the related
Prospectus Supplement.
The limitations imposed by the related Agreements on the operations and
ownership of any Mortgaged Property acquired on behalf of the Issuer 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 Issuer
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
payment of such Liquidation Proceeds to Bondholders, 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 Bondholders 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
The Servicing Agreement with respect to a Series of Bonds secured by
Collateral that includes Mortgage Loans will require the Master Servicer to
cause the Mortgagor on each Mortgage Loan to maintain a hazard insurance policy
providing for such coverage as is required under the related Mortgage. 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 or such other amount specified in the related
Prospectus Supplement, 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 Mortgage 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 Mortgage 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 Servicing Agreement will require the Master Servicer to cause the
Mortgagor on each Mortgage 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 payment to be made to
Bondholders. 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 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 or to such other level as
specified in the related Prospectus Supplement. 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
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 Mortgage 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
Mortgage Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Mortgage 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 Mortgage Loan upon the creation of any other lien or encumbrance
upon the Mortgaged Property. The Master Servicer, on behalf of the Issuer, will
generally exercise any right the Indenture Trustee may have as mortgagee to
accelerate payment of any such Mortgage Loan or to withhold its consent to any
transfer or further encumbrance. To the extent 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 Bonds will specify whether there
will be any Retained Interest in the Mortgage Loans, 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 Loan 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 Collateral.
Each Servicer's primary servicing compensation with respect to a Series of
Bonds will come from the periodic payment to it of a portion of the interest
payment on each Mortgage Loan or such other amount specified in the related
Prospectus Supplement. Since any Retained Interest and a Servicer's primary
compensation are percentages of the principal balance of each Mortgage Loan,
such amounts will decrease in accordance with the amortization of the Mortgage
Loans. The Prospectus Supplement with respect to a Series of Bonds secured by
Collateral that includes Mortgage 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 Loans, including,
without limitation, payment of the fees and disbursements of the Indenture
Trustee and independent accountants, payment of expenses incurred in connection
with payments and reports to Bondholders, 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 Mortgage
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 Issuer.
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 Payment
Account out of such proceeds, prior to payment thereof to Bondholders, 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
The Agreements 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 Indenture 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.
The Agreements will also provide for delivery to the Indenture 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 applicable Agreement throughout the preceding calendar
year or other specified twelve-month period.
Copies of such annual accountants' statement and such statements of
officers will be obtainable by Bondholders and Beneficial Owners without charge
upon written request to the Master Servicer or other entity specified in the
related Prospectus Supplement 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 Bond.
Certain Matters Regarding each Servicer and the Depositor
The Master Servicer and the Special Servicer, or a servicer for
substantially all the Mortgage Loans under a 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.
The related Servicing Agreement will provide that any Servicer may resign
from its obligations and duties thereunder only with the consent of the
Indenture Trustee, which may not be unreasonably withheld or upon a
determination that its duties under the Servicing 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 Servicing Agreement.
The 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 Owner Trust or Bondholders for any action taken, or for refraining from
the taking of any action in accordance with the Servicing standards set forth in
the Servicing Agreement, in good faith pursuant to the 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 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. The Depositor shall be
liable only to the extent of its obligations specifically imposed upon and
undertaken by the Depositor. The Servicing Agreement will further provide that
each Servicer will be entitled to indemnification by the related Owner Trust
against any loss, liability or expense incurred in connection with any legal
action relating to the related 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 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 Servicing Agreement and which in its opinion may
involve it in any expense or liability. Any Servicer may, however, with the
consent of the Indenture 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 Bondholders 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 Bondholders, 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.
Servicer Events of Default
Events of Default with respect to a Servicer under the related Agreements
(a "Servicer Event of Default") will generally include (i) any failure by such
Servicer to distribute or cause to be distributed to the Indenture Trustee,
another Servicer or the Bondholders, 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 Indenture 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 Agreements
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 Agreements which materially and adversely
affects the interests of Bondholders 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 Servicer Events of Default (other than to shorten
cure periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. The Indenture Trustee will, not later than the later of
60 days or such other period specified in the related Prospectus Supplement
after the occurrence of any event which constitutes or, with notice or lapse of
time or both, would constitute a Servicer Event of Default and five days after
certain officers of the Indenture Trustee become aware of the occurrence of such
an event, transmit by mail to the Depositor and all Bondholders of the
applicable Series notice of such occurrence, unless such default shall have been
cured or waived.
Rights Upon Servicer Event of Default
So long as a Servicer Event of Default remains unremedied, the Depositor or
the Indenture Trustee may, and at the direction of holders of Bonds evidencing
not less than 25% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights, the Indenture Trustee shall be required to,
terminate all of the rights and obligations of the related Servicer under the
related Agreement and in and to the Mortgage Loans (other than as a Bondholder
or as the owner of any Retained Interest), whereupon the Master Servicer (or if
such Servicer is the Master Servicer, the Indenture Trustee) will succeed to all
of the responsibilities, duties and liabilities of such Servicer under the
related Agreement and will be entitled to similar compensation arrangements. In
the event that the Indenture Trustee is unwilling or unable so to act, it may
or, at the written request of the holders of Bonds entitled to at least 25% (or
such other percentage specified in the related Prospectus Supplement) of the
Voting Rights, it shall be required to 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 (or such other amount specified in the related Prospectus
Supplement) to act as successor to the Master Servicer under the related
Agreement. Pending such appointment, the Indenture Trustee is obligated to act
in such capacity. The Indenture 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 related Agreement.
The holders of Bonds of a Series representing at least 66-2/3% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for each class of Bonds of such Series affected by any Servicer Event of
Default will be entitled to waive such Servicer Event of Default; provided,
however, that a Servicer Event of Default involving a failure to pay a required
payment to Bondholders described in clause (i) under "Servicer Events of
Default" may be waived only by all of the Bondholders. Upon any such waiver of a
Servicer Event of Default, such Servicer Event of Default shall cease to exist
and shall be deemed to have been remedied for every purpose under the related
Agreement.
No Bondholder will have the right under any Agreement to institute any
proceeding with respect thereto unless such holder previously has given to the
Indenture Trustee written notice of default and unless the holders of Bonds
evidencing not less than 25% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights have made written request upon the
Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee thereunder and have offered to the Indenture Trustee reasonable
indemnity, and the Indenture Trustee for sixty days (or such other number of
days specified in the related Prospectus Supplement) has neglected or refused to
institute any such proceeding. The Indenture 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 Bonds covered by such
Agreement, unless such Bondholders have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby. As described under "Description of the
Bonds--Book-Entry Registration and Definitive Bonds," unless and until
Definitive Bonds are issued, Beneficial Owners may only exercise their rights as
owners of Bonds indirectly through DTC, or their respective Participants and
Indirect Participants.
Amendment
An Agreement may be amended by the parties thereto, without the consent of
any of the holders of Bonds 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 Bonds covered by the Agreement.
An Agreement may also be amended by the Depositor, the Master Servicer, if any,
and the Indenture Trustee, with the consent of the holders of Bonds affected
thereby evidencing not less than 51% (or such other percentage specified in the
related Prospectus Supplement) of the Voting Rights, for any purpose; provided,
however, that 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 Bond without the consent of the holder of such
Bond, (ii) adversely affect in any material respect the interests of the holders
of any class of Bonds in a manner other than as described in clause (i), without
the consent of the holders of all Bonds of such class or (iii) modify the
provisions of such Agreement described in this paragraph without the consent of
the holders of all Bonds covered by such Agreement then outstanding.
The Indenture Trustee
The Indenture Trustee for a Series of Bonds will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company serving as Indenture Trustee may have a
banking relationship with the Depositor and its affiliates and with any Master
Servicer and its affiliates.
Duties of the Indenture Trustee
The Indenture Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Bonds 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
Bonds or the Collateral, or deposited into or withdrawn from any Account or any
other account by or on behalf of any Servicer. If no Issuer Event of Default or
Servicer Event of Default has occurred and is continuing, the Indenture 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 Indenture Trustee is required to
examine such documents and to determine whether they conform to the requirements
of the Agreements.
Certain Matters Regarding the Indenture Trustee
The Indenture Trustee and any director, officer, employee or agent of the
Indenture Trustee shall be entitled to indemnification out of the Payment
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 Indenture Trustee's (i)
enforcing its rights and remedies and protecting the interests, and enforcing
the rights and remedies, of the Bondholders during the continuance of an Issuer
Event of Default or Servicer Event of Default, (ii) defending or prosecuting any
legal action in respect of the related Agreement or Series of Bonds, (iii) being
the mortgagee of record with respect to the Mortgage Loans constituting
Collateral in respect of a Series of Bond and the owner of record with respect
to any Mortgaged Property acquired in respect thereof for the benefit of
Bondholders, or (iv) acting or refraining from acting in good faith at the
direction of the holders of the related Series of Bonds 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 Indenture
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 Indenture 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 Indenture Trustee made therein.
Resignation and Removal of the Indenture Trustee
The Indenture 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 Bondholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor indenture
trustee acceptable to the Master Servicer, if any. If no successor indenture
trustee shall have been so appointed and have accepted appointment within 30
days after the giving of such notice of resignation, the resigning Indenture
Trustee may petition any court of competent jurisdiction for the appointment of
a successor indenture trustee. If at any time the Indenture Trustee shall cease
to be eligible to continue as such under the related Agreements, or if at any
time the Indenture Trustee shall become incapable of acting, or shall be
adjudged bankrupt or insolvent, or a receiver of the Indenture Trustee or of its
property shall be appointed, or any public officer shall take charge or control
of the Indenture Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Depositor may remove the
Indenture Trustee and appoint a successor indenture trustee acceptable to the
Master Servicer, if any. Holders of the Bonds of any Series entitled to more
than 50%(or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for such Series may at any time remove the
Indenture Trustee without cause and appoint a successor indenture trustee.
Any resignation or removal of the Indenture Trustee and appointment of a
successor indenture trustee shall not become effective until acceptance of
appointment by the successor indenture trustee.
Certain Terms of the Indenture
Issuer Events of Default. An "Issuer Event of Default" with respect to any
Series of Bonds will include: (i) the failure to pay all interest on and
principal of any Bond of such Series by its Stated Maturity; (ii) the impairment
of the validity or effectiveness of the related Indenture or any grant
thereunder, or the subordination or, except as permitted thereunder, the
termination or discharge of the lien of the related Indenture, or the creation
of any lien, charge, security interest, mortgage or other encumbrance (other
than the lien of the related Indenture or any other lien expressly permitted
thereby) with respect to any part of the property subject to the lien of the
related Indenture or any interest in or proceeds of such property, or the
failure of the lien of the related Indenture to constitute a valid first
priority perfected security interest in such property (subject only to those
liens expressly permitted by the related Indenture to be prior to the lien
thereof), and the continuation of any such defaults for a period of 30 days
after notice to the Issuer for such Series by the designated Indenture Trustee
or to the Issuer for such Series and the designated Indenture Trustee by the
holders of Bonds entitled to at least 25% (or such other percentage specified in
the related Prospectus Supplement) of the Voting Rights for such Series; (iii)
any default in the observance or performance of any covenant or agreement of the
Issuer made in the related Indenture (other than a covenant or agreement, a
default in the observance or performance of which is elsewhere in this paragraph
specifically dealt with) with respect to such Series or any representation or
warranty of the Issuer made in the related Indenture, or in any certificate or
other writing delivered pursuant thereto or in connection therewith, with
respect to such Series proving to have been incorrect in any material respect as
of the time when the same shall have been made, provided such default or the
circumstance or condition in respect of which such representation or warranty
was incorrect (A) shall materially and adversely affect the interests of holders
of Bonds of such Series and (B) shall continue or shall not have been eliminated
or otherwise remedied, as the case may be, for a period of 60 days after there
shall have been given, by registered or certified mail, to the Issuer by the
Indenture Trustee or to the Issuer and the Indenture Trustee by the holders of
Bonds representing at least 25% (or such other percentage specified in the
related Prospectus Supplement) of the Voting Rights for such Series, a written
notice specifying such default or inaccuracy, as the case may be, and requiring
it to be remedied and stating that such notice is a "Notice of Default" under
the related Indenture; and (iv) certain events of bankruptcy, insolvency,
receivership or reorganization of the Issuer for such Series. Notwithstanding
the foregoing, if a Series of Bonds includes a class of Subordinate Bonds, the
Indenture for such a Series may provide that certain defaults which relate only
to such Subordinate Bonds shall not constitute an Issuer Event of Default with
respect to such Series, under certain circumstances, and may limit the rights of
holders of Subordinate Bonds to direct the Indenture Trustee to pursue remedies
with respect to such defaults, or other Issuer Events of Default. Such
limitations, if any, will be specified in the related Prospectus Supplement.
If an Issuer Event of Default with respect to any Series of Bonds should
occur and be continuing, the Indenture Trustee for such Series may (and, upon
the written request of the holders of Bonds representing more than 50% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for each class of Bonds of such Series affected thereby, shall) declare
all Bonds of such Series to be due and payable, together with accrued and unpaid
interest thereon. Such declaration of acceleration and its consequences may
under certain circumstances (including the remediation by the Issuer of all
existing Issuer Events of Default with respect to such Series) be rescinded and
annulled by the holders of Bonds representing more than 50% (or such other
percentage specified in the related Prospectus Supplement) of the Voting Rights
for each class of Bonds of such Series.
The Indenture for each Series of Bonds will provide that the Indenture
Trustee for such Series shall, within 90 days after the occurrence of an Issuer
Event of Default with respect to such Series, mail to the holders of Bonds of
such Series notice of all uncured or unwaived defaults known to it; provided
that, except in the case of an Issuer Event of Default in the payment of the
principal or purchase price of or interest on any Bond, the Indenture Trustee
shall be protected in withholding such notice if it determines in good faith
that the withholding of such notice is in the interest of the Bondholders of
such Series.
An Issuer Event of Default with respect to one Series of Bonds will not
necessarily be an Issuer Event of Default with respect to any other Series of
Bonds.
If following an Issuer Event of Default with respect to any Series of
Bonds, the Bonds of such Series have been declared to be due and payable, the
Indenture Trustee may liquidate the related Mortgage Loans, but only if: (i)
each and every Bondholder of such Series consents thereto; (ii) the portion of
the proceeds of such sale or liquidation that is payable to the Bondholders of
such Series is sufficient to discharge in full all amounts then due and unpaid
upon the Bonds of such Series for principal and interest; or (iii) the Indenture
Trustee (A) determines that the Mortgage Loans securing such Series will not,
taking into account any Credit Support or Cash Flow Agreement with respect to
such Series, provide sufficient funds for the payment of all principal and
interest on the Bonds of such Series by their respective Stated Maturities, if
any, and (B) obtains the consent of the holders of Bonds representing at least
66-2/3% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for each class of Bonds of such Series. In
addition, if following an Issuer Event of Default with respect to any Series of
Bonds, the Bonds of such Series have been declared to be due and payable, the
Indenture Trustee may be required to liquidate the related Mortgage Loans if the
Bondholders of such Series so direct as described under "--Control by
Bondholders" below. As may be further provided in the Prospectus Supplement for
the Offered Bonds of any Series of Bonds, the proceeds of a sale of Mortgage
Loans will be applied to the payment of amounts due the Indenture Trustee for
such Series and other administrative and servicing expenses specified in the
related Indenture and then distributed pro rata among the Bondholders of each
class of such Series (provided that Subordinate Bonds of such Series will be
subordinate to Senior Bonds of such Series to the extent provided in the related
Prospectus Supplement) according to the amounts due and payable on the Bonds for
principal and interest at the time such proceeds are paid by the Indenture
Trustee.
If the Bonds of any Series have been declared to be due and payable
following an Issuer Event of Default with respect to such Series and such
declaration and its consequences have not been rescinded and annulled, then
(unless the related Prospectus Supplement specifies otherwise) the Indenture
Trustee may, but need not, elect to maintain possession of the Mortgage Loans
securing such Series; provided that the holders of Bonds of such Series shall
not have directed the Indenture Trustee as described under "--Control by
Bondholders" below to sell the Mortgage Loans securing such Series. It is the
desire of the Issuer, the Indenture Trustee and the Bondholders of each Series
that there be at all times, taking into account any Credit Support or Cash Flow
Agreement with respect to a Series, sufficient funds for the payment of all
principal of and interest on the Bonds of such Series by their respective Stated
Maturities, if any, and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the Mortgage
Loans securing any Series declared due and payable. In determining whether to
maintain possession of the Mortgage Loans securing any Series declared due and
payable, the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of such Mortgage Loans for such purpose. As may be further provided
in the related Prospectus Supplement, until the Indenture Trustee has elected or
has determined not to elect to retain the Mortgage Loans securing any Series
declared due and payable, and thereafter if the Indenture Trustee has elected to
retain the Mortgage Loans securing any Series declared due and payable, the
Indenture Trustee will continue to apply all payments, collections,
distributions and other amounts received on such Mortgage Loans and/or paid or
drawn under any Credit Support or Cash Flow Agreement for such Series, solely to
the payment of principal of and interest on the Bonds of such Series, and to the
payment of administrative and other expenses, as if there had not been such a
declaration of acceleration.
The Indenture Trustee shall not be deemed to have knowledge of any Issuer
Event of Default unless an officer in the Indenture Trustee's corporate trust
department has actual knowledge thereof. Subject to the provisions of the
related Indenture regarding the duties of the Indenture Trustee in case an
Issuer Event of Default in respect of any Series of Bonds shall occur and be
continuing, the Indenture Trustee for such Series will be under no obligation to
exercise any of the rights or powers under the related Indenture at the request
or direction of any of the Bondholders of such Series, unless such Bondholders
shall have offered to such Indenture Trustee reasonable security or indemnity.
Control by Bondholders. The holders of Bonds of any Series representing
more than 50% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for such Series shall have the right to direct
the time, method and place of conducting any suit in equity, action at law or
other judicial or administrative proceeding (each, a "Proceeding") for any
remedy available to the Indenture Trustee, or exercising any trust or power
conferred on the Indenture Trustee; provided, that: (i) such direction may not
be in conflict with any rule of law or with the related Indenture; (ii) the
Indenture Trustee shall have been provided with indemnity reasonably
satisfactory to it; (iii) any direction to the Indenture Trustee to declare all
of the Bonds of such Series to be immediately due and payable following an
Issuer Event of Default, or to rescind any such declaration, shall be by the
holders of Bonds representing more than 50% (or such other percentage specified
in the related Prospectus Supplement) of the Voting Rights for such Series; (iv)
any direction to the Indenture Trustee to sell or liquidate all or any portion
of the Mortgage Loans securing such Series shall be by the holders of Bonds
representing not less than 66-2/3% (or such other percentage specified in the
related Prospectus Supplement) of the Voting Rights for each class of such
Series (except that, notwithstanding the foregoing, if the condition to
retention of the Mortgage Loans securing such Series set forth under "--Issuer
Events of Default" above has been satisfied and the Indenture Trustee elects to
retain such Mortgage Loans as described thereunder, then any direction to the
Indenture Trustee by the holders of less than all the Bonds of such Series to
sell or liquidate all or any portion of such Mortgage Loans shall be of no force
and effect); and (v) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee which is not inconsistent with such direction.
Notwithstanding the rights of Bondholders of any Series set forth above, the
Indenture Trustee need not, however, take any action which it determines might
involve it in liability or may be unjustly prejudicial to the Bondholders of
such Series not consenting.
Prior to the declaration of the acceleration of the maturity of the Bonds
of any Series as described under "--Issuer Events of Default" above, the holders
of Bonds representing more than 50% (or such other percentage specified in the
related Prospectus Supplement) of the Voting Rights for each class of such
Series may, on behalf of the holders of all the Bonds of such Series, waive any
past default on the part of the Issuer with respect to such Series and its
consequences, except a default: (i) in the payment of principal of or interest
on any Bond, which waiver shall require the waiver by the Holders of all of the
outstanding Bonds of such Series; or (ii) in respect of a covenant or provision
of the related Indenture which cannot be modified or amended without the consent
of the holder of each outstanding Bond of such Series, which waiver shall
require the waiver by each holder of an outstanding Bond of such Series.
No holder of Bonds of any Series will have the right to institute any
Proceedings with respect to the related Indenture, unless (i) such holder
previously has given to the Indenture Trustee for such Series written notice of
a continuing Issuer Event of Default with respect to such Series, (ii) the
holders of Bonds representing more than 50% (or such other percentage specified
in the related Prospectus Supplement) of the Voting Rights for such Series (or
such other group of Bondholders of such Series as may be required for directing
the Indenture Trustee to institute particular Proceedings as described in the
first paragraph of this "--Control of Bondholders" section and as shall hold
Bonds which, in the aggregate, represent more than 50% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
Series) shall have made written request to the Indenture Trustee to institute
Proceedings in respect of such Issuer Event of Default in its own name as
Indenture Trustee under the related Indenture; (iii) such holder or holders of
Bonds have offered to the Indenture Trustee adequate indemnity or security
satisfactory to the Indenture Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request, (iv) the Indenture
Trustee for such Series has, for 60 days after receipt of such notice, request
and offer of indemnity, failed to institute any such Proceeding and (v) no
direction inconsistent with such written request has been given to the Indenture
Trustee for such Series during such 60-day period by the holders of Bonds
representing more than 50% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights for such Series; provided, however,
that in the event that the Indenture Trustee receives conflicting requests and
indemnities from two or more groups of Bondholders of such Series, each
representing less than a majority, by aggregate Bond Principal Amount, of such
Series, the Indenture Trustee may in its sole discretion determine what action
with respect to the Proceeding, if any, shall be taken.
For purposes of giving the consents, waivers and directions contemplated in
this "--Control by Bondholders" section and under "--Issuer Events of Default"
above, Bonds held by the Issuer, the Depositor or any affiliate thereof will be
deemed not to be outstanding.
Satisfaction and Discharge of the Indenture. The related Indenture will be
discharged as to any Series of Bonds (except with respect to certain continuing
rights specified in such Indenture), (a)(1) upon the delivery to the related
Indenture Trustee or other Bond registrar for cancellation of all the Bonds of
such Series other than Bonds which have been mutilated, lost or stolen and have
been replaced or paid and Bonds for which money has been deposited in trust for
the full payment thereof (and thereafter repaid to the Issuer for such Series or
discharged from such trust) as provided in such Indenture, or (2) at such time
as all Bonds of such Series not previously canceled by the related Indenture
Trustee or other Bond registrar have become due and payable or, within one year,
will become due and payable or be called for redemption, and the Issuer for such
Series shall have deposited with the related Indenture Trustee an amount
sufficient to repay all of the Bonds of such Series, and further, in either such
case, (b) when the Issuer for such Series shall have paid all other amounts
payable under the related Indenture and certain other conditions specified in
the related Indenture have been specified.
Release of Collateral. Mortgage Loans may be released from the lien of an
Indenture: (i) upon satisfaction and discharge of such Indenture (see
"--Satisfaction and Discharge of the Indenture" above); (ii) in connection with
the liquidation of a defaulted Mortgage Loan or REO Property; (iii) in
connection with a material breach of a representation and warranty or the
failure to deliver certain required material documentation with respect to a
Mortgage Loan (see "--Pledge of Mortgage Loans; Deposit of Release Price or
Substitution" and "--Representations and Warranties; Repurchases and Other
Remedies" above); and (iv) as otherwise specified in the related Prospectus
Supplement.
List of Bondholders. Three or more Bondholders of any Series of Bonds which
have each owned Bonds of such Series for at least six months may, by written
application to the Indenture Trustee for such Series, request access to the list
maintained by such Indenture Trustee of all holders of the same Series for the
purpose of communicating with other Bondholders of such Series with respect to
their rights under the related Indenture; and the Indenture Trustee will be
required, with limited exception, to afford such applicants access to the most
recent form of such list in the possession of the Indenture Trustee or, at the
expense of such applicants, to mail copies of the particular communication to
such other Bondholders.
Meetings of Bondholders. Meetings of Bondholders of any Series of Bonds or
class thereof may be called at any time and from time to time in connection with
any of the following acts: (i) to give any notice to the Issuer or Indenture
Trustee for such Series, give directions to the Indenture Trustee for such
Series, consent to the waiver of any Issuer Event of Default under the related
Indenture, or to take any other action authorized to be taken by Bondholders in
connection therewith; (ii) to remove the Indenture Trustee for such Series or
appoint a successor Indenture Trustee; (iii) to consent to the execution of
supplemental indentures with respect to such Series; or (iv) to take any other
action authorized to be taken by or on behalf of such Bondholders. Such meetings
may be called by the Indenture Trustee, the Issuer or the holders of Bonds
representing at least 10% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights for such Series of Bonds.
Indenture Trustee's Annual Report. The Indenture Trustee for each Series of
Bonds will be required to mail each year to all Bondholders of such Series, a
brief report relating to its eligibility and qualification to continue as the
Indenture Trustee under the related Indenture, any amounts advanced by it under
the related Indenture which remain unpaid on the date of the report, the amount,
interest rate and maturity date of certain indebtedness owing by the Issuer (or
any other obligor on such Series) to such Indenture Trustee in its individual
capacity, the property and funds physically held by such Indenture Trustee in
its capacity as such, any release or release and substitution of property
subject to the lien of the related Indenture which has not been previously
reported, any additional issuance of Bonds of the same Issuer not previously
reported and any action taken by such Indenture Trustee which materially affects
the Bonds and which has not been previously reported.
Administrator. The Issuer may contract with other persons or entities to
assist it in performing its duties under any Indenture and any performance of
such duties (other than execution of Issuer orders, Issuer requests and
officer's certificates of the Issuer) by a person or entity identified to the
Indenture Trustee in an officer's certificate of the Issuer shall be deemed
action taken by the Issuer for all purposes under such Indenture.
As may be further specified in the related Prospectus Supplement, it is
expected that the Issuer for each Series of Bonds will enter into an
administration agreement with an administrator acceptable to the Rating Agencies
rating Bonds of such Series (the "Administrator") pursuant to which advisory,
administrative, accounting and clerical services will be provided to such Issuer
with respect to such Series. The Indenture Trustee or Master Servicer may serve
as the Administrator. In addition, under the related Indenture, the Issuer for
each Series of Bonds will be responsible for certain administrative and
accounting matters relating to the Bonds of such Series, and it is intended that
the Administrator will perform these services on behalf of the Issuer.
DESCRIPTION OF CREDIT SUPPORT
General
For any Series of Bonds, Credit Support may be provided with respect to one
or more classes thereof or the related Mortgage Loans. Credit Support may be in
the form of the subordination of one or more classes of Bonds, 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.
The coverage provided by any Credit Support for a Series of Bonds will be
described in the related Prospectus Supplement. Generally, such coverage will
not provide protection against all risks of loss and will not guarantee
repayment of the entire Bond Principal Amount of the Bonds and interest thereon.
If losses or shortfalls occur that exceed the amount covered by Credit Support
or that are not covered by Credit Support, Bondholders will bear their allocable
share of deficiencies. Moreover, if a form of Credit Support covers more than
one Series of Bonds (each, a "Covered Trust"), holders of Bonds secured by
assets of 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 Bonds
of a Series, or the related Mortgage Loans, 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 Bonds
If so specified in the related Prospectus Supplement, one or more classes
of Bonds of a Series may be Subordinate Bonds. To the extent specified in the
related Prospectus Supplement, the rights of the holders of Subordinate Bonds to
receive payments of principal and interest from the Payment Account on any
Payment Date will be subordinated to such rights of the holders of Senior Bonds.
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 Bonds 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 Loans for a Series are divided into separate groups, each
supporting a separate class or classes of Bonds of a Series, credit support may
be provided by cross-support provisions requiring that payments be made on
Senior Bonds evidencing interests in one group of Mortgage Loans prior to
payments on Subordinate Bonds evidencing interests in a different group of
Mortgage Loans for the same Series. 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 Mortgage Loans
If so provided in the Prospectus Supplement for a Series of Bonds, the
Mortgage Loans included in the related Collateral 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 Bonds
of the related Series.
Letter of Credit
If so provided in the Prospectus Supplement for a Series of Bonds,
deficiencies in amounts otherwise payable on such Bonds 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 Loans on the
related Cut-off Date or of the initial aggregate Bond Principal Amount of one or
more classes of Bonds. 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 Bonds
will expire at the earlier of the date specified in the related Prospectus
Supplement or the payment in full of the Bonds. 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 Bonds of the
related Series.
Insurance Policies and Surety Bonds
If so provided in the Prospectus Supplement for a Series of Bonds,
deficiencies in amounts otherwise payable on such Bonds 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 Bonds of the related Series, timely payments
of interest and/or full payments of principal on the basis of a schedule of
principal payments 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 Bonds of the related
Series.
Reserve Funds
If so provided in the Prospectus Supplement for a Series of Bonds,
deficiencies in amounts otherwise payable on such Bonds 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 payments received on the related Collateral 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 payments of
principal of and interest on the Bonds. 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
Payment 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 Bonds.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, or will remain uninvested or invested in other investments as
specified in the related Prospectus Supplement. To the extent 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 for a Series of
Bonds will be a part of the Collateral if and only to the extent provided 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 payments to Bondholders and use of investment earnings from the Reserve
Fund, if any.
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 Collateral."
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, golf courses,
automobile dealerships, 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.
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.
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 Indenture Trustee for a Series of Bonds 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
Indenture Trustee's exercise of such remedies for a related Series of Bonds 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 to 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 Issuer. 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 payment 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 Bonds in the same manner as a principal prepayment.
In addition, the bankruptcy of the general or limited partner of a
mortgagor that is a partnership, or the bankruptcy of a member of a mortgagor
that is a limited liability company or the bankruptcy of a shareholder of a
mortgagor that is a corporation may provide the opportunity in the bankruptcy
case of such partner, member or shareholder to obtain an order from a court
consolidating the assets and liabilities of the partner, member or shareholder
with those of the mortgagor pursuant to the doctrines of substantive
consolidation or piercing the corporate veil. In such a case, the respective
Mortgaged Property, for example, would become property of the estate of such
bankrupt partner, member or shareholder. Not only would the Mortgaged Property
be available to satisfy the claims of creditors of such partner, member or
shareholder, but an automatic stay would apply to any attempt by the Indenture
Trustee to exercise remedies with respect to such Mortgaged Property. However,
such an occurrence should not affect the Indenture 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 and (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 Materials, or the failure to remediate
contaminated 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, as applicable, 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.
The scope of the secured creditor exemption was clarified in part by the
enactment of the Asset Conservation, Lender Liability, and Deposit Insurance
Protection Act of 1996 (the "Lender Liability Act"), which took effect on
September 30, 1996. The Lender Liability 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. The Lender
Liability Act also provides that participation in the management of the property
does not include "merely having the capacity to influence, or the 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 certain 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 Lender Liability 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 may 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 Issuer and occasion a loss to
Bondholders in certain circumstances described above if such remedial costs were
incurred.
The related Agreements will provide that the Special Servicer, acting on
behalf of the Indenture 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 Issuer 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 Issuer 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--Collection and Other Servicing Procedures--Special Servicer."
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 those substances regulated under several federal
and state environmental 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
nonrecourse 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. A Master Servicer or
another person specified in the related Prospectus Supplement, on behalf of the
Issuer, will determine whether to exercise any right the Indenture 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 Premiums and Lockouts
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
Premiums 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 Premiums, 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
The Mortgage Loans included in the Mortgage Pool for a Series will
generally 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 as part of the Collateral 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 Mortgaged 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, golf courses, restaurants, movie theaters, car washes and
automobile dealerships may present additional risk in that such Mortgaged
Properties are typically operated pursuant to franchise, management and
operating agreements which may be terminable by the operator, and with respect
to hotels and restaurants, the transferability of operating, liquor and other
licenses to the entity acquiring the hotel or restaurant 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, movie theaters, 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 payable
to the holders of the related Series of Bonds, and would not be covered by
advances. Such shortfalls will be covered by the Credit Support provided in
connection with such Bonds only to the extent provided in the related Prospectus
Supplement. 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.
FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft, special counsel to the Depositor, as to the anticipated material federal
income tax consequences of the purchase, ownership and disposition of Bonds.
This discussion is directed solely to Bondholders that hold Offered Bonds as
capital assets within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"), and does not purport to discuss all federal
income tax consequences that may be applicable to particular categories of
investors, some of which (such as banks, insurance companies and foreign
investors) may be subject to special rules. Further, the authorities on which
this discussion, and the opinion referred to below, are based are subject to
change or differing interpretations, which could apply retroactively.
Prospective investors should note that no rulings have been or will be sought
from the Internal Revenue Service (the "Service") with respect to any of the
federal income tax consequences discussed below, and no assurance can be given
that the Service will not take contrary positions. In addition to the federal
income tax consequences described herein, potential investors should consider
the foreign, state and local tax consequences, if any, of the purchase,
ownership and disposition of Bonds. See "State Tax Considerations" herein.
Bondholders are advised to consult their tax advisors concerning the federal,
state, local, foreign or other tax consequences to them of the purchase,
ownership and disposition of Bonds.
Upon the issuance of each series of Offered Bonds, Cadwalader, Wickersham &
Taft, special counsel to the Depositor, will deliver its opinion generally to
the effect that, for federal income tax purposes, assuming compliance with all
provisions of the related Indenture and certain related documents, and based on
the facts set forth in the related Prospectus Supplement and additional
information and representations, such series of Offered Bonds will be treated as
indebtedness. For purposes of this tax discussion, references to a "Bondholder"
or a "holder" are to the Beneficial Owner of a Bond.
Taxable mortgage pool ("TMP") rules enacted as part of the Tax Reform Act
of 1986 treat certain arrangements in which debt obligations are secured or
backed by real estate mortgage loans as taxable corporations. An entity (or a
portion thereof) will be characterized as a TMP if (i) substantially all of its
assets are debt obligations and more than 50 percent of such debt obligations
consist of real estate mortgage loans or interests therein, (ii) the entity is
the obligor under debt obligations with two or more maturities, and (iii)
payments on the debt obligations referred to in (ii) bear a relationship to
payments on the debt obligations referred to in (i). Furthermore, a group of
assets held by an entity can be treated as a separate TMP if the assets are
expected to produce significant cash flow that will support one or more of the
entity's issues of debt obligation.
It is anticipated that the Issuer will be characterized as a TMP for
federal income tax purposes. In general, a TMP is treated as a "separate"
corporation not includible with any other corporation in a consolidated income
tax return, and is subject to corporate income taxation. However, it is
anticipated that for federal income tax purposes one hundred percent of the
Issuer will at all times be owned by a "qualified REIT subsidiary" (as defined
in Section 856(i) of the Code) of ICCMIC, which is a "real estate investment
trust" (a "REIT") (as defined in Section 856(a) of the Code). So long as the
Issuer is so owned and ICCMIC and such owner qualifies as a REIT and as a
qualified REIT subsidiary, respectively, characterization of the Issuer as a TMP
will result only in the shareholders of ICCMIC being required to include in
income, as "excess inclusion" income, some or all of their allocable share of
the Issuer's net income that would be "excess inclusion" income if the Issuer
were treated as a "real estate mortgage investment conduit," within the meaning
of Section 860D of the Code. Characterization of the Issuer as an owner trust
(wholly-owned and therefore ignored) or as itself a "qualified REIT subsidiary"
would not result in entity-level, corporate income taxation with respect to the
Issuer. In the event of ICCMIC's failure to continue to qualify as a REIT or the
failure of the owner of the Issuer to continue to qualify as a "qualified REIT
subsidiary" for federal income tax purposes, or for any other reason, the net
income (after the deduction of interest and original issue discount, if any, on
the Bonds) of the Issuer would be subject to corporate income tax, reducing cash
flow of the Issuer available to make payments on the Bonds, and the Issuer would
not be permitted to be included in a consolidated income tax return of another
corporate entity. No assurance can be given with regard to the prospective
qualification of the Issuer as either an owner trust or a "qualified REIT
subsidiary" or of the Depositor as a "qualified REIT subsidiary" for federal
income tax purposes.
Status as Real Property Loans
Bonds held by a domestic building and loan association will not constitute
"loans. . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code; Bonds held by a real estate investment
trust will not constitute "real estate assets" within the meaning of Section
856(c)(5)(A) of the Code and interest on Bonds will not be considered "interest
on obligations secured by mortgages on real property" within the meaning of
Section 856(c)(3)(B) of the Code. In addition, the Bonds will not be "qualified
mortgages" within the meaning of Section 860G(a)(3) of the Code.
Taxation of Bonds
General
In general, interest on a Bond will be treated as ordinary income to the
related Bondholder as it accrues or is paid, depending on the method of
accounting of the Bondholder, and principal payments on a Bond will be treated
as a return of capital to the extent of the Bondholder's basis in the Bond
allocable thereto. Bondholders must use the accrual method of accounting with
regard to original issue discount, if any, on the Bonds, regardless of the
method of accounting otherwise used by such Bondholders.
Original Issue Discount
Accrual Bonds and Principal Only Bonds will be, and other classes of Bonds
may be, issued with "original issue discount" within the meaning of Code Section
1273(a). Holders of any class of Bonds 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. Bondholders should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the Bonds. To the extent such
issues are not addressed in such regulations, it is anticipated that the
Indenture Trustee will 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 Bonds.
Each Bond (except to the extent described below with respect to a Bond on
which principal is distributed by random lot ("Random Lot Bonds")) will be
treated as a single installment obligation for purposes of determining the
original issue discount includible in a Bondholder's income. The total amount of
original issue discount on a Bond is the excess of the "stated redemption price
at maturity" of the Bond over its "issue price." The issue price of a class of
Bonds offered pursuant to this Prospectus generally is the first price at which
a substantial amount of Bonds of that class is sold to the public (excluding
bond houses, brokers and underwriters). Although unclear under the OID
Regulations, it is anticipated that the Indenture Trustee will treat the issue
price of a class as to which there is no substantial sale by the Underwriters
within ten days of the issue date as the fair market value of that class as of
the issue date. Any class of Bonds (or portion thereof) which is retained by the
Depositor or ICCMIC will not be treated as outstanding indebtedness until sold
to an unrelated third party. The issue price of a Bond includes the amount paid
by an initial Bondholder for accrued interest that relates to a period prior to
the issue date of the Bond, unless the Bondholder elects on its federal income
tax return to exclude such amount from the issue price and to recover it on the
first Payment Date. The stated redemption price at maturity of a Bond always
includes the original principal amount of the Bond, but generally will not
include payments of stated interest if such interest payments 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 Bond. Except as provided in the following three sentences and under
"--Variable Rate Bonds" below, it is anticipated that the Indenture Trustee will
treat interest with respect to the Bonds as qualified stated interest or in such
other manner as specified in the related Prospectus Supplement. Payments of
interest on an Accrual Bond, or on other Bonds 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 Bonds includes all payments
of interest as well as principal thereon. Likewise, it is anticipated that the
Indenture Trustee will 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 Payment Date on a Bond is shorter
than the interval between subsequent Payment 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 Bond 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 Bond multiplied by the weighted
average maturity of the Bond. For this purpose, the weighted average maturity of
the Bond 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 payment is scheduled to be made by a fraction, the numerator of which
is the amount of each payment included in the stated redemption price at
maturity of the Bond and the denominator of which is the stated redemption price
at maturity of the Bond. The Conference Committee Report to the 1986 Act
provides that the schedule of such payments 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
Bonds. The Prepayment Assumption with respect to a Series of Bonds 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 Bond is held as a capital asset.
However, under the OID Regulations, Bondholders 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 Bondholder 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 Bond accrued during an accrual period for each day on which it
holds the Bond, including the date of purchase but excluding the date of
disposition. It is anticipated that the Indenture Trustee will treat the monthly
period ending on the day before each Payment Date as the accrual period. With
respect to each Bond, 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 Payment Date
on the Bond. 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 Bond, 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 payments to be made on the Bond as of the end of that accrual period
that are included in the Bond's stated redemption price at maturity and (b) the
payments made on the Bond during the accrual period that are included in the
Bond's stated redemption price at maturity, over (ii) the adjusted issue price
of the Bond at the beginning of the accrual period. The present value of the
remaining payments referred to in the preceding sentence is calculated based on
(i) the yield to maturity of the Bond 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 Bond at the beginning of any accrual period equals the issue price of
the Bond, increased by the aggregate amount of original issue discount with
respect to the Bond that accrued in all prior accrual periods and reduced by the
amount of payments included in the Bond's stated redemption price at maturity
that were made on the Bond 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 Bondholder generally will
increase to take into account prepayments on the Bonds 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 Bonds can result in both a change in
the priority of principal payments with respect to certain classes of Bonds and
either an increase or decrease in the daily portions of original issue discount
with respect to such Bonds.
In the case of a Random Lot Bond, it is anticipated that the Indenture
Trustee will determine the yield to maturity of such Bond 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
Bond 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 payment in retirement of the
entire unpaid principal balance of any Random Lot Bond (or portion of such
unpaid principal balance), (a) the remaining unaccrued original issue discount
allocable to such Bond (or to such portion) will accrue at the time of such
payment, and (b) the accrual of original issue discount allocable to each
remaining Bond of such class (or the remaining unpaid principal balance of a
partially redeemed Random Lot Bond after a payment 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 Bond 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 Bond
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 Bonds
Bonds 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
Bonds 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 Bonds. However, if final regulations dealing with
contingent interest with respect to Bonds 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 Bonds as ordinary income. The applicable Prospectus
Supplement will describe whether any Class of Bonds of a series may be subject
to rules similar to the "contingent interest" rule of the OID Regulations.
Investors should consult their tax advisors regarding the appropriate treatment
of any Bond that does not pay interest at a fixed rate or variable rate as
described in this paragraph.
The amount of original issue discount with respect to a Bond 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
Bond generally to be determined by assuming that interest will be payable for
the life of the Bond based on the initial rate (or, if different, the value of
the applicable variable rate as of the pricing date) for the relevant class. It
is anticipated that the Indenture Trustee will 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, or that the Indenture
Trustee will treat such variable interest in such other manner as specified in
the related Prospectus Supplement. 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, it is anticipated that the Indenture Trustee will
treat Bonds bearing an interest rate that is a weighted average of the net
interest rates on Mortgage Loans 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 Bonds 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 interest rate on the Bonds.
Market Discount
A purchaser of a Bond 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
Bond (i) is exceeded by the then-current principal amount of the Bond or (ii) in
the case of a Bond having original issue discount, is exceeded by the adjusted
issue price of such Bond at the time of purchase. Such purchaser generally will
be required to recognize ordinary income to the extent of accrued market
discount on such Bond as payments includible in the stated redemption price at
maturity thereof are received, in an amount not exceeding any such payment. 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 Bond 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 Bond 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 payments 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 Bond
over the interest payable thereon. The deferred portion of such interest expense
in any taxable year generally will not exceed the accrued market discount on the
Bond 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 Bond is disposed of. As an alternative to the
inclusion of market discount in income on the foregoing basis, the Bondholder
may elect to include market discount in income currently as it accrues on all
market discount instruments acquired by such Bondholder 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 Bond 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 Bond multiplied by the weighted average maturity of the Bond
(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 Bond purchased at a cost greater than its remaining stated redemption
price at maturity generally is considered to be purchased at a premium. If the
Bondholder holds such Bond as a "capital asset" within the meaning of Code
Section 1221, the Bondholder may elect under Code Section 171 to amortize such
premium under the constant yield method. Final Treasury regulations applicable
to amortizable bond premiums do not by their terms apply to prepayable
obligations such as the Bonds. However, 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 Bonds, 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 Bond 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 Bond 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 Bonds
If a Bondholder sells or exchanges a Bond, the Bondholder will recognize
gain or loss equal to the difference, if any, between the amount received and
its adjusted basis in the Bond. The adjusted basis of a Bond generally will
equal the cost of the Bond to the seller, increased by any original issue
discount or market discount previously included in the seller's gross income
with respect to the Bond and reduced by amounts included in the stated
redemption price at maturity of the Bond 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 Bond
realized by an investor who holds the Bond as a capital asset will be capital
gain or loss and will be long-term or short-term depending on whether the Bond
has been held for the applicable holding period (described below). Such gain
will be treated as ordinary income (i) if a Bond 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 Bondholder'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 payment 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 rates. In addition, gain or loss recognized from
the sale of a Bond by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c). Long-term capital gains
of certain non-corporate taxpayers generally are subject to a lower maximum tax
rate (20%) than ordinary income of such taxpayers (39.6%) for property held for
more than one year. The maximum tax rate for corporations is the same with
respect to both ordinary income and capital gains.
Treatment of Losses
Holders of Bonds will be required to report original issue discount, if
any, and accrued method holders will be required to report interest income with
respect to Bonds as such amounts accrue, without giving effect to delays or
reductions in payments attributable to defaults or delinquencies on the Mortgage
Loans allocable to a particular class of Bonds, except to the extent it can be
established that such losses are uncollectible. Accordingly, the holder of a
Bond 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 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.
It appears that holders of Bonds that are corporations or that otherwise
hold the Bonds 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 Bonds becoming wholly or partially worthless, and
that, in general, holders of Bonds that are not corporations and do not hold the
Bonds 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 Bonds
becoming wholly worthless. Although the matter is not free from doubt,
non-corporate holders of Bonds should be allowed a bad debt deduction at such
time as the principal balance of any class or subclass of such Bonds 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 as part of the Collateral have been liquidated or such class of Bonds
has been otherwise retired. The Service could also assert that losses on the
Bonds 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
Bonds are urged to consult their own tax advisors regarding the appropriate
timing, amount and character of any loss sustained with respect to such Bonds.
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 Bonds.
Taxation of Certain Foreign Investors
Interest, including original issue discount, payable to Bondholders 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) with respect to ICCMIC and (ii) provides the Indenture Trustee, or
the person who would otherwise be required to withhold tax from such payments
under Code Section 1441 or 1442, with an appropriate certification, signed under
penalties of perjury, identifying the beneficial owner and stating, among other
things, that the beneficial owner of the Bond is a Non-U.S. Person. If such
certification, 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 Bond is effectively connected with the conduct of a
trade or business within the United States by such Non-U.S. Person. In the
latter case, such Non-U.S. Person will be subject to United States federal
income tax at regular rates. Investors who are Non-U.S. Persons should consult
their own tax advisors regarding the specific tax consequences to them of owning
a Bond. The term "Non-U.S. Person" means any person who is not a U.S. Person.
The term "U.S. Person" means a citizen or resident of the United States, a
corporation, partnership (except as provided in applicable Treasury regulations)
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 court
within the United States is able to exercise primary supervision over the
administration of such trust, and one or more such U.S. Persons have the
authority to control all substantial decisions of such trust (or, to the extent
provided in Treasury regulations, certain trusts in existence on August 20, 1996
which are eligible to elect to be treated as U.S. Persons).
The Service recently issued final regulations (the "New Regulations") which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations are effective
January 1, 2000, although valid withholding certificates that are held on
December 31, 1999, remain valid until the earlier of December 31, 2000 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations would require, in the case of Bonds held by a
foreign partnership, that (x) the certification described above be provided by
the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. A look-through rule would apply in the case of tiered partnerships.
Non-U.S. Persons should consult their own tax advisors concerning the
application of the certification requirements in the New Regulations.
Backup Withholding
Payments made on the Bonds, and proceeds from the sale of the Bonds to or
through certain brokers, may be subject to a "backup" withholding tax under Code
Section 3406 of 31% on "reportable payments" (including interest payments,
original issue discount, and, under certain circumstances, principal payments)
unless the Bondholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to the
Indenture Trustee, its agent or the broker who effected the sale of the Bond, or
such Bondholder is otherwise an exempt recipient under applicable provisions of
the Code. Any amounts to be withheld from payment on the Bonds would be refunded
by the Service or allowed as a credit against the Bondholder's federal income
tax liability. The New Regulations change certain of the rules relating to
certain presumptions currently available relating to information reporting and
backup withholding. Non-U.S. Persons are urged to contact their own tax advisors
regarding the application to them of backup withholding and information
reporting.
Reporting Requirements
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of market discount 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 Bonds or beneficial owners who
own Bonds through a broker or middleman as nominee. All brokers, nominees and
all other non-exempt holders of record of Bonds (including corporations,
non-calendar year taxpayers, securities or commodities dealers, real estate
investment trusts, investment companies, common trust funds, thrift institutions
and charitable trusts) may request such information for any calendar quarter by
telephone or in writing by contacting the person designated in Internal Revenue
Service Publication 938 with respect to a particular Series of Bonds. Holders
through nominees must request such information from the nominee.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A BONDHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE BONDS, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state income
tax consequences of the acquisition, ownership, and disposition of the Offered
Bonds. 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 Bonds.
CERTAIN ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"),
impose certain restrictions on (a) employee benefit plans (as defined in Section
3(3) of ERISA), (b) plans described in Section 4975(e)(1) of the Code, including
individual retirement accounts or Keogh plans, (c) any entities whose underlying
assets include plan assets by reason of a plan's investment in such entities
(each of (a), (b) and (c), a "Plan") and (d) persons who have certain specified
relationships to such Plans ("Parties in Interest" under ERISA and "Disqualified
Persons" under the Code). Moreover, based on the reasoning of the United States
Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114
S. Ct. 517 (1993), a life insurance company's general account may be deemed to
include assets of the Plans investing in the general account (e.g., through the
purchase of an annuity contract), and the insurance company might be treated as
a Party in Interest with respect to a Plan by virtue of such investment. ERISA
also imposes certain duties on persons who are fiduciaries of Plans subject to
ERISA and prohibits certain transactions between a Plan and Parties in Interest
or Disqualified Persons with respect to such Plans.
A fiduciary of any Plan should carefully review with its legal and other
advisors whether the purchase or holding of the Bonds could give rise to a
transaction prohibited or otherwise impermissible under ERISA or the Code, and
should refer to "Certain ERISA Considerations" in the related Prospectus
Supplement regarding any restrictions on the purchase and/or holding of the
Bonds offered thereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the prohibited transaction provisions of ERISA and
Section 4975 of the Code. Accordingly, assets of such plans may, subject to the
provisions of any other applicable federal and state law, be invested in the
Bonds of any Series without regard to the ERISA considerations described herein.
It should be noted, however, that any such plan that is qualified and exempt
from taxation under Sections 401(a) and 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
The sale of Bonds 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 Bonds 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 Bonds not qualifying as "mortgage related
securities" ("Non-SMMEA Bonds") under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase such
Bonds, 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 Bonds constitute legal investments for them.
Generally, only classes of Offered Bonds 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 secured by a pledge of Mortgage Loans of an Owner Trust, provided
the underlying Mortgage Loans are secured by first liens and were 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 before the October 3, 1991 cut-off established by SMMEA for
such enactments, limiting to various extents the ability of certain entities (in
particular, insurance companies) to invest in "mortgage related securities"
secured by first 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, Offered Bonds satisfying the rating, first lien and
qualified originator requirements for "mortgage related securities," but secured
by a pledge of Mortgage Loans of an Owner Trust 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 Bonds. Accordingly, the investors affected
by such legislation, when and if enacted, will be authorized to invest in
Offered Bonds 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.
ss. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, 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 concerning "safety and soundness" and
retention of credit information in 12 C.F.R. ss. 1.5), certain "Type IV
securities," defined in 12 C.F.R. ss. 1.2(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 Offered Bonds will qualify as
"commercial mortgage-related securities," and thus as "Type IV securities," for
investment by national banks. The National Credit Union Administration ("NCUA")
has adopted rules, codified at 12 C.F.R. Part 703, which permit federal credit
unions to invest in "mortgage related securities" under certain limited
circumstances, other than stripped mortgage related securities, residual
interests in mortgage related securities, and commercial mortgage related
securities, unless the credit union has obtained written approval from the NCUA
to participate in the "investment pilot program" described in 12 C.F.R. ss.
703.140.
All depository institutions considering an investment in the Offered Bonds
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the Federal
Financial Institutions Examination Counsel (the "FFIEC"), which has been adopted
by the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the Office of Thrift Supervision, effective
May 26, 1998, and by the NCUA, effective October 1, 1998. The 1998 Policy
Statement sets forth general guidelines which depository institutions must
follow in managing risks (including market, credit, liquidity, operations
(transaction), and legal risks) applicable to all securities (including mortgage
pass-through securities and mortgage-derivative products) used for investment
purposes. Until October 1, 1998, federal credit unions will still be subject to
the FFIEC's now-superseded "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as adopted by the NCUA with certain
modifications, which prohibited depository institutions from investing in
certain "high-risk mortgage securities," except under limited circumstances, and
set 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 Bonds, as certain classes may be deemed to be 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 Bonds
issued in book-entry form, provisions which may restrict or prohibit investments
in securities which are issued in book-entry form identified in a Prospectus
Supplement for a Series.
Except as to the status of certain classes of Offered Bonds as "mortgage
related securities," no representations are made as to the proper
characterization of any class of Offered Bonds 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 Bonds under
applicable legal investment restrictions. These uncertainties (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Bonds) may adversely
affect the liquidity of any class of Offered Bonds.
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 Bonds of any class constitute
legal investments or are subject to investment, capital or other restrictions
and, if applicable, whether SMMEA has been overridden in any jurisdiction
relevant to such investor.
PLAN OF DISTRIBUTION
The Offered Bonds offered hereby will be offered in Series. The payment of
the Bonds 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
Bonds 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 Bonds
agreed to be purchased by purchasers pursuant to purchase agreements acceptable
to the Depositor. In connection with the sale of Offered Bonds, underwriters may
receive compensation from the Depositor or from purchasers of Offered Bonds in
the form of discounts, concessions or commissions.
Alternatively, the Prospectus Supplement may specify that Offered Bonds
will be distributed by an underwriter acting as agent or in some cases as
principal with respect to Offered Bonds that it has previously purchased or
agreed to purchase. If the underwriter acts as agent in the sale of Offered
Bonds, the underwriter will receive a selling commission with respect to such
Offered Bonds, depending on market conditions, expressed as a percentage of the
aggregate Bond Principal Amount or notional amount of such Offered Bonds as of
the Cut-off Date. The exact percentage for each Series of Bonds will be
disclosed in the related Prospectus Supplement. To the extent that the
underwriter elects to purchase Offered Bonds 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 Bonds 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 secured borrowings, off-balance sheet swaps or repurchase agreements
to provide interim financing of the Depositor's mortgage loans pending the sale
of such mortgage loans or interests therein, including the Bonds.
Offered Bonds will be sold primarily to institutional investors. Purchasers
of Offered Bonds, 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 Bonds. Bondholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by Imperial Capital Group, LLC, an affiliate of the
Depositor, in connection with offers and sales related to market-making
transactions in the Offered Bonds previously offered hereunder in transactions
in which Imperial Capital Group, LLC acts as principal. Imperial Capital Group,
LLC may also act as agent in such transactions. Sales may be made at negotiated
prices determined at the time of sale.
LEGAL MATTERS
The validity of the Bonds and certain federal income tax consequences of
investing in the Bonds will be passed upon for the Depositor by Cadwalader,
Wickersham & Taft, New York, New York.
FINANCIAL INFORMATION
A new Issuer will be formed with respect to each Series of Bonds and no
Issuer will engage in any business activities or have any assets or obligations
prior to the issuance of the related Series of Bonds. Accordingly, no financial
statements with respect to any Issuer will be included in this Prospectus or in
the related Prospectus Supplement.
RATING
It is a condition to the issuance of any class of Offered Bonds 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-backed securities address the likelihood of receipt by
Bondholders of all payments on the underlying mortgage loans. These ratings
address the structural, legal and issuer-related aspects associated with such
securities, the nature of the underlying mortgage loans and the credit quality
of the guarantor, if any. Ratings on mortgage-backed securities 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, Bondholders might suffer a lower than anticipated
yield, and, in addition, holders of Interest Only Bonds 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.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Page on which
term is first defined
Term in the Prospectus
--1--
1998 Policy Statement.......................................................
--A--
Accounts....................................................................
accreted value..............................................................
Accrual Bonds...............................................................
Accrued Bond Interest.......................................................
ACMs........................................................................
ADA.........................................................................
Administration Agreement....................................................
Administrator...............................................................
Agreements..................................................................
ARM Loans...................................................................
Asset Conservation Act......................................................
Asset Seller................................................................
Available Payment Amount....................................................
--B--
Balloon Payment Loans.......................................................
Bankruptcy Code.............................................................
Beneficial Owners...........................................................
Bond........................................................................
Bond Principal Amount.......................................................
Bondholder..................................................................
Bondholders.................................................................
Bonds.......................................................................
Book-Entry Bonds............................................................
--C--
Cash Flow Agreements........................................................
Cede........................................................................
CERCLA......................................................................
Code........................................................................
Collateral..................................................................
Commercial Loans............................................................
Commercial Properties.......................................................
Commission..................................................................
Covered Trust...............................................................
CPR.........................................................................
Credit Support..............................................................
Crime Control Act...........................................................
Cut-off Date................................................................
--D--
Debt Service Coverage Ratio.................................................
Definitive Bonds............................................................
Deposit Trust Agreement.....................................................
Depositor...................................................................
Derivative Contract.........................................................
Determination Date..........................................................
Disqualified Persons........................................................
Disqualifying Condition.....................................................
DTC.........................................................................
Due Period..................................................................
--E--
Environmental Condition.....................................................
Environmental Hazard Condition..............................................
environmental lien..........................................................
Equity Participations.......................................................
ERISA.......................................................................
Exchange Act................................................................
--F--
FDIC........................................................................
FFIEC.......................................................................
Fixed Rate Bonds............................................................
--H--
Hazardous Materials.........................................................
--I--
ICCMIC......................................................................
Indenture...................................................................
Indenture Trustee...........................................................
Indirect Participants.......................................................
Insurance Proceeds..........................................................
Interest Only Bonds.........................................................
Issuer......................................................................
Issuer Event of Default.....................................................
--L--
L/C Bank....................................................................
Lease.......................................................................
Lease Assignment............................................................
Liquidation Proceeds........................................................
Loan-to-Value Ratio.........................................................
Lock-out Date...............................................................
Lock-out Period.............................................................
--M--
Master Servicer.............................................................
Mortgage Interest Rate......................................................
Mortgage Loans..............................................................
Mortgage Notes..............................................................
Mortgages...................................................................
Mortgagor...................................................................
Multifamily Loans...........................................................
Multifamily Properties......................................................
--N--
NCUA........................................................................
Net Operating Income........................................................
Nonrecoverable Advance......................................................
Non-SMMEA Bonds.............................................................
Notice of Default...........................................................
--O--
OCC.........................................................................
Offered Bonds...............................................................
OID Regulations.............................................................
original issue discount.....................................................
Originator..................................................................
Owner Trust.................................................................
Owner Trustee...............................................................
--P--
Participants................................................................
Parties in Interest.........................................................
Payment Account.............................................................
Payment Date................................................................
Permitted Investments.......................................................
Plan........................................................................
Prepayment Assumption.......................................................
Prepayment Premium..........................................................
Principal Only Bonds........................................................
Proceeding..................................................................
Purchase Price..............................................................
--R--
Random Lot Bonds............................................................
Rating Agency...............................................................
RCRA........................................................................
Record Date.................................................................
Redemption Price............................................................
Refinance Loans.............................................................
REIT........................................................................
Related Proceeds............................................................
Release Price...............................................................
Relief Act..................................................................
REO Proceeds................................................................
REO Property................................................................
Retained Interest...........................................................
RICO........................................................................
--S--
Senior Bonds................................................................
Series......................................................................
Service.....................................................................
Servicer....................................................................
Servicer Event of Default...................................................
Servicing Standard..........................................................
Servicing Transfer Event....................................................
SMMEA.......................................................................
Special Redemption Date.....................................................
Special Servicer............................................................
Specially Serviced Mortgage Loan............................................
Stated Maturity.............................................................
Subordinate Bonds...........................................................
--T--
TIA.........................................................................
Title V.....................................................................
TMP.........................................................................
Trust Assets................................................................
--U--
U.S. Person.................................................................
UCC.........................................................................
--V--
Value.......................................................................
Voting Rights...............................................................
--W--
Warranting Party............................................................
<PAGE>
Explanatory Note
The following is a form of prospectus supplement containing bracketed
language indicative of the types of disclosure that would be made by the
Registrant in connection with an offering of a Series of Bonds. Variations from
this form of prospectus supplement may occur due to the specific nature of the
Series of Bonds being offered. When combined with the base Prospectus included
in this Registration Statement, the Prospectus Supplement relating to a specific
Series of Bonds will constitute a separate Prospectus.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
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.
SUBJECT TO COMPLETION, DATED OCTOBER __, 1998
PROSPECTUS SUPPLEMENT
To Prospectus dated ___,(199__)
$
(Approximate)
ICCMAC Commercial Trust [___]
(Issuer)
Collateralized Mortgage Bonds
Series 199__-____
ICCMAC Commercial Trust [____] (the "Issuer"), a trust established by
Imperial Credit Commercial Mortgage Acceptance Corp. (the "Depositor"), is
issuing approximately $_____________ aggregate Bond Principal Amount (as defined
in the accompanying Prospectus) of its Series 199_- ____ Collateralized Mortgage
Bonds (the "Bonds"). The Bonds will consist of [seven] classes (each, a "Class")
to be designated as: (i) [the Class A-1 and Class A-2 Bonds (collectively, the
"Class A Bonds" or the "Senior Bonds")]; and (ii) [the Class B, Class C, Class
D, Class E and Class F Bonds (collectively, the "Subordinate Bonds")]. Only the
[Class A, Class B, Class C and Class D Bonds] (collectively, the "Offered
Bonds") are offered hereby. The respective Classes of Offered Bonds will be
issued in the aggregate Bond Principal Amounts, and will accrue interest at the
rate (the "Bond Interest Rate"), set forth in the table below.
(Continued on page S-2)
Class of Initial Assumed
Series 199_ Aggregate Bond Final Rating
Collateralized Bond Principal Interest Stated Payment ([identify Rating
Mortgage Bonds Amount(a) Rate Maturity Date(b) Agencies])(c)(d)
- -------------- -------------- -------- -------- ------- -----------------
Class A-1.... $ %
Class A-2.... $ %
Class B...... $ %
Class C...... $ %
Class D...... $ %
- ---------------
(a) The initial aggregate Bond Principal Amount of each Class of Offered Bonds
is subject to a permitted variance of plus or minus __%.
(b) The "Assumed Final Payment Date" with respect to any Class of Bonds is the
Payment Date (as defined herein) on which the final payment would occur for
such Class of Bonds based upon the assumption that no Mortgage Loan is
prepaid prior to its stated maturity and otherwise based on the Modeling
Assumptions (as described herein). The actual performance and experience of
the Mortgage Loans will likely differ from such assumptions. See "Yield and
Maturity Considerations" herein.
(c) It is a condition to their issuance that the respective Classes of Offered
Bonds be assigned ratings by _________________ ("_____") and/or
________________________ ("________"; and together with ________, the
"Rating Agencies") no less than those set forth above. The ratings on the
Offered Bonds address the timely payment thereon of interest and the
ultimate payment thereon of principal on or before Stated Maturity. See
"Ratings" herein.
(d) The ratings on the Offered Bonds do not represent any assessment of (i) the
likelihood or frequency of principal prepayments on the Mortgage Loans,
(ii) the degree to which such prepayments might differ from those
originally anticipated or (iii) whether and to what extent Prepayment
Premiums (as defined herein) will be received. Also a security rating does
not represent any assessment of the yield to maturity that investors may
experience. See "Ratings" herein.
FOR A DISCUSSION OF MATERIAL RISKS TO BE CONSIDERED IN PURCHASING THE OFFERED
BONDS, SEE "RISK FACTORS" BEGINNING ON PAGE __ HEREIN AND ON PAGE __ IN THE
PROSPECTUS.
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.
The Offered Bonds will be purchased from the [Issuer] by ________________
(the "Underwriter") and will be offered 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 [Issuer] from the sale of the Offered Bonds,
before deducting expenses payable by the [Issuer] estimated to be approximately
$_____________, will be ______% of the initial aggregate Bond Principal Amount
of the Offered Bonds [, plus accrued interest on the Offered Bonds from
____________, 199_]. The Offered Bonds are offered by the Underwriter subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to certain other conditions. It is expected that the Offered Bonds will
be delivered in book-entry form through the Same-Day Funds Settlement System of
DTC on or about _____________, 199__ (the "Closing Date"), against payment
therefor in immediately available funds.
[Underwriter]
The date of this Prospectus Supplement is __________, 199__.
<PAGE>
(Continued from cover page)
See "Index of Principal Definitions" herein for the location of meanings of
capitalized terms used and defined herein. See "Index of Principal Definitions"
in the accompanying Prospectus for the location of meanings of capitalized terms
used but not defined herein.
There is currently no secondary market for the Offered Bonds. The
Underwriter intends to make a secondary market in the Offered Bonds, but is not
obligated to do so. There can be no assurance that a secondary market for the
Offered Bonds will develop or, if one does develop, that it will continue. See
"Risk Factors-Limited Liquidity" herein. The Offered Bonds will not be listed on
any securities exchange.
The Bonds will be secured by a pledge of collateral (the "Collateral")
which consists primarily of a segregated pool (the "Mortgage Pool") of
approximately ___ [describe general characteristics of Mortgage Loans] mortgage
loans (the "Mortgage Loans"). As of ______________, 199_ (the "Cut-off Date"),
the Mortgage Loans had an aggregate principal balance, after taking into account
all payments of principal due on or before such date, whether or not received,
of $___________ (the "Initial Pool Balance")[, subject to a permitted variance
of plus or minus __%.]
The Bonds will be issued pursuant to an Indenture to be dated as of
___________, 199_ (the "Indenture"), between _______________________ as owner
trustee (the "Owner Trustee"), on behalf of the Issuer, and
__________________________ as indenture trustee (the "Trustee"), on behalf of
the holders of the Bonds (the "Bondholders"). Certain duties and obligations of
the Issuer under the Indenture will be performed on behalf of the Issuer by
________________________ (the "Administrator") in accordance with an
Administration Agreement, to be dated as of ____________, 199_ (the
"Administration Agreement"), between the Owner Trustee, on behalf of the Issuer,
and the Administrator.
Payments of interest on and principal of the Bonds will be made to holders
thereof, to the extent of available funds, on the ___ day of each month or, if
any such day is not a business day, then on the next succeeding business day,
commencing in ______________ 199_ (each, a "Payment Date"). As and to the extent
described herein, payments of interest accrued on each Class of Bonds will be
made on each Payment Date based on the Bond Interest Rate applicable to such
Class and the aggregate Bond Principal Amount of such Class outstanding
immediately prior to such Payment Date. To the extent there are deficiencies in
the interest payment on a Class of Bonds on any Payment Date, such deficiencies
will be deferred to succeeding Payment Dates. Principal payments on the Bonds
will be made on each Payment Date to the extent funds are available therefor in
the amounts and in accordance with the priorities described herein. See
"Description of the Bonds--Payments on the Bonds" herein.
As and to the extent set forth herein, the Issuer's Equity (as defined
herein) and the Class E and Class F Bonds (collectively, the "Private Bonds")
will be subordinate to the Offered Bonds; the Class D Bonds will be subordinate
to the Class A, Class B and Class C Bonds; the Class C Bonds will be subordinate
to the Class A and Class B Bonds; and the Class B Bonds will be subordinate to
the Class A Bonds. See "Description of the Bonds--Payments on the Bonds" and
"--Subordination" herein.
The yield to maturity of each Class of Offered Bonds will depend on, among
other things, the rate and timing of principal payments (including by reason of
prepayments, loan extensions, defaults and liquidations) and losses on the
Mortgage Loans. See "Risk Factors" and "Yield and Maturity Considerations"
herein.
No election will be made to treat the Issuer, any of its assets or the
arrangement by which the Bonds are issued as a "real estate mortgage investment
conduit" (a "REMIC") for federal income tax purposes. See "Federal Income Tax
Consequences" herein.
THE OFFERED BONDS REPRESENT NON-RECOURSE OBLIGATIONS OF THE ISSUER AND WILL
BE PAID SOLELY FROM THE COLLATERAL SECURING THE OFFERED BONDS. NEITHER THE
OFFERED BONDS NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON. ACCORDINGLY, IF
THE COLLATERAL IS INSUFFICIENT TO PROVIDE PAYMENTS ON THE OFFERED BONDS, NO
OTHER ASSETS WILL BE AVAILABLE FOR PAYMENT OF THE DEFICIENCY. PROSPECTIVE
INVESTORS SHOULD MAKE AN INVESTMENT DECISION BASED UPON AN ANALYSIS OF THE
SUFFICIENCY OF THE MORTGAGE LOANS TO MAKE PAYMENTS ON THE OFFERED BONDS.
THE BONDS OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF SECURITIES ISSUED BY THE ISSUER AND ARE BEING OFFERED
PURSUANT TO ITS PROSPECTUS DATED _____________, 199__ (THE "PROSPECTUS"), OF
WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING THAT IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO
READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED
BONDS MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
FORWARD LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS OR IN THE DOCUMENTS INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE
WORDS "EXPECTS," "INTENDS." "ANTICIPATES," "ESTIMATES," AND ANALOGOUS
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ANY SUCH
STATEMENTS, WHICH MAY INCLUDE STATEMENTS CONTAINED IN "RISK FACTORS" INHERENTLY
ARE SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND UNCERTAINTIES
INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS, COMPETITION,
CHANGES IN FOREIGN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS, REGULATORY
INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES
AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE DEPOSITOR'S CONTROL.
THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS
SUPPLEMENT. THE DEPOSITOR EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO
RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE DEPOSITOR'S EXPECTATIONS WITH
REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY
SUCH STATEMENT IS BASED.
UNTIL ________________, 199_, ALL DEALERS EFFECTING TRANSACTIONS IN THE
OFFERED BONDS, 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.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF PROSPECTUS SUPPLEMENT............................................
RISK FACTORS................................................................
CERTAIN YIELD AND MATURITY CONSIDERATIONS..............................
EFFECT OF MORTGAGOR DELINQUENCIES AND DEFAULTS.........................
[OPTIONAL REDEMPTION OF BONDS..........................................
SUBORDINATION OF SUBORDINATED BONDS....................................
RISKS ASSOCIATED WITH CERTAIN OF THE MORTGAGE LOANS AND
MORTGAGED PROPERTIES..............................................
[RISKS ASSOCIATED WITH HOTEL PROPERTIES................................
[RISKS ASSOCIATED WITH NURSING HOMES...................................
LIMITED RECOURSE NATURE OF MORTGAGE LOANS; RECOURSE
GENERALLY LIMITED TO MORTGAGED PROPERTY...........................
RISKS ASSOCIATED WITH CONCENTRATION OF MORTGAGE LOANS..................
RISKS OF DIFFERENT TIMING OF MORTGAGE LOAN AMORTIZATION................
RISKS ASSOCIATED WITH GEOGRAPHIC CONCENTRATION.........................
INCREASED RISK OF DEFAULT ASSOCIATED WITH ADJUSTABLE
RATE MORTGAGE LOANS...............................................
INCREASED RISK OF DEFAULT ASSOCIATED WITH BALLOON PAYMENTS.............
EXTENSION RISK ASSOCIATED WITH MODIFICATION OF MORTGAGE
LOANS WITH BALLOON PAYMENTS.......................................
[INCLUSION OF DELINQUENT AND UNDER-PERFORMING MORTGAGE
LOANS.............................................................
POTENTIAL LIABILITY TO THE TRUST ESTATE RELATING TO A
MATERIALLY ADVERSE ENVIRONMENTAL CONDITION........................
RISKS ASSOCIATED WITH LITIGATION.......................................
RISKS ASSOCIATED WITH OTHER FINANCINGS.................................
[RISKS ASSOCIATED WITH GROUND LEASES AND OTHER LEASEHOLD
INTERESTS.........................................................
ATTORNMENT CONSIDERATIONS..............................................
LIMITED RIGHTS FOR BREACHES OF REPRESENTATIONS AND
WARRANTIES........................................................
[LIQUOR LICENSE CONSIDERATIONS.........................................
CONFLICTS BETWEEN THE SPECIAL SERVICER AND THE DEPOSITOR...............
LIMITED LIQUIDITY......................................................
LIMITED ASSETS FOR PAYMENT OF OFFERED BONDS............................
LIMITED ISSUER EVENTS OF DEFAULT.......................................
RISKS RELATING TO LACK OF BONDHOLDER CONTROL OVER TRUST
ESTATE............................................................
DESCRIPTION OF THE MORTGAGE POOL............................................
GENERAL................................................................
REPRESENTATIONS AND WARRANTIES; REPURCHASES............................
[CONVERTIBLE MORTGAGE LOANS............................................
[HYBRID RATE MORTGAGE LOANS............................................
[THE [INDEX] [INDICES].................................................
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS..........................
GEOGRAPHIC DISTRIBUTION................................................
BORROWER CONCENTRATION.................................................
RELATED BORROWERS......................................................
ESCROWS................................................................
UNDERWRITING GUIDELINES................................................
ADDITIONAL INFORMATION.................................................
SERVICING OF THE MORTGAGE LOANS.............................................
[DESCRIPTION OF MASTER SERVICER AND SPECIAL SERVICER
TO BE PROVIDED BY MASTER SERVICER]................................
RESPONSIBILITIES OF MASTER SERVICER....................................
RESPONSIBILITIES OF SPECIAL SERVICER...................................
[EXTENSION ADVISOR.....................................................
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES...............
CONFLICTS OF INTEREST..................................................
DESCRIPTION OF THE BONDS....................................................
GENERAL................................................................
REGISTRATION AND DENOMINATIONS.........................................
PAYMENTS ON THE BONDS..................................................
GENERAL...........................................................
FUNDS AVAILABLE FOR PAYMENTS ON THE BONDS.........................
PRIORITY OF PAYMENTS..............................................
ACCRUED BOND INTEREST.............................................
PRINCIPAL PAYMENT AMOUNT..........................................
[YIELD MAINTENANCE AMOUNT.........................................
TREATMENT OF REO PROPERTIES.......................................
SUBORDINATION..........................................................
ADVANCES...............................................................
REPORTS TO BONDHOLDERS; CERTAIN AVAILABLE INFORMATION..................
[TRUSTEE REPORTS; SPECIAL SERVICER REPORTS........................
OTHER INFORMATION.................................................
VOTING RIGHTS..........................................................
THE TRUSTEE............................................................
[OPTIONAL REDEMPTION]..................................................
ADDITIONAL INFORMATION.................................................
THE ISSUER..................................................................
THE OWNER TRUSTEE...........................................................
THE ADMINISTRATOR...........................................................
YIELD AND MATURITY CONSIDERATIONS...........................................
YIELD CONSIDERATIONS...................................................
GENERAL...........................................................
RATE AND TIMING OF PRINCIPAL PAYMENTS.............................
LOSSES AND SHORTFALLS.............................................
CERTAIN RELEVANT FACTORS..........................................
UNPAID ACCRUED BOND INTEREST......................................
WEIGHTED AVERAGE LIFE..................................................
FEDERAL INCOME TAX CONSEQUENCES.............................................
GENERAL................................................................
STATUS AS REAL PROPERTY LOANS..........................................
DISCOUNT AND PREMIUM...................................................
BACKUP WITHHOLDING AND INFORMATION REPORTING...........................
CERTAIN ERISA CONSIDERATIONS................................................
LEGAL INVESTMENT............................................................
METHOD OF DISTRIBUTION......................................................
LEGAL MATTERS...............................................................
RATINGS.....................................................................
INDEX OF PRINCIPAL DEFINITIONS..............................................
<PAGE>
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 that are used in this
Summary may be defined elsewhere in this Prospectus Supplement or in the
Prospectus. An Index of Principal Definitions is included at the end of both
this Prospectus Supplement and the Prospectus. Terms that are used but not
defined in this Prospectus Supplement will have the meanings specified in the
Prospectus.
Issuer............................ ICCMAC Commercial Trust [____] (the "Issuer")
is a trust established under the laws of the
State of _________ by Imperial Credit
Commercial Mortgage Acceptance Corp. (the
"Depositor"), a California corporation,
pursuant to a Deposit Trust Agreement, to be
dated as of __________, 199_ (the "Deposit
Trust Agreement"), between the Depositor and
____________________ as owner trustee (the
"Owner Trustee"). The Depositor, is a [direct
wholly-owned subsidiary] of Imperial Credit
Commercial Mortgage Investment Corp.
("ICCMIC") The Depositor initially will own
100% of the beneficial interests in the
Issuer, but may transfer a portion of such
beneficial interests to an affiliate. None of
the Depositor, ICCMIC, or any affiliate of
either of them has guaranteed or insured the
Offered Bonds or the Mortgage Loans.
The Owner Trustee maintains its principal
corporate trust office at
________________________________, telephone
(___) ___________. See "The Issuer" and "The
Owner Trustee" herein and "The Depositor" in
the Prospectus.
Bonds............................. The Issuer is issuing approximately
$__________ aggregate Bond Principal Amount
of its Series 199_-____ Collateralized
Mortgage Bonds (the "Bonds"). The Bonds will
be issued on the Closing Date in [seven]
classes (each, a "Class") to be designated
as: [(i) the Class A-1 and Class A-2 Bonds
(collectively, the "Class A Bonds" or the
"Senior Bonds"); (ii) the Class B, Class C
and Class D Bonds (collectively with the
Class A Bonds, the "Offered Bonds"); and
(iii) the Class E and Class F Bonds
(collectively, the "Private Bonds"; and
collectively with the Class B, Class C and
Class D Bonds, the "Subordinate Bonds")].
Only the Offered Bonds are offered hereby.
The Private Bonds have not and will not be
registered under the Securities Act of 1933,
as amended (the "Securities Act") and are not
offered hereby. The Private Bonds will
initially be issued to and held by one or
more affiliates of the Issuer and are not
offered hereby. To the extent this Prospectus
Supplement contains information regarding the
Private Bonds, such information is provided
because of its potential relevance to a
prospective purchaser of an Offered Bond.
The Bonds will be issued pursuant to an
Indenture, to be dated as of _________, 199_
(the "Indenture"), between the Owner Trustee,
on behalf of the Issuer, and the Trustee, on
behalf of the holders of the Bonds (the
"Bondholders").
The Bonds will be non-recourse obligations of
the Issuer. The Bonds are not insured or
guaranteed by any governmental agency or
instrumentality or by any other person. The
respective Classes of Bonds will be issued in
the initial aggregate Bond Principal Amount
(in each case, subject to a variance of plus
or minus __%), and will accrue interest at
the Bond Interest Rates, set forth below:
Initial Aggregate
Bond Principal Bond Interest
Class Amount Rate
----- ----------------- -------------
[Class A-1] $ %
[Class A-2] $ %
[Class B] $ %
[Class C] $ %
[Class D] $ %
[Class E] $ %
[Class F] $ %
The "Issuer's Equity" represents the right of
the Issuer or its designee (i) to receive all
payments on and proceeds of the Collateral
not otherwise allocable to pay interest,
principal and other amounts on the Bonds in
accordance with their terms or expenses of
the Trust Estate (as defined herein) and (ii)
to have the remaining Collateral returned to
it after the Indenture is satisfied and
discharged. The principal amount of the
Issuer's Equity as of any date of
determination is the amount (the
"Overcollateralization Amount"), if any, by
which the then aggregate Stated Principal
Balance (as defined herein) of the Mortgage
Pool (initially equal to the Initial Pool
Balance) exceeds the then aggregate Bond
Principal Amount of all the Bonds. As of the
Closing Date, the Overcollateralization
Amount will equal approximately
$--------------.
Trustee........................... _________________________, a ______________.
See "Description of the Bonds--The Trustee"
herein.
Administrator..................... _______________________ (the "Administrator")
will perform certain functions as agent on
behalf of the Issuer pursuant to an
Administration Agreement, to be dated as of
____________, 199_ (the "Administration
Agreement"), between the Administrator and
the Owner Trustee, on behalf of the Issuer.
Master Servicer................... _______________________, a _______________
corporation ("_____"). See "Servicing--The
Master Servicer" 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."
Mortgage Loan Seller.............. ______________________ (the "Mortgage Loan
Seller"). See "Description of the Mortgage
Pool--General" herein.
Cut-off Date...................... ___________, 199_.
Closing Date...................... On or about ___________, 199_.
Accrual Date...................... ____________, 199_, the date as of which
interest begins to accrue on the Bonds.
Payment Date...................... The ___ day of each month or, if any such ___
day is not a business day, then the next
succeeding business day, commencing in
________, 199_.
Collection Period................. As to any Payment Date, the period commencing
immediately following the Determination Date
in the month immediately preceding the month
in which such Payment Date occurs (or, in the
case of the initial Payment Date, commencing
immediately following the Cut-off Date) and
ending on and including the related
Determination Date.
Determination Date................ As to any Payment Date, the __ day of the
month in which such Payment Date occurs, or
if such __ day is not a business day, the
immediately preceding business day.
Record Date....................... As to any Payment Date, the last business day
of the month immediately preceding the month
in which such Payment Date occurs.
Interest Accrual Period........... As to any Payment Date, the calendar month
preceding the month in which such Payment
Date occurs.
Book-Entry Registration........... Each Class of Offered Bonds will initially be
issued in book-entry form through the
facilities of DTC and, accordingly, will
constitute "Book-Entry Bonds" within the
meaning of the Prospectus. No person
acquiring an interest in a Book-Entry Bond
(any such person, a "Bond Owner") will be
entitled to receive a fully registered
physical security (a "Definitive Bond")
evidencing such interest, except under the
limited circumstances described in the
Prospectus. See "Risk Factors-- Owners of
Book-Entry Bonds Not Entitled to Exercise
Rights of Holders of Bonds" in the Prospectus
and "Description of the Bonds--Registration
and Denominations" herein and "Description of
the Bonds--Book-Entry Registration and
Definitive Bonds" in the Prospectus.
Denominations..................... The Offered Bonds will each be issued in
minimum denominations of $________ initial
Bond Principal Amount and in any whole dollar
in excess thereof.
Security for the Bonds............ The Bonds will be secured by a pledge of the
Trust Estate. The "Trust Estate" will consist
of all rights, money, instruments, securities
and other property, including all proceeds
thereof, which are subject to, or intended to
be subject to, the lien of the Indenture for
the benefit of the Bondholders, including
without limitation the Collateral. The
"Collateral" will consist of the Mortgage
Loans, any REO Properties (as defined herein)
acquired in respect thereof and the
Collection Account. See, "Description of the
Mortgage Pool" herein and "Description of the
Agreements--Accounts" in the Prospectus.
A. The Mortgage Pool............. The Mortgage Pool will consist of [fixed
rate] [floating rate] [partially
fixed-partially floating rate] Mortgage Loans
evidenced by a note or bond (a "Mortgage
Note") secured by first liens on [multifamily
properties] [office buildings] [retail stores
and establishments] [hotels or motels]
[nursing homes] [assisted living facilities]
[continuum care facilities] [day care
centers] [schools] [hospitals or other
healthcare related facilities] [industrial
properties] [warehouse facilities]
[mini-warehouse facilities] [self-storage
facilities] [distribution centers]
[transportation centers] [parking facilities]
[entertainment and/or recreation facilities]
[mobile home parks] [mixed use (including
mixed commercial uses and mixed commercial
and residential uses)] and/or [unimproved
land] (the "Mortgaged Properties") located in
__ different states. [The Mortgage Pool will
also include undivided ownership interests in
Mortgage Loans secured by the Mortgaged
Properties.] The Mortgage Loans will have an
aggregate principal balance as of the Cut-off
Date of $_________ [, subject to a permitted
variance of plus or minus __%] (the "Initial
Pool Balance"). 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. On or prior to
the Closing Date, the Depositor will acquire
the Mortgage Loans from the Mortgage Loan
Seller pursuant to a Mortgage Loan Purchase
Agreement dated as of __________ (the
"Mortgage Loan Purchase Agreement") between
the Depositor and the Mortgage Loan Seller.
In the Mortgage Loan Purchase Agreement, the
Mortgage Loan Seller has made certain
representations and warranties to the
Depositor regarding the characteristics and
quality of the Mortgage Loans and, as more
particularly described herein, has agreed to
cure any material breach thereof or
repurchase the affected Mortgage Loan. In
connection with the creation of, and the
assignment of its interests in the Mortgage
Loans to the Issuer, the Depositor will also
assign its rights under the Mortgage Loan
Purchase Agreement insofar as they relate to
or arise out of the Mortgage Loan Seller's
representations and warranties regarding the
Mortgage Loans. The Issuer will, in turn,
pledge such rights under the Mortgage Loan
Purchase Agreement so assigned to it as part
of the Trust Estate to secure the Bonds. See
"Description of the Mortgage
Pool--Representations and Warranties;
Repurchases" herein.
[_____ 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 __, __ or
__ 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 (each such Mortgage Loan, an
"ARM 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.]
[___ of the Mortgage Loans (the "Balloon
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.
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 "Yield and Maturity
Considerations" herein.]
The Mortgage Loans will be serviced by the
Master Servicer and, under the circumstances
described herein, the Special Servicer
pursuant to the Servicing Agreement dated as
of _________, 199__ (the "Servicing
Agreement"), among the Owner Trustee on
behalf of the Issuer, the Trustee on behalf
of the Bondholders, the Master Servicer and
the Special Servicer. See "Servicing of the
Mortgage Loans" herein and "Description of
the Agreements--Collection and Other
Servicing Procedures" in the Prospectus.
B. The Collection Account........ All collections on or in respect of the
Mortgage Loans will be deposited in an
account (the "Collection Account") and, as
and to the extent described herein, will be
available for application to payments on the
Bonds on the related Payment Date and for
payment of certain related servicing and
administrative fees and expenses. See
"Description of the Agreements" in the
Prospectus.
Payments on the Bonds - General... Payments will be made by or on behalf of the
Trustee on each Payment Date to the
Bondholders of record at the close of
business on the related Record Date; except
in the case of the final payment on any Class
of Bonds which will require presentation and
surrender of such Bonds. All payments made
with respect to any Class of Bonds will be
allocated pro rata among the outstanding
Bonds of such Class based on the respective
Bond Principal Amounts thereof.
Payments of Interest and Principal
on the Bonds...................... [On each Payment Date, unless the Bonds have
been declared due and payable following an
event of default (as described in the
Prospectus under "Description of the
Agreements--Certain Terms of the Indenture")
and such declaration and its consequences
have not been rescinded and annulled, the
Available Payment Amount (as defined herein)
for such date, which will not include
Prepayment Premiums under such circumstances,
will be applied to make payments among the
respective Classes of Bondholders for the
following purposes and in the following order
of priority, in each case to the extent of
remaining funds:
(i) to the holders of the Class A Bonds
in respect of interest, pro rata
between the two Classes of Class A
Bondholders based on entitlement, up
to an amount equal to all Accrued
Bond Interest (as defined below) in
respect of each such Class of Bonds
for the related Interest Accrual
Period and, to the extent not
previously paid, for all prior
Interest Accrual Periods;
(ii) to the holders of the Class A Bonds
in respect of principal, allocable as
between the two Classes of Class A
Bondholders as described herein, up
to an amount equal to the lesser of
(a) the then aggregate Bond Principal
Amount of the Class A Bonds and (b)
the Principal Payment Amount (as
defined below) for such Payment Date;
(iii) to the holders of the Class B Bonds
in respect of interest, up to an
amount equal to all Accrued Bond
Interest in respect of such Class of
Bonds for the related Interest
Accrual Period and, to the extent not
previously paid, for all prior
Interest Accrual Periods;
(iv) after the aggregate Bond Principal
Amount of the Class A Bonds has been
reduced to zero, to the holders of
the Class B Bonds in respect of
principal, up to an amount equal to
the lesser of (a) the then aggregate
Bond Principal Amount of the Class B
Bonds and (b) the excess, if any, of
the Principal Payment Amount for such
Payment Date over any amounts paid on
such Payment Date in retirement of
the Class A Bonds pursuant to clause
(ii) above;
(v) to the holders of the Class C Bonds
in respect of interest, up to an
amount equal to all Accrued Bond
Interest in respect of such Class of
Bonds for the related Interest
Accrual Period and, to the extent not
previously paid, for all prior
Interest Accrual Periods;
(vi) after the aggregate Bond Principal
Amount of the Class A and Class B
Bonds has been reduced to zero, to
the holders of the Class C Bonds in
respect of principal, up to an amount
equal to the lesser of (a) the then
aggregate Bond Principal Amount of
the Class C Bonds and (b) the excess,
if any, of the Principal Payment
Amount for such Payment Date over any
amounts paid on such Payment Date in
retirement of the Class A and/or
Class B Bonds pursuant to clauses
(ii) and (iv) above;
(vii) to the holders of the Class D Bonds
in respect of interest, up to an
amount equal to all Accrued Bond
Interest in respect of such Class of
Bonds for the related Interest
Accrual Period and, to the extent not
previously paid, for all prior
Interest Accrual Periods;
(viii) after the aggregate Bond Principal
Amount of the Class A, Class B and
Class C Bonds has been reduced to
zero, to the holders of the Class D
Bonds in respect of principal, up to
an amount equal to the lesser of (a)
the then aggregate Bond Principal
Amount of the Class D Bonds and (b)
the excess, if any, of the Principal
Payment Amount for such Payment Date
over any amounts paid on such Payment
Date in retirement of the Class A,
Class B and/or Class C Bonds pursuant
to clauses (ii), (iv) and (vi) above;
(ix) to the holders of the Class E Bonds
in respect of interest, up to an
amount equal to all Accrued Bond
Interest in respect of such Class of
Bonds for the related Interest
Accrual Period and, to the extent not
previously paid, for all prior
Interest Accrual Periods;
(x) after the aggregate Bond Principal
Amount of the Class A, Class B, Class
C and Class D Bonds has been reduced
to zero, to the holders of the Class
E Bonds in respect of principal, up
to an amount equal to the lesser of
(a) the then aggregate Bond Principal
Amount of the Class E Bonds and (b)
the excess, if any, of the Principal
Payment Amount for such Payment Date
over any amounts paid on such Payment
Date in retirement of the Class A,
Class B, Class C and/or Class D Bonds
pursuant to clauses (ii), (iv), (vi)
and (viii) above;
(xi) to the holders of the Class F Bonds
in respect of interest, up to an
amount equal to all Accrued Bond
Interest in respect of such Class of
Bonds for the related Interest
Accrual Period and, to the extent not
previously paid, for all prior
Interest Accrual Periods;
(xii) after the aggregate Bond Principal
Amount of the Class A, Class B, Class
C, Class D and Class E Bonds has been
reduced to zero, to the holders of
the Class F Bonds in respect of
principal, up to an amount equal to
the lesser of (a) the then aggregate
Bond Principal Amount of the Class F
Bonds and (b) the excess, if any, of
the Principal Payment Amount for such
Payment Date over any amounts paid on
such Payment Date in retirement of
the Class A, Class B, Class C, Class
D and/or Class E Bonds pursuant to
clauses (ii), (iv), (vi), (viii) and
(x) above; and
(xiii) if, after giving effect to the
payments of principal on the Bonds
contemplated by clauses (ii), (iv),
(vi), (viii), (x) and (xii) above,
the aggregate Bond Principal Amount
of all the Bonds still exceeds the
aggregate Stated Principal Balance of
the Mortgage Pool that will be
outstanding immediately following
such Payment Date, then to the
holders of the Class A Bonds
(allocable as between the two Classes
of Class A Bondholders as described
herein), the Class B Bonds, the Class
C Bonds, the Class D Bonds, the Class
E Bonds and the Class F Bonds, in
that order, until (in the case of
each Class of Bonds on which payments
of principal are so made) such excess
(or the aggregate Bond Principal
Amount of such Class of Bonds) is
reduced to zero (whichever occurs
first).]
[Except under the limited circumstances
described herein, payments of principal on
the Class A Bonds as described above will be
paid, first, to the holders of the Class A-1
Bonds, until the aggregate Bond Principal
Amount of such Class of Bonds is reduced to
zero, and thereafter, to the holders of the
Class A-2 Bonds, until the aggregate Bond
Principal Amount of such Class of Bonds is
reduced to zero.]
[Any portion of the Available Payment Amount
for any Payment Date that is not applied to
make payments of interest and principal on
the Bonds as described above will be paid to
or at the direction of Issuer in respect of
the Issuer's Equity on such Payment Date.]
[The "Accrued Bond Interest" in respect of
any Class of Bonds for any Interest Accrual
Period will equal one month's interest at the
applicable Bond Interest Rate accrued on the
aggregate Bond Principal Amount of such Class
of Bonds outstanding immediately prior to the
related Payment Date. Accrued Bond Interest
will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.]
[The "Principal Payment Amount" for any
Payment Date will, in general, equal the
aggregate of the following:
(a) the principal portions of all Scheduled
Payments (other than Balloon Payments)
and any Assumed Scheduled Payments due
or deemed due, as the case may be, in
respect of the Mortgage Loans for their
respective Due Dates occurring during
the related Collection Period;
(b) all payments (including Principal
Prepayments and Balloon Payments) and
other collections (including Liquidation
Proceeds, Condemnation Proceeds and
Insurance Proceeds (each as defined in
the Prospectus)) that were received on
or in respect of the Mortgage Loans
during the related Collection Period and
that were identified and applied by the
Master Servicer as recoveries of
principal thereof, in each case net of
any portion of such payment or other
collection that represents a recovery of
the principal portion of any Scheduled
Payment (other than a Balloon Payment)
due, or the principal portion of any
Assumed Scheduled Payment deemed due, in
respect of the related Mortgage Loan on
a Due Date during or prior to the
related Collection Period and not
previously recovered; and
(c) if such Payment Date is subsequent to
the initial Payment Date, the excess, if
any, of (i) the Principal Payment Amount
for the immediately preceding Payment
Date, over (ii) the aggregate payments
of principal made in respect of the
Bonds on such immediately preceding
Payment Date.]
[The "Scheduled Payment" due in respect of
any Mortgage Loan on any related Due Date
will be the amount of the Monthly Payment
that is scheduled to be due in respect
thereof on such date in accordance with the
terms of such Mortgage Loan in effect on the
Closing Date, without regard to any waiver,
modification or amendment of such Mortgage
Loan subsequent to the Closing Date, and
assuming that each prior Scheduled Payment
has been made in a timely manner.]
[The "Assumed Scheduled Payment" is an amount
deemed due in respect of any Balloon Loan
that is delinquent in respect of its Balloon
Payment beyond the first Determination Date
that follows its original stated maturity
date. The Assumed Scheduled Payment deemed
due on any such Mortgage Loan on its original
stated maturity date and on each successive
Due Date that it remains or is deemed to
remain outstanding shall equal the Scheduled
Payment that would be due in respect thereof
on such date if the related Balloon Payment
had not come due but rather such Mortgage
Loan had continued to amortize in accordance
with such Mortgage Loan's amortization
schedule in effect as of the Closing Date.]
[Payments of Yield Maintenance
Amounts on the Bonds.............. On each Payment Date, unless the Bonds have
been declared due and payable following an
Issuer Event of Default and such declaration
and its consequences have not been rescinded
and annulled, the aggregate of all Prepayment
Premiums that were received on the Mortgage
Loans during the related Collection Period
will be applied to make payments among the
respective Classes of Bondholders in
alphabetical order of Class designation (with
the Class A-1 and Class A-2 Bondholders
having a pari passu right to payment), in
each case, up to the related Yield
Maintenance Amount (if any) for their Bonds.
If and to the extent that the aggregate
Prepayment Premiums received on the Mortgage
Loans during any Collection Period exceed the
aggregate Yield Maintenance Amount in respect
of the Bonds for the related Payment Date,
then such excess will be paid on such Payment
Date to or at the direction of the Issuer in
respect of the Issuer's Equity. See
"Description of the Bonds--Payments on the
Bonds" herein.]
Subordination..................... [As and to the extent set forth herein, the
rights of the Issuer or its designee to
receive payments of amounts received on the
Mortgage Loans in respect of the Issuer's
Equity will be subordinated to the rights of
the Bondholders to receive such amounts in
respect of interest, principal and other
amounts due and owing on their Bonds from
time to time. In addition, as and to the
extent set forth herein, for purposes of
receiving payments of interest, principal and
other amounts due and owing thereon from time
to time out of collections on the Mortgage
Loans, the Private Bonds will be subordinate
to the Offered Bonds, the Class D Bonds will
be subordinate to the Class A, Class B and
Class C Bonds, the Class C Bonds will be
subordinate to the Class A and Class B Bonds,
and the Class B Bonds will be subordinate to
the Class A Bonds. See "Description of the
Bonds--Payments on the Bonds" and
"--Subordination" herein. Such subordination
will be accomplished by, among other things,
the application of the Available Payment
Amount on each Payment Date in the order
described above in this Summary under
"Payments of Interest and Principal on the
Bonds". Realized Losses (as defined herein),
Net Aggregate Prepayment Interest Shortfalls
(also as defined herein) and other shortfalls
in respect of the Mortgage Loans will, in
each case, be borne by the Issuer and the
holders of the Private Bonds (to the extent
of amounts otherwise payable in respect of
the Issuer's Equity and the Private Bonds,
respectively) prior to any such losses,
shortfalls and/or expenses being borne by the
holders of the Offered Bonds. If and to the
extent that Realized Losses, together with
any Net Aggregate Prepayment Interest
Shortfalls, exceed the sum of the initial
Overcollateralization Amount and the initial
aggregate Bond Principal Amount of the
Private Bonds, it is likely that the holders
of one or more Classes of Offered Bonds will
not receive the full Bond Principal Amount of
their Bonds. See "Description of the
Bonds--Subordination" herein.]
Treatment of REO Properties....... Notwithstanding that a Mortgaged Property
securing any Mortgage Loan may be acquired as
part of the Trust Estate through foreclosure,
deed in lieu of foreclosure or otherwise
(upon acquisition, an "REO Property"), such
Mortgage Loan will, for purposes of, among
other things, determining payments of
principal on the Bonds, as well as Servicing
Fees, Special Servicing Fees, and Trustee
Fees (each as defined herein), generally be
treated as having remained outstanding until
such REO Property is liquidated. In
connection therewith, operating revenues and
other proceeds derived from such REO Property
(exclusive of related operating costs,
including certain reimbursements payable to
the Master Servicer and/or Special Servicer
in connection with the operation and
disposition of such REO Property) will be
"applied" or treated by the Master Servicer
as principal, interest and other amounts
"due" on such Mortgage Loan; and, subject to
a recoverability determination as more fully
described herein (see "Description of the
Bonds--Advances"), each Servicer (as defined
below) will be required to make P&I Advances,
as described below, in respect of such
Mortgage Loan as if it had remained
outstanding.
P&I Advances...................... The Master Servicer and the Special Servicer
(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 Servicing Agreement to
the extent provided therein. See "Description
of the Bonds--Advances" herein and
"Description of the Bonds--Advances in
Respect of Delinquencies" in the Prospectus.
[Compensating Interest
Payments.......................... To the extent of the aggregate of all
Servicing Fees and Prepayment Interest
Excesses paid to the Master Servicer as
servicing compensation for the related
Collection Period, the Master Servicer is
required to make a non-reimbursable payment
(a "Compensating Interest Payment") with
respect to each Payment Date to cover the
aggregate of any Prepayment Interest
Shortfalls incurred during such Collection
Period. A "Prepayment Interest Shortfall" is
a shortfall in the collection of a full
month's interest (net of related Servicing
Fees and Special Servicing Fees (as defined
herein), and without regard to any Prepayment
Premium actually collected) on any Mortgage
Loan by reason of a full or partial voluntary
principal prepayment being made and applied
to such Mortgage Loan prior to the related
Due Date in any Collection Period. A
"Prepayment Interest Excess" is a payment of
interest (net of related Servicing Fees and
Special Servicing Fees and exclusive of any
Prepayment Premium actually collected) made
in connection with any full or partial
prepayment of a Mortgage Loan being made and
applied to such Mortgage Loan after the
related Due Date in any Collection Period,
which payment of interest is intended to
cover the period from such Due Date to the
date of prepayment. The "Net Aggregate
Prepayment Interest Shortfall" for any
Payment Date will be the amount, if any, by
which (a) the aggregate of all Prepayment
Interest Shortfalls incurred during the
related Collection Period exceeds (b) any
Compensating Interest Payment made by the
Master Servicer with respect to such Payment
Date. See "Servicing of the Mortgage
Loans--Servicing and Other Compensation and
Payment of Expenses" herein.]
[Optional Redemption.............. The Issuer may, at its option, redeem any
Class of Offered Bonds, in whole but not in
part, on any Payment Date, if the then
aggregate Bond Principal Amount of such Class
of Offered Bonds is less than __% of the
initial aggregate Bond Principal Amount
thereof and no Issuer Event of Default has
occurred and is continuing. Such redemption
will be at a price (calculated after taking
into account payments made on the Bonds out
of the Available Payment Amount for the
applicable Payment Date) equal to 100% of the
aggregate unpaid Bond Principal Amount of the
Bonds redeemed, plus accrued and unpaid
interest through the end of the related
Interest Accrual Period. Notice of any such
optional redemption must be mailed by the
Issuer or the Trustee at least __ days prior
to the date set for optional redemption. No
Yield Maintenance Amount will be payable in
connection with such optional redemption. See
"Description of the Bonds--Optional
Redemption" herein.]
Certain Investment
Considerations.................... The yield on any Offered Bond will depend on
(a) the price at which such Bond is purchased
by an investor and (b) the rate, timing and
amount of payments on such Bond. The rate,
timing and amount of payments on any Offered
Bond will in turn depend on, among other
things, (i) the Bond Interest Rate for such
Bond, (ii) the rate and timing of principal
payments (including principal prepayments)
and other principal collections on the
Mortgage Loans, (iii) the rate, timing and
severity of Realized Losses and Net Aggregate
Prepayment Interest Shortfalls and (iv) the
priority of such Bond to receive payments.
The yield to maturity on any Offered Bond
purchased at a discount or premium will be
affected by the rate and timing of principal
payments thereon. Principal payments on the
Offered Bonds will, in turn, be affected by
payments and other collections of principal
on or in respect of the Mortgage Loans. An
investor should consider, in the case of any
Offered Bond purchased at a discount, the
risk that a slower than anticipated rate of
principal payments thereon could result in a
lower than anticipated yield and, in the case
of any Offered Bond purchased at a premium,
the risk that a faster than anticipated rate
of principal payments thereon could result in
a lower than anticipated yield. See "Yield
and Maturity Considerations" herein and in
the Prospectus. The full or partial, as
applicable, allocation of Prepayment Premiums
actually collected on the Mortgage Loans to
make payments to the holders of any
particular Class of Bonds in respect of the
related Yield Maintenance Amount may be
insufficient to offset fully any adverse
effects on the yield of such Class of Bonds
that the related prepayments may otherwise
have.
Federal Income Tax Consequences... In the opinion of Cadwalader, Wickersham &
Taft, special counsel to the Issuer, for
federal income tax purposes, the Offered
Bonds will be characterized as indebtedness
and not as representing an ownership interest
in the Trust Estate or an equity interest in
the Issuer or the Depositor. For further
information regarding certain federal income
tax consequences of an investment in the
Bonds, see "Federal Income Tax Consequences"
herein and "Federal Income Tax Consequences"
in the Prospectus. Investors are advised to
consult their tax advisors as to the tax
consequences of an investment in the Offered
Bonds in light of investors' individual
circumstances and to review "Federal Income
Tax Consequences" herein and "Federal Income
Tax Consequences" in the Prospectus.
Certain 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 Internal Revenue Code of 1986 as
amended (the "Code") (each, a "Plan") should
carefully review with its legal advisors
whether the purchase or holding of the Bonds
could give rise to a transaction prohibited
or not otherwise permissible under ERISA or
Section 4975 of the Code. See "Certain ERISA
Considerations" herein and "ERISA
Considerations" in the Prospectus.
Subject to the conditions set forth in
"Certain ERISA Considerations," the Bonds
may, in general, be purchased by or on behalf
of a Plan (including without limitation, as
applicable, an insurance company general
account) that is subject to Title I of ERISA
or Section 4975 of the Code only if, and each
fiduciary causing the Bonds to be purchased
by or on behalf of such a plan shall be
deemed to have represented that, an exemption
from the prohibited transaction rules applies
such that the purchase and holding of the
Bonds by or on behalf of such Plan does not
and will not result in a nonexempt prohibited
transaction.
Ratings........................... It is a condition to their issuance that the
respective Classes of Offered Bonds receive
the following credit ratings from
("________") and/or ____________________
("_____"; together with _____, the "Rating
Agencies"):
Class [Rating Agency] [Rating Agency]
----- --------------- ---------------
Class A-1
Class A-2
Class B
Class C
Class D
The foregoing ratings of the Offered Bonds
address the timely payment thereon of
interest and the ultimate payment thereon of
principal on or before their Stated Maturity.
The foregoing ratings of the Offered Bonds do
not address the tax attributes of the Offered
Bonds, the Issuer or the Trust Estate. The
ratings of the Offered Bonds do not address
certain other matters as described under
"Ratings" herein. There is no assurance that
any such rating will not be lowered,
qualified or withdrawn by a Rating Agency,
if, in its judgment, circumstances so
warrant. There can be no assurance whether
any other rating agency will rate any of the
Offered Bonds, or if one does, what rating
such agency would assign. 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.
Legal Investment ................. The Class __, Class __, Class __, Class __
and Class __ Bonds will [not] be "mortgage
related securities" within the meaning of the
Secondary Mortgage Market Enhancement Act of
1984, as amended ("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 __ Bonds
will not be "mortgage related securities"
within the meaning of SMMEA. The appropriate
characterization of the Offered Bonds under
various legal investment restrictions, and
thus the ability of investors subject to
these restrictions to purchase any Class of
Offered Bonds, 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 Bonds
constitute legal investments for them. See
"Legal Investment" herein and in the
Prospectus.
<PAGE>
RISK FACTORS
Investors should carefully consider the following material risks and
certain other factors as may be set forth in the Prospectus under "Risk Factors"
before making an investment decision. In particular, payment on the Offered
Bonds will depend on payments received on and other recoveries with respect to
the Mortgage Loans. Therefore, you should carefully consider the risk factors
relating to the mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones relating
to the Offered Bonds. Additional risks and uncertainties not presently known to
the Depositor or that the Depositor currently deems immaterial may also impair
your investment.
If any of the following risks actually occur, your investment could be
materially and adversely affected.
This Prospectus Supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus.
Certain Yield and Maturity Considerations
As a result of, among other things, prepayments, defaults and losses on the
Mortgage Loans, the amount and timing of payments of principal and/or interest
on the Bonds may be highly unpredictable. Prepayments on the Mortgage Loans will
result in a faster rate of principal payments on the Bonds than if payments on
such Mortgage Loans were made as scheduled. Defaults and losses on the Mortgage
Loans may delay and/or reduce the principal payments on the Bonds. Thus, the
prepayment, default and loss experience on the Mortgage Loans may affect the
aggregate payments on and the yield to maturity and average life of one or more
Classes of Bonds, including one or more Classes of the Offered Bonds. The rate
of principal payments and defaults and severity of losses on pools of
multifamily and commercial mortgage loans varies among pools and from time to
time is influenced by a variety of economic, demographic, geographic, social,
tax and legal factors, as well as acts of God. For example, if prevailing
interest rates fall significantly below the Mortgage Rates borne by the Mortgage
Loans, principal prepayments thereon are likely to be higher than if prevailing
interest rates remain at or above the rates borne by those Mortgage Loans.
Conversely, if prevailing interest rates rise significantly above the Mortgage
Rates borne by such Mortgage Loans, principal prepayments thereon are likely to
be lower than if prevailing interest rates remain at or below the rates borne by
those Mortgage Loans. The foregoing is subject, however, to, among other things,
the particular terms of the Mortgage Loans (e.g., provisions which prohibit
voluntary prepayments during specified periods or impose penalties in connection
therewith) and the ability of Mortgagors to obtain new financing. There can be
no assurance as to the actual rate of prepayment or default or the severity of
losses on the Mortgage Loans. The extent to which prepayments on Mortgage Loans
ultimately affect the yield to maturity and average life of any Class of Offered
Bonds, will depend on the terms of such Bonds.
The extent to which the yield to maturity of any Class of Offered Bonds may
vary from the anticipated yield will depend upon the degree to which they are
purchased at a discount or premium and the amount and timing of payments
thereon. An investor should consider, in the case of any Offered Bond purchased
at a discount, the risk that a slower than anticipated rate of principal
payments thereon could result in an actual yield to such investor that is lower
than the anticipated yield and, in the case of any Offered Bond purchased at a
premium, the risk that a faster than anticipated rate of principal payments
thereon could result in an actual yield to such investor that is lower than the
anticipated yield.
When considering the effects of prepayments on the average life and yield
of a Bond, an investor should also consider provisions of the Indenture that
permit the optional redemption of the Bonds. [The Issuer may, at its option,
redeem any Class of Offered Bonds, in whole but not in part, on any Payment
Date, if the then aggregate Bond Principal Amount of such Class of Bonds is less
than __% of the initial aggregate Bond Principal Amount thereof.] See "Yield and
Maturity Considerations" herein.
Effect of Mortgagor Delinquencies and Defaults
The aggregate amount of payments on the Offered Bonds, the yield to
maturity of the Offered Bonds, the rate of principal payments on the Offered
Bonds and the weighted average lives of the Offered Bonds 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 Bonds 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 Bonds, 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 Bonds
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
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 from the Issuer 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 Bondholders to receive payments on the Bonds
and, consequently, is likely to result in losses being allocated to the Offered
Bonds 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 Bondholders to receive payments on
the Bonds. Consequently, it is possible that shortfalls will be allocated to the
Offered Bonds 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 Bonds, to the extent that P&I Advances or the
subordination of another class of Bonds 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 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 Bonds--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 Bonds on each Payment 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 Bonds will extend the weighted
average life of the Offered Bonds.
As described under "Description of the Bonds--Payments" herein, if the
portion of the Available Payment Amount payable in respect of interest on any
class of Offered Bonds on any Payment Date is not sufficient to pay the Accrued
Bond Interest then payable for such class, the shortfall will be payable to
holders of such class of Bonds on subsequent Payment Dates, to the extent of
available funds.
[Optional Redemption of Bonds
The Issuer may, at its option, redeem any Class of Offered Bonds, in whole
but not in part, on any Payment Date, if the then aggregate Bond Principal
Amount of such Class of Offered Bonds is less than __% of the initial aggregate
Bond Principal Amount thereof and no Issuer Event of Default has occurred and is
continuing. No Yield Maintenance Amount will be payable in connection with such
optional redemption. See "Description of the Bonds--Optional Redemption"
herein.]
Subordination of Subordinated Bonds
As and to the extent described herein, the rights of the Issuer or its
designee to receive payments of amounts received on the Mortgage Loans in
respect of the Issuer's Equity will be subordinated to the rights of the
Bondholders to receive such amounts on their Bonds, and the rights of the
holders of the respective Classes of Subordinate Bonds, including the Class B,
Class C and Class D Bonds, to receive payments of amounts collected in respect
of the Mortgage Loans will be subordinated to those of the holders of the Class
A Bonds and to those of the holders of each other Class of Bonds with an earlier
alphabetical class designation. Although such subordination (whether of the
Issuer's Equity or Subordinate Bonds) is, in varying degrees depending on the
Class, intended to reduce the likelihood of temporary shortfalls and ultimate
losses to holders of the respective Classes of Offered Bonds, the amount of
subordination afforded to any particular Class of Offered Bonds will be limited
and may decline under certain circumstances. In addition, the impact of losses
and shortfalls experienced with respect to the Mortgage Loans may fall primarily
upon those Classes of Bonds having a later right of payment.
The amount of any applicable credit support provided by the Issuer's Equity
in the Collateral to the Bonds, by the Private Bonds to the Offered Bonds, by
the Class D Bonds to the Class A, Class B and Class C Bonds, by the Class C
Bonds to the Class A and Class B Bonds, and by the Class B Bonds to the Class A
Bonds, has been determined on the basis of criteria established by each Rating
Agency that take into account an assumed level of defaults, delinquencies and
losses on the Mortgage Loans. There can be no assurance, however, that the loss
experience on the Mortgage Loans will not exceed such assumed levels. See
"Description of the Bonds--Subordination" herein.
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 "Limited Recourse Nature of Mortgage Loans; Recourse
Generally Limited to Mortgaged Property" 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.]
Limited Recourse Nature of Mortgage Loans; Recourse Generally Limited to
Mortgaged Property
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. None of the Mortgage Loans is
insured or guaranteed by any governmental entity or private mortgage insurer or
by any other person. However, as more fully described under "Description of the
Mortgage Pool--Representations and Warranties; Repurchases" herein, the Mortgage
Loan Seller will be obligated to repurchase those Mortgage Loans as to which
there is a material breach of its representations and warranties, which breach
cannot be cured in a timely manner.
Risks Associated with 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 Bonds 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 "--Risks Associated with
Concentration of Mortgage Loans" above than classes with a higher sequential
priority.
Risks Associated with 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.
Increased Risk of Default Associated with Adjustable Rate Mortgage Loans
________ of the Mortgage Loans, which represent ____% of the Initial Pool
Balance, are ARM Loans. Increases in the required Monthly Payments on ARM Loans
in excess of those assumed in the original underwriting of such loans may result
in a default rate higher than that on mortgage loans with fixed mortgage rates.
Increased Risk of Default Associated with Balloon Payments
[None] [Only ___] of the Mortgage Loans [is][are] fully amortizing over
[its term] [their respective terms] to maturity. Thus, [each] [most] of the
Mortgage Loans will have a substantial payment (that is, a Balloon Payment) due
at its stated maturity unless prepaid prior thereto. Mortgage Loans with Balloon
Payments involve a greater likelihood of default than self-amortizing loans
because the ability of a borrower to make a Balloon Payment typically will
depend upon its ability either to refinance the loan or to sell the related
mortgaged property. See "Risk Factors-- Risks of Loss on Balloon Payment Asset
if Obligor is Unable to Refinance or Sell Related Property" in the Prospectus.
Extension Risk Associated With Modification of Mortgage Loans with Balloon
Payments
In order to maximize recoveries on defaulted Mortgage Loans, the Servicing
Agreement enables the Special Servicer to extend and modify Mortgage Loans that
are in material default or as to which a payment default (including the failure
to make a Balloon Payment) is reasonably foreseeable; subject, however, to the
limitations described under "Servicing of the Mortgage Loans--Responsibilities
of Special Servicer" herein. There can be no assurance, however, that any such
extension or modification will increase the present value of recoveries in a
given case. Any delay in collection of a Balloon Payment that would otherwise be
payable in respect of a Class of Offered Bonds, whether such delay is due to
borrower default or to modification of the related Mortgage Loan by the Special
Servicer, will likely extend the weighted average life of such Class of Offered
Bonds. See "Yield and Maturity Considerations" herein and in the Prospectus.
[Inclusion of Delinquent and Under- Performing Mortgage Loans
The Mortgage Pool will include _____ Mortgage Loans, representing _____% of
the Initial Pool Balance, that [describe generally the characteristics of those
delinquent and under- performing Mortgage Loans, if any, included in the
Mortgage Pool]. The amount of any applicable credit support provided to a Class
of Bonds as described under "--Subordination of Subordinated Bonds" may not
cover all losses and shortfalls related to such delinquent and under- performing
Mortgage Loans, and investors should consider the risk that the inclusion of
such Mortgage Loans in the Mortgage Pool may adversely affect the rate of
defaults and prepayments in respect of the Mortgage Pool and the yield on the
Offered Bonds. See "Risk Factors--Increased Risk of Loss if Mortgage Loans
Include Delinquent Mortgage Loans" in the Prospectus.]
Potential Liability to the Trust Estate Relating to a Materially Adverse
Environmental Condition
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 Issuer)
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 Issuer's potential exposure to
liability for cleanup costs pursuant to CERCLA may increase if the Issuer
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 Servicing Agreement provides that the Special Servicer, acting on
behalf of the Issuer, 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. See "Description of the
Agreements--Collection and Other Servicing Procedures--Special Servicer", "Risk
Factors--Environmental Risks" and "Certain Legal Aspects of Mortgage
Loans--Environmental Legislation" in the Prospectus.
Risks Associated with 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 payments to Bondholders.
Risks Associated with 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 Issuer 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.
[Risks Associated with Ground Leases and Other Leasehold Interests
_____ Mortgage Loans representing _____% of the aggregate principal balance
of the Mortgage Loans as of the Cut-off Date, are 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.
Limited Rights for Breaches of Representations and Warranties
In the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller will make
certain representations and warranties that are described under "Description of
the Mortgage Pool--Representations and Warranties; Repurchases" herein. Upon the
occurrence of a breach of such representations and warranties that materially
and adversely affects the value of any Mortgage Loan or the interests of the
Bondholders therein, the Mortgage Loan Seller will be obligated under the
Mortgage Loan Purchase Agreement to repurchase such Mortgage Loan at the
Purchase Price therefor. The obligations of the Mortgage Loan Seller to make
such payments will be the exclusive remedies of the Trustee and the Bondholders
for any breach of a representation and warranty made by the Mortgage Loan Seller
and, in particular, the Trustee and the Bondholders will not have any remedies
against the Depositor or its affiliates. There can be no assurance that in the
future the Mortgage Loan Seller will have sufficient net worth to perform its
obligations under the Mortgage Loan Purchase Agreement. Neither the Depositor
nor any of its respective subsidiaries, shareholders, partners or other
affiliates will have any obligation to provide a remedy for any breach of the
Mortgage Loan Seller's representations and warranties.
[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.]
Conflicts Between the Special Servicer and the Depositor
The Issuer has been advised by the Special Servicer that it intends to
continue to service and actively manage mortgage loans for affiliates of the
Issuer and third parties, including portfolios of assets similar to the Mortgage
Loans, in the ordinary course of its business. During the course of its business
activities, the Special Servicer may service properties and mortgage loans which
are in the same markets or have common owners, obligors, participants, property
managers and/or guarantors as certain of the Mortgage Loans. Certain personnel
of the Special Servicer may perform services with respect to the Mortgage Loans
at the same time as they or other personnel of the Special Servicer are
performing services with respect to assets owned by affiliates of the Special
Servicer or other third parties in the same markets as the Mortgaged Properties.
In such a case, the interests of the Special Servicer and its other clients may
differ from and compete with the interests of the Issuer and such activities may
adversely affect the amount and timing of collections on or liquidations of the
Mortgage Loans. Moreover, since much of the Special Servicer's compensation is
payable in the form of a Special Servicing Fee, the Special Servicer may
determine to take action, such as accelerating the disposition of certain
Mortgage Loans and delaying the disposition of others, which may have the effect
of increasing the Special Servicing Fee payable to the Special Servicer while
reducing the total amounts to be received with respect to the Mortgage Loans.
Limited Liquidity
There is currently no secondary market for the Offered Bonds. The
Underwriter has indicated its intention to make a secondary market in the
Offered Bonds, but it is not obligated to do so. There can be no assurance that
a secondary market for the Offered Bonds will develop or, if one does develop,
that it will provide holders of Offered Bonds with liquidity of investment or
that it will continue for the life of the Offered Bonds. The Offered Bonds will
not be listed on any securities exchange. See "Risk Factors--Limited Liquidity
For Bonds" in the Prospectus.
Limited Assets for Payment of Offered Bonds
The Offered Bonds will not be guaranteed or insured by the Depositor, the
Issuer or any of its affiliates, by the United States or any governmental agency
or instrumentality, or by any other person. The Offered Bondholders will have no
recourse to the Issuer in the event of a default on the Offered Bonds, and each
Offered Bondholder will be deemed to have agreed by the acceptance of its
Offered Bond not to file a bankruptcy petition or commence similar proceedings
in respect of the Issuer. Accordingly, if the Collateral is insufficient to
provide payments on the Offered Bonds, no other assets will be available for
payment of the deficiency. Additionally, certain amounts on deposit from time to
time in the Collection Account may be withdrawn under certain conditions, as
described herein and the Prospectus, for purposes other than the payment of
principal of or interest on the Bonds. To the extent that Realized Losses and
Net Aggregate Prepayment Interest Shortfalls exceed the sum of the initial
Overcollateralization Amount and the aggregate Bond Principal Amount of the
Private Bonds, it is unlikely the amounts received on the remaining Mortgage
Loans will be sufficient to make full and timely payment on the Offered Bonds.
[Furthermore, notwithstanding the Mortgage Rates on the Mortgage Loans, the Bond
Interest Rate on each Class of Offered Bonds is a fixed rate set forth in the
table on the cover page hereof. In certain limited circumstances, the Mortgage
Rate on one or more of the Mortgage Loans may be less than the Bond Interest
Rate on one or more Classes of the Offered Bonds. However, holders of the
Offered Bonds would not receive the full Bond Principal Amount of their Bonds,
together with Accrued Bond Interest thereon, generally only if (i) the aggregate
Stated Principal Balance of the Mortgage Pool is less than the aggregate Bond
Principal Amount of the Offered Bonds and/or (ii) the aggregate interest
collected in respect of the Mortgage Loans (net of certain fees and expenses
payable therefrom under the Indenture and the Servicing Agreement) is less than
the aggregate interest payable on the Offered Bonds.] See "Description of the
Bonds--Subordination" herein and "Description of the Agreements--Accounts" in
the Prospectus.
Limited Issuer Events of Default
With certain exceptions described herein and in the Prospectus, the
Bondholders will have no independent ability to declare a default (an "Issuer
Event of Default") unless the Issuer shall fail to pay the Bonds in full by
their Stated Maturity, which with respect to each Class of Offered Bonds is the
Payment Date in ___________. Interest will be payable on the respective Classes
of Bonds on each Payment Date only to the extent that there are funds available
for such purpose in the Collection Account. The Issuer's failure to pay interest
on the Bonds on a current basis will not constitute an Issuer Event of Default.
In addition, it will not be an Issuer Event of Default if the Stated Principal
Balance of the Mortgage Pool declines below the aggregate Bond Principal Amount
of the Bonds or of any particular Class or Classes thereof. See "Description of
the Agreements--Certain Terms of the Indenture--Issuer Events of Default" and
"--Control By Bondholders" in the Prospectus. [Following an Issuer Event of
Default, the Trustee may (and, at the direction of the holders of Bonds
representing more than 50% of the aggregate Bond Principal Amount of each Class
of Bonds, the Trustee shall) declare all the Bonds to be due and payable. In
connection with any such declaration of acceleration, the Trustee may, as
described in the Prospectus, liquidate the Collateral generally only with the
consent or at the direction of the holders of Bonds representing an even greater
percentage of the aggregate Bond Principal Amount of each Class of Bonds. Such
declaration of acceleration and its consequences may be rescinded and annulled
under certain circumstances by the holders of Bonds representing more than 50%
of the aggregate Bond Principal Amount of each Class of Bonds. For purposes of
the foregoing, Bonds held by the Issuer, the Depositor or any affiliate thereof
will be deemed not to be outstanding. See "Description of the
Agreements--Certain Terms of the Indenture--Issuer Events of Default" in the
Prospectus.
The market value of the Mortgage Loans will fluctuate as general interest
rates fluctuate, among other things. Following an Issuer Event of Default, there
is no assurance that the market value of the Mortgage Loans will be equal to or
greater than the unpaid principal and accrued interest due on the Bonds,
together with any other expenses or liabilities payable from the sales proceeds.
Certain Classes of Bondholders may have a disincentive to authorize the sale of
Bonds following an Issuer Event of Default because the net proceeds of such sale
may be insufficient to pay in full the principal of and interest on their Bonds.
The inability of a particular Class of Bondholders independently to force
the sale of the Mortgage Loans even though an Issuer Event of Default has
occurred, and the inability of Bondholders to generally force a sale of the
Mortgage Loans regardless of a substantial decline in the aggregate Stated
Principal Balance of the Mortgage Pool and notwithstanding that interest may not
have been timely paid on a Class of Bonds, may adversely affect the holders of
one or more Classes of Offered Bonds.]
Risks Relating to Lack of Bondholder Control Over Trust Estate
Bondholders generally do not have a right to vote, except in connection
with Issuer Events of Default, Servicing Events of Default (each as defined in
the Prospectus) and certain amendments to the Indenture and the Servicing
Agreement. Furthermore, Bondholders will generally not have the right to make
decisions with respect to the administration of the Mortgage Loans. Such
decisions are generally made, subject to the express terms of the Indenture and
the Servicing Agreement, by the Master Servicer, the Special Servicer or the
Trustee, as applicable. Any decision made by one of those parties in respect of
the Mortgage Loans, even if made in the best interests of the Bondholders (as
determined by such party in its good faith and reasonable judgment), may be
contrary to the decision that would have been made by the holders of any
particular Class of Offered Bonds and may negatively affect the interests of
such holders.
DESCRIPTION OF THE MORTGAGE POOL
General
The Collateral to be pledged to the Trustee will consist primarily of a
pool of [fixed rate] Mortgage Loans 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 property] [office buildings] [retail stores
and establishments] [hotels or motels] [nursing homes] [assisted living
facilities] [continuum care facilities] [day care centers] [schools] [hospitals
or other healthcare related facilities] [industrial properties] [warehouse
facilities] [mini-warehouse facilities] [self-storage facilities] [distribution
centers] [transportation centers] [parking facilities] [entertainment and/or
recreation facilities] [mobile home parks] [mixed use (including mixed
commercial uses and mixed commercial and residential uses)] and/or [unimproved
land] (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 as part of the Collateral, _____% 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 Mortgage Loan Seller were
originated for sale to the Mortgage Loan 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 Mortgage Loan Seller purchased the Mortgage Loans to be
included in the Mortgage Pool prior to the Closing Date from each Originator
pursuant to a mortgage loan purchase agreement (the "Mortgage Loan Purchase
Agreement"). On or prior to the Closing Date, the Depositor will acquire the
Mortgage Loans from the Mortgage Loan Seller pursuant to the Mortgage Loan
Purchase Agreement dated as of ________, 199__ (the "Mortgage Loan Purchase
Agreement"), between the Depositor and the Mortgage Loan Seller, and the
Depositor will thereupon assign its interests in the Mortgage Loans, without
recourse, to the Issuer. The Issuer will pledge the Mortgage Loans and the other
assets in the Trust Estate to secure the Bonds. See "Pledge of Mortgage Loans"
in the Prospectus.
Representations and Warranties; Repurchases
[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]
[Mortgage Loan Seller] 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, and from the
Depositor to the Issuer, along with the related remedies in the event of a
breach thereof. Neither the Depositor nor the Issuer will make any
representations or warranties with respect to the Mortgage Loans nor will they
have any obligation to repurchase for Mortgage Loans with deficient
documentation or which are otherwise defective.] [_____________, 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
Bonds other than pursuant to such representations, warranties, covenants and
repurchase obligations.] See "Description of the Agreements--Representations and
Warranties; Repurchases and Other Remedies" in the Prospectus.
[In general, [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 Closing 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 Mortgage Loan 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 Mortgage Loan 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 Mortgage Loan 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 Mortgage Loan 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
Mortgage 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 Mortgage Loan
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 Mortgage Loan 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 "Yield and Maturity
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 Bondholders 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.]
<PAGE>
[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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Mortgage Mortgage as of the as of the
Mortgage Rates Loans Loans Cut-off Date Cut-off Date
-------------- --------- ---------- ----------------- -----------------
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.............. % $ %
========= ========== ================= =================
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
Percent by
Principal Percent by Aggregate Aggregate
Balances Number of Number of Principal Balance Principal Balance
as of the Mortgage Mortgage as of the as of the
Cut-off Date Loans Loans Cut-off Date Cut-off Date
------------ --------- ---------- ----------------- -----------------
Under $............ % $ %
$..................
$..................
$..................
$..................
$..................
$..................
$..................
$..................
$..................
$..................
$..................
$..................
$..................
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
Average Principal Balance as of the Cut-off Date: $___
Original Term to Maturity in Months
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Original Term Mortgage Mortgage as of the as of the
in Months Loans Loans Cut-off Date Cut-off Date
------------- --------- ---------- ----------------- -----------------
................... % $ %
...................
...................
...................
...................
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
Weighted Average Original Term to Maturity in Months: ___
Remaining Term to Maturity in Months
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Remaining Term Mortgage Mortgage as of the as of the
in Months Loans Loans Cut-off Date Cut-off Date
-------------- --------- ---------- ----------------- -----------------
................... % $ %
...................
...................
...................
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
Weighted Average Remaining Term to Maturity in Months: ___
Month and Year of Origination
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Mortgage Mortgage as of the as of the
Month/Year Loans Loans Cut-off Date Cut-off Date
---------- --------- ---------- ----------------- -----------------
................... % $ %
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
Year of Scheduled Maturity
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Mortgage Mortgage as of the as of the
Year Loans Loans Cut-off Date Cut-off Date
---- --------- ---------- ----------------- -----------------
% $ %
_____________ 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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Original Term Mortgage Mortgage as of the as of the
in Months Loans Loans Cut-off Date Cut-off Date
------------- --------- ---------- ----------------- -----------------
................... % $ %
...................
...................
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
Weighted Average Original Term to Maturity in Months: _____
Balloon Mortgage Loans
Remaining Term to Maturity in Months
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Remaining Term Mortgage Mortgage as of the as of the
in Months Loans Loans Cut-off Date Cut-off Date
-------------- --------- ---------- ----------------- -----------------
................... % $ %
...................
...................
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
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
Percent by
Percent by Aggregate Aggregate
Remaining Number of Number of Principal Balance Principal Balance
Amortization Term Mortgage Mortgage as of the as of the
in Months Loans Loans Cut-off Date Cut-off Date
- ----------------- --------- ---------- ----------------- -----------------
................... % $ %
...................
...................
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Cut-off Date Mortgage Mortgage as of the as of the
LTV Ratios Loans Loans Cut-off Date Cut-off Date
------------ --------- ---------- ----------------- -----------------
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.............. % $ %
========= ========== ================= =================
Weighted Average Cut-off Date LTV Ratio: _____%
Balloon Mortgage Loan
Maturity Date LTV Ratios
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Maturity Date Mortgage Mortgage as of the as of the
LTV Ratios Loans Loans Cut-off Date Cut-off Date
------------- --------- ---------- ----------------- -----------------
50% or less........ % $ %
50.01%-55.00%......
55.01%-60.00%......
60.01%-65.00%......
65.01%-70.00%......
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
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 Mortgage Loan
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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Debt Service Mortgage Mortgage as of the as of the
Coverage Ratio Loans Loans Cut-off Date Cut-off Date
-------------- --------- ---------- ----------------- -----------------
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.............. % $ %
========= ========== ================= =================
Weighted Average Debt Service Coverage Ratio: ___x
There are ___ Mortgage Loans 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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Mortgage Mortgage as of the as of the
State Loans Loans Cut-off Date Cut-off Date
----- --------- ---------- ----------------- -----------------
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.............. % $ %
========= ========== ================= =================
Property Types
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Mortgage Mortgage as of the as of the
Type Loans Loans Cut-off Date Cut-off Date
---- --------- ---------- ----------------- -----------------
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.............. % $ %
========= ========== ================= =================
(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)
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Property Age Mortgage Mortgage as of the as of the
in Years Loans Loans Cut-off Date Cut-off Date
- ------------ --------- ---------- ----------------- -----------------
6 or less........ % $ %
7-11.............
12-16.............
17-21.............
22-26.............
27-31.............
Over 31...........
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Occupancy Mortgage Mortgage as of the as of the
Percentages Loans Loans Cut-off Date Cut-off Date
----------- --------- ---------- ----------------- -----------------
80.1%-- 85.0%...... % $ %
85.1%-- 90.0%......
90.1%-- 95.0%......
95.1%--100.0%......
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Occupancy Mortgage Mortgage as of the as of the
Percentages Loans Loans Cut-off Date Cut-off Date
----------- --------- ---------- ----------------- -----------------
70.1%-- 75.0%...... % $ %
80.1%-- 85.0%......
85.1%-- 90.0%......
90.1%-- 95.0%......
95.1%--100.0%......
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Occupancy Mortgage Mortgage as of the as of the
Percentages Loans Loans Cut-off Date Cut-off Date
----------- --------- ---------- ----------------- -----------------
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.............. % $ %
========= ========== ================= =================
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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Occupancy Mortgage Mortgage as of the as of the
Percentages Loans Loans Cut-off Date Cut-off Date
----------- --------- ---------- ----------------- -----------------
90.1%-- 95.0%...... % $ %
95.1%--100.0%......
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
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
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Balance Principal Balance
Occupancy Mortgage Mortgage as of the as of the
Percentages Loans Loans Cut-off Date Cut-off Date
----------- --------- ---------- ----------------- -----------------
85.1%-- 90.0%......
90.1%-- 95.0%......
95.1%--100.0%......
--------- ---------- ----------------- -----------------
Total.............. % $ %
========= ========== ================= =================
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.
<TABLE>
Prepayment Lock-out/Prepayment Premium Analysis
Percentage of Mortgage Loans by Outstanding Principal Balance
as of the Date Indicated Assuming No Prepayments
<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...................
------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<FN>
(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.
</FN>
</TABLE>
Borrower Concentration
[Description of Borrower Concentrations]
Related Borrowers
[Description of 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
[________________________ (the "Originator") has represented to the
Depositor that all of the Mortgage Loans were underwritten pursuant to its
[Multifamily and Commercial Lending Program]. The Originator began originating
mortgage loans in accordance with such standards in __________, 19__. Typically,
the multifamily loans are 30 year term fully amortizing loans secured by ___ to
___ unit apartment buildings and the commercial loans are 30 year term fully
amortizing loans secured by office buildings, shopping centers, mobile home
parks, industrial properties and other approved property types. Mortgage loans
underwritten pursuant to the [Multifamily and Commercial Lending Program] have
maximum loan amounts and LTV's and minimum DSCR's which are determined from time
to time by [the Loan Committee] of the Board of Directors of the Originator.
Appraisals and field inspections (performed by outside and certified inspectors)
and title insurance are required for each multifamily and commercial loan.
Under the [Multifamily and Commercial Lending Program] standards presently
in effect, the maximum loan amount is generally $__________, the maximum LTV is
__% of the appraised value of the mortgaged property for multifamily loans and
__% for commercial loans, and the minimum DSCR is ___ to 1.00, based on the
applicable level of the related index and the related Note Margin, for
multifamily loans, ___ to 1.00, based on the applicable level of the related
index and the related Note Margin for commercial loans. However, senior
management may approve a higher loan amount, a lower DSCR or a higher LTV if it
is determined that borrower has a strong financial position, good credit and
good property management skills and/or pledges additional collateral. With
respect to mortgage loans secured by seasoned multifamily properties, either __%
of the living units (or the higher level necessary to cover debt service and pay
all other expenses) must be occupied at rent levels that support the appraised
value of the mortgaged property, or an appropriate holdback of loan proceeds
must be established until the required occupancy level is met. For newly
constructed properties, a lower occupancy level may be approved by [the Loan
Committee].
The Originator's underwriting standards under [the Multifamily and
Commercial Lending Program] are primarily intended to assess the economics of
the mortgaged property and the financial capabilities, credit standing and
managerial ability of the borrower. In determining whether a loan should be
made, the Originator considers, among other things, the creditworthiness of the
mortgagor, the borrower's income, liquid assets and liabilities, the borrower's
management experience, DSCRs, the borrower's overall financial position and the
adequacy of such property as collateral for the mortgage loan. While the primary
consideration in underwriting a mortgage loan is the property securing the
mortgage loan, sufficient documentation on the borrower is required to establish
the financial strength and ability of the borrower to successfully operate the
property and meet its obligations under the note and deed of trust. The majority
of the mortgage loans originated by the Originator provide for recourse against
the related borrower.
[The Multifamily and Commercial Lending Program] requires that the property
and records regarding the property are inspected to determine the number of
units that can be rebuilt under current zoning requirements, the number of
buildings on the property, the type of construction materials used, the
proximity of the property to natural hazards, flood zones and fire stations and
whether there are any environmental factors and whether a tract map has been
recorded. The property must front on publicly dedicated and maintained streets
with provisions for adequate and safe ingress and egress. Properties that share
ingress and egress through an easement or private road must have a recorded
non-exclusive easement. Recreational facilities and amenities, if any, must be
located on site and be under the exclusive control of the owner of the premises.
If available, engineering reports concerning the condition of the major building
components of the property are reviewed as is a ground lease analysis if the
property is on leased ground. Also, the title is reviewed to determine if there
are any covenants, conditions and restrictions, easements or reservations of
mineral interests in the property. The properties are appraised by independent
appraisers approved by the Originator.
In addition to the considerations set forth above, with respect to Mortgage
Loans secured by commercial properties, the Originator's lending policies
typically require that the commercial usage is permitted under local zoning and
use ordinances and the utilization of the commercial space is compatible with
the property and neighborhood. If the commercial property is an office building,
the office building must have an excellent occupancy history, must be located in
a good office market area and in a conforming neighborhood, must have on-site
parking and must be fire sprinkler equipped according to zoning codes.
Industrial properties must be located in a conforming industrial marketplace and
may not be used for the production, storage or treatment of toxic waste. Retail
properties must be highly visible and located on a heavily traveled thoroughfare
and typically have tenants on term leases. The Originator may not make a loan
secured by a property that has any of the following characteristics: inadequate
maintenance or repairs as determined by the Originator, the property is subject
to covenants, conditions and restrictions unacceptable to the Originator,
existence of or potential for hazardous geological conditions, the property is
not to code or the cost of restoring the property to code is prohibitive or
existence of or potential for contamination by hazardous toxic materials.
The Originator analyzes the financial statements of the borrower to
determine the borrower's equity position, particularly as it relates to real
estate mortgage demands on equity. If the borrower's holdings are heavily
encumbered so that the debt service requirements consume a high percentage of
the rental income from the mortgaged property, or consist substantially of
unimproved or underimproved properties having little or no gross income, the
Originator analyzes whether the borrower will be able to meet all of the
mortgaged property's loan obligations (expenses, debt service and equity
return). In addition to DSCRs, the borrower's income and expense ratios are
calculated.
In addition to the income from the mortgaged property, the Originator also
evaluates the borrower's income as a possible secondary source of repayment for
the mortgage loan. In analyzing such income, the Originator considers, among
other factors, employment or business history of the borrower and the stability
and seasonality of the borrower's current employment or business. If the
borrower derives income from rental property, the Originator evaluates the
experience of the manager of the rental property, type of tenancy and the cash
flow generated by the borrower's real estate portfolio. The Originator also
reviews the borrower's credit history to determine the borrower's ability and
willingness to repay debts. In general, the Originator will not make a mortgage
loan to a borrower who has a history of slow payments or delinquencies,
bankruptcies, collection actions, foreclosures or judgments against the borrower
without adequate explanations and verifications.]
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 Bondholders.
Additional Information
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Bonds are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Bonds, a Mortgage Loan may be removed from the Mortgage
Pool if the Depositor deems such removal necessary or appropriate or if it is
prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Bonds, unless including such
mortgage loans would materially alter the characteristics of the Mortgage Pool
as described herein. The Depositor believes that the information set forth
herein will be representative of the characteristics of the Mortgage Pool as it
will be constituted at the time the Offered Bonds are issued, although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
In the event the Mortgage Loans included in the Mortgage Pool vary in any
material respect from the characteristics of the Mortgage Loans described
herein, a Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Bonds and will be filed, together with the Indenture,
with the Securities and Exchange Commission within fifteen days after the
initial issuance of the Offered Bonds.
SERVICING OF THE MORTGAGE LOANS
[Description of Master Servicer and Special Servicer to be provided by Master
Servicer]
Responsibilities of Master Servicer
Under the Servicing Agreement, the Master Servicer is required to service
and administer the Mortgage Loans solely on behalf of and in the best interests
of and for the benefit of the Bondholders, in accordance with the terms of the
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 services and administers 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 services and administers mortgage loans for its 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 (with respect
to the Master Servicer, the "Servicing Standard").
The Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or using its
best efforts to cause the Mortgagor under each Mortgage Loan to maintain)
hazard, business interruption and general liability insurance policies (and, if
applicable, rental interruption policies) as described herein 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 Master Servicer has determined not to
enforce any applicable due-on-sale clause; demanding that the Mortgagor cure
delinquencies; inspecting and managing Mortgaged Properties under certain
circumstances; and maintaining records relating to the Mortgage Loans.
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 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
Master 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 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 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 Master Servicer.
Under the 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 Bondholders, in accordance with the
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, Mortgaged 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 (with respect
to the Special Servicer, the "Servicing Standard").
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, in the name of the
Issuer, title to a Mortgaged Property securing a Specially Serviced Mortgage
Loan by operation of law or otherwise, if such action is consistent with the
Servicing Standard. The Special Servicer may not acquire title to any related
Mortgaged Property or take any other action that would cause the Issuer, for the
benefit of Bondholders, 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 paid as an expense of the Issuer), 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.
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 Issuer 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 __ Bond upon request. The holders of the fewest number of
classes of Bonds representing the most subordinate Bonds with an aggregate Bond
Principal Amount equal to at least __% of the Bond Principal Amount of all
Classes of Bonds (the "Monitoring Bondholders") will designate one Monitoring
Bondholder pursuant to the Servicing Agreement (the "Directing Bondholder ").
Each Asset Strategy Report will be delivered to the Directing Bondholder. The
Directing Bondholder may object to any Asset Strategy Report within 10 business
days of receipt. If the Directing Bondholder 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 Bondholder 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
Bondholder fails to disapprove such revised Asset Strategy Report as described
above, provided that the Special Servicer shall not be under any obligation to
perform any actions which are not consistent with applicable laws and the
related Mortgage Loan documents. Any Bondholder may request and obtain a copy of
any Asset Strategy Report except to the extent prohibited by applicable law or
the related Mortgage Loan documents.
[The Special Servicer may be removed without cause at any time by the
Directing Bondholder.]
[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 Bonds, 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 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 Bonds.
The initial Extension Advisor will be ________________________. At any
time, the holders of a majority of the outstanding aggregate Bond Principal
Amount of the Offered Bonds may remove the Extension Advisor. In such event, the
Trustee will so inform such Bondholders, and a majority of Bond Principal Amount
of the holders of such Bonds 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 in respect of
its 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 same principal amount and for the same period
respecting which any related interest payment on each Mortgage Loan is computed.
The Servicing Fee Rate with respect to each Mortgage Loan equals ___% per annum.
[The Master Servicer will also be entitled to retain as additional
servicing compensation (i) all investment income earned on amounts on deposit in
the Mortgagor escrow accounts (to the extent consistent with applicable law and
the related Mortgage Loan documents) and the Collection Account, (ii) all
amounts collected with respect to the Mortgage Loans (that are not Specially
Serviced Mortgage Loans) in the nature of late payment charges, late fees, NSF
check charges (including with respect to Specially Serviced Mortgage Loans),
extension fees, modification fees, assumption fees, and similar fees and
charges, and (iii) any Prepayment Interest Excess (to the extent not offset
against any Prepayment Interest Shortfall in accordance with the provisions of
the Servicing Agreement).
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.
[The Special Servicer will also be entitled to receive with respect to any
Specially Serviced Mortgage Loan or REO Property that is sold or transferred or
otherwise liquidated, in addition to the Special Servicing Fee, a disposition
fee (the "Disposition Fee") equal to ___% of the net proceeds of the sale or
liquidation of any Specially Serviced Mortgage Loan or REO Property.]
[The Special Servicer will also be entitled to retain as additional
servicing compensation (i) all investment income earned on amounts on deposit in
any REO Account, and (ii) all amounts collected with respect to the Specially
Serviced Mortgage Loans in the nature of late payment charges, late fees,
assumption fees, modification fees, extension fees or similar items.]
Conflicts of Interest
The Special Servicer or its affiliates own and are in the business of
acquiring assets similar to the Mortgage Loans owned by the Issuer. To the
extent that any mortgage loans owned and/or serviced by the Special Servicer or
its affiliates are similar to the Mortgage Loans owned by the Issuer, 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 owned by the Issuer for
tenants, purchasers, financing and similar resources.
DESCRIPTION OF THE BONDS
General
The Issuer's Series 199__-__ Collateralized Mortgage Bonds (the "Bonds")
will be issued on or about ___________, 199__ (the "Closing Date") in an
aggregate Bond Principal Amount of approximately $_____________, pursuant to an
Indenture, to be dated as of ____________, 199__ (the "Indenture"), between the
Owner Trustee, on behalf of the Issuer, and the Trustee, on behalf of the
holders of the Bonds (the "Bondholders"). The Bonds will be issued in [seven]
classes (each, a "Class") to be designated as: [(i) the Class A-1 and Class A-2
Bonds (collectively, the "Class A Bonds" or the "Senior Bonds"); (ii) the Class
B, Class C and Class D Bonds (collectively with the Class A Bonds, the "Offered
Bonds"); and (iii) the Class E and Class F Bonds (collectively, the "Private
Bonds"; and, collectively with the Class B, Class C and Class D Bonds, the
"Subordinate Bonds")]. The Bonds will be secured by the Trust Estate. The "Trust
Estate" will consist of all rights, money, instruments, securities and other
property, including all proceeds thereof, which are subject to, or intended to
be subject to, the lien of the Indenture for the benefit of the Bondholders,
including without limitation the Collateral. The "Collateral" will consist of
the Mortgage Loans, any REO Properties and the Collection Account, all of which
is more specifically described under "Description of the Mortgage Pool" herein
and "Description of the Collateral" and "Description of the
Agreements--Accounts" in the Prospectus.
Only the Offered Bonds are offered hereby. The Private Bonds will initially
be issued to and held by an affiliate of the Issuer and are not offered hereby.
The Offered Bonds will be non-recourse obligations of the Issuer. The
holders and beneficial owners of the Offered Bonds will be deemed to have agreed
that they have no rights or claims against the Issuer directly and may only look
to the Collateral to satisfy the Issuer's obligations under the Indenture. Each
holder and beneficial owner of an Offered Bond will also be deemed, by the
acceptance of its Bond or interest therein, to have agreed not to file or cause
a filing against the Issuer of an involuntary petition under any bankruptcy or
receivership law.
The Offered Bonds are not insured or guaranteed by any government agency or
instrumentality or by any other person.
The respective Classes of Bonds will be issued in the initial aggregate
Bond Principal Amounts (in each case, subject to a variance of plus or minus
__%), and will accrue interest at the Bond Interest Rates set forth below:
Initial Aggregate
Bond Principal
Class Amount Bond Interest Rate
----- ----------------- ------------------
[Class A-1].................... $ %
[Class A-2].................... $ %
[Class B]...................... $ %
[Class C]...................... $ %
[Class D]...................... $ %
[Class E]...................... $ %
[Class F]...................... $ %
The "Issuer's Equity" represents the right of the Issuer or its designee
(i) to receive all payments on and proceeds of the Collateral not otherwise
allocable to pay interest, principal or other amounts on the Bonds in accordance
with their terms or expenses of the Trust Estate and (ii) to have the remaining
Collateral returned to it after the Indenture is satisfied and discharged. The
principal amount of the Issuer's Equity as of any date of determination is the
amount (the "Overcollateralization Amount"), if any, by which the then aggregate
Stated Principal Balance of the Mortgage Pool (initially equal to the Initial
Pool Balance) exceeds the then aggregate Bond Principal Amount of all the Bonds.
As of the Closing Date, the Overcollateralization Amount will equal
approximately $_______________.
The "Stated Principal Balance" of each Mortgage Loan will generally equal
the Cut-off Date Balance thereof, reduced (to not less than zero) on each
Payment Date by (i) any payments or other collections (or advances in lieu
thereof) of principal of such Mortgage Loan that have been applied to make
payments to Bondholders and/or the Issuer on such date and (ii) the principal
portion of any Realized Loss incurred in respect of such Mortgage Loan during
the related Collection Period.
The "Collection Period" with respect to any Payment Date will be the period
commencing immediately following the Determination Date in the month immediately
preceding the month in which such Payment Date occurs (or, in the case of the
initial Collection Period, commencing immediately following the Cut-off Date)
and ending on and including the Determination Date in the month in which such
Payment Date occurs.
The "Determination Date" with respect to any Payment Date will be the __
day of the month in which such Payment Date occurs, of if such __ day is not a
business day, the immediately preceding business day.
Registration and Denominations
The Offered Bonds will be issued in denominations of not less than $_______
initial Bond Principal Amount and in any whole dollar denomination in excess
thereof.
Each Class of Offered Bonds will initially be issued in book-entry form
through the facilities of The Depository Trust Company ("DTC") and, accordingly,
will constitute Book-Entry Bonds within the meaning of the Prospectus. In
connection therewith, each Class of Offered Bonds will initially be represented
by one or more fully registered physical securities registered in the name of
the nominee of DTC. The Depositor has been informed by DTC that DTC's nominee
will be Cede & Co. No beneficial owner of a Book-Entry Bond (each, a "Bond
Owner") will be entitled to receive a fully registered physical security (a
"Definitive Bond") representing its interest in such Bond, except under the
limited circumstances described under "Description of the Bonds--Book-Entry
Registration and Definitive Bonds" in the Prospectus. Unless and until
Definitive Bonds are issued in respect of the Offered Bonds, beneficial
ownership interests in each such Class of Bonds will be maintained and
transferred on the book-entry records of DTC and its participating organizations
(the "DTC Participants"), and all references to actions by holders of each such
Class of Bonds will refer to actions taken by DTC upon instructions received
from the related Bond Owners through the DTC Participants in accordance with DTC
procedures, and all references herein to payments, notices, reports and
statements to the holders of each such Class of Bonds will refer to payments,
notices, reports and statements to DTC or Cede & Co., as the registered holder
thereof, for payment to the related Bond Owners through the DTC Participants in
accordance with DTC procedures. The form of such payments and transfers may
result in certain delays in receipt of payments by an investor and may restrict
an investor's ability to pledge its securities. See "Description of the
Bonds--Book-Entry Registration and Definitive Bonds" and "Risk Factors--Owner of
Book-Entry Bonds Not Entitled to Exercise Rights of Holders of Bonds" in the
Prospectus.
The Trustee will initially serve as registrar (in such capacity, the "Bond
Registrar") for purposes of recording and otherwise providing for the
registration of the Offered Bonds and, if and to the extent Definitive Bonds are
issued in respect thereof, of transfers and exchanges of the Offered Bonds.
Payments on the Bonds
General. Payments on the Bonds will be made by or on behalf of the Trustee,
to the extent of available funds, on the ___ day of each month or, if any such
___ day is not a business day, then on the next succeeding business day,
commencing in ____________, 199__ (each, a "Payment Date"). Except as described
below, all such payments will be made to the Bondholders of record at the close
of business on the last business day of the month preceding the month in which
the related Payment Date occurs (each, a "Record Date"). [As to each such
Bondholder, such payments will be made by wire transfer in immediately available
funds to the account specified by the Bondholder at a bank or other entity
having appropriate facilities therefor, if such Bondholder will have provided
the Trustee with wiring instructions no less than ____ business days prior to
the related Record Date and is the registered owner of Bonds with an aggregate
initial Bond Principal Amount of at least $[5,000,000], or otherwise by check
mailed to such Bondholder.] Until Definitive Bonds are issued in respect
thereof, Cede & Co. will be the registered holder of the Offered Bonds. See
"--Registration and Denominations" above. The final payment on any Bond will be
made only upon presentation and surrender of such Bond at the location that will
be specified in a notice of the pendency of such final payment. All payments
made with respect to a Class of Bonds will be allocated pro rata among the
outstanding Bonds of such Class based on the respective Bond Principal Amounts
thereof.
Funds Available for Payments on the Bonds. With respect to any Payment
Date, payments of interest and principal on the Bonds will be made from the
Available Payment Amount for such date. [The "Available Payment Amount" for any
Payment Date will, in general, equal:
(a) all amounts on deposit in the Collection Account (see "Description of
the Agreements--Accounts" in the Prospectus) as of the close of business on the
related Determination Date, exclusive of any portion thereof that represents one
or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent to the
related Collection Period;
(ii) Prepayment Premiums (however, Prepayment Premiums will be
excluded from the Available Payment Amount only if the Bonds have not been
declared due and payable following an Issuer Event of Default or if any
such declaration and its consequences have been rescinded and annulled);
(iii) amounts that are payable or reimbursable to any person other
than the Bondholders in respect of their Bonds or the Issuer in respect of
the Issuer's Equity (including amounts payable to the Master Servicer, the
Special Servicer, any Sub-Servicers or the Trustee as compensation
(including Trustee Fees, Servicing Fees, Special Servicing Fees, Default
Interest and late payment charges (to the extent not otherwise applied to
cover interest on Advances), and assumption fees and modification fees),
amounts payable in reimbursement of outstanding Advances, together with
interest thereon); and
(iv) amounts deposited in the Collection Account in error;
plus (b) to the extent not already included in clause (a), any P&I Advances
and/or Compensating Interest Payment made in respect of such Payment Date.]
With respect to any Payment Date, payments of Yield Maintenance Amounts on
the Bonds will be made from Prepayment Premiums actually collected on the
Mortgage Loans during the related Collection Period.
Priority of Payments. On each Payment Date, unless the Bonds have been
declared due and payable following an Issuer Event of Default and such
declaration and its consequences have not been rescinded and annulled, the
Available Payment Amount for such date will be applied to make payments to the
respective Classes of Bondholders and the Issuer for the following purposes and
in the following order of priority, in each case to the extent of remaining
funds:
[(i) to the holders of the Class A Bonds in respect of interest,
pro rata as between the two Classes of Class A Bondholders
based on entitlement, up to an amount equal to all Accrued
Bond Interest (as defined below) in respect of each such Class
of Bonds for the related Interest Accrual Period and, to the
extent not previously paid, for all prior Interest Accrual
Periods;
(ii) to the holders of the Class A Bonds in respect of principal,
allocable as between the two Classes of Class A Bondholders as
described below, up to an amount equal to the lesser of (a)
the then aggregate Bond Principal Amount of the Class A Bonds
and (b) the Principal Payment Amount (as defined below) for
such Payment Date;
(iii) to the holders of the Class B Bonds in respect of interest, up
to an amount equal to all Accrued Bond Interest in respect of
such Class of Bonds for the related Interest Accrual Period
and, to the extent not previously paid, for all prior Interest
Accrual Periods;
(iv) after the aggregate Bond Principal Amount of the Class A Bonds
has been reduced to zero, to the holders of the Class B Bonds
in respect of principal, up to an amount equal to the lesser
of (a) the then aggregate Bond Principal Amount of the Class B
Bonds and (b) the excess, if any, of the Principal Payment
Amount for such Payment Date over any amounts paid on such
Payment Date in retirement of the Class A Bonds pursuant to
clause (ii) above;
(v) to the holders of the Class C Bonds in respect of interest, up
to an amount equal to all Accrued Bond Interest in respect of
such Class of Bonds for the related Interest Accrual Period
and, to the extent not previously paid, for all prior Interest
Accrual Periods;
(vi) after the aggregate Bond Principal Amount of the Class A and
Class B Bonds has been reduced to zero, to the holders of the
Class C Bonds in respect of principal, up to an amount equal
to the lesser of (a) the then aggregate Bond Principal Amount
of the Class C Bonds and (b) the excess, if any, of the
Principal Payment Amount for such Payment Date over any
amounts paid on such Payment Date in retirement of the Class A
and/or Class B Bonds pursuant to clauses (ii) and (iv) above;
(vii) to the holders of the Class D Bonds in respect of interest, up
to an amount equal to all Accrued Bond Interest in respect of
such Class of Bonds for the related Interest Accrual Period
and, to the extent not previously paid, for all prior Interest
Accrual Periods;
(viii) after the aggregate Bond Principal Amount of the Class A,
Class B and Class C Bonds has been reduced to zero, to the
holders of the Class D Bonds in respect of principal, up to an
amount equal to the lesser of (a) the then aggregate Bond
Principal Amount of the Class D Bonds and (b) the excess, if
any, of the Principal Payment Amount for such Payment Date
over any amounts paid on such Payment Date in retirement of
the Class A, Class B and/or Class C Bonds pursuant to clauses
(ii), (iv) and (vi) above;
(ix) to the holders of the Class E Bonds in respect of interest, up
to an amount equal to all Accrued Bond Interest in respect of
such Class of Bonds for the related Interest Accrual Period
and, to the extent not previously paid, for all prior Interest
Accrual Periods;
(x) after the aggregate Bond Principal Amount of the Class A,
Class B, Class C and Class D Bonds has been reduced to zero,
to the holders of the Class E Bonds in respect of principal,
up to an amount equal to the lesser of (a) the then aggregate
Bond Principal Amount of the Class E Bonds and (b) the excess,
if any, of the Principal Payment Amount for such Payment Date
over any amounts paid on such Payment Date in retirement of
the Class A, Class B, Class C and/or Class D Bonds pursuant to
clauses (ii), (iv), (vi) and (viii) above;
(xi) to the holders of the Class F Bonds in respect of interest, up
to an amount equal to all Accrued Bond Interest in respect of
such Class of Bonds for the related Interest Accrual Period
and, to the extent not previously paid, for all prior Interest
Accrual Periods;
(xii) after the aggregate Bond Principal Amount of the Class A,
Class B, Class C, Class D and Class E Bonds has been reduced
to zero, to the holders of the Class F Bonds in respect of
principal, up to an amount equal to the lesser of (a) the then
aggregate Bond Principal Amount of the Class F Bonds and (b)
the excess, if any, of the Principal Payment Amount for such
Payment Date over any amounts paid on such Payment Date in
retirement of the Class A, Class B, Class C, Class D and/or
Class E Bonds pursuant to clauses (ii), (iv), (vi), (viii) and
(x) above;
(xiii) if, after giving effect to the payments of principal on the
Bonds contemplated by clauses (ii), (iv), (vi), (viii), (x)
and (xii) above, the aggregate Bond Principal Amount of all
the Bonds still exceeds the aggregate Stated Principal Balance
of the Mortgage Pool that will be outstanding immediately
following such Payment Date, then to the holders of the Class
A Bonds (allocable as between the two Classes of Class A
Bondholders as described below), the Class B Bonds, the Class
C Bonds, the Class D Bonds, the Class E Bonds and the Class F
Bonds, in that order, in respect of principal, until (in the
case of each Class of Bonds on which payments of principal are
so made) such excess (or the aggregate Bond Principal Amount
of such Class of Bonds) is reduced to zero (whichever occurs
first); and
(xiv) to or at the direction of the Issuer in respect of the
Issuer's Equity to the extent of any remaining portion of the
Available Payment Amount for such Payment Date.]
[On each Payment Date prior to the Class A Principal Payment Cross-Over
Date, if any, all payments of principal on the Class A Bonds described above
will be paid, first, to the holders of the Class A-1 Bonds, until the aggregate
Bond Principal Amount of such Class of Bonds is reduced to zero, and thereafter,
to the holders of the Class A-2 Bonds, until the aggregate Bond Principal Amount
of such Class of Bonds is reduced to zero. On each Payment Date on and after the
Class A Principal Payment Cross-Over Date, all payments of principal on the
Class A Bonds described above will be paid to the holders of such two Classes of
Bonds, pro rata, in accordance with their respective aggregate Bond Principal
Amounts immediately prior to such Payment Date, until the aggregate Bond
Principal Amount of each such Class of Bonds is reduced to zero. Provided that
both the Class A-1 Bonds and the Class A-2 Bonds are still outstanding, the
"Class A Principal Payment Cross-Over Date" will be the first Payment Date as of
which the aggregate Bond Principal Amount of the Class A Bonds immediately prior
thereto equals or exceeds the sum of (a) the aggregate Stated Principal Balance
of the Mortgage Pool that will be outstanding immediately following such Payment
Date, plus (b) the lesser of (i) the Principal Payment Amount for such Payment
Date and (ii) the Available Payment Amount Funds for such Payment Date that will
be remaining following the payment of all Accrued Bond Interest payable on the
Class A Bonds on such Payment Date.]
[On each Payment Date, unless the Bonds have been declared due and payable
following an Issuer Event of Default and such declaration has not been rescinded
or annulled, any Prepayment Premiums actually collected during the related
Collection Period will be applied to make payments to the respective Classes of
Bondholders and the Issuer for the following purposes and in the following order
of priority, in each case to the extent of remaining funds:
(i) to the holders of the Class A Bonds in respect of additional
interest, pro rata as between the two Classes of Class A Bondholders based
on entitlement, up to an amount equal to the Yield Maintenance Amount (as
defined below) for each such Class of Bonds for such Payment Date;
(ii) to the holders of the Class B Bonds in respect of additional
interest, up to an amount equal to the Yield Maintenance Amount for such
Class of Bonds for such Payment Date;
(iii) to the holders of the Class C Bonds in respect of additional
interest, up to an amount equal to the Yield Maintenance Amount for such
Class of Bonds for such Payment Date;
(iv) to the holders of the Class D Bonds in respect of additional
interest, up to an amount equal to the Yield Maintenance Amount for such
Class of Bonds for such Payment Date;
(v) to the holders of the Class E Bonds in respect of additional
interest, up to an amount equal to the Yield Maintenance Amount for such
Class of Bonds for such Payment Date;
(vi) to the holders of the Class F Bonds in respect of additional
interest, up to an amount equal to the Yield Maintenance Amount for such
Class of Bonds for such Payment Date; and
(vii) to or at the direction of the Issuer in respect of the Issuer's
Equity to the extent of any remaining Prepayment Premiums actually
collected during the related Collection Period.]
On each Payment Date, if the Bonds have been declared due and payable
following an Issuer Event of Default and such declaration and its consequences
have not been rescinded and annulled, the Available Payment Amount (which will,
under such circumstances, include Prepayment Premiums) for such date will be
applied to make payments to the respective Classes of Bondholders and the Issuer
for the following purposes and in the following order of priority, in each case
to the extent of remaining funds:
[(i) to the holders of the Class A-1 and Class A-2 Bonds in respect of
interest, pro rata based on entitlement up to an amount equal to all
Accrued Bond Interest in respect of each such Class of Bonds for the
related Interest Accrual Period and, to the extent not previously paid, for
all prior Interest Accrual Periods;
(ii) to the holders of the Class A-1 and Class A-2 Bonds in respect of
principal, pro rata based on their respective aggregate Bond Principal
Amounts, until such Bonds are retired;
(iii) to the holders of the Class B Bonds in respect of interest, up
to an amount equal to all Accrued Bond Interest in respect of such Class of
Bonds for the related Interest Accrual Period and, to the extent not
previously paid, for all prior Interest Accrual Periods;
(iv) after the aggregate Bond Principal Amount of the Class A Bonds
has been reduced to zero, to the holders of the Class B Bonds in respect of
principal, until such Bonds are retired;
(v) to the holders of the Class C Bonds in respect of interest, up to
an amount equal to all Accrued Bond Interest in respect of such Class of
Bonds for the related Interest Accrual Period and, to the extent not
previously paid, for all prior Interest Accrual Periods;
(vi) after the aggregate Bond Principal Amount of the Class A and
Class B Bonds has been reduced to zero, to the holders of the Class C Bonds
in respect of principal, until such Bonds are retired;
(vii) to the holders of the Class D Bonds in respect of interest, up
to an amount equal to all Accrued Bond Interest in respect of such Class of
Bonds for the related Interest Accrual Period and, to the extent not
previously paid, for all prior Interest Accrual Periods;
(viii) after the aggregate Bond Principal Amount of the Class A, Class
B and Class C Bonds has been reduced to zero, to the holders of the Class D
Bonds in respect of principal, until such Bonds are retired; and
(ix) to the holders of the Class E Bonds in respect of interest, up to
an amount equal to all Accrued Bond Interest in respect of such Class of
Bonds for the related Interest Accrual Period and, to the extent not
previously paid, for all prior Interest Accrual Periods;
(x) after the aggregate Bond Principal Amount of the Class A, Class B,
Class C and Class D Bonds has been reduced to zero, to the holders of the
Class E Bonds in respect of principal, until such Bonds are retired;
(xi) to the holders of the Class F Bonds in respect of interest, up to
an amount equal to all Accrued Bond Interest in respect of such Class of
Bonds for the related Interest Accrual Period and, to the extent not
previously paid, for all prior Interest Accrual Periods;
(xii) after the aggregate Bond Principal Amount of the Class A, Class
B, Class C, Class D and Class E Bonds has been reduced to zero, to the
holders of the Class F Bonds in respect of principal, until such Bonds are
retired; and
(xiii) after the aggregate Bond Principal Amount of all the Bonds has
been reduced to zero, to or at the direction of the Issuer in respect of
the Issuer's Equity to the extent of any remaining portion of the Available
Payment Amount for such Payment Date.]
Accrued Bond Interest. [The "Accrued Bond Interest" in respect of any Class
of Bonds for any Interest Accrual Period will equal one month's interest at the
applicable Bond Interest Rate accrued on the aggregate Bond Principal Amount of
such Class of Bonds outstanding immediately prior to the related Payment Date.
Accrued Bond Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.]
[If the portion of the Available Payment Amount payable in respect of
interest on any Class of Offered Bonds on any Payment Date is less than the
Accrued Bond Interest then payable for such Class, the shortfall will be payable
to holders of such Class of Bonds on subsequent Payment Dates, to the extent of
available funds. Any such shortfall will not bear interest, however, and will
therefore negatively affect the yield to maturity of such Class of Bonds for so
long as it is outstanding. The failure to pay the full amount of Accrued Bond
Interest in respect of any Class of Bonds on any Payment Date will not be an
Issuer Event of Default.]
[As to each Class of Bonds for any Payment Date, the "Interest Accrual
Period" will be the calendar month preceding the month in which such Payment
Date occurs.]
Principal Payment Amount. [The "Principal Payment Amount" for any Payment
Date will, in general, equal the aggregate of the following:
(a) the principal portions of all Scheduled Payments (other than
Balloon Payments) and any Assumed Scheduled Payments due or deemed due, as
the case may be, in respect of the Mortgage Loans for their respective Due
Dates occurring during the related Collection Period;
(b) all payments (including Principal Prepayments and Balloon
Payments) and other collections (including Liquidation Proceeds,
Condemnation Proceeds and Insurance Proceeds) that were received on or in
respect of the Mortgage Loans during the related Collection Period and that
were identified and applied by the Master Servicer as recoveries of
principal thereof, in each case net of any portion of such payment or other
collection that represents a recovery of the principal portion of any
Scheduled Payment (other than a Balloon Payment) due, or the principal
portion of any Assumed Scheduled Payment deemed due, in respect of the
related Mortgage Loan on a Due Date during or prior to the related
Collection Period and not previously recovered; and
(c) if such Payment Date is subsequent to the initial Payment Date,
the excess, if any, of (i) the Principal Payment Amount for the immediately
preceding Payment Date, over (ii) the aggregate payments of principal made
in respect of the Bonds on such immediately preceding Payment Date.]
[The "Scheduled Payment" due in respect of any Mortgage Loan on any related
Due Date will be the amount of the Monthly Payment that is scheduled to be due
in respect thereof on such date in accordance with the terms of such Mortgage
Loan in effect on the Closing Date, without regard to any waiver, modification
or amendment of such Mortgage Loan subsequent to the Closing Date, and assuming
that each prior Scheduled Payment has been made in a timely manner.]
[The "Assumed Scheduled Payment" is an amount deemed due in respect of any
Balloon Loan that is delinquent in respect of its Balloon Payment beyond the
first Determination Date that follows its original stated maturity date. The
Assumed Scheduled Payment deemed due on any such Mortgage Loan on its original
stated maturity date and on each successive Due Date that it remains or is
deemed to remain outstanding shall equal the Scheduled Payment that would be due
in respect thereof on such date if the related Balloon Payment had not come due
but rather such Mortgage Loan had continued to amortize in accordance with such
Mortgage Loan's amortization schedule in effect as of the Closing Date.]
[The failure to pay the full Principal Payment Amount on the Bonds on any
Payment Date will not be an Issuer Event of Default except to the extent that
any Bond is not retired by Stated Maturity.]
[Yield Maintenance Amount. The "Yield Maintenance Amount" will equal: (a)
with respect to any Class of Bonds, for any Payment Date on which any portion of
the Principal Prepayment Amount, if any, is paid thereon on such Payment Date,
an amount equal to the present value of a series of equal monthly payments
deemed payable on each future Payment Date up to and including the Assumed Final
Payment Date for such Class of Bonds, each such monthly payment to be equal to
the related Interest Payment Adjustment and to be discounted from the applicable
future Payment Date to the then current Payment Date at a per annum rate equal
to the sum of (i) the yield per annum on United States treasury securities
having a maturity closest to the Assumed Final Payment Date for such Class of
Bonds, plus (ii) ___ basis points; and (b) with respect to any Class of Bonds
for any Payment Date on which no portion of a Principal Prepayment Amount is
paid thereon on such Payment Date, zero. For purposes of the foregoing, the
"related Interest Payment Adjustment" will equal one-twelfth of the product of
the Bond Interest Rate for the subject Class of Bonds, multiplied by the portion
of the Principal Prepayment Amount for such Payment Date payable on such Class
of Bonds. The "Principal Prepayment Amount" for any Payment Date will be that
portion of the Principal Payment Amount for such Payment Date that represents
voluntary principal prepayments and other early collections of principal on or
in respect of the Mortgage Loans received in advance of their respective stated
maturity dates as of the Closing Date.]
[Failure to pay the full Yield Maintenance Amount in respect of any Class
of Bonds on any Payment Date will not be an Issuer Event of Default and the
shortfall will not be carried forward to any subsequent Payment Date.]
Treatment of REO Properties. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Estate through foreclosure, deed in lieu of
foreclosure or otherwise, the related Mortgage Loan will, for purposes of, among
other things, determining payments of principal on the Bonds, as well as the
amount of Servicing Fees, Special Servicing Fees and Trustee Fees payable under
the Indenture and the Servicing Agreement, be treated as having remained
outstanding until such REO Property is liquidated. In connection therewith,
operating revenues and other proceeds derived from such REO Property (exclusive
of related operating costs) will be "applied" by the Master Servicer as
principal, interest and other amounts "due" on such Mortgage Loan; and, subject
to the recoverability determination described below (see "--Advances"), the
Master Servicer will be required to make P&I Advances in respect of such
Mortgage Loan as if it had remained outstanding. References to "Mortgage Loan"
and "Mortgage Loans" in the definitions of "Principal Payment Amount" and
"Principal Prepayment Amount" are intended to include any Mortgage Loan or
Mortgage Loans as to which the related Mortgaged Property has become an REO
Property.
Subordination
[As and to the extent described herein, the rights of the Issuer or its
designee to receive payments of amounts received on the Mortgage Loans in
respect of the Issuer's Equity will be subordinated to the rights of holders of
the Bonds to receive such amounts in respect of interest, principal and other
amounts due and owing on their Bonds from time to time. In addition, as and to
the extent described herein, the rights of holders of the Subordinate Bonds
(including the Class B, Class C and Class D Bonds) to receive payments of
amounts received on the Mortgage Loans in respect of interest, principal and
other amounts due and owing on their Bonds from time to time will, in the case
of each Class thereof, be subordinated to such rights of the holders of the
Class A Bonds and the holders of each other Class of Subordinate Bonds with an
earlier alphabetical Class designation. This subordination is intended to
enhance the likelihood of timely receipt by the holders of the Class A Bonds of
the full amount of Accrued Bond Interest payable in respect of such Bonds on
each Payment Date, and the ultimate receipt by the holders of such Bonds of
principal in an amount equal to the entire aggregate Bond Principal Amount
thereof. Similarly, but to decreasing degrees, this subordination is also
intended to enhance the likelihood of timely receipt by the holders of the other
Classes of Offered Bonds of the full amount of Accrued Bond Interest payable in
respect of such Bonds on each Payment Date, and the ultimate receipt by the
holders of such Bonds of principal equal to the entire aggregate Bond Principal
Amount thereof. This subordination will be accomplished by, among other things,
the application of the Available Payment Amount on each Payment Date in
accordance with the order of priority described under "--Payments on the
Bonds--Priority of Payments" above. No other form of Credit Support will be
available for the benefit of any Class of Offered Bondholders.
Realized Losses, Net Aggregate Prepayment Interest Shortfalls and other
shortfalls in respect of the Mortgage Loans will, in each case, be borne by the
Issuer and the holders of the Private Bonds (to the extent of amounts otherwise
payable in respect of the Issuer's Equity and the Private Bonds, respectively)
prior to any such losses, shortfalls and/or expenses being borne by the Offered
Bondholders. If and to the extent that Realized Losses, together with any Net
Aggregate Prepayment Interest Shortfalls, exceed the sum of the initial
Overcollateralization Amount and the initial aggregate Bond Principal Amount of
the Private Bonds, it is likely that the holders of one or more Classes of
Offered Bonds will not receive the full Bond Principal Amount of their Bonds.
[Furthermore, notwithstanding the Mortgage Rates on the Mortgage Loans, the Bond
Interest Rate on each Class of Bonds is fixed. In certain limited circumstances,
the Mortgage Rate on one or more of the Mortgage Loans may be less than the Bond
Interest Rate on one or more Classes of the Offered Bonds. However, holders of
the Offered Bonds would not receive the full Bond Principal Amount of their
Bonds, together with Accrued Bond Interest thereon, generally only if (i) the
aggregate Stated Principal Balance of the Mortgage Pool is less than the
aggregate Bond Principal Amount of the Offered Bonds and/or (ii) aggregate
interest collected in respect of the Mortgage Loans (net of certain fees and
expenses payable therefrom under the Indenture and the Servicing Agreement) is
less than the aggregate interest payable on the Offered Bonds.]
[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 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 Issuer
(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 payments of interest on the Bonds, 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 Payment 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 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 Accrued Bond Interest to be paid on one or more classes of
Bonds and shall not be a permanent reduction of the Bond Principal Amount (or
notional amount) of any class of Bonds 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
paid to Bondholders 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 paid to Bondholders, and (ii) any unscheduled
amounts of principal received with respect to such Mortgage Loans, to the extent
paid to Bondholders.
[The Collateral Value Adjustment will be allocated on each Payment Date,
for purposes of determining payments in respect of interest on such Payment
Date, to the Bond Principal Amount of the most subordinate class of Bonds that
would otherwise receive payments of interest, up to an aggregate amount (net of
any positive adjustments) equal to the Bond Principal Amount thereof. For so
long as a more senior class of Bonds is outstanding, the amount of interest
otherwise payable on such Payment Date to each class of Bonds to which a
Collateral Value Adjustment has been allocated (to the extent not reversed) with
respect to prior Payment Dates will be reduced by interest accrued at the
related Bond Interest Rate on the portion of the Bond Principal Amount of such
class equal to the sum of the aggregate Collateral Value Adjustment allocated to
such class for such Payment Date and accrued and unpaid interest at the related
Bond Interest Rate on such Collateral Value Adjustment amount for prior Payment
Dates. Such accrued and unpaid interest (the "Collateral Value Adjustment
Capitalization Amount") will be added to the Bond Principal Amount of such class
or classes of Bonds, and an equal amount will be included in the Principal
Payment Amount to be paid to holders of the most senior classes of Bonds on such
Payment Date as described herein, to the extent actually paid by the Mortgagor
or received as interest in respect of any REO Property. [On each Payment Date on
or after the allocation of a Collateral Value Adjustment, the amount of interest
otherwise payable on such Payment Date to the Class Bonds 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 Bonds for such
Payment Date or any prior Payment 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 by the
Issuer). 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
Bonds senior to the class of Bonds to which such reversal is allocated. However,
in neither case will the Bond Principal Amount (or notional amount) of the
affected class or classes of Bonds be reduced by such reversal or reduction. In
such event, the total Collateral Value Adjustment Capitalization Amount
previously added to the related Bond Principal Amount shall be reduced in
proportion to the Collateral Class Adjustment reversal.]
Advances
On the business day immediately preceding each Payment Date, the Master
Servicer will be obligated to make advances out of its own funds or funds held
in the Collection Account that are not required to be part of the Available
Distribution Amount for such Payment Date or to remit any advances made by the
Master 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 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 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
Servicer to make an advance as required under the 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
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.
Reports to Bondholders; Certain Available Information
[Trustee Reports; Special Servicer Reports. Based on information provided
in monthly reports prepared by the Master Servicer and the Special Servicer and
delivered to the Trustee, the Trustee will prepare and forward on each Payment
Date to each Bondholder a statement (the "Trustee Report") substantially in the
form of Annex ___ hereto, detailing the payments on the Bonds on such Payment
Date and the performance, both in the aggregate and individually to the extent
available, of the Mortgage Loans and Mortgaged Properties. [Investors and any
other interested party may obtain Trustee Reports via the Trustee's electronic
bulletin board by dialing ___________ and selecting the applicable statement. In
addition, investors and other interested parties who have obtained approval from
the Depositor, confirmation of which approval has been furnished to the Trustee,
may obtain certain Mortgage Loan information via the Trustee's restricted
electronic bulletin board by contacting the Trustee at ____________.]
With respect to each Determination Date, the Special Servicer will be
required to prepare a report (the "Special Servicer Report") generally
containing the information described in Annex __ hereto with respect to
Specially Serviced Mortgage Loans. The Special Servicer Reports will be
delivered to the Trustee and the Master Servicer, and the Trustee will
distribute such reports to the Bondholders.
Until such time as Definitive Bonds are issued in respect of the Offered
Bonds, the foregoing information will be available to the Bond Owners through
DTC and the DTC Participants. Any Bond Owner of a Book-Entry Bond who does not
receive information through DTC or the DTC Participants may request that Trustee
Reports, Special Servicer Reports and accompanying documentation be mailed
directly to it (at its cost) by written request (accompanied by verification of
such Bond Owner's ownership interest) to the Trustee at the Trustee's corporate
trust office primarily responsible for administering the Trust Estate (the
"Corporate Trust Office"). The manner in which notices and other communications
are conveyed by DTC to DTC Participants, and by DTC Participants to the Bond
Owners of Book-Entry Bonds, will be governed by arrangements among them, subject
to any statutory or regulatory requirements as may be in effect from time to
time. The Master Servicer, the Special Servicer, the Trustee, the Depositor and
the Issuer are required to recognize as Bondholders only those persons in whose
names the Bonds are registered on the books and records of the Bond Registrar.
Other Information. [The Indenture requires that the Trustee make available
at its Corporate Trust Office, during normal business hours, upon reasonable
advance written notice, for review by any holder or Bond Owner of an Offered
Bond or any person identified to the Trustee by any such holder or Bond Owner as
a prospective transferee of an Offered Bond or any interest therein, subject to
the discussion in the following paragraph, originals or copies of, among other
things, the following items: (a) the Indenture, the Servicing Agreement and any
amendments or supplements to either of the foregoing, (b) all Trustee Reports
and Special Servicer Reports delivered to holders of the relevant Class of
Offered Bonds since the Closing Date, (c) all officer's certificates delivered
to the Trustee by the Master Servicer and/or Special Servicer since the Closing
Date as described under "Description of the Agreements--Evidence as to
Compliance" in the Prospectus, (d) all accountant's reports delivered to the
Trustee in respect of the Servicer and/or Special Servicer since the Closing
Date as described under "Description of the Agreements--Evidence as to
Compliance" in the Prospectus, and (e) [other available items to be specified].
Copies of any and all of the foregoing items will be available from the Trustee
upon request; however, the Trustee will be permitted to require payment of a sum
sufficient to cover the reasonable costs and expenses of providing such
services.]
[The Trustee will make available, upon reasonable advance written notice
and at the expense of the requesting party, originals or copies of the items
referred to in the prior paragraph that are maintained thereby, to Bondholders,
Bond Owners and prospective purchasers of Bonds and interests therein; provided
that the Trustee may require (a) in the case of a Bond Owner of an Offered Bond,
a written confirmation executed by the requesting person or entity, in a form
reasonably acceptable to the Trustee, generally to the effect that such person
or entity is a beneficial owner of Offered Bonds, is requesting the information
for use by it or another party in evaluating an investment in the Offered Bonds
and will otherwise keep such information confidential and (b) in the case of a
prospective purchaser of an Offered Bond, confirmation executed by the
requesting person or entity, in a form reasonably acceptable to the Trustee,
generally to the effect that such person or entity is a prospective purchaser of
Offered Bonds or an interest therein, is requesting the information for use in
evaluating a possible investment in the Offered Bonds and will otherwise keep
such information confidential. Bondholders, by the acceptance of their Bonds,
will be deemed to have agreed to keep such information confidential.]
Voting Rights
[At all times during the term of the Indenture, ___% of the voting rights
for the series offered hereby (the "Voting Rights") will be allocated among the
holders of the respective Classes of Bonds in proportion to the aggregate Bond
Principal Amounts of such Classes. Voting Rights allocated to a Class of
Bondholders will be allocated among such Bondholders in proportion to the
respective Bond Principal Amounts of their Bonds.]
The Trustee
______________________________________________ will be the Trustee under
the Indenture. The Trustee is at all times to be, and will be required to resign
if it fails to be, [specify eligibility requirements for Trustee, including
qualification under the Trust Indenture Act of 1939, as amended].
The Depositor, the Master Servicer, the Special Servicer and their
respective affiliates may from time to time enter into normal banking and
trustee relationships with the Trustee and its affiliates. The Trustee and any
of its respective affiliates may hold Bonds in their own names. In addition, for
purposes of meeting the legal requirements of certain local jurisdictions, the
Trustee may appoint a co-trustee or separate trustee of all or any part of the
Trust Estate. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee and such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee.
[Pursuant to the Indenture, the Trustee will be entitled to receive a
monthly fee (the "Trustee Fee") generally equal to one month's interest in
respect of each Mortgage Loan (including each Mortgage Loan as to which the
related Mortgaged Property became an REO Property) accrued at _______% per annum
(the "Trustee Fee Rate") on the unpaid principal balance of such Mortgage Loan
from time to time.] See also "Description of the Bonds--The Trustee" in the
Prospectus.
[Optional Redemption]
[Any Class of Offered Bonds may be redeemed in whole but not in part, at
the Issuer's option, on any Payment Date, if the then aggregate Bond Principal
Amount of such Class of Bonds is less than ___% of the initial aggregate Bond
Principal Amount of such Class of Bonds and no Issuer Event of Default has
occurred and is continuing. Such redemption will be at a price (calculated after
taking into account payments made on the Bonds out of the Available Payment
Amount on the applicable Payment Date) equal to 100% of the unpaid aggregate
Bond Principal Amount of the Bonds to be redeemed, plus accrued and unpaid
interest thereon to the last day of the related Interest Accrual Period. Notice
of any optional redemption must be mailed by the Issuer or the Indenture Trustee
at least ___ days prior to the date set for optional redemption. No Yield
Maintenance Amount will be payable in connection with any such optional
redemption. See "Yield and Maturity Considerations" herein.]
Additional Information
Prospective investors should carefully review the Prospectus, in particular
the sections captioned "Description of the Bonds" and "Description of the
Agreements", for important additional information regarding the Bonds and the
Indenture.
THE ISSUER
ICCMAC Commercial Trust [______] (the "Issuer") is a business trust formed
under the laws of the State of ___________, pursuant to the Deposit Trust
Agreement, to be dated as of ____________, 199__ (the "Deposit Trust
Agreement"), between Imperial Credit Commercial Mortgage Acceptance Corp. (the
"Depositor") and the Owner Trustee, for the transactions described in this
Prospectus Supplement. The Deposit Trust Agreement constitutes the "governing
instrument" under the laws of the State of __________ relating to business
trusts. [Ownership of the Issuer will initially be evidenced by ______ classes
of ownership certificates (the "Ownership Certificates"). The Depositor
initially will hold all of the Ownership Certificates, but may transfer some or
all such Ownership Interests to an affiliate structured substantially similar to
the Depositor.] The Depositor, a California corporation, is a direct
wholly-owned subsidiary of Imperial Credit Commercial Mortgage Investment Corp.
("ICCMIC"). See "The Depositor" in the Prospectus.
After its formation, the Issuer will generally not engage in any activity
other than (i) acquiring, holding and, pursuant to the Indenture, pledging the
Mortgage Loans and the other assets of the Issuer and proceeds therefrom, (ii)
issuing the Bonds and the Ownership Certificates, (iii) making payments on the
Bonds and the Ownership Certificates and (iv) engaging in other activities that
are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
The assets of the Issuer will consist of the Mortgage Loans and certain
related assets.
The Issuer's principal offices are in _____________, in care of
_______________________, as Owner Trustee, at the address listed below.
THE OWNER TRUSTEE
________________________ is the Owner Trustee under the Deposit Trust
Agreement. The Owner Trustee is a ____________________ and its principal offices
are located at ______________________________.
As compensation for the performances of its duties, the Owner Trustee will
be paid $___________ per annum (the "Owner Trustee Fee").
___________________________ will be responsible for payment of the Owner
Trustee Fee.
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to the Issuer or the Bondholders for
any action taken or for refraining from the taking of any action in good faith
pursuant to the Deposit Trust Agreement or for errors in judgment; provided that
none of the Owner Trustee and any director, officer or employee thereof will be
protected against any liability which would otherwise be imposed by reason of
gross negligence or willful misconduct in the performance of obligations and
duties under the Deposit Trust Agreement. All persons into which the Owner
Trustee may be merged or with which it may be consolidated or any person
resulting from such merger or consolidation shall be the successor of the Owner
Trustee under the Deposit Trust Agreement.
THE ADMINISTRATOR
______________________ (the "Administrator") is a ________________________,
and its principal offices are located at _____________________________________.
The Owner Trustee, on behalf of the Issuer, and the Administrator will
enter into an Administration Agreement, to be dated as of ___________, 199__
(the "Administration Agreement"), pursuant to which the Administrator will be
required to perform (without relieving the Issuer from liability therefor)
certain duties of the Issuer set forth in the Indenture. As compensation for the
performance of its duties, the Administrator will be paid a monthly fee on each
Payment Date equal to one-twelfth of _____% of the aggregate Stated Principal
Balance of the Mortgage Pool immediately prior to such Payment Date (the
"Administration Fee"). _______________________________ will be responsible for
payment of the Administration Fee.
YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
General. The yield on any Offered Bond will depend on (a) the price at
which such Bond is purchased by an investor and (b) the rate, timing and amount
of payments on such Bond. The rate, timing and amount of payments on any Offered
Bond will in turn depend on, among other things, (i) the Bond Interest Rate for
such Bond, (ii) the rate and timing of principal payments (including principal
prepayments) and other principal collections on the Mortgage Loans, and (iii)
the rate, timing and severity of Realized Losses and Net Aggregate Prepayment
Interest Shortfalls.
Rate and Timing of Principal Payments. The yield to holders of any Offered
Bonds purchased at a discount or premium will be affected by the rate and timing
of principal payments made in reduction of the Bond Principal Amounts of such
Bonds. As described herein, the Principal Payment Amount for each Payment Date
will be payable entirely in respect of the Class A-1 and/or Class A-2 Bonds
until the aggregate Bond Principal Amounts thereof are reduced to zero, and will
thereafter be payable entirely in respect of the Class B Bonds, the Class C
Bonds, the Class D Bonds, the Class E Bonds and the Class F Bonds, in that
order, in each case until the aggregate Bond Principal Amount of such Class of
Bonds is reduced to zero. In addition, except under the limited circumstances
described herein, holders of the Class A-2 Bonds will not receive any payments
of principal for so long as the Class A-1 Bonds are outstanding. Consequently,
the rate and timing of principal payments that are paid with respect to each
Class of Bonds will be directly related to the rate and timing of principal
payments on or in respect of the Mortgage Loans. The rate and timing of
principal payments of the Mortgage Loans are affected by the amortization
schedules of such Mortgage Loans, the dates on which Balloon Payments are due
and the rate and timing of principal prepayments and other unscheduled
collections thereon (including for this purpose, collections made in connection
with liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties, or purchases of Mortgage Loans out of the
Trust Estate). Prepayments and, assuming the respective maturity dates therefor
have not occurred, liquidations of the Mortgage Loans will result in payments on
the Bonds of amounts that would otherwise be paid over the remaining terms of
the Mortgage Loans and will tend to shorten the weighted average lives of the
Bonds. Defaults on the Mortgage Loans, particularly at or near their maturity
dates, may result in significant delays in payments of principal on the Mortgage
Loans (and, accordingly, on the Bonds) while work-outs are negotiated or
foreclosures are completed, and such delays will tend to lengthen the weighted
average lives of those Bonds. See "Servicing of the Mortgage Loans" herein.
The extent to which the yield to maturity of any Class of Offered Bonds may
vary from the anticipated yield will depend upon the degree to which such Bonds
are purchased at a discount or premium and when, and to what degree, payments of
principal are made on such Bonds. An investor should consider, in the case of
any Offered Bond purchased at a discount, the risk that a slower than
anticipated rate of principal payments on such Bond, could result in an actual
yield to such investor that is lower than the anticipated yield and, in the case
of any Offered Bond purchased at a premium, the risk that a faster than
anticipated rate of principal payments on such Bond could result in an actual
yield to such investor that is lower than the anticipated yield. In general, the
earlier a payment of principal is made on any Offered Bond purchased at a
discount or premium, the greater will be the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal payments
on its Offered Bonds occurring at a rate higher (or lower) than the rate
anticipated by the investor during any particular period would not be fully
offset by a subsequent like reduction (or increase) in the rate of such
principal payments. As stated above, the rate of principal payments on the
Offered Bonds are ultimately dependent on the rate of principal payments on the
Mortgage Loans. Because the rate of principal payments on the Mortgage Loans
will depend on future events and a variety of factors (as described more fully
below), no assurance can be given as to such rate or the rate of principal
prepayments in particular.
Losses and Shortfalls. The yield to holders of the Offered Bonds will also
depend on the extent to which payments on the Bonds are adversely affected by
any losses and other shortfalls on the Mortgage Loans. Realized Losses, Net
Aggregate Prepayment Interest Shortfalls and other shortfalls in respect of the
Mortgage Loans will, in each case, be borne by the Issuer and the holders of the
Private Bonds (to the extent of amounts otherwise payable on or in respect of
the Issuer's Equity and the Private Bonds, respectively) prior to any such
losses, shortfalls and/or expenses being borne by the holders of the Offered
Bonds. If and to the extent that Realized Losses, together with any Net
Aggregate Prepayment Interest Shortfalls, exceed the sum of the initial
Overcollateralization Amount and the initial aggregate Bond Principal Amount of
the Private Bonds, it is likely that the holders of one or more Classes of
Offered Bonds will not receive the full Bond Principal Amount of their Bonds.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, provisions requiring Lockout Periods,
provisions requiring the payment of Prepayment Premiums and amortization terms
that require Balloon Payments), the demographics and relative economic vitality
of the areas in which the Mortgaged Properties are located and the general
supply and demand for rental units or comparable commercial space, as
applicable, in such areas, the quality of management of the Mortgaged
Properties, the servicing of the Mortgage Loans, possible changes in tax laws
and other opportunities for investment. See "Risk Factors" herein and in the
Prospectus and "Description of the Mortgage Pool" herein.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a Mortgage
Rate, the related Mortgagor has an incentive to refinance its Mortgage Loan. A
requirement that a prepayment be accompanied by a Prepayment Premium may not
provide a sufficient economic disincentive to deter a Mortgagor from refinancing
at a more favorable interest rate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some Mortgagors may sell or
refinance Mortgaged Properties in order to realize their equity therein, to meet
cash flow needs or to make other investments. In addition, some Mortgagors may
be motivated by federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
Neither the Depositor nor the Issuer makes any representation as to the
particular factors that will affect the rate and timing of prepayments and
defaults on the Mortgage Loans, as to the relative importance of such factors,
as to the percentage of the principal balance of the Mortgage Loans that will be
prepaid or as to which a default will have occurred as of any date or as to the
overall rate of prepayment or default on the Mortgage Loans.
Unpaid Accrued Bond Interest. As described under "Description of the
Bonds--Payments on the Bonds" herein, if the portion of the Available Payment
Amount payable in respect of interest on any Class of Offered Bonds on any
Payment Date is less than the Accrued Bond Interest then payable for such Class,
the shortfall will be payable to holders of such Class of Bonds on subsequent
Payment Dates, to the extent of available funds. Any such shortfall will not
bear interest, however, and will therefore negatively affect the yield to
maturity of such Class of Bonds for so long as it is outstanding.
Weighted Average Life
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of payment to the investor
of each dollar payable in reduction of principal of such security (assuming no
losses). The weighted average life of any Offered Bonds will be influenced by,
among other things, the rate at which principal of the Mortgage Loans is paid,
which may be in the form of scheduled amortization, Balloon Payments,
prepayments or liquidations and any extensions or modifications made by the
Special Servicer with respect to Specially Serviced Mortgage Loans as described
herein. The weighted average life of any Offered Bond may also be affected to
the extent that additional payments in reduction of the Bond Principal Amount of
such Bond occur as a result of the purchase of a Mortgage Loan out of the Trust
Estate or any optional redemption of such Bond as described under "Description
of the Bonds--Optional Redemption" herein.
[The table set forth below has been prepared on the basis of the following
assumptions (the "Modeling Assumptions") regarding the characteristics of the
Bonds and the Mortgage Loans and the performance thereof: (i) as of the date of
issuance of the Bonds, the Mortgage Loans have the terms as identified in the
tables titled [identify tables]; (ii) the monthly cash flow of each Mortgage
Loan (except for the Balloon Payment) is a monthly payment of principal and
interest calculated based upon [specify applicable information], and no Mortgage
Loan is voluntarily prepaid; (iii) no Mortgage Loan is repurchased as a result
of a material breach of a representation or warranty, and there is no optional
redemption of Bonds; (iv) there are no delinquencies or Realized Losses on the
Mortgage Loans, and there is no extension of the maturity date of any Mortgage
Loan; (v) all Mortgage Loans accrue interest on the basis of a 360-day year
consisting of twelve 30-day months; (vi) payments on the Bonds will be made on
the __ day of each month, commencing in ________ 199_; (vii) payments on the
Mortgage Loans earn no reinvestment return; (viii) there are no additional
ongoing expenses payable out of the Trust Estate other than the Servicing Fee,
the Special Servicing Fee and the Trustee Fee; (ix) the respective Classes of
Offered Bonds will be issued in the initial aggregate Bond Principal Amounts and
will accrue interest at the Bond Interest Rates set forth in the table on the
cover page hereof; (x) the Offered Bonds will be settled on __________, 199_
(the "Assumed Settlement Date"); and (xi) no Prepayment Premiums are collected
on the Mortgage Loans.]
The actual characteristics and performance of the Mortgage Loans will
differ from the Modeling Assumptions used in calculating the table set forth
below, which is hypothetical in nature and is provided only to give a general
sense of how the principal cash flows might behave under the assumed prepayment
and loss scenario. Any difference between such assumptions and the actual
characteristics and performance of the Mortgage Loans, or actual prepayment or
loss experience, will affect the percentages of initial aggregate Bond Principal
Amounts outstanding over time and the weighted average lives of the respective
Classes of Offered Bonds.
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each Class of the Offered Bonds, and sets
forth the percentages of the initial aggregate Bond Principal Amount of each
such Class that would be outstanding after each of the Payment Dates shown.
Percent of Initial Aggregate Bond Principal Amounts Outstanding
Date Class A-1A Class A-1B Class A-2 Class A-3 Class B-1
----
Closing Date........... ___% ___% ___% ___% ___%
______________, 1998... ___% ___% ___% ___% ___%
______________, 1999... ___% ___% ___% ___% ___%
______________, 2000... ___% ___% ___% ___% ___%
______________, 2001... ___% ___% ___% ___% ___%
______________, 2002... ___% ___% ___% ___% ___%
______________, 2003... ___% ___% ___% ___% ___%
______________, 2004... ___% ___% ___% ___% ___%
______________, 2005... ___% ___% ___% ___% ___%
______________, 2006... ___% ___% ___% ___% ___%
______________, 2007... ___% ___% ___% ___% ___%
______________, 2008... ___% ___% ___% ___% ___%
______________, 2009... ___% ___% ___% ___% ___%
______________, 2010... ___% ___% ___% ___% ___%
______________, 2011... ___% ___% ___% ___% ___%
______________, 2012... ___% ___% ___% ___% ___%
______________, 2013... ___% ___% ___% ___% ___%
______________, 2014... ___% ___% ___% ___% ___%
______________, 2015... ___% ___% ___% ___% ___%
______________, 2016... ___% ___% ___% ___% ___%
______________, 2017... ___% ___% ___% ___% ___%
Weighted Average
Life (years)........ ___ ___ ___ ___ ___
For purposes of the foregoing table, the weighted average life of an
Offered Bond is determined by (i) multiplying the amount of each principal
payment thereon by the number of years from [the Assumed Settlement Date] to the
related Payment Date, (ii) summing the results and (iii) dividing the sum by the
aggregate amount of the reductions in the Bond Principal Amount of such Offered
Bond.
FEDERAL INCOME TAX CONSEQUENCES
General
Upon the issuance of the Offered Bonds, Cadwalader, Wickersham & Taft,
special counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the Indenture and
certain related documents, and based in part on the facts set forth in this
Prospectus Supplement and additional information and representations, the
Offered Bonds will be treated as indebtedness. See "Federal Income Tax
Consequences" in the Prospectus.
Taxable mortgage pool ("TMP") rules enacted as part of the Tax Reform Act
of 1986 treat certain arrangements in which debt obligations are secured or
backed by real estate mortgage loans as taxable corporations. An entity (or a
portion thereof) will be characterized as a TMP if (i) substantially all of its
assets are debt obligations and more than 50 percent of such debt obligations
consist of real estate mortgage loans or interests therein, (ii) the entity is
the obligor under debt obligations with two or more maturities, and (iii)
payments on the debt obligations referred to in (ii) bear a relationship to
payments on the debt obligations referred to in (i). Furthermore, a group of
assets held by an entity can be treated as a separate TMP if the assets are
expected to produce significant cash flow that will support one or more of the
entity's issues of debt obligations.
It is anticipated that the Issuer will be characterized as a TMP for
federal income tax purposes. In general, a TMP is treated as a "separate"
corporation not includible with any other corporation in a consolidated income
tax return, and is subject to corporate income taxation. However, it is
anticipated that for federal income tax purposes one hundred percent of the
Issuer will at all times be owned by a "qualified REIT subsidiary" (as defined
in Section 856(i) of the Code) of ICCMIC, which is a "real estate investment
trust" (a "REIT") (as defined in Section 856(a) of the Code). So long as the
Issuer is so owned and ICCMIC and such owner qualify as a REIT and as a
qualified REIT subsidiary, respectively, characterization of the Issuer as a TMP
will result only in the shareholders of ICCMIC being required to include in
income, as "excess inclusion" income, some or all of their allocable share of
the Issuer's net income that would be "excess inclusion" income if the Issuer
were treated as a "real estate mortgage investment conduit," within the meaning
of Section 860D of the Code. Characterization of the Issuer as an owner trust
(wholly-owned and therefore ignored for federal income tax purposes) or as
itself a "qualified REIT subsidiary" would not result in entity-level, corporate
income taxation with respect to the Issuer. In the event of ICCMIC's failure to
continue to qualify as a REIT or the failure of the owner of the Issuer to
continue to qualify as a "qualified REIT subsidiary" for federal income tax
purposes, or for any other reason, the net income (after the deduction of
interest and original issue discount, if any, on the Bonds) of the Issuer would
be subject to corporate income tax, reducing cash flow of the Issuer available
to make payments on the Bonds, and the Issuer would not be permitted to be
included in a consolidated income tax return of another corporate entity. No
assurance can be given with regard to the prospective qualification of the
Issuer as either an owner trust or a "qualified REIT subsidiary" or of the
Depositor as a "qualified REIT subsidiary" for federal income tax purposes.
Status as Real Property Loans
Offered Bonds held by a domestic building and loan association will not
constitute "loans...secured by an interest in real property" within the meaning
of Section 7701(a)(19)(C)(v) of the Code; Offered Bonds held by a real estate
investment trust will not constitute "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code and interest on Offered Bonds will not be
considered "interest on obligations secured by mortgages on real property"
within the meaning of Section 856(c)(3)(B) of the Code. In addition, the Offered
Bonds will not be "qualified mortgages" within the meaning of Section 860G(a)(3)
of the Code.
Discount and Premium
[For federal income tax reporting purposes, it is anticipated that the
Offered Bonds will not be treated as having been issued with original issue
discount. The prepayment assumption that will be used in determining the rate of
accrual of market discount and premium, if any, for federal income tax purposes
will be based on the assumption that subsequent to the date of any determination
the Mortgage Loans will not prepay (that is, a CPR of 0%), and there will be no
extensions of maturity for any Mortgage Loan. However, no representation is made
that the Mortgage Loans will not prepay or that, if they do, they will prepay at
any particular rate. See "Federal Income Tax Consequences--Taxation of
Bonds--Original Issue Discount", "--Market Discount" and "--Acquisition Premium"
in the Prospectus.]
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers of
the Offered Bonds should be aware that the OID Regulations and Section
1272(a)(6) of the Code do not adequately address certain issues relevant to, or
are not applicable to, securities such as the Offered Bonds. Prospective
purchasers of the Offered Bonds are advised to consult their tax advisors
concerning the tax treatment of such Bonds.
Certain Classes of the Offered Bonds may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of such a Class
of Bonds will be treated as holding a Bond with amortizable bond premium will
depend on such Bondholder's purchase price and the payments remaining to be made
on such Bond at the time of its acquisition by such Bondholder. Holders of such
Classes of Bonds should consult their own tax advisors regarding the possibility
of making an election to amortize such premium. See "Federal Income Tax
Consequences--Taxation of Bonds--Acquisition Premium" in the Prospectus.
Backup Withholding and Information Reporting
Payments of interest and principal, as well as payments of proceeds from
the sale of Offered Bonds, may be subject to the "backup withholding tax" under
Section 3406 of the Code at a rate of 31% if recipients of such payments fail to
furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a payment to a recipient would be
allowed as a credit against such recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of payments that is
required to supply information but that does not do so in the proper manner.
The Trustee or the Administrator on behalf of the Issuer will report to
Bondholders and to the IRS for each calendar year the amount of any "reportable
payments" during such year and the amount of tax withheld, if any, with respect
to payments on the Offered Bonds.
CERTAIN ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"),
impose certain restrictions on (a) employee benefit plans (as defined in Section
3(3) of ERISA), (b) plans described in Section 4975(e)(1) of the Code, including
individual retirement accounts or Keogh plans, (c) any entities whose underlying
assets include plan assets by reason of a plan's investment in such entities
(each of (a), (b) and (c), a "Plan") and (d) persons who have certain specified
relationships to such Plans ("Parties in Interest" under ERISA and "Disqualified
Persons" under the Code). Moreover, based on the reasoning of the United States
Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114
S. Ct. 517 (1993), (the "Harris Case") a life insurance company's general
account may be deemed to include assets of the Plans investing in the general
account (e.g., through the purchase of an annuity contract), and such insurance
company might be treated as a Party in Interest with respect to a Plan by virtue
of such investment. ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain transactions between
a Plan and Parties in Interest or Disqualified Persons with respect to such
Plans.
The Depositor, the Trustee, ICCMIC, the Master Servicer and the Special
Servicer may be the sponsor of our investment advisor with respect to one or
more Plans. Because such parties may receive certain benefits in connection with
the sale of Bonds, the purchase of the Bonds using Plan assets over which any of
such parties has investment authority might be deemed to be a violation of the
prohibited transaction rules of ERISA and the Code for which no exemption may be
available. Accordingly, the Bonds should not be purchased using the assets of
any Plan if any of the Depositor, the Trustee, ICCMIC, the Master Servicer and
the Special Servicer has investment authority with respect to such assets.
In addition, the Depositor or ICCMIC, because of their activities or the
activities of their affiliates, may be deemed to be a Party in Interest or
Disqualified Person with respect to certain Plans, including but not limited to
Plans sponsored by such entities. If the Bonds are acquired by a Plan with
respect to which a the Depositor, ICCMIC or an affiliate is a Party in Interest
or Disqualified Person, such transaction could be deemed to be a direct or
indirect extension of credit in violation of the prohibited transaction rules of
ERISA and the Code unless such transaction were subject to one or more statutory
or administrative exemptions such as Prohibited Transaction Class Exemption
("PTCE") 90-1, which exempts certain transactions involving insurance company
pooled separate accounts; PTCE 95-60, which exempts certain transactions
involving insurance company general accounts; PTCE 91-38, which exempts certain
transactions involving bank collective investment funds; PTCE 84-14, which
exempts certain transactions effected on behalf of a Plan by a "qualified
professional asset manager"; or PTCE 96-23, which exempts certain transactions
effected on behalf of a Plan by certain "in-house" asset managers. It should be
noted, however, that even if the conditions specified in one or more of these
exemptions are met, the scope of relief provided by these exemptions may not
necessarily cover all acts that might be construed as prohibited transactions.
Accordingly, prior to making an investment in the Bonds, a Plan investor
must determine whether, and each fiduciary causing the Bonds to be purchased by,
on behalf of or using the assets of a Plan that is subject to the prohibited
transaction rules of Title I of ERISA or Section 4975 of the Code shall be
deemed to have represented that, an exemption from the prohibited transaction
rules applies such that the use of the assets of such Plan to purchase the Bonds
does not and will not constitute a non-exempt prohibited transaction in
violation of Section 406 of ERISA or Section 4975 of the Code, which could be
subject to a civil penalty assessed pursuant to Section 502 of ERISA or a tax
imposed under Section 4975 of the Code.
Under a regulation issued by the Department of Labor (the "Plan Asset
Regulation"), if a Plan makes an "equity" investment in a corporation,
partnership, trust or certain other entities, the underlying assets and
properties of such entity will be deemed for purposes of ERISA to be assets of
the investing Plan unless certain exceptions set forth in the regulation apply.
The Plan Asset Regulation defines an "equity interest" as any interest in an
entity other than an instrument that is treated as indebtedness under applicable
locals law and which has no substantial equity features. If the Bonds are
treated as debt for purposes of the Plan Asset Regulation, the mortgages and the
other assets of the Trust should not be deemed to be assets of an investing
Plan. If, however, the Bonds were treated as "equity" for purposes of the Plan
Asset Regulation, a Plan purchasing such Bonds could be treated as holding the
Mortgage Loans and the other assets of the Issuer. Although there can be no
assurances in this regard, it appears that the Bonds, which are denominated as
debt, should be treated as debt and not as "equity interests" for purposes of
the Plan Asset Regulation.
It should be noted that the Small Business Job Protection Act of 1996 added
new Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the Department of Labor is required to issue final regulations
(the "General Account Regulations") not later than December 31, 1997 with
respect to insurance policies issued on or before December 31, 1998 that are
supported by an insurer's general account. On December 22, 1997, the Department
of Labor issued proposed General Account Regulations (62 FR 66908 et seq.). The
final General Account Regulations are to provide guidance on which assets held
by the insurer constitute "plan assets" for purposes of the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code. Section 401(c)
also provides that, except in the case of avoidance of the General Account
Regulation and actions brought by the Secretary of labor relating to certain
breaches of fiduciary duties that also constitute breaches of state of federal
criminal law, until the date that is 18 months after the General Account
Regulations become final, no liability under the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 may result on the
basis of a claim that the assets of the general account of an insurance company
constitute the plan assets of any such plan. (The plan asset status of insurance
company separate accounts unaffected by new Section 401(c) of ERISA, and
separate account assets continue to be treated as the plan assets of such Plan
invested in a separate account.) Because of the breadth of the holding in the
Harris Case, because the safe harbor of section 401(c) is terminable, and
because of uncertainties with regard to the substance of the final General
Account Regulations, insurance companies purchasing Bonds with assets of their
general account will be regarded, for purposes of the deemed representation
discussed in the immediately preceding paragraph, purchasing the Bonds with Plan
assets.
LEGAL INVESTMENT
The Class ___, Class ___, Class ___, Class ___ and Class __ Bonds will be
"mortgage related securities" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984, as amended ("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
___ Bonds 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.
[Except as to the status of certain classes of Offered Bonds as "mortgage
related securities", no] [No] representations as to the proper characterization
of any class of Offered Bonds for legal investment, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase any class of Offered Bonds under applicable legal
investment restrictions. These uncertainties may adversely affect the liquidity
of the Offered Bonds. 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 Bonds
constitute a legal investment or is subject to investment, capital or other
restrictions.
See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement
dated _____________, 199_ (the "Underwriting Agreement") between the [Owner
Trustee, on behalf of the Issuer,] and the Underwriter, the Underwriter has
agreed to purchase and the [Issuer] has agreed to sell to the Underwriter each
Class of the Offered Bonds. It is expected that delivery of the Offered Bonds
will be made only in book-entry form through the Same Day Funds Settlement
System of DTC on or about _____________, 199__, against payment therefor in
immediately available funds.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Offered Bonds is subject to, among other
things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Commission.
The distribution of the Offered Bonds by the Underwriter may be effected
from time to time in one or more negotiated transactions, or otherwise, at
varying prices to be determined at the time of sale. Proceeds to the [Issuer]
from the sale of the Offered Bonds, before deducting expenses payable by the
[Issuer], will be approximately ____% of the aggregate Bond Principal Amount of
the Offered Bonds plus accrued interest thereon from the Accrual Date. The
Underwriter may effect such transactions by selling the Offered Bonds to or
through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter for whom
they act as agent. In connection with the sale of the Offered Bonds, the
Underwriter may be deemed to have received compensation from the [Issuer] in the
form of underwriting compensation. The Underwriter and any dealers that
participate with such Underwriter in the distribution of the Offered Bonds may
be deemed to be underwriters and any profit on the resale of the Offered Bonds
positioned by them may be deemed to be underwriting discounts and commissions
under the Securities Act.
The Underwriting Agreement provides that the [Issuer] will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the [Issuer], against certain civil liabilities under the Securities Act or
contribute to payments required to be made in respect thereof.
The [Issuer] has also been advised by the Underwriter that the Underwriter
presently intends to make a market in the Offered Bonds; however, the
Underwriter 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 Bonds will develop. See "Risk Factors--Limited Liquidity" herein and
"Risk Factors--Limited Liquidity For Bonds" in the Prospectus.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by Imperial Capital Group,
LLC in connection with offers and sales related to market-making transactions in
the Offered Certificates with respect to which Imperial Capital Group, LLC acts
as principal. Imperial Capital Group, LLC may also act as agent in such
transactions. Sales may be made at negotiated prices determined at the time of
sale.
LEGAL MATTERS
The validity of the Bonds and certain federal income tax matters will be
passed upon for the Depositor by Cadwalader Wickersham & Taft. Certain legal
matters relating to the Bonds will be passed upon for the Underwriter[s] by
_____________.
RATINGS
It is a condition to the issuance of the Offered Bonds that the respective
Classes thereof receive the following credit ratings from ____________________
("______") and/or ________________ ("________"; and together with _______, the
"Rating Agencies"):
Class [Rating Agency] [Rating Agency]
-----
Class A-1
Class A-2
Class B
Class C
Class D
The ratings on the Offered Bonds address the likelihood of the timely
receipt by holders thereof of all payments of interest to which they are
entitled on each Payment Date and the ultimate receipt by the holders thereof of
all payments of principal to which they are entitled on or before their Stated
Maturity. The ratings take into consideration the credit quality of the Mortgage
Pool, structural and legal aspects associated with the Offered Bonds, and the
extent to which the payment stream from the Mortgage Pool is adequate to make
payments of principal and interest required under the Offered Bonds. The ratings
on the respective Classes of Offered Bonds do not represent any assessment of
(i) the likelihood or frequency of principal prepayments on the Mortgage Loans,
(ii) the degree to which such prepayments might differ from those originally
anticipated or (iii) whether and to what extent Prepayment Premiums will be
received or that Yield Maintenance Amounts will be paid. Also a security rating
does not represent any assessment of the yield to maturity that investors may
experience. In general, the ratings address credit risk and not prepayment risk.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Bonds will nonetheless issue a rating to any Class thereof and,
if so, what such rating would be. A rating assigned to any Class of Offered
Bonds by a rating agency that has not been requested by the Depositor to do so
may be lower than the rating assigned thereto by either Rating Agency.
The ratings on the Offered Bonds 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 organization. Each security
rating should be evaluated independently of any other security rating.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
A
Accrued Bond Interest.......................................................
Adjusted Collateral Value...................................................
Administration Agreement....................................................
Administration Fee..........................................................
Administrator...............................................................
ARM Loan....................................................................
Asset Strategy Report.......................................................
Assumed Final Payment Date..................................................
Assumed Scheduled Payment...................................................
Assumed Settlement Date.....................................................
B
Balloon Loans...............................................................
Balloon Payment.............................................................
Bond Interest Rate..........................................................
Bond Owner..................................................................
Bond Registrar..............................................................
Bondholders.................................................................
Bonds.......................................................................
C
CERCLA......................................................................
Class.......................................................................
Class A Bonds...............................................................
Closing Date................................................................
Code........................................................................
Collateral..................................................................
Collateral Value Adjustment.................................................
Collateral Value Adjustment Capitalization Amount...........................
Collection Account..........................................................
Collection Period...........................................................
Compensating Interest Payment...............................................
Conversion Price............................................................
Converted Mortgage Loan.....................................................
Convertible Mortgage Loans..................................................
Converting Mortgage Loan....................................................
Corporate Trust Office......................................................
Cut-off Date................................................................
Cut-off Date LTV Ratio......................................................
D
Debt Service Coverage Ratio.................................................
Defaulted Mortgage Loan.....................................................
Definitive Bond.............................................................
Deposit Trust Agreement.....................................................
Depositor...................................................................
Determination Date..........................................................
Directing Bondholder........................................................
DSCR........................................................................
DTC.........................................................................
DTC Participants............................................................
Due Date....................................................................
E
ERISA.......................................................................
ESA.........................................................................
Extension Advisor...........................................................
F
FIRREA......................................................................
Form 8-K....................................................................
G
General Account Regulations.................................................
Gross Margin................................................................
H
Harris Case.................................................................
Hybrid Rate Mortgage Loans..................................................
I
ICCMIC......................................................................
Indenture...................................................................
Index.......................................................................
Initial Pool Balance........................................................
Interest Accrual Period.....................................................
Interest Rate Adjustment Date...............................................
IRS.........................................................................
Issuer......................................................................
Issuer's Equity.............................................................
Issuer Event of Default.....................................................
L
Lock-out Date...............................................................
Lock-out Period.............................................................
Loss Mortgage Loan..........................................................
M
Maturity Date LTV Ratio.....................................................
Modeling Assumptions........................................................
Monitoring Bondholder.......................................................
Monthly Payments............................................................
Mortgage....................................................................
Mortgage Loan Purchase Agreement............................................
Mortgage Loan Seller........................................................
Mortgage Loans..............................................................
Mortgage Note...............................................................
Mortgage Pool...............................................................
Mortgaged Properties........................................................
Mortgaged Property..........................................................
Mortgagor...................................................................
N
Net Aggregate Prepayment Interest Shortfall.................................
Net Operating Income........................................................
O
Offered Bonds...............................................................
OID Regulations.............................................................
Originator..................................................................
Overcollateralization Amount................................................
Owner Trustee...............................................................
Owner Trustee Fee...........................................................
Ownership Certificates......................................................
P
P&I Advance.................................................................
P&I Advances................................................................
Payment Adjustment Date.....................................................
Payment Date................................................................
Plan........................................................................
Plan Asset Regulation.......................................................
Prepayment Interest Excess..................................................
Prepayment Interest Shortfall...............................................
Prepayment Premium..........................................................
Principal Payment Amount....................................................
Private Bonds...............................................................
Prospectus..................................................................
PTCE........................................................................
R
Rating Agencies.............................................................
Realized Loss...............................................................
Record Date.................................................................
REIT........................................................................
REMIC.......................................................................
REO Property................................................................
Required Appraisal Date.....................................................
S
Scheduled Payment...........................................................
Securities Act..............................................................
Senior Bonds................................................................
Servicer....................................................................
Servicing Agreement.........................................................
Servicing Fee...............................................................
Servicing Fee Rate..........................................................
Servicing Standard..........................................................
Servicing Transfer Event....................................................
SMMEA.......................................................................
Special Servicer Report.....................................................
Specially Serviced Mortgage Loan............................................
Stated Principal Balance....................................................
Subordinate Bonds...........................................................
T
TMP.........................................................................
Trust Estate................................................................
Trustee.....................................................................
Trustee Fee.................................................................
Trustee Fee Rate............................................................
Trustee Report..............................................................
U
Underwriter.................................................................
Underwriting Agreement......................................................
V
Voting Rights...............................................................
Y
Yield Maintenance Amount....................................................
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or by the Underwriter. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell, or a solicitation of an
offer to buy, the securities offered hereby to anyone in any jurisdiction
in which the person making such offer or solicitation is not qualified to
do so or to anyone to whom it is unlawful to make any such offer or
solicitation. Neither the delivery of this Prospectus Supplement and the
Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that information herein or therein is correct as of
any time since the date of this Prospectus Supplement or the
Prospectus.
$
(Approximate)
ICCMAC COMMERCIAL TRUST[__]
(Issuer)
Collateralized Mortgage Bonds
Series 199_-_
Class A-1, Class A-2, Class B,
Class C, and Class D
---------------
PROSPECTUS SUPPLEMENT
---------------
[UNDERWRITER]
Dated __________, 199_
---------------
TABLE OF CONTENTS
Prospectus Supplement Page
Summary of Prospectus Supplement............................................
Risk Factors................................................................
Description Of The Mortgage Pool............................................
Servicing Of The Mortgage Loans.............................................
Description of the Bonds....................................................
The Issuer..................................................................
The Owner Trustee...........................................................
The Administrator...........................................................
Yield and Maturity Considerations...........................................
Federal Income Tax Consequences.............................................
Certain ERISA Considerations................................................
Legal Investment............................................................
Method of Distribution......................................................
Legal Matters...............................................................
Ratings.....................................................................
Index of Principal Definitions..............................................
Prospectus
Prospectus Supplement.......................................................
Available Information.......................................................
Incorporation of Certain Documents By Reference.............................
Summary of Prospectus.......................................................
Risk Factors................................................................
Description of the Trust Funds..............................................
Use of Proceeds.............................................................
Yield Considerations........................................................
The Depositor...............................................................
Description of the Bonds....................................................
Description of the Agreements...............................................
Description of Credit Support...............................................
Certain Legal Aspects of the Mortgage Loans and Leases......................
Federal Income Tax Consequences.............................................
State Tax considerations....................................................
ERISA Considerations........................................................
Legal Investment............................................................
Plan of Distribution........................................................
Legal Matters...............................................................
Financial Information.......................................................
Ratings.....................................................................
Index of Principal Definitions..............................................
<PAGE>
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 Bonds, other than underwriting discounts
and commissions:
SEC Registration Fee....................................$295
Printing and Engraving Fees............................. +
Legal Fees and Expenses................................. +
Accounting Fees and Expenses............................ +
Trustee Fees and Expenses............................... +
Rating Agency Fees...................................... +
Miscellaneous........................................... +
Total..............................................$295
====
- ---------------
* All amounts except the SEC Registration Fee are estimates of expenses incurred
or to be incurred in connection with the issuance and distribution of Bonds in
an aggregate principal amount assumed for these purposes to be equal to
$1,000,000 of Bonds registered hereby.
+ To be provided 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 Corp. (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 California
law.
Section 317 of the California General Corporation Law provides, in
substance, that California 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 California General Corporation Law also
provides that the Registrant may purchase insurance on behalf of any such
director, officer, employee or agent.
The Indenture will provide that no director, officer, employee or agent of
the Company will be liable to the Issuer or the Bondholders for any action taken
or for refraining from the taking of any action pursuant to the Indenture,
except for such person's own misfeasance, bad faith or gross negligence in the
performance of duties. The Indenture 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 Issuer against any loss, liability
or expense incurred in connection with any legal action relating to the
Indenture or the Bonds, 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 Indenture), (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
Indenture.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of Indenture*
4.2 Form of Servicing Agreement*
4.3 Form of Deposit Trust Agreement*
4.4 Form of Administration Agreement*
5.1 Opinion of Cadwalader, Wickersham & Taft as to legality*
8.1 Opinion of Cadwalader, Wickersham & Taft as to certain tax
matters (included in Exhibit 5.1)*
23.1 Consent of Cadwalader, Wickersham & Taft (included in Exhibits
5.1 and 8.1)*
24.1 Powers of Attorney (included on page II-3 of the Registration
Statement)*
---------------
* Previously filed.
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Imperial Credit Commercial Mortgage Acceptance Corp. certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-3, reasonably believes that the security rating requirement contained
in Transaction Requirement B.5 of Form S-3 will be met by the time of the sale
of the securities registered hereunder, and has duly caused this Pre-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on the 7th day of October, 1998.
IMPERIAL CREDIT COMMERCIAL MORTGAGE
ACCEPTANCE CORP.
By: /s/ Mark S. Karlan
------------------------------
Mark S. Karlan
President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities indicated on October 7, 1998.
Signature Title
/s/ Mark S. Karlan Director and Chief Executive Officer
- -----------------------------------
Mark S. Karlan
(1) Director
- -----------------------------------
Kevin E. Villani
(1) Director
- -----------------------------------
H. Wayne Snavely
Chief Financial Officer
(1) and Chief Accounting Officer
- -----------------------------------
Michael Meltzer
By: /s/ Mark S. Karlan
- ---- ------------------------------
Mark S. Karlan
Attorney-in-fact(1)
(1) Mark S. Karlan, by signing his name hereto, does sign the document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange
Commission.
<PAGE>
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 Indenture*
4.2 Form of Servicing Agreement*
4.3 Form of Deposit Trust Agreement*
4.4 Form of Administration Agreement*
5.1 Opinion of Cadwalader, Wickersham & Taft as to legality*
8.1 Opinion of Cadwalader, Wickersham & Taft as to certain
tax matters (included in Exhibit 5.1)*
23.1 Consent of Cadwalader, Wickersham & Taft (included in
Exhibits 5.1 and 8.1)*
24.1 Powers of Attorney (included on page II-3 of the
Registration Statement)*
- ---------------
* Previously filed.
