<PAGE>
As filed with the Securities and Exchange Commission on July 31, 1998
Registration No. 333-33877
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 4 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
CRIIMI MAE CMBS CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
52-2050970
(I.R.S. employer identification number)
11200 Rockville Pike, 5th Floor
Rockville, Maryland 20852
(301) 816-2300
(Address, including zip code, and telephone number, including area code, of
registrant's principle executive offices)
The Corporation Trust Company
Corporate Trust Center
1209 Orange Street
Wilmington, Delaware 19801
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------
Copies to:
William J. Cullen, Esq. David B. Iannarone, Esq.
Sidley & Austin CRIIMI MAE Inc.
875 Third Avenue 11200 Rockville Pike
New York, New York 10022 Rockville, Maryland 20852
(212) 906-2276 (301) 468-3160
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
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 plans, please check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Amount Price Offering Registration
Title of Securities Being Registered to be Registered Per Unit Price Fee
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Collateralized Mortgage $1,000,000 100% $1,000,000 $ 303.03*
Obligations and Mortgage Pass-Through
Certificates
==================================================================================================
</TABLE>
*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 which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
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 JULY 31, 1998.
PROSPECTUS SUPPLEMENT
(To Prospectus dated _________, 199__)
$
(Approximate)
CRIIMI MAE CMBS Corp.
Mortgage Pass-Through Certificates,
Series 199__-____
The Series 199_-___ Mortgage Pass-Through Certificates (the
"Certificates") will consist of [13] classes (each, a "Class") to be designated
as: [(i) the Class S Certificates; (ii) the Class A-1A Certificates, the Class
A-1B Certificates, the Class A-2 Certificates and the Class A-3 Certificates
(collectively, the "Class A Certificates"); (iii) the Class B-1 Certificates,
the Class B-2 Certificates, the Class B-3 Certificates and the Class B-4
Certificates (collectively, the "Class B Certificates"); (iv) the Class C
Certificates (collectively with the Class S, Class A and Class B Certificates,
the "REMIC Regular Certificates"); and (v) the Class R-I Certificates, the Class
R-II Certificates and the Class R-III Certificates (collectively, the "REMIC
Residual Certificates")]. Only the Class S Certificates, the Class A
Certificates and the Class B-1 Certificates (collectively, the "Offered
Certificates") are offered hereby. The respective Classes of Offered
Certificates will be issued with the initial Class Principal Balances (or, in
the case of the Class S Certificates, the initial Class Notional Amount), and
will accrue interest at the Pass-Through Rates, set forth or otherwise described
below.
(Continued on page S-2)
<TABLE>
<CAPTION>
========================================================================================================
Class of Series 199_-__ Initial Class Rating
Mortgage Pass-Through Principal Balance Pass-Through Assumed Final ([identify Rating
Certificates or Class Notional Amount(a) Rate Distribution Date(b) Agencies])(c)(d)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class S.............. $(1) %(2)
Class A-1A .......... $ %
Class A-1B........... $ %
Class A-2............ $ %
Class A-3............ $ %
Class B-1............ $ %
========================================================================================================
</TABLE>
(Footnotes to table on next page)
---------------------
FOR A DISCUSSION OF MATERIAL RISKS TO BE CONSIDERED IN PURCHASING
THE OFFERED CERTIFICATES, 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 Certificates will be purchased from the Depositor 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 Depositor from the sale of the
Offered Certificates, before deducting expenses payable by the Depositor
estimated to be approximately $_____________, will be ______% of the initial
aggregate Certificate Principal Balance (as defined herein) of the Offered
Certificates[, plus accrued interest on the Offered Certificates from the
Cut-off Date]. The Offered Certificates 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
Certificates 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>
The footnotes to the table on the previous page are as follows:
(a) The initial Class Principal Balance or Class Notional Amount, as
applicable, of each Class of Offered Certificates is subject to a
permitted variance of plus or minus __%. See "Description of the
Certificates--Class Principal Balances and Class Notional Amounts" herein.
(b) The "Assumed Final Distribution Date" with respect to any Class of
Certificates is the Distribution Date (as defined herein) on which the
final distribution would occur for such Class of Certificates 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
Certificates be assigned ratings by _________________ ("_____") and/or
________________________ ("________"; and together with ________, the
"Rating Agencies") no less than those set forth above. The "Rated Final
Distribution Date" for each such Class is the Distribution Date in
____________ 20__. The Class S Certificates are not being rated by _____.
See "Ratings" herein.
(d) The ratings on the Offered Certificates 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 and Yield Maintenance Premiums (each as defined herein) will be
received. Also a security rating does not represent any assessment of the
yield to maturity that investors may experience or the possibility that
the Class S Certificateholders might not fully recover their investment in
the event of rapid prepayments of the Mortgage Loans (including both
voluntary and involuntary prepayments). See "Ratings" herein.
(1) The Class S Certificates will not have a Class Principal Balance. The
Class S Certificates will accrue interest on a Class Notional Amount that
is equal to the aggregate of the Class Principal Balances of the
respective Classes of Sequential Pay Certificates (as defined herein)
outstanding from time to time.
(2) Initial Pass-Through Rate. The related Pass-Through Rate is variable and
will, in general, equal the excess, if any, of the weighted average of the
Net Mortgage Rates of the Mortgage Loans (the "Weighted Average Net
Mortgage Rate") from time to time, over the weighted average of the
Pass-Through Rates for the respective Classes of Sequential Pay
Certificates from time to time.
---------------------
(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 Prospectus for the location of meanings of capitalized terms
used but not defined herein.
There is currently no secondary market for the Offered Certificates. The
Underwriter intends to make a secondary market in the Offered Certificates, but
is not obligated to do so. There can be no assurance that a secondary market for
the Offered Certificates will develop or, if one does develop, that it will
continue. See "Risk Factors-Limited Liquidity" herein. The Offered Certificates
will not be listed on any securities exchange.
The Certificates will represent undivided interests in a trust fund (the
"Trust Fund") to be established by CRIIMI MAE CMBS Corp. (the "Depositor"),
pursuant to a Pooling and Servicing Agreement to be dated as of ____________ ,
199__ (the "Pooling Agreement"), among the Depositor, ___________________, as
master servicer (the "Master Servicer"), _____________________________, as
special servicer (the "Special Servicer"), and ____________________ as trustee
(in such capacity, the "Trustee") and REMIC administrator (in such capacity, the
"REMIC Administrator"). The Trust Fund will consist 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 __%.]
S-2
<PAGE>
Distributions to holders of the Certificates ("Certificateholders") will
be made, to the extent of available funds, on the __th day of each month or, if
any such day is not a business day, on the next succeeding business day,
beginning in _________, 199_ (each, a "Distribution Date"). As more fully
described herein, distributions allocable to interest accrued on each Class of
the REMIC Regular Certificates [(the REMIC Residual Certificates will not accrue
interest)] will be made on each Distribution Date based on the Pass-Through Rate
then applicable to such Class and the Class Principal Balance or, in the case of
the Class S Certificates, the Class Notional Amount of such Class outstanding
immediately prior to such Distribution Date. As more fully described herein,
distributions allocable to principal of the respective Classes of Certificates
with Class Principal Balances (collectively, the "Sequential Pay Certificates")
will be made in the amounts and in accordance with the priorities described
herein. Neither the Class S Certificates nor any Class of REMIC Residual
Certificates will have a Class Principal Balance or entitle its holders to
distributions of principal. As more fully described herein, Prepayment Premiums
and Yield Maintenance Premiums actually collected on the Mortgage Loans will be
distributed among the respective Classes of Certificates in the amounts and in
accordance with the priorities described herein. The Trust Fund is subject to
termination, and the Certificates are subject to early retirement, at the option
of the Master Servicer or the Special Servicer under the limited circumstances
described herein. See "Description of the Certificates--Distributions" and
"--Termination" herein.
As and to the extent described herein, the Class A-2, Class A-3, Class B,
Class C and REMIC Residual Certificates (collectively, the "Subordinate
Certificates") are subordinate to the Class S, Class A-1A and Class A-1B
Certificates (collectively, the "Senior Certificates"); the Class A-3, Class B,
Class C and REMIC Residual Certificates are subordinate to the Class A-2
Certificates; the Class B, Class C and REMIC Residual Certificates are
subordinate to the Class A-3 Certificates; and the Class B-2, Class B-3, Class
B-4, Class C and REMIC Residual Certificates are subordinate to the Class B-1
Certificates. See "Description of the Certificates--Distributions" and
"--Subordination; Allocation of Realized Losses and Certain Expenses" herein.
The yield to maturity of each Class of Offered Certificates will depend
on, among other things, the rate and timing of principal payments (including by
reason of or as affected by prepayments, loan extensions, defaults and
liquidations) and losses on the Mortgage Loans that are applied or otherwise
result in reduction of the Class Principal Balance or Class Notional Amount, as
the case may be, of such Class. The yield to maturity of the Class S
Certificates will be highly sensitive to the rate and timing of principal
payments (including by reason of prepayments, defaults and liquidations) and
losses on the Mortgage Loans that are applied or otherwise result in reduction
of the Class Notional Amount of such Class, and investors in the Class S
Certificates should fully consider the associated risks, including the risk that
an extremely rapid rate of amortization and prepayment of, or other reduction
in, the Class Notional Amount of such Class could result in the failure of such
investors to recoup fully their initial investments. See "Risk Factors" and
"Yield and Maturity Considerations" herein and in the Prospectus.
As described herein, three separate "real estate mortgage investment
conduit" ("REMIC") elections will be made with respect to the Trust Fund for
federal income tax purposes (the REMICs formed thereby being herein referred to
as "REMIC I", "REMIC II" and "REMIC III", respectively). The REMIC Regular
Certificates will constitute "regular interests" in REMIC III, and each Class of
REMIC Residual Certificates will constitute the sole class of "residual
interests" in the related REMIC. See "Certain Federal Income Tax Consequences"
herein.
[inside front cover]
THE OFFERED CERTIFICATES DO NOT REPRESENT OBLIGATIONS OF THE DEPOSITOR,
THE MASTER SERVICER, THE SPECIAL SERVICER, THE TRUSTEE, THE REMIC ADMINISTRATOR
OR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, TRUSTEES,
BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS. NEITHER THE OFFERED
CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON. THE OFFERED
CERTIFICATES ARE PAYABLE SOLELY FROM THE TRUST FUND, AND PROSPECTIVE INVESTORS
SHOULD MAKE AN INVESTMENT DECISION BASED UPON AN ANALYSIS OF THE SUFFICIENCY OF
THE TRUST FUND.
S-3
<PAGE>
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF
A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE BEING OFFERED
PURSUANT TO ITS PROSPECTUS DATED _____________, 199__, 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 CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
S-4
<PAGE>
TABLE OF CONTENTS
PAGE
----
TRANSACTION OVERVIEW.....................................................S-7
SUMMARY OF PROSPECTUS SUPPLEMENT.........................................S-8
RISK FACTORS............................................................S-28
DESCRIPTION OF THE MORTGAGE POOL........................................S-31
General...........................................................S-31
Certain Payment Characteristics...................................S-32
The Index.........................................................S-33
[Delinquent and Nonperforming Mortgage Loans].....................S-33
Additional Mortgage Loan Information..............................S-33
The Mortgage Loan Seller..........................................S-41
Underwriting of the Mortgage Loans................................S-41
Representations and Warranties with respect to Mortgage Loans;
Repurchases.......................................................S-42
Changes in Mortgage Pool Characteristics..........................S-42
SERVICING OF THE MORTGAGE LOANS.........................................S-42
General...........................................................S-42
The Master Servicer...............................................S-44
The Special Servicer..............................................S-44
Sub-Servicers.....................................................S-45
Servicing and Other Compensation and Payment of Expenses..........S-45
Modifications, Waivers, Amendments and Consents...................S-48
Inspections; Collection of Operating Information..................S-48
[Termination of [Special Servicer] [Master Servicer] Without
Cause]...........................................................S-49
DESCRIPTION OF THE CERTIFICATES.........................................S-49
General...........................................................S-49
Registration and Denominations....................................S-49
Class Principal Balances and Class Notional Amounts...............S-50
Pass-Through Rates................................................S-51
Distributions.....................................................S-52
Subordination; Allocation of Realized Losses and Certain
Expenses..........................................................S-58
P&I and Other Advances............................................S-59
[Appraisal Reductions]............................................S-60
Reports to Certificateholders; Certain Available Information......S-61
Voting Rights.....................................................S-62
Termination.......................................................S-62
The Trustee.......................................................S-63
YIELD AND MATURITY CONSIDERATIONS.......................................S-63
Yield Considerations..............................................S-63
Weighted Average Life.............................................S-65
Special Yield Considerations for the Class S Certificates.........S-67
S-5
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................S-67
General...........................................................S-67
Discount and Premium; Prepayment Premiums.........................S-68
Characterization of Investments in Offered Certificates...........S-68
Possible Taxes on Income from Foreclosure Property and Other
Taxes.............................................................S-69
Reporting and other Administrative Matters........................S-69
METHOD OF DISTRIBUTION..................................................S-70
LEGAL MATTERS...........................................................S-71
ERISA CONSIDERATIONS....................................................S-71
LEGAL INVESTMENT........................................................S-73
RATINGS.................................................................S-74
S-6
<PAGE>
TRANSACTION OVERVIEW
Prospective investors in the Offered Certificates are advised to carefully
read, and should rely solely on, the detailed information appearing elsewhere in
this Prospectus Supplement and the Prospectus in making their investment
decision. The following Transaction Overview does not include all relevant
information relating to the Offered Certificates or the Mortgage Loans,
particularly with respect to the risks and special considerations involved with
an investment in the Offered Certificates, and is qualified in its entirety by
reference to the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus. Prior to making any investment decision, a
prospective investor should carefully review this Prospectus Supplement and the
Prospectus.
$-----------
(Approximate)
CRIIMI MAE CMBS Corp.
Mortgage Pass-Through Certificates
Series 199_-____
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Initial Class Class Rating Pass-Through Credit
Principal Balance(1) ___ /____ Rate Support(2)
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------
$ Class A-1A %
------------------------------------------------------------
$ Class A-1B % %
------------------------------------------------------------
Class S (___) $ Class A-2 % %
(Interest Strip off ------------------------------------------------------------
Classes A-1A $ Class A-3 % %
through C)(3) ------------------------------------------------------------
$ Class B-1 % %
------------------------------------------------------------
$ Class B-2(4) % %
------------------------------------------------------------
$ Class B-3(4) % %
------------------------------------------------------------
$ Class B-4(4) % %
------------------------------------------------------------
$ Class C(4) % %
---------------------------------------------------------------------------------
N/A Class R-I(4) N/A
---------------------------------------------------------------------------------
N/A Class R-II(4) N/A
---------------------------------------------------------------------------------
N/A Class R-III(4) N/A
---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
Ratings: ___ and/or _____ (the Class S Certificates are rated only by
_____).
(1) [Subject to a variance of plus or minus _%].
(2) Reflects aggregate of Class Principal Balances (expressed as a percentage
of the Initial Pool Balance) of all Classes of Sequential Pay Certificates
that are subordinate to the specified Class of Certificates.
(3) The initial Pass-Through Rate for the Class S Certificates is ________%
per annum. The related Pass-Through Rate for the Class S Certificates is
variable and will, in general, equal the excess, if any, of the Weighted
Average Net Mortgage Rate from time to time, over the weighted average of
the Pass-Through Rates for the respective Classes of Sequential Pay
Certificates from time to time.
(4) Not offered hereby.
S-7
<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.
Title of Certificates and
Designation of Classes............Mortgage Pass-Through Certificates, Series
199_-___ (the "Certificates"), to be issued
in [13] classes (each, a "Class") to be
designated as: [(i) the Class S
Certificates; (ii) the Class A-1A, Class
A-1B, Class A-2 and Class A-3 Certificates
(collectively, the "Class A Certificates");
(iii) the Class B-1, Class B-2, Class B-3
and Class B-4 Certificates (collectively,
the "Class B Certificates"); (iv) the Class
C Certificates (collectively with the Class
S, Class A and Class B Certificates, the
"REMIC Regular Certificates"); and (v) the
Class R-I, Class R-II and Class R-III
Certificates (collectively, the "REMIC
Residual Certificates")]. Only the Class S
Certificates, the Class A Certificates and
the Class B-1 Certificates (collectively,
the "Offered Certificates") are offered
hereby.
The Class B-2, Class B-3, Class B-4 and
Class C Certificates and the REMIC Residual
Certificates (collectively, the "Private
Certificates") will not be registered under
the Securities Act of 1933, as amended (the
"Securities Act") and are not offered
hereby. Accordingly, to the extent this
Prospectus Supplement contains information
regarding the terms of the Private
Certificates, such information is provided
because of its potential relevance to a
prospective purchaser of an Offered
Certificate.
Depositor...........................CRIIMI MAE CMBS Corp., a Delaware
corporation. See "The Company" in the
Prospectus.
Master Servicer.....................____________________. See "Servicing of the
Mortgage Loans--The Master Servicer" herein.
Special Servicer....................____________________. See "Servicing of the
Mortgage Loans--The Special Servicer"
herein.
Trustee and REMIC Administrator.....____________________. See Description of the
Certificates--The Trustee" and "Certain
Federal Income Tax Consequences--Reporting
and Other Administrative Matters" herein.
Mortgage Loan Seller................____________________ (the "Mortgage Loan
Seller"). See "Description of the Mortgage
Pool--The Mortgage Loan Seller" herein.
Cut-off Date........................___________, 199_.
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
Closing Date........................On or about ___________, 199_.
Distribution Date...................The __th day of each month or, if any such
__th day is not a business day, then the
next succeeding business day, commencing in
________, 199_.
Collection Period...................As to any Distribution Date, the period
commencing immediately following the
Determination Date in the month immediately
preceding the month in which such
Distribution Date occurs (or, in the case of
the initial Distribution Date, commencing
immediately following the Cut-off Date) and
ending on and including the related
Determination Date.
Determination Date..................As to any Distribution Date, the _th day of
the month in which such Distribution Date
occurs, or if such _th day is not a business
day, the immediately preceding business day.
Record Date.........................As to any Distribution Date, the last
business day of the month immediately
preceding the month in which such
Distribution Date occurs.
Book-Entry Registration.............Each Class of Offered Certificates will
initially be issued in book-entry form
through the facilities of DTC and,
accordingly, will constitute "Book-Entry
Certificates" and "Book-Entry Securities"
within the meaning of the Prospectus. No
person acquiring an interest in a Book-Entry
Certificate (any such person, a "Certificate
Owner") will be entitled to receive a fully
registered physical certificate (a
"Definitive Certificate") evidencing such
interest, except under the limited
circumstances described in the Prospectus.
See "Risk Factors--Book-Entry Registration"
in the Prospectus and "Description of the
Securities--Registration and Denominations"
herein and "Description of the
Securities--Book-Entry Registration and
Definitive Securities" in the Prospectus.
Denominations.......................The Class A-1A and Class A-1B Certificates
will each be issued in minimum denominations
of $________ initial principal balance and
in any whole dollar in excess thereof. The
Class S Certificates will each be issued in
minimum denominations of $________ initial
notional amount and in any whole dollar in
excess thereof. The Class A-2, Class A-3 and
Class B-1 Certificates will each be issued
in minimum denominations of $________ in
initial principal balance and in any whole
dollar in excess thereof.
The Mortgage Pool...................The Mortgage Pool will consist of _____
[describe general characteristics of
Mortgage Loans] mortgage loans (the
"Mortgage Loans") with an aggregate Cut-off
Date Balance of $________ (the "Initial Pool
Balance") [, subject to a permitted variance
of plus or minus ___%]. The "Cut-off Date
Balance" of each Mortgage Loan is the unpaid
principal balance thereof as of the Cut-off
Date, after
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
application of all payments due on or before
such date, whether or not received. All
numerical information provided herein with
respect to the Mortgage Loans is provided on
an approximate basis. All weighted average
information provided herein with respect to
the Mortgage Loans reflects the weighting of
the Mortgage Loans by their Cut-off Date
Balances.
Each Mortgage Loan is evidenced by a note or
bond (a "Mortgage Note") and is secured by a
[first] mortgage, deed of trust or similar
security instrument (a "Mortgage") on the
fee simple (or, in ___ cases, representing
___% of the Initial Pool Balance, the
leasehold) interest of the related mortgagor
(the "Mortgagor") in real property used for
commercial or multifamily purposes, all
buildings and improvements thereon and
certain personal property located thereon
(each, a "Mortgaged Property") and security
interests in certain funds and accounts and
other collateral described herein.
The Mortgage Loans are non-recourse
obligations of the related Mortgagors. No
Mortgage Loan will be insured or guaranteed
by any governmental entity or private
insurer or by any other person.
Set forth below are the number of Mortgage
Loans, and the approximate percentage of the
Initial Pool Balance represented by such
Mortgage Loans, that are secured by
Mortgaged Properties located in the _____
states with the highest concentrations:
Number of Percentage of
State Mortgage Loans Initial Pool Balance
----- -------------- --------------------
[Identify states representing 10% or more of
the Initial Pool Balance.]
The remaining Mortgaged Properties are
located throughout ___ other states.
Set forth below are the number of Mortgage
Loans, and the approximate percentage of the
Initial Pool Balance represented by such
Mortgage Loans, that are secured by
Mortgaged Properties operated for each
indicated purpose:
Property Number of Percentage of
Type Mortgage Loans Initial Pool Balance
---- -------------- --------------------
[Identify particular property types
representing 10% or more of the Initial Pool
Balance.]
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________ of the Mortgage Loans, which
represent _____% of the Initial Pool
Balance, 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 annualized rate
at which interest accrues (the "Mortgage
Rate") on ____ of the Mortgage Loans (the
"ARM Loans"), which represent _____% of the
Initial Pool Balance, is subject to
adjustment on specified Due Dates (each such
date of adjustment, an "Interest Rate
Adjustment Date") by adding a fixed number
of basis points (a "Gross Margin") to the
value of a base index (an "Index"), subject,
in ______ cases, to lifetime maximum and/or
minimum Mortgage Rates, and in _____ cases,
to periodic maximum and/or minimum Mortgage
Rates, in each case as described herein; and
the remaining Mortgage Loans (the "Fixed
Rate Loans") bear interest at fixed Mortgage
Rates. ____ of the ARM Loans, which
represent ___% of the Initial Pool Balance,
provide for Interest Rate Adjustment Dates
that occur monthly, while the remainder of
the ARM Loans provide for adjustments of the
Mortgage Rate to occur semi-annually or
annually. [Identify Mortgage Loan Index].]
See "Description of the Mortgage
Pool--Certain Payment Characteristics"
herein.
[If there are ARM Loans: The amount of the
Monthly Payment on all of the ARM Loans is
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 then applicable Mortgage Rate]. [Discuss
frequency of Payment Adjustment Dates and
possibility of negative amortization of
interest.]]
_____ of the Mortgage Loans (the "Balloon
Loans"), representing ___% of the Initial
Pool Balance, provide for monthly payments
of principal based on amortization schedules
significantly longer than the remaining
terms of such Mortgage Loans, thereby
leaving substantial principal amounts due
and payable (each such payment, together
with the corresponding interest payment, a
"Balloon Payment") on their respective
maturity dates (each, a "Maturity Date"),
unless prepaid prior thereto. The remaining
Mortgage Loans are fully amortizing.
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
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S-11
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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
assignment of its interests in the Mortgage
Loans to the Trustee, 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. See
"Description of the Mortgage
Pool--Representations and Warranties with
respect to the Mortgage Loans; Repurchases"
herein.
Prepayment..........................[All the Mortgage Loans provided at
origination for, sequentially, a period (a
"Lockout Period") during which voluntary
prepayments of principal (each, a "Principal
Prepayment") are prohibited, then a period
during which Principal Prepayments are
permitted but are required to be accompanied
by the greater of a specified percentage of
the principal amount being prepaid (a
"Prepayment Premium") or a premium
calculated on the basis of a yield
maintenance formula (a "Yield Maintenance
Premium") and then, commencing on a
specified date prior to maturity, a period
(the related "Open Period") during which
Principal Prepayments may be made without
payment of any Prepayment Premium or Yield
Maintenance Premium.]
Description of the
Certificates......................The Certificates will be issued on the
Closing Date pursuant to a Pooling and
Servicing Agreement to be dated as of the
Cut-off Date (the "Pooling Agreement") among
the Depositor, the Master Servicer, the
Special Servicer, the Trustee and the REMIC
Administrator, and will represent in the
aggregate the entire beneficial ownership
interest in a trust fund (the "Trust Fund")
consisting of the Mortgage Pool and certain
related assets. See "Description of the
Certificates--General" herein.
A. Class Principal Balances and
Class Notional Amounts.......Upon initial issuance, the respective
Classes of the Class A, Class B and Class C
Certificates (collectively, the "Sequential
Pay Certificates") will, in each case, have
the aggregate principal balance (the "Class
Principal Balance") set forth below[,
subject to a variance of plus or minus __%]:
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S-12
<PAGE>
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Approximate
Initial Class Percentage of
Class Principal Balance Initial Pool Balance
----- ----------------- --------------------
Class A-1A
Class A-1B
Class A-2
Class A-3
Class B-1
Class B-2
Class B-3
Class B-4
Class C
The Class S Certificates will not have a
Class Principal Balance. The Class S
Certificates will represent the right to
receive distributions of interest accrued as
described herein on (an aggregate notional
amount (a "Class Notional Amount") equal to
the aggregate of the Class Principal
Balances of the respective Classes of
Sequential Pay Certificates outstanding from
time to time. The Class Notional Amount of
the Class S Certificates is used solely for
the purpose of determining the amount of
interest to be distributed on such Class of
Certificates and does not represent the
right to receive any distributions of
principal. The Class Notional Amount of the
Class S Certificates will initially equal
$_______[, subject to a variance of plus or
minus ___%].
The REMIC Residual Certificates will not
have principal balances or notional amounts.
See "Description of the Certificates--Class
Principal Balances and Class Notional
Amounts" herein.
B. Pass-Through Rates...............The rate per annum at which any Class of
REMIC Regular Certificates accrue interest
from time to time [(the REMIC Residual
Certificates do not accrue interest)] is
herein referred to as its "Pass-Through
Rate".
[The Pass-Through Rate applicable to each
Class of Sequential Pay Certificates is
fixed at the per annum rate set forth below:
Class Pass-Through Rate
----- -----------------
Class A-1A
Class A-1B
Class A-2
Class A-3
Class B-1
Class B-2
Class B-3
Class B-4
Class C
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S-13
<PAGE>
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The Pass-Through Rate applicable to the
Class S Certificates for the initial
Distribution Date will be approximately
____% per annum. The Pass-Through Rate
applicable to the Class S Certificates for
each subsequent Distribution Date will equal
the excess, if any, of the Weighted Average
Net Mortgage Rate for such Distribution
Date, over the weighted average of the
Pass-Through Rates for the respective
Classes of Sequential Pay Certificates for
such Distribution Date (weighted on the
basis of the respective Class Principal
Balances of such Classes of Certificates
outstanding immediately prior to such
Distribution Date).
Because the REMIC Residual Certificates will
not accrue interest, such Certificates will
not have Pass-Through Rates.]
With respect to any Distribution Date, the
"Weighted Average Net Mortgage Rate" will,
in general, equal the weighted average of
the Net Mortgage Rates in effect for the
Mortgage Loans as of the commencement of the
related Collection Period, weighted on the
basis of the respective Stated Principal
Balances (as defined herein) of the Mortgage
Loans immediately prior to such Distribution
Date. The "Net Mortgage Rate" with respect
to any Mortgage Loan is, in general, a per
annum rate equal to the related Mortgage
Rate in effect from time to time, minus ___
basis points[; provided that if any Mortgage
Loan does not accrue interest on the basis
of a 360-day year consisting of twelve
30-day months (which is the basis on which
interest accrues in respect of the REMIC
Regular Certificates), then, solely for
purposes of calculating the Pass-Through
Rate for the Class S Certificates, the Net
Mortgage Rate of such Mortgage Loan for any
one-month period preceding a related Due
Date will be the annualized rate at which
interest would have to accrue in respect of
such loan on the basis of a 360-day year
consisting of twelve 30-day months in order
to produce the aggregate amount of interest
actually accrued in respect of such loan
during such one-month period at the related
Mortgage Rate (net of ___ basis points); and
provided, further, that, solely for purposes
of calculating the Pass-Through Rate for the
Class S Certificates from time to time, the
Net Mortgage Rate for any Mortgage Loan will
be determined without regard to any
post-Closing Date modifications to the terms
of the related Mortgage Note that may affect
the Mortgage Rate]. As of the Cut-off Date,
the Net Mortgage Rates for the Mortgage
Loans will range from ___% per annum to ___%
per annum, with a weighted average Net
Mortgage Rate of ___% per annum. See
"Description of the
Certificates--Pass-Through Rates" herein.]
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S-14
<PAGE>
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C. Distributions--General...........Distributions will be made by or on behalf
of the [Trustee] on each Distribution Date
to the Certificateholders of record at the
close of business on the immediately
preceding Record Date. All distributions
made with respect to any Class of
Certificates will be allocated pro rata
among the outstanding Certificates of such
Class based on the respective Percentage
Interests (as defined herein) in such Class
evidenced by such Certificates.
D. Distributions of Interest
and Principal.................As more particularly described herein, the
total of all payments and other collections
(or advances in lieu thereof) on or in
respect of the Mortgage Loans that are
available for distributions of interest and
principal to Certificateholders on any
Distribution Date is herein referred to as
the "Available Distribution Amount" for such
date. [Prepayment Premiums and Yield
Maintenance Premiums actually collected on
the Mortgage Loans will not be applied to
distributions of interest on and principal
of the Certificates, but such items will
instead be distributed to Certificateholders
separately, in the amounts and in accordance
with the priorities described herein.] See
"Description of the
Certificates--Distributions--The Available
Distribution Amount" and
"--Distributions--Distributions of
Prepayment Premiums and Yield Maintenance
Premiums" herein.
[On each Distribution Date, except as
otherwise described under "Description of
the Certificates--Termination" herein, the
Available Distribution Amount for such date
will be distributed among the respective
Classes of Certificateholders for the
following purposes and in the following
order of priority:
(i) to the holders of the Class S, Class
A-1A and Class A-1B Certificates in
respect of interest, pro rata based
on entitlement, up to an amount equal
to all Distributable Certificate
Interest (as defined below) in
respect of each such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(ii) to the holders of the Class A-1A and
Class A-1B Certificates in respect of
principal, allocable as between such
Classes of Certificateholders as
described herein, up to an amount
equal to the lesser of (1) the
aggregate of the then outstanding
Class Principal Balances of the Class
A-1A and Class A-1B Certificates and
(2) the Principal Distribution Amount
(as defined below) for such
Distribution Date;
(iii) to the holders of the Class A-1A and
Class A-1B Certificates as
reimbursement, pro rata based on
entitlement, up to an amount equal to
all Realized Losses and Extraordinary
Expenses (each as defined below), if
any, previously allocated to each
- --------------------------------------------------------------------------------
S-15
<PAGE>
- --------------------------------------------------------------------------------
such Class of Certificates and for
which no reimbursement has previously
been received;
(iv) to the holders of the Class A-2
Certificates in respect of interest,
up to an amount equal to all
Distributable Certificate Interest in
respect of such Class of Certificates
for such Distribution Date and, to
the extent not previously paid, for
all prior Distribution Dates;
(v) after the Class Principal Balances of
the Class A-1A and Class A-1B
Certificates have been reduced to
zero, to the holders of the Class A-2
Certificates in respect of principal,
up to an amount equal to the lesser
of (a) the then outstanding Class
Principal Balance of the Class A-2
Certificates and (b) the excess, if
any, of the Principal Distribution
Amount for such Distribution Date
over the amounts distributed on such
Distribution Date pursuant to clause
(ii) above;
(vi) to the holders of the Class A-2
Certificates as reimbursement, up to
an amount equal to all Realized
Losses and Extraordinary Expenses, if
any, previously allocated to such
Class of Certificates and for which
no reimbursement has previously been
received;
(vii) to the holders of the Class A-3
Certificates in respect of interest,
up to an amount equal to all
Distributable Certificate Interest in
respect of such Class of Certificates
for such Distribution Date and, to
the extent not previously paid, for
all prior Distribution Dates;
(viii) after the Class Principal Balances of
the Class A-1A, Class A-1B and Class
A-2 Certificates have been reduced to
zero, to the holders of the Class A-3
Certificates in respect of principal,
up to an amount equal to the lesser
of (a) the then outstanding Class
Principal Balance of the Class A-3
Certificates and (b) the excess, if
any, of the Principal Distribution
Amount for such Distribution Date
over the amounts distributed on such
Distribution Date pursuant to clauses
(ii) and (v) above;
(ix) to the holders of the Class A-3
Certificates as reimbursement, up to
an amount equal to all Realized
Losses and Extraordinary Expenses, if
any, previously allocated to such
Class of Certificates and for which
no reimbursement has previously been
received;
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S-16
<PAGE>
- --------------------------------------------------------------------------------
(x) to the holders of the Class B-1
Certificates in respect of interest,
up to an amount equal to all
Distributable Certificate Interest in
respect of such Class of Certificates
for such Distribution Date and, to
the extent not previously paid, for
all prior Distribution Dates;
(xi) after the Class Principal Balances of
the Class A Certificates have been
reduced to zero, to the holders of
the Class B-1 Certificates in respect
of principal, up to an amount equal
to the lesser of (a) the then
outstanding Class Principal Balance
of the Class B-1 Certificates and (b)
the excess, if any, of the Principal
Distribution Amount for such
Distribution Date over the amounts
distributed on such Distribution Date
pursuant to clauses (ii), (v) and
(viii) above;
(xii) to the holders of the Class B-1
Certificates as reimbursement, up to
an amount equal to all Realized
Losses and Extraordinary Expenses, if
any, previously deemed allocated to
such Class of Certificates and for
which no reimbursement has previously
been received; and
(xiii) to the holders of the Class B-2,
Class B-3, Class B- 4, Class C and
REMIC Residual Certificates,
sequentially in that order, amounts
in respect of interest, principal and
reimbursement for unreimbursed
Realized Losses and Extraordinary
Expenses, if any, for each such Class
as more fully described under
"Description of the
Certificates--Distributions--
Application of the Available
Distribution Amount" herein;
provided, however, that no
distributions of principal will be
made to any holder of any such Class
of Certificates until the respective
Class Principal Balances of the Class
A and Class B-1 Certificates have all
been reduced to zero.]
[Except under the limited circumstances
described herein, distributions of principal
on the Class A-1A and Class A-1B
Certificates as described in clause (ii)
above will be paid, first, to the holders of
the Class A-1A Certificates, until the Class
Principal Balance of such Class of
Certificates is reduced to zero, and
thereafter, to the holders of the Class A-1B
Certificates, until the Class Principal
Balance of such Class of Certificates is
reduced to zero. See "Description of the
Certificates--Distributions--Application of
the Available Distribution Amount" herein.]
[The "Distributable Certificate Interest" in
respect of any Class of REMIC Regular
Certificates for any Distribution Date will
equal one month's interest at the applicable
Pass-Through Rate accrued on the Class
Principal Balance or Class Notional Amount,
as the case may be, of such
- --------------------------------------------------------------------------------
S-17
<PAGE>
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Class of Certificates outstanding
immediately prior to such Distribution Date,
reduced (to not less than zero) by such
Class of Certificates' allocable share
(calculated as described herein) of any Net
Aggregate Prepayment Interest Shortfall (as
described below) for such Distribution Date
incurred in connection with the voluntary
prepayment of Mortgage Loans prior to their
respective Due Dates during the related
Collection Period. Distributable Certificate
Interest will be calculated on the basis of
a 360-day year consisting of twelve 30-day
months.]
[The "Principal Distribution Amount" for any
Distribution 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 Distribution Date is
subsequent to the initial
Distribution Date, the excess, if
any, of (i) the Principal
Distribution Amount for the
immediately preceding Distribution
Date, over (ii) the aggregate
distributions of principal made in
respect of the Certificates on such
immediately preceding Distribution
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.]
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S-18
<PAGE>
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[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.]
[E. Distributions of Prepayment
Premiums and Yield Maintenance
Premiums............................Any Prepayment Premium actually collected
with respect to a Mortgage Loan during any
particular Collection Period, net of any
portion thereof that is allocable to pay a
Liquidation Fee or a Workout Fee (each as
defined herein) to the Special Servicer,
will be distributed on the related
Distribution Date as follows:
(i) if the Class Notional Amount of the
Class S Certificates immediately
prior to such Distribution Date is
greater than zero, to the holders of
the Class S Certificates; and
(ii) if the Class Notional Amount of the
Class S Certificates has been reduced
to zero prior to such Distribution
Date, to the holders of the Class R-I
Certificates.
Any Yield Maintenance Premium actually
collected with respect to a Mortgage Loan
during any particular Collection Period, net
of any portion thereof that is allocable to
pay a Liquidation Fee or a Workout Fee to
the Special Servicer, will be distributed on
the related Distribution Date as follows:
(i) if the Class Notional Amount of the
Class S Certificates immediately
prior to such Distribution Date is
greater than zero, then (A) first, to
the holders of the Class(es) of
Sequential Pay Certificates entitled
to distributions of principal on such
Distribution Date, pro rata based on
entitlement if there is more than one
such Class, up to the amount of the
corresponding Certificate Yield
Maintenance Amount(s) (as defined
below) for such Class(es), and (B)
thereafter, to the holders of the
Class S Certificates, in an amount
equal to the balance, if any, of such
Yield Maintenance Premium; and
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S-19
<PAGE>
- --------------------------------------------------------------------------------
(ii) if the Class Notional Amount of the
Class S Certificates has been reduced
to zero prior to such Distribution
Date, to the holders of the Class R-I
Certificates.
The "Certificate Yield Maintenance Amount"
for any Class of Sequential Pay Certificates
in respect of any Principal Prepayment
accompanied by a Yield Maintenance Premium
will generally be calculated in the same
manner as such Yield Maintenance Premium but
based on (i) the Pass-Through Rate for such
Class instead of the Mortgage Rate for the
related Mortgage Loan and (ii) the portion
of such Principal Prepayment distributable
on such Class rather than the entire
Principal Prepayment.
The Prepayment Premiums and Yield
Maintenance Premiums, even if collected and
distributable on any Class of Certificates,
may not be sufficient to offset fully any
loss in yield on such Class of Certificates
attributable to the related prepayments of
principal. See "Risk Factors--Special
Prepayment and Yield Considerations" herein
and "Risk Factors--Effect of Prepayments on
Average Life of Certificates" and "--Effect
of Prepayments on Yield of Certificates" in
the Prospectus and "Servicing of the
Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses"
herein. Neither the Depositor nor the
Underwriter makes any representation or
warranty as regards the collectability of
any Prepayment Premium or Yield Maintenance
Premium or the enforceability of any
Mortgage Loan provision requiring the
payment of any such amount.]
Subordination; Allocation of
Realized Losses and
Certain Expenses..................[To the extent described herein, the Class
A-2, Class A-3, Class B, Class C and REMIC
Residual Certificates (collectively, the
"Subordinate Certificates") are subordinate
to the Class S, Class A-1A and Class A-1B
Certificates (collectively, the "Senior
Certificates"); the Class A-3, Class B,
Class C and REMIC Residual Certificates are
subordinate to the Class A-2 Certificates;
the Class B, Class C and REMIC Residual
Certificates are subordinate to the Class
A-3 Certificates; and the Class B-2, Class
B-3, Class B-4, Class C and REMIC Residual
Certificates are subordinate to the Class
B-1 Certificates. Such subordination will be
accomplished by the application of the
Available Distribution Amount on each
Distribution Date in the order described
above in this Summary under "Description of
the Certificates--Distributions of Principal
and Interest". No other form of credit
support will be available for the benefit of
any Class of Offered Certificateholders.
If, following the distributions to be made
in respect of the Certificates on any
Distribution Date, the aggregate of the
Stated Principal Balance of the Mortgage
Pool that will be
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S-20
<PAGE>
- --------------------------------------------------------------------------------
outstanding immediately following such
Distribution Date is less than the then
aggregate of the Class Principal Balances of
the respective Classes of Sequential Pay
Certificates, the Class Principal Balances
of the Class C, Class B-4, Class B-3, Class
B-2, Class B-1, Class A-3 and Class A-2
Certificates will be reduced, sequentially
in that order, in the case of each such
Class until such deficit (or the related
Class Principal Balance) is reduced to zero
(whichever occurs first). If any portion of
such deficit remains at such time as the
Class Principal Balances of such Classes of
Certificates are reduced to zero, then the
respective Class Principal Balances of the
Class A-1A and Class A-1B Certificates will
be reduced, pro rata in accordance with the
relative sizes of the remaining Class
Principal Balances of such Classes of
Certificates, until such deficit (or each
such Class Principal Balance) is reduced to
zero. Any such deficit will, in general, be
the result of Realized Losses incurred in
respect of the Mortgage Loans and/or
Extraordinary Expenses. Accordingly, the
foregoing reductions in the Class Principal
Balances of the Sequential Pay Certificates
will constitute an allocation of any such
Realized Losses and Extraordinary Expenses.
As more particularly described herein,
"Realized Losses" are losses arising from
the inability of the Master Servicer and/or
the Special Servicer to collect all amounts
due and owing under any defaulted Mortgage
Loan, including by reason of the fraud or
bankruptcy of the related mortgagor or a
casualty of any nature at the related
Mortgaged Property, to the extent not
covered by insurance.
As more particularly described herein,
"Extraordinary Expenses" are any expenses of
the Trust Fund not specifically included in
the calculation of a "Realized Loss," that
would result in the REMIC Regular
Certificateholders' receiving less than the
full amount of principal and/or interest to
which they are entitled on any Distribution
Date.]
See "Description of the
Certificates--Subordination; Allocation of
Realized Losses and Certain Expenses"
herein.
Treatment of REO Properties.........Notwithstanding that a Mortgaged Property
securing any Mortgage Loan may be acquired
on behalf of the Certificateholders 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
Pass-Through Rates of, distributions on and
allocations of Realized Losses and
Extraordinary Expenses to the Certificates,
as well as the Master Servicing Fees,
Property Servicing Fees, Special Servicing
Fees, Workout Fees and Trustee Fees (each as
defined herein) payable under the Pooling
Agreement, generally be treated as having
remained outstanding until
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S-21
<PAGE>
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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 Certificates--P&I
and Other Advances"), the Master Servicer
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........................Subject to a recoverability determination as
described herein, and further subject to the
reduced advancing obligations in respect of
certain modified Mortgage Loans and Mortgage
Loans as to which the related Mortgaged
Property has declined in value as described
herein, the Master Servicer will be required
to make advances (each, a "P&I Advance")
with respect to each Distribution Date in an
amount that is generally equal to the
aggregate of all Scheduled Payments (other
than Balloon Payments) and any Assumed
Scheduled Payments, net of related Master
Servicing Fees and Workout Fees, due or
deemed due, as the case may be, on or in
respect of the Mortgage Loans during the
related Collection Period, in each case to
the extent that such amount was not paid by
or on behalf of the related Mortgagor or
otherwise collected as of the close of
business on the last day of the related
Collection Period.
If the Master Servicer fails to make a
required P&I Advance, the Trustee will be
required to make such P&I Advance. The
Special Servicer shall have no obligation to
make any P&I Advance.
As more fully described herein, the Master
Servicer and the Trustee will each be
entitled to interest on any P&I Advance made
by it, and the Master Servicer, the Special
Servicer and the Trustee will each be
entitled to interest on certain reimbursable
servicing expenses incurred by it. Such
interest will accrue from the date any such
P&I Advance is made or such servicing
expense is incurred at a rate per annum
equal to [specify applicable rate] (the
"Reimbursement Rate"), and will be paid:
first, out of Default Interest (as defined
herein) and late payment charges collected
in respect of the related Mortgage Loan;
and, second, if such P&I Advance or
servicing expense has been reimbursed, out
of general collections on the Mortgage Pool.
See "Description of the Certificates--P&I
and Other Advances" herein.
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<PAGE>
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[Compensating Interest
Payments..........................To the extent of the aggregate of all Master
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 Distribution 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 Master
Servicing Fees and Property Servicing Fees
(as defined herein)) 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 Master Servicing
Fees and Property Servicing Fees) 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
Distribution 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
Distribution Date. See "Servicing of the
Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses"
herein.]
Optional Termination................The Special Servicer or the Master Servicer,
in that order, will have an option to
purchase all of the Mortgage Loans and any
REO Properties, and thereby effect
termination of the Trust Fund and early
retirement of the then outstanding
Certificates, on any Distribution Date on
which the aggregate Stated Principal Balance
of the Mortgage Pool is less than __% of the
Initial Pool Balance. See "Description of
the Certificates--Termination" herein.
Certain Investment
Considerations....................The yield on any Offered Certificate will
depend on (a) the price at which such
Certificate is purchased by an investor and
(b) the rate, timing and amount of
distributions on such Certificate. The rate,
timing and amount of distributions on any
Offered Certificate will in turn depend on,
among other things, (i) the Pass-Through
Rate for such Certificate, (ii) the rate and
timing of principal payments (including
principal prepayments) and other principal
collections on the Mortgage Loans and the
extent to which such amounts are to be
applied or otherwise result in reduction of
the Certificate Principal Balance or
Certificate Notional Amount of such
Certificate, (iii) the rate, timing and
severity of Realized Losses and
Extraordinary Expenses
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S-23
<PAGE>
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and the extent to which such losses and
shortfalls are allocable in reduction of the
Certificate Principal Balance or Certificate
Notional Amount of such Certificate, (iv)
the timing and severity of any Net Aggregate
Prepayment Interest Shortfalls and the
extent to which such shortfalls are
allocable in reduction of the Distributable
Certificate Interest payable on such
Certificate and (v) the priority of such
Certificate to receive payments.
The yield to maturity on any Offered
Certificate will be affected by the rate and
timing of prepayments and other collections
of principal on or in respect of the
Mortgage Loans and the allocation thereof to
reduce the principal balance (the
"Certificate Principal Balance") or notional
amount (the "Certificate Notional Amount")
of such Certificate. An investor should
consider, in the case of any Offered
Certificate purchased at a discount, the
risk that a slower than anticipated rate of
prepayments could result in a lower than
anticipated yield and, in the case of any
Class S Certificate or any other Offered
Certificate purchased at a premium, the risk
that a faster than anticipated rate of
prepayments could result in a lower than
anticipated yield. In addition, the yield to
maturity on the Class S Certificates will be
highly sensitive to the rate and timing of
principal payments on and other liquidations
of the Mortgage Loans, and investors in the
Class S Certificates should fully consider
the associated risks, including the risk
that an extremely rapid rate of prepayments
and/or liquidations in respect of the
Mortgage Loans could result in the failure
of such investors to recoup fully their
initial investments. See "Yield and Maturity
Considerations" herein and in the
Prospectus. The full or partial, as
applicable, allocation of Prepayment
Premiums and Yield Maintenance Premiums
actually collected on the Mortgage Loans to
the holders of the Class S Certificates as
described herein, for so long as such
Certificates are outstanding, is intended to
reduce those risks; however, such allocation
may be insufficient to offset fully the
adverse effects on the yield of such Class
of Certificates that the related prepayments
may otherwise have.
Certain Federal Income Tax
Consequences......................Three separate "real estate mortgage
investment conduit" ("REMIC") elections will
be made with respect to the Trust Fund for
federal income tax purposes with the
resulting REMICs being herein referred to as
"REMIC I", "REMIC II" and "REMIC III",
respectively. The assets of REMIC I will
include the Mortgage Loans, any REO
Properties acquired on behalf of the
Certificateholders and the Collection
Account (as defined in the Prospectus). For
federal income tax purposes (i) the separate
non-certificated regular interests in REMIC
I will be the "regular interests" in REMIC I
and will constitute the assets of REMIC II,
(ii) the Class R-I Certificates will
evidence the sole class of
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S-24
<PAGE>
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"residual interests" in REMIC I, (iii) the
separate non-certificated regular interests
in REMIC II will be the "regular interests"
in REMIC II and will constitute the assets
of REMIC III, (iv) the Class R-II
Certificates will evidence the sole class of
"residual interests" in REMIC II, (v) the
REMIC Regular Certificates will evidence the
"regular interests" in, and generally will
be treated as debt obligations of, REMIC
III, and (vi) the Class R-III Certificates
will evidence the sole class of "residual
interests" in REMIC III.
[The [identify Classes, if any] Certificates
will not, and the [identify Classes, if any]
Certificates will, be treated as having been
issued with original issue discount for
federal income tax reporting purposes. The
prepayment assumption to be used for
purposes of computing the accrual of
original issue discount, market discount and
premium, if any, for federal income tax
purposes will be that the Mortgage Loans are
not voluntarily prepaid prior to their
respective Maturity Dates. However, no
representation is made that the Mortgage
Loans will not prepay or, if they do, that
they will prepay at any particular rate.]
[Generally, except to the extent noted
below, the Certificates will be treated as
"real estate assets" within the meaning of
Section 856(c)(5)(A) of the Internal Revenue
Code of 1986 (the "Code"). In addition,
except to the extent noted below, interest
(including original issue discount) on the
Certificates will be interest described in
Section 856(c)(3)(B) of the Code. However,
the Certificates will generally only be
considered assets described in Section
7701(a)(19)(C) of the Code to the extent
that the Mortgage Loans are secured by
residential property and, accordingly, an
investment in the Certificates may not be
suitable for some thrift institutions. See
"Description of the Mortgage Pool" herein.]
For further information regarding the
Federal income tax consequences of investing
in the Offered Certificates, see "Certain
Federal Income Tax Consequences" herein and
"Material Federal Income Tax Consequences"
in the Prospectus.
ERISA Considerations................A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code (a "Plan") should review
carefully with its legal counsel whether the
purchase or holding of Offered Certificates
could give rise to a transaction that is
prohibited or is not otherwise permitted
either under ERISA or Section 4975 of the
Code or whether there exists any statutory
or administrative exemption applicable to an
investment therein.
[The U.S. Department of Labor has issued to
the Underwriter an individual exemption,
Prohibited
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S-25
<PAGE>
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Transaction Exemption _____, which generally
exempts from the application of certain of
the prohibited transaction provisions of
Section 406 of ERISA and the excise taxes
imposed on such prohibited transactions by
Section 4975(a) and (b) of the Code,
transactions relating to the purchase, sale
and holding of pass-through certificates
underwritten or placed by the Underwriter
and the servicing and operation of related
asset pools, provided that certain
conditions are satisfied.]
[To the extent described herein, the
Depositor expects that Prohibited
Transaction Exemption _____ will generally
apply to the Senior Certificates, but it
will not apply to the other Offered
Certificates. Accordingly, the Class A-2,
Class A-3 and Class B-1 Certificates should
not be acquired by, on behalf of, or with
assets of a Plan, unless the purchase and
holding of any such Certificate is exempt
from the prohibited transaction provisions
of Section 406 of ERISA and Section 4975 of
the Code under Sections I and III of
Prohibited Transaction Class Exemption
95-60, which provides an exemption from the
prohibited transaction rules for certain
transactions involving an insurance company
general account, or Section 401(c) of ERISA,
which may provide limited relief from the
prohibited transaction rules for certain
transactions involving an insurance company
general account. ] See "ERISA
Considerations" herein and in the
Prospectus.
Ratings.............................It is a condition to their issuance that the
respective Classes of Offered Certificates
receive the following credit ratings from
("________") and/or____________________
("_____"; together with _____, the "Rating
Agencies"):
[Rating [Rating
Class Agency] Agency]
----- ------- -------
Class S
Class A-1A
Class A-1B
Class A-2
Class A-3
Class B-1
The foregoing ratings of the Offered
Certificates address the timely payment
thereon of interest and, to the extent
applicable, the ultimate payment thereon of
principal on or before the Rated Final
Distribution Date. The foregoing ratings of
the Offered Certificates do not address the
tax attributes of the Offered Certificates
or the Trust Fund. The rating of the Class S
Certificates by _____ does not address the
possibility that holders of the Class S
Certificates might suffer a lower than
anticipated yield due to prepayments on
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S-26
<PAGE>
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and/or other liquidations of the Mortgage
Loans or that, as a consequence of a rapid
rate of prepayments and/or liquidations of
Mortgage Loans, the holders of the Class S
Certificates may not fully recover their
initial investments. The ratings of the
Offered Certificates 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
Certificates, 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 Offered Certificates will not
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). In
addition, institutions whose investment
activities are subject to review by certain
regulatory authorities may be or may become
subject to restrictions on the investment by
such institutions in certain forms of
mortgage derivative securities. Any such
restrictions enacted or adopted after the
date hereof could alter the extent to which
such an institution may continue to hold a
particular investment. Accordingly,
investors should consult their own legal
advisors to determine whether and to what
extent the Offered Certificates may be
purchased by such investors. See "Legal
Investment" herein and in the Prospectus.]
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S-27
<PAGE>
RISK FACTORS
Prospective purchasers of Offered Certificates should consider, among
other things, the following risk factors (as well as the risk factors set forth
under "Risk Factors" in the Prospectus) in connection with an investment
therein. [The following risks are subject to modification to reflect the actual
circumstances relating to any series of Certificates.]
Special Prepayment and Yield Considerations. The yield to maturity on any
Offered Certificate will depend on, among other things, the rate and timing of
principal payments (including voluntary prepayments and prepayments resulting
from casualty or condemnation, defaults and liquidations and repurchases due to
breaches of representations and warranties) on the Mortgage Loans and the
allocation thereof to reduce the Certificate Principal Balance or Certificate
Notional Amount of such Certificate. The Class S Certificates will be especially
sensitive to the rate and timing of such principal prepayments. In addition, in
the event of any repurchase of a Mortgage Loan from the Trust Fund due to a
material breach of representation or warranty, the repurchase price paid would
be passed through to the holders of the REMIC Regular Certificates with the same
effect as if such Mortgage Loan had been prepaid in full (except that no
Prepayment Premium or Yield Maintenance Premium would be payable with respect to
any such repurchase). No representation is made as to the anticipated rate of
prepayments on the Mortgage Loans or as to the anticipated yield to maturity of
any Certificate. See "Yield and Maturity Considerations" herein and in the
Prospectus.
In general, if an Offered Certificate is purchased at a premium and
distributions in reduction of the Certificate Principal Balance or Certificate
Notional Amount thereof occur at a rate faster than anticipated at the time of
purchase, then (to the extent that the required Prepayment Premiums or Yield
Maintenance Premiums are not received or are distributable to a different Class
of Certificates) the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if an Offered Certificate is
purchased at a discount and distributions in reduction of the Certificate
Principal Balance thereof occur at a rate slower than that assumed at the time
of purchase, the investor's actual yield to maturity will be lower than assumed
at the time of purchase.
Prepayment Premiums and Yield Maintenance Premiums, even if available and
distributable on any Class of Offered Certificates, may not be sufficient to
offset fully any loss in yield on such Class of Certificates attributable to the
related prepayments of the Mortgage Loans. Provisions requiring Prepayment
Premiums or Yield Maintenance Premiums may not be enforceable in some states and
under federal bankruptcy law, and may constitute interest for usury purposes.
Accordingly, no assurance can be given that the obligation to pay a Prepayment
Premium or Yield Maintenance Premium will be enforceable under applicable state
or federal law. In addition, even if such obligation is enforceable, no
assurance can be given that, in the event of a prepayment resulting from a
foreclosure of a Mortgage Loan, the Liquidation Proceeds will be sufficient to
make such payment.
The aggregate amount of distributions on the Offered Certificates, the
yield to maturity of the Offered Certificates, the rate of principal payments on
the Offered Certificates with Certificate Principal Balances and the weighted
average life of the Offered Certificates with Certificate Principal Balances
will be affected by the rate and the timing of delinquencies and defaults on the
Mortgage Loans. The yield to holders of the Class S Certificates and the Offered
Certificates that are Subordinate Certificates will be sensitive in varying
degrees to the rate, timing and magnitude of losses on the Mortgage Loans. If a
purchaser of an Offered Certificate 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 the amount of losses actually experienced, and such
additional losses are allocable in reduction of the Certificate Principal
Balance or Certificate Notional Amount, as the case may be, of such Certificate,
such purchaser's actual yield to maturity will be lower than that so calculated
and could, under certain extreme scenarios, be negative. In general, the earlier
a loss is borne by an investor, the greater is the effect on such investor's
yield to maturity.
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<PAGE>
Regardless of whether losses ultimately result, delinquencies and defaults
on the Mortgage Loans may significantly delay the receipt of payments by an
Offered Certificate to the extent that P&I Advances or the subordination of
another Class of Certificates does not fully offset the effects of any such
delinquency or default, and interest accrued and payable to the Master Servicer
or Special Servicer in respect of Advances made thereby in connection with such
defaults and delinquencies will reduce amounts available for distribution on one
or more Classes of Certificates and may ultimately result in the reduction of
the Class Principal Balance or Class Notional Amount, as the case may be, of any
such Class. Following a default by a Mortgagor in payment of a Mortgage Loan at
maturity, the Special Servicer may, subject to certain limitations, extend the
maturity of such Mortgage Loan [up to _____ years]. The obligation of the Master
Servicer or the Trustee, as applicable, to make P&I Advances in respect of a
Mortgage Loan that is delinquent as to its Balloon Payment is limited to the
extent described under "Description of the Certificates--P&I and Other Advances"
herein.
Subordination of Subordinate Certificates. As and to the extent described
herein, the rights of the holders of the respective Classes of Offered
Certificates that are Subordinate Certificates 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 each other Class of Offered
Certificates, including the Senior Certificates, with a higher priority of
payment. Although such subordination is intended, in varying degrees depending
on the Class, to reduce the likelihood of temporary shortfalls and ultimate
losses to holders of the respective Classes of Offered Certificates, the amount
of subordination afforded to any particular Class of Offered Certificates 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 Certificates having a later right of payment.
The amount of any applicable credit support provided by the Subordinate
Certificates to the Senior Certificates, and by each Class of Subordinate
Certificates to each other Class of Subordinate Certificates (if any) having a
higher payment priority, 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
Certificates--Distributions--Application of the Available Distribution Amount"
and "--Subordination; Allocation of Realized Losses and Certain Expenses"
herein.
Limited Recourse Nature of Mortgage Loans; Recourse Generally Limited to
Mortgaged Property. The Mortgage Loans are nonrecourse obligations of the
Mortgagors and, accordingly, in the case of default, recourse will be limited to
the related Mortgaged Property securing the defaulted Mortgage Loan.
Consequently, payment on each Mortgage Loan prior to maturity is dependent
primarily on the sufficiency of the net operating income of the related
Mortgaged Property and, at maturity (whether at scheduled maturity or, in the
event of a default under the related Mortgage Loan, upon the acceleration of
such maturity), upon the then market value of the related Mortgaged Property or
the ability of the related Mortgagor to refinance the Mortgaged Property.
Neither the Offered Certificates nor the Mortgage Loans are 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 with respect to Mortgage Loans;
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.
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
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<PAGE>
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--Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans--Increased Risk of Default Associated With Balloon Payments" in
the Prospectus.
Extension Risk Associated With Modification of Mortgage Loans with Balloon
Payments. In order to maximize recoveries on defaulted Mortgage Loans, the
Pooling 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--Modifications, Waivers, Amendments and Consents" 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 distributable in respect of a Class of
Offered Certificates, 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 Certificates. See
"Yield and Maturity Considerations" herein and in the Prospectus.
Exposure of the Mortgage Pool to Adverse Economic or other Developments
Based on Geographic Concentration. ______ Mortgage Loans, which represent ____%
of the Initial Pool Balance, are secured by liens on Mortgaged Properties
located in _____________. In general, that concentration increases the exposure
of the Mortgage Pool to any adverse economic or other developments that may
occur in _________. In recent periods, _____________ (along with other regions
of the United States) has experienced a significant downturn in the market value
of real estate.
Increased Risk of Loss Associated With Concentration of Mortgage Loans and
Borrowers. Several of the Mortgage Loans have Cut-off Date Balances (as defined
herein) that are substantially higher than the average Cut-off Date Balance. In
general, concentrations in a mortgage pool of loans with larger-than-average
balances can result in losses that are more severe, relative to the size of the
pool, than would be the case if the aggregate balance of the pool were more
evenly distributed. In addition, in several cases, multiple Mortgage Loans have
been made to the same Mortgagor or to a group of affiliated Mortgagors that are
under common control. Concentration of borrowers also poses increased risks. For
instance, if a borrower that owns several Mortgaged Properties experiences
financial difficulty at one Mortgaged Property, or at another income-producing
property that it owns, it could attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect of interrupting Monthly Payments
for an indefinite period on all of the related Mortgage Loans.
Risks Associated With Changes in Concentrations. If and as payments in
respect of principal (including voluntary prepayments and prepayments resulting
from casualty or condemnation, defaults and liquidations and repurchases due to
breaches of representations and warranties) are received with respect to the
Mortgage Loans, the remaining Mortgage Loans as a group may exhibit increased
concentration with respect to the type of properties, property characteristics,
number of Mortgagors and affiliated Mortgagors and geographic location. [Because
unscheduled collections of principal on the Mortgage Loans are payable on the
respective Classes of Sequential Pay Certificates in sequential order, such
Classes that have a lower sequential priority are relatively more likely to be
exposed to any risks associated with changes in concentrations of loan or
property characteristics.]
Inclusion of Delinquent, Under-Performing and Non-Performing Mortgage
Loans. The Mortgage Pool will include ____ Mortgage Loans, representing __% of
the Initial Pool Balance, that [describe generally the characteristics of those
delinquent, under-performing and non-performing Mortgage Loans, if any, included
in the Mortgage Pool]. The amount of any applicable credit support provided to a
Class of Certificates as described under "--Subordination of Subordinate
Certificates" may not cover all losses and shortfalls related to such
delinquent, under-performing and non-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 Certificates. See
"Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of
the Mortgage Loans--Inclusion of Delinquent, Under-Performing and Non-Performing
Mortgage Loans in a Mortgage Asset Pool" in the Prospectus.]
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<PAGE>
Potential Liability to the Trust Fund Relating to a Materially Adverse
Environmental Condition. [An environmental site assessment was performed at
[each][all but ___] of the Mortgaged Properties during the _____ month period
prior to the Cut-off Date. [Note any special environmental problems.]
[Otherwise,] no such environmental assessment revealed any material adverse
environmental condition or circumstance at any Mortgaged Property[, except for
(i) those cases in which the condition or circumstance was remediated or an
escrow for such remediation has been established and (ii) those cases in which
an operations and maintenance plan or periodic monitoring of nearby properties
was recommended, which recommendations are consistent with industrywide
practices].
The Pooling Agreement requires that the Special Servicer obtain an
environmental site assessment of a Mortgaged Property securing a defaulted
Mortgage Loan prior to acquiring title thereto or assuming its operation. Such
prohibition effectively precludes enforcement of the security for the related
Mortgage Note until a satisfactory environmental site assessment is obtained (or
until any required remedial action is thereafter taken), but will decrease the
likelihood that the Trust Fund will become liable for a material adverse
environmental condition at the Mortgaged Property. However, there can be no
assurance that the requirements of the Pooling Agreement will effectively
insulate the Trust Fund from potential liability for a materially adverse
environmental condition at any Mortgaged Property. See "Servicing and
Administration of the Mortgage Assets-- Realization Upon Defaulted Mortgage
Loans", "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--Risk of Liability Arising from Environmental
Conditions" and "Certain Legal Aspects of Mortgage Loans--Environmental
Considerations" in the Prospectus.
Limited Liquidity. There is currently no secondary market for the Offered
Certificates. The Underwriter has indicated its intention to make a secondary
market in the Offered Certificates, but it is not obligated to do so. There can
be no assurance that a secondary market for the Offered Certificates will
develop or, if one does develop, that it will provide holders of Offered
Certificates with liquidity of investment or that it will continue for the life
of the Offered Certificates. The Offered Certificates will not be listed on any
securities exchange. See "Risk Factors--Limited Liquidity of Offered
Certificates" in the Prospectus.
Risks Relating to Lack of Certificateholder Control Over Trust Fund.
Certificateholders generally do not have a right to vote, except with respect to
certain amendments to the Pooling Agreement. Furthermore, Certificateholders
will generally not have the right to make decisions with respect to the
administration of the Trust Fund. Such decisions are generally made, subject to
the express terms of the Pooling Agreement, by the Master Servicer, the Trustee,
the Special Servicer or the REMIC Administrator, as applicable. Any decision
made by one of those parties in respect of the Trust Fund, even if made in the
best interests of the Certificateholders (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 Certificates
and may negatively affect the interests of such holders.
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist primarily of ___ [describe general
characteristics of the Mortgage Loans] mortgage loans (the "Mortgage Loans")
with an aggregate Cut-off Date Balance of $__________ (the "Initial Pool
Balance")[, subject to a permitted variance of plus or minus __%]. The "Cut-off
Date Balance" of each Mortgage Loan is the unpaid principal balance thereof as
of the Cut-off Date, after application of all payments due on or before such
date, whether or not received. All numerical information provided herein with
respect to the Mortgage Loans is provided on an approximate basis. All weighted
average information provided herein with respect to the Mortgage Loans reflects
the weighting of the Mortgage Loans by their Cut-off Date Balances.
Each Mortgage Loan is evidenced by a note or bond (a "Mortgage Note") and
is secured by a [first] mortgage, deed of trust or similar security instrument
(a "Mortgage") on the fee simple (or, in ___ cases, representing ___% of the
Initial Pool Balance, the leasehold) interest of the related mortgagor (the
S-31
<PAGE>
"Mortgagor") in real property used for commercial or multifamily purposes, all
buildings and improvements thereon and certain personal property located thereon
(each, a "Mortgaged Property") and security interests in certain funds and
accounts and other collateral described herein.
The Mortgage Loans are not insured or guaranteed by the Depositor or the
Mortgage Loan Seller, by any governmental entity or private mortgage insurer or
by any other person. All of the Mortgage Loans are nonrecourse loans as to which
recourse in the case of default will be limited to the specific property and
such other assets, if any, as were pledged to secure a Mortgage Loan.
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 Company and the Mortgage Loan Seller, and the Company
will thereupon assign its interests in the Mortgage Loans, without recourse, to
the Trustee for the benefit of the Certificateholders. See "--The Mortgage Loan
Seller" herein and "Description of the Pooling Agreements--Transfer of Mortgage
Assets" in the Prospectus. For purposes of the Prospectus, the Mortgage Loan
Seller constitutes a "Mortgage Asset Seller".
[The Mortgage Loans were originated during the period from ____________ to
_____________, generally in accordance with the underwriting criteria described
below under "--Underwriting of the Mortgage Loans". The Mortgage Loan Seller
originated ____ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, and acquired the remaining Mortgage Loans from the respective
originators thereof.]
Certain Payment Characteristics
___ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, have Due Dates that occur on the ___ day of each month. The remaining
Mortgage Loans have Due Dates that occur on the ______ (____% of the Mortgage
Loans), _____ (____% of the Mortgage Loans), _____ (____% of the Mortgage
Loans), and _______ (____% of the Mortgage Loans) day of each month.
[____________ of the Mortgage Loans, which represent ____% of the Initial
Pool Balance, are ARM Loans. The ARM Loans bear interest at Mortgage Rates that
are subject to adjustment on periodically occurring Interest Rate Adjustment
Dates by adding the related Gross Margin to the applicable value of the related
Index, subject in ______ cases to rounding conventions and lifetime minimum
and/or maximum Mortgage Rates and, in the case of ________ Mortgage Loans, which
represent ____% of the Initial Pool Balance, to periodic minimum and/or maximum
Mortgage Rates. The remaining Mortgage Loans are Fixed Rate Loans. None of the
ARM Loans is convertible into a Fixed Rate Loan.]
[If there are ARM Loans: [Identify Mortgage Loan Index]. The adjustments
to the Mortgage Rates on the ARM Loans may in each case be based on the value of
the related Index as available a specified number of days prior to an Interest
Rate Adjustment Date, or may be based on the value of the related Index as most
recently published as of an Interest Rate Adjustment Date or as of a designated
date preceding an Interest Rate Adjustment Date. ____ of the ARM Loans, which
represent ___% of the Initial Pool Balance, provide for Interest Rate Adjustment
Dates that occur monthly; ____ of the ARM Loans, which represent ___% of the
Initial Pool Balance, provide for Interest Rate Adjustment Dates that occur
semi-annually; and the remaining ARM Loans provide for Interest Rate Adjustment
Dates that occur annually.]
[If there are ARM Loans: The Monthly Payments on each ARM Loan are subject
to adjustment on each Payment Adjustment Date to an amount [that would amortize
fully the principal balance of the Mortgage Loan over its then remaining
amortization schedule and pay interest at the then applicable Mortgage Rate].
[Discuss frequency of Payment Adjustment Dates and possibility of negative
amortization of interest.]]
_____ of the Mortgage Loans, representing ___% of the Initial Pool
Balance, are Balloon Loans that provide for monthly payments of principal based
on amortization schedules significantly longer than the remaining terms of such
Mortgage Loans. Thus, each such Mortgage Loan will have a Balloon Payment due at
its stated maturity date, unless prepaid prior thereto. The remaining Mortgage
Loans are fully amortizing.
S-32
<PAGE>
[All the Mortgage Loans provided at origination for, sequentially, a
period (a "Lockout Period") during which voluntary prepayments of principal
(each, a "Principal Prepayment") are prohibited, then a period during which
Principal Prepayments are permitted but are required to be accompanied by the
greater of a specified percentage of the principal amount being prepaid (a
"Prepayment Premium") or a premium calculated on the basis of a yield
maintenance formula (a "Yield Maintenance Premium"), and then, commencing on a
specified date prior to maturity, a period (the related "Open Period") during
which Principal Prepayments may be made without payment of any Prepayment
Premium or Yield Maintenance Premium.]
[The Index]
[Describe Index.]
[Delinquent Mortgage Loans]
[Describe those delinquent Mortgage Loans, if any, included in the Trust Fund.]
Additional Mortgage Loan Information
The following tables set forth the specified characteristics of, in each
case as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage
Loans. The sum in any column may not equal the indicated total due to rounding.
Mortgage Rates as of the Cut-off Date
Percent by
Number of Aggregate Aggregate
Mortgage Cut-off Date Cut-off Date
Range of Mortgage Rates(%) Loans Balance Balance
-------------------------- ----- ------- -------
================ =============== ================
Total..........................
================ =============== ================
Weighted Average Mortgage Rate
(All Mortgage Loans): ______% per annum
Weighted Average Mortgage Rate
(ARM Loans): ____% per annum
Weighted Average Mortgage Rate
(Fixed Rate Loans): _____% per annum
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<PAGE>
Gross Margins for the ARM Loans
Percent by
Aggregate Aggregate
Number of Cut-off Date Cut-off Date
Range of Gross Margins(%) ARM Loans Balance Balance
------------------------- --------- ------- -------
================ =============== ================
Total..........................
================ =============== ================
Weighted Average Gross Margin:____%
S-34
<PAGE>
Frequency of Adjustments to Mortgage Rates and Monthly
Payments for the ARM Loans
Mortgage Monthly Percent by
Rate Payment Number of Aggregate Aggregate
Adjustment Adjustment Mortgage Cut-off Date Cut-off Date
Frequency Frequency Loans Balance Balance
--------- --------- ----- ------- -------
============ ============ ===========
Total.............
============ ============ ===========
Maximum Lifetime Mortgage Rates for the ARM Loans
Percent by
Aggregate Aggregate
Range of Maximum Number of Cut-off Date Cut-off Date
Lifetime Mortgage Rates(%) ARM Loans Balance Balance
-------------------------- --------- ------- -------
================ =============== ================
Total..........................
================ =============== ================
Weighted Average Maximum
Lifetime Mortgage Rate
(ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
Minimum Lifetime Mortgage Rates for the ARM Loans
Percent by
Aggregate Aggregate
Range of Minimum Number of Cut-off Date Cut-off Date
Lifetime Mortgage Rates(%) ARM Loans Balance Balance
-------------------------- --------- ------- -------
================ =============== ================
Total..........................
================ =============== ================
Weighted Average Minimum
Lifetime Mortgage Rate
(ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without minimum
lifetime Mortgage Rates.
S-35
<PAGE>
Cut-off Date Balances
Percent by
Aggregate Aggregate
Cut-off Date Number of Cut-off Date Cut-off Date
Balance Range ($) Mortgage Loans Balance Balance
----------------- -------------- ------- -------
================ =============== ================
Total
================ =============== ================
Average Cut-off Date Balance
(All Mortgage Loans): $____________
Average Cut-off Date Balance
(ARM Loans): $____________
Average Cut-off Date Balance
(Fixed Rate Loans): $____________
Types of Mortgaged Properties
Percent by
Aggregate Aggregate
Number of Cut-off Date Cut-off Date
Property Type Mortgage Loans Balance Balance
------------- -------------- ------- -------
Total.........................
================ =============== ================
================ =============== ================
S-36
<PAGE>
Geographic Distribution of the Mortgaged Properties
Percent by
Aggregate Aggregate
Number of Cut-off Date Cut-off Date
State Mortgage Loans Balance Balance
----- -------------- ------- -------
Total.........................
================ =============== ================
================ =============== ================
S-37
<PAGE>
Original Term to Stated Maturity (in Months)
Percent by
Aggregate Aggregate
Range of Original Number of Cut-off Date Cut-off Date
Terms (in Months) Mortgage Loans Balance Balance
----------------- -------------- ------- -------
================ =============== ================
Total.........................
================ =============== ================
Weighted Average Original
Term to Stated Maturity
(All Mortgage Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans): ____ months
Remaining Term to Stated Maturity (in Months)
as of the Cut-off Date
Percent by
Aggregate Aggregate
Range of Remaining Number of Cut-off Date Cut-off Date
Terms (in Months) Mortgage Loans Balance Balance
-------------- ------- -------
================ =============== ================
Total.........................
================ =============== ================
Weighted Average Remaining
Term to Stated Maturity
(All Mortgage Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans): ___ months
S-38
<PAGE>
The following table sets forth a range of Debt Service Coverage Ratios for
the Mortgage Loans. The "Debt Service Coverage Ratio" set forth in the following
table for any Mortgage Loan is [the ratio of (i) Net Operating Income produced
by the related Mortgaged Property for the period (annualized if the period was
less than one year) covered by the most recent operating statement available to
the Company to (ii) the amount of the Monthly Payment in effect as of the
Cut-off Date multiplied by 12. "Net Operating Income" is the revenue derived
from the use and operation of a Mortgaged Property (consisting primarily of
rental income and deposit forfeitures), less operating expenses (such as
utilities, general administrative expenses, management fees, advertising,
repairs and maintenance), and further less fixed expenses (such as insurance and
real estate taxes). Net Operating Income generally does not reflect capital
expenditures. The following table was prepared using operating statements
obtained from the respective Mortgagors or the related property managers. In
each case, the information contained in such operating statements was unaudited,
and neither the Issuer nor the Company has made any attempt to verify its
accuracy. In the case of _____ Mortgage Loans (____ ARM Loans and ____ Fixed
Rate Loans), representing __% of the Initial Pool Balance, operating statements
could not be obtained, and accordingly, Debt Service Coverage Ratios for those
Mortgage Loans were not calculated. The last day of the period (which may not
correspond to the most recently ended calendar year) covered by each operating
statement from which a Debt Service Coverage Ratio was calculated is set forth
in [Annex A] with respect to the related Mortgage Loan.]
Debt Service Coverage Ratios(A)
Percent by
Range of Number of Aggregate
Debt Service Mortgage Aggregate Cut-off Cut-off Date
Coverage Ratios (x) Loans Date Balance Balance
------------------- ----- ------------ -------
Not Calculated(B).............
================ =============== ================
Total.........................
================ =============== ================
Weighted Average
Debt Service Coverage Ratio
(All Mortgage Loans): _____x(C)
Weighted Average
Debt Service Coverage Ratio
(ARM Loans): _____x(D)
Weighted Average
Debt Service Coverage Ratio
(Fixed Rate Loans): _____x(E)
- -------------------
(A) The Debt Service Coverage Ratios are based on the most recently available
operating statements obtained from the respective mortgagors or the
related property managers.
(B) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(C) This calculation does not include the ________ Mortgage Loans as to which
Debt Service Coverage Ratios were not calculated.
(D) This calculation does not include the ________ ARM Loans as to which Debt
Service Coverage Ratios were not calculated.
(E) This calculation does not include the ________ Fixed Rate Loans as to
which Debt Service Coverage Ratios were not calculated.
S-39
<PAGE>
The following tables set forth the range of LTV Ratios of the Mortgage
Loans at the Cut-off Date. The "LTV Ratio" set forth in the following table for
any Mortgage Loan is [a fraction, expressed as a percentage, the numerator of
which is the Cut-off Date Balance of such 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. Because it is based on the value of a Mortgaged Property
determined as of loan origination, the information set forth in the table below
is not necessarily a reliable measure of the related borrower's current equity
in each Mortgaged Property. In a declining real estate market, the fair market
value of a Mortgaged Property could have decreased from the value determined at
origination, and the current actual loan-to-value ratio of a Mortgage Loan may
be higher than its LTV Ratio as reflected in the table set forth below.]
LTV Ratios at Cut-off Date
Percent by
Aggregate Aggregate
Range of LTV Ratios(%) Number of Cut-off Date Cut-off Date
as of Cut-off Date Mortgage Loans Balance Balance
------------------ -------------- ------- -------
================ =============== ================
Total.........................
================ =============== ================
Weighted Average LTV
Ratios as of Cut-off Date
(All Mortgage Loans):
-----%
Weighted Average LTV Ratio
as of Cut-off Date (ARM
Loans): _____%
Weighted Average LTV Ratio
as of Cut-off Date (Fixed
Rate Loans): _____%
S-40
<PAGE>
Occupancy Rates
Percent by
Aggregate Aggregate
Range of Number of Cut-off Date Cut-off Date
Occupancy Rates(A) Mortgage Loans Balance Balance
-------------- ------- -------
================ =============== ================
Total.........................
================ =============== ================
Weighted Average Occupancy Rate (All
Mortgage Loans)(A): _____%
Weighted Average Occupancy Rate
(ARM Loans)(A): _____%
Weighted Average Occupancy Rate
(Fixed Rate Loans)(A): _____%
- ---------------------------------
(A) Physical occupancy rates calculated based on rent rolls provided by the
respective Mortgagors or related property managers as of a date no more
than ___ months prior to the Cut-off Date.
Specified in [Annex A] to this Prospectus Supplement are the foregoing and
certain additional characteristics of the Mortgage Loans set forth on a
loan-by-loan basis. Certain additional information regarding the Mortgage Loans
is contained herein under "--Underwriting of the Mortgage Loans" and
"--Representations and Warranties with respect to Mortgage Loans; Repurchases"
and in the Prospectus under "Description of the Underlying Assets--Mortgage
Loans" and "Certain Legal Aspects of Mortgage Loans".
[Delinquencies. As of the Cut-off Date, [no] Mortgage Loan was more than
30 days delinquent in respect of any Monthly Payment.]
The Mortgage Loan Seller
General. [The Mortgage Loan Seller [, a wholly-owned subsidiary of
__________,] is a _________________ organized in 19___ under the laws of
__________________. [Specify additional information regarding the Mortgage Loan
Seller's multifamily and commercial portfolio, including delinquency and loss
information.]
The information set forth herein concerning the Mortgage Loan Seller and
the underwriting of the Mortgage Loans has been provided by the Mortgage Loan
Seller, and neither the Depositor nor the Underwriter makes any representation
or warranty as to the accuracy or completeness of such information.
Underwriting of the Mortgage Loans
[All of the Mortgage Loans were originated generally in accordance with
the underwriting criteria described herein.]
S-41
<PAGE>
[Description of underwriting.]
Representations and Warranties with respect to Mortgage Loans; Repurchases
In the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller has
represented and warranted with respect to each Mortgage Loan, as of [the Closing
Date], or as of such other date specifically provided in the representation and
warranty, among other things, that:
[Specify significant representations and warranties.]
If the Mortgage Loan Seller has been notified of a material breach of any
of the foregoing representations and warranties as described in the Prospectus
and if the Mortgage Loan Seller cannot cure such breach within a period of ___
days following its receipt of such notice, then the Mortgage Loan Seller will be
obligated pursuant to the Mortgage Loan Purchase Agreement (the relevant rights
under which will be assigned, together with its interests in the Mortgage Loans,
by the Depositor to the Trustee) to repurchase the affected Mortgage Loan within
such __-day period at a price (the "Purchase Price") equal to [the sum of (i)
the unpaid principal balance of such Mortgage Loan, (ii) unpaid accrued interest
on such Mortgage Loan at the related Mortgage Rate from the date to which
interest was last paid to the Due Date in the Due Period in which the purchase
is to occur, and (iii) certain servicing expenses that are reimbursable to the
Master Servicer and the Special Servicer].
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. The Mortgage Loan Seller will be the sole Warranting Party in respect of
the Mortgage Loans, and none of the Depositor, the Master Servicer, the Special
Servicer or any of their affiliates [(other than the Mortgage Loan Seller)] will
be obligated to repurchase any affected Mortgage Loan in connection with a
breach of the Mortgage Loan Seller's representations and warranties if the
Mortgage Loan Seller defaults on its obligation to do so. See "Description of
the Pooling Agreements--Representations and Warranties with respect to Mortgage
Assets; Repurchase and Other Remedies" in the Prospectus.
Changes in Mortgage Pool Characteristics
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 Certificates are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, 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 Certificates are issued,
although the range of Mortgage Rates and maturities and certain other
characteristics of the Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Closing Date and
will be filed, together with the Pooling Agreement, with the Commission within
fifteen days after the initial issuance of the Offered Certificates. In the
event Mortgage Loans are removed from or added to the Mortgage Pool as set forth
in the preceding paragraph, such removal or addition will be noted in the Form
8-K.
SERVICING OF THE MORTGAGE LOANS
General
The Master Servicer and the Special Servicer, either directly or through
sub-servicers, will be required to service and administer the Mortgage Loans,
for the benefit of the Certificateholders, in accordance with applicable law,
the terms of the Pooling Agreement and the terms of the respective Mortgage
Loans and,
S-42
<PAGE>
to the extent consistent with the foregoing, [in accordance with the following
standards (collectively, the "Servicing Standard"): (a) with the same care,
skill and diligence with which prudent institutional commercial mortgage lenders
and loan servicers service comparable mortgage loans or, if higher, with the
same care, skill and diligence with which the Master Servicer or Special
Servicer, as the case may be, generally services comparable mortgage loans owned
by it; (b) with a view to the timely collection of all scheduled payments of
principal and interest under the Mortgage Loans or, if a Mortgage Loan comes
into and continues in default and no satisfactory arrangements can be made for
the collection of the delinquent payments, the maximization of the recovery on
such Mortgage Loan to Certificateholders (as a collective whole) on a present
value basis; and (c) without regard to: (i) any relationship that it or any of
its affiliates may have with the related Mortgagor or any other party to the
Pooling Agreement; (ii) its ownership (or that of an affiliate) of any
Certificate; (iii) any obligation to make Advances (as defined below); and (iv)
its right or the right of any affiliate to receive compensation for its services
or reimbursement of costs under the Pooling Agreement or with respect to any
particular transaction].
The Master Servicer initially will, except for certain limited duties, be
responsible for the master servicing and administration of the entire Mortgage
Pool. [The Special Servicer will be responsible for property level servicing and
administration of the entire Mortgage Pool, including: (i) conducting (or
retaining a third party to conduct) inspections of each Mortgaged Property at
least once every ___ years; and (ii) collecting and making certain calculations
based on annual operating statements and rent rolls with respect to each
Mortgaged Property.] The Special Servicer will also be responsible for special
servicing and administering any Mortgage Loan as to which any of the following
events (each, a "Servicing Transfer Event") occurs: [(a) the related Mortgagor
fails to make when due any Balloon Payment, which failure continues unremedied,
or the Master Servicer determines, in its reasonable good faith judgment, will
continue unremedied, for 30 days; (b) the related Mortgagor fails to make when
due any other Monthly Payment or any other payment required under the related
Mortgage Note and Mortgage, which failure continues unremedied, or the Master
Servicer determines, in its reasonable good faith judgment, will continue
unremedied, for 60 days; (c) the Master Servicer determines, in its reasonable
good faith judgment, that a default in making any Monthly Payment (including a
Balloon Payment) or any other payment required under the related Mortgage Note
and Mortgage is likely to occur within 30 days and is likely to remain
unremedied for at least 60 days or, in the case of a Balloon Payment, for at
least 30 days; (d) the Master Servicer determines, in its reasonable good faith
judgment, that a default (other than as described in clause (a) or (b) above)
has occurred that may materially impair the value of the related Mortgaged
Property as security for the Mortgage Loan and such default continues unremedied
for the applicable cure period under the terms of the Mortgage Loan (or, if no
cure period is specified, for 30 days); (e) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings occur in respect of the related Mortgagor or the related Mortgaged
Property, or the related Mortgagor takes certain actions indicating its
insolvency or its inability to pay its obligations, or (f) the Master Servicer
receives notice of the commencement of foreclosure or similar proceedings with
respect to the related Mortgaged Property].
If a Servicing Transfer Event occurs with respect to any Mortgage Loan,
the Master Servicer is required to use reasonable efforts to effect or to
cooperate in effecting the transfer of the servicing responsibilities with
respect thereto to the Special Servicer within ____ business days.
Notwithstanding such transfer, the Master Servicer will continue to receive
payments on such Mortgage Loan (including amounts collected by the Special
Servicer), to make certain calculations with respect to such Mortgage Loan, and
to make remittances to (including, if necessary, P&I Advances) and prepare
certain reports for, the Trustee with respect to such Mortgage Loan. If title to
the related Mortgaged Property is acquired on behalf of the Certificateholders
(upon acquisition, an "REO Property"), whether through foreclosure, deed in lieu
of foreclosure or otherwise, the Special Servicer will continue to be
responsible for the operation and management thereof. Mortgage Loans serviced by
the Special Servicer are referred to herein as "Specially Serviced Mortgage
Loans". The Master Servicer will have no responsibility for the Special
Servicer's performance of its duties under the Pooling Agreement.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan" as to which the Master Servicer will
re-assume servicing responsibilities) at such time as no circumstance identified
in clauses (a) through (f) of the second preceding paragraph exists that would
cause the Mortgage Loan to continue to be characterized as a Specially Serviced
Mortgage Loan and such of the following as are applicable occur:
S-43
<PAGE>
(w) with respect to the circumstances described in clause (a) and
(b) of the second preceding paragraph, the related Mortgagor has made
three consecutive full and timely Monthly Payments under the terms of such
Mortgage Loan (as such terms may be changed or modified in connection with
a bankruptcy or similar proceeding involving the related Mortgagor or by
reason of a modification, waiver or amendment granted or agreed to by the
Special Servicer);
(x) with respect to the circumstances described in clauses (c) and
(e) of the second preceding paragraph, such circumstances cease to exist
in the reasonable good faith judgment of the Special Servicer;
(y) with respect to the circumstances described in clause (d) of the
second preceding paragraph, such default is cured; and
(z) with respect to the circumstances described in clause (f) of the
second preceding paragraph, such proceedings are terminated.
Set forth below is a description of certain pertinent provisions of the
Pooling Agreement relating to the servicing of the Mortgage Loans. Reference is
also made to the Prospectus, in particular to the section captioned "Servicing
and Administration of the Mortgage Assets", for additional important information
regarding the terms and conditions of the Pooling Agreement as such terms and
conditions relate to the rights and obligations of the Master Servicer and the
Special Servicer thereunder.
The Master Servicer
[_____________________________________________ (the "Master Servicer")
will act as Master Servicer with respect to the Mortgage Pool. The offices of
the Master Servicer that will be primarily responsible for servicing and
administering the Mortgage Pool are located
at__________________________________________________. As of_______________,
199__, the Master Servicer had a net worth of approximately $______________ and
was the servicer of a portfolio of multifamily and commercial mortgage loans in
___ states totaling approximately $______________ in aggregate outstanding
principal amount.]
The foregoing information has been provided by the Master Servicer. None
of the Depositor, the Underwriter, the Trustee, the REMIC Administrator, the
Special Servicer or any of their respective affiliates takes any responsibility
therefor or makes any representation or warranty as to the accuracy or
completeness thereof.
The Master Servicer will have no responsibility for, and makes no
representation with respect to, the origination of the Mortgage Loans, the
management of the Mortgaged Properties, the validity or sufficiency of the
security arrangements described herein with respect to the Mortgage Loans or the
collectability of amounts due under the Mortgage Loans.
The Special Servicer
[____________________________________ will act as Special Servicer with
respect to the Mortgage Pool. The principal offices of the Special Servicer are
located at ____________________________. As of _________, 199__, the Special
Servicer was responsible for the servicing of approximately _________ commercial
and multifamily loans with an aggregate principal balance of approximately
$_______, the collateral for which is located in ___ states.]
The foregoing information has been provided by the Special Servicer. None
of the Depositor, the Underwriter, the Trustee, the REMIC Administrator, the
Master Servicer or any of their respective affiliates takes any responsibility
therefor or makes any representation or warranty as to the accuracy or
completeness of such information.
The Special Servicer will have no responsibility for, and makes no
representation with respect to, the origination of the Mortgage Loans, the
management of the Mortgaged Properties, the validity or sufficiency
S-44
<PAGE>
of the security arrangements described herein with respect to the Mortgage Loans
or the collectability of amounts due under the Mortgage Loans.
Sub-Servicers
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that the Master
Servicer or Special Servicer, as the case may be, will remain obligated under
the Pooling Agreement. Each sub-servicing agreement between the Master Servicer
or Special Servicer, as the case may be, and a Sub-Servicer (a "Sub-Servicing
Agreement") must be consistent with the Pooling Agreement and must provide,
among other things, that, if for any reason such Master Servicer or Special
Servicer is no longer acting in such capacity, the Trustee or any successor to
such Master Servicer or Special Servicer may assume such party's rights and
obligations under such Sub-Servicing Agreement. The Master Servicer and Special
Servicer will each be required to monitor the performance of Sub-Servicers
retained by it.
The Master Servicer or Special Servicer will be solely liable for all fees
owed by it to any Sub-Servicer. Each Sub-Servicer retained thereby will be
reimbursed by the Master Servicer or Special Servicer, as the case may be, for
certain expenditures which it makes, generally to the same extent the Master
Servicer or Special Servicer would be reimbursed under the Pooling Agreement.
See "Servicing and Administration of the Mortgage Assets--Collection Account" in
the Prospectus and "--Servicing and Other Compensation and Payment of Expenses"
below.
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 Master Servicing Fee. The "Master
Servicing Fee" will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Mortgage Loan (including Specially
Serviced Mortgage Loans and Mortgage Loans as to which the related Mortgaged
Property has become an REO Property), will accrue at _______% per annum (the
"Master 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 the Mortgage Loan is computed. As additional servicing compensation,
the Master Servicer will be entitled to (x) Prepayment Interest Excesses (as
defined below) actually collected on the Mortgage Loans and (y) any Default
Interest (that is, interest in excess of interest at the related Mortgage Rate,
accrued on any Mortgage Loan by reason of a default thereunder) and late payment
charges actually collected on the Mortgage Loans, but only to the extent that
such items (i) are allocable to the period when the related Mortgage Loan did
not constitute a Specially Serviced Mortgage Loan or REO Property and (ii) are
not allocable to pay any portion of a Workout Fee or Liquidation Fee (each as
defined below) payable to the Special Servicer with respect to the related
Mortgage Loan or to cover interest payable to the Master Servicer, Special
Servicer or Trustee with respect to any Advances made in respect of the related
Mortgage Loan. In addition, the Master Servicer will be authorized to invest or
direct the investment of funds held in any accounts maintained by it that
constitute part of the Collection Account (as defined in the Prospectus), in
Permitted Investments (as defined in the Prospectus), and the Master Servicer
will be entitled to retain any interest or other income earned on such funds,
but will be required to cover any losses from its own funds without any right to
reimbursement. See "Servicing and Administration of the Mortgage
Assets--Collection Account" in the Prospectus.]
[If a Mortgagor prepays a Mortgage Loan in whole or in part prior to the
related Due Date in any Collection Period, the amount of interest (net of
related Master Servicing Fees and Property Servicing Fees) that accrues on the
amount of such Principal Prepayment will be less (such shortfall, a "Prepayment
Interest Shortfall") than the corresponding amount of interest accruing on the
REMIC Regular Certificates and fees payable to the Trustee. If such a Principal
Prepayment is made after the related Due Date in any Collection Period, the
amount of interest (net of related Master Servicing Fees and Property Servicing
Fees) that accrues on the amount of such Principal Prepayment will exceed (such
excess, a "Prepayment Interest Excess") the corresponding amount of interest
accruing on the REMIC Regular Certificates and fees payable to the Trustee. Any
Prepayment Interest Excesses collected will be paid to the Master Servicer as
additional servicing compensation. However, with respect to each Distribution
Date, the Master Servicer will be required to deposit into the Collection
Account (such deposit, a "Compensating Interest Payment"), without any right of
reimbursement therefor, an amount equal to the lesser of (i) the aggregate
Master Servicing Fees for the
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related Collection Period, plus any Prepayment Interest Excesses received during
such Collection Period, and (ii) the aggregate of any Prepayment Interest
Shortfalls experienced during the related Collection Period. The Master Servicer
is not required to make Compensating Interest Payments to cover comparable
shortfalls in Mortgage Loan interest accruals that result from any liquidation
of a defaulted Mortgage Loan or an REO Property acquired in respect thereof. If
the aggregate of any Prepayment Interest Shortfalls experienced during any
Collection Period exceed any Compensating Interest Payment made in respect
thereof, the difference will constitute the "Net Aggregate Prepayment Interest
Shortfall" for the related Distribution Date.]
[The principal compensation to be paid to the Special Servicer in respect
of its property level servicing activities will be the Property Servicing Fee.
The "Property Servicing Fee" will accrue with respect to each Mortgage Loan
(including Specially Serviced Mortgage Loans and Mortgage Loans as to which the
related Mortgaged Property has become an REO Property) at a rate equal to _____%
per annum (the "Property 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 any such Mortgage Loan is computed. Earned but
unpaid Property Servicing Fees will be payable monthly out of general
collections on the Mortgage Loans and any REO Properties on deposit in the
Collection Account.]
[The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Special Servicing Fee, the
Workout Fee and the Liquidation Fee. Solely as to Specially Serviced Mortgage
Loans and Mortgage Loans as to which the related Mortgaged Property has become
an REO Property, and in addition to the Property Servicing Fee for such Mortgage
Loans, the Special Servicer shall be entitled to the "Special Servicing Fee"
which will accrue at a rate equal to ____% per annum (the "Special 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 any such
Mortgage Loan is computed. The Special Servicing Fee with respect to any such
Mortgage Loan will cease to accrue if such loan (or the related REO Property) is
liquidated or if, in the case of a Specially Serviced Mortgage Loan, it becomes
a Corrected Mortgage Loan. Earned but unpaid Special Servicing Fees will be
payable monthly out of general collections on the Mortgage Loans and any REO
Properties on deposit in the Collection Account. A "Workout Fee" will generally
be payable with respect to each Corrected Mortgage Loan. As to each Corrected
Mortgage Loan, the Workout Fee will be payable out of, and will be calculated by
application of a "Workout Fee Rate" of _____% to, each collection of interest
and principal (net of related unpaid or unreimbursed Master Servicing Fees,
Property Servicing Fees, Special Servicing Fees and Advances) and each
collection of a Prepayment Premium or a Yield Maintenance Premium, received on
such Mortgage Loan for so long as it remains a Corrected Mortgage Loan. The
Workout Fee with respect to any Corrected Mortgage Loan will cease to be payable
if such loan again becomes a Specially Serviced Mortgage Loan or if the related
Mortgaged Property becomes an REO Property; provided that a new Workout Fee will
become payable if and when such Mortgage Loan again becomes a Corrected Mortgage
Loan. If the Special Servicer is terminated other than for cause, or resigns, it
shall retain the right to receive any and all Workout Fees payable in respect of
Mortgage Loans that became Corrected Mortgage Loans during the period that it
acted as Special Servicer and were still such at the time of such termination or
resignation (and the successor Special Servicer shall not be entitled to any
portion of such Workout Fees), in each case until the Workout Fee for any such
loan ceases to be payable in accordance with the preceding sentence. A
"Liquidation Fee" will be payable with respect to each Specially Serviced
Mortgage Loan or REO Property as to which the Special Servicer receives any full
or discounted payoff from the related Mortgagor or any Liquidation Proceeds,
Condemnation Proceeds or Insurance Proceeds (other than as a result of the
purchase of any such Specially Serviced Mortgage Loan or REO Property by the
Mortgage Loan Seller in connection with a material breach of representation or
warranty or any purchase thereof by the Special Servicer or the Master
Servicer). As to each such Specially Serviced Mortgage Loan or REO Property, the
Liquidation Fee shall be payable out of, and shall be calculated by application
of a "Liquidation Fee Rate" of_____% to, such full or discounted payoff,
Liquidation Proceeds, Condemnation Proceeds and/or Insurance Proceeds, in each
case net of any portion of such payment or proceeds payable or reimbursable to
the Master Servicer or the Special Servicer to cover related unpaid or
unreimbursed Master Servicing Fees, Property Servicing Fees, Special Servicing
Fees and Advances. The Liquidation Fee with respect to any such Specially
Serviced Mortgage Loan will not be payable if such Mortgage Loan becomes a
Corrected Mortgage Loan. Notwithstanding anything herein to the contrary, no
Liquidation Fee will be payable in connection with the receipt of, or out of,
Liquidation Proceeds collected as a result of the purchase of any Specially
Serviced Mortgage Loan or REO Property by the Mortgage Loan Seller in connection
with a material breach of representation or warranty or any purchase thereof by
the
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Special Servicer or the Master Servicer. As additional servicing compensation,
the Special Servicer will be entitled to retain all modification fees received
on or with respect to any Mortgage Loan. The Special Servicer will also be
entitled to Default Interest and late payment charges actually collected on the
Specially Serviced Mortgage Loans, but only to the extent that such items are
not allocable to pay any portion of a Workout Fee or Liquidation Fee payable to
the Special Servicer with respect to the related Mortgage Loan or to cover
interest payable to the Master Servicer, Special Servicer or Trustee with
respect to any Advances made in respect of the related Mortgage Loan.]
[In addition, the Special Servicer will be authorized to invest or direct
the investment of funds held in any accounts maintained by it that constitute
part of the Collection Account, in Permitted Investments, and the Special
Servicer will be entitled to retain any interest or other income earned on such
funds, but will be required to cover any losses from its own funds without any
right to reimbursement.]
[Assumption fees and modification fees actually collected on or with
respect to the Mortgage Loans will allocated between the Master Servicer and the
Special Servicer as provided in the Pooling Agreement and will be paid to each
as additional servicing compensation.]
The Master Servicer and the Special Servicer will, in general, each be
required to pay all ordinary expenses incurred by it in connection with its
servicing activities under the Pooling Agreement, including the fees of any
Sub-Servicers retained by it, and will not be entitled to reimbursement therefor
except as expressly provided in the Pooling Agreement. In general, customary,
reasonable and necessary "out of pocket" costs and expenses required to be
incurred by the Master Servicer or Special Servicer in connection with the
servicing of a Mortgage Loan after a default, delinquency or other unanticipated
event, or in connection with the administration of any REO Property, will
constitute "Servicing Advances" (Servicing Advances and P&I Advances,
collectively, "Advances") and, in all cases, will be reimbursable from future
payments and other collections, including in the form of Insurance Proceeds,
Condemnation Proceeds and Liquidation Proceeds, on or in respect of the related
Mortgage Loan or REO Property ("Related Proceeds"). Notwithstanding the
foregoing, the Master Servicer and the Special Servicer will each be permitted
to pay, or to direct the payment of, certain servicing expenses directly out of
the Collection Account and at times without regard to the relationship between
the expense and the funds from which it is being paid. [In addition, if the
Special Servicer is required under the Pooling Agreement to make any Servicing
Advance but does not desire to do so, the Special Servicer may, in its sole
discretion, with limited exception, request that the Master Servicer make such
Advance, such request to be made in writing and in a timely manner that does not
adversely affect the interests of any Certificateholder. The Master Servicer
will be required to make any such Servicing Advance that it is requested by the
Special Servicer to so make within _____ days of the Master Servicer's receipt
of such request. The Special Servicer will, with limited exception, be relieved
of any obligations with respect to any Servicing Advance that it so requests the
Master Servicer to make (regardless of whether or not the Master Servicer makes
that Advance).]
[If the Master Servicer or Special Servicer is required under the Pooling
Agreement to make a Servicing Advance, but neither does so within _____ days
after such Servicing Advance is required to be made, then the Trustee will, if
it has actual knowledge of such failure, be required to give the defaulting
party notice of such failure and, if such failure continues for _____ more days,
the Trustee will be required to make such Servicing Advance.]
The Master Servicer, the Special Servicer and the Trustee will each be
obligated to make Servicing Advances only to the extent that such Servicing
Advances are, in its reasonable good faith judgment, ultimately recoverable from
Related Proceeds. With respect to any Servicing Advance, the Trustee is entitled
to conclusively rely on the non-recoverability determination made by the Master
Servicer or Special Servicer.
As and to the extent described herein, the Master Servicer, the Special
Servicer and the Trustee are each entitled to receive interest on Servicing
Advances made thereby. See "Description of the Certificates--P&I and Other
Advances" herein.
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Modifications, Waivers, Amendments and Consents
[The Special Servicer may, consistent with the Servicing Standard (but the
Master Servicer may not), agree to any modification, waiver or amendment of any
term of, forgive interest (including, without limitation, Default Interest and
late payment fees) on and principal of, capitalize interest on, permit the
release, addition or substitution of collateral securing, and/or permit the
release of the Mortgagor on or any guarantor of any Mortgage Loan it is required
to service and administer, without the consent of the Trustee or any
Certificateholder, subject, however, to each of the following limitations,
conditions and restrictions:
(i) with limited exception, the Special Servicer may not agree
to any modification, waiver or amendment of any term of, or take any of
the other above referenced actions with respect to, any Mortgage Loan it
is required to service and administer that would affect the amount or
timing of any related payment of principal, interest or other amount
payable thereunder or, in the Special Servicer's reasonable good faith
judgment, would materially impair the security for such Mortgage Loan or
reduce the likelihood of timely payment of amounts due thereon, unless a
material default on such Mortgage Loan has occurred or, in the Special
Servicer's reasonable good faith judgment, a default in respect of payment
on such Mortgage Loan is reasonably foreseeable, and such modification,
waiver, amendment or other action is reasonably likely to produce a
greater recovery to Certificateholders on a present value basis than would
liquidation;
(ii) the Special Servicer may not extend the date on which any
Balloon Payment is scheduled to be due on any Balloon Loan for more than
_____ years beyond its stated maturity date as set forth in the related
Mortgage Note as in effect on the Closing Date;
(iii) the Special Servicer may not make or permit any
modification, waiver or amendment of any term of, or take any of the other
above referenced actions with respect to, any Mortgage Loan that would (A)
cause any of REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC
under the Code or result in the imposition of any tax on "prohibited
transactions" or "contributions" after the startup date of any such REMIC
under the REMIC Regulations or (B) cause any Mortgage Loan to cease to be
a "qualified mortgage" within the meaning of Section 860G(a)(3) of the
Code;
(iv) the Special Servicer may not permit any Mortgagor to add
or substitute any collateral unless the Special Servicer shall have first
determined in accordance with the Servicing Standard, based upon an
environmental assessment prepared by an independent person who regularly
conducts environmental assessments, at the expense of the Mortgagor, that
such additional or substitute collateral is in compliance with applicable
environmental laws and regulations and that there are no circumstances or
conditions present with respect to such new collateral relating to the
use, management or disposal of any hazardous materials for which
investigation, testing, monitoring, containment, clean-up or remediation
would be required under any then applicable environmental laws and/or
regulations; and
(v) with limited exceptions, the Special Servicer may not
release any collateral securing an outstanding Mortgage Loan;
provided that (x) the limitations, conditions and restrictions set forth in
clauses (i) through (v) above will not apply to any modification of any term of
any Mortgage Loan that is required under the terms of such Mortgage Loan as in
effect on the Closing Date or that is solely within the control of the related
Mortgagor; and (y) notwithstanding clauses (i) through (v) above, neither the
Master Servicer nor the Special Servicer will be required to oppose the
confirmation of a plan in any bankruptcy or similar proceeding involving a
Mortgagor if in its reasonable good faith judgment such opposition would not
ultimately prevent the confirmation of such plan or one substantially similar.]
Inspections; Collection of Operating Information
[As a part of its property level servicing duties, the Special Servicer
will be required to perform a physical inspection of each Mortgaged Property at
least once per calendar year and as soon as practicable after
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the related Mortgage Loan becomes a Specially Serviced Mortgage Loan. The
Special Servicer will be required to prepare a written report of each such
inspection performed by it that describes the condition of the Mortgaged
Property and that specifies (i) any sale, transfer or abandonment of the
property or (ii) any change in the property's condition, occupancy or value that
the Special Servicer considers material.
Also as part of its property level servicing duties, the Special Servicer
will be required, with respect to each Mortgage Loan, to use reasonable efforts
to collect from the related Mortgagor and review the annual operating
statements, budgets and rent rolls of the related Mortgaged Property, and the
financial statements of such Mortgagor, and the Special Servicer will be
required to cause annual operating statements, budgets and rent rolls to be
prepared for each REO Property. However, there can be no assurance that any
operating statements required to be delivered will in fact be delivered, nor is
the Special Servicer likely to have any practical means of compelling such
delivery.]
[Termination of [Special Servicer] [Master Servicer] Without Cause]
[Specify circumstances in which the Master Servicer or the Special
Servicer may be terminated without cause.]
DESCRIPTION OF THE CERTIFICATES
General
The Series 199_-___ Mortgage Pass-Through Certificates (the
"Certificates") will be issued on or about _________, 199_ (the "Closing Date")
pursuant to a Pooling and Servicing Agreement dated as of the Cut-off Date (the
"Pooling Agreement") among the Depositor, the Master Servicer, the Special
Servicer, the REMIC Administrator and the Trustee. The Certificates will
represent in the aggregate the entire beneficial ownership interest in a trust
fund (the "Trust Fund") consisting primarily of: (i) the Mortgage Loans and all
payments and other collections in respect of the Mortgage Loans received or due
after the Cut-off Date (exclusive of Principal Prepayments received prior to the
Cut-off Date and scheduled payments of principal and interest due on or before
the Cut-off Date); (ii) any REO Property acquired on behalf of the Trust Fund;
(iii) such funds or assets as from time to time are deposited in the Collection
Account; and (iv) certain rights incidental to the representations and
warranties made by the Mortgage Loan Seller as described under "Description of
the Mortgage Pool--Representations and Warranties with respect to the Mortgage
Loans; Repurchases" herein.
The Certificates will consist of [13] classes (each, a "Class") to be
designated as: [(i) the Class S Certificates; (ii) the Class A-1A Certificates,
the Class A-1B Certificates, the Class A-2 Certificates and the Class A-3
Certificates (collectively, the "Class A Certificates"); (iii) the Class B-1
Certificates, the Class B-2 Certificates, the Class B-3 Certificates and the
Class B-4 Certificates (collectively, the "Class B Certificates"); (iv) the
Class C Certificates (collectively with the Class S, Class A and Class B
Certificates, the "REMIC Regular Certificates"); and (v) the Class R-I
Certificates, the Class R-II Certificates and the Class R-III Certificates
(collectively, the "REMIC Residual Certificates")]. Only the Class S
Certificates, the Class A Certificates and the Class B-1 Certificates
(collectively, the "Offered Certificates") are offered hereby.
Registration and Denominations
The Class A-1A and Class A-1B Certificates will be issued in denominations
of not less than $_______ initial principal balance (initial "Certificate
Principal Balance") and in any whole dollar denomination in excess thereof. The
Class S Certificates will be issued in denominations of not less than $______
initial notional amount (initial "Certificate Notional Amount") and in any whole
dollar denomination in excess thereof. The Class A-2, Class A-3 and Class B-1
Certificates will be issued in denominations of not less than $________ initial
Certificate Principal Balance and in any whole dollar denomination in excess
thereof.
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Each Class of Offered Certificates will initially be issued in book-entry
form through the facilities of The Depository Trust Company ("DTC") and,
accordingly, will constitute Book-Entry Certificates within the meaning of the
Prospectus. In connection therewith, each Class of Offered Certificates will
initially be represented by one or more fully registered physical certificates
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
Certificate (each, a "Certificate Owner") will be entitled to receive a fully
registered physical certificate (a "Definitive Certificate") representing its
interest in such Certificate, except under the limited circumstances described
under "Description of the Securities--Book-Entry Registration and Definitive
Securities" in the Prospectus. Unless and until Definitive Certificates are
issued in respect of the Offered Certificates, beneficial ownership interests in
each such Class of Certificates 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
Certificates will refer to actions taken by DTC upon instructions received from
the related Certificate 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 Certificates will refer to
payments, notices, reports and statements to DTC or Cede & Co., as the
registered holder thereof, for distribution to the related Certificate 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 Securities--Book-Entry Registration and Definitive
Securities" and "Risk Factors--Book-Entry Registration" in the Prospectus.
The Trustee will initially serve as registrar (in such capacity, the
"Certificate Registrar") for purposes of recording and otherwise providing for
the registration of the Offered Certificates and, if and to the extent
Definitive Certificates are issued in respect thereof, of transfers and
exchanges of the Offered Certificates.
Class Principal Balances and Class Notional Amounts
Only the Class A, Class B and Class C Certificates (collectively, the
"Sequential Pay Certificates") will have Certificate Principal Balances. The
Certificate Principal Balance of any Sequential Pay Certificate, as of any date
of determination, will equal the product of the Percentage Interest evidenced by
such Certificate in the related Class, multiplied by the Class Principal Balance
of such Class then outstanding.
The "Class Principal Balance" of any Class of Sequential Pay Certificates
is the aggregate principal amount thereof outstanding from time to time and
represents the maximum amount that the holders thereof are entitled to receive
as distributions allocable to principal from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund. The Class Principal Balance of each
Class of Sequential Pay Certificates will be reduced on each Distribution Date
by any distributions of principal actually made on such Class of Certificates on
such Distribution Date and, further, by any Realized Losses and Extraordinary
Expenses allocated to such Class of Certificates on such Distribution Date. See
"--Distributions" and "--Subordination; Allocation of Realized Losses and
Certain Expenses" herein.
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Upon initial issuance, the Sequential Pay Certificates will have the
respective Class Principal Balances set forth below[, in each case, subject to a
permitted variance of plus or minus __%]:
Approximate
Initial Class Percentage of
Class Principal Balance Initial Pool Balance
- ----- ----------------- --------------------
Class A-1A.............................. $____________ _____%
Class A-1B.............................. $____________ _____%
Class A-2............................... $____________ _____%
Class A-3............................... $____________ _____%
Class B-1............................... $____________ _____%
Class B-2............................... $____________ _____%
Class B-3............................... $____________ _____%
Class B-4............................... $____________ _____%
Class C................................. $____________ _____%
The Class S Certificates will not have Certificate Principal Balances or
entitle the holders thereof to distributions of principal. Instead, each such
Certificate will accrue interest as described herein on its Certificate Notional
Amount. The Certificate Notional Amount of any Class S Certificate, as of any
date of determination, will equal the product of the Percentage Interest
evidenced by such Certificate in the related Class, multiplied by the Class
Notional Amount of such Class then outstanding.
The "Class Notional Amount" of the Class S Certificates will be an
aggregate notional amount used solely for purposes of calculating the accrual of
interest in respect of such Class of Certificates.
The Class Notional Amount of the Class S Certificates will equal the
aggregate of the Class Principal Balances of the respective Classes of
Sequential Pay Certificates outstanding from time to time. Upon initial
issuance, the Class Notional Amount of the Class S Certificates will equal
$______ [, subject to a variance of plus or minus __%].
The REMIC Residual Certificates will not have Certificate Principal
Balances or Certificate Notional Amounts. The Class R-I Certificates will
represent the right to receive on any Distribution Date that portion, if any, of
the Available Distribution Amount for such date that remains after all required
distributions to be made therefrom on the REMIC Regular Certificates have been
so made. It is not expected that the REMIC Residual Certificates will receive
any distributions.
The "Percentage Interest" in the related Class evidenced by any Offered
Certificate will be a fraction, expressed as a percentage, the numerator of
which is the initial Certificate Principal Balance or Certificate Notional
Amount, as the case may be, of such Certificate on the Closing Date as set forth
on the face thereof, and the denominator of which is the initial Class Principal
Balance or Class Notional Amount, as the case may be, of the related Class on
the Closing Date.
Pass-Through Rates
The Pass-Through Rates applicable to the Class A-1A, Class A-1B, Class
A-2, Class A-3, Class B-1, Class B-2, Class B-3, Class B-4 and Class C
Certificates will, for each Distribution Date, equal ____%, ____%, ____%, ____%,
____%, ____%, ____%, ____% and ____% per annum, respectively. The Pass-Through
Rate applicable to the Class S Certificates for the initial Distribution Date
will equal approximately ____% per annum and for each Distribution Date
thereafter will equal the excess, if any, of the Weighted Average Net Mortgage
Rate for such Distribution Date, over the weighted average of the Pass-Through
Rates for the respective Classes of Sequential Pay Certificates (weighted on the
basis of the respective Class Principal Balances of such Classes outstanding
immediately prior to such Distribution Date). The REMIC Residual Certificates
will not have Pass-Through Rates or accrue interest.
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With respect to any Distribution Date, the "Weighted Average Net Mortgage
Rate" will, in general, equal the weighted average of the Net Mortgage Rates in
effect for the Mortgage Loans as of the commencement of the related Collection
Period, weighted on the basis of the respective Stated Principal Balances of the
Mortgage Loans immediately prior to such Distribution Date.
The "Net Mortgage Rate" with respect to any Mortgage Loan is, in general,
a per annum rate equal to the related Mortgage Rate in effect from time to time,
minus _____basis points [;provided that if any Mortgage Loan does not accrue
interest on the basis of a 360-day year consisting of twelve 30-day months
(which is the basis on which interest accrues in respect of the REMIC Regular
Certificates), then, solely for purposes of calculating the Pass-Through Rate
for the Class S Certificates, the Net Mortgage Rate of such Mortgage Loan for
any one-month period preceding a related Due Date will be the annualized rate at
which interest would have to accrue in respect of such loan on the basis of a
360-day year consisting of twelve 30-day months in order to produce the
aggregate amount of interest actually accrued in respect of such loan during
such one-month period at the related Mortgage Rate (net of ____basis points);
and provided, further, that, solely for purposes of calculating the Pass-Through
Rate for the Class S Certificates from time to time, the Net Mortgage Rate for
any Mortgage Loan will be determined without regard to any post-Closing Date
modifications to the terms of the related Mortgage Note that may affect the
Mortgage Rate]. As of the Cut-off Date, the Net Mortgage Rates for the Mortgage
Loans will range from ___% per annum to ___% per annum, with a weighted average
Net Mortgage Rate of ___% per annum.
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
Distribution Date by (i) any payments or other collections (or advances in lieu
thereof) of principal of such Mortgage Loan that have been (or, if they had not
been applied to cover Extraordinary Expenses, would have been) distributed to
Certificateholders 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 Distribution Date will be the
period commencing immediately following the Determination Date in the month
immediately preceding the month in which such Distribution 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 Distribution Date occurs.
The "Determination Date" with respect to any Distribution Date will be the
__th day of the month in which such Distribution Date occurs, or if such __th
day is not a business day, the immediately preceding business day.
Distributions
General. Distributions on the Certificates will be made by or on behalf of
the [Trustee], to the extent of available funds, on the ___th day of each month
or, if any such ___th day is not a business day, then on the next succeeding
business day, commencing in ____________, 199__ (each, a "Distribution Date").
Except as described below, all such distributions will be made to the persons in
whose names the Certificates are registered (the "Certificateholders") at the
close of business on the last business day of the month preceding the month in
which the related Distribution Date occurs (each, a "Record Date"). [As to each
such person, such distributions will be made by wire transfer in immediately
available funds to the account specified by the Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
will have provided the Trustee with wiring instructions no less than ____
business days prior to the related Record Date and is the registered owner of
Certificates with an aggregate initial Certificate Principal Balance of at least
$[5,000,000] or an aggregate initial Certificate Notional Amount of at least
$[10,000,000], or otherwise by check mailed to such Certificateholder.] Until
Definitive Certificates are issued in respect thereof, Cede & Co. will be the
registered holder of the Offered Certificates. See "--Registration and
Denominations" above. The final distribution on any Certificate (determined
without regard to any possible future reimbursement of any Realized Loss or
Extraordinary Expense previously deemed allocated to such Certificate) will be
made only upon presentation and surrender of such Certificate at the location
that will be specified in a notice of the pendency of such final distribution.
[Notwithstanding anything herein to the contrary, no distributions will be made
with respect to a Certificate that has previously been surrendered as
contemplated by the preceding
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sentence or, with limited exception, that should have been surrendered as
contemplated by the preceding sentence.] All distributions made with respect to
a Class of Certificates will be allocated pro rata among the outstanding
Certificates of such Class based on their respective Percentage Interests in
such Class.
The Available Distribution Amount. With respect to any Distribution Date,
distributions of interest on and principal of the Certificates will be made from
the Available Distribution Amount for such date. [The "Available Distribution
Amount" for any Distribution Date will, in general, equal (a) all amounts on
deposit in the Collection Account (see "Description of the Pooling
Agreements--Collection 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 and Yield Maintenance Premiums (which
are separately distributable on the Certificates as hereinafter described);
(iii) amounts that are payable or reimbursable to any person
other than the Certificateholders (including amounts payable to the Master
Servicer, the Special Servicer, any Sub-Servicers or the Trustee as compensation
(including Trustee Fees, Master Servicing Fees, Property Servicing Fees, Special
Servicing Fees, Workout Fees, Liquidation 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
amounts payable in respect of other Extraordinary Expenses); 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 Distribution Date.]
Application of the Available Distribution Amount. [On each Distribution
Date, except as otherwise described under "--Termination" below, the Available
Distribution Amount for such date will be distributed to the Certificateholders
for the following purposes and in the following order of priority:
(i) to the holders of the Class S, Class A-1A and Class A-1B
Certificates (collectively, the "Senior Certificates") in respect of
interest, pro rata based on entitlement, up to an amount equal to all
Distributable Certificate Interest in respect of each such Class of
Certificates for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
(ii) to the holders of the Class A-1A and Class A-1B
Certificates in respect of principal, allocable as between such Classes of
Certificateholders as described below, up to an amount equal to the lesser
of (a) the aggregate of the then outstanding Class Principal Balances of
the Class A-1A and Class A-1B Certificates and (b) the Principal
Distribution Amount for such Distribution Date;
(iii) to the holders of the Class A-1A and Class A-1B
Certificates as reimbursement, pro rata based on entitlement, up to an
amount equal to all Realized Losses and Extraordinary Expenses, if any,
previously allocated to each such Class of Certificates and for which no
reimbursement has previously been received;
(iv) to the holders of the Class A-2 Certificates in respect
of interest, up to an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(v) after the Class Principal Balances of the Class A-1A and
Class A-1B Certificates have been reduced to zero, to the holders of the
Class A-2 Certificates in respect of principal, up to an amount equal to
the lesser of (a) the then outstanding Class Principal Balance of
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the Class A-2 Certificates and (b) the excess, if any, of the Principal
Distribution Amount for such Distribution Date over the amounts
distributed on such Distribution Date pursuant to clause (ii) above;
(vi) to the holders of the Class A-2 Certificates as
reimbursement, up to an amount equal to all Realized Losses and
Extraordinary Expenses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(vii) to the holders of the Class A-3 Certificates in respect
of interest, up to an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(viii)after the Class Principal Balances of the Class A-1A,
Class A-1B and Class A-2 Certificates have been reduced to zero, to the
holders of the Class A-3 Certificates in respect of principal, up to an
amount equal to the lesser of (a) the then outstanding Class Principal
Balance of the Class A-3 Certificates and (b) the excess, if any, of the
Principal Distribution Amount for such Distribution Date over the amounts
distributed on such Distribution Date pursuant to clauses (ii) and (v)
above;
(ix) to the holders of the Class A-3 Certificates as
reimbursement, up to an amount equal to all Realized Losses and
Extraordinary Expenses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(x) to the holders of the Class B-1 Certificates in respect of
interest, up to an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(xi) after the Class Principal Balances of the Class A
Certificates have been reduced to zero, to the holders of the Class B-1
Certificates in respect of principal, up to an amount equal to the lesser
of (a) the then outstanding Class Principal Balance of the Class B-1
Certificates and (b) the excess, if any, of the Principal Distribution
Amount for such Distribution Date over the amounts distributed on such
Distribution Date pursuant to clauses (ii), (v) and (viii) above;
(xii) to the holders of the Class B-1 Certificates as
reimbursement, up to an amount equal to all Realized Losses and
Extraordinary Expenses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(xiii)to the holders of the Class B-2 Certificates in respect
of interest, up to an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xiv) after the Class Principal Balances of the Class A and
Class B-1 Certificates have been reduced to zero, to the holders of the
Class B-2 Certificates in respect of principal, up to an amount equal to
the lesser of (a) the then outstanding Class Principal Balance of the
Class B-2 Certificates and (b) the excess, if any, of the Principal
Distribution Amount for such Distribution Date over the amounts
distributed on such Distribution Date pursuant to clauses (ii), (v),
(viii) and (xi) above;
(xv) to the holders of the Class B-2 Certificates as
reimbursement, up to an amount equal to all Realized Losses and
Extraordinary Expenses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(xvi) to the holders of the Class B-3 Certificates in respect
of interest, up to an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xvii) after the Class Principal Balances of the Class A,
Class B-1 and Class B-2 Certificates have been reduced to zero, to the
holders of the Class B-3 Certificates in respect of
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principal, up to an amount equal to the lesser of (a) the then outstanding
Class Principal Balance of the Class B-3 Certificates and (b) the excess,
if any, of the Principal Distribution Amount for such Distribution Date
over the amounts distributed on such Distribution Date pursuant to clauses
(ii), (v), (viii), (xi) and (xiv) above;
(xviii) to the holders of the Class B-3 Certificates as
reimbursement, up to an amount equal to all Realized Losses and
Extraordinary Expenses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(xix) to the holders of the Class B-4 Certificates in respect
of interest, up to an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xx) after the Class Principal Balances of the Class A, Class
B-1, Class B-2 and Class B-3 Certificates have been reduced to zero, to
the holders of the Class B-4 Certificates in respect of principal, up to
an amount equal to the lesser of (a) the then outstanding Class Principal
Balance of the Class B-4 Certificates and (b) the excess, if any, of the
Principal Distribution Amount for such Distribution Date over the amounts
distributed on such Distribution Date pursuant to clauses (ii), (v),
(viii), (xi), (xiv) and (xvii) above;
(xxi) to the holders of the Class B-4 Certificates as
reimbursement, up to an amount equal to all Realized Losses and
Extraordinary Expenses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(xxii) to the holders of the Class C Certificates in respect
of interest, up to an amount equal to all Distributable Certificate
Interest in respect of such Class of Certificates for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(xxiii) after the Class Principal Balances of the Class A and
Class B Certificates have been reduced to zero, to the holders of the
Class C Certificates in respect of principal, up to an amount equal to the
lesser of (a) the then outstanding Class Principal Balance of the Class C
Certificates and (b) the excess, if any, of the Principal Distribution
Amount for such Distribution Date over the amounts distributed on such
Distribution Date pursuant to clauses (ii), (v), (viii), (xi), (xiv),
(xvii) and (xx) above;
(xxiv) to the holders of the Class C Certificates as
reimbursement, up to an amount equal to all Realized Losses and
Extraordinary Expenses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
and
(xxv) after the foregoing distributions, to the holders of the
Class R-I Certificates any amounts remaining.]
[On each Distribution Date prior to the earlier of (i) the Senior
Principal Distribution Cross-Over Date and (ii) the final Distribution Date in
connection with the termination of the Trust Fund, all distributions of
principal on the Class A-1A and Class A-1B Certificates will be paid, first, to
the holders of the Class A-1A Certificates, until the Class Principal Balance of
such Class of Certificates is reduced to zero, and thereafter, to the holders of
the Class A-1B Certificates, until the Class Principal Balance of such Class of
Certificates is reduced to zero. On each Distribution Date on and after the
Senior Principal Distribution Cross-Over Date, and in any event on the final
Distribution Date in connection with the termination of the Trust Fund,
distributions of principal on the Class A-1A and Class A-1B Certificates will be
paid to the holders of such two Classes of Certificates, pro rata, in accordance
with their respective Class Principal Balances outstanding immediately prior to
such Distribution Date, until the Class Principal Balance of each such Class of
Certificates is reduced to zero. The "Senior Principal Distribution Cross-Over
Date" will be the first Distribution Date as of which the aggregate Class
Principal Balance of the Class A-1A and Class A-1B Certificates outstanding
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 Distribution Date, plus (b) the lesser of (i) the Principal
Distribution Amount for such Distribution Date and (ii) the portion of
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the Available Distribution Amount for such Distribution Date that will remain
after the distributions of interest to be made on the Senior Certificates on
such Distribution Date have been so made.]
Distributable Certificate Interest. [The "Distributable Certificate
Interest" in respect of each Class of REMIC Regular Certificates for each
Distribution Date represents that portion of the Accrued Certificate Interest in
respect of such Class of Certificates for such Distribution Date that is net of
such Class's allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date.]
[The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date is equal to one month's interest
at the Pass-Through Rate applicable to such Class of Certificates for such
Distribution Date accrued on the related Class Principal Balance or Class
Notional Amount, as the case may be, outstanding immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.]
[Any Net Aggregate Prepayment Interest Shortfall for any Distribution Date
will generally be allocable among the various Classes of REMIC Regular
Certificates, pro rata, in accordance with the respective amounts of Accrued
Certificate Interest for each such Class for such Distribution Date.]
Principal Distribution Amount. [The "Principal Distribution Amount" for
any Distribution 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 Distribution Date is subsequent to the initial
Distribution Date, the excess, if any, of (i) the Principal Distribution
Amount for the immediately preceding Distribution Date, over (ii) the
aggregate distributions of principal made in respect of the Certificates
on such immediately preceding Distribution 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.]
[Distributions of Prepayment Premiums and Yield Maintenance Premiums. Any
Prepayment Premium collected with respect to a Mortgage Loan during any
particular Collection Period, net of any portion thereof
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<PAGE>
allocable to pay a Liquidation Fee or a Workout Fee to the Special Servicer,
will be distributed on the related Distribution Date as follows:
(i) if the Class Notional Amount of the Class S Certificates
immediately prior to such Distribution Date is greater than zero, to the
holders of the Class S Certificates; and
(ii) if the Class Notional Amount of the Class S Certificates
has been reduced to zero prior to such Distribution Date, to the holders
of the Class R-I Certificates.
Any Yield Maintenance Premium collected with respect to a Mortgage Loan
during any particular Collection Period, net of any portion thereof allocable to
pay a Liquidation Fee or a Workout Fee to the Special Servicer, will be
distributed on the related Distribution Date as follows:
(i) if the Class Notional Amount of the Class S Certificates
immediately prior to such Distribution Date is greater than zero, then (A)
first, to the holders of the Class(es) of Sequential Pay Certificates
entitled to distributions of principal on such Distribution Date, pro rata
based on entitlement if there is more than one such Class, up to the
amount of the corresponding Certificate Yield Maintenance Amount(s) for
such Class(es), and (B) thereafter, to the holders of the Class S
Certificates, in an amount equal to the balance, if any, of such Yield
Maintenance Premium; and
(ii) if the Class Notional Amount of the Class S Certificates
has been reduced to zero prior to such Distribution Date, to the holders
of the Class R-I Certificates.
The "Certificate Yield Maintenance Amount" for any Class of the Sequential
Pay Certificates in respect of any Principal Prepayment accompanied by a Yield
Maintenance Premium will be calculated in the same manner as such Yield
Maintenance Premium, except that, for purposes of such calculation, (i) the
Pass-Through Rate of such Class will be used in lieu of the Mortgage Rate, and
(ii) the portion of the Principal Prepayment distributable to such Class will be
used in lieu of the total Principal Prepayment.
Any Prepayment Premiums and Yield Maintenance Premiums, to the extent
actually collected on the Mortgage Loans during any Collection Period and
distributable on the Certificates, may not be sufficient to fully compensate the
Certificateholders of any Class for any loss in yield attributable to the
related prepayments of principal. See "Risk Factors--Special Prepayment and
Yield Considerations" herein and "Risk Factors--Effect of Prepayments on Yield
of Certificates" in the Prospectus. Neither the Depositor nor the Underwriter
makes any representation or warranty as to the collectability of any Prepayment
Premium or Yield Maintenance Premium or as to the enforceability of any Mortgage
Loan provision requiring the payment of any such amount.]
Treatment of REO Properties. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Fund through foreclosure, deed in lieu of
foreclosure or otherwise, the related Mortgage Loan will, for purposes of, among
other things, determining Pass-Through Rates of, distributions on and
allocations of Realized Losses and Extraordinary Expenses to the Certificates,
as well as the amount of Master Servicing Fees, Property Servicing Fees, Special
Servicing Fees and Trustee Fees payable under the Pooling 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
"--P&I and Other 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
"Weighted Average Net Mortgage Rate" and "Principal Distribution Amount" are
intended to include any Mortgage Loan or Mortgage Loans as to which the related
Mortgaged Property has become an REO Property.
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Subordination; Allocation of Realized Losses and Certain Expenses
[The rights of holders of the Class A-2, Class A-3, Class B, Class C and
REMIC Residual Certificates (collectively, the "Subordinate Certificates") to
receive distributions of amounts collected or advanced on the Mortgage Loans
will, in the case of each Class thereof, be subordinated, to the extent
described herein, to the rights of holders of the Senior Certificates and each
other Class of Subordinate Certificates, if any, with a higher payment priority
(as reflected under "--Distributions--Application of the Available Distribution
Amount" above). This subordination is intended to enhance the likelihood of
timely receipt by the holders of the Senior Certificates of the full amount of
Distributable Certificate Interest payable in respect of such Classes of
Certificates on each Distribution Date, and the ultimate receipt by the holders
of the Class A-1A and Class A-1B Certificates of principal in an amount equal to
the entire respective Class Principal Balances of those Classes of Certificates.
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 Certificates of the full amount of Distributable Certificate Interest
payable in respect of such Classes of Certificates on each Distribution Date,
and the ultimate receipt by the holders of such Classes of Certificates of
principal equal to the entire respective Class Principal Balances thereof. This
subordination will be accomplished by the application of the Available
Distribution Amount on each Distribution Date in accordance with the order of
priority described under "--Distributions--Application of the Available
Distribution Amount" above. No other form of credit support will be available
for the benefit of any Class of Offered Certificateholders.
If, following the distributions to be made in respect of the Certificates
on any Distribution Date, the aggregate Stated Principal Balance of the Mortgage
Pool that will be outstanding immediately following such Distribution Date is
less than the then aggregate of the Class Principal Balances of the respective
Classes of Sequential Pay Certificates, the Class Principal Balances of the
Class C, Class B-4, Class B-3, Class B-2, Class B-1, Class A-3 and Class A-2
Certificates will be reduced, sequentially in that order, in the case of each
such Class until such deficit (or the related Class Principal Balance) is
reduced to zero (whichever occurs first). If any portion of such deficit remains
at such time as the Class Principal Balances of such Classes of Certificates are
reduced to zero, then the respective Class Principal Balances of the Class A-1A
and Class A-1B Certificates will be reduced, pro rata in accordance with the
relative sizes of the remaining Class Principal Balances of such Classes of
Certificates, until such deficit (or each such Class Principal Balance) is
reduced to zero. Any such deficit will, in general, be the result of Realized
Losses incurred in respect of the Mortgage Loans and/or Extraordinary Expenses.
The foregoing reductions in the Class Principal Balances of the Sequential Pay
Certificates will constitute an allocation of any such Realized Losses and
Extraordinary Expenses.
"Realized Losses" are losses arising from the inability of the Master
Servicer and Special Servicer to collect all amounts due and owing under any
defaulted Mortgage Loan, including by reason of fraud or bankruptcy of the
related Mortgagor or a casualty of any nature at the related Mortgaged Property,
to the extent not covered by insurance. The Realized Loss, if any, in respect of
a liquidated Mortgage Loan (or related REO Property) will generally equal the
excess, if any, of (a) the outstanding principal balance of such Mortgage Loan
as of the date of liquidation, together with all accrued and unpaid interest
thereon at the related Mortgage Rate and all related unreimbursed Servicing
Advances, over (b) the aggregate amount of Liquidation Proceeds, if any,
recovered in connection with such liquidation (net of any portion of such
Liquidation Proceeds that is payable or reimbursable in respect of related
unpaid liquidation expenses). If the Mortgage Rate on any Mortgage Loan is
reduced or a portion of the debt due under any Mortgage Loan is forgiven,
whether in connection with a modification, waiver or amendment granted or agreed
to by the Special Servicer or in connection with a bankruptcy or similar
proceeding involving the related Mortgagor, the resulting reduction in interest
paid or the amount so forgiven, as the case may be, also will be treated as a
Realized Loss.
"Extraordinary Expenses" are any expenses of the Trust Fund not
specifically included in the calculation of a "Realized Loss," that would result
in the REMIC Regular Certificateholders' receiving less than the full amount of
principal and/or interest to which they are entitled on any Distribution Date.
Extraordinary Expenses include, among other things: (i) any interest paid to the
Master Servicer, Special Servicer and/or Trustee in respect of unreimbursed
Advances (to the extent not paid out of late payment charges and Default
Interest actually collected on the related Mortgage Loan); (ii) all Special
Servicing Fees, Workout Fees and Liquidation Fees payable to the Special
Servicer; (iii) any of certain unanticipated,
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non-Mortgage Loan specific expenses of the Trust Fund, including, but not
limited to, certain reimbursements and indemnification to the Trustee and
certain related persons described under "Description of the Securities--The
Trustee--Certain Matters Regarding the Trustee" in the Prospectus, certain
reimbursements and indemnification to the Depositor, the Master Servicer, the
Special Servicer, the REMIC Administrator and certain related persons described
under "Servicing and Administration of the Mortgage Assets--Certain Matters
regarding the Master Servicer, the Special Servicer, the REMIC Administrator,
the Manager and the Company" in the Prospectus, certain taxes payable from the
assets of the Trust Fund and described under "Servicing of Mortgage Loans--REO
Properties" herein and under "Certain Federal Income Tax Consequences--Possible
Taxes on Income from Foreclosure Property and Other Taxes" herein and "Material
Federal Income Tax Consequences--REMICs--Prohibited Transactions Tax and Other
Taxes" in the Prospectus, the costs and expenses of any tax audits with respect
to the Trust Fund and certain other tax-related expenses and the cost of various
opinions of counsel required to be obtained in connection with the servicing of
the Mortgage Loans and administration of the Trust Fund; and (iv) any other
expense of the Trust Fund not specifically included in the calculation of
"Realized Loss" for which there is no corresponding collection from a
Mortgagor.]
P&I and Other Advances
[On or about each Distribution Date, the Master Servicer will be
obligated, subject to the recoverability determination described in the next
paragraph, to make advances (each, a "P&I Advance") out of its own funds or,
subject to the replacement thereof as provided in the Pooling Agreement, from
funds held in the Collection Account that are not required to be distributed to
Certificateholders on such Distribution Date, in an amount that is generally
equal to the aggregate of all Scheduled Payments (other than Balloon Payments)
and any Assumed Scheduled Payments, net of related Master Servicing Fees and
Workout Fees, due or deemed due, as the case may be, in respect of the Mortgage
Loans during the related Collection Period, in each case to the extent such
amount was not paid by or on behalf of the related Mortgagor or otherwise
collected as of the close of business on the related Determination Date.
Notwithstanding the foregoing, if the Monthly Payment on any Mortgage Loan has
been reduced in connection with a bankruptcy or similar proceeding or a
modification, waiver or amendment granted or agreed to by the Special Servicer,
the Master Servicer will be required in the event of subsequent delinquencies to
advance in respect of such Mortgage Loan only the amount of the reduced Monthly
Payment (net of related Master Servicing Fees and Workout Fees). In addition, if
it is determined that an Appraisal Reduction Amount exists with respect to any
Required Appraisal Loan (as defined below), then, with respect to the
Distribution Date immediately following the date of such determination and with
respect to each subsequent Distribution Date for so long as such Appraisal
Reduction Amount exists, in the event of subsequent delinquencies thereon, the
interest portion of the P&I Advance in respect of such Mortgage Loan will be
reduced (no reduction to be made in the principal portion, however) to equal to
the product of (i) the amount of the interest portion of such P&I Advance that
would otherwise be required to be made for such Distribution Date without regard
to this sentence, multiplied by (ii) a fraction (expressed as a percentage), the
numerator of which is equal to the Stated Principal Balance of such Mortgage
Loan, net of such Appraisal Reduction Amount, and the denominator of which is
equal to the Stated Principal Balance of such Mortgage Loan. See "--Appraisal
Reductions" below.
If the full amount of all P&I Advances, if any, required to be made in
respect of any Distribution Date have not been so made, then the Trustee will be
required to make the portion of such P&I Advances that was required to be, but
not, made by the Master Servicer. See "--The Trustee" below.]
The Master Servicer and the Trustee will each be entitled to recover any
P&I Advance made out of its own funds from any Related Proceeds collected in
respect of the Mortgage Loan as to which such P&I Advance was made; provided
that neither the Master Servicer nor the Trustee will be obligated to make any
P&I Advance that it determines, in its reasonable good faith judgment, would, if
made, constitute a Nonrecoverable Advance, and the Master Servicer and the
Trustee will each be entitled to recover any P&I Advance made by it that it
later determines to be a Nonrecoverable Advance out of general funds on deposit
in the Collection Account. With respect to any P&I Advance, the Trustee is
entitled to conclusively rely on the non-recoverability determination made by
the Master Servicer.
[The Master Servicer and the Trustee will each be entitled, with respect
to any Advance made thereby, and the Special Servicer will be entitled, with
respect to any Servicing Advance made thereby, to interest
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accrued on the amount of such Advance for so long as it is outstanding at a per
annum rate (the "Reimbursement Rate") equal to [specify applicable rate]. Such
interest on any Advance will be payable to the Master Servicer, the Special
Servicer or the Trustee, as the case may be, first, out of Default Interest and
late payment charges collected in respect of the related Mortgage Loan, and
second, if such Advance has been reimbursed, out of any amounts then on deposit
in the Collection Account. To the extent not offset by Default Interest and late
payment charges actually collected in respect of any defaulted Mortgage Loan,
interest accrued on outstanding Advances made in respect thereof will result in
a reduction in amounts payable on the Certificates.]
[In addition to the foregoing, the Trustee will be required to advance, to
the extent known to it, any amounts collected on or in respect of the Mortgage
Pool that the Master Servicer is required but fails to remit to the Trustee for
distribution to Certificateholders by a specified time on or about the related
Distribution Date. The Trustee will be entitled to interest accrued on the
amount of such advance for so long as it is outstanding at the Reimbursement
Rate.]
[Appraisal Reductions]
[Promptly (and, in any event, within 60 days) following the earliest of
(i) the date on which any Mortgage Loan becomes a Modified Mortgage Loan (as
defined below), (ii) the 60th day (or, in the case of a Modified Mortgage Loan,
the 30th day) after the occurrence of any uncured delinquency in Monthly
Payments with respect to any Mortgage Loan, (iii) the date on which a receiver
is appointed and continues in such capacity in respect of the Mortgaged Property
securing any Mortgage Loan and (iv) the date on which the Mortgaged Property
securing any Mortgage Loan becomes an REO Property (each such Mortgage Loan, a
"Required Appraisal Loan"), the Special Servicer will be required to obtain an
appraisal of the related Mortgaged Property from an independent MAI-designated
appraiser, unless such an appraisal had previously been obtained within the
prior twelve months. The cost of such appraisal will be a Servicing Advance. As
a result of any such appraisal, it may be determined that an "Appraisal
Reduction Amount" exists with respect to the related Required Appraisal Loan.
The Appraisal Reduction Amount for any Required Appraisal Loan will, in general,
be an amount, determined as of the Determination Date immediately succeeding the
date on which the related appraisal is obtained (or, if based on an earlier
appraisal, as of the Determination Date immediately succeeding the earliest of
the relevant dates described in the first sentence of this paragraph), equal to
the excess, if any, of (a) the sum of (i) the Stated Principal Balance of such
Required Appraisal Loan, (ii) to the extent not previously advanced by the
Master Servicer or the Trustee, all unpaid interest on the Required Appraisal
Loan through the most recent Due Date prior to such Determination Date at a per
annum rate equal to the sum of the related Net Mortgage Rate and the Trustee Fee
Rate (as defined below), (iii) all accrued but unpaid Master Servicing Fees,
Property Servicing Fees and Special Servicing Fees in respect of such Required
Appraisal Loan, (iv) all related unreimbursed Advances made by or on behalf of
the Master Servicer, the Special Servicer or the Trustee with respect to such
Required Appraisal Loan plus interest accrued thereon at the Reimbursement Rate
and (v) all currently due and unpaid real estate taxes and assessments,
insurance premiums, and, if applicable, ground rents in respect of the related
Mortgaged Property or REO Property (net of any escrow reserves held by the
Master Servicer or the Special Servicer with respect to any such item), over (b)
90% of the appraised value (as is) of the related Mortgaged Property or REO
Property as determined by such appraisal (net of any mortgage liens that are
prior to the lien of such Mortgage Loan).
With respect to each Required Appraisal Loan (unless such Mortgage Loan
has become a Corrected Mortgage Loan and has remained current for twelve
consecutive Monthly Payments, and no other Servicing Transfer Event has occurred
with respect thereto during the preceding twelve months), the Special Servicer
is required, within 30 days of each anniversary of such loan's becoming a
Required Appraisal Loan, to order an update of the prior appraisal (the cost of
which will be a Servicing Advance). Based upon such appraisal, the Special
Servicer will be required to redetermine and report to the Trustee the Appraisal
Reduction Amount, if any, with respect to such Mortgage Loan.
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A "Modified Mortgage Loan" is any Mortgage Loan as to which any Servicing
Transfer Event has occurred and which has been modified by the Special Servicer
in a manner that: (A) affects the amount or timing of any payment of principal
or interest due thereon (other than, or in addition to, bringing current Monthly
Payments with respect to such Mortgage Loan); (B) except as expressly
contemplated by the related Mortgage, results in a release of the lien of the
Mortgage on any material portion of the related Mortgaged Property without a
corresponding Principal Prepayment in an amount not less than the fair market
value (as is) of the property to be released; or (C) in the reasonable good
faith judgment of the Special Servicer, otherwise materially impairs the
security for such Mortgage Loan or reduces the likelihood of timely payment of
amounts due thereon.]
Reports to Certificateholders; 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
Distribution Date to each Certificateholder a statement (the "Trustee Report")
substantially in the form of Annex ___ hereto, detailing the distributions on
such Distribution 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 Certificateholders.
Until such time as Definitive Certificates are issued in respect of the
Offered Certificates, the foregoing information will be available to the
Certificate Owners through DTC and the DTC Participants. Any Certificate Owner
of a Book-Entry Certificate 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 Certificate Owner's ownership
interest) to the Trustee at the Trustee's corporate trust office primarily
responsible for administering the Trust Fund (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 Certificate Owners of Book-Entry
Certificates, 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 REMIC Administrator and
the Depositor are required to recognize as Certificateholders only those persons
in whose names the Certificates are registered on the books and records of the
Certificate Registrar.
Other Information. [The Pooling Agreement 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 Certificate Owner
of an Offered Certificate or any person identified to the Trustee by any such
holder or Certificate Owner as a prospective transferee of an Offered
Certificate or any interest therein, subject to the discussion in the following
paragraph, originals or copies of, among other things, the following items: (a)
the Pooling Agreement and any amendments thereto, (b) all Trustee Reports and
Special Servicer Reports delivered to holders of the relevant Class of Offered
Certificates 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 "Servicing and Administration of the Mortgage
Assets--Evidence as to Compliance" in the Prospectus, (d) all accountant's
reports delivered to the Trustee in respect of the Master Servicer and/or
Special Servicer since the Closing Date as described under "Servicing and
Administration of the Mortgage Assets--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.]
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[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
Certificateholders, Certificate Owners and prospective purchasers of
Certificates and interests therein; provided that the Trustee may require (a) in
the case of a Certificate Owner of an Offered Certificate, 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 Certificates, is requesting the information for
use by it or another party in evaluating an investment in the Offered
Certificates and will otherwise keep such information confidential and (b) in
the case of a prospective purchaser of an Offered Certificate, 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 Certificates or an interest therein, is requesting the
information for use in evaluating a possible investment in the Offered
Certificates and will otherwise keep such information confidential.
Certificateholders, by the acceptance of their Certificates, will be deemed to
have agreed to keep such information confidential.]
Voting Rights
[At all times during the term of the Pooling Agreement, ___% of the voting
rights for the series offered hereby (the "Voting Rights") will be allocated
among the holders of the respective Classes of Sequential Pay Certificates in
proportion to the Class Principal Balances of their Certificates, __% of the
Voting Rights will be allocated to the holders of the Class S Certificates, and
all Voting Rights not otherwise allocated in the aforesaid manner will be
allocated equally by Class among the holders of the respective Classes of REMIC
Residual Certificates. Voting Rights allocated to a Class of Certificateholders
will be allocated among such Certificateholders in proportion to the Percentage
Interests in such Class evidenced by their respective Certificates.]
Termination
[The obligations created by the Pooling Agreement will terminate following
the earliest of (i) the final payment (or advance in respect thereof) or other
liquidation of the last Mortgage Loan or related REO Property remaining in the
Trust Fund, and (ii) the purchase of all of the Mortgage Loans and REO
Properties remaining in the Trust Fund by the Special Servicer or the Master
Servicer. Written notice of termination of the Pooling Agreement will be given
to each Certificateholder, and the final distribution with respect to each
Certificate will be made only upon surrender and cancellation of such
Certificate at the office of the Certificate Registrar or at such other location
specified in such notice of termination.
Any such purchase by the Special Servicer or the Master Servicer of all of
the Mortgage Loans and REO Properties remaining in the Trust Fund is required to
be made at a price generally equal to (a) the sum of (i) the aggregate Purchase
Price of all of the Mortgage Loans then included in the Trust Fund (other than
the Mortgage Loans as to which the related Mortgaged Property has become an REO
Property) and (ii) the fair market value of all REO Properties then included in
the Trust Fund, as determined by an appraiser mutually agreed upon by the Master
Servicer and the Trustee, minus (b) the aggregate of all amounts payable or
reimbursable to the party effecting the purchase under the Pooling Agreement.
Such purchase will effect early retirement of the then outstanding Certificates,
but the right of the Special Servicer or the Master Servicer to effect such
termination is subject to the requirement that the then aggregate Stated
Principal Balance of the Mortgage Pool be less than __% of the Initial Pool
Balance. The purchase price paid by the Special Servicer or the Master Servicer,
exclusive of any portion thereof payable or reimbursable (as if such amount
constituted Liquidation Proceeds) to the Trustee, the Special Servicer or the
Master Servicer, as applicable, or otherwise to cover Extraordinary Expenses,
will constitute part of the Available Distribution Amount for the final
Distribution Date.
The Available Distribution Amount for the final Distribution Date will be
distributed by the Trustee generally as described herein under
"--Distributions--Application of the Available Distribution Amount", except that
the distributions of principal on any Class of Sequential Pay Certificates
described thereunder will be made, subject to available funds, up to an amount
equal to the entire Class Principal Balance thereof remaining outstanding. In
addition, distributions of principal made on the Class A-1A and A-1B
Certificates on the final Distribution Date will be allocated between such two
Classes of Certificates, pro rata, in
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accordance with their respective Class Principal Balances outstanding
immediately prior to such Distribution Date.]
The Trustee
______________________________________________ will be the Trustee under
the Pooling Agreement. The Trustee is at all times to be, and will be required
to resign if it fails to be, [specify eligibility requirements for Trustee].
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 Certificates in their own names. In
addition, for purposes of meeting the legal requirements of certain local
jurisdictions, the Master Servicer and the Trustee acting jointly shall have the
power to appoint a co-trustee or separate trustees of all or any part of the
Trust Fund. 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 Pooling Agreement, 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 Securities--The
Trustee" in the Prospectus.
YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
General. The yield on any Offered Certificate will depend on (a) the price
at which such Certificate is purchased by an investor and (b) the rate, timing
and amount of distributions on such Certificate. The rate, timing and amount of
distributions on any Offered Certificate will in turn depend on, among other
things, (i) the Pass-Through Rate for such Certificate, (ii) the rate and timing
of principal payments (including principal prepayments) and other principal
collections on the Mortgage Loans and the extent to which such amounts are to be
applied or otherwise result in reduction of the Certificate Principal Balance or
Certificate Notional Amount of such Certificate, (iii) the rate, timing and
severity of Realized Losses and Extraordinary Expenses and the extent to which
such losses and shortfalls are allocable in reduction of the Certificate
Principal Balance or Certificate Notional Amount of such Certificate, and (iv)
the timing and severity of any Net Aggregate Prepayment Interest Shortfalls and
the extent to which such shortfalls are allocable in reduction of the
Distributable Certificate Interest payable on such Certificate.
Pass-Through Rates. [The Pass-Through Rate applicable to the Class S
Certificates will be variable and, with respect to any Distribution Date, will
be calculated based on the Weighted Average Net Mortgage Rate for such date.
Accordingly, the yield on such Certificates will be sensitive to changes in the
relative composition of the Mortgage Pool as a result of scheduled amortization,
voluntary prepayments and liquidations of Mortgage Loans following default. In
addition, the Pass-Through Rate for the Class S Certificates will vary with
changes in the relative sizes of the Class Principal Balances of the respective
Classes of Sequential Pay Certificates. See "Description of the
Certificates--Pass-Through Rates" and "Description of the Mortgage Pool" herein
and "--Yield Consideration--Rate and Timing of Principal Payments" below.]
Rate and Timing of Principal Payments. The yield to holders of the Class S
Certificates will be extremely sensitive to, and the yield to holders of any
other Offered Certificates purchased at a discount or premium will be affected
by, the rate and timing of principal payments made in reduction of the
Certificate Principal Balances or Certificate Notional Amounts of such
Certificates. As described herein, the Principal Distribution Amount for each
Distribution Date will be distributable entirely in respect of the Class A-1A
and/or Class A-1B Certificates until the Class Principal Balances thereof are
reduced to zero, and will thereafter be distributable entirely in respect of the
Class A-2 Certificates, the Class A-3 Certificates, the Class
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B-1 Certificates, the Class B-2 Certificates, the Class B-3 Certificates, the
Class B-4 Certificates and the Class C Certificates, in that order, in each case
until the Class Principal Balance of such Class of Certificates is reduced to
zero. In addition, except under the limited circumstances described herein,
holders of the Class A-1B Certificates will not receive any distributions of
principal for so long as the Class A-1A Certificates are outstanding. Any such
distributions of principal in respect of the Sequential Pay Certificates will
cause a corresponding reduction of the Class Notional Amount of the Class S
Certificates. Consequently, the rate and timing of principal payments that are
distributed or otherwise result in reduction of the Class Principal Balance or
Class Notional Amount, as the case may be, of each Class of REMIC Regular
Certificates will be directly related to the rate and timing of principal
payments on or in respect of the Mortgage Loans, which will in turn be affected
by the amortization schedules thereof, 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 Fund). Prepayments and, assuming the respective Maturity Dates therefor
have not occurred, liquidations of the Mortgage Loans will result in
distributions on the Sequential Pay Certificates of amounts that would otherwise
be distributed over the remaining terms of the Mortgage Loans and will tend to
shorten the weighted average lives of those Certificates. 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 Sequential Pay Certificates) while work-outs are negotiated
or foreclosures are completed, and such delays will tend to lengthen the
weighted average lives of those Certificates. See "Servicing of the Mortgage
Loans--Modifications, Waivers and Amendments" herein.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans are in turn distributed
or otherwise result in a reduction of the Class Principal Balance or Class
Notional Amount of such Certificates. An investor should consider, in the case
of any Offered Certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield and, in
the case of any Class S Certificate or any other Offered Certificate purchased
at a premium, the risk that a faster than anticipated rate of principal payments
on the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield. In general, the earlier a payment of principal
on the Mortgage Loans is distributed or otherwise results in reduction of the
Certificate Notional Amount of a Class S Certificate or the Certificate
Principal Balance of a Sequential Pay Certificate 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 the Mortgage
Loans 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. Investors
in the Class S Certificates should fully consider the risk that an extremely
rapid rate of principal payments on the Mortgage Loans could result in the
failure of such investors to fully recoup their initial investments. 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. The
Depositor is not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a large group
of mortgage loans comparable to the Mortgage Loans.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will, with the exception of any Net Aggregate
Prepayment Interest Shortfalls, generally be applied to reduce the Class
Principal Balances of the Sequential Pay Certificates in the following order:
first, to the Class C Certificates until the Class Principal Balance thereof has
been reduced to zero; then to the respective Classes of Class B Certificates, in
descending numerical order of the numerical portions of their respective Class
designations, until the remaining Class Principal Balance of each such Class of
Certificates has been reduced to zero; then to the Class A-3 and Class A-2
Certificates, in that order, until the remaining Class Principal Balance of each
such Class of Certificates has been reduced to zero; and finally to the Class
A-1A and Class A-1B Certificates, pro rata in accordance with their respective
remaining Class Principal Balances, until the remaining Class Principal Balance
of each such Class of Certificates is reduced to zero. Any Realized Losses or
Extraordinary Expenses so allocated to the Sequential Pay Certificates will
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cause a corresponding reduction of the Class Notional Amount of the Class S
Certificates. As described herein, any Net Aggregate Prepayment Interest
Shortfalls will be allocated among the respective Classes of Offered Regular
Certificates pro rata based on Accrued Certificate Interest.
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/or Yield Maintenance
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.
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 or Yield
Maintenance 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.
The Depositor makes no 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 Distributable Certificate Interest. As described under "Description
of the Certificates--Distributions-- Application of the Available Distribution
Amount" herein, if the portion of the Available Distribution Amount
distributable in respect of interest on any Class of Offered Certificates on any
Distribution Date is less than the Distributable Certificate Interest then
payable for such Class, the shortfall will be distributable to holders of such
Class of Certificates on subsequent Distribution Dates, to the extent of
available funds. Any such shortfall will not bear interest, however, and will
therefore negatively affect the yield to maturity of such Class of Certificates
for so long as it is outstanding.
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 distribution to
the investor of each dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of any Offered
Certificate 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
Certificate may also be affected to the extent that additional distributions in
reduction of the Certificate Principal Balance of such Certificate occur as a
result of the purchase of a Mortgage Loan out of the Trust Fund or the optional
termination of the Trust Fund as described under "Description of the
Certificates--Termination" herein. Such a purchase from the Trust Fund will have
the same effect on distributions to the holders of Certificates as if the
related Mortgage Loan(s) had prepaid in full, except that no Yield Maintenance
Premiums or Prepayment Premiums are made in respect thereof.
[The table set forth below has been prepared on the basis of the following
assumptions (the "Modeling Assumptions") regarding the characteristics of the
Certificates and the Mortgage Loans and the performance
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thereof: (i) as of the date of issuance of the Certificates, 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 the Master Servicer does not exercise its option
to purchase the Mortgage Loans and thereby cause a termination of the Trust
Fund; (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 Certificates will be made on the __th
day of each month, commencing in ________ 199_; (vii) payments on the Mortgage
Loans earn no reinvestment return; (viii) there are no additional ongoing Trust
Fund expenses payable out of the Trust Fund other than the Master Servicing Fee,
the Property Servicing Fee and the Trustee Fee, and there are no Extraordinary
Expenses; (ix) the respective Classes of Offered Certificates will be issued
with the initial Class Principal Balances set forth in the table on the cover
page hereof; (x) the Offered Certificates will be settled on __________, 199_
(the "Assumed Settlement Date"); and (xi) there are no Prepayment Premiums or
Yield Maintenance Premiums paid to Certificateholders.]
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 Class Principal Balances
outstanding over time and the weighted average lives of the respective Classes
of Offered Certificates.
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each Class of the Offered Certificates
that are Sequential Pay Certificates, and sets forth the percentages of the
initial Class Principal Balance of each such Class that would be outstanding
after each of the Distribution Dates shown.
Percent of Initial Class Principal Balances Outstanding
Class Class Class Class Class
Date A-1A A-1B A-2 A-3 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)......... ____ ____ ____ ____ ____
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For purposes of the foregoing table, the weighted average life of an
Offered Certificate is determined by (i) multiplying the amount of each
principal distribution thereon by the number of years from [the Assumed
Settlement Date] to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the reductions in the
Certificate Principal Balance of such Offered Certificate.
Special Yield Considerations for the Class S Certificates
The following table indicates the approximate pre-tax yield to maturity
(on a corporate bond equivalent basis) on the Class S Certificates for the
assumed purchase prices indicated in such table. The following table is based on
(i) the Modeling Assumptions; (ii) the assumption that the initial Class
Notional Amount of the Class S Certificates is $__________; and (iii) the
assumption that the purchase price of the Class S Certificates is equal to the
indicated percentage of the initial Class Notional Amount of such Certificates[,
plus accrued interest from the Cut-off Date to but not including the Assumed
Settlement Date].
Pre-Tax Yields to Maturity for the Class S Certificates
Assumed Purchase Price Yield
---------------------- -----
-----% -----%
-----% -----%
-----% -----%
Each pre-tax yield set forth in the preceding table was calculated by
determining the monthly discount rate which, when applied to the assumed stream
of cash flows to be paid on the Class S Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price listed in the relevant table as stated plus accrued interest. These yields
do not take into account the different interest rates at which investors may be
able to reinvest funds received by them as distributions on their Class S
Certificates, and thus do not reflect the return on any investment in such
Certificates when any reinvestment rates other than the discount rates are
considered.
There can be no assurance that the Mortgage Loans will not be prepaid or,
if prepaid, will be prepaid at any particular rate or that the yield on the
Class S Certificates will conform to any of the yields described herein.
Investors are urged to make their investment decisions based on their own
determinations as to anticipated rates of principal payments on the Mortgage
Loans under a variety of scenarios. The yield to maturity of the Class S
Certificates will be especially sensitive to the rate and timing of principal
payments on and/or other liquidations of the Mortgage Loans. Prospective
investors in the Class S Certificates should fully consider the associated
risks, including the risk that such investors may not recover their initial
investment due to the rate and timing of prepayments on and/or other
liquidations of the Mortgage Loans. No prediction can be made as to the actual
rate and timing of principal payments and/or liquidations of the Mortgage Loans,
or how such prepayments and/or losses may affect the Class Notional Amount of
the Class S Certificates. See "Risk Factors--Special Prepayment and Yield
Considerations" and "Description of the Mortgage Pool" herein and "Risk
Factors--Effect of Prepayments on Average Life of Certificates" and "--Effects
of Prepayments on Yield of Certificates" in the Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
Upon the issuance of the Offered Certificates, Sidley & Austin, counsel to
the Depositor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the Pooling Agreement (and subject to certain
other assumptions set forth therein), for federal income tax purposes, the
portions of the Trust Fund designated in the Pooling Agreement as "REMIC I,
"REMIC II" and "REMIC III", respectively, will each qualify as a REMIC under the
Code. For federal income tax purposes, (a) the Class R-I Certificates will be
the sole class of "residual interests" in REMIC I, (b) the separate
non-certificated regular interests in REMIC I will be the "regular interests" in
REMIC I and will constitute the assets of "REMIC II", (c) the Class R-II
Certificates will be the sole class of "residual interests" in REMIC II, (d) the
separate non-certificated
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regular interests in REMIC II will be the "regular interests" in REMIC II and
will constitute the assets of "REMIC III", (e) the REMIC Regular Certificates
will evidence the "regular interests" in, and generally will be treated as debt
instruments of, REMIC III, and (f) the Class R-III Certificates will be the sole
class of "residual interests" in REMIC III. See "Material Federal Income Tax
Consequences" in the Prospectus.
Discount and Premium; Prepayment Premiums
[For federal income tax reporting purposes, it is anticipated that the
Class S Certificates will, and the other Offered Certificates 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 "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates" 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 Certificates 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, prepayable securities such as the Offered Certificates.
Prospective purchasers of the Offered Certificates are advised to consult their
tax advisors concerning the tax treatment of such Certificates.
Certain Classes of the Offered Certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any holder of
such a Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase price
and the distributions remaining to be made on such Certificate at the time of
its acquisition by such Certificateholder. Holders of such Classes of
Certificates should consult their own tax advisors regarding the possibility of
making an election to amortize such premium. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Premium"
in the Prospectus.
Prepayment Premiums and Yield Maintenance Premiums actually collected on
the Mortgage Loans will be distributed to the holders of each Class of
Certificates entitled thereto as described herein. It is not entirely clear
under the Code when the amount of a Prepayment Premium or Yield Maintenance
Premium should be taxed to the holder of a Class of Certificates entitled to a
Prepayment Premium or Yield Maintenance Premium. For federal income tax
reporting purposes, Prepayment Premiums or Yield Maintenance Premiums will be
treated as income to the holders of a Class of Certificates entitled to
Prepayment Premiums or Yield Maintenance Premiums, as applicable, only after the
Master Servicer's actual receipt of a Prepayment Premium or Yield Maintenance
Premium as to which such Class of Certificates is entitled under the terms of
the Pooling Agreement. It appears that Prepayment Premiums and Yield Maintenance
Premiums are to be treated as ordinary income rather than capital gain. However,
the correct characterization of such income is not entirely clear and
Certificateholders should consult their own tax advisors concerning the
treatment of Prepayment Premiums and Yield Maintenance Premiums.
Characterization of Investments in Offered Certificates
[The Offered Certificates will be "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code in the same proportion that the assets of
the Trust Fund would be so treated. In addition, interest (including original
issue discount, if any) on the Offered Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. Moreover, the Offered Certificates will be "qualified mortgages" under
Section 860G(a)(3) of the Code if transferred to another REMIC on its start-up
day in exchange for regular or residual interests therein.]
[The Offered Certificates will be treated as assets within the meaning of
Section 7701(a)(19)(C) of the Code generally only to the extent that the related
Mortgage Loans are secured by multifamily properties and health care facilities.
The percentage of such Mortgage Loans included in the initial principal balance
of the
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<PAGE>
Mortgage Pool (which is subject to change due to changes in principal balances
and prepayments) is initially approximately ___%. See "Description of the
Mortgage Pool" herein and "Material Federal Income Tax
Consequences--REMICs--Characterization of Investments in REMIC Certificates" in
the Prospectus.]
Possible Taxes on Income from Foreclosure Property and Other Taxes
In general, the Special Servicer will be obligated to operate and manage
any Mortgaged Property acquired as REO Property in a manner that would, to the
extent commercially feasible, maximize the Trust Fund's net after-tax proceeds
from such property. After the Special Servicer reviews the operation of such
property and consults with the REMIC Administrator to determine the Trust Fund's
federal income tax reporting position with respect to income it is anticipated
that the Trust Fund would derive from such property, the Special Servicer could
determine that it would not be commercially feasible to manage and operate such
property in a manner that would avoid the imposition of a tax on "net income
from foreclosure property" within the meaning of the REMIC Regulations or a tax
on "prohibited transactions" under Section 860F of the Code (either such tax
referred to herein as an "REO Tax"). To the extent that income the Trust Fund
receives from an REO Property is subject to a tax on (i) "net income from
foreclosure property", such income would be subject to federal tax at the
highest marginal corporate tax rate (currently 35%) and (ii) "prohibited
transactions", such income would be subject to federal tax at a 100% rate. The
determination as to whether income from an REO Property would be subject to an
REO Tax will depend on the specific facts and circumstances relating to the
management and operation of each REO Property. Generally, income from an REO
Property that is directly operated by the Special Servicer would be apportioned
and classified as "service" or "non-service" income. The "service" portion of
such income could be subject to federal tax either at the highest marginal
corporate tax rate or at the 100% rate on "prohibited transactions", and the
"non-service" portion of such income could be subject to federal tax at the
highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to the "prohibited transactions". Any REO Tax imposed on
the Trust Fund's income from an REO Property would reduce the amount available
for distribution to Certificateholders. Certificateholders are advised to
consult their own tax advisors regarding the possible imposition of REO Taxes in
connection with the operation of commercial REO Properties by REMICs.
To the extent permitted by then applicable laws, any Prohibited
Transactions Tax, Contributions Tax (each as defined in the Prospectus) or tax
on "net income from foreclosure property" that may be imposed on REMIC I, REMIC
II or REMIC III will be borne by the REMIC Administrator, the Trustee, the
Master Servicer or the Special Servicer, in any case out of its own funds,
provided that such person has sufficient assets to do so, and provided further
that such tax arises out of a breach of such person's obligations under the
Pooling Agreement and in respect of compliance with applicable laws and
regulations. Any such tax not borne by the REMIC Administrator, the Trustee, the
Master Servicer or the Special Servicer will be charged against the Trust Fund
resulting in a reduction in amounts available for distribution to the
Certificateholders. See "Material Federal Income Tax
Consequences--REMICs--Prohibited Transactions Tax and Other Taxes" in the
Prospectus.
Reporting and other Administrative Matters
Reporting of interest income, including any original issue discount, if
any, with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Certificates and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. The REMIC must
also comply with rules requiring a REMIC Regular Certificate issued with
original issue discount to disclose on its face the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. [Reporting with respect to the REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.]
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<PAGE>
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided.
The "tax matters person" for each REMIC will be the holder of REMIC
Residual Certificates evidencing the largest percentage interest in its Class of
REMIC Residual Certificates. All holders of REMIC Residual Certificates will
irrevocably designate the REMIC Administrator as agent for such "tax matters
person" in all respects.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement
dated _____________, 199_ (the "Underwriting Agreement") between the Depositor
and the Underwriter, the Underwriter has agreed to purchase and the Depositor
has agreed to sell to the Underwriter each Class of the Offered Certificates. It
is expected that delivery of the Offered Certificates 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 Certificates 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 Certificates 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
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be approximately ____% of the aggregate Class
Certificate Balances of the Offered Certificates plus accrued interest thereon
from the Cut-off Date. The Underwriter may effect such transactions by selling
the Offered Certificates 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 Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting compensation. The
Underwriter and any dealers that participate with such Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Depositor, against certain civil liabilities under the Securities Act or
contribute to payments required to be made in respect thereof.
The Depositor has also been advised by the Underwriter that the
Underwriter presently intends to make a market in the Offered Certificates;
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 Certificates will develop. See "Risk Factors--Limited
Liquidity" herein and "Risk Factors--Limited Liquidity of Offered Certificates"
in the Prospectus.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by the Underwriter in
connection with offers and sales related to market-making transactions in the
Offered Certificates with respect to which the Underwriter acts as principal.
The Underwriter may also act as agent in such transactions. Sales may be made at
negotiated prices determined at the time of sale.]
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<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Underwriter by ________________. Certain federal income tax matters and
other legal matters will be passed upon for the Depositor by Sidley & Austin.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, including insurance company general
accounts, that is subject to ERISA or Section 4975 of the Code (each, a "Plan")
should review with its legal advisors whether the purchase or holding of Offered
Certificates could give rise to a transaction that is prohibited or is not
otherwise permitted either under ERISA or Section 4975 of the Code or whether
there exists any statutory or administrative exemption applicable thereto.
[The DOL issued an individual administrative exemption, Prohibited
Transaction Exemption ____ (the "Exemption"), to the Underwriter, which
generally exempts from the application of the prohibited transaction provisions
of Section 406 of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Section 4975 (a) and (b) of the Code, certain
transactions, among others, relating to the servicing and operation of mortgage
pools and the purchase, sale and holding of mortgage pass-through certificates
underwritten or placed by (i) the Underwriter, (ii) any person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with the Underwriter and (iii) any member of an
underwriting syndicate or selling group of which the Underwriter or a person
described in (ii) is a manager or co-manager, provided that certain conditions
set forth in the Exemption are satisfied (each such person, an
"Exemption-Favored Party").
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of Offered
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of Offered Certificates by a Plan must be on terms that are at least
as favorable to the Plan as they would be in an arm's-length transaction with an
unrelated party. Second, the Exemption only applies to Offered Certificates
evidencing rights and interests not subordinated to the rights and interests
evidenced by the other Certificates of the same series. Third, the Offered
Certificates at the time of acquisition by the Plan must be rated in one of the
three highest generic rating categories by Standard & Poor's Corporation
("S&P"), Duff & Phelps Credit Rating Co. ("DCR"), Moody's Investors Service,
Inc. ("Moody's") or Fitch Investors Service, Inc. ("Fitch"). Fourth, the Trustee
cannot be an affiliate of any other member of the "Restricted Group", which (in
addition to the Trustee) consists of any Exemption-Favored Party, the Depositor,
the Master Servicer, the Special Servicer, the Mortgage Loan Seller, any
Sub-Servicer, any Mortgagor with respect to Mortgage Loans constituting more
than 5% of the aggregate unamortized principal balance of the Mortgage Loans as
of the date of initial issuance of the Offered Certificates, and any affiliates
of the foregoing parties. Fifth, the sum of all payments made to and retained by
the Exemption-Favored Parties in connection with the sale of Offered
Certificates must represent not more than reasonable compensation for
underwriting or placing such Certificates; the sum of all payments made to and
retained by the Depositor pursuant to the assignment of the Mortgage Loans to
the Trust Fund must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the Master
Servicer, the Special Servicer and any Sub-Servicer must represent not more than
reasonable compensation for such person's services under the Pooling Agreement
and reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the investing Plan must be an "accredited investor" as defined in Rule
501(a)(1) of Regulation D of the Commission under the Securities Act.
Because the Senior Certificates are not subordinated to any other Class of
Offered Certificates, the second general condition set forth above is satisfied
with respect to such Certificates. It is a condition of their issuance that the
Class A-1A and Class A-1B Certificates be rated not lower than ____ by each of
_______ and ________ and that the Class S Certificates be rated not lower than
____ by ________. As of the Closing Date, the fourth general condition set forth
above will be satisfied with respect to the Senior Certificates. A fiduciary of
a Plan contemplating purchasing a Senior Certificate in the secondary market
must make its own determination that, at the time of such purchase, such
Certificate continues to satisfy the second, third and
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<PAGE>
fourth general conditions set forth above. In addition, a fiduciary of a Plan
contemplating the purchase of a Senior Certificate, whether in the initial
issuance of such Certificate or in the secondary market, must make its own
determination that the first, fifth and sixth general conditions set forth above
will be satisfied with respect to such Certificate.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest generic
categories of S&P, Moody's, DCR or Fitch for at least one year prior to the
Plan's acquisition of Senior Certificates; and (iii) certificates in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of Senior Certificates.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in
connection with (i) the direct or indirect sale, exchange or transfer of Senior
Certificates acquired by a Plan upon initial issuance from the Depositor or an
Exemption-Favored Party when the Depositor, Seller, Master Servicer, Special
Servicer, Trustee, Mortgage Loan Seller, Sub-Servicer, Exemption-Favored Party
or mortgagor is a Party in Interest with respect to the investing Plan, (ii) the
direct or indirect acquisition or disposition in the secondary market of Senior
Certificates by a Plan and (iii) the holding of Senior Certificates by a Plan.
However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
Senior Certificate on behalf of an "Excluded Plan" (as defined in the following
sentence) by any person who has discretionary authority or renders investment
advice with respect to the assets of such Excluded Plan. For purposes hereof, an
Excluded Plan is a Plan sponsored by any member of the Restricted Group.
Moreover, if the general conditions of the Exemption, as well as certain
other conditions set forth in the Exemption, are satisfied, the Exemption may
also provide an exemption from the restrictions imposed by Sections 406(b)(1)
and (b)(2) of ERISA and the excise taxes imposed by Sections 4975(a) and (b) of
the Code by reason of Section 4975(c)(1)(E) of the Code in connection with (i)
the direct or indirect sale, exchange or transfer of Senior Certificates in the
initial issuance of Senior Certificates between the Depositor or an
Exemption-Favored Party and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in such Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the Mortgage Loans or (b) an affiliate of such a person,
(ii) the direct or indirect acquisition or disposition in the secondary market
of Senior Certificates by a Plan and (iii) the holding of Senior Certificates by
a Plan.
Further, if the general conditions of the Exemption, as well as certain
other conditions set forth in the Exemption, are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a), 406(b)
and 407(a) of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of
the Code by reason of Section 4975(c) of the Code for transactions in connection
with the servicing, management and operation of the Trust Fund.
Lastly, if the general conditions of the Exemption are satisfied, the
Exemption also may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Section 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a Party in Interest with respect to an investing Plan by virtue of
providing services to the Plan (or by virtue of having certain specified
relationships to such a person) solely as a result of the Plan's ownership of
Senior Certificates.
Before purchasing a Senior Certificate, a fiduciary of a Plan should
itself confirm (i) that the Senior Certificates constitute "certificates" for
purposes of the Exemption and (ii) that the general and other conditions set
forth in the Exemption and the other requirements set forth in the Exemption
would be satisfied at the time of such purchase.
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<PAGE>
In addition to making its own determination as to the availability of the
exemptive relief provided in the Exemption, the Plan fiduciary considering an
investment in Offered Certificates should consider the availability of any other
prohibited transaction class exemptions. See "ERISA Considerations" in the
Prospectus. There can be no assurance that any such class exemptions will apply
with respect to any particular Plan investment in Offered Certificates or, even
if it were deemed to apply, that any exemption would apply to all prohibited
transactions that may occur in connection with such investment. A purchaser of
Offered Certificates should be aware, however, that even if the conditions
specified in one or more exemptions are satisfied, the scope of relief provided
by an exemption may not cover all acts which might be construed as prohibited
transactions.
Because the characteristics of the Class A-2, Class A-3 and Class B-1
Certificates do not meet the requirements of the Exemption, the purchase or
holding of such Certificates by a Plan may result in a prohibited transaction or
the imposition of excise taxes or civil penalties. As a result, no transfer of a
Class A-2, Class A-3 or Class B-1 Certificate or any interest therein may be
made to a Plan or to any person who is directly or indirectly purchasing such
Certificate or interest therein on behalf of, as named fiduciary of, as trustee
of, or with assets of a Plan unless the purchase and holding of such Certificate
or interest therein is exempt from the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the Code under Sections I and III of
Prohibited Transaction Class Exemption 95-60, which provides an exemption from
the prohibited transaction rules for certain transactions involving an insurance
company general account, or Section 401(c) of ERISA, which may provide limited
relief from the prohibited transaction rules for certain transactions involving
an insurance company general account. Any person to whom a transfer of any such
Certificate or interest therein is made shall be deemed to have represented to
the Depositor, the Underwriter, the Master Servicer, the Special Servicer and
the Trustee that either (i) it is not a Plan and is not directly or indirectly
purchasing such Certificate or interest therein on behalf of, as named fiduciary
of, as trustee of, or with assets of a Plan or (ii) the purchase and holding of
such Certificate or interest therein is so exempt on the basis of Prohibited
Transaction Class Exemption 95-60 or Section 401(c) of ERISA.]
Any Plan fiduciary considering whether to purchase an Offered Certificate
on behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment.
LEGAL INVESTMENT
[The Offered Certificates will not be "mortgage related securities" for
purposes of SMMEA. As a result, the appropriate characterization of the Offered
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Offered Certificates,
is subject to significant interpretive uncertainties. The Depositor makes no
representation as to the ability of particular investors to purchase the Offered
Certificates under applicable legal investment or other restrictions. All
institutions whose investment activities are subject to legal investment laws
and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining whether
and to what extent the Offered Certificates constitute legal investments for
them or are subject to investment, capital or other restrictions.]
All depository institutions considering an investment in the Offered
Certificates should review the Federal Financial Institutions Examination
Council's Supervisory Policy Statement on the Selection of Securities Dealers
and Unsuitable Investment Practices (to the extent adopted by their respective
regulatory authorities), setting forth, in relevant part, certain investment
practices deemed to be unsuitable for an institution's investment portfolio, as
well as guidelines for investing in certain types of mortgage related
securities.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying".
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<PAGE>
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or to
purchase Offered Certificates representing more than a specified percentage of
the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Offered Certificates constitute legal
investments for such investors.
See "Legal Investment" in the Prospectus.
RATINGS
It is a condition to the issuance of the Offered Certificates that the
respective Classes thereof receive the following credit ratings from
____________________ ("______") and/or ________________ ("________"; and
together with _______, the "Rating Agencies"):
[Rating [Rating
Class Agency] Agency]
----- ------- -------
Class S
Class A-1A
Class A-1B
Class A-2
Class A-3
Class B-1
The ratings on the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they are
entitled and, in the case of the Class A and Class B-1 Certificates, the
ultimate receipt by the holders thereof of all payments of principal to which
they are entitled on or before the Distribution Date in _________ 20__ (the
"Rated Final Distribution Date"). The ratings take into consideration the credit
quality of the Mortgage Pool, structural and legal aspects associated with the
Offered Certificates, 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 Certificates. The ratings on the respective Classes of Offered
Certificates 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 and Yield Maintenance Premiums will be
received. Also a security rating does not represent any assessment of the yield
to maturity that investors may experience or the possibility that the Class S
Certificateholders might not fully recover their investment in the event of
rapid prepayments and/or other liquidations of the Mortgage Loans. In general,
the ratings address credit risk and not prepayment risk. As described herein,
the amounts payable with respect to the Class S Certificates consist only of
interest (and, to the extent described herein, may consist of a portion of the
Yield Maintenance Premiums and Prepayment Premiums actually collected on the
Mortgage Loans). If the entire pool were to prepay in the initial month, with
the result that the Class S Certificateholders receive only a single month's
interest and thus suffer a nearly complete loss of their investment, all amounts
"due" to such Certificateholders will nevertheless have been paid, and such
result is consistent with the rating received from _____ on the Class S
Certificates. The Class Notional Amount upon which interest is calculated with
respect to the Class S Certificates is subject to reduction by the allocation of
Realized Losses and prepayments, whether voluntary or involuntary. The rating
does not address the timing or magnitude of reduction of such Class Notional
Amount, but only the obligation to pay interest timely on such Class Notional
Amount as so reduced from time to time. Accordingly, the rating of the Class S
Certificates should be evaluated independently from similar ratings on other
types of securities.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates 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 Certificates 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.
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<PAGE>
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating organization. Each security
rating should be evaluated independently of any other security rating.
S-75
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INDEX OF PRINCIPAL TERMS
Accrued Certificate Interest ................................... S-56
Advances ....................................................... S-47
Appraisal Reduction Amount ..................................... S-60
ARM Loans ...................................................... S-11
Assumed Final Distribution Date ................................ S-2
Assumed Scheduled Payment ...................................... S-19, S-56
Assumed Settlement Date ........................................ S-66
Available Distribution Amount .................................. S-15, S-53
Balloon Loans .................................................. S-11
Balloon Payment ................................................ S-11
Certificate Notional Amount .................................... S-24, S-49
Certificate Owner .............................................. S-9, S-50
Certificate Principal Balance .................................. S-24, S-49
Certificate Registrar .......................................... S-50
Certificate Yield Maintenance Amount ........................... S-20, S-57
Certificateholders ............................................. S-3, S-52
Certificates ................................................... S-1, S-8, S-49
Class .......................................................... S-1, S-8, S-49
Class A Certificates ........................................... S-1, S-8, S-49
Class B Certificates ........................................... S-1, S-8, S-49
Class Notional Amount .......................................... S-13, S-51
Class Principal Balance ........................................ S-12, S-50
Closing Date ................................................... S-1, S-49
Code ........................................................... S-25
Collection Period .............................................. S-52
Compensating Interest Payment .................................. S-23, S-45
Corporate Trust Office ......................................... S-61
Corrected Mortgage Loan ........................................ S-43
Cut-off Date ................................................... S-2
Cut-off Date Balance ........................................... S-9, S-31
DCR ............................................................ S-71
Debt Service Coverage Ratio .................................... S-39
Definitive Certificate ......................................... S-9, S-50
Depositor ...................................................... S-2
Determination Date ............................................. S-52
Distributable Certificate Interest ............................. S-17, S-56
Distribution Date .............................................. S-3, S-52
DTC ............................................................ S-50
DTC Participants ............................................... S-50
Due Date ....................................................... S-11
ERISA .......................................................... S-25
Excluded Plan .................................................. S-72
Exemption ...................................................... S-71
Exemption-Favored Party ........................................ S-71
Extraordinary Expenses ......................................... S-21, S-58
Fitch .......................................................... S-71
Fixed Rate Loans ............................................... S-11
Form 8-K ....................................................... S-42
Gross Margin ................................................... S-11
Index .......................................................... S-11
Initial Pool Balance ........................................... S-2, S-9, S-31
Interest Rate Adjustment Date .................................. S-11
IRS ............................................................ S-68
Liquidation Fee ................................................ S-46
Liquidation Fee Rate ........................................... S-46
Lockout Period ................................................. S-12, S-32
LTV Ratio ...................................................... S-40
Master Servicer ................................................ S-2, S-44
Master Servicing Fee ........................................... S-45
Master Servicing Fee Rate ...................................... S-45
Maturity Date .................................................. S-11
Modeling Assumptions ........................................... S-65
Modified Mortgage Loan ......................................... S-61
Monthly Payments ............................................... S-11
Moody's ........................................................ S-71
Mortgage ....................................................... S-10, S-31
Mortgage Asset Seller .......................................... S-32
Mortgage Loan Purchase Agreement ............................... S-11, S-32
Mortgage Loan Seller ........................................... S-8
Mortgage Loans ................................................. S-2, S-9, S-31
Mortgage Note .................................................. S-10, S-31
Mortgage Pool .................................................. S-2
Mortgage Rate .................................................. S-11
Mortgaged Property ............................................. S-10, S-32
Mortgagor ...................................................... S-10, S-31
Net Aggregate Prepayment
Interest Shortfall ........................................... S-23, S-46
Net Mortgage Rate .............................................. S-14, S-52
Net Operating Income ........................................... S-39
Offered Certificates ........................................... S-1, S-8, S-49
OID Regulations ................................................ S-68
Open Period .................................................... S-12, S-33
P&I Advance .................................................... S-22, S-59
Pass-Through Rate .............................................. S-13
Payment Adjustment Date ........................................ S-11
Percentage Interest ............................................ S-51
Plan ........................................................... S-25, S-71
Pooling Agreement .............................................. S-2, S-12, S-49
Prepayment Interest Excess ..................................... S-23, S-45
Prepayment Interest Shortfall .................................. S-23, S-45
Prepayment Premium ............................................. S-12, S-33
Principal Distribution Amount .................................. S-18, S-56
Principal Prepayment ........................................... S-12, S-32
Private Certificates ........................................... S-8
Property Servicing Fee ......................................... S-46
Property Servicing Fee Rate .................................... S-46
Purchase Price ................................................. S-42
Rated Final Distribution Date .................................. S-2, S-74
Rating Agencies ................................................ S-2, S-26, S-74
Realized Losses ................................................ S-21, S-58
Record Date .................................................... S-52
Reimbursement Rate ............................................. S-22, S-60
Related Proceeds ............................................... S-47
REMIC .......................................................... S-3, S-24
REMIC Administrator ............................................ S-2
REMIC I ........................................................ S-3, S-24, S-67
REMIC II ....................................................... S-3, S-24, S-67
REMIC III ...................................................... S-3, S-24, S-67
REMIC Regular Certificates ..................................... S-1, S-8, S-49
REMIC Residual Certificates .................................... S-1, S-8, S-49
REO Property ................................................... S-21, S-43
REO Tax ........................................................ S-69
Required Appraisal Loan ........................................ S-60
Restricted Group ............................................... S-71
S&P ............................................................ S-71
Scheduled Payment .............................................. S-18, S-56
Securities Act ................................................. S-8
Senior Certificates ............................................ S-3, S-20, S-53
Senior Principal Distribution Cross-Over Date .................. S-55
Sequential Pay Certificates .................................... S-3, S-12, S-50
Servicing Advance .............................................. S-47
Servicing Standard ............................................. S-43
S-76
<PAGE>
Servicing Transfer Event ....................................... S-43
SMMEA .......................................................... S-27
Special Servicer ............................................... S-2
Special Servicer Report ........................................ S-61
Special Servicing Fee .......................................... S-46
Special Servicing Fee Rate ..................................... S-46
Specially Serviced Mortgage Loans .............................. S-43
Stated Principal Balance ....................................... S-52
Sub-Servicer ................................................... S-45
Sub-Servicing Agreement ........................................ S-45
Subordinate Certificates ....................................... S-3, S-20, S-58
Trust Fund ..................................................... S-2, S-12, S-49
Trustee ........................................................ S-2
Trustee Fee .................................................... S-63
Trustee Fee Rate ............................................... S-63
Trustee Report ................................................. S-61
Underwriter .................................................... S-1
Underwriting Agreement ......................................... S-70
Voting Rights .................................................. S-62
Weighted Average Net Mortgage Rate ............................. S-2, S-14, S-52
Workout Fee .................................................... S-46
Workout Fee Rate ............................................... S-46
Yield Maintenance Premium ...................................... S-12, S-33
S-77
<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 Depositor 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.
TABLE OF CONTENTS
Page
Prospectus Supplement
Table of Contents...............................................................
Transaction Overview............................................................
Summary of Prospectus Supplement................................................
Risk Factors....................................................................
Description of the Mortgage Pool................................................
Servicing of the Mortgage Loans.................................................
Description of the Certificates.................................................
Yield and Maturity Considerations...............................................
Certain Federal Income Tax Consequences.........................................
ERISA Considerations............................................................
Legal Investment................................................................
Method of Distribution..........................................................
Legal Matters...................................................................
Ratings.........................................................................
Index of Principal Definitions..................................................
Prospectus
Prospectus Supplement...........................................................
Available Information...........................................................
Incorporation of Certain Information by Reference...............................
Table of Contents...............................................................
Summary of Prospectus...........................................................
Risk Factors....................................................................
Description of the Underlying Assets............................................
Yield and Maturity Considerations...............................................
The Company.....................................................................
CRIIMI MAE Inc..................................................................
Owner Trust.....................................................................
Description of the Securities...................................................
Description of the Indentures...................................................
Description of the Pooling Agreements...........................................
Servicing and Administration of the Mortgage Assets.............................
Description of Credit Support...................................................
Certain Legal Aspects of Mortgage Loans.........................................
Material Federal Income Tax Consequences........................................
State and Other Tax Consequences...............................................
ERISA Considerations............................................................
Legal Investment................................................................
Use of Proceeds.................................................................
Method of Distribution..........................................................
Legal Matters...................................................................
Financial Information...........................................................
Ratings.........................................................................
Index of Principal Definitions..................................................
$
(Approximate)
CRIIMI MAE CMBS CORP.
(Depositor)
Mortgage Pass-Through
Certificates
Series 199_-_
Class S, Class A-1A, Class A-1B,
Class A-2, Class A-3 and
Class B-1
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
[UNDERWRITER]
Dated __________, 199_
<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 JULY 31, 1998.
PROSPECTUS SUPPLEMENT
(To Prospectus dated _________, 199__)
$
(Approximate)
CRIIMI MAE Commercial Mortgage Trust [I]
Collateralized Mortgage Obligations
Series 199__-____
CRIIMI MAE Commercial Mortgage Trust [I] (the "Issuer"), a trust
established by CRIIMI MAE CMBS Corp. (the "Company"), is issuing approximately
$_____________ aggregate Bond Principal Amount (as defined in the accompanying
Prospectus) of its Series 199_- ____ Collateralized Mortgage Obligations (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 Bond Interest
Rates (as defined in the accompanying Prospectus), set forth in the table below.
(Continued on page S-2)
<TABLE>
<CAPTION>
=======================================================================================================
Class of Series 199_-- Initial Aggregate Assumed Final Rating
Collateralized Mortgage Bond Principal Bond Interest Payment ([identify Rating
Obligations Amount (a) Rate Stated Maturity Date(b) Agencies])(c)(d)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1 ........... $ %
Class A-2............ $ %
Class B.............. $ %
Class C.............. $ %
Class D.............. $ %
=======================================================================================================
</TABLE>
(Footnotes to table on page S-2)
---------------------
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 THECONTRARY
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>
The footnotes to the table on the previous page are as follows:
(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.
---------------------
(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 a Terms Indenture to be dated as of
___________, 199_ (the "Terms 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"), which Terms Indenture incorporates
by reference certain standard indenture provisions of the Company, dated as of
________________, 1997 and filed as part of the registration statement relating
to the Offered Bonds (the Terms Indenture, as it incorporates by reference such
standard indenture provisions, the "Indenture"). Certain duties and obligations
of the Issuer under the Indenture will be performed on behalf of the Issuer by
________________________ (the "General Administrator") in accordance with a
General Administration Agreement, to be dated as of ____________, 199_ (the
"General Administration Agreement"), between the Owner Trustee, on behalf of the
Issuer, and the General 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
S-2
<PAGE>
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 "Certain Federal
Income Tax Consequences" herein.
[inside front cover]
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 COMPANY OR TRUSTS ESTABLISHED
THEREBY 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.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, 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.
S-3
<PAGE>
TABLE OF CONTENTS
PAGE
----
TRANSACTION OVERVIEW.......................................................S-6
SUMMARY OF PROSPECTUS SUPPLEMENT...........................................S-7
RISK FACTORS..............................................................S-23
DESCRIPTION OF THE MORTGAGE POOL..........................................S-27
General.............................................................S-27
Certain Payment Characteristics.....................................S-28
The Index...........................................................S-29
[Delinquent and Nonperforming Mortgage Loans].......................S-29
Additional Mortgage Loan Information................................S-29
The Mortgage Loan Seller............................................S-37
Underwriting of the Mortgage Loans..................................S-38
Representations and Warranties with respect to the Mortgage Loans;
Repurchases.........................................................S-38
Changes in Mortgage Pool Characteristics............................S-38
SERVICING OF THE MORTGAGE LOANS...........................................S-39
General.............................................................S-39
The Master Servicer.................................................S-40
The Special Servicer................................................S-41
Sub-Servicers.......................................................S-41
Servicing and Other Compensation and Payment of Expenses............S-41
Modifications, Waivers, Amendments and Consents.....................S-44
Inspections; Collection of Operating Information....................S-45
[Termination of [Special Servicer] [Master Servicer] Without Cause].S-45
DESCRIPTION OF THE BONDS..................................................S-45
General.............................................................S-45
Registration and Denominations......................................S-46
Payments on the Bonds...............................................S-47
Subordination.......................................................S-53
P&I and Other Advances..............................................S-54
[Appraisal Reductions]..............................................S-55
Reports to Bondholders; Certain Available Information...............S-56
Voting Rights.......................................................S-57
The Trustee.........................................................S-57
[Optional Redemption]...............................................S-57
Additional Information..............................................S-58
THE ISSUER................................................................S-58
THE OWNER TRUSTEE.........................................................S-58
THE GENERAL ADMINISTRATOR.................................................S-59
YIELD AND MATURITY CONSIDERATIONS.........................................S-59
Yield Considerations................................................S-59
Weighted Average Life...............................................S-61
S-4
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................S-62
General.............................................................S-62
Status as Real Property Loans.......................................S-63
Discount and Premium ...............................................S-63
Backup Withholding and Information Reporting........................S-64
METHOD OF DISTRIBUTION....................................................S-64
LEGAL MATTERS.............................................................S-65
ERISA CONSIDERATIONS......................................................S-65
LEGAL INVESTMENT..........................................................S-67
RATINGS...................................................................S-67
S-5
<PAGE>
TRANSACTION OVERVIEW
Prospective investors in the Offered Bonds are advised to carefully read,
and should rely solely on, the detailed information appearing elsewhere in this
Prospectus Supplement and the Prospectus in making their investment decision.
The following Transaction Overview does not include all relevant information
relating to the Offered Bonds or the Mortgage Loans, particularly with respect
to the risks and special considerations involved with an investment in the
Offered Bonds, and is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
Prospectus. Prior to making any investment decision, a prospective investor
should carefully review this Prospectus Supplement and the Prospectus.
$___________
(Approximate)
CRIIMI MAE Commercial Mortgage Trust [I]
Collateralized Mortgage Obligations
Series 199_-____
---------------------------------------------------------
Initial
Aggregate Bond
Bond Principal Interest
Amount(1) Class(2) Rating(3) Rate
---------------------------------------------------
$ [Class A-1] %
---------------------------------------------------
$ [Class A-2] %
---------------------------------------------------
$ [Class B] %
---------------------------------------------------
$ [Class C] %
---------------------------------------------------
$ [Class D] %
---------------------------------------------------
$ [Class E] %
---------------------------------------------------
$ [Class F] %
---------------------------------------------------
$ (4) Issuer's Not Rated N/A(5)
Equity
---------------------------------------------------
---------------------------------------------------------
(1) Subject to a variance of plus or minus 5%.
(2) Only the Class A-1, Class A-2, Cass B, Class C and Class D Bonds are
offered hereby. The Class E and Class F Bonds will initially be issued to
and held by one or more affiliates of the Issuer and are not offered
hereby. The Issuer's Equity is not a Class of Bonds, nor is it offered
hereby.
(3) By each of _________and __________.
(4) Reflects portion of the Initial Pool Balance that is in excess of the
initial aggregate Bond Principal Amount of all the Bonds. The Issuer's
Equity does not have a Bond Principal Amount.
(5) The Issuer's Equity does not have a Bond Interest Rate.
S-6
<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..............................CRIIMI MAE Commercial Mortgage Trust [I]
(the "Issuer") is a trust established under
the laws of the State of _________ by CRIIMI
MAE CMBS Corp. (the "Company"), a Delaware
corporation, pursuant to a Deposit Trust
Agreement, to be dated as of __________,
199_ (the "Deposit Trust Agreement"),
between the Company and ____________________
as owner trustee (the "Owner Trustee"). The
Company is a wholly-owned special purpose
subsidiary of CRIIMI MAE Inc. ("CRIIMI
MAE"), a publicly held real estate
investment trust. The Company 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 Company, CRIIMI MAE, 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 Company", "CRIIMI
MAE Inc." and "Owner Trustee" in the
Prospectus.
Bonds...............................The Issuer is issuing approximately
$__________ aggregate Bond Principal Amount
of its Series 199_-____ Collateralized
Mortgage Obligations (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.
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
The Bonds will be issued pursuant to a Terms
Indenture, to be dated as of _________, 199_
(the "Terms Indenture"), between the Owner
Trustee, on behalf of the Issuer, and the
Trustee, on behalf of the holders of the
Bonds (the "Bondholders"), which Terms
Indenture incorporates by reference certain
standard indenture provisions of the
Company, dated as of ____________, 1997 and
filed as part of the registration statement
relating to the Offered Bonds (the Terms
Indenture, as it incorporates by reference
such standard indenture provisions, the
"Indenture").
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 5%), and will
accrue interest at the Bond Interest Rates,
set forth below:
Initial
Aggregate Bond Bond
Class Principal Amount 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 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 $______________.
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S-8
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Trustee............................._________________________, a ______________.
See "Description of the Bonds--The Trustee"
herein.
General Administrator..............._______________________________ (the
"General Administrator") will perform
certain functions as agent on behalf of the
Issuer pursuant to a General Administration
Agreement, to be dated as of ____________,
199_ (the "General Administration
Agreement"), between the Manager and the
Owner Trustee, on behalf of the Issuer.
Master Servicer.....................____________________. See "Servicing of the
Mortgage Loans--The Master Servicer" herein.
Special Servicer....................____________________. See "Servicing of the
Mortgage Loans--The Special Servicer"
herein.
Mortgage Loan Seller .............____________________ (the "Mortgage Loan
Seller"). See "Description of the Mortgage
Pool--The Mortgage Loan Seller" 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 __th day of each month or, if any such
__th 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
Distribution 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 _th day of the
month in which such Payment Date occurs, or
if such _th 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" and
"Bond-Entry Securities" within the meaning
of the Prospectus. No person acquiring an
interest in a Book-Entry Bond (any such
person, a "Bond Owner") will
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S-9
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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--Book-Entry
Registration" in the Prospectus and
"Description of the Bonds--Registration and
Denominations" herein and "Description of
the Securities--Book-Entry Registration and
Definitive Securities" 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
(as defined in the Prospectus), all of which
is more specifically described under
"Description of the Mortgage Pool" herein
and "Description of the Underlying Assets"
and "Servicing and Administration of the
Mortgage Assets--Collection Account" in the
Prospectus.
A. The Mortgage Pool...........The Mortgage Pool will consist of _____
[describe general characteristics of
Mortgage Loans] mortgage loans (the
"Mortgage Loans") with an aggregate Cut-off
Date Balance of $________ (the "Initial Pool
Balance") [, subject to a permitted variance
of plus or minus ___%]. The "Cut-off Date
Balance" of each Mortgage Loan is the unpaid
principal balance thereof as of the Cut-off
Date, after application of all payments due
on or before such date, whether or not
received. All numerical information provided
herein with respect to the Mortgage Loans is
provided on an approximate basis. All
weighted average information provided herein
with respect to the Mortgage Loans reflects
the weighting of the Mortgage Loans by their
Cut-off Date Balances.
Each Mortgage Loan is evidenced by a note or
bond (a "Mortgage Note") and is secured by a
[first] mortgage, deed of trust or similar
security instrument (a "Mortgage") on the
fee simple (or, in ___ cases, representing
___% of the Initial Pool Balance, the
leasehold) interest of the related mortgagor
(the "Mortgagor") in real property used for
commercial or multifamily purposes, all
buildings and improvements thereon and
certain personal property located thereon
(each, a "Mortgaged Property") and security
interests in certain funds and accounts and
other collateral described herein.
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S-10
<PAGE>
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The Mortgage Loans are non-recourse
obligations of the related Mortgagors. No
Mortgage Loan will be insured or guaranteed
by any governmental entity or private
insurer or by any other person.
Set forth below are the number of Mortgage
Loans, and the approximate percentage of the
Initial Pool Balance represented by such
Mortgage Loans, that are secured by
Mortgaged Properties located in the _____
states with the highest concentrations:
Number of Percentage of
State Mortgage Loans Initial Pool Balance
----- -------------- --------------------
[Identify states representing 10% or more of
the Initial Pool Balance.]
The remaining Mortgaged Properties are
located throughout ___ other states.
Set forth below are the number of Mortgage
Loans, and the approximate percentage of the
Initial Pool Balance represented by such
Mortgage Loans, that are secured by
Mortgaged Properties operated for each
indicated purpose:
Number of Percentage of
State Mortgage Loans Initial Pool Balance
----- -------------- --------------------
[Identify particular property types
representing 10% or more of the Initial Pool
Balance.]
________ of the Mortgage Loans, which
represent _____% of the Initial Pool
Balance, 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 annualized rate
at which interest accrues (the "Mortgage
Rate") on ____ of the Mortgage Loans (the
"ARM Loans"), which represent _____% of the
Initial Pool Balance, is subject to
adjustment on specified Due Dates (each such
date of adjustment, an "Interest Rate
Adjustment Date") by adding a fixed number
of basis points (a "Gross Margin") to the
value of a base index (an "Index"), subject,
in ______ cases, to lifetime maximum and/or
minimum Mortgage Rates, and in _____ cases,
to periodic maximum and/or minimum Mortgage
Rates, in each case as described herein; and
the remaining Mortgage Loans (the "Fixed
Rate Loans") bear interest at fixed Mortgage
Rates. ____ of the ARM Loans, which
represent ___% of the Initial Pool
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S-11
<PAGE>
- --------------------------------------------------------------------------------
Balance, provide for Interest Rate
Adjustment Dates that occur monthly, while
the remainder of the ARM Loans provide for
adjustments of the Mortgage Rate to occur
semi-annually or annually. [Identify
Mortgage Loan Index].] See "Description of
the Mortgage Pool-Certain Payment
Characteristics" herein.
[If there are ARM Loans: The amount of the
Monthly Payment on all of the ARM Loans is
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 then applicable Mortgage Rate]. [Discuss
frequency of Payment Adjustment Dates and
possibility of negative amortization of
interest.]]
_____ of the Mortgage Loans (the "Balloon
Loans"), representing ___% of the Initial
Pool Balance, provide for monthly payments
of principal based on amortization schedules
significantly longer than the remaining
terms of such Mortgage Loans, thereby
leaving substantial principal amounts due
and payable (each such payment, together
with the corresponding interest payment, a
"Balloon Payment") on their respective
maturity dates (each, a "Maturity Date"),
unless prepaid prior thereto. The remaining
Mortgage Loans are fully amortizing.
[All the Mortgage Loans provided at
origination for, sequentially, a period (a
"Lockout Period") during which voluntary
prepayments of principal (each, a "Principal
Prepayment") are prohibited, then a period
during which Principal Prepayments are
permitted but are required to be accompanied
by an additional amount (a "Prepayment
Premium") the greater of a specified
percentage of the principal amount being
prepaid and a premium calculated on the
basis of a yield maintenance formula, and
then, commencing on a specified date prior
to maturity, a period (the related "Open
Period") during which Principal Prepayments
may be made without payment of any
Prepayment Premium.]
On or prior to the Closing Date, the Company
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 Company and the
Mortgage Loan Seller. In the Mortgage Loan
Purchase Agreement, the Mortgage Loan Seller
has made certain representations and
warranties to the Company 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 Company will also assign its
rights under the Mortgage Loan Purchase
Agreement insofar as they relate
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S-12
<PAGE>
- --------------------------------------------------------------------------------
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 with
respect to the Mortgage Loans; Repurchases"
herein.
The Mortgage Loans will be serviced and
administered by the Master Servicer and,
under the circumstances described herein,
the Special Servicer pursuant to [the
Servicing and Administration Agreement dated
as of ___________, 199_ (the "S&A
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 "Servicing and
Administration of the Mortgage Assets" in
the Prospectus.
B. The Collection Account......All collections on or in respect of the
Mortgage Loans will be deposited in 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
Underlying Assets--Collection Accounts" and
"Servicing and Administration of the
Mortgage Assets--Collection Accounts" 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
Issuer Event of Default (as defined in the
Prospectus) 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
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S-13
<PAGE>
- --------------------------------------------------------------------------------
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;
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S-14
<PAGE>
- --------------------------------------------------------------------------------
(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
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S-15
<PAGE>
- --------------------------------------------------------------------------------
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
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S-16
<PAGE>
- --------------------------------------------------------------------------------
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
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S-17
<PAGE>
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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
and Extraordinary Expenses (also as defined
herein) 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 and
Extraordinary Expenses, 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 Master Servicing Fees, Property Servicing
Fees, Special Servicing Fees, Workout 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
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S-18
<PAGE>
- --------------------------------------------------------------------------------
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--P&I and Other Advances"), the Master
Servicer 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.......................Subject to a recoverability determination as
described herein, and further subject to the
reduced advancing obligations in respect of
certain modified Mortgage Loans and Mortgage
Loans as to which the related Mortgaged
Property has declined in value as described
herein, the Master Servicer will be required
to make advances (each, a "P&I Advance")
with respect to each Payment Date in an
amount that is generally equal to the
aggregate of all Scheduled Payments (other
than Balloon Payments) and any Assumed
Scheduled Payments, net of related Master
Servicing Fees and Workout Fees, due or
deemed due, as the case may be, on or in
respect of the Mortgage Loans during the
related Collection Period, in each case to
the extent that such amount was not paid by
or on behalf of the related Mortgagor or
otherwise collected as of the close of
business on the last day of the related
Collection Period.
If the Master Servicer fails to make a
required P&I Advance, the Trustee will be
required to make such P&I Advance. The
Special Servicer shall have no obligation to
make any P&I Advance.
As more fully described herein, the Master
Servicer and the Trustee will each be
entitled to interest on any P&I Advance made
by it, and the Master Servicer, the Special
Servicer and the Trustee will each be
entitled to interest on certain reimbursable
servicing expenses incurred by it. Such
interest will accrue from the date any such
P&I Advance is made or such servicing
expense is incurred at a rate per annum
equal to [specify applicable rate] (the
"Reimbursement Rate"), and will be paid:
first, out of Default Interest (as defined
herein) and late payment charges collected
in respect of the related Mortgage Loan;
and, second, if such P&I Advance or
servicing expense has been reimbursed, out
of general collections on the Mortgage Pool.
See "Description of the Bonds--P&I and Other
Advances" herein.]
[Compensating Interest
Payments........................To the extent of the aggregate of all Master
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
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<PAGE>
- --------------------------------------------------------------------------------
Shortfall" is a shortfall in the collection
of a full month's interest (net of related
Master Servicing Fees and Property 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 Master Servicing Fees and
Property 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, Net
Aggregate Prepayment Interest Shortfalls and
Extraordinary Expenses and (iv) the priority
of such Bond to receive payments.
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<PAGE>
- --------------------------------------------------------------------------------
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.
Certain Federal Income Tax
Consequences......................In the opinion of ______________________,
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 Company. For further
information regarding certain federal income
tax consequences of an investment in the
Bonds, see "Certain Federal Income Tax
Consequences" herein and "Material 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 "Certain Federal Income Tax
Consequences" herein and "Material Federal
Income Tax Consequences" in the
Prospectus.
ERISA Considerations................A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code (a "Plan") should review
carefully with its legal counsel whether the
purchase or holding of Offered Bonds or an
interest therein could give rise to a
transaction that is prohibited or is not
otherwise permitted either under ERISA or
Section 4975 of the Code or whether there
exists any statutory or administrative
exemption applicable to an investment
therein.
The Department of Labor ("DOL") has granted
a number of administrative exemptions which
provide relief from certain of the
prohibited transaction provisions of ERISA
and the related excise tax provisions of the
Code. There can be no assurance that any
exemption granted by the DOL will provide
relief from the prohibited transaction
- --------------------------------------------------------------------------------
S-21
<PAGE>
- --------------------------------------------------------------------------------
provisions of ERISA and the Code with
respect to the purchase, sale or holding of
the Offered Bonds.
Any Plan fiduciary considering whether to
purchase any Offered Bonds or an interest
therein on behalf of a Plan should consult
with its counsel regarding the applicability
of the fiduciary responsibility and
prohibited transaction provisions of ERISA
and the Code. See "ERISA Considerations"
herein and in the Prospectus.
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"):
[Rating [Rating
Class Agency] 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 Offered Bonds will not constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). In addition,
institutions whose investment activities are
subject to review by certain regulatory
authorities may be or may become subject to
restrictions on the investment by such
institutions in certain forms of mortgage
derivative securities. Any such restrictions
enacted or adopted after the date hereof
could alter the extent to which such an
institution may continue to hold a
particular investment. Accordingly,
investors should consult their own legal
advisors to determine whether and to what
extent the Offered Bonds may be purchased by
such investors. See "Legal Investment"
herein and in the Prospectus.]
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S-22
<PAGE>
RISK FACTORS
Prospective purchasers of Offered Bonds should consider, among other
things, the following risk factors (as well as the risk factors set forth under
"Risk Factors" in the Prospectus) in connection with an investment therein. [The
following risks are subject to modification to reflect the actual circumstances
relating to any series of Bonds.]
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.
[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
S-23
<PAGE>
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.
Limited Recourse Nature of Mortgage Loans; Recourse Generally Limited to
Mortgaged Property. The Mortgage Loans are nonrecourse obligations of the
Mortgagors and, accordingly, in the case of default, recourse will be limited to
the related Mortgaged Property securing the defaulted Mortgage Loan.
Consequently, payment on each Mortgage Loan prior to maturity is dependent
primarily on the sufficiency of the net operating income of the related
Mortgaged Property and, at maturity (whether at scheduled maturity or, in the
event of a default under the related Mortgage Loan, upon the acceleration of
such maturity), upon the then market value of the related Mortgaged Property or
the ability of the related Mortgagor to refinance the Mortgaged Property. 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 with respect to the Mortgage Loans; 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.
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--Certain Factors Affecting Delinquency, Foreclosure and Loss
of the Mortgage Loans--Increased Risk of Default Associated With Balloon
Payments" in the Prospectus.
Extension Risk Associated With Modification of Mortgage Loans with Balloon
Payments. In order to maximize recoveries on defaulted Mortgage Loans, the S&A
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--Modifications,
Waivers, Amendments and Consents" 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
S-24
<PAGE>
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.
Exposure of the Mortgage Pool to Adverse Economic or other Developments
Based on Geographic Concentration. ______ Mortgage Loans, which represent ____%
of the Initial Pool Balance, are secured by liens on Mortgaged Properties
located in _____________. In general, that concentration increases the exposure
of the Mortgage Pool to any adverse economic or other developments that may
occur in _________. In recent periods, _____________ (along with other regions
of the United States) has experienced a significant downturn in the market value
of real estate.
Increased Risk of Loss Associated With Concentration of Mortgage Loans
and Borrowers. Several of the Mortgage Loans have Cut-off Date Balances (as
defined herein) that are substantially higher than the average Cut-off Date
Balance. In general, concentrations in a mortgage pool of loans with
larger-than-average balances can result in losses that are more severe, relative
to the size of the pool, than would be the case if the aggregate balance of the
pool were more evenly distributed. In addition, in several cases, multiple
Mortgage Loans have been made to the same Mortgagor or to a group of affiliated
Mortgagors that are under common control. Concentration of borrowers also poses
increased risks. For instance, if a borrower that owns several Mortgaged
Properties experiences financial difficulty at one Mortgaged Property, or at
another income-producing property that it owns, it could attempt to avert
foreclosure by filing a bankruptcy petition that might have the effect of
interrupting Monthly Payments for an indefinite period on all of the related
Mortgage Loans.
Risks Associated With Changes in Concentrations. If and as payments in
respect of principal (including voluntary prepayments and prepayments resulting
from casualty or condemnation, defaults and liquidations and repurchases due to
breaches of representations and warranties) are received with respect to the
Mortgage Loans, the remaining Mortgage Loans as a group may exhibit increased
concentration with respect to the type of properties, property characteristics,
number of Mortgagors and affiliated Mortgagors and geographic location. [Because
unscheduled collections of principal on the Mortgage Loans are payable on the
respective Classes of Bonds in sequential order, such Classes that have a lower
sequential priority are relatively more likely to be exposed to any risks
associated with changes in concentrations of loan or property characteristics.]
[Inclusion of Delinquent, Under-Performing and Non-Performing Mortgage
Loans. The Mortgage Pool will include _____ Mortgage Loans, representing _____%
of the Initial Pool Balance, that [describe generally the characteristics of
those delinquent, under-performing and non-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,
under-performing and non-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--Certain
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans--Inclusion of Delinquent, Under-Performing and Non-Performing Mortgage
Loans in a Mortgage Asset Pool' in the Prospectus.]
Potential Liability to the Trust Estate Relating to a Materially Adverse
Environmental Condition. [An environmental site assessment was performed at
[each][all but ___] of the Mortgaged Properties during the _____ month period
prior to the Cut-off Date. [Note any special environmental problems.]
[Otherwise,] no such environmental assessment revealed any material adverse
environmental condition or circumstance at any Mortgaged Property[, except for
(i) those cases in which the condition or circumstance was remediated or an
escrow for such remediation has been established and (ii) those cases in which
an operations and maintenance plan or periodic monitoring of nearby properties
was recommended, which recommendations are consistent with industrywide
practices].
[The S&A Agreement requires that the Special Servicer obtain an
environmental site assessment of a Mortgaged Property securing a defaulted
Mortgage Loan prior to acquiring title thereto or assuming its operation. Such
prohibition effectively precludes enforcement of the security for the related
Mortgage Note until a satisfactory environmental site assessment is obtained (or
until any
S-25
<PAGE>
required remedial action is thereafter taken), but will decrease the likelihood
that the Issuer or the Trust Estate will become liable for a material adverse
environmental condition at the Mortgaged Property. However, there can be no
assurance that the requirements of the S&A Agreement will effectively insulate
the Issuer and the Trust Estate from potential liability for a materially
adverse environmental condition at any Mortgaged Property.] See "Servicing and
Administration of the Mortgage Assets--Realization Upon Defaulted Mortgage
Loans", "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--Risk of Liability Arising from Environmental
Conditions" and "Certain Legal Aspects of Mortgage Loans--Environmental
Considerations" in the Prospectus.
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 of Offered Securities" in the Prospectus.
Limited Assets for Payment of Offered Bonds. The Offered Bonds will not be
guaranteed or insured by the Company 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, Net Aggregate Prepayment Interest Shortfalls and
Extraordinary Expenses 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 S&A Agreement) is less than the aggregate interest payable on
the Offered Bonds.] See "Description of the Bonds--Subordination" herein and
"Servicing and Administration of the Mortgage Assets--The Collection Account" 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 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 Indentures--Issuer Events of Default" in the Prospectus.
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<PAGE>
Bondholders Have Limited Ability to Force Sale of Collateral Following
Non-Payment of Principal or Interest. [Following an Issuer Event of Default, the
Indenture 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 Indenture Trustee shall) declare all the Bonds to be due and
payable. In connection with any such declaration of acceleration, the Indenture
Trustee may, as described in the Prospectus, liquidate the Mortgage 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
Company or any affiliate thereof will be deemed not to be outstanding. See
"Description of the Indentures--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, S&A Events of Default (as defined in the Prospectus)
and certain amendments to the Indenture and the S&A Agreement (as defined
herein). 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 S&A 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 "Mortgage Pool" will be a segregated pool of ___ [describe general
characteristics of the Mortgage Loans] mortgage loans (the "Mortgage Loans")
with an aggregate Cut-off Date Balance of $__________ (the "Initial Pool
Balance")[, subject to a permitted variance of plus or minus __%]. The "Cutoff
Date Balance" of each Mortgage Loan is the unpaid principal balance thereof as
of the Cut-off Date, after application of all payments due on or before such
date, whether or not received. All numerical information provided herein with
respect to the Mortgage Loans is provided on an approximate basis. All weighted
average information provided herein with respect to the Mortgage Loans reflects
the weighting of the Mortgage Loans by their Cut-off Date Balances.
Each Mortgage Loan is evidenced by a note or bond (a "Mortgage Note") and
is secured by a [first] mortgage, deed of trust or similar security instrument
(a "Mortgage") on the fee simple (or, in ___ cases, representing ___% of the
Initial Pool Balance, the leasehold) interest of the related mortgagor (the
"Mortgagor") in real property used for commercial or multifamily purposes, all
buildings and improvements
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<PAGE>
thereon and certain personal property located thereon (each, a "Mortgaged
Property") and security interests in certain funds and accounts and other
collateral described herein.
The Mortgage Loans are not insured or guaranteed by the Issuer, the
Company or the Mortgage Loan Seller, by any governmental entity or private
mortgage insurer or by any other person. All of the Mortgage Loans are
nonrecourse loans as to which recourse in the case of default will be limited to
the specific property and such other assets, if any, as were pledged to secure a
Mortgage Loan.
On or prior to the Closing Date, the Company 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 Company and the Mortgage Loan Seller, and the Company
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 "--The Mortgage Loan Seller" herein
and "Description of the Indentures--Pledge of Mortgage Assets" in the
Prospectus. For purposes of the Prospectus, the Mortgage Loan Seller constitutes
a "Mortgage Asset Seller".
[The Mortgage Loans were originated during the period from ____________ to
_____________, generally in accordance with the underwriting criteria described
below under "--Underwriting of the Mortgage Loans". The Mortgage Loan Seller
originated ____ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, and acquired the remaining Mortgage Loans from the respective
originators thereof.]
Certain Payment Characteristics
___ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, have Due Dates that occur on the ___ day of each month. The remaining
Mortgage Loans have Due Dates that occur on the ______ (____% of the Mortgage
Loans), _____ (____% of the Mortgage Loans), _____ (____% of the Mortgage
Loans), and _______ (____% of the Mortgage Loans) day of each month.
[____________ of the Mortgage Loans, which represent ____% of the Initial
Pool Balance, are ARM Loans. The ARM Loans bear interest at Mortgage Rates that
are subject to adjustment on periodically occurring Interest Rate Adjustment
Dates by adding the related Gross Margin to the applicable value of the related
Index, subject in ______ cases to rounding conventions and lifetime minimum
and/or maximum Mortgage Rates and, in the case of ________ Mortgage Loans, which
represent ____% of the Initial Pool Balance, to periodic minimum and/or maximum
Mortgage Rates. The remaining Mortgage Loans are Fixed Rate Loans. None of the
ARM Loans is convertible into a Fixed Rate Loan.]
[If there are ARM Loans: [Identify Mortgage Loan Index]. The adjustments
to the Mortgage Rates on the ARM Loans may in each case be based on the value of
the related Index as available a specified number of days prior to an Interest
Rate Adjustment Date, or may be based on the value of the related Index as most
recently published as of an Interest Rate Adjustment Date or as of a designated
date preceding an Interest Rate Adjustment Date. ____ of the ARM Loans, which
represent ___% of the Initial Pool Balance, provide for Interest Rate Adjustment
Dates that occur monthly; ____ of the ARM Loans, which represent ___% of the
Initial Pool Balance, provide for Interest Rate Adjustment Dates that occur
semi-annually; and the remaining ARM Loans provide for Interest Rate Adjustment
Dates that occur annually.]
[If there are ARM Loans: The Monthly Payments on each ARM Loan are subject
to adjustment on each Payment Adjustment Date to an amount [that would amortize
fully the principal balance of the Mortgage Loan over its then remaining
amortization schedule and pay interest at the then applicable Mortgage Rate].
[Discuss frequency of Payment Adjustment Dates and possibility of negative
amortization of interest.]]
_____ of the Mortgage Loans, representing ___% of the Initial Pool
Balance, are Balloon Loans that provide for monthly payments of principal based
on amortization schedules significantly longer than the remaining terms of such
Mortgage Loans. Thus, each such Mortgage Loan will have a Balloon Payment due at
its stated maturity date, unless prepaid prior thereto. The remaining Mortgage
Loans are fully amortizing.
[All the Mortgage Loans provided at origination for, sequentially, a
period (a "Lockout Period") during which voluntary prepayments of principal
(each, a "Principal Prepayment") are prohibited, then a
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<PAGE>
period during which Principal Prepayments are permitted but are required to be
accompanied by an additional amount (a "Prepayment Premium") equal to the
greater of a specified percentage of the principal amount being prepaid or a
premium calculated on the basis of a yield maintenance formula, and then,
commencing on a specified date prior to maturity, a period (the related "Open
Period") during which Principal Prepayments may be made without payment of any
Prepayment Premium.]
[The Index]
[Describe Index.]
[Delinquent Mortgage Loans]
[Describe those delinquent Mortgage Loans, if any, included in the Mortgage
Pool.]
Additional Mortgage Loan Information
The following tables set forth the specified characteristics of, in each
case as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage
Loans. The sum in any column may not equal the indicated total due to rounding.
Mortgage Rates as of the Cut-off Date
Percent by
Number of Aggregate Aggregate
Mortgage Cut-off Date Cut-off Date
Range of Mortgage Rates(%) Loans Balance Balance
-------------------------- ----- ------- -------
================ =============== ================
Total..........................
================ =============== ================
Weighted Average Mortgage Rate
(All Mortgage Loans): ______% per annum
Weighted Average Mortgage Rate
(ARM Loans): ____% per annum
Weighted Average Mortgage Rate
(Fixed Rate Loans): _____% per annum
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<PAGE>
Gross Margins for the ARM Loans
Percent by
Aggregate Aggregate
Number of Cut-off Date Cut-off Date
Range of Gross Margins(%) ARM Loans Balance Balance
------------------------- --------- ------- -------
================ =============== ================
Total..........................
================ =============== ================
Weighted Average Gross Margin:____%
S-30
<PAGE>
Frequency of Adjustments to Mortgage Rates and Monthly
Payments for the ARM Loans
Mortgage Monthly Percent by
Rate Payment Number of Aggregate Aggregate
Adjustment Adjustment Mortgage Cut-off Date Cut-off Date
Frequency Frequency Loans Balance Balance
--------- --------- ----- ------- -------
============ ============ ===========
Total.............
============ ============ ===========
Maximum Lifetime Mortgage Rates for the ARM Loans
Percent by
Aggregate Aggregate
Range of Maximum Number of Cut-off Date Cut-off Date
Lifetime Mortgage Rates(%) ARM Loans Balance Balance
-------------------------- --------- ------- -------
================ =============== ================
Total..........................
================ =============== ================
Weighted Average Maximum
Lifetime Mortgage Rate
(ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
Minimum Lifetime Mortgage Rates for the ARM Loa ns
Percent by
Aggregate Aggregate
Range of Minimum Number of Cut-off Date Cut-off Date
Lifetime Mortgage Rates(%) ARM Loans Balance Balance
-------------------------- --------- ------- -------
================ =============== ================
Total..........................
================ =============== ================
Weighted Average Minimum
Lifetime Mortgage Rate
(ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without minimum
lifetime Mortgage Rates.
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<PAGE>
Cut-off Date Balances
Percent by
Aggregate Aggregate
Cut-off Date Number of Cut-off Date Cut-off Date
Balance Range ($) Mortgage Loans Balance Balance
----------------- -------------- ------- -------
================ =============== ================
Total
================ =============== ================
Average Cut-off Date Balance
(All Mortgage Loans): $____________
Average Cut-off Date Balance
(ARM Loans): $____________
Average Cut-off Date Balance
(Fixed Rate Loans): $____________
Types of Mortgaged Properties
Percent by
Aggregate Aggregate
Number of Cut-off Date Cut-off Date
Property Type Mortgage Loans Balance Balance
------------- -------------- ------- -------
Total.........................
================ =============== ================
================ =============== ================
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<PAGE>
Geographic Distribution of the Mortgaged Properties
Percent by
Aggregate Aggregate
Number of Cut-off Date Cut-off Date
State Mortgage Loans Balance Balance
----- -------------- ------- -------
Total.........................
================ =============== ================
================ =============== ================
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<PAGE>
Original Term to Stated Maturity (in Months)
Percent by
Aggregate Aggregate
Range of Original Number of Cut-off Date Cut-off Date
Terms (in Months) Mortgage Loans Balance Balance
----------------- -------------- ------- -------
================ =============== ================
Total.........................
================ =============== ================
Weighted Average Original
Term to Stated Maturity
(All Mortgage Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans): ____ months
Remaining Term to Stated Maturity (in Months)
as of the Cut-off Date
Percent by
Aggregate Aggregate
Range of Remaining Number of Cut-off Date Cut-off Date
Terms (in Months) Mortgage Loans Balance Balance
-------------- ------- -------
================ =============== ================
Total.........................
================ =============== ================
Weighted Average Remaining
Term to Stated Maturity
(All Mortgage Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans): ___ months
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<PAGE>
The following table sets forth a range of Debt Service Coverage Ratios for
the Mortgage Loans. The "Debt Service Coverage Ratio" set forth in the following
table for any Mortgage Loan is [the ratio of (i) Net Operating Income produced
by the related Mortgaged Property for the period (annualized if the period was
less than one year) covered by the most recent operating statement available to
the Company to (ii) the amount of the Monthly Payment in effect as of the
Cut-off Date multiplied by 12. "Net Operating Income" is the revenue derived
from the use and operation of a Mortgaged Property (consisting primarily of
rental income and deposit forfeitures), less operating expenses (such as
utilities, general administrative expenses, management fees, advertising,
repairs and maintenance), and further less fixed expenses (such as insurance and
real estate taxes). Net Operating Income generally does not reflect capital
expenditures. The following table was prepared using operating statements
obtained from the respective Mortgagors or the related property managers. In
each case, the information contained in such operating statements was unaudited,
and neither the Issuer nor the Company has made any attempt to verify its
accuracy. In the case of _____ Mortgage Loans (____ ARM Loans and ____ Fixed
Rate Loans), representing __% of the Initial Pool Balance, operating statements
could not be obtained, and accordingly, Debt Service Coverage Ratios for those
Mortgage Loans were not calculated. The last day of the period (which may not
correspond to the most recently ended calendar year) covered by each operating
statement from which a Debt Service Coverage Ratio was calculated is set forth
in [Annex A] with respect to the related Mortgage Loan.]
Debt Service Coverage Ratios(A)
Percent by
Range of Number of Aggregate
Debt Service Mortgage Aggregate Cut-off Cut-off Date
Coverage Ratios (x) Loans Date Balance Balance
------------------- ----- ------------ -------
Not Calculated(B).............
================ =============== ================
Total.........................
================ =============== ================
Weighted Average
Debt Service Coverage Ratio
(All Mortgage Loans): _____x(C)
Weighted Average
Debt Service Coverage Ratio
(ARM Loans): _____x(D)
Weighted Average
Debt Service Coverage Ratio
(Fixed Rate Loans): _____x(E)
- -------------------
(A) The Debt Service Coverage Ratios are based on the most recently available
operating statements obtained from the respective mortgagors or the
related property managers.
(B) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(C) This calculation does not include the ________ Mortgage Loans as to which
Debt Service Coverage Ratios were not calculated.
(D) This calculation does not include the ________ ARM Loans as to which Debt
Service Coverage Ratios were not calculated.
(E) This calculation does not include the ________ Fixed Rate Loans as to
which Debt Service Coverage Ratios were not calculated.
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<PAGE>
The following tables set forth the range of LTV Ratios of the Mortgage
Loans at the Cut-off Date. The "LTV Ratio" set forth in the following table for
any Mortgage Loan is [a fraction, expressed as a percentage, the numerator of
which is the Cut-off Date Balance of such 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. Because it is based on the value of a Mortgaged Property
determined as of loan origination, the information set forth in the table below
is not necessarily a reliable measure of the related borrower's current equity
in each Mortgaged Property. In a declining real estate market, the fair market
value of a Mortgaged Property could have decreased from the value determined at
origination, and the current actual loan-to-value ratio of a Mortgage Loan may
be higher than its LTV Ratio as reflected in the table set forth below.]
LTV Ratios at Cut-off Date
Percent by
Aggregate Aggregate
Range of LTV Ratios(%) Number of Cut-off Date Cut-off Date
as of Cut-off Date Mortgage Loans Balance Balance
------------------ -------------- ------- -------
================ =============== ================
Total.........................
================ =============== ================
Weighted Average LTV
Ratios as of Cut-off Date
(All Mortgage Loans):
_____%
Weighted Average LTV Ratio
as of Cut-off Date (ARM
Loans): _____%
Weighted Average LTV Ratio
as of Cut-off Date (Fixed
Rate Loans): _____%
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<PAGE>
Occupancy Rates
Percent by
Aggregate Aggregate
Range of Number of Cut-off Date Cut-off Date
Occupancy Rates(A) Mortgage Loans Balance Balance
-------------- ------- -------
================ =============== ================
Total.........................
================ =============== ================
Weighted Average Occupancy Rate (All
Mortgage Loans)(A): _____%
Weighted Average Occupancy Rate
(ARM Loans)(A): _____%
Weighted Average Occupancy Rate
(Fixed Rate Loans)(A): _____%
- ---------------------------------
(A) Physical occupancy rates calculated based on rent rolls provided by the
respective Mortgagors or related property managers as of a date no more
than ___ months prior to the Cut-off Date.
Specified in [Annex A] to this Prospectus Supplement are the foregoing and
certain additional characteristics of the Mortgage Loans set forth on a
loan-by-loan basis. Certain additional information regarding the Mortgage Loans
is contained herein under "--Underwriting of the Mortgage Loans" and
"--Representations and Warranties with respect to the Mortgage Loans;
Repurchases" and in the Prospectus under "Description of the Underlying
Assets--Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans".
[Delinquencies. As of the Cut-off Date, [no] Mortgage Loan was more than
30 days delinquent in respect of any Monthly Payment.]
The Mortgage Loan Seller
General. [The Mortgage Loan Seller [, a wholly-owned subsidiary of
__________,] is a _________________ organized in 19___ under the laws of
__________________. [Specify additional information regarding the Mortgage Loan
Seller's multifamily and commercial portfolio, including delinquency and loss
information.]
The information set forth herein concerning the Mortgage Loan Seller and
the underwriting of the Mortgage Loans has been provided by the Mortgage Loan
Seller, and none of the Issuer, the Company or the Underwriter makes any
representation or warranty as to the accuracy or completeness of such
information.
S-37
<PAGE>
Underwriting of the Mortgage Loans
[All of the Mortgage Loans were originated generally in accordance with
the underwriting criteria described herein.]
[Description of underwriting.]
Representations and Warranties with respect to the Mortgage Loans; Repurchases
In the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller has
represented and warranted with respect to each Mortgage Loan, as of [the Closing
Date], or as of such other date specifically provided in the representation and
warranty, among other things, that:
[Specify significant representations and warranties.]
If the Mortgage Loan Seller has been notified of a material breach of any
of the foregoing representations and warranties as described in the Prospectus
and if the Mortgage Loan Seller cannot cure such breach within a period of ___
days following its receipt of such notice, then the Mortgage Loan Seller will be
obligated pursuant to the Mortgage Loan Purchase Agreement (the relevant rights
under which will be assigned, together with the Mortgage Loans, by the Company
to the Issuer and, further, will be pledged, together with the Mortgage Loans,
by the Issuer to secure the Bonds) to repurchase the affected Mortgage Loan
within such __-day period at a price (the "Purchase Price") equal to [the sum of
(i) the unpaid principal balance of such Mortgage Loan, (ii) unpaid accrued
interest on such Mortgage Loan at the related Mortgage Rate from the date to
which interest was last paid to the Due Date in the Due Period in which the
purchase is to occur, and (iii) certain servicing expenses that are reimbursable
to the Master Servicer and the Special Servicer].
The foregoing repurchase obligation will constitute the sole remedy
available to the Bondholders and the Trustee for any breach of the Mortgage Loan
Seller's representations and warranties regarding the Mortgage Loans. The
Mortgage Loan Seller will be the sole Warranting Party in respect of the
Mortgage Loans, and none of the Issuer, the Company, the Master Servicer, the
Special Servicer or any of their affiliates [(other than the Mortgage Loan
Seller)] will be obligated to repurchase any affected Mortgage Loan in
connection with a breach of the Mortgage Loan Seller's representations and
warranties if the Mortgage Loan Seller defaults on its obligation to do so. See
"Description of the Indentures--Representations and Warranties with respect to
Mortgage Assets; Repurchase and Other Remedies" in the Prospectus.
Changes in Mortgage Pool Characteristics
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 Company 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 Company 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.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Bonds on or shortly after the Closing Date and will be
filed, together with the Terms Indenture, with the Commission within fifteen
days after the initial issuance of the Offered Bonds. In the event Mortgage
Loans are removed from or added to the Mortgage Pool as set forth in the
preceding paragraph, such removal or addition will be noted in the Form 8-K.
S-38
<PAGE>
SERVICING OF THE MORTGAGE LOANS
General
The servicing and administration of the Mortgage Pool will be governed by
the terms of the Servicing and Administration Agreement dated as of
__________________, 199__ (the "S&A Agreement"), among the Owner Trustee on
behalf of the Issuer, the Trustee on behalf of the Bondholders, the Master
Servicer and the Special Servicer. The Master Servicer and the Special Servicer,
either directly or through sub-servicers, will be required to service and
administer the Mortgage Loans, for the benefit of the Bondholders and the
Issuer, in accordance with applicable law, the terms of the S&A Agreement and
the terms of the respective Mortgage Loans and, to the extent consistent with
the foregoing, [in accordance with the following standards (collectively, the
"Servicing Standard"): (a) with the same care, skill and diligence with which
prudent institutional commercial mortgage lenders and loan servicers service
comparable mortgage loans or, if higher, with the same care, skill and diligence
with which the Master Servicer or Special Servicer, as the case may be,
generally services comparable mortgage loans owned by it; (b) with a view to the
timely collection of all scheduled payments of principal and interest under the
Mortgage Loans or, if a Mortgage Loan comes into and continues in default and no
satisfactory arrangements can be made for the collection of the delinquent
payments, the maximization of the net recovery on such Mortgage Loan on a
present value basis; and (c) without regard to: (i) any relationship that it or
any of its affiliates may have with the related Mortgagor or any other party to
the S&A Agreement; (ii) its ownership (or that of an affiliate) of any Bond;
(iii) any obligation to make Advances (as defined below); and (iv) its right or
the right of any affiliate to receive compensation for its services or
reimbursement of costs under the S&A Agreement or with respect to any particular
transaction].
The Master Servicer initially will, except for certain limited duties, be
responsible for the master servicing and administration of the entire Mortgage
Pool. [The Special Servicer will be responsible for property level servicing and
administration of the entire Mortgage Pool, including: (i) conducting (or
retaining a third party to conduct) inspections of each Mortgaged Property at
least once every ___ years; and (ii) collecting and making certain calculations
based on annual operating statements and rent rolls with respect to each
Mortgaged Property.] The Special Servicer will also be responsible for special
servicing and administering any Mortgage Loan as to which any of the following
events (each, a "Servicing Transfer Event") occurs: [(a) the related Mortgagor
fails to make when due any Balloon Payment, which failure continues unremedied,
or the Master Servicer determines, in its reasonable good faith judgment, will
continue unremedied, for 30 days; (b) the related Mortgagor fails to make when
due any other Monthly Payment or any other payment required under the related
Mortgage Note and Mortgage, which failure continues unremedied, or the Master
Servicer determines, in its reasonable good faith judgment, will continue
unremedied, for 60 days; (c) the Master Servicer determines, in its reasonable
good faith judgment, that a default in making any Monthly Payment (including a
Balloon Payment) or any other payment required under the related Mortgage Note
and Mortgage is likely to occur within 30 days and is likely to remain
unremedied for at least 60 days or, in the case of a Balloon Payment, for at
least 30 days; (d) the Master Servicer determines, in its reasonable good faith
judgment, that a default (other than as described in clause (a) or (b) above)
has occurred that may materially impair the value of the related Mortgaged
Property as security for the Mortgage Loan and such default continues unremedied
for the applicable cure period under the terms of the Mortgage Loan (or, if no
cure period is specified, for 30 days); (e) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings occur in respect of the related Mortgagor or the related Mortgaged
Property, or the related Mortgagor takes certain actions indicating its
insolvency or its inability to pay its obligations, or (f) the Master Servicer
receives notice of the commencement of foreclosure or similar proceedings with
respect to the related Mortgaged Property].
If a Servicing Transfer Event occurs with respect to any Mortgage Loan,
the Master Servicer is required to use reasonable efforts to effect or to
cooperate in effecting the transfer of the servicing responsibilities with
respect thereto to the Special Servicer within ____ business days.
Notwithstanding such transfer, the Master Servicer will continue to receive
payments on such Mortgage Loan (including amounts collected by the Special
Servicer), to make certain calculations with respect to such Mortgage Loan, and
to make remittances to (including, if necessary, P&I Advances) and prepare
certain reports for, the Trustee with respect to such Mortgage Loan. If title to
the related Mortgaged Property is acquired as part of the Trust Estate (upon
acquisition, an "REO Property"), whether through foreclosure, deed in lieu of
foreclosure or otherwise,
S-39
<PAGE>
the Special Servicer will continue to be responsible for the operation and
management thereof. Mortgage Loans serviced by the Special Servicer are referred
to herein as "Specially Serviced Mortgage Loans". The Master Servicer will have
no responsibility for the Special Servicer's performance of its duties under the
S&A Agreement.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan" as to which the Master Servicer will
re-assume servicing responsibilities) at such time as no circumstance identified
in clauses (a) through (f) of the second preceding paragraph exists that would
cause the Mortgage Loan to continue to be characterized as a Specially Serviced
Mortgage Loan and such of the following as are applicable occur:
(w) with respect to the circumstances described in clause (a) and
(b) of the second preceding paragraph, the related Mortgagor has made
three consecutive full and timely Monthly Payments under the terms of such
Mortgage Loan (as such terms may be changed or modified in connection with
a bankruptcy or similar proceeding involving the related Mortgagor or by
reason of a modification, waiver or amendment granted or agreed to by the
Special Servicer);
(x) with respect to the circumstances described in clauses (c) and
(e) of the second preceding paragraph, such circumstances cease to exist
in the reasonable good faith judgment of the Special Servicer;
(y) with respect to the circumstances described in clause (d) of the
second preceding paragraph, such default is cured; and
(z) with respect to the circumstances described in clause (f) of the
second preceding paragraph, such proceedings are terminated.
Set forth below is a description of certain pertinent provisions of the
S&A Agreement relating to the servicing of the Mortgage Loans. Reference is also
made to the Prospectus, in particular to the section captioned "Servicing and
Administration of the Mortgage Assets", for additional important information
regarding the terms and conditions of the S&A Agreement as such terms and
conditions relate to the rights and obligations of the Master Servicer and the
Special Servicer thereunder.
The Master Servicer
[_____________________________________________ (the "Master Servicer")
will act as Master Servicer with respect to the Mortgage Pool. The offices of
the Master Servicer that will be primarily responsible for servicing and
administering the Mortgage Pool are located
at__________________________________________________. As of_______________,
199__, the Master Servicer had a net worth of approximately $______________ and
was the servicer of a portfolio of multifamily and commercial mortgage loans in
___ states totaling approximately $______________ in aggregate outstanding
principal amount.]
The foregoing information has been provided by the Master Servicer. None
of the Issuer, the Company, the Underwriter, the Trustee, the Special Servicer
or any of their respective affiliates takes any responsibility therefor or makes
any representation or warranty as to the accuracy or completeness thereof.
The Master Servicer will have no responsibility for, and makes no
representation with respect to, the origination of the Mortgage Loans, the
management of the Mortgaged Properties, the validity or sufficiency of the
security arrangements described herein with respect to the Mortgage Loans or the
collectability of amounts due under the Mortgage Loans.
S-40
<PAGE>
The Special Servicer
[____________________________________ will act as Special Servicer with
respect to the Mortgage Pool. The principal offices of the Special Servicer are
located at ____________________________. As of _________, 199__, the Special
Servicer was responsible for the servicing of approximately _________ commercial
and multifamily loans with an aggregate principal balance of approximately
$_______, the collateral for which is located in ___ states.]
The foregoing information has been provided by the Special Servicer. None
of the Issuer, the Company, the Underwriter, the Trustee, the Master Servicer or
any of their respective affiliates takes any responsibility therefor or makes
any representation or warranty as to the accuracy or completeness of such
information.
The Special Servicer will have no responsibility for, and makes no
representation with respect to, the origination of the Mortgage Loans, the
management of the Mortgaged Properties, the validity or sufficiency of the
security arrangements described herein with respect to the Mortgage Loans or the
collectability of amounts due under the Mortgage Loans.
Sub-Servicers
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that the Master
Servicer or Special Servicer, as the case may be, will remain obligated under
the S&A Agreement. Each sub-servicing agreement between the Master Servicer or
Special Servicer, as the case may be, and a Sub-Servicer (a "Sub-Servicing
Agreement") must be consistent with the S&A Agreement and must provide, among
other things, that, if for any reason such Master Servicer or Special Servicer
is no longer acting in such capacity, the Trustee or any successor to such
Master Servicer or Special Servicer may assume such party's rights and
obligations under such Sub-Servicing Agreement. The Master Servicer and Special
Servicer will each be required to monitor the performance of Sub-Servicers
retained by it.
The Master Servicer or Special Servicer will be solely liable for all fees
owed by it to any Sub-Servicer. Each Sub-Servicer retained thereby will be
reimbursed by the Master Servicer or Special Servicer, as the case may be, for
certain expenditures which it makes, generally to the same extent the Master
Servicer or Special Servicer would be reimbursed under the S&A Agreement. See
"Servicing and Administration of the Mortgage Assets--Collection Account" in the
Prospectus and "--Servicing and Other Compensation and Payment of Expenses"
below.
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 Master Servicing Fee. The "Master
Servicing Fee" will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Mortgage Loan (including Specially
Serviced Mortgage Loans and Mortgage Loans as to which the related Mortgaged
Property has become an REO Property), will accrue at _______% per annum (the
"Master 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 the Mortgage Loan is computed. As additional servicing compensation,
the Master Servicer will be entitled to (x) Prepayment Interest Excesses (as
defined below) actually collected on the Mortgage Loans and (y) any Default
Interest (that is, interest in excess of interest at the related Mortgage Rate,
accrued on any Mortgage Loan by reason of a default thereunder) and late payment
charges actually collected on the Mortgage Loans, but only to the extent that
such items (i) are allocable to the period when the related Mortgage Loan did
not constitute a Specially Serviced Mortgage Loan or REO Property and (ii) are
not allocable to pay any portion of a Workout Fee or Liquidation Fee (each as
defined below) payable to the Special Servicer with respect to the related
Mortgage Loan or to cover interest payable to the Master Servicer, Special
Servicer or Trustee with respect to any Advances made in respect of the related
Mortgage Loan. In addition, the Master Servicer will be authorized to invest or
direct the investment of funds held in any accounts maintained by it that
constitute part of the Collection Account (as defined in the Prospectus), in
Permitted Investments (as defined in the Prospectus), and the Master Servicer
will be entitled to retain any interest or other income earned on such
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funds, but will be required to cover any losses from its own funds without any
right to reimbursement. See "Servicing and Administration of the Mortgage
Assets--Collection Account" in the Prospectus.]
[If a Mortgagor prepays a Mortgage Loan in whole or in part prior to the
related Due Date in any Collection Period, the amount of interest (net of
related Master Servicing Fees and Property Servicing Fees) that would have
accrued on the amount of such Principal Prepayment from the date of such
Principal Prepayment to, but not including, such Due Date, to the extent not
collected (without regard to any related Prepayment Premium), will constitute a
"Prepayment Interest Shortfall". If such a Principal Prepayment is made after
the related Due Date in any Collection Period, the amount of interest (net of
related Master Servicing Fees and Property Servicing Fees) that accrues on the
amount of such Principal Prepayment from such Due Date to, but not including,
the date of such Principal Prepayment, to the extent collected (exclusive of any
related Prepayment Premium), will constitute a "Prepayment Interest Excess". Any
Prepayment Interest Excesses collected will be paid to the Master Servicer as
additional servicing compensation. However, with respect to each Payment Date,
the Master Servicer will be required to deposit into the Collection Account
(such deposit, a "Compensating Interest Payment"), without any right of
reimbursement therefor, an amount equal to the lesser of (i) the aggregate
Master Servicing Fees for the related Collection Period, plus any Prepayment
Interest Excesses received during such Collection Period, and (ii) the aggregate
of any Prepayment Interest Shortfalls experienced during the related Collection
Period. The Master Servicer is not required to make Compensating Interest
Payments to cover comparable shortfalls in Mortgage Loan interest accruals that
result from any liquidation of a defaulted Mortgage Loan or an REO Property
acquired in respect thereof. If the aggregate of any Prepayment Interest
Shortfalls experienced during any Collection Period exceed any Compensating
Interest Payment made in respect thereof, the difference will constitute the
"Net Aggregate Prepayment Interest Shortfall" for the related Payment Date.]
[The principal compensation to be paid to the Special Servicer in respect
of its property level servicing activities will be the Property Servicing Fee.
The "Property Servicing Fee" will accrue with respect to each Mortgage Loan
(including Specially Serviced Mortgage Loans and Mortgage Loans as to which the
related Mortgaged Property has become an REO Property) at a rate equal to _____%
per annum (the "Property 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 any such Mortgage Loan is computed. Earned but
unpaid Property Servicing Fees will be payable monthly out of general
collections on the Mortgage Loans and any REO Properties on deposit in the
Collection Account.]
[The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Special Servicing Fee, the
Workout Fee and the Liquidation Fee. Solely as to Specially Serviced Mortgage
Loans and Mortgage Loans as to which the related Mortgaged Property has become
an REO Property, and in addition to the Property Servicing Fee for such Mortgage
Loans, the Special Servicer shall be entitled to the "Special Servicing Fee"
which will accrue at a rate equal to ____% per annum (the "Special 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 any such
Mortgage Loan is computed. The Special Servicing Fee with respect to any such
Mortgage Loan will cease to accrue if such loan (or the related REO Property) is
liquidated or if, in the case of a Specially Serviced Mortgage Loan, it becomes
a Corrected Mortgage Loan. Earned but unpaid Special Servicing Fees will be
payable monthly out of general collections on the Mortgage Loans and any REO
Properties on deposit in the Collection Account. A "Workout Fee" will generally
be payable with respect to each Corrected Mortgage Loan. As to each Corrected
Mortgage Loan, the Workout Fee will be payable out of, and will be calculated by
application of a "Workout Fee Rate" of _____% to, each collection of interest
and principal (net of related unpaid or unreimbursed Master Servicing Fees,
Property Servicing Fees, Special Servicing Fees and Advances) and each
collection of a Prepayment Premium, received on such Mortgage Loan for so long
as it remains a Corrected Mortgage Loan. The Workout Fee with respect to any
Corrected Mortgage Loan will cease to be payable if such loan again becomes a
Specially Serviced Mortgage Loan or if the related Mortgaged Property becomes an
REO Property; provided that a new Workout Fee will become payable if and when
such Mortgage Loan again becomes a Corrected Mortgage Loan. If the Special
Servicer is terminated other than for cause, or resigns, it shall retain the
right to receive any and all Workout Fees payable in respect of Mortgage Loans
that became Corrected Mortgage Loans during the period that it acted as Special
Servicer and were still such at the time of such termination or resignation (and
the successor Special Servicer shall not be entitled to any portion of such
Workout Fees), in each case until the Workout Fee for any such loan ceases to be
payable in accordance with the preceding
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sentence. A "Liquidation Fee" will be payable with respect to each Specially
Serviced Mortgage Loan or REO Property as to which the Special Servicer receives
any full or discounted payoff from the related Mortgagor or any Liquidation
Proceeds, Condemnation Proceeds or Insurance Proceeds (other than as a result of
the purchase of any such Specially Serviced Mortgage Loan or REO Property by the
Mortgage Loan Seller in connection with a material breach of representation or
warranty or any purchase thereof by the Special Servicer or the Master
Servicer). As to each such Specially Serviced Mortgage Loan or REO Property, the
Liquidation Fee shall be payable out of, and shall be calculated by application
of a "Liquidation Fee Rate" of_____% to, such full or discounted payoff,
Liquidation Proceeds, Condemnation Proceeds and/or Insurance Proceeds, in each
case net of any portion of such payment or proceeds payable or reimbursable to
the Master Servicer or the Special Servicer to cover related unpaid or
unreimbursed Master Servicing Fees, Property Servicing Fees, Special Servicing
Fees and Advances. The Liquidation Fee with respect to any such Specially
Serviced Mortgage Loan will not be payable if such Mortgage Loan becomes a
Corrected Mortgage Loan. Notwithstanding anything herein to the contrary, no
Liquidation Fee will be payable in connection with the receipt of, or out of,
Liquidation Proceeds collected as a result of the purchase of any Specially
Serviced Mortgage Loan or REO Property by the Mortgage Loan Seller in connection
with a material breach of representation or warranty or any purchase thereof by
the Special Servicer or the Master Servicer. As additional servicing
compensation, the Special Servicer will be entitled to Default Interest and late
payment charges actually collected on the Specially Serviced Mortgage Loans, but
only to the extent that such items are not allocable to pay any portion of a
Workout Fee or Liquidation Fee payable to the Special Servicer with respect to
the related Mortgage Loan or to cover interest payable to the Master Servicer,
Special Servicer or Trustee with respect to any Advances made in respect of the
related Mortgage Loan.]
[In addition, the Special Servicer will be authorized to invest or direct
the investment of funds held in any accounts maintained by it that constitute
part of the Collection Account, in Permitted Investments, and the Special
Servicer will be entitled to retain any interest or other income earned on such
funds, but will be required to cover any losses from its own funds without any
right to reimbursement.]
[Assumption fees and modification fees actually collected on or with
respect to the Mortgage Loans will allocated between the Master Servicer and the
Special Servicer as provided in the S&A Agreement and will be paid to each as
additional servicing compensation.]
The Master Servicer and the Special Servicer will, in general, each be
required to pay all ordinary expenses incurred by it in connection with its
servicing activities under the S&A Agreement, including the fees of any
Sub-Servicers retained by it, and will not be entitled to reimbursement therefor
except as expressly provided in the S&A Agreement. In general, customary,
reasonable and necessary "out of pocket" costs and expenses required to be
incurred by the Master Servicer or Special Servicer in connection with the
servicing of a Mortgage Loan after a default, delinquency or other unanticipated
event, or in connection with the administration of any REO Property, will
constitute "Servicing Advances" (Servicing Advances and P&I Advances,
collectively, "Advances") and, in all cases, will be reimbursable from future
payments and other collections, including in the form of Insurance Proceeds,
Condemnation Proceeds and Liquidation Proceeds, on or in respect of the related
Mortgage Loan or REO Property ("Related Proceeds"). Notwithstanding the
foregoing, the Master Servicer and the Special Servicer will each be permitted
to pay, or to direct the payment of, certain servicing expenses directly out of
the Collection Account and at times without regard to the relationship between
the expense and the funds from which it is being paid. [In addition, if the
Special Servicer is required under the S&A Agreement to make any Servicing
Advance but does not desire to do so, the Special Servicer may, in its sole
discretion, with limited exception, request that the Master Servicer make such
Advance, such request to be made in writing and in a timely manner that does not
adversely affect the interests of the Issuer or any Bondholder. The Master
Servicer will be required to make any such Servicing Advance that it is
requested by the Special Servicer to so make within _____ days of the Master
Servicer's receipt of such request. The Special Servicer will, with limited
exception, be relieved of any obligations with respect to any Servicing Advance
that it so requests the Master Servicer to make (regardless of whether or not
the Master Servicer makes that Advance).]
[If the Master Servicer or Special Servicer is required under the S&A
Agreement to make a Servicing Advance, but neither does so within _____ days
after such Servicing Advance is required to be made, then the Trustee will, if
it has actual knowledge of such failure, be required to give the defaulting
party notice of such
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failure and, if such failure continues for _____ more days, the Trustee will be
required to make such Servicing Advance.]
The Master Servicer, the Special Servicer and the Trustee will each be
obligated to make Servicing Advances only to the extent that such Servicing
Advances are, in its reasonable good faith judgment, ultimately recoverable from
Related Proceeds. With respect to any Servicing Advance, the Trustee is entitled
to conclusively rely on the non-recoverability determination made by the Master
Servicer or Special Servicer.
As and to the extent described herein, the Master Servicer, the Special
Servicer and the Trustee are each entitled to receive interest on Servicing
Advances made thereby. See "Description of the Bonds--P&I and Other Advances"
herein.
Modifications, Waivers, Amendments and Consents
[The Special Servicer may, consistent with the Servicing Standard (but the
Master Servicer may not), agree to any modification, waiver or amendment of any
term of, forgive interest (including, without limitation, Default Interest and
late payment fees) on and principal of, capitalize interest on, permit the
release, addition or substitution of collateral securing, and/or permit the
release of the Mortgagor on or any guarantor of any Mortgage Loan it is required
to service and administer, without the consent of the Trustee or any Bondholder,
subject, however, to each of the following limitations, conditions and
restrictions:
(i) with limited exception, the Special Servicer may not agree to
any modification, waiver or amendment of any term of, or take any of the
other above referenced actions with respect to, any Mortgage Loan it is
required to service and administer that would affect the amount or timing
of any related payment of principal, interest or other amount payable
thereunder or, in the Special Servicer's reasonable good faith judgment,
would materially impair the security for such Mortgage Loan or reduce the
likelihood of timely payment of amounts due thereon, unless a material
default on such Mortgage Loan has occurred or, in the Special Servicer's
reasonable good faith judgment, a default in respect of payment on such
Mortgage Loan is reasonably foreseeable, and such modification, waiver,
amendment or other action is reasonably likely to produce a greater net
recovery on a present value basis than would liquidation;
(ii) the Special Servicer may not extend the date on which any
Balloon Payment is scheduled to be due on any Balloon Loan for more than
_____ years beyond its stated maturity date as set forth in the related
Mortgage Note as in effect on the Closing Date;
(iii) the Special Servicer may not permit any Mortgagor to add or
substitute any collateral unless the Special Servicer shall have first
determined in accordance with the Servicing Standard, based upon an
environmental assessment prepared by an independent person who regularly
conducts environmental assessments, at the expense of the Mortgagor, that
such additional or substitute collateral is in compliance with applicable
environmental laws and regulations and that there are no circumstances or
conditions present with respect to such new collateral relating to the
use, management or disposal of any hazardous materials for which
investigation, testing, monitoring, containment, clean-up or remediation
would be required under any then applicable environmental laws and/or
regulations; and
(iv) with limited exceptions, the Special Servicer may not release
any collateral securing an outstanding Mortgage Loan;
provided that (x) the limitations, conditions and restrictions set forth in
clauses (i) through (iv) above will not apply to any modification of any term of
any Mortgage Loan that is required under the terms of such Mortgage Loan as in
effect on the Closing Date or that is solely within the control of the related
Mortgagor; and (y) notwithstanding clauses (i) through (iv) above, neither the
Master Servicer nor the Special Servicer will be required to oppose the
confirmation of a plan in any bankruptcy or similar proceeding involving a
Mortgagor if in its reasonable good faith judgment such opposition would not
ultimately prevent the confirmation of such plan or one substantially similar.]
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Inspections; Collection of Operating Information
[As a part of its property level servicing duties, the Special Servicer
will be required to perform a physical inspection of each Mortgaged Property at
least once per calendar year and as soon as practicable after the related
Mortgage Loan becomes a Specially Serviced Mortgage Loan. The Special Servicer
will be required to prepare a written report of each such inspection performed
by it that describes the condition of the Mortgaged Property and that specifies
(i) any sale, transfer or abandonment of the property or (ii) any change in the
property's condition, occupancy or value that the Special Servicer considers
material.
Also as part of its property level servicing duties, the Special Servicer
will be required, with respect to each Mortgage Loan, to use reasonable efforts
to collect from the related Mortgagor and review the annual operating
statements, budgets and rent rolls of the related Mortgaged Property, and the
financial statements of such Mortgagor, and the Special Servicer will be
required to cause annual operating statements, budgets and rent rolls to be
prepared for each REO Property. However, there can be no assurance that any
operating statements required to be delivered will in fact be delivered, nor is
the Special Servicer likely to have any practical means of compelling such
delivery.]
[Termination of [Special Servicer] [Master Servicer] Without Cause]
[Specify circumstances in which the Master Servicer or the Special
Servicer may be terminated without cause.]
DESCRIPTION OF THE BONDS
General
The Issuer's Series 199__-__ Collateralized Mortgage Obligations (the
"Bonds") will be issued on or about ___________, 199__ (the "Closing Date") in
an aggregate Bond Principal Amount of approximately $_____________, pursuant to
a Terms Indenture, to be dated as of ____________, 199__ (the "Terms
Indenture"), between the Owner Trustee, on behalf of the Issuer, and the
Trustee, on behalf of the holders of the Bonds (the "Bondholders"), which Terms
Indenture incorporates by reference certain standard indenture provisions of the
Company, dated as of _________________, 1997 and filed as part of the
registration statement relating to the Offered Bonds (the Terms Indenture, as it
so incorporates by reference such standard indenture provisions, the
"Indenture"). 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 Underlying Assets" and "Servicing and Administration of the Mortgage
Assets--Collection Account" 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.
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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
5%), and will accrue interest at the Bond Interest Rates set forth below:
Initial
Aggregate Bond Bond
Class Principal Amount 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 (or, if they
had not been applied to cover Extraordinary Expenses, would 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
__th day of the month in which such Payment Date occurs, of if such __th 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 and Book-Entry Securities
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 Company
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
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physical security (a "Definitive Bond") representing its interest in such
Bond, except under the limited circumstances described under "Description of
the Securities--Book-Entry Registration and Definitive Securities" 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 Securities--Book-Entry Registration
and Definitive Securities" and "Risk Factors--Book-Entry Registration" 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 ___th day of each month
or, if any such ___th 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 "Servicing and
Administration of the Mortgage Assets--Collection Account" 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, Master Servicing Fees, Property Servicing Fees,
Special Servicing Fees, Workout Fees, Liquidation 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
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payable in reimbursement of outstanding Advances, together with interest
thereon, and amounts payable in respect of other Extraordinary Expenses);
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;
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(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
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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;
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(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:
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(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.]
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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 Master Servicing Fees, Property Servicing Fees, Special Servicing
Fees, Workout Fees and Trustee Fees payable under the Indenture and the S&A
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 "--P&I and Other 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 and Extraordinary Expenses 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
and/or Extraordinary Expenses, 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 S&A Agreement) is less
than the aggregate interest payable on the Offered Bonds.]
"Realized Losses" are losses arising from the inability of the Master
Servicer and Special Servicer to collect all amounts due and owing under any
defaulted Mortgage Loan, including by reason of fraud or bankruptcy of the
related Mortgagor or a casualty of any nature at the related Mortgaged Property,
to the extent not covered by insurance. The Realized Loss, if any, in respect of
a liquidated Mortgage Loan (or
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related REO Property) will generally equal the excess, if any, of (a) the
outstanding principal balance of such Mortgage Loan as of the date of
liquidation, together with all accrued and unpaid interest thereon at the
related Mortgage Rate and all related unreimbursed Servicing Advances, over (b)
the aggregate amount of Liquidation Proceeds, if any, recovered in connection
with such liquidation (net of any portion of such Liquidation Proceeds that is
payable or reimbursable in respect of related unpaid liquidation expenses). If
the Mortgage Rate on any Mortgage Loan is reduced or a portion of the debt due
under any Mortgage Loan is forgiven, whether in connection with a modification,
waiver or amendment granted or agreed to by the Special Servicer or in
connection with a bankruptcy or similar proceeding involving the related
Mortgagor, the resulting reduction in interest paid or the amount so forgiven,
as the case may be, also will be treated as a Realized Loss.
"Extraordinary Expenses" are any expenses of the Trust Estate not
specifically included in the calculation of a "Realized Loss," that would result
in the Bondholders (in respect of their Bonds) and the Issuer (in respect of the
Issuer's Equity) receiving less than the full amount of principal and/or
interest to which they are entitled on any Payment Date. Extraordinary Expenses
include, among other things: (i) any interest paid to the Master Servicer,
Special Servicer and/or Trustee in respect of unreimbursed Advances (to the
extent not paid out of late payment charges and Default Interest actually
collected on the related Mortgage Loan); (ii) all Special Servicing Fees,
Workout Fees and Liquidation Fees payable to the Special Servicer; (iii) any of
certain unanticipated, non-Mortgage Loan specific expenses of the Trust Estate,
including, but not limited to, certain reimbursements and indemnification to the
Trustee and certain related persons described under "Description of the
Securities--The Trustee--Certain Matters Regarding the Trustee" in the
Prospectus, certain reimbursements and indemnification to the Master Servicer,
the Special Servicer and certain related persons described under "Servicing and
Administration of the Mortgage Assets--Certain Matters regarding the Master
Servicer, the Special Servicer, the REMIC Administrator, the Manager and the
Company" in the Prospectus, and the cost of various opinions of counsel required
to be obtained in connection with the servicing of the Mortgage Loans and
administration of the Trust Estate; and (iv) any other expense of the Trust
Estate not specifically included in the calculation of "Realized Loss" for which
there is no corresponding collection from a Mortgagor.]
P&I and Other Advances
[On or about each Payment Date, the Master Servicer will be obligated,
subject to the recoverability determination described in the next paragraph, to
make advances (each, a "P&I Advance") out of its own funds or, subject to the
replacement thereof as provided in the S&A Agreement, from funds held in the
Collection Account that are not required to be paid to Bondholders and/or the
Issuer on such Payment Date, in an amount that is generally equal to the
aggregate of all Scheduled Payments (other than Balloon Payments) and any
Assumed Scheduled Payments, net of related Master Servicing Fees and Workout
Fees, due or deemed due, as the case may be, in respect of the Mortgage Loans
during the related Collection Period, in each case to the extent such amount was
not paid by or on behalf of the related Mortgagor or otherwise collected as of
the close of business on the related Determination Date. Notwithstanding the
foregoing, if the Monthly Payment on any Mortgage Loan has been reduced in
connection with a bankruptcy or similar proceeding or a modification, waiver or
amendment granted or agreed to by the Special Servicer, the Master Servicer will
be required in the event of subsequent delinquencies to advance in respect of
such Mortgage Loan only the amount of the reduced Monthly Payment (net of
related Master Servicing Fees and Workout Fees). In addition, if it is
determined that an Appraisal Reduction Amount exists with respect to any
Required Appraisal Loan (as defined below), then, with respect to the Payment
Date immediately following the date of such determination and with respect to
each subsequent Payment Date for so long as such Appraisal Reduction Amount
exists, in the event of subsequent delinquencies thereon, the interest portion
of the P&I Advance in respect of such Mortgage Loan will be reduced (no
reduction to be made in the principal portion, however) to equal to the product
of (i) the amount of the interest portion of such P&I Advance that would
otherwise be required to be made for such Payment Date without regard to this
sentence, multiplied by (ii) a fraction (expressed as a percentage), the
numerator of which is equal to the Stated Principal Balance of such Mortgage
Loan, net of such Appraisal Reduction Amount, and the denominator of which is
equal to the Stated Principal Balance of such Mortgage Loan. See "--Appraisal
Reductions" below.
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If the full amount of all P&I Advances, if any, required to be made in
respect of any Payment Date is not deposited in the Collection Account, then the
Trustee will be required to make the portion of such P&I Advances that was
required to be, but not, made by the Master Servicer. See "--The Trustee" below.
The Master Servicer and the Trustee will each be entitled to recover any
P&I Advance made out of its own funds from any Related Proceeds collected in
respect of the Mortgage Loan as to which such P&I Advance was made; provided
that neither the Master Servicer nor the Trustee will be obligated to make any
P&I Advance that it determines, in its reasonable good faith judgment, would, if
made, constitute a Nonrecoverable Advance, and the Master Servicer and the
Trustee will each be entitled to recover any P&I Advance made by it that it
later determines to be a Nonrecoverable Advance out of general funds on deposit
in the Collection Account. With respect to any P&I Advance, the Trustee is
entitled to conclusively rely on the non-recoverability determination made by
the Master Servicer.
[The Master Servicer and the Trustee will each be entitled, with respect
to any Advance made thereby, and the Special Servicer will be entitled, with
respect to any Servicing Advance made thereby, to interest accrued on the amount
of such Advance for so long as it is outstanding at a per annum rate (the
"Reimbursement Rate") equal to [specify applicable rate]. Such interest on any
Advance will be payable to the Master Servicer, the Special Servicer or the
Trustee, as the case may be, first, out of Default Interest and late payment
charges collected in respect of the related Mortgage Loan, and second, if such
Advance has been reimbursed, out of any amounts then on deposit in the
Collection Account.]
[In addition to the foregoing, the Trustee will be required to advance, to
the extent known to it, any amounts collected on or in respect of the Mortgage
Pool that the Master Servicer is required but fails to remit to the Trustee for
payment to Bondholders and/or the Issuer by a specified time on or about the
related Distribution Date. The Trustee will be entitled to interest accrued on
the amount of such advance for so long as it is outstanding at the Reimbursement
Rate.]
[Appraisal Reductions]
[Promptly (and, in any event, within 60 days) following the earliest of
(i) the date on which any Mortgage Loan becomes a Modified Mortgage Loan (as
defined below), (ii) the 60th day (or, in the case of a Modified Mortgage Loan,
the 30th day) after the occurrence of any uncured delinquency in Monthly
Payments with respect to any Mortgage Loan, (iii) the date on which a receiver
is appointed and continues in such capacity in respect of the Mortgaged Property
securing any Mortgage Loan and (iv) the date on which the Mortgaged Property
securing any Mortgage Loan becomes an REO Property (each such Mortgage Loan, a
"Required Appraisal Loan"), the Special Servicer will be required to obtain an
appraisal of the related Mortgaged Property from an independent MAI-designated
appraiser, unless such an appraisal had previously been obtained within the
prior twelve months. The cost of such appraisal will be a Servicing Advance. As
a result of any such appraisal, it may be determined that an "Appraisal
Reduction Amount" exists with respect to the related Required Appraisal Loan.
The Appraisal Reduction Amount for any Required Appraisal Loan will, in general,
be an amount, determined as of the Determination Date immediately succeeding the
date on which the related appraisal is obtained (or, if based on an earlier
appraisal, as of the Determination Date immediately succeeding the earliest of
the relevant dates described in the first sentence of this paragraph), equal to
the excess, if any, of (a) the sum of (i) the Stated Principal Balance of such
Required Appraisal Loan, (ii) to the extent not previously advanced by the
Master Servicer or the Trustee, all unpaid interest on the Required Appraisal
Loan through the most recent Due Date prior to such Determination Date at a per
annum rate equal to the sum of the related Net Mortgage Rate and the Trustee Fee
Rate (as defined below), (iii) all accrued but unpaid Master Servicing Fees,
Property Servicing Fees and Special Servicing Fees in respect of such Required
Appraisal Loan, (iv) all related unreimbursed Advances made by or on behalf of
the Master Servicer, the Special Servicer or the Trustee with respect to such
Required Appraisal Loan plus interest accrued thereon at the Reimbursement Rate
and (v) all currently due and unpaid real estate taxes and assessments,
insurance premiums, and, if applicable, ground rents in respect of the related
Mortgaged Property or REO Property (net of any escrow reserves held by the
Master Servicer or the Special Servicer with respect to any such item), over (b)
90% of the appraised value (as is) of the related Mortgaged Property or REO
Property as determined by such appraisal (net of any mortgage liens that are
prior to the lien of such Mortgage Loan).
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With respect to each Required Appraisal Loan (unless such Mortgage Loan
has become a Corrected Mortgage Loan and has remained current for twelve
consecutive Monthly Payments, and no other Servicing Transfer Event has occurred
with respect thereto during the preceding twelve months), the Special Servicer
is required, within 30 days of each anniversary of such loan's becoming a
Required Appraisal Loan, to order an update of the prior appraisal (the cost of
which will be a Servicing Advance). Based upon such appraisal, the Special
Servicer will be required to redetermine and report to the Trustee the Appraisal
Reduction Amount, if any, with respect to such Mortgage Loan.
A "Modified Mortgage Loan" is any Mortgage Loan as to which any Servicing
Transfer Event has occurred and which has been modified by the Special Servicer
in a manner that: (A) affects the amount or timing of any payment of principal
or interest due thereon (other than, or in addition to, bringing current Monthly
Payments with respect to such Mortgage Loan); (B) except as expressly
contemplated by the related Mortgage, results in a release of the lien of the
Mortgage on any material portion of the related Mortgaged Property without a
corresponding Principal Prepayment in an amount not less than the fair market
value (as is) of the property to be released; or (C) in the reasonable good
faith judgment of the Special Servicer, otherwise materially impairs the
security for such Mortgage Loan or reduces the likelihood of timely payment of
amounts due thereon.]
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 Company, 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 Company 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 S&A 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
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Date as described under "Servicing and Administration of the Mortgage
Assets--Evidence as to Compliance" in the Prospectus, (d) all accountant's
reports delivered to the Trustee in respect of the Master Servicer and/or
Special Servicer since the Closing Date as described under "Servicing and
Administration of the Mortgage Assets--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 Company, 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 Securities--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
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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 Securities" and
"Description of the Indentures", for important additional information regarding
the Bonds and the Indenture.
THE ISSUER
CRIIMI MAE Commercial Mortgage Trust [I] (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 CRIIMI MAE CMBS Corp., (the "Company") 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 Company 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 Company.] The Company, a
__________ corporation, is a wholly-owned special purpose subsidiary of CRIIMI
MAE Inc., a publicly held real estate investment trust ("CRIIMI MAE"). See "The
Company" and "CRIIMI MAE Inc." 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.
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THE GENERAL ADMINISTRATOR
______________________ (the "General Administrator") is a
__________________________, and its principal offices are located at
_____________________________________.
The Owner Trustee, on behalf of the Issuer, and the General Administrator
will enter into a General Administration Agreement, to be dated as of
___________, 199__ (the "General Administration Agreement"), pursuant to which
the General 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 General
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 "General Administration Fee").
_______________________________ will be responsible for payment of the General
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, Net Aggregate Prepayment
Interest Shortfalls and Extraordinary Expenses.
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--Modifications, Waivers and Amendments" 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
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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 and Extraordinary Expenses 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 and Extraordinary
Expenses, 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 Company 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.
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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 __th 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 Master Servicing
Fee, the Property Servicing Fee and the Trustee Fee, and there are no
Extraordinary Expenses; (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.
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Percent of Initial Aggregate Bond Principal Amounts Outstanding
Class Class Class Class Class
Date A-1A A-1B A-2 A-3 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
Upon the issuance of the Offered Bonds, ________________________, counsel
to the Issuer, 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 (including financial calculations
relating to the Mortgage Loans made or reviewed and verified by the
Underwriter), the Offered Bonds will be treated as indebtedness. See "Material
Federal Income Tax Consequences--Debt Securities" in the Prospectus.
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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 one or more "qualified REIT subsidiaries"
(as defined in Section 856(i) of the Code) of CRIIMI MAE, 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 CRIIMI MAE and such owner or owners
qualify as a REIT and as qualified REIT subsidiaries, respectively,
characterization of the Issuer as a TMP will result only in the shareholders of
CRIIMI MAE 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 "real estate mortgage
investment conduit," or REMIC, within the meaning of Section 860D of the Code.
Characterization of the Issuer as an owner's trust or a "qualified REIT
subsidiary" would not result in entity-level, corporate income taxation with
respect to the Issuer. In the event of CRIIMI MAE's failure to continue to
qualify as a REIT or the failure of the owner or owners of the Issuer to
continue to qualify as "qualified REIT subsidiaries" 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's trust or a "qualified REIT subsidiary" or of the
Company 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 "Material Federal Income Tax Consequences--Debt
Securities--Interest and Original Issue Discount","--Debt Securities--Market
Discount" and "--Debt Securities--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.
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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 "Material Federal Income
Tax Consequences--Debt Securities --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 General 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.
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 Company'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
S-64
<PAGE>
will develop. See "Risk Factors--Limited Liquidity" herein and "Risk
Factors--Limited Liquidity of Offered Securities" in the Prospectus.
LEGAL MATTERS
Certain legal matters relating to the Bonds will be passed upon for the
Underwriter by ________________. Certain federal income tax matters and other
legal matters will be passed upon for the Issuer by ___________________.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, including insurance company general
accounts, that is subject to ERISA, or Section 4975 of the Code (each, a "Plan")
should review with its legal advisors whether the purchase or holding of Offered
Bonds could give rise to a transaction that is prohibited or is not otherwise
permitted either under ERISA or Section 4975 of the Code or whether there exists
any statutory or administrative exemption applicable thereto.
Certain transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan that
purchases an Offered Bond, if the assets of the Issuer are deemed to be assets
of the Plan. For example, if the assets of an investing Plan were deemed to
include assets of the Issuer and if any of the Mortgage Loans constitute
obligations of or are purchased from or sold to a Party in Interest (as defined
in the Prospectus) with respect to such Plan, an indirect prohibited transaction
in the nature of an extension of credit or a purchase or sale of assets between
such Plan and such Party in Interest might be deemed to occur. Under regulations
issued by the United States Department of Labor, set forth in 29 C.F.R. ss.
2510.3-101 (the "DOL Regulations"), the assets of the Issuer would be treated as
plan assets of a Plan for the purposes of ERISA and Section 4975 of the Code
only if the Plan acquires an equity interest in the Issuer and none of the
exceptions contained in the DOL Regulations is applicable. An equity interest is
defined under the DOL Regulations as an interest in an entity other than an
instrument which is treated as indebtedness under applicable local law and which
has no substantial equity features. Although there is no authority directly on
point, it is anticipated that the Offered Bonds should be treated as
indebtedness under local law without any substantial equity features for
purposes of the DOL Regulations. However, there is no assurance that the Offered
Bonds will not be characterized as equity interests for purposes of the DOL
Regulations.
Nevertheless, without regard to whether the Offered Bonds are treated as
equity interests for such purposes, the acquisition or holding of an Offered
Bond by or on behalf of a Plan could be considered to give rise to a prohibited
transaction if the Issuer, the Company, the Master Servicer, the Special
Servicer, the Trustee, the Owner Trustee, the General Administrator, the
Underwriter or any of their respective affiliates is or becomes a Party in
Interest with respect to such Plan. In this event, certain exemptions from the
prohibited transaction rules could be applicable depending on the type and
circumstances of the fiduciary making the decision to acquire an Offered Bond.
Included among these exemptions are Prohibited Transaction Class Exemption
("PTCE") 75-1, which exempts certain transactions involving Plans and certain
broker-dealers, reporting dealers and banks, PTCE 90-1, which exempts certain
transactions between insurance company separate accounts and Parties in
Interest, PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest, PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager", PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest, and PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset manager"
(collectively, the "Class Exemptions"). Even if the conditions specified in one
or more of the Class Exemptions are met, the scope of the relief provided by the
Class Exemptions might not cover all acts which might be construed as prohibited
transactions.
S-65
<PAGE>
[In addition to the above-described Class Exemptions, the DOL issued an
individual administrative exemption, Prohibited Transaction Exemption ____ (the
"Private Exemption"), to the Underwriter, which generally exempts from the
application of the prohibited transaction provisions of Section 406 of ERISA,
and the excise taxes imposed on such prohibited transactions pursuant to Section
4975 (a) and (b) of the Code, certain transactions, among others, relating to
the servicing and operation of mortgage pools and the purchase, sale and holding
of "certificates" (within the meaning of the Private Exemption) evidencing
interests in a mortgage trust, which certificates have been underwritten or
placed by (i) the Underwriter, (ii) any person directly or indirectly, through
one or more intermediaries, controlling, controlled by or under common control
with the Underwriter and (iii) any member of an underwriting syndicate or
selling group of which the Underwriter or a person described in (ii) is a
manager or co-manager, provided that certain conditions set forth in the Private
Exemption are satisfied. If the Bonds were determined to represent equity
interests in the Issuer or the Trust Estate, the Class A Bonds may, but the
other Offered Bonds would not, be eligible for the exemptive relief provided by
the Private Exemption, provided that the general and other conditions set forth
in the Private Exemption and the other requirements set forth in the Private
Exemption would be satisfied at the time of such purchase. The Private Exemption
is set forth in volume ___ of the Federal Register at page
- -----.]
A Plan fiduciary considering an investment in an Offered Bond should also
consider that if the Offered Bonds are determined to be equity interests for
purposes of the DOL Regulations, the underlying assets of the Issuer will be
treated for purposes of ERISA and Section 4975 of the Code to be Plan assets. As
a result, the Issuer, the Company, the Master Servicer, the Special Servicer,
the Trustee, the Owner Trustee, the General Administrator, the Underwriter or
any of their respective affiliates may be considered to be or may become Parties
in Interest with respect to investing Plans. Therefore, the acquisition and
continued holding of an Offered Bond by or on behalf of a Plan could give rise
to a prohibited transaction within the meaning of ERISA and Section 4975 of the
Code unless one or more statutory or administrative exemptions is available.
Although the Class Exemptions described above may provide an exemption for the
purchase of an Offered Bond, it is expected that only the Private Exemption may
provide an exemption for the transactions relating to the operation of the
Issuer. However, the Private Exemption is potentially available only with
respect to the Class A Bonds and only if the requirements of the Private
Exemption are satisfied.
In any event, a Plan generally should not purchase an Offered Bond if the
Issuer, the Company, the Master Servicer, the Special Servicer, the Trustee, the
Owner Trustee, the General Administrator, the Underwriter or any of their
respective affiliates either (a) has investment discretion with respect to the
investment of assets of such Plan; (b) has authority or responsibility to give
or regularly gives investment advice with respect to assets of such Plan, for a
fee, and pursuant to an agreement or understanding that such advice will serve
as a primary basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of such Plan; or
(c) is an employer maintaining or contributing to such Plan. A party that is
described in clause (a) or (b) of the preceding sentence is a fiduciary under
ERISA with respect to the Plan and any such purchase might result in a
"prohibited transaction" under ERISA or the Code.
Each person or entity that acquires any Offered Bond or interest therein
shall be deemed to have represented that either (i) it is not a Plan and is not
directly or indirectly purchasing such Bond or interest therein on behalf of, as
named fiduciary of, as trustee of, or with assets of a Plan or (ii) its purchase
and holding of such Bond or interest therein will not give rise to a prohibited
transaction under ERISA or any excise tax under Section 4975 of the Code.
Any Plan fiduciary considering whether to purchase an Offered Bond on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment.
S-66
<PAGE>
LEGAL INVESTMENT
[The Offered Bonds will not be "mortgage related securities" for purposes
of SMMEA. As a result, 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, is subject to
significant interpretive uncertainties. Neither the Issuer nor the Company makes
any representation as to the ability of particular investors to purchase the
Offered Bonds under applicable legal investment or other restrictions. 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 legal investments for them or
are subject to investment, capital or other restrictions.]
All depository institutions considering an investment in the Offered Bonds
should review the Federal Financial Institutions Examination Council's
Supervisory Policy Statement on the Selection of Securities Dealers and
Unsuitable Investment Practices (to the extent adopted by their respective
regulatory authorities), setting forth, in relevant part, certain investment
practices deemed to be unsuitable for an institution's investment portfolio, as
well as guidelines for investing in certain types of mortgage related
securities.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying".
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Bonds or to
purchase Offered Bonds representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Offered Bonds constitute legal
investments for such investors.
See "Legal Investment" in the Prospectus.
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"):
[Rating [Rating
Class Agency] 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.
S-67
<PAGE>
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 Company 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.
S-68
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Accrued Bond Interest .......................................... S-16, S-57
Advances ....................................................... S-43
Appraisal Reduction Amount ..................................... S-55
ARM Loans ...................................................... S-11
Assumed Final Payment Date ..................................... S-2
Assumed Scheduled Payment ...................................... S-17, S-52
Assumed Settlement Date ........................................ S-61
Available Payment Amount ....................................... S-47
Balloon Loans .................................................. S-12
Balloon Payment ................................................ S-12
Bond Owner ..................................................... S-9, S-46
Bond Registrar ................................................. S-47
Bond-Entry Securities .......................................... S-9
Bondholders .................................................... S-2, S-8, S-45
Bonds .......................................................... S-1, S-7, S-45
Book-Entry Bonds ............................................... S-9
Class .......................................................... S-1, S-7, S-45
Class A Bonds .................................................. S-1, S-7, S-45
Class A Principal Payment Cross-Over Date ...................... S-49
Class Exemptions ............................................... S-65
Closing Date ................................................... S-1, S-45
Collateral ..................................................... S-2, S-10, S-45
Collection Period .............................................. S-46
Company ........................................................ S-1, S-7, S-58
Compensating Interest Payment .................................. S-19, S-42
Corporate Trust Office ......................................... S-56
Corrected Mortgage Loan ........................................ S-40
CRIIMI MAE ..................................................... S-7, S-58
Cut-off Date ................................................... S-2
Cut-off Date Balance ........................................... S-10, S-27
Debt Service Coverage Ratio .................................... S-35
Definitive Bond ................................................ S-10, S-47
Deposit Trust Agreement ........................................ S-7, S-58
Determination Date ............................................. S-46
DOL ............................................................ S-21
DOL Regulations ................................................ S-65
DTC ............................................................ S-46
DTC Participants ............................................... S-47
Due Date ....................................................... S-11
ERISA .......................................................... S-21
Extraordinary Expenses ......................................... S-54
Fixed Rate Loans ............................................... S-11
Form 8-K ....................................................... S-38
General Administration Agreement ............................... S-2, S-9, S-59
General Administration Fee ..................................... S-59
General Administrator .......................................... S-2, S-9, S-59
Gross Margin ................................................... S-11
Indenture ...................................................... S-2, S-8, S-45
Index .......................................................... S-11
Initial Pool Balance ........................................... S-2, S-10, S-27
Interest Accrual Period ........................................ S-51
Interest Rate Adjustment Date .................................. S-11
IRS ............................................................ S-63
Issuer ......................................................... S-1, S-7, S-58
Issuer's Equity ................................................ S-8, S-46
Liquidation Fee ................................................ S-43
Liquidation Fee Rate ........................................... S-43
Lockout Period ................................................. S-12, S-28
LTV Ratio ...................................................... S-36
Master Servicer ................................................ S-40
Master Servicing Fee ........................................... S-41
Master Servicing Fee Rate ...................................... S-41
Maturity Date .................................................. S-12
Modeling Assumptions ........................................... S-61
Modified Mortgage Loan ......................................... S-56
Monthly Payments ............................................... S-11
Mortgage ....................................................... S-10, S-27
Mortgage Asset Seller .......................................... S-28
Mortgage Loan Purchase Agreement ............................... S-12, S-28
Mortgage Loan Seller ........................................... S-9
Mortgage Loans ................................................. S-2, S-10, S-27
Mortgage Note .................................................. S-10, S-27
Mortgage Pool .................................................. S-2, S-27
Mortgage Rate .................................................. S-11
Mortgaged Property ............................................. S-10, S-28
Mortgagor ...................................................... S-10, S-27
Net Aggregate Prepayment Interest Shortfall .................... S-20, S-42
Net Operating Income ........................................... S-35
Offered Bonds .................................................. S-1, S-7, S-45
OID Regulations ................................................ S-63
Open Period .................................................... S-12, S-29
Overcollateralization Amount ................................... S-8, S-46
Owner Trustee .................................................. S-2, S-7
Owner Trustee Fee .............................................. S-58
Ownership Certificates ......................................... S-58
P&I Advance .................................................... S-19, S-54
Payment Adjustment Date ........................................ S-12
Payment Date ................................................... S-2, S-47
Plan ........................................................... S-21, S-65
Prepayment Interest Excess ..................................... S-20, S-42
Prepayment Interest Shortfall .................................. S-19, S-42
Prepayment Premium ............................................. S-12, S-29
Principal Payment Amount ....................................... S-16, S-51
Principal Prepayment ........................................... S-12, S-28
Principal Prepayment Amount .................................... S-52
Private Bonds .................................................. S-3, S-7, S-45
Private Exemption .............................................. S-65
Property Servicing Fee ......................................... S-42
Property Servicing Fee Rate .................................... S-42
Prospectus ..................................................... S-3
PTCE ........................................................... S-65
Purchase Price ................................................. S-38
Rating Agencies ................................................ S-2, S-22, S-67
Realized Losses ................................................ S-53
Record Date .................................................... S-47
Reimbursement Rate ............................................. S-19, S-55
REIT ........................................................... S-63
Related Proceeds ............................................... S-43
REMIC .......................................................... S-3
REO Property ................................................... S-18, S-39
Required Appraisal Loan ........................................ S-55
S&A Agreement .................................................. S-13, S-39
Scheduled Payment .............................................. S-17, S-52
Securities Act ................................................. S-7
Senior Bonds ................................................... S-1, S-7, S-45
Servicing Advances ............................................. S-43
Servicing Standard ............................................. S-39
Servicing Transfer Event ....................................... S-39
SMMEA .......................................................... S-22
Special Servicer Report ........................................ S-56
Special Servicing Fee .......................................... S-42
Special Servicing Fee Rate ..................................... S-42
Specially Serviced Mortgage Loans .............................. S-40
Stated Principal Balance ....................................... S-46
Sub-Servicer ................................................... S-41
Sub-Servicing Agreement ........................................ S-41
Subordinate Bonds .............................................. S-1, S-7, S-45
Terms Indenture ................................................ S-2, S-8, S-45
TMP ............................................................ S-63
S-69
<PAGE>
Trust Estate ................................................... S-10, S-45
Trustee ........................................................ S-2
Trustee Fee .................................................... S-57
Trustee Fee Rate ............................................... S-57
Trustee Report ................................................. S-56
Underwriter .................................................... S-1
Underwriting Agreement ......................................... S-64
Voting Rights .................................................. S-57
Workout Fee .................................................... S-42
Workout Fee Rate ............................................... S-42
Yield Maintenance Amount ....................................... S-52
S-70
<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.
TABLE OF CONTENTS
Page
Prospectus Supplement
Transaction Overview............................................................
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 General Administrator.......................................................
Yield and Maturity Considerations...............................................
Certain Federal Income Tax Consequences.........................................
Method of Distribution..........................................................
Legal Matters...................................................................
ERISA Considerations............................................................
Legal Investment................................................................
Ratings.........................................................................
Prospectus
Prospectus Supplement...........................................................
Available Information...........................................................
Incorporation of Certain Information by Reference...............................
Table of Contents...............................................................
Summary of Prospectus...........................................................
Risk Factors....................................................................
Description of the Underlying Assets............................................
Yield and Maturity Considerations...............................................
The Company.....................................................................
CRIIMI MAE Inc..................................................................
Owner Trustee...................................................................
Description of the Securities...................................................
Description of the Indentures...................................................
Description of the Pooling Agreements...........................................
Servicing and Administration of the Mortgage Assets.............................
Description of Credit Support...................................................
Certain Legal Aspects of Mortgage Loans.........................................
Material Federal Income Tax Consequences........................................
State and Other Tax Consequences...............................................
ERISA Considerations............................................................
Legal Investment................................................................
Use of Proceeds.................................................................
Method of Distribution..........................................................
Legal Matters...................................................................
Financial Information...........................................................
Ratings.........................................................................
Index of Principal Definitions..................................................
$
(Approximate)
CRIIMI MAE COMMERCIAL
MORTGAGE TRUST [I]
(Issuer)
Collateralized Mortgage Obligations
Series 199_-_
Class A-1, Class A-2, Class B,
Class C, and Class D
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
[UNDERWRITER]
Dated __________, 199_
S-71
<PAGE>
EXPLANATORY NOTE
Immediately following this explanatory note there are ten separate
sets of alternative pages labeled in the upper right corner as follows: "Version
1: Multifamily Properties", "Version 2: Office Properties", "Version 3: Retail
Properties", "Version 4: Hotel and Motel Properties", "Version 5: Health
Care-Related Facilities", "Version 6: Industrial Properties", "Version 7:
Warehouse, Mini- Warehouse and Self-Storage Facilities", "Version 8: Mobile Home
Parks and Recreational Vehicle Parks", "Version 9: Casino Properties" and
"Version 10: Restaurants". Each such "version" contains inserts to the
Prospectus and each Prospectus Supplement included herein showing the text
specific to a material concentration in each of the ten specified types of
properties (i.e. multifamily properties, office properties, retail properties,
hotel and motel properties, health care-related facilities, industrial
properties, warehouse, mini-warehouse and self-storage facilities, mobile home
parks and recreational vehicle parks, casinos and restaurants).
The above described ten "versions" of changes to the Prospectus and
each Prospectus Supplement included herein are being filed with this
Registration Statement for purposes of identifying changes that will be made
thereto as a result of a material concentration in any of the ten specified
types of properties in any specific securitization transaction. Depending on the
types of properties that involve a material concentration in any particular
transaction, the respective changes to the Prospectus and each Prospectus
Supplement from one or more of the above described "versions" would be included
in the specific Prospectus and Prospectus Supplement for that transaction. When
multiple sets of inserts are to be included in the specific Prospectus and
Prospectus Supplement for any particular transaction, such inserts will be
included in each appropriate location in an order that goes from highest
material concentration to lowest material concentration (although one sentence
inserts that simply identify properties that involve a material concentration
may be combined but will still present such properties in the aforementioned
order). The specific Prospectus and Prospectus Supplement for each particular
transaction reflecting such changes, together with the corresponding Prospectus
Supplement, would be filed at the time and in the manner provided by Rule 424
under the Securities Act of 1933.
<PAGE>
Version 1: Multifamily Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Multifamily properties consisting of multiple rental or
cooperatively owned dwellings will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
Underlying MBS) constituting the Collateral or Trust Fund for any Series, based
on principal balance at the time such Series is issued.
<PAGE>
Version 1: Multifamily Properties
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Multifamily properties consisting of multiple rental or cooperatively
owned dwellings will represent security for a material concentration of the
Mortgage Loans (and the mortgage loans underlying the Underlying MBS)
constituting the Collateral or Trust Fund for any Series, based on principal
balance at the time such Series is issued. Certain Mortgage Loans (and
mortgage loans underlying certain Underlying MBS) may be sub-prime,
delinquent or under-performing or may have loan-to-value ratios in excess of
100% or debt service coverage ratios below 1.0x as of the date that the
related Series of Securities is issued.
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
-----------
<PAGE>
Version 1: Multifamily Properties
The date of this Prospectus is ______, 199_.
<PAGE>
Version 1: Multifamily Properties
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
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<PAGE>
Version 1: Multifamily Properties
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Multifamily Rental Properties.
Adverse economic conditions, either local, regional or national, may limit the
amount of rent that can be charged for rental units, may adversely affect
tenants' ability to pay rent and may result in a reduction in timely rent
payments or a reduction in occupancy levels without a corresponding decrease in
expenses. Occupancy and rent levels may also be affected by construction of
additional housing units, local military base closings, company relocations and
closings and national and local politics, including current or future rent
stabilization and rent control laws and agreements. Multifamily apartment units
are typically leased on a short-term basis, and consequently, the occupancy rate
of a multifamily rental property may be subject to rapid decline, including for
some of the foregoing reasons. In addition, the level of mortgage interest rates
may encourage tenants in multifamily rental properties to purchase single-family
housing rather than continue to lease housing or the characteristics of a
neighborhood may change over time or in relation to newer developments. Further,
the cost of operating a multifamily rental property may increase, including the
cost of utilities and the costs of required capital expenditures. Also,
multifamily rental properties may be subject to rent control laws which could
impact the future cash flows of such properties.
Certain multifamily rental properties are eligible to receive
low-income housing tax credits pursuant to Section 42 of the Code ("Section 42
Properties"). However, rent limitations associated therewith may adversely
affect the ability of the applicable borrowers to increase rents to maintain
such Mortgaged Properties in proper condition during periods of rapid inflation
or declining market value of such Mortgaged Properties. In addition, the income
restrictions on tenants imposed by Section 42 of the Code may reduce the number
of eligible tenants in such Mortgaged Properties and result in a reduction in
occupancy rates applicable thereto. Furthermore, some eligible tenants may not
find any differences in rents between the Section 42 Properties and other
multifamily rental properties in the same area to be a sufficient economic
incentive to reside at a Section 42 Property, which may have fewer amenities or
otherwise be less attractive as a residence. All of these conditions and events
may increase the possibility that a borrower may be unable to meet its
obligations under its Mortgage Loan.
Risks Particular to Cooperatively-Owned Apartment Buildings.
Generally, a tenant-shareholder of a cooperative corporation must make a
monthly maintenance payment to the cooperative
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<PAGE>
Version 1: Multifamily Properties
corporation that owns the subject apartment building representing such
tenant-shareholder's pro rata share of the corporation's payments in respect of
the Mortgage Loan secured by, and all real property taxes, maintenance expenses
and other capital and ordinary expenses with respect to, such property, less any
other income that the cooperative corporation may realize. Adverse economic
conditions, either local regional or national, may adversely affect
tenant-shareholders' ability to make required maintenance payments, either
because such adverse economic conditions have impaired the individual financial
conditions of such tenant-shareholders or their ability to sub-let the subject
apartments. To the extent that a large number of tenant-shareholders in a
cooperatively-owned apartment building rely on sub-letting their apartments to
make maintenance payments, the lender on any mortgage loan secured by such
building will be subject to all the risks that it would have in connection with
lending on the security of a multifamily rental property. See "--Risks
Particular to Multifamily Rental Properties" above. In addition, if in
connection with any cooperative conversion of an apartment building, the sponsor
holds the shares allocated to a large number of the apartment units, any lender
secured by a mortgage on such building will be subject to a risk associated with
such sponsor's creditworthiness.
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--Mortgage Loans--General":]
Mortgage Loans Secured by Multifamily Rental Properties. Significant factors
determining the value and successful operation of a multifamily rental property
are the location of the property, the number of competing residential
developments in the local market (such as apartment buildings, manufactured
housing communities and site-built single family homes), the physical attributes
of the multifamily building (such as its age and appearance) and state and local
regulations affecting such property. In addition, the successful operation of an
apartment building will depend upon other factors such as its reputation, the
ability of management to provide adequate maintenance and insurance, and the
types of services it provides.
Certain states regulate the relationship of an owner and its
tenants. Commonly, these laws require a written lease, good cause for eviction,
disclosure of fees, and notification to residents of changed land use, while
prohibiting unreasonable rules, retaliatory evictions, and restrictions on a
resident's choice of unit vendors. Apartment building owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant protection. For
example, there are provisions that limit the basis on which a landlord may
terminate a tenancy or increase its rent or prohibit a landlord from terminating
a tenancy solely by reason of the sale of the owner's building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on apartment buildings.
These ordinances may limit rent increases to fixed percentages, to percentages
of increases in the consumer price index, to increases set or approved by a
governmental agency, or to increases determined through mediation or binding
arbitration. In many cases, the rent control laws do not provide for decontrol
of rental rates upon vacancy of individual units. Any limitations on a
borrower's ability to raise property rents may impair such borrower's ability to
repay its Mortgage Loan from its net operating income or the proceeds of a sale
or refinancing of the related Mortgaged Property.
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<PAGE>
Version 1: Multifamily Properties
Adverse economic conditions, either local, regional or national, may
limit the amount of rent that can be charged, may adversely affect tenants'
ability to pay rent and may result in a reduction in timely rent payments or a
reduction in occupancy levels. Occupancy and rent levels may also be affected by
construction of additional housing units, local military base closings, company
relocations and closings and national and local politics, including current or
future rent stabilization and rent control laws and agreements. Multifamily
apartment units are typically leased on a short-term basis, and consequently,
the occupancy rate of a multifamily rental property may be subject to rapid
decline, including for some of the foregoing reasons. In addition, the level of
mortgage interest rates may encourage tenants to purchase single-family housing
rather than continue to lease housing. The location and construction quality of
a particular building may affect the occupancy level as well as the rents that
may be charged for individual units. The characteristics of a neighborhood may
change over time or in relation to newer developments.
Mortgage Loans Secured by Cooperatively-Owned Apartment Buildings. A
cooperative apartment building and the land under the building are owned or
leased by a non-profit cooperative corporation. The cooperative corporation is
in turn owned by tenant-shareholders who, through ownership of stock, shares or
membership certificates in the corporation, receive proprietary leases or
occupancy agreements which confer exclusive rights to occupy specific apartments
or units. Generally, a tenant-shareholder of a cooperative corporation must make
a monthly maintenance payment to the corporation representing such
tenant-shareholder's pro rata share of the corporation's payments in respect of
any mortgage loan secured by, and all real property taxes, maintenance expenses
and other capital and ordinary expenses with respect to, the real property owned
by such cooperative corporation, less any other income that the cooperative
corporation may realize. Such payments to the cooperative corporation are in
addition to any payments of principal and interest the tenant-shareholder must
make on any loans of the tenant-shareholder secured by its shares in the
corporation.
A cooperative corporation is directly responsible for building
management and payment of real estate taxes and hazard and liability insurance
premiums. A cooperative corporation's ability to meet debt service obligations
on a mortgage loan secured by the real property owned by such corporation, as
well as all other operating expenses of such property, is dependent primarily
upon the receipt of maintenance payments from the tenant-shareholders, together
with any rental income from units or commercial space that the cooperative
corporation might control. Unanticipated expenditures may in some cases have to
be paid by special assessments on the tenant-shareholders. A cooperative
corporation's ability to pay the amount of any balloon payment due at the
maturity of a mortgage loan secured by the real property owned by such
cooperative corporation depends primarily on its ability to refinance the
mortgage loan. Neither the Depositor nor any other person will have any
obligation to provide refinancing for any of the Mortgage Loans.
In a typical cooperative conversion plan, the owner of a rental
apartment building contracts to sell the building to a newly formed cooperative
corporation. Shares are allocated to each apartment unit by the owner or
sponsor, and the current tenants have a certain period to subscribe at prices
discounted from the prices to be offered to the public after such period. As
part of the consideration for the sale, the owner or sponsor receives all the
unsold shares of the cooperative corporation. The sponsor usually also controls
the corporation's board of directors and management for a limited period of
time.
Each purchaser of shares in the cooperative corporation generally
enters into a long-term proprietary lease which provides the shareholder with
the right to occupy a particular apartment unit. However, many cooperative
conversion plans are "non-eviction" plans. Under a non-eviction plan, a tenant
at the time of conversion who chooses not to purchase shares is entitled to
reside in the unit as a subtenant from the owner of the shares allocated to such
apartment unit. Any applicable rent control or rent stabilization laws would
continue to be applicable to such subtenancy, and the subtenant may be entitled
to renew its lease for an indefinite number of times, with continued protection
from rent increases above those permitted by any applicable rent control and
rent stabilization laws. The shareholder is responsible for the maintenance
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<PAGE>
Version 1: Multifamily Properties
payments to the cooperative without regard to its receipt or non-receipt of rent
from the subtenant, which may be lower than maintenance payments on the unit.
Newly-formed cooperative corporations typically have the greatest concentration
of non-tenant shareholders.
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Multifamily Properties. ___ of the Mortgage
Loans, which represent ___% of the Initial Pool Balance, are secured by
Mortgages on fee and/or leasehold interests in multifamily properties. Mortgage
Loans that are secured by liens on such types of properties are exposed to
certain unique risks. See "Risk Factors--Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage--Risks Particular to Multifamily Rental
Properties" and "--Risks Particular to Cooperatively-Owned Apartment Buildings".
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<PAGE>
Version 2: Office Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Office properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
Underlying MBS) constituting the Collateral or Trust Fund for any Series, based
on principal balance at the time such Series is issued.
<PAGE>
Version 2: Office Properties
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Office properties will represent security for a material concentration
of the Mortgage Loans (and the mortgage loans underlying the Underlying MBS)
constituting the Collateral or Trust Fund for any Series, based on a
principal balance at the time such Series is issued. Certain Mortgage Loans
(and mortgage loans underlying certain Underlying MBS) may be sub-prime,
delinquent or under-performing or may have loan-to-value ratios in excess of
100% or debt service coverage ratios below 1.0x as of the date that the
related Series of Securities is issued.
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
-----------
<PAGE>
Version 2: Office Properties
The date of this Prospectus is ______, 199_.
<PAGE>
Version 2: Office Properties
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
-4-
<PAGE>
Version 2: Office Properties
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Office Properties. In addition to risks generally associated
with real estate, Mortgage Loans secured by office properties are also affected
significantly by adverse changes in population and employment growth (which
generally creates demand for office space), local competitive conditions (such
as the supply of office space or the existence or construction of new
competitive office buildings), the quality and management philosophy of
management, the attractiveness of the properties to tenants and their customers
or clients, the attractiveness of the surrounding neighborhood and the need to
make major repairs or improvements to satisfy the needs of major tenants. Office
properties that are not equipped to accommodate the needs of modern business may
become functionally obsolete and thus non-competitive. In addition, office
properties may be adversely affected by an economic decline in the businesses
operated by their tenants. Such decline may result in one or more significant
tenants ceasing operations at such locations (which may occur on account of a
voluntary decision not to renew a lease, bankruptcy or insolvency of such
tenants, such tenants' general cessation of business activities or for other
reasons). The risk of such an economic decline 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.
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--Mortgage Loans--General":]
Mortgage Loans Secured by Office Properties. Significant factors affecting the
value of office properties include the quality of the tenants in the building,
the physical attributes of the building in relation to competing buildings, the
location of the building with respect to the central business district or
population centers, demographic trends within the metropolitan area to move away
from or towards the central business district, social trends combined with space
management trends (which may change towards options such as telecommuting ), tax
incentives offered to businesses by cities or suburbs adjacent to or near the
city where the building is located and the strength and stability of the market
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<PAGE>
Version 2: Office Properties
area as a desirable business location. Office properties may be adversely
affected by an economic decline in the businesses operated by their tenants. The
risk of such an economic decline is increased if revenue is dependent on a
single tenant or if there is a significant concentration of tenants in a
particular business or industry.
Office properties are also subject to competition with other office
properties in the same market. Competition is affected by a building's age,
condition, design (including floor sizes and layout), access to transportation,
availability of parking and ability to offer certain amenities to its tenants
(including sophisticated building systems, such as fiberoptic cables, satellite
communications or other base building technological features). Office properties
that are not equipped to accommodate the needs of modern business may become
functionally obsolete and thus non-competitive.
The success of an office property also depends on the local economy.
A company's decision to locate office headquarters in a given area, for example,
may be affected by such factors as labor cost and quality, tax environment and
quality of life matters, such as schools and cultural amenities. A central
business district may have a substantially different economy from that of a
suburb. The local economy will affect an office property's ability to attract
stable tenants on a consistent basis. In addition, the cost of refitting office
space for a new tenant is often higher than for other property types.
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Office Properties. ___ of the Mortgage Loans,
which represent __% of the Initial Pool Balance, are secured by Mortgages on fee
and/or leasehold interests in office properties. Mortgage Loans that are secured
by liens on such types of properties are exposed to certain unique risks. See
"Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of
the Mortgage-Risks Particular to Office Properties" in the Prospectus.
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<PAGE>
Version 3: Retail Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Retail properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
Underlying MBS) constituting the Collateral or Trust Fund for any Series, based
on principal balance at the time such Series is issued.
<PAGE>
Version 3: Retail Properties
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Retail properties will represent security for a material concentration
of the Mortgage Loans (and the mortgage loans underlying the Underlying MBS)
constituting the Collateral or Trust Fund for any Series, based on a
principal balance at the time such Series is issued. Certain Mortgage Loans
(and mortgage loans underlying certain Underlying MBS) may be sub-prime,
delinquent or under-performing or may have loan-to-value ratios in excess of
100% or debt service coverage ratios below 1.0x as of the date that the
related Series of Securities is issued.
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
<PAGE>
Version 3: Retail Properties
The date of this Prospectus is ______, 199_.
<PAGE>
Version 3: Retail Properties
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
-4-
<PAGE>
Version 3: Retail Properties
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Retail Properties. In addition to risks generally associated
with real estate, Mortgage Loans secured by retail properties are also affected
significantly by adverse changes in consumer spending patterns, local
competitive conditions (such as the supply of retail space or the existence or
construction of new competitive shopping centers or shopping malls), alternative
forms of retailing (such as direct mail, video shopping networks and selling
through the Internet, which reduce the need for retail space by retail
companies), the quality and management philosophy of management, the
attractiveness of the properties and the surrounding neighborhood to tenants and
their customers, the public perception of the safety of customers (at shopping
malls and shopping centers, for example) and the need to make major repairs or
improvements to satisfy the needs of major tenants.
Retail properties may be adversely affected if an anchor or other
significant tenant ceases operations at such locations (which may occur on
account of a decision not to renew a lease, bankruptcy or insolvency of such
tenant, such tenant's general cessation of business activities or for other
reasons). Significant tenants at a shopping center play an important part in
generating customer traffic and making the property a desirable location for
other tenants at such property. In addition, certain tenants at retail
properties may be entitled to terminate their leases if an anchor tenant ceases
operations at such property.
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--Mortgage Loans--General":]
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<PAGE>
Version 3: Retail Properties
Mortgage Loans Secured by Retail Properties. Retail properties generally derive
all or a substantial percentage of their income from lease payments from
commercial tenants. Income from and the market value of retail properties is
dependent on various factors including, but not limited to, the ability to lease
space in such properties, the ability of tenants to meet their lease
obligations, the possibility of a significant tenant becoming bankrupt or
insolvent, 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 significant component of the total rent paid by
retail tenants is often tied to a percentage of gross sales. Declines in tenant
sales will cause a corresponding decline in percentage rents and may cause such
tenants to become unable to pay their rent or other occupancy costs. The default
by a tenant under its lease could result in delays and costs in enforcing the
lessor's rights. Repayment of the related Mortgage Loans will be affected by the
expiration of space leases and the ability of the respective borrowers to renew
or relet the space on comparable terms. Even if vacated space is successfully
relet, the costs associated with reletting, including tenant improvements,
leasing commissions and free rent, could be substantial and could reduce cash
flow from the retail properties. The correlation between the success of tenant
businesses and property value is increased when the property is a single tenant
property.
Whether a shopping center is "anchored" or "unanchored" is also an
important distinction. Anchor tenants in shopping centers traditionally have
been a major factor in the public's perception of a shopping center. The anchor
tenants at a shopping center play an important part in generating customer
traffic and making a center a desirable location for other tenants of the
center. The failure of an anchor tenant to renew its leases, the termination of
an anchor tenant's lease, the bankruptcy or economic decline of an anchor
tenant, or the cessation of the business of an anchor tenant (notwithstanding
any continued payment of rent) can have a material negative effect on the
economic performance of a shopping center. Furthermore, the correlation between
the success of tenant businesses and property value is increased when the
property is a single tenant property.
Unlike certain other types of commercial properties, retail
properties also face competition from sources outside a given real estate
market. Catalogue retailers, home shopping networks, telemarketing, selling
through the Internet, and outlet centers all compete with more traditional
retail properties for consumer dollars. Continued growth of these alternative
retail outlets (which are often characterized by lower operating costs) could
adversely affect the retail properties.
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Retail Properties. _____ of the Mortgage Loans,
which represent __% of the Initial Pool Balance, are secured by Mortgages on fee
and/or leasehold interests in retail properties. Mortgage Loans that are secured
by liens on such types of properties are exposed to certain unique risks. See
"Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of
the Mortgage-Risks Particular to Retail Properties" in the Prospectus.
-6-
<PAGE>
Version 4: Hotel and Motel Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Hotel and motel properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
Underlying MBS) constituting the Collateral or Trust Fund for any Series, based
on principal balance at the time such Series is issued.
<PAGE>
Version 4: Hotel and Motel Properties
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Hotel and motel properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
Underlying MBS) constituting the Collateral or Trust Fund for any Series,
based on a principal balance at the time such Series is issued. Certain
Mortgage Loans (and mortgage loans underlying certain Underlying MBS) may be
sub-prime, delinquent or under-performing or may have loan-to-value ratios in
excess of 100% or debt service coverage ratios below 1.0x as of the date that
the related Series of Securities is issued.
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
-----------
<PAGE>
Version 4: Hotel and Motel Properties
The date of this Prospectus is ______, 199_.
<PAGE>
Version 4: Hotel and Motel Properties
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
-4-
<PAGE>
Version 4: Hotel and Motel Properties
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Hotel and Motel Properties. Hotel and motel
properties are subject to operating risks common to the lodging industry. These
risks include, among other things, a high level of continuing capital
expenditures to keep necessary furniture, fixtures and equipment updated,
competition from other hotels and motels, increases in operating costs (which
increases may not necessarily in the future be offset by increased room rates),
dependence on business and commercial travelers and tourism, increases in energy
cots and other expenses of travel and adverse effects of general and local
economic conditions. These factors could adversely affect the related borrower's
ability to make payments on the related Mortgage Loans. Since limited service
hotels and motels are relatively quick and inexpensive to construct and may
quickly reflect a positive value, an over-building of such hotels and motels
could occur in any given region, which would likely adversely affect occupancy
and daily room rates. Further, because hotel and motel rooms are generally
rented for short periods of time, hotel and motel properties tend to be more
sensitive to adverse economic conditions and competition than many other
commercial properties. Additionally, the revenues of certain hotels and motels,
particularly those located in regions whose economies depend upon tourism, may
be highly seasonal in nature.
A hotel or motel property may present additional risks as compared
to other commercial property types in that: (i) hotels and motels may be
operated pursuant to franchise, management and operating agreements that may be
terminable by the franchisor, the manager or the operator; (ii) the
transferability of
-5-
<PAGE>
Version 4: Hotel and Motel Properties
any operating, liquor and other licenses to the entity acquiring such hotel or
motel (either through purchase or foreclosure) is subject to local law
requirements; (iii) it may be difficult to terminate an ineffective operator of
a hotel or motel property subsequent to a foreclosure of such property; and (iv)
future occupancy rates may be adversely affected by, among other factors, any
negative perception of a hotel or motel based upon its historical reputation.
Hotel and motel properties may be operated pursuant to franchise
agreements. The continuation of franchises is typically subject to specified
operating standards and other terms and conditions. The franchisor periodically
inspects its licensed properties to confirm adherence to its operating
standards. The failure of the hotel or motel property to maintain such standards
or adhere to such other terms and conditions could result in the loss or
cancellation of the franchise license. It is possible that the franchisor could
condition the continuation of a franchise license on the completion of capital
improvements or the making of certain capital expenditures that the related
borrower determines are too expensive or are otherwise unwarranted in light of
general economic conditions or the operating results or prospects of the
affected hotels. In that event, the related borrower may elect to allow the
franchise license to lapse. In any case, if the franchise is terminated, the
related borrower may seek to obtain a suitable replacement franchise or to
operate such hotel or motel property independently of a franchise license. The
loss of a franchise license could have a material adverse effect upon the
operations or the underlying value of the hotel or motel covered by the
franchise because of the loss of associated name recognition, marketing support
and centralized reservation systems provided by the franchisor.
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--Mortgage Loans--General":]
Mortgage Loans Secured by Hotel and Motel Properties. Hotel and motel properties
may include full service hotels, resort hotels with many amenities, limited
service hotels, hotels and motels associated with national franchise chains,
hotels and motels associated with regional franchise chains and hotels that are
not affiliated with any franchise chain but may have their own brand identity.
Various factors, including location, quality and franchise affiliation affect
the economic performance of a hotel or motel. Adverse economic conditions,
either local, regional or national, may limit the amount that can be charged for
a room and may result in a reduction in occupancy levels. The construction of
competing hotels and motels can have similar effects. To meet competition in the
industry and to maintain economic values, continuing expenditures must be made
for modernizing, refurbishing, and maintaining existing facilities prior to the
expiration of their anticipated useful lives. Because hotel and motel rooms
generally are rented for short periods of time, hotels and motels tend to
respond more quickly to adverse economic conditions and competition than do
other commercial properties. Furthermore, the financial strength and
capabilities of the owner and operator of a hotel or motel may have an impact on
quality of service and economic performance. Additionally, the lodging industry
, in certain locations, is seasonal in nature and this seasonality can be
expected to cause periodic fluctuations in room and other revenues, occupancy
levels, room rates and operating expenses. The demand for particular
accommodations may also be affected by changes in travel patterns caused by
changes in energy prices, strikes, relocation of highways, the construction of
additional highways and other factors.
The viability of any hotel or motel property that is part of a
national or regional hotel or motel chain depends in part on the continued
existence and financial strength of the franchisor, the public perception of the
franchise service mark and the duration of the franchise licensing agreement.
The transferability of franchise license agreements may be restricted and, in
the event of a foreclosure on any such
-6-
<PAGE>
Version 4: Hotel and Motel Properties
hotel or motel property, the consent of the franchisor for the continued use the
franchise license by the hotel or motel property would be required. Conversely,
a lender may be unable to remove a franchisor that it desires to replace
following a foreclosure. Further, in the event of a foreclosure on a hotel or
motel property, it is unlikely that the purchaser of such hotel or motel
property would be entitled to the rights under any associated liquor license,
and such purchaser would be required to apply in its own right for such license.
There can be no assurance that a new license could be obtained or that it could
be obtained promptly.
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Hotel and Motel Properties. ___ of the Mortgage
Loans, which represent __% of the Initial Pool Balance, are secured by Mortgages
on fee and/or leasehold interests in hotels and motels. Mortgage Loans that are
secured by liens on such types of properties are exposed to certain unique
risks. See "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage-Risks Particular to Hotel and Motel Properties" in the
Prospectus.
-7-
<PAGE>
Version 5: Health Care-Related Facilities
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Health Care-Related Facilities will represent security for a
material concentration of the Mortgage Loans (and the mortgage loans underlying
the Underlying MBS) constituting the Collateral or Trust Fund for any Series,
based on principal balance at the time such Series is issued.
-8-
<PAGE>
Version 5: Health Care-Related Facilities
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Health Care-related-facilities will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
Underlying MBS) constituting the Collateral or Trust Fund for any Series,
based on a principal balance at the time such Series is issued. Certain
Mortgage Loans (and mortgage loans underlying certain Underlying MBS) may be
sub-prime, delinquent or under-performing or may have loan-to-value ratios in
excess of 100% or debt service coverage ratios below 1.0x as of the date that
the related Series of Securities is issued.
(cover continued on next page)
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PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
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<PAGE>
Version 5: Health Care-Related Facilities
The date of this Prospectus is ______, 199_.
<PAGE>
Version 5: Health Care-Related Facilities
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
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<PAGE>
Version 5: Health Care-Related Facilities
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Health Care-Related Properties. Certain types of health
care-related facilities (including nursing homes) typically receive a
substantial portion of their revenues from government reimbursement programs,
primarily Medicaid and Medicare. Medicaid and Medicare are subject to statutory
and regulatory changes, retroactive rate adjustments, administrative rulings,
policy interpretations, delays by fiscal intermediaries and government funding
restrictions, all of which can adversely affect revenues from operation.
Moreover, governmental payors have employed cost-containment measures that limit
payments to health care providers and various proposals for national health care
relief could, if enacted, further limit these payments. In addition, providers
of long-term nursing care and other medical services are highly regulated by
federal, state and local law and are subject to, among other things, federal and
state licensing requirements, facility inspections, the setting of rates and
charges, governmental reimbursement policies and laws relating to the adequacy
of medical care, distribution of pharmaceuticals, equipment, personnel operating
policies and maintenance of and additions to facilities and services, any or all
of which factors can increase the cost of operation and limit growth. In
extreme cases, violations of applicable laws can result in suspension or
cessation of operations.
Under federal and state laws and regulations, Medicare and Medicaid
reimbursements are generally not permitted to be made to any person other than
the provider who actually furnished the related medical goods and services.
Accordingly, in the event of foreclosure on a Mortgaged Property that is
operated as a health care-related facility, neither the Trustee nor a subsequent
lessee or operator of the Mortgaged Property would generally be entitled to
obtain any outstanding reimbursement payments relating to services
furnished prior to such foreclosure. Furthermore, in the event of foreclosure,
there can be no assurance that the Trustee or purchaser in a foreclosure sale
would be entitled to the rights under any required licenses and
regulatory approvals, that a new license could be obtained or that a new
approval would be granted. In addition, health care-related facilities are
generally "special purpose" properties that are not readily converted to general
residential, retail or office use, and transfers of health care-related
facilities are subject to regulatory approvals under state, and in some cases
federal, law not
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<PAGE>
Version 5: Health Care-Related Facilities
required for transfers of most other types of commercial operations and other
types of real estate. Any of the foregoing circumstances may adversely affect
the liquidation value.
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--Mortgage Loans--General":]
Mortgage Loans Secured by Health Care-Related Properties. The
Mortgaged Properties may include Senior Housing, Assisted Living Facilities,
Skilled Nursing Facilities and Acute Care Facilities (any of the foregoing,
"Health Care-Related Facilities"). "Senior Housing" generally consist of
apartment-style facilities the residents of which are ambulatory and handle
their own affairs. "Assisted Living Facilities" are typically single or double
room occupancy, dormitory-style housing facilities which provide food service,
cleaning and some personal care and assistance with certain daily routines.
"Skilled Nursing Facilities" provide services to post trauma and frail residents
with limited mobility who require sub-acute medical treatment. "Acute Care
Facilities" generally consist of hospital and other facilities providing
short-term, acute medical care services.
Certain types of Health Care-Related Facilities, particularly Acute
Care Facilities and Skilled Nursing Facilities, typically receive a substantial
portion of their revenues from government reimbursement programs, primarily
Medicaid and Medicare. Medicaid and Medicare reimbursements are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
rulings, policy interpretations, delays by fiscal intermediaries and government
funding restrictions. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers, and
there exist various proposals for national health care reform that could further
limit those payments. Accordingly, there can be no assurance that payments under
government reimbursement programs will, in the future, be sufficient to fully
reimburse the cost of caring for program beneficiaries. If such payments are
insufficient, net operating income of those Health Care-Related Facilities that
receive revenues from those sources, and consequently the ability of the related
borrowers to meet their obligations under any Mortgage Loans secured thereby,
could be adversely affected.
Moreover, Health Care-Related Facilities that provide medical care
are generally subject to federal and state laws that relate to the adequacy of
medical care, distribution of pharmaceuticals, rates and charges, equipment,
personnel, operating policies and additions to facilities and services. In
addition, those facilities are subject to periodic inspection by governmental
authorities to determine compliance with various standards necessary to
continued licensing under state law and continued participation in the Medicaid
and Medicare reimbursement programs. Providers of assisted living services are
also subject to state licensing requirements in certain states. The failure of
an operator to maintain or renew any required license or regulatory approval
could prevent it from continuing operations at a Health Care-Related Facility
or, if applicable, prohibit it from participating in government reimbursement
programs. Furthermore, under applicable federal and state laws, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure, neither the Trustee nor a
subsequent lessee or operator of any Health Care-Related Facility securing a
defaulted Mortgage Loan would generally be entitled to obtain from federal or
state governments any outstanding reimbursement payments relating to services
furnished prior to such foreclosure. Any of the aforementioned circumstances may
adversely affect the ability of the related borrowers to meet their Mortgage
Loan obligations.
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<PAGE>
Version 5: Health Care-Related Facilities
Government regulation applying specifically to Acute Care
Facilities, Skilled Nursing Facilities and Assisted Living Facilities includes
health planning legislation, enacted by most states, intended, at least in part,
to regulate the supply of nursing beds. The most common method of control is the
requirement that a state authority first make a determination of need, evidenced
by its issuance of a Certificate of Need ("CON"), before a long-term care
provider can establish a new facility, add beds to an existing facility or, in
some states, take certain other actions (for example, acquire major medical
equipment, make major capital expenditures, add services, refinance long-term
debt, or transfer ownership of a facility). States also regulate nursing bed
supply in other ways. For example, some states have imposed moratoria on the
licensing of new beds, or on the certification of new Medicaid beds, or have
discouraged the construction of new nursing facilities by limiting Medicaid
reimbursements allocable to the cost of new construction and equipment. In
general, a CON is site specific and operator specific; it cannot be transferred
from one site to another, or to another operator, without the approval of the
appropriate state agency. Accordingly, if a Mortgage Loan secured by a lien on
such a Health Care-Related Facility were foreclosed upon, the purchaser at
foreclosure might be required to obtain a new CON or an appropriate exemption.
In addition, compliance by a purchaser with applicable regulations may in any
case require the engagement of a new operator and the issuance of a new
operating license. Upon a foreclosure, a state regulatory agency may be willing
to expedite any necessary review and approval process to avoid interruption of
care to a facility's residents, but there can be no assurance that any will do
so or that any necessary licenses or approvals will be issued.
Further government regulation applicable to Health Care-Related
Facilities exists in the form of federal and state "fraud and abuse" laws that
generally prohibit payment or fee-splitting arrangements between health care
providers that are designed to induce or encourage the referral of patients to,
or the recommendation of, a particular provider for medical products or
services. Violation of these restrictions can result in license revocation,
civil and criminal penalties, and exclusion from participation in Medicare or
Medicaid programs. The state law restrictions in this area vary considerably
from state to state. Moreover, the federal anti-kickback law includes broad
language that potentially could be applied to a wide range of referral
arrangements, and regulations designed to create "safe harbors" under the law
provide only limited guidance. Accordingly, there can be no assurance that such
laws will be interpreted in a manner consistent with the practices of the owners
or operators of the Health Care-Related Facilities that are subject to such
laws.
The operators of Health Care-Related Facilities are likely to
compete on a local and regional basis with others that operate similar
facilities, some of which competitors may be better capitalized, may offer
services not offered by such operators, or may be owned by non-profit
organizations or government agencies supported by endowments, charitable
contributions, tax revenues and other sources not available to such operators.
The successful operation of a Health Care-Related Facility will generally depend
upon the number of competing facilities in the local market, as well as upon
other factors such as its age, appearance, reputation and management, the types
of services it provides and, where applicable, the quality of care and the cost
of that care.
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Health Care-Related Properties. ___ of the
Mortgage Loans, which represent __% of the Initial Pool Balance, are secured by
Mortgages on fee and/or leasehold interests in health care-related properties.
Mortgage Loans that are secured by liens on such types of properties are exposed
to certain unique risks. See "Risk Factors--Certain Factors Affecting
Delinquency, Foreclosure and Loss of the Mortgage-Risks Particular to Health
Care-Related Properties" in the Prospectus.
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<PAGE>
Version 5: Health Care-Related Facilities
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<PAGE>
Version 6: Industrial Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Industrial properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
Underlying MBS) constituting the Collateral or Trust Fund for any Series, based
on principal balance at the time such Series is issued.
<PAGE>
Version 6: Industrial Properties
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Industrial and warehouse properties will represent security for a
material concentration of the Mortgage Loans (and the mortgage loans
underlying the MBS) constituting the Collateral or Trust Fund for any Series,
based on a principal balance at the time such Series is issued. Certain
Mortgage Loans (and mortgage loans underlying certain Underlying MBS) may be
sub-prime, delinquent or under-performing or may have loan-to-value ratios in
excess of 100% or debt service coverage ratios below 1.0x as of the date that
the related Series of Securities is issued.
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
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<PAGE>
Version 6: Industrial Properties
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
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<PAGE>
Version 6: Industrial Properties
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Industrial Properties
Industrial properties may be adversely affected by reduced demand for industrial
space occasioned by a decline in a particular industry segment and/or by a
general slow-down in the economy, and an industrial property that suited the
particular needs of its original tenant may be difficult to relet to another
tenant or may become functionally obsolete relative to newer properties.
Furthermore, industrial properties may be adversely affected by the availability
of labor sources or a change in the proximity of supply sources. Because
industrial properties frequently have a single tenant, any such property is
heavily dependent on the success of such tenant's business.
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--Mortgage Loans--General":]
Mortgage Loans Secured by Industrial Properties. Significant
factors that affect the value of industrial properties are the quality of
tenants, building design and adaptability and the location of the property.
Industrial properties may be adversely affected by reduced demand for
industrial space occasioned by a decline in a particular industry segment
and/or by a general slow-down in the economy, and an industrial property that
suited the particular needs of its original tenant may be difficult to relet
to another tenant or may become functionally obsolete relative to newer
properties. Furthermore, industrial properties may be adversely affected by
the availability of labor sources or a change in the proximity of supply
sources. Because industrial properties frequently have a single tenant, any
such property is heavily dependent on the success of such tenant's business.
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, floor loading capacities, truck turning radius and
overall functionality and accessibility. Nevertheless, site characteristics of
an industrial property
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<PAGE>
Version 6: Industrial Properties
suitable for one tenant may not be appropriate for other potential tenants,
which may make it difficult to relet the property.
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.
Further, industrial properties may be adversely affected by economic declines in
the industry segment of their tenants.
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Industrial Properties. ___ of the Mortgage
Loans, which represent __% of the Initial Pool Balance, are secured by Mortgages
on fee and/or leasehold interests in industrial properties. Mortgage Loans that
are secured by liens on such types of properties are exposed to certain unique
risks. See "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage-Risks Particular to Industrial Properties" in the
Prospectus.
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<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Warehouse, mini-warehouse and self-storage facilities will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying the Underlying MBS) constituting the Collateral or Trust Fund
for any Series, based on principal balance at the time such Series is issued.
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Self-storage facilities will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
MBS) constituting the Collateral or Trust Fund for any Series, based on a
principal balance at the time such Series is issued. Certain Mortgage Loans
(and mortgage loans underlying certain Underlying MBS) may be sub-prime,
delinquent or under-performing or may have loan-to-value ratios in excess of
100% or debt service coverage ratios below 1.0x as of the date that the
related Series of Securities is issued.
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
-----------
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
The date of this Prospectus is ______, 199_.
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
-4-
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Self-Storage Facilities. Warehouse,
mini-warehouse and self-storage properties ("Storage Properties") are considered
vulnerable to competition because both acquisition costs and break-even
occupancy are relatively low. The conversion of Storage Properties to
alternative uses would generally require substantial capital expenditures. Thus,
if the operation of any of the Storage Properties becomes unprofitable due to
decreased demand, competition, age of improvements or other factors, such that
the borrower becomes unable to meet its obligation on the related Mortgage Loan,
the liquidation value of that Storage Property may be substantially less,
relative to the amount owing on the Mortgage Loan, than would be the case if the
Storage Property were readily adaptable to other uses. Tenant privacy, anonymity
and efficient access are important to the success of a Storage Property, as is
building design and location.
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--Mortgage Loans--General":]
Mortgage Loans Secured by Warehouse, Mini-Warehouse and Self-Storage Facilities.
Because of relatively low acquisition costs and break-even occupancy rates,
warehouse, mini-warehouse and self-storage properties ("Storage Properties") are
considered vulnerable to competition. Despite their relatively low acquisition
costs, and because of their particular building characteristics, Storage
-5-
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
Properties would require substantial capital investments in order to adapt them
to alternative uses. Limited adaptability to other uses may substantially reduce
the liquidation value of a Storage Property. In addition to competition, factors
that affect the success of a Storage Property include the location and
visibility of the facility, its proximity to apartment complexes or commercial
users, trends of apartment tenants in the area moving to single-family homes,
services provided (such as security and accessibility), age of improvements, the
appearance of the improvements and the quality of management.
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Warehouse, Mini-Warehouse and Self Storage
Facilities. ___ of the Mortgage Loans, which represent __% of the Initial Pool
Balance, are secured by Mortgages on fee and/or leasehold interests in
[warehouse, mini-warehouse and self-storage facilities. Mortgage Loans that are
secured by liens on such types of properties are exposed to certain unique
risks. See "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage-Risks Particular to Warehouse, Mini-Warehouse and Self
Storage Facilities" in the Prospectus.
-6-
<PAGE>
Version 8: Mobile Home Parks and Recreational Vehicle Parks
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Mobile Home Parks and Recreational Vehicle Parks will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying the Underlying MBS) constituting the Collateral or Trust Fund
for any Series, based on principal balance at the time such Series is issued.
<PAGE>
Version 8: Mobile Home Parks and Recreational Vehicle Parks
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered
Securities") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Securities of any Series, together with any other mortgage-backed securities
of such Series, are collectively referred to herein as the "Securities". Each
Series will consist of one or more classes (each, a "Class") of Securities.
As specified in the related Prospectus Supplement, the Securities of each
Series will be either (i) collateralized mortgage obligations ("Bonds")
representing indebtedness of an owner trust (an "Owner Trust") established by
CRIIMI MAE CMBS Corp. (the "Company"); or (ii) mortgage pass-through
certificates ("Certificates") evidencing beneficial ownership interests in a
trust fund (a "Trust Fund") established by the Company as depositor. Bonds
that constitute Offered Securities are also referred to as "Offered Bonds",
and Certificates that constitute Offered Securities are also referred to as
"Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Mobile home parks will represent security for a material concentration
of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Collateral or Trust Fund for any Series, based on a
principal balance at the time such Series is issued. Certain Mortgage Loans
(and mortgage loans underlying certain Underlying MBS) may be sub-prime,
delinquent or under-performing or may have loan-to-value ratios in excess of
100% or debt service coverage ratios below 1.0x as of the date that the
related Series of Securities is issued.
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
-----------
The date of this Prospectus is ______, 199_.
<PAGE>
Version 8: Mobile Home Parks and Recreational Vehicle Parks
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
-3-
<PAGE>
Version 8: Mobile Home Parks and Recreational Vehicle Parks
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Mobile Home Parks and Recreational Vehicle
Parks.
The successful operation of a Mortgaged Property operated as a
mobile home park or recreational vehicle park will generally depend upon the
number of competing parks in the local market, as well as upon other factors
such as its age, appearance, reputation, management and the types of facilities
and services it provides.
Mobile home parks also compete against alternative forms of residential housing,
including multifamily rental properties, cooperatively-owned apartment
buildings, condominium complexes and single-family residential developments.
Recreational vehicle parks also compete against alternative forms of recreation
and short-term lodging (for example, staying at a hotel at the beach).
Mobile home parks and recreational vehicle parks are "special
purpose" properties that cannot be readily converted to general residential,
retail or office use. Thus, if the operation of a mobile home park or
recreational vehicle park becomes unprofitable due to competition, age of the
improvements or other factors such that the borrower becomes unable to meet its
obligations on the related Mortgage Loan, the liquidation value of the park may
be substantially less, relative to the amount owing on such Mortgage Loan, than
would be the case if the park were readily adaptable to other uses.
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--General":]
Mortgage Loans Secured by Mobile Home Parks and Recreational Vehicle
Parks. Mobile home parks consist of land that is divided into "spaces" or
"homesites" that are primarily leased to mobile home owners. Accordingly, the
related Mortgage Loans will be secured by mortgage liens on the real estate (or
a leasehold interest therein) upon which the mobile homes are situated, but not
the mobile homes themselves. The mobile home owner often invests in
site-specific improvements such as carports, steps, fencing, skirts around the
base of the mobile home, and landscaping. The park owner typically provides
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<PAGE>
Version 8: Mobile Home Parks and Recreational Vehicle Parks
private roads within the park, common facilities and, in many cases, utilities.
Park amenities may include driveways, visitor parking, recreational vehicle and
pleasure boat storage, laundry facilities, community rooms, swimming pools,
tennis courts, security systems and healthclubs. Due to relocation costs and, in
some cases, demand for mobile home spaces, the value of a mobile home in place
in a park is generally higher, and can be significantly higher, than the value
of the same unit not placed in a park. As a result, a well-operated mobile home
park that has achieved stabilized occupancy is typically able to maintain
occupancy at or near that level. For the same reason, a lender that provided
financing for the mobile home of a tenant who defaulted in his or her space rent
generally has an incentive to keep rental payments current until the mobile home
can be resold in place, rather than to allow the unit to be removed from the
park.
Recreational vehicle parks lease spaces primarily or exclusively for
motor homes, travel trailers and portable truck campers primarily designed for
recreational, camping or travel use. In general, parks that lease recreational
vehicle spaces can be viewed as having a less stable tenant population than
parks occupied predominantly by mobile homes. However, it is not unusual for the
owner of a recreational vehicle to leave the vehicle at the park on a year-round
basis or to use the vehicle as low cost housing and reside in the park
indefinitely.
Mortgage Loans secured by liens on mobile home parks and
recreational vehicle parks are affected by factors not associated with loans
secured by liens on other types of income-producing real estate. The successful
operation of such types of properties will generally depend upon the number of
competing parks, as well as upon other factors such as its age, appearance,
reputation, the ability of management to provide adequate maintenance and
insurance, and the types of facilities and services it provides. Mobile home
parks also compete against alternative forms of residential housing, including
multifamily rental properties, cooperatively-owned apartment buildings,
condominium complexes and single-family residential developments. Recreational
vehicle parks also compete against alternative forms of recreation and
short-term lodging (for example, staying at a hotel at the beach). Mobile home
parks and recreational vehicle parks are "special purpose" properties that
cannot be readily converted to general residential, retail or office use. Thus,
if the operation of a mobile home park or recreational vehicle park becomes
unprofitable due to competition, age of the improvements or other factors such
that the borrower becomes unable to meet its obligations on the related Mortgage
Loan, the liquidation value of the park may be substantially less, relative to
the amount owing on the Mortgage Loan, than would be the case if the park were
readily adaptable to other uses.
Certain states regulate the relationship of a mobile home park
owner and its tenants. Commonly, these laws require a written lease, good
cause for eviction, disclosure of fees, and notification to residents of
changed land use, while prohibiting unreasonable rules, retaliatory
evictions, and restrictions on a resident's choice of unit vendors. Mobile
home park 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 mobile home owner's
tenancy or increase its rent or prohibit a landlord from terminating a
tenancy solely by reason of the sale of the owner's mobile home. Certain
states also regulate changes in mobile home park use and require that the
landlord give written notice to its tenants a substantial period of time
prior to the projected change.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on mobile home parks.
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
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<PAGE>
Version 8: Mobile Home Parks and Recreational Vehicle Parks
governmental agency, or to increases determined through mediation or binding
arbitration. In many cases, the rent control laws do not provide for decontrol
of rental rates upon vacancy of individual units or permit such decontrol only
in the relatively rare event that the mobile home is removed from the homesite.
Any limitations on a borrower's ability to raise property rents may impair such
borrower's ability to repay its Mortgage Loan from its net operating income or
the proceeds of a sale or refinancing of the related Mortgaged Property.
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Mobile Home Parks and Recreational Vehicle
Parks. ___ of the Mortgage Loans, which represent __% of the Initial Pool
Balance, are secured by Mortgages on fee and/or leasehold interests in mobile
home parks and recreational vehicle parks. Mortgage Loans that are secured by
liens on such types of properties are exposed to certain unique risks. See "Risk
Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage-Risks Particular to Mobile Home Parks and Recreational Vehicle Parks"
in the Prospectus.
-6-
<PAGE>
Version 9: Casino Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Casino properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
Underlying MBS) constituting the Collateral or Trust Fund for any Series, based
on principal balance at the time such Series is issued.
<PAGE>
Version 9: Casino Properties
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Mobile home parks will represent security for a material concentration
of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Collateral or Trust Fund for any Series, based on a
principal balance at the time such Series is issued. Certain Mortgage Loans
(and mortgage loans underlying certain Underlying MBS) may be sub-prime,
delinquent or under-performing or may have loan-to-value ratios in excess of
100% or debt service coverage ratios below 1.0x as of the date that the
related Series of Securities is issued.
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
-----------
The date of this Prospectus is ______, 199_.
<PAGE>
Version 9: Casino Properties
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
-3-
<PAGE>
Version 9: Casino Properties
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Casino Properties. The income generated by a
casino is subject to several factors such as local, regional and national
economic conditions. Casinos are dependent on the willingness of patrons to
gamble and, accordingly, the availability of disposable income for such
purposes. Additional risks include, among others, a high level of continuing
capital expenditure to maintain attractive facilities, competition from other
casinos, increases in operating costs (which may not be able to be passed
through to patrons) and, depending on the geographic location, a dependence on
tourism. Competition among major casinos may involve attracting patrons by
providing alternate forms of entertainment (e.g., performers and sporting
events), which may materially increase operating expenses, and low-priced or
free food and lodging. In addition, to avoid criminal influence, the ownership
and operation of casino properties is often subject to local or state
governmental regulation. A government agency or authority may have jurisdiction
over or influence with respect to the foreclosure of a casino property and/or
the bankruptcy of its owner or operator. In some jurisdictions, it may be
necessary to receive governmental approval before foreclosing, thereby resulting
in substantial delays. Gaming licenses are not transferable (including in
connection with a foreclosure), and there can be no assurance that the Trustee
or other purchaser in foreclosure or otherwise will be able to obtain the
requisite approvals to operate the subject property as a casino. The loss of a
gaming license could have a material adverse effect on the value of a casino
property. In addition, any given state or municipality that currently allows
legalized gambling could pass legislation prohibiting it.
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--Mortgage Loans--General":]
Mortgage Loans Secured by Casino Properties. Various factors,
including location and appearance, affect the economic performance of a casino.
Adverse economic conditions, either local, regional or national, may limit the
amount of disposable income that potential patrons may have for gambling. The
construction of competing casinos can also have an adverse affect on the
performance of a casino property. To meet competition, continuing expenditures
must be made for modernizing, refurbishing and maintaining existing facilities.
In addition, competition among major casinos may involve attracting patrons by
providing alternate forms of entertainment (e.g., performers and sporting
events), which may materially increase operating expenses, and low-priced or
free food and lodging. Because of the nature of the business, casinos tend to
respond more quickly to adverse economic conditions and competition then do
certain other commercial properties. Depending on the geographic location of a
casino property, it may be heavily dependent on tourism for its clientele. In
addition, to avoid criminal influence, the ownership and operation of casino
properties is often subject to local or state governmental regulation. For
public policy reasons, applicable government agencies are given substantial
powers in this regard. A government agency or authority may also have
jurisdiction over or influence with respect to the foreclosure of a casino
property and/or the bankruptcy of its owner or operator. In some jurisdictions,
it may be necessary to receive governmental approval before foreclosing, thereby
resulting in substantial delays. Gaming licenses are not transferable (including
in connection with foreclosure), and there can be no assurance that the Trustee,
Special Servicer or other purchaser in foreclosure or otherwise will be able to
obtain the requisite approvals to operate the subject property as a casino. The
loss of a gaming license could have a material adverse affect on the value of a
casino property. Further, any given state or municipality that currently allows
legalized gambling could pass legislation banning it. Depending upon what
alternative use may be made of a casino property, such legislation could have a
material adverse affect on the value of such property.
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Casino Properties. ___ of the Mortgage Loans,
which represent __% of the Initial Pool Balance, are secured by Mortgages on fee
and/or leasehold interests in casinos. Mortgage Loans that are secured by liens
on such types of properties are exposed to certain unique risks. See "Risk
Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage-Risks Particular to Casino Properties" in the Prospectus.
-4-
<PAGE>
Version 10: Restaurants
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Restaurants will represent security for a material concentration of
the Mortgage Loans (and the mortgage loans underlying the Underlying MBS)
constituting the Collateral or Trust Fund for any Series, based on principal
balance at the time such Series is issued.
<PAGE>
Version 10: Restaurants
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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, auto parks, golf
courses, arenas, marinas, resort properties and restaurants; and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land. Mobile home parks will represent security for a material concentration
of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Collateral or Trust Fund for any Series, based on a
principal balance at the time such Series is issued. Certain Mortgage Loans
(and mortgage loans underlying certain Underlying MBS) may be sub-prime,
delinquent or under-performing or may have loan-to-value ratios in excess of
[6~100% or debt service coverage ratios below 1.0x as of the date that the
related Series of Securities is issued.
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
-----------
The date of this Prospectus is ______, 199_.
<PAGE>
Version 10: Restaurants
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
-3-
<PAGE>
Version 10: Restaurants
[The following to be inserted in the Prospectus immediately
following "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Restaurants. Various factors may affect the
economic viability of individual restaurants and other establishments that are
part of the food and beverage service industry ("Restaurants"), including but
not limited to competition from facilities having businesses similar to the
particular Restaurant; perceptions by prospective customers of the safety,
convenience, services and attractiveness of the Restaurant; the cost, quality
and availability of food and beverage products; negative publicity resulting
from instances of food contamination, food-borne illness and similar events;
changes in demographics, consumer habits and traffic patterns; the ability to
provide or contract for capable management and adequate maintenance; and
retroactive changes to building codes, similar ordinances and other legal
requirements. Adverse economic conditions, whether local, regional or national,
may limit the amount that may be charged for food and beverages and the extent
to which customers dine out, and may result in a reduction in customers. The
construction of competing food/drink establishments can have similar effects.
Because of the nature of the business, Restaurants tend to respond to adverse
economic conditions more quickly than do other commercial properties.
In general, if a Mortgage Asset Pool involves a material
concentration of Restaurants, such Restaurants will be part of a chain
(including a fast food chain). Additional factors that can affect the success of
a regionally or nationally-known chain Restaurant include actions and omissions
of any franchisor (including management practices that adversely affect the
nature of the business or that require renovation, refurbishment, expansion or
other expenditures); the degree of support provided or arranged by any such
franchisor, its franchisee organizations and third party providers of products
or services; the bankruptcy or business discontinuation of any such franchisor,
franchisee organization or third party; and increases in operating expenses.
In addition, commercial loans secured by property used in the
operation of chain restaurants are subject to various risks not associated with
commercial loans made to independent enterprises. Chain restaurants may be
operated under franchise agreements, and such agreements typically do not
contain provisions protective of lenders. A borrower's rights as franchisee
typically may be terminated without informing the lender, and the borrower may
be precluded from competing with the franchisor upon such termination. In
addition, a lender that acquires title to a restaurant site through foreclosure
or similar proceedings may be restricted in the use of such site or may be
unable to succeed to the rights of the franchisee under the related franchise
agreement. The transferability of a franchise may be subject to other
restrictions, and federal and state franchise regulations may impose additional
risks (including the risk that the transfer of a franchise acquired through
foreclosure or similar proceedings may require registration with governmental
authorities or disclosure to prospective transferees).
[The following to be inserted in the Prospectus immediately
following "Description of the Underlying Assets--Mortgage Loans--General":]
Mortgage Loans Secured by Restaurants. The Mortgaged Properties that
constitute Restaurants may include those that are individually owned and
operated and those which are part of a regionally- or nationally-known chain of
Restaurants. As is the case with loans secured by other income-producing
properties, a Mortgage Loan secured by a Restaurant is dependent on the
successful operation of the Restaurant, which, in turn, is dependent on various
factors, many of which are beyond the control of the Restaurant operator,
including but not limited to competition from facilities having businesses
similar to the Restaurant; perceptions by prospective customers of the safety,
convenience, services and attractiveness of the Restaurant; the cost, quality
and availability of food and beverage products; negative publicity resulting
from instances of food contamination, food-borne illness and similar events;
changes in demographics, consumer habits and traffic patterns; the ability to
provide or contract for capable management and adequate maintenance; and
retroactive changes to building codes, similar ordinances and other legal
requirements. Adverse economic conditions, whether local, regional or national,
may limit the amount that may be charged for food and beverages and the extent
to which consumers dine out, and may result in a reduction in customers. The
construction of competing food/drink establishments can have similar effects.
Because of the nature of the business, Restaurants tend to respond to adverse
economic conditions and competition more quickly than do many other commercial
properties.
The food and beverage service industry is highly competitive. The
principal means of competition are segment, product, price, value, quality,
service, convenience, location and the nature and condition of the Restaurant
facility. A Restaurant operator competes with the operators of comparable
restaurant facilities in the area in which its Restaurant is located. Other
restaurants could have lower operating costs, more favorable locations, more
effective marketing, more efficient operations or better facilities.
The location and condition of a particular Restaurant will
affect the number of customers and, to a certain extent, the prices that may
be charged. The characteristics of an area or neighborhood in which a
Restaurant is located may change over time or in relation to competing
facilities, and the cleanliness and maintenance at a Restaurant will affect
the appeal of the Restaurant to customers. In addition, the effects of poor
construction quality will increase over time in the form of increased
maintenance and capital
-4-
<PAGE>
Version 10: Restaurants
improvements. Even good construction will deteriorate over time if management
does not schedule and perform adequate maintenance in a timely fashion. In
the case of regionally- or nationally-known chain restaurants, there may be
expenditures for renovation, refurbishment or expansion at a Restaurant
regardless of its condition. While a Restaurant may be renovated, refurbished
or expanded to either maintain its condition or remain competitive, such
renovation, refurbishment or expansion may itself entail significant risks.
In addition, the business conducted at a Restaurant may face competition from
other industries and industry segments.
industries and industry segments.
The success of a Restaurant which is part of either a regionally- or
nationally-known chain of restaurants can be affected by various factors such as
the management practices of the respective franchisor, a lack of support by such
franchisor, its franchisee organizations or third party providers of products or
services, or the bankruptcy or business discontinuation of any such franchisor,
franchisee organization or third party. Furthermore, Mortgage Loans secured by
property used in the operation of chain restaurants are subject to various risks
not associated with Mortgage Loans made to independent enterprises. Chain
restaurants may be operated under franchise agreements, and such agreements
typically do not contain provisions protective of lenders. A borrower's rights
as franchisee typically may be terminated without informing the lender, and the
borrower may be precluded from competing with the franchisor upon such
termination. In addition, a lender that acquires title to a restaurant site
through foreclosure or similar proceedings may be restricted in the use of such
site or may be unable to succeed to the rights of the franchisee under the
related franchise agreement. The transferability of a franchise may be subject
to other restrictions, and federal and state franchise regulations may impose
additional risks (including the risk that the transfer of a franchise acquired
through foreclosure or similar proceedings may require registration with
governmental authorities or disclosure to prospective transferees). Also, the
ability of a Restaurant to attract customers, and such Restaurant's revenues,
may depend in large part on its having a liquor license. Such a license may not
be transferable (for example, in connection with a foreclosure).
[The following to be inserted in the Prospectus Supplement
immediately following "Risk Factors--Limited Recourse Nature of Mortgage
Loans":]
Risks Particular to Restaurants. ___ of the Mortgage Loans, which
represent __% of the Initial Pool Balance, are secured by Mortgages on fee
and/or leasehold interests in restaurants. Mortgage Loans that are secured by
liens on such types of properties are exposed to certain unique risks. See "Risk
Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage-Risks Particular to Restaurants" in the Prospectus.
-5-
<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 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 JULY 31, 1998.
CRIIMI MAE CMBS CORP.
Mortgage Pass-Through Certificates and
Collateralized Mortgage Obligations, Issuable in Series
The mortgage-backed securities offered hereby (the "Offered Securities")
and by the supplements hereto (each, a "Prospectus Supplement") will be offered
from time to time in series (each, a "Series"). The Offered Securities of any
Series, together with any other mortgage-backed securities of such Series, are
collectively referred to herein as the "Securities". Each Series will consist of
one or more classes (each, a "Class") of Securities. As specified in the related
Prospectus Supplement, the Securities of each Series will be either (i)
collateralized mortgage obligations ("Bonds") representing indebtedness of an
owner trust (an "Owner Trust") established by CRIIMI MAE CMBS Corp. (the
"Company"); or (ii) mortgage pass-through certificates ("Certificates")
evidencing beneficial ownership interests in a trust fund (a "Trust Fund")
established by the Company as depositor. Bonds that constitute Offered
Securities are also referred to as "Offered Bonds", and Certificates that
constitute Offered Securities are also referred to as "Offered Certificates".
Each Series of Securities will be secured by a pledge of collateral
("Collateral"), or will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund, that in either case includes a segregated
pool (a "Mortgage Asset Pool") of: (i) various types of multifamily and
commercial real estate loans ("Mortgage Loans"); (ii) mortgage-backed
securities ("Underlying MBS") that evidence interests in, or that are secured
by pledges of, one or more of various types of multifamily or commercial real
estate loans; or (iii) a combination of Mortgage Loans and Underlying MBS
(collectively, "Mortgage Assets"). The Mortgage Loans (and the real estate
loans underlying the Underlying MBS) will be secured by first or junior liens
on, or security interests in, fee or leasehold estates in, or cooperative
shares relating to, one or more of the following types of real property
(each, a "Mortgaged Property"): (i) residential properties consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots and garages, golf courses,
auto parks, arenas, marinas, resort properties and restaurants; and (iii)
mixed use properties (that is, any combination of the foregoing) and
unimproved land. Certain Mortgage Loans (and mortgage loans underlying
certain Underlying MBS) may be sub-prime, delinquent or under-performing or
may have loan-to-value ratios in excess of 100% or debt service coverage
ratios below 1.0x as of the date that the related Series of Securities is
issued.
(cover continued on next page)
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PROCEEDS OF THE ASSETS CONSTITUTING THE RELATED COLLATERAL OR TRUST FUND, AS THE
CASE MAY BE, WILL BE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED SECURITIES OF
ANY SERIES. THE OFFERED BONDS OF ANY BOND SERIES WILL BE NONRECOURSE OBLIGATIONS
SOLELY OF THE ISSUER THEREOF. UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE OFFERED SECURITIES NOR THE MORTGAGE ASSETS
WILL BE GUARANTEED OR INSURED BY THE COMPANY OR ANY OF ITS AFFILIATES, BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY OR BY ANY OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page ___
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Security.
The Offered Securities of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any Series
prior to the offering thereof. There can be no assurance that a secondary market
for any Offered Securities will develop or, if one does develop, that it will
continue. The Offered Securities will not be listed on any securities
exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Securities of any Series unless
accompanied by the Prospectus Supplement for such Series.
-----------
The date of this Prospectus is ______, 199_.
<PAGE>
(cover continued)
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates (a "Certificate Series") and the Collateral for a Series
of Bonds (a "Bond Series") may also include letters of credit, surety bonds,
insurance policies, guarantees, reserve funds, guaranteed investment contracts,
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets. See "Description of the Underlying Assets", "Description of
the Securities" and "Description of Credit Support".
The yield on each Class of Offered Certificates of a Series will be
affected by, among other things, the rate and timing of payment of principal
(including prepayments) on the related Mortgage Assets, as described herein and
in the related Prospectus Supplement. See "Yield and Maturity Considerations".
The Bonds of any Bond Series may be subject to optional redemption prior to
Stated Maturity (as defined herein), and the Trust Fund for any Certificate
Series may be subject to early termination, under the circumstances described
herein and in the related Prospectus Supplement. See "Description of the
Securities--Optional Redemption" and "--Termination of a Trust Fund".
As described in the related Prospectus Supplement, the Securities of each
Series, including the Offered Securities of such Series, may consist of one or
more Classes of Securities that: (i) provide for the accrual of interest thereon
based on a fixed, variable or adjustable interest rate; (ii) are senior or
subordinate to one or more other Classes of Securities of such Series in
entitlement to certain payments or distributions thereon; (iii) are entitled to
payments or distributions of principal, with disproportionate, nominal or no
payments or distributions of interest; (iv) are entitled to payments or
distributions of interest, with disproportionate, nominal or no payments or
distributions of principal; (v) provide for payments or distributions of
interest thereon or principal thereof that commence only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Securities of such Series; (vi) provide for payments or distributions
of principal thereof to be made, from time to time or for designated periods, at
a rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; or (vii)
provide for payments or distributions of principal thereof to be made, subject
to available funds, based on a specified principal payment schedule or other
methodology. Payments in respect of the Bonds or distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Securities".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a Series of Securities will specify which Class or Classes of
such Series will be considered to be regular interests in the related REMIC and
which Class of such Securities or other interests will be designated as the
residual interest in the related REMIC. See "Material Federal Income Tax
Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
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PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Securities of each Series will, among other things, set forth, as
and to the extent appropriate: (i) whether such Offered Securities are Bonds or
Certificates; (ii) a description of the Class or Classes of such Offered
Securities, including the payment provisions and, if applicable, maturity with
respect to each such Class, the aggregate principal amount, if any, of each such
Class, the rate at which interest accrues from time to time, if at all, with
respect to each such Class or the method of determining such rate, and whether
interest with respect to each such Class will accrue from time to time on its
aggregate principal amount, if any, or on a specified notional amount, if at
all; (iii) information with respect to any other Classes of Securities of the
same Series; (iv) the respective dates on which payments or distributions are to
be made; (v) information as to the assets, including the Mortgage Assets,
constituting the related Collateral or Trust Fund, as the case may be; (vi) the
circumstances, if any, under which such Offered Securities may be subject to
call or early retirement; (vii) additional information with respect to the
method of distribution of such Offered Securities; (viii) whether one or more
REMIC elections will be made and the designation of the "regular interests" and
"residual interests" in each REMIC to be created and the identity of the person
(the "REMIC Administrator") responsible for the various tax-related duties in
respect of each REMIC to be created; (ix) information concerning the Trustee (as
defined herein) for the holders of such Offered Securities; (x) if the related
Collateral or Trust Fund, as the case may be, includes Mortgage Loans,
information concerning the Master Servicer and any Special Servicer (each as
defined herein) of such Mortgage Loans and the circumstances under which all or
a portion, as specified, of the servicing of a Mortgage Loan would transfer from
the Master Servicer to the Special Servicer; (xi) information as to the nature
and extent of subordination of any Class of Securities of such Series, including
a Class of Offered Securities; and (xii) whether such Offered Securities will be
initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Company 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 (the "Securities Act"), with
respect to the Offered Securities. This Prospectus and the Prospectus Supplement
relating to each Series of Offered Securities 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, 500 West Madison, 14th
Floor, Chicago, Illinois 60661; New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval system at the
Commission's Web site (http://www.sec.gov).
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or any related Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any other person. Neither the delivery of this Prospectus or
any related Prospectus Supplement nor any sale made hereunder or thereunder
shall under any circumstances create an implication that there has been no
change in the information herein since the date hereof or therein since the date
thereof. This Prospectus and any related Prospectus Supplement are not an offer
to sell or a solicitation of an offer to buy any security in any jurisdiction in
which it is unlawful to make such offer or solicitation.
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<PAGE>
The Company, the related Trustee or another specified person or entity
will cause to be provided to registered holders of the Offered Securities of
each Series periodic unaudited reports concerning such Securities and the
related Mortgage Assets. If beneficial interests in a Class or Series of Offered
Securities are being held and transferred in book-entry format through the
facilities of DTC (as defined herein), then such reports will be sent to a
nominee of DTC as the registered holder of such Offered Securities and will be
sent directly to the actual beneficial owners of the Offered Securities only
under the circumstances described in the related Prospectus Supplement.
Conveyance of notices and other communications by DTC to its participating
organizations, and directly or indirectly through such participating
organizations to the beneficial owners of the applicable Offered Securities,
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time. See "Description
of the Securities--Reports to Securityholders" and "--Book-Entry Registration
and Definitive Securities".
The Company will file or cause to be filed with the Commission such
periodic reports with respect to the Offered Securities of each Series and the
related Mortgage 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. The Company intends to make a written request to the
staff of the Commission that the staff either (i) issue an order pursuant to
Section 12(h) of the Exchange Act exempting the Company or other appropriate
person or entity from certain reporting requirements under the Exchange Act with
respect to the Offered Securities of each Series and the related Mortgage Assets
or (ii) state that the staff will not recommend that the Commission take
enforcement action if the Company or other appropriate person or entity fulfills
its reporting obligations as described in its written request. If such request
is granted, the Company will file or cause to be filed with the Commission as to
each Series of Offered Securities and the related Mortgage Assets the periodic
unaudited reports to holders of the Offered Securities referenced in the
preceding paragraph; however, because of the nature of the related Collateral or
Trust Fund, as the case may be, it is unlikely that any significant additional
information will be filed. In addition, because of the limited number of holders
of Securityholders (as defined herein) expected for each Series, the Company
anticipates that a significant portion of such reporting requirements will be
permanently suspended following the first fiscal year for the related Owner
Trust or Trust Fund, as the case may be.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Company with respect to the Offered Securities of
each Series and the related Mortgage 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 Securities. The Company 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 Securities, upon written or oral
request of such person, 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 Securities, other than the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Such requests to the Company should be directed
in writing to the Company at 11200 Rockville Pike, Rockville, Maryland 20852,
Attention: David B. Iannarone, Esq., or by telephone at (301) 816-2300.
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<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT.......................................................3
AVAILABLE INFORMATION.......................................................3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...........................4
SUMMARY OF PROSPECTUS.......................................................9
RISK FACTORS...............................................................25
Effect of Prepayments on Average Life of Offered Securities..........25
Effect of Prepayments on Yield of Offered Securities ................26
Optional Redemption of Bonds.........................................26
Early Retirement of Certificates.....................................26
Limited Assets Available to Pay Offered Securities...................27
Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans.....................................................27
Inclusion of Sub-Prime, Delinquent and Under-Performing
Mortgage Loans in a Mortgage Asset Pool............................32
Limited Liquidity of Offered Securities..............................32
Credit Support Limitations...........................................33
Limited Nature of Ratings............................................34
Certain Risks Associated with Mortgage Loans Secured by Commercial
and Multifamily Properties.........................................34
Issuer Events of Default; Bankruptcy or Insolvency of the Issuer.....35
Potential Conflicts of Interest .....................................36
Substitution, Acquisition, Release and Repurchase
of Mortgage Assets.................................................37
Certain Federal Tax Considerations Regarding REMIC Residual
Securities.........................................................37
DESCRIPTION OF THE UNDERLYING ASSETS.......................................38
General..............................................................38
Mortgage Loans.......................................................38
Underlying MBS.......................................................42
Substitution, Acquisition, Release and Repurchase
of Mortgage Assets.................................................43
Undelivered Mortgage Assets..........................................44
Collection Accounts..................................................44
Credit Support.......................................................44
Cash Flow Arrangements...............................................45
YIELD AND MATURITY CONSIDERATIONS..........................................45
General..............................................................45
Security Interest Rate...............................................45
Payment Delays.......................................................45
Certain Shortfalls in Collections of Interest........................46
Yield and Prepayment Considerations..................................46
Weighted Average Life and Maturity...................................48
Other Factors Affecting Yield, Weighted Average Life and Maturity....48
THE COMPANY................................................................50
CRIIMI MAE INC. ...........................................................51
OWNER TRUST................................................................51
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DESCRIPTION OF THE SECURITIES..............................................51
General..............................................................51
The Bonds............................................................51
The Certificates.....................................................54
The Two Trust Structure..............................................57
Allocation of Losses and Shortfalls..................................57
Advances in Respect of Delinquencies.................................58
Reports to Securityholders...........................................59
Voting Rights........................................................59
Special Redemption of Bonds..........................................60
Optional Redemption of Bonds.........................................60
Termination of a Trust Fund..........................................60
The Trustee..........................................................61
Book-Entry Registration and Definitive ..............................62
DESCRIPTION OF THE INDENTURES..............................................64
General..............................................................64
Pledge of Mortgage Assets............................................64
Certain Covenants....................................................66
Modification of Indenture............................................67
Issuer Events of Default.............................................68
Control by Bondholders...............................................70
Authentication and Delivery of Bonds.................................71
Satisfaction and Discharge of the Indenture..........................71
Release of Collateral................................................72
Compliance Certificates and Opinions.................................72
List of Bondholders..................................................72
Meetings of Bondholders..............................................73
Fiscal Year..........................................................73
Trustee's Annual Report..............................................73
DESCRIPTION OF THE POOLING AGREEMENTS......................................73
General..............................................................73
Transfer of Mortgage Assets..........................................74
Representations and Warranties with Respect to Mortgage Assets;
Repurchases and Other Remedies.....................................75
Amendment............................................................76
Certain Matters Affecting Certificateholders.........................77
List of Certificateholders...........................................77
SERVICING AND ADMINISTRATION OF THE MORTGAGE ASSETS........................78
General..............................................................78
Collection and Other Servicing Procedures with Respect to Mortgage
Loans .............................................................78
Sub-Servicers........................................................80
Collection of Payments on Underlying MBS.............................80
Collection Account...................................................81
Modifications, Waivers and Amendments of Mortgage Loans..............84
Realization Upon Defaulted Mortgage Loans............................84
Hazard Insurance Policies............................................86
Due-on-Sale and Due-on-Encumbrance Provisions........................87
Servicing Compensation and Payment of Expenses.......................87
Evidence as to Compliance............................................88
Certain Matters Regarding the Master Servicer, the Special Servicer,
the REMIC Administrator, the Manager and the Company...............88
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S&A Events of Default................................................89
Rights Upon S&A Event of Default.....................................90
Resignation and Removal of the Trustee...............................91
DESCRIPTION OF CREDIT SUPPORT..............................................91
General..............................................................91
Subordinate Securities and Issuer's Equity...........................91
Insurance or Guarantees with Respect to Mortgage Loans...............92
Letter of Credit.....................................................92
Certificate Insurance and Surety Bonds...............................92
Reserve Funds........................................................93
Credit Support with Respect to MBS...................................93
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS....................................93
General..............................................................93
Types of Mortgage Instruments........................................94
Leases and Rents.....................................................94
Cooperative Loans....................................................94
Personalty...........................................................95
Foreclosure on Mortgages.............................................95
Foreclosure on Cooperative Shares....................................98
Bankruptcy Laws......................................................98
Environmental Considerations.........................................99
Due-on-Sale and Due-on-Encumbrance Provisions.......................101
Junior Liens; Rights of Holders of Senior Liens.....................101
Subordinate Financing...............................................101
Default Interest and Limitations on Prepayments.....................102
Applicability of Usury Laws.........................................102
Certain Laws and Regulations........................................102
Americans with Disabilities Act.....................................102
Soldiers' and Sailors' Civil Relief Act of 1940.....................102
Forfeitures in Drug and RICO Proceedings............................103
MATERIAL FEDERAL INCOME TAX CONSEQUENCES..................................103
General.............................................................103
REMICs..............................................................106
Grantor Trusts......................................................121
Debt Securities.....................................................130
STATE AND OTHER TAX CONSEQUENCES..........................................135
ERISA CONSIDERATIONS......................................................135
Summary.............................................................135
General.............................................................135
Plan Asset Regulations..............................................136
Prohibited Transaction Exemptions...................................137
Insurance Company General Accounts..................................137
Consultation With Counsel...........................................138
Tax Exempt Investors................................................138
LEGAL INVESTMENT..........................................................138
USE OF PROCEEDS...........................................................140
METHOD OF DISTRIBUTION....................................................140
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LEGAL MATTERS.............................................................141
FINANCIAL INFORMATION.....................................................142
RATING....................................................................142
INDEX OF PRINCIPAL DEFINITIONS............................................143
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SUMMARY OF PROSPECTUS
The following summary of certain material information is qualified in
its entirety by reference to the more detailed information appearing elsewhere
in this Prospectus and by reference to the information with respect to each
Series of Securities contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of Offered Securities of such Series.
An Index of Principal Definitions is included at the end of this Prospectus.
Securities Offered................ Mortgage-backed securities consisting of
collateralized mortgage obligations and
mortgage pass-through certificates,
issuable in series.
Company........................... CRIIMI MAE CMBS Corp., a Delaware
corporation. See "The Company".
Issuer/Depositor ................. The Company will establish the Owner Trust
that will act as the issuer (in such
capacity, the "Issuer") of each Bond
Series, and the Company will establish the
Trust Fund for each Certificate Series.
Trustee........................... The trustee (the "Trustee") for each Series
of Securities will be named in the related
Prospectus Supplement. In the case of a
Bond Series, the Trustee will be a bank or
trust company qualified under the Trust
Indenture Act of 1939, as amended (the
"TIA"). See "Description of the
Securities--The Trustee".
Master Servicer................... If a Mortgage Asset Pool includes Mortgage
Loans, then the master servicer (the
"Master Servicer") for the corresponding
Series will be named in the related
Prospectus Supplement. The Master Servicer
for any such Series may be an affiliate of
the Company. See "Servicing and
Administration of the Mortgage Assets".
Special Servicer.................. If a Mortgage Asset Pool includes Mortgage
Loans, then the special servicer (the
"Special Servicer") for the corresponding
Series will be named, or the circumstances
under which a Special Servicer may be
appointed will be described, in the related
Prospectus Supplement. The Special Servicer
for any such Series may be an affiliate of
the Company. See "Servicing and
Administration of the Mortgage Assets".
MBS Administrator................. If a Mortgage Asset Pool includes
Underlying MBS, then the entity responsible
for administering such Underlying MBS (the
"MBS Administrator") will be named in the
related Prospectus Supplement. The MBS
Administrator for any Series may be an
affiliate of the Company. If an entity
other than the Trustee or the Master
Servicer is the MBS Administrator, such
entity will be referred to herein
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as the "Manager". See "Servicing and
Administration of the Mortgage Assets".
REMIC Administrator............... The person (the "REMIC Administrator")
responsible for the various tax-related
administration duties for a Series as to
which one or more REMIC elections have
been made will be named in the related
Prospectus Supplement. The REMIC
Administrator for any such Series may be
an affiliate of the Company. See "Material
Federal Income Tax Consequences--REMICs--
Reporting and Other Administrative
Matters".
The Mortgage Assets............... The Collateral for each Bond Series and the
Trust Fund for each Certificate Series will
primarily consist of a Mortgage Asset Pool.
Each Mortgage Asset Pool will consist of
Mortgage Loans, Underlying MBS or some
combination thereof.
The Mortgage Loans included in any
Mortgage Asset Pool will be secured by
first or junior liens on, or security
interests in, fee and/or leasehold
estates in, or cooperative shares
relating to, Mortgaged Properties
consisting of one or more of the
following types of real property: (i)
residential properties consisting of
rental or cooperatively-owned buildings
with multiple dwelling units and mobile
home parks; (ii) commercial properties
consisting of office buildings, retail
facilities (such as shopping centers,
malls and individual stores, shops and
other businesses, related to the sale of
goods and products and facilities
related to providing entertainment,
recreation or personal services, hotels
and motels, casinos, health care-related
facilities (such as hospitals, skilled
nursing facilities, nursing homes,
congregate care facilities and senior
housing), recreational vehicle parks,
warehouse facilities, mini-warehouse
facilities, self-storage facilities,
industrial facilities, parking lots and
garages, auto parks, golf courses,
arenas, marinas, resort properties and
restaurants; and iii) mixed use
properties (that is, any ombination of
the foregoing) and unimproved land. The
Mortgaged Properties may be located in
the United States, any territory or
possession thereof, the Commonwealth of
Puerto Rico or, in limited
circumstances, outside the foregoing
jurisdictions. The Mortgage Loans will
not be guaranteed or insured by the
Company or any of its affiliates or,
unless the related Prospectus Supplement
states that they are insured by the
Federal Housing Administration (the
"FHA") under the National Housing Act of
1934 (the "Housing Act"), by any
governmental agency or instrumentality
or by any other person. Certain of the
Mortgaged Properties may be owned by a
private cooperative corporation (a
"Cooperative"). If so specified in the
related Prospectus Supplement, certain
Mortgage Loans (the "Cooperative loans")
will be secured by security interests in
shares in a Cooperative that give the
owner thereof the right to occupy
particular multiple dwelling units or a
particular commercial unit in the
cooperative building or complex. If so
specified in the related Prospectus
Supplement, certain Mortgage Loans may
be sub-prime, delinquent or
under-performing or may have
loan-to-value ratios in excess of 100%
or debt service coverage ratios below
1.0x as of the date that the related
Series of Securities is issued.
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As and to the extent described in the
related Prospectus Supplement, a Mortgage
Loan (i) may provide for no accrual of
interest or for accrual of interest thereon
at an interest rate (a "Mortgage Rate")
that is fixed over its term or that adjusts
or resets one or more times over its term,
or that may be converted at the borrower's
election from an adjustable to a fixed
Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, (ii) may provide
for level payments to maturity or for
payments that adjust from time to time to
accommodate changes in the Mortgage Rate or
to reflect the occurrence of certain
events, and may permit negative
amortization, (iii) may be fully amortizing
or may be partially amortizing or
nonamortizing, with a balloon payment due
on its stated maturity date, (iv) may
prohibit over its term or for a certain
period prepayments and/or require payment
of a premium or a yield maintenance
amount in connection with certain
prepayments and(v) 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. Although no Mortgage Loan will
have been originated by the Company,
certain Mortgage Loans may have been
originated by affiliates of the Company.
See "Description of the Underlying
Assets--Mortgage Loans".
If any Mortgage Loan, or group of related
Mortgage Loans (by reason of
cross-collateralization, common borrower or
affiliation of borrowers), constitutes a
material concentration of credit risk,
financial statements or other financial
information with respect to the related
Mortgaged Property or Mortgaged Properties
will be included in the related Prospectus
Supplement. See "Description of the
Underlying Assets--Mortgage Loans--Mortgage
Loan Information in Prospectus
Supplements".
The Underlying MBS included in any Mortgage
Asset Pool will consist of mortgage
participations, mortgage pass-through
certificates, collateralized mortgage
obligations and/or other mortgage-backed
securities, that evidence an interest in,
or are secured by a pledge of, one or more
mortgage loans that conform to the
descriptions of the Mortgage Loans
contained herein and that may or may not be
issued, insured or guaranteed by the United
States or an agency or instrumentality
thereof. See "Description of the Underlying
Assets--Underlying MBS".
If so specified in the related Prospectus
Supplement, the Company, the Issuer of a
Bond Series or another specified person or
entity may be permitted, at its option, but
subject to the conditions specified in such
Prospectus Supplement, to replace related
Mortgage Assets with (or, in the case of a
Bond Series, to obtain a release of the
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<PAGE>
related Mortgage Assets in exchange for)
other mortgage loans or mortgage-backed
securities that conform to the description
of "Mortgage Assets" herein and satisfy the
criteria set forth in the related
Prospectus Supplement. In addition, if so
specified in the related Prospectus
Supplement, the Trustee for any Series may
be authorized or required (including at the
direction of the Company or the Issuer of
a Bond Series) to apply collections on the
related Mortgage Assets to acquire new
mortgage loans and or mortgage-backed
securities that conform to the description
of "Mortgage Assets" herein and satisfy the
criteria set forth in the related
Prospectus Supplement. No such substitution
of Mortgage Assets or acquisition of new
Mortgage Assets will be permitted if it
would result in a qualification, downgrade
or withdrawal of the then-current rating
assigned by any Rating Agency (as defined
herein) to any Class of Offered Securities
of the related Series.
If so specified in the related Prospectus
Supplement, the Company, the Issuer of a
Bond Series or another specified person or
entity may be permitted, at its option,
but subject to the conditions specified in
such Prospectus Supplement, to obtain the
release of Mortgage Assets constituting the
Collateral for a Bond Series or to
repurchase Mortgage Assets included in the
Trust Fund for a Certificate Series. Any
such release or repurchase of Mortgage
Assets will likely result in the pay down
of the aggregate outstanding principal
balance or amount of the Securities of
the related Series.
Except as described below, the aggregate
outstanding principal balance of a Mortgage
Asset Pool as of the date it is formed
(such date, the "Cut-off Date"; and such
aggregate outstanding principal balance,
the "Initial Pool Balance") will equal or
exceed the aggregate outstanding principal
balance or amount, as the case may be,
of the related Series of Securities as of
the date such Securities are issued (such
date, the "Closing Date"). In the event
that the Initial Pool Balance of the
related Mortgage Asset Pool is not at least
equal to the initial aggregate outstanding
principal balance or amount the Securities
of a Series, the Company or, in the case of
a Bond Series, the Issuer may, in lieu of
delivering Mortgage Assets (the
"Undelivered Mortgage Assets"), deposit
with the Trustee for such Series on the
related Closing Date cash or Permitted
Investments (as defined herein) on an
interim basis to cover the amount of the
shortfall; provided that the shortfall may
in no event be more than 25% of the initial
aggregate principal balance or amount, as
the case may be, of the Securities of the
related Series. During the 90-day period
following the related Closing Date, the
Company or, in the case of a Bond Series,
the Issuer will be entitled to
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obtain a release of such cash or Permitted
Investments to the extent that it delivers
a corresponding amount of Undelivered
Mortgage Assets. The parameters of the
Undelivered Mortgage Assets will be
specified in the related Prospectus
Supplement, and no Undelivered Mortgage
Asset may be included as part of the
Collateral or Trust Fund for a Series after
the related Closing Date if it would result
in a qualification, downgrade or withdrawal
of the then-current rating assigned by any
Rating Agency to any Class of Offered
Securities of the related Series. If and to
the extent all the Undelivered Mortgage
Assets are not delivered during the 90-day
period following the related Closing Date,
such cash or, following liquidation, such
Permitted Investments will be applied to
pay a corresponding amount of principal of
the Securities of such Series to the extent
set forth, and on the dates specified, in
the related Prospectus Supplement.
The Bonds......................... Each Bond Series will be issued in one or
more Classes pursuant to a terms indenture
(a "Terms Indenture"), which shall
incorporate by reference certain applicable
standard indenture provisions of the
Company (any such Terms Indenture, as and
to the extent it incorporates such standard
indenture provisions, an "Indenture"), and
will be secured by a pledge of Collateral
that includes Mortgage Assets. The Issuer
of each Bond Series will be an Owner Trust
established by the Company solely for the
purpose of issuing one or more Bond Series.
Each such Owner Trust will be created by an
agreement (the "Deposit Trust Agreement")
between the Company, acting as depositor,
and a bank, trust company or other
fiduciary, acting as owner trustee (the
"Owner Trustee"). The Bonds will be
nonrecourse obligations of the Issuer. The
related Terms Indenture for a particular
Bond Series may permit the related
Collateral to be transferred by the Issuer
to another trust or another limited purpose
affiliate of the Company, subject to the
obligations of the Bonds of such Series,
thereby relieving the Issuer of its
obligations with respect to such Bonds.
As described in the related Prospectus
Supplement, the Bonds of any Bond Series,
including the Offered Bonds of such Series,
may consist of one or more Classes of Bonds
that, among other things: (i) are senior
(such Bonds, "Senior Bonds" and also
"Senior Securities") or subordinate (such
Bonds, "Subordinate Bonds" and also
"Subordinate Securities") to one or more
other Classes of Bonds of such Series in
entitlement to certain payments on such
Bonds; (ii) are entitled to payments of
principal, with disproportionate, nominal
or no payments of interest (such Bonds,
"Stripped Principal Bonds" and also
"Stripped Principal Securities"); (iii) are
entitled to payments of
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interest, with disproportionate, nominal or
no payments of principal (such Bonds,
"Stripped Interest Bonds" and also
"Stripped Interest Securities"); (iv)
provide for payments of interest or
principal thereon that commence only after
the occurrence of certain events, such as
the retirement of one or more other Classes
of Bonds of such Series; (v) provide for
payments of principal thereon to be made,
from time to time or for designated
periods, at a rate that is faster (and, in
some cases, substantially faster) or slower
(and, in some cases, substantially slower)
than the rate at which payments or other
collections of principal are received on
the related Mortgage Assets; (vi) provide
for payments of principal thereon to be
made, subject to available funds, based on
a specified principal payment schedule or
other methodology; or (vii) provide for
payments thereon that constitute prepayment
premiums or yield maintenance payments or
that are based on collections on the
related Mortgage Assets attributable to
prepayment premiums, yield maintenance
payments or equity participations.
Each Bond, other than certain Stripped
Interest Bonds and certain Bonds that
constitute REMIC Residual Securities (as
defined herein), will have an initial
stated principal amount (a "Bond Principal
Amount"); and each Bond, other than certain
Stripped Principal Bonds and certain Bonds
that constitute REMIC Residual Securities,
will accrue interest on its Bond Principal
Amount or, in the case of certain Stripped
Interest Bonds, on a notional amount (a
"Bond Notional Amount"), based on a fixed,
variable or adjustable interest rate (a
"Bond Interest Rate"). The related
Prospectus Supplement will specify the
aggregate Bond Principal Amount, aggregate
Bond Notional Amount and/or Bond Interest
Rate (or, in the case of a variable or
adjustable Bond Interest Rate, the method
for determining such rate), as applicable,
for each Class of Offered Bonds.
If so specified in the related Prospectus
Supplement, a Class of Bonds may have two
or more component parts, each having
characteristics that are otherwise
described herein as being attributable to
separate and distinct Classes.
The Bonds will not be guaranteed or insured
by the Company or any of its affiliates, by
any governmental agency or instrumentality
or, except under the circumstances
contemplated hereby, by any other person or
entity. See "Risk Factors--Limited
Assets".
The Certificates.................. Each Certificate Series will be issued in
one or more Classes pursuant to a pooling
and servicing agreement or other agreement
specified in the related Prospectus
Supplement (in any case, a "Pooling
Agreement") and will
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<PAGE>
represent in the aggregate the entire
beneficial ownership interest in the
related Trust Fund.
As described in the related Prospectus
Supplement, the Certificates of each
Certificate Series, including the Offered
Certificates of such Series, may consist of
one or more Classes of Certificates that,
among other things: (i) are senior (such
Certificates, "Senior Certificates" and
also "Senior Securities") or subordinate
(such Certificates, "Subordinate
Certificates" and also "Subordinate
Securities") to one or more other Classes
of Certificates of such Series in
entitlement to certain distributions on
such Certificates; (ii) are entitled to
distributions of principal, with
disproportionate, nominal or no
distributions of interest (such
Certificates, "Stripped Principal
Certificates" and also "Stripped Principal
Securities"); (iii) are entitled to
distributions of interest, with
disproportionate, nominal or no
distributions of principal (such
Certificates, "Stripped Interest
Certificates" and also "Stripped Interest
Securities"); (iv) provide for
distributions of interest thereon or
principal thereof that commence only after
the occurrence of certain events, such as
the retirement of one or more other Classes
of Certificates of such Series; (v) provide
for distributions of principal thereof to
be made, from time to time or for
designated periods, at a rate that is
faster (and, in some cases, substantially
faster) or slower (and, in some cases,
substantially slower) than the rate at
which payments or other collections of
principal are received on the Mortgage
Assets in the related Trust Fund; (vi)
provide for distributions of principal
thereof to be made, subject to available
funds, based on a specified principal
payment schedule or other methodology; or
(vii) provide for distributions based on
collections on the Mortgage Assets in the
related Trust Fund attributable to
prepayment premiums, yield maintenance
payments or equity participations.
Each Certificate, other than certain
Stripped Interest Certificates and certain
Certificates that constitute REMIC Residual
Securities, will have an initial stated
principal amount (a "Certificate Principal
Balance"); and each Certificate, other than
certain Stripped Principal Certificates and
certain Certificates that constitute REMIC
Residual Securities, will accrue interest
on its Certificate Principal Balance or, in
the case of certain Stripped Interest
Certificates, on a notional amount (a
"Certificate Notional Amount"), based on a
fixed, variable or adjustable interest rate
(a "Certificate Interest Rate"). The
related Prospectus Supplement will specify
the aggregate Certificate Principal
Balance, aggregate Certificate Notional
Amount and/or Certificate Interest Rate
(or, in the case of a variable or
adjustable Certificate Interest Rate, the
method for
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<PAGE>
determining such rate), as applicable, for
each Class of Offered Certificates.
If so specified in the related Prospectus
Supplement, a Class of Certificates may
have two or more component parts, each
having characteristics that are otherwise
described herein as being attributable to
separate and distinct Classes.
The Certificates will not be guaranteed or
insured by the Company or any of its
affiliates, by any governmental agency or
instrumentality or, except under the
circumstances contemplated hereby, by any
other person or entity. See "Risk
Factors--Limited Assets".
Payments of Interest on the Bonds .. Interest on each Class of Offered Bonds
(other than certain Classes of Stripped
Principal Bonds and certain Classes of
Bonds that constitute REMIC Residual
Securities) of each Bond Series will accrue
at the applicable Bond Interest Rate on the
Bond Principal Amount or, in the case of
certain Classes of Stripped Interest Bonds,
the Bond Notional Amount thereof
outstanding from time to time and will be
paid to holders of the Bonds as provided in
the related Prospectus Supplement (each of
the specified dates on which payments are
to be made on the Bonds of any Bond Series,
a "Payment Date"). Payments of interest on
one or more Classes of Bonds (such Bonds,
"Accrual Bonds" and also "Accrual
Securities") may not commence until the
occurrence of certain events, such as the
retirement of one or more other Classes of
Bonds, and interest accrued with respect to
a Class of Accrual Bonds prior to the
occurrence of such an event will either be
added to the Bond Principal Amount thereof
or otherwise deferred as described in the
related Prospectus Supplement. Payments of
interest on one or more Classes of Bonds
may be reduced or deferred to the extent of
certain delinquencies, losses and other
contingencies described herein and in the
related Prospectus Supplement. However,
failure to pay interest on a current basis
may not necessarily be an Issuer Event of
Default (as defined herein) with respect to
a particular Bond Series. See "Risk
Factors--Effect of Prepayments on Average
Life of Securities" and "--Effect of
Prepayments on Yield of Securities", "Yield
and Maturity Considerations--Certain
Shortfalls in Collections of Interest" and
"Description of the Securities--The
Bonds--Payments of Interest on the Bonds".
Distributions of Interest on the
Certificates.................... Interest on each Class of Offered
Certificates (other than certain Classes of
Stripped Principal Certificates and certain
Classes of Certificates that constitute
REMIC Residual Securities) of each
Certificate Series will accrue at the
applicable Certificate Interest Rate on the
Certificate
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<PAGE>
Principal Balance or, in the case of
certain Classes of Stripped Interest
Certificates, the Certificate Notional
Amount thereof outstanding from time to
time and will be distributed to holders of
the Certificates as provided in the related
Prospectus Supplement (each of the
specified dates on which distributions are
to be made, a "Distribution Date").
Distributions of interest with respect to
one or more Classes of Certificates (such
Certificates, "Accrual Certificates" and
also "Accrual Securities") may not commence
until the occurrence of certain events,
such as the retirement of one or more other
Classes of Certificates, and interest
accrued with respect to a Class of Accrual
Certificates prior to the occurrence of
such an event will either be added to the
Certificate Principal Balance thereof or
otherwise deferred as described in the
related Prospectus Supplement.
Distributions of interest with respect to
one or more Classes of Certificates may be
reduced or deferred to the extent of
certain delinquencies, losses and other
contingencies described herein and in the
related Prospectus Supplement. See "Risk
Factors--Effect of Prepayments on Average
Life of Securities" and "--Effect of
Prepayments on Yield of Securities", "Yield
and Maturity Considerations--Certain
Shortfalls in Collections of Interest" and
"Description of the Securities--The
Certificates--Distributions of Interest on
the Certificates".
Payments of Principal on the Bonds Each Class of Bonds of each Bond Series
(other than certain Classes of Stripped
Interest Bonds and certain Classes of Bonds
that constitute REMIC Residual Securities)
will have an aggregate Bond Principal
Amount. The aggregate Bond Principal Amount
of a Class of Bonds outstanding from time
to time will represent the maximum amount
of payments that the holders thereof are
ultimately entitled to receive in respect
of principal from the related Issuer,
subject to the nonrecourse provisions
thereof. = Except under the circumstances
described herein involving Undelivered
Mortgage Assets, the initial aggregate Bond
Principal Amount of all Bonds of any
particular Bond Series will not be greater
than the Initial Pool Balance of the
related Mortgage Asset Pool. As and to the
extent described in the related Prospectus
Supplement, any payments of principal to be
made with respect to the Bonds of any Bond
Series on any Payment Date will be paid to
the holders of the Class or Classes of
Bonds of such Series then entitled thereto
until the Bond Principal Amounts of such
Bonds have been reduced to zero. The
aggregate payments of principal to be made
with respect to any Series of Bonds on any
Payment Date will be in an amount (the
"Principal Payment Amount") to be
determined by a formula to be described in
the related Prospectus Supplement. The
Principal Payment Amount in respect of any
Bond Series for any Payment Date may be
zero or may include certain interest
accrued, but not then
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<PAGE>
payable, on any Accrual Bonds of such
Series. Payments of principal with respect
to one or more Classes of Bonds: (i) may be
made at a rate that is faster (and, in some
cases, substantially faster) or slower
(and, in some cases, substantially slower)
than the rate at which payments or other
collections of principal are received on
the related Mortgage Assets; (ii) may not
commence until the occurrence of certain
events, such as the retirement of one or
more other Classes of Bonds of the same
Series; (iii) may be made, subject to
certain limitations, based on a specified
principal payment schedule; or (iv) may be
contingent on the specified principal
payment schedule for another Class of Bonds
of the same Series and the rate at which
payments and other collections of principal
on the related Mortgage Assets are
received. Payments of principal of any
Class of Offered Bonds will be made on a
pro rata basis among all of the Bonds of
such Class or on such other basis specified
in the related Prospectus Supplement. See
"Description of the Securities--The
Bonds--Payments of Principal on the Bonds".
Distributions of Principal of
the Certificates................ Each Class of Certificates of each
Certificate Series (other than certain
Classes of Stripped Interest Certificates
and certain Classes of Certificates that
constitute REMIC Residual Securities) will
have an aggregate Certificate Principal
Balance. The aggregate Certificate
Principal Balance of a Class of
Certificates outstanding from time to time
will represent the maximum amount that the
holders thereof are then entitled to
receive in respect of principal from future
cash flow on the assets in the related
Trust Fund. Except under the circumstances
described herein involving Undelivered
Mortgage Assets, the initial aggregate
Certificate Principal Balance of all
Certificates of any particular Certificate
Series will not be greater than the Initial
Pool Balance of the related Mortgage Asset
Pool. As and to the extent described in the
related Prospectus Supplement, any
distributions of principal to be made with
respect to the Certificates of any
Certificate Series on any Distribution Date
will be allocated among the holders of the
Class or Classes of Certificates of such
Series then entitled thereto until the
Certificate Principal Balances of such
Certificates have been reduced to zero. The
aggregate distributions of principal to be
made with respect to any Certificate Series
on any Distribution Date will be made in an
amount (the "Principal Distribution
Amount") to be determined by a formula to
be described in the related Prospectus
Supplement. The Principal Distribution
Amount in respect of any Certificate Series
for any Distribution Date may be zero or
may include certain interest accrued, but
not then payable, on any Accrual
Certificates of such Series. Distributions
of principal with respect to one or more
Classes of Certificates: (i) may be
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<PAGE>
made at a rate that is faster (and, in some
cases, substantially faster) or slower
(and, in some cases, substantially slower)
than the rate at which payments or other
collections of principal are received on
the related Mortgage Assets; (ii) may not
commence until the occurrence of certain
events, such as the retirement of one or
more other Classes of Certificates of the
same Series; (iii) may be made, subject to
certain limitations, based on a specified
principal payment schedule; or (iv) may be
contingent on the specified principal
payment schedule for another Class of
Certificates of the same Series and the
rate at which payments and other
collections of principal on the related
Mortgage Assets are received.
Distributions of principal of any Class of
Offered Certificates will be made on a pro
rata basis among all of the Certificates of
such Class or on such other basis described
in the related Prospectus Supplement. See
"Description of the Securities The
Certificates--Distributions of Principal of
the Certificates".
Allocation of Losses and
Certain Expenses................ If and to the extent specified in the
Prospectus Supplement for any Series,
losses on the related Mortgage Assets and
certain unanticipated expenses in respect
of such Series will be allocated in
reduction of the aggregate Bond Principal
Amount or the aggregate Certificate
Principal Balance, as the case may be (in
either case, the aggregate "Outstanding
Principal"), of one or more Classes of
Securities of such Series, in the order and
at the times so specified. Such reductions
in the aggregate Outstanding Principal of
any Class of Securities will be allocated
among the Securities of such Class pro rata
on the basis of the outstanding principal
of each such Security or on such other
basis described in the related Prospectus
Supplement. If such losses and expenses are
not allocated to reduce the aggregate
Outstanding Principal of the Securities of
the related Series and are not otherwise
covered by any fund or agreement
constituting Credit Support or, in the case
of a Bond Series, any equity of the related
Issuer in the related Collateral, the
aggregate Outstanding Principal of the
Securities of such Series will exceed and,
accordingly, not be supported by the
aggregate principal balance of the related
Mortgage Assets.
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 Assets. The rate of principal
payments (and of principal prepayments in
particular) on the Mortgage Assets pledged
as security for any Bond Series will depend
on a variety of factors,
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<PAGE>
including the characteristics of such
Mortgage Assets (and of the mortgage loans
underlying any Underlying MBS included
among such Mortgage Assets) 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 Assets. The
Stated Maturity for each Class of Offered
Bonds will be set forth in the related
Prospectus Supplement. See "Yield and
Maturity Considerations".
Final Scheduled Distribution Dates
of the Certificates............. The "Final Scheduled Distribution Date" for
each Class of Certificates is the date
after which no Certificates of such Class
will remain outstanding, calculated on the
basis of the assumptions set forth in the
related Prospectus Supplement. The Final
Scheduled Distribution Date of a Class of
Certificates may equal the maturity date of
the Mortgage Asset in the related Trust
Fund which has the latest stated maturity
or will otherwise be determined as
described in the related Prospectus
Supplement. However, the actual maturity of
any Certificate may occur earlier and even
significantly earlier, than its Final
Scheduled Distribution Date, depending, in
part, on the rate of principal payments on
the related Mortgage Assets. The rate of
principal payments (and of principal
prepayments in particular) on the Mortgage
Assets in the Trust Fund for any
Certificate Series will depend on a variety
of factors, including certain
characteristics of such Mortgage Assets
(and of the mortgage loans underlying any
Underlying MBS included among such Mortgage
Assets) and the prevailing level of
interest rates from time to time, as well
as on a variety of economic, demographic,
tax, legal, social and other factors. No
assurance can be given as to the actual
prepayment experience of such Mortgage
Assets. The Final Scheduled Distribution
Date for each Class of Offered Certificates
will be set forth in the related Prospectus
Supplement. See "Yield and Maturity
Considerations".
Special Redemption of Bonds....... If specified in the related Prospectus
Supplement, the Bonds of any Bond Series
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 Assets or low reinvestment
yields or both, the 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 Arrangement (each as defined
below) for such Series) that the amount
anticipated to be available in the
Collection Account (as defined herein) for
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<PAGE>
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 Assets 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, the Bonds of any Bond Series
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 Securities--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 Bond 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. Notwithstanding the
foregoing, however, no such optional
redemption of the Bonds of any Bond Series
may occur until the aggregate outstanding
principal amount of such Bonds has declined
to 25% or less of the initial aggregate
outstanding principal amount thereof (or,
if the optional redemption is on a Class-by
-Class basis, no such optional redemption
of the Bonds of any Class of Offered Bonds
may occur until the aggregate outstanding
principal amount of such Class of Offered
Bonds has declined to 25% or less of the
initial aggregate outstanding principal
amount thereof). See "Description of the
Securities--Optional Redemption of Bonds".
Optional Termination of a Trust Fund If so specified in the related Prospectus
Supplement, the Trust Fund for any
Certificate Series may be subject to
optional early termination (and,
accordingly, the Certificates of such
Series may be subject to early retirement)
as a result of the purchase of the Mortgage
Assets in such Trust Fund by the party or
parties specified
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<PAGE>
in such Prospectus Supplement, under the
circumstances and in the manner set forth
therein; provided that the related Pooling
Agreement will provide that such
termination may not occur until the
aggregate scheduled principal balance of
the related Mortgage Asset Pool has
declined to 10% or less of the greater of
the Initial Pool Balance of such Mortgage
Asset Pool or the initial aggregate
Certificate Principal Balance of the
Certificates of the subject Certificate
Series. In addition, if so provided in the
related Prospectus Supplement, upon the
reduction of the aggregate Certificate
Principal Balance of a specified Class or
Classes of Certificates by a specified
percentage or amount or upon a specified
date, a party specified therein may be
authorized or required to solicit bids for
the purchase of all of the Mortgage Assets
of the related Trust Fund, or of a
sufficient portion of such Mortgage Assets
to retire such Class or Classes, under the
circumstances and in the manner set forth
therein. See "Description of the
Securities--Termination of a Trust Fund".
Credit Support and
Cash Flow Arrangements.......... If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
related Mortgage Assets may be provided to
one or more Classes of Securities of any
Series in the form of subordination of one
or more other Classes of Securities of such
Series, which other Classes may include one
or more Classes of Offered Securities, in
the form of the subordination (in the case
of a Bond Series) of the related Issuer's
interest in and its right to receive
payments on its equity (if any) in the
related Collateral, or by one or more other
types of credit support, which may include
a letter of credit, a surety bond, an
insurance policy, a guarantee, a reserve
fund, or a combination thereof (any such
coverage with respect to the Securities of
any Series, "Credit Support"). If so
provided in the related Prospectus
Supplement, the Collateral for a Bond
Series or the Trust Fund for a Certificate
Series may include: (i) guaranteed
investment contracts pursuant to which
moneys held in the funds and accounts
established for such Series will be
invested at a specified rate; or (ii)
interest rate exchange agreements, interest
rate cap or floor agreements, or other
agreements designed to reduce the effects
of interest rate fluctuations on the
related Mortgage Assets or on one or more
Classes of Securities of such Series; or
(iii) letters of credit, surety bonds,
insurance policies, guarantees and/or
reserve funds intended to offset a slower
than anticipated rate of principal payments
on the related Mortgage Assets (any such
fund or agreement, in the case of clause
(i), (ii) or (iii), a "Cash Flow
Arrangement"). Certain relevant information
regarding any applicable Credit Support or
Cash Flow Arrangement relating to the
Offered Securities
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<PAGE>
of any Series will be set forth in the
related Prospectus Supplement. See "Risk
Factors--Support Limitations",
"Description of the Underlying
Assets--Credit Support" and "--Cash Flow
Arrangements" and "Description of Credit
Support".
Advances.......................... If and to the extent provided in the
related Prospectus Supplement, if the
Collateral for a Bond Series or the Trust
Fund for a Certificate Series includes
Mortgage Loans, the Master Servicer, the
Special Servicer, the Trustee, any provider
of Credit Support and/or any other
specified person may be obligated to make,
or have the option of making, certain
advances with respect to delinquent
scheduled payments of principal and/or
interest on such Mortgage Loans. Any such
advances made with respect to a particular
Mortgage Loan will be reimbursable from
subsequent recoveries in respect of such
Mortgage Loan and otherwise to the extent
described herein and in the related
Prospectus Supplement. See "Description of
the Securities--Advances in Respect of
Delinquencies". If and to the extent
provided in the related Prospectus
Supplement, any entity making such advances
may be entitled to receive interest thereon
for a specified period during which certain
or all of such advances are outstanding,
payable from the sources specified in such
Prospectus Supplement. See "Description of
the Securities--Advances in Respect of
Delinquencies". If the Collateral for a
Bond Series or the Trust Fund for a
Certificate Series includes Underlying MBS,
any comparable advancing obligation,
including of a party to the related
Underlying MBS Agreement (as defined
herein), will be described in the related
Prospectus Supplement.
Risk Factors.................... As a result of the nature of the Offered
Securities and the Mortgage Assets, there
are material risks associated with an
investment in the Offered Securities. See
"Risk Factors".
Federal Income Tax
Consequences.................... For federal income tax purposes, the
Offered Securities of each Series will be
(i) "regular interests" ("REMIC Regular
Securities") and "residual interests"
("REMIC Residual Securities") in a "real
estate mortgage investment conduit" (a
"REMIC") under sections 860A through 860G
of the Internal Revenue Code of 1986 (the
"Code"), or (ii) in the case of certain
Certificate Series, interests ("Grantor
Trust Certificates") in a Trust Fund that
is treated as a grantor trust under
applicable provisions of the Code or (iii)
in the case of certain Bond Series,
indebtedness of the related Issuer.
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Investors are advised to consult their tax
advisors concerning the specific tax
consequences to them of the purchase,
ownership and disposition of the Offered
Securities and to review "Material
Federal Income Tax Consequences" herein and
in the related Prospectus
Supplement.
ERISA Considerations.............. Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh
plans, and collective investment funds and
separate accounts in which such plans,
accounts, annuities or arrangements are
invested, that are subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Code, should review with their legal
advisors whether the purchase or holding of
Offered Securities could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA or
Section 4975 of the Code. Certain
prohibited transaction class exemptions, as
well as certain individual prohibited
transaction class exemptions, issued by the
Department of Labor may provide an
exemption for the purchase and holding of
the Offered Securities, if the applicable
requirements of such exemptions are
satisfied. See "ERISA Considerations"
herein and in the related Prospectus
Supplement.
Legal Investment.................. The Offered Securities 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. Investors
whose investment authority is subject to
legal restrictions should consult their
legal advisors to determine whether and to
what extent the Offered Securities
constitute legal investments for them. See
"Legal Investment" herein and in the
related Prospectus Supplement.
Rating............................ At their respective dates of issuance, each
Class of Offered Securities will be rated
not lower than investment grade by one or
more nationally recognized statistical
rating agencies (each, a "Rating Agency").
See "Rating" herein and in the related
Prospectus Supplement.
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RISK FACTORS
In considering an investment in the Offered Securities of any Series,
investors should consider, among other things, the following risk factors and
any other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Mortgage Asset Pool, they would
similarly pertain to and be influenced by the characteristics or behavior of the
real estate loans underlying any Underlying MBS included in such Mortgage Asset
Pool.
Effect of Prepayments on Average Life of Offered Securities
As a result of prepayments on the Mortgage Loans in any Mortgage Asset
Pool, the amount and timing of payments or distributions, as the case may be, of
principal and/or interest on the Offered Securities of the related Series may be
highly unpredictable. Prepayments on the Mortgage Loans in any Mortgage Asset
Pool will result in a faster rate of principal payments on one or more Classes
of such Securities (unless otherwise applied to acquire new Mortgage Assets)
than if payments on such Mortgage Loans were made as scheduled. Thus, the
prepayment experience on the Mortgage Loans in any Mortgage Asset Pool may
affect the average life of one or more Classes of Securities of the related
Series, including a Class of Offered Securities. The rate of principal payments
on pools of mortgage loans varies among pools and from time to time is
influenced by a variety of economic, demographic, geographic, social, tax and
legal factors. For example, if prevailing interest rates fall significantly
below the Mortgage Rates borne by the Mortgage Loans in any Mortgage Asset Pool,
then, subject to the particular terms of the Mortgage Loans (e.g., provisions
that prohibit voluntary prepayments during specified periods or impose penalties
in connection therewith) and the ability of borrowers to obtain new financing,
principal prepayments on such Mortgage Loans 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 the Mortgage Loans in any Mortgage Asset Pool, then
principal prepayments on such Mortgage Loans are likely to be lower than if
prevailing interest rates remain at or below the Mortgage Rates borne by those
Mortgage Loans. There can be no assurance as to the actual rate of prepayment on
the Mortgage Loans in any Mortgage Asset Pool or that such rate of prepayment
will conform to any model described herein or in any Prospectus Supplement. As a
result, depending on the anticipated rate of prepayment for the Mortgage Loans
underlying any Series, the retirement of any Class of Securities of such Series
could occur significantly earlier or later, and the average life thereof could
be significantly shorter or longer, than expected.
The extent to which prepayments on the Mortgage Loans included in any
Mortgage Asset Pool ultimately affect the average life of any Class of
Securities of the related Series will depend on the terms and provisions of such
Class of Securities. A Class of Securities, including a Class of Offered
Securities, may provide that on any Payment Date or Distribution Date, as the
case may be, the holders of such Securities are entitled to a pro rata share of
the prepayments on the underlying Mortgage Loans that are payable or
distributable on such date, to a disproportionately large share (which, in some
cases, may be all) of such prepayments, or to a disproportionately small share
(which, in some cases, may be none) of such prepayments. A Class of Securities
that entitles the holders thereof to a disproportionately large share of the
prepayments on the underlying Mortgage Loans increases the likelihood of early
retirement of such Class ("Call Risk") if the rate of prepayment is relatively
fast; while a Class of Securities that entitles the holders thereof to a
disproportionately small share of the prepayments on the underlying Mortgage
Loans increases the likelihood of an extended average life of such Class
("Extension Risk") if the rate of prepayment is relatively slow. As and to the
extent described in the related Prospectus Supplement, the respective
entitlements of the various Classes of Securityholders (as defined herein) of
any Series to receive payments (and, in particular, prepayments) of principal of
the underlying Mortgage Loans may vary based on the occurrence of certain events
(e.g., the retirement of one or more
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<PAGE>
Classes of Securities of such Series) or subject to certain contingencies (e.g.,
prepayment and default rates with respect to such Mortgage Loans).
Effect of Prepayments on Yield of Offered Securities
A Series of Securities may include one or more Classes of Offered
Securities offered at a premium or discount. Yields on such Classes of
Securities will be sensitive, and in some cases extremely sensitive, to
prepayments on the Mortgage Loans in the related Mortgage Asset Pool and, where
the amount of interest payable with respect to a Class is disproportionately
large, as compared to the amount of principal, as with certain Classes of
Stripped Interest Securities, a holder might fail to recover its original
investment under some prepayment scenarios. The extent to which the yield to
maturity of any Class of Offered Securities may vary from the anticipated yield
will depend upon the degree to which such Securities are purchased at a discount
or premium and the amount and timing of payments or distributions thereon. An
investor should consider, in the case of any Offered Security purchased at a
discount, the risk that a slower than anticipated rate of principal payments on
the underlying Mortgage Loans could result in an actual yield to such investor
that is lower than the anticipated yield and, in the case of any Offered
Security purchased at a premium, the risk that a faster than anticipated rate of
principal payments on the underlying Mortgage Loans could result in an actual
yield to such investor that is lower than the anticipated yield. See "Yield and
Maturity Considerations".
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 Bond 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 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 of such Bond, or portion thereof, so
redeemed, together with interest accrued thereon to the date specified in the
related Prospectus Supplement. Notwithstanding the foregoing, however, no such
optional redemption of the Bonds of any Bond Series may occur until the
aggregate outstanding principal amount of such Bonds has declined to 25% or less
of the initial aggregate outstanding principal amount thereof (or, if the
optional redemption is on a Class-by-Class basis, no such optional redemption of
the Bonds of any Class of Offered Bonds may occur until the aggregate
outstanding principal amount of such Class of Offered Bonds has declined to 25%
or less of the initial aggregate outstanding principal amount thereof).
In general, the primary beneficiaries of an optional redemption of Bonds
will be the related Issuer, the Company and/or the Company's parent, CRIIMI MAE
Inc. Subject to an Issuer's being required to pay a prepayment premium or yield
maintenance amount in connection with any optional redemption of its Bonds, such
Issuer will have an incentive to exercise any such right of optional redemption
when it (or, alternatively, the Company or CRIIMI MAE Inc.) can either: (i) take
advantage of an increase in the value of the subject Collateral (because
prevailing interest rates have declined or the Collateral has performed better
than expected); or (ii) obtain alternative financing for the subject Collateral
at lower interest rates (which may coincide with lower interest rates
generally). Accordingly, an "early call" provision increases an investor's
reinvestment risk.
Early Retirement of Certificates
If so provided in the related Prospectus Supplement, upon a specified
date or upon the reduction of the aggregate Certificate Principal Balance of
a specified Class or Classes of Certificates to a specified amount, a party
designated therein may be authorized or required to solicit bids for the
purchase of all the Mortgage Assets of the related Trust Fund, or of a
sufficient portion of such Mortgage Assets to retire such Class or Classes,
under the circumstances and in the manner set forth therein. The solicitation
of bids will be conducted in a commercially reasonable manner and, generally,
assets will be sold at their fair market value. In addition, if so specified
in the Prospectus Supplement for a Certificate Series, upon the reduction of
the aggregate principal balance of some or all of the related Mortgage Assets
to a specified amount, a party or parties designated therein may be
authorized to purchase such Mortgage Assets, generally at a price equal to,
in the case of any such Mortgage Asset, the unpaid principal balance thereof
plus accrued interest (or, in some cases, at fair market value). However,
circumstances may arise in which, because prevailing interest rates have
risen or certain of the related Mortgage Assets have experienced defaults,
such fair market value may be less than the unpaid balance of, and other
amounts due on, the related Mortgage Assets sold or purchased, together with
interest thereon, and therefore, as a result of such a sale or purchase, the
holders of one or more Classes of Certificates may receive an amount less
than the aggregate Certificate Principal Balance of, and accrued unpaid
interest on, their Certificates and thus incur a loss.
Where the liquidation of Mortgage Assets as described above relates to the
retirement of a specified Class or Classes of Certificates as of a designated
date, the parties most likely to benefit therefrom will be the holders of such
Certificates insofar as the liquidation is designed to fulfill such holders'
maturity expectations. Because servicing and trustee fees are generally
calculated as a percentage of the outstanding balance of the related Mortgage
Assets, and because the costs of servicing and administering a Mortgage Pool may
exceed such fees as the balance of such pool declines, the parties responsible
for such servicing and administration are likely to be the prime beneficiaries
of an optional termination of a Trust Fund as described above. The party
exercising any optional termination of a Trust Fund as described above may also
derive a benefit if the termination price is par and the fair market value of
the remaining Mortgage Assets is greater than par (because prevailing interest
rates have declined or the Mortgage Assets have performed better than expected).
See "Description of the Securities--Termination of a Trust Fund".
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Limited Assets Available to Pay Offered Securities
Except under the circumstances contemplated hereby, neither the Offered
Securities of any Series nor the related Mortgage Assets will be guaranteed or
insured by the Company or any of its affiliates, by any governmental agency or
instrumentality or by any other person or entity. Furthermore, no holder of an
Offered Bond will have any recourse against the Issuer or any of its assets
other than the related Collateral in the event of a default on such Bond, and no
Offered Certificate of any Certificate Series will represent a claim against or
interest in the Trust Fund for any other Certificate Series. Accordingly, if the
Underlying Assets (as defined herein) constituting the Collateral or Trust Fund,
as the case may be, for any Series are insufficient to make payments on the
Offered Securities of such Series, no other assets will be available for payment
of the deficiency, and the holders of one or more Classes of such Offered
Securities will be required to bear the consequent loss. Furthermore, certain
amounts on deposit from time to time in certain funds or accounts constituting
part of the Collateral for a Bond Series or the Trust Fund for a Certificate
Series, including the Collection Account (as defined herein) and any accounts
maintained as Credit Support, may be withdrawn under certain conditions, if and
to the extent described in the related Prospectus Supplement, for purposes other
than the payment of principal of or interest on the Securities of such Series.
If a Series of Securities includes one or more Classes of Subordinate
Securities, and if losses or shortfalls in collections on the related Mortgage
Assets have been incurred (in excess of the Issuer's equity (if any) in the
related Collateral, in the case of a Bond Series), all or a portion of the
amount of such losses or shortfalls will be borne first by one or more such
Classes of Subordinate Securities, and, thereafter, by the remaining Classes of
Securities, in the priority and manner and subject to the limitations specified
in such Prospectus Supplement.
Certain Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans
General. The payment performance (and, accordingly, the yields and
averages lives) of the Offered Securities of any Series will be directly related
to the payment performance of the underlying Mortgage Loans. Set forth below is
a discussion of certain factors that will affect the full and timely payment of
the Mortgage Loans that may be included in any Mortgage Asset Pool. In addition,
a description of certain material considerations associated with investments in
or based on the performance of mortgage loans is included herein under "Certain
Legal Aspects of Mortgage Loans".
The Offered Securities will be directly or indirectly backed by
mortgage loans secured by multifamily and/or commercial properties. Mortgage
loans made on the security of multifamily or commercial property may have a
greater likelihood of delinquency and foreclosure, and a greater likelihood
of loss in the event thereof, than loans made on the security of an
owner-occupied single-family property. See "Description of the Underlying
Assets--Mortgage Loans--Default and Loss Considerations with Respect to the
Mortgage Loans". The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the
successful operation of such property rather than upon the existence of
independent income or assets of the borrower; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. If the net operating income of the property is
reduced (for example, if rental or occupancy rates decline or real estate tax
rates or other operating expenses increase), the borrower's ability to repay
the loan may be impaired. A number of the Mortgage Loans may be secured by
liens on owner-occupied Mortgaged Properties or on Mortgaged Properties
leased to a single tenant or a small number of significant tenants.
Accordingly, a decline in the financial condition of the borrower or a
significant 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.
Furthermore, the value of any Mortgaged Property may be adversely affected by
factors generally incident to interests in real property, including changes
in general or local economic conditions and/or specific industry segments;
declines in real estate values; declines in rental or occupancy rates;
increases in interest rates, real estate tax rates and other operating
expenses; changes in governmental
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rules, regulations and fiscal policies, including environmental legislation;
natural disasters and civil disturbances such as earthquakes, hurricanes,
floods, eruptions or riots; and other circumstances, conditions or events
beyond the control of a mortgagee or its servicing agent.
Additional considerations may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that
operate as hospitals, nursing homes and other health care-related facilities,
as well as casinos, may present special risks to lenders due to the
significant governmental regulation of the ownership, operation, maintenance
and/or financing of such properties. Hotel, motel and restaurant properties
are often operated pursuant to franchise, management or operating agreements,
which may be terminable by the franchisor or operator. Moreover, the
transferability of a hotel's or restaurant's operating, liquor and other
licenses upon a transfer of the hotel or restaurant, as the case may be,
whether through purchase or foreclosure, is subject to local law
requirements. Because of the nature of their business, recreational
facilities (including golf courses, marinas, resort properties and similar
type facilities), hotels and motels and restaurants will tend to be adversely
affected more quickly by an economic downturn than other types of commercial
properties as potential patrons and customers respond to having less
disposable income. Marinas are also affected by governmental statutes and
regulations with respect to the use of and construction along rivers, lakes
and other waterways. Properties used as gas stations, dry cleaners and
industrial facilities may be more likely to have environmental issues. Many
types of commercial properties are not readily convertible to alternative
uses if the use for which any such property was originally intended is not
successful.
In addition, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans underlying a particular Series of Securities will
generally be greater than for pools of single-family loans because Mortgage
Loans underlying a Series of Securities will generally consist of a smaller
number of higher balance loans than would a pool of single-family loans of
comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans; Recourse Generally Limited
to Mortgaged Property. It is anticipated that some or all of the Mortgage Loans
underlying any Series of Securities will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable. As to any such Mortgage Loan,
recourse in the event of borrower default will be limited to the specific real
property and other assets, if any, that were pledged to secure the Mortgage
Loan. However, even with respect to those Mortgage Loans that provide for
recourse against the borrower and its assets generally, there can be no
assurance that enforcement of such recourse provisions will be practicable, or
that the assets of the borrower will be sufficient to permit a recovery in
respect of a defaulted Mortgage Loan in excess of the liquidation value of the
related Mortgaged Property. See "Certain Legal Aspects of Mortgage
Loans--Foreclosure--Anti-Deficiency Legislation".
Increased Risk of Default Associated With Balloon Payments. Certain of the
Mortgage Loans underlying a Series of Securities may be nonamortizing or only
partially amortizing over their terms to maturity and, thus, will require
substantial payments of principal and interest (that is, balloon payments) at
their stated maturity. Mortgage Loans of this type 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. The ability of a borrower to
accomplish either of these goals will be affected by a number of factors,
including the value of the related Mortgaged Property, the level of available
mortgage rates at the time of sale or refinancing, the borrower's equity in the
related Mortgaged Property, the financial condition and operating history of the
borrower and the related Mortgaged Property, tax laws, rent control laws (with
respect to certain residential properties), Medicaid and Medicare reimbursement
rates (with respect to hospitals and nursing homes), prevailing general economic
conditions and the availability of credit for loans secured by multifamily or
commercial, as the case may be, real properties generally. Neither the Company
nor any of its affiliates will be required to refinance any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or the Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to which a
payment default is imminent. See "Servicing and Administration of the Mortgage
Assets--Realization Upon Defaulted Mortgage Loans". While the Master Servicer or
the Special Servicer generally will be required to determine that any such
extension or modification is reasonably likely to produce a greater recovery
than liquidation, taking into account the time value of money, there can be
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no assurance that any such extension or modification will in fact increase the
present value of receipts from or proceeds of the affected Mortgage Loans.
Performance of Mortgaged Properties Dependent on Tenants. In most cases,
the Mortgaged Properties will be subject to leases, and the related borrowers
will rely on periodic lease or rental payments from tenants to pay for
maintenance and other operating expenses of such Mortgaged Properties, to fund
capital improvements at such Mortgaged Properties and to service the related
Mortgage Loans and any other outstanding debt or obligations they may have
outstanding. Generally, there will be existing leases that expire during the
term of the related Mortgage Loans. There can be no guaranty that tenants will
renew leases upon expiration or, in the case of a commercial tenant, that it
will continue operations throughout the term of its lease. Such borrowers'
income would be adversely affected if tenants were unable to pay rent, if space
were unable to be rented on favorable terms or at all, or if a significant
tenant were to become a debtor in a bankruptcy case under the United States
Bankruptcy Code. For example, if any such borrower were to relet or renew the
existing leases for a significant amount of retail or office space at rental
rates significantly lower than expected rates, then such borrower's funds from
operations may be adversely affected. Changes in payment patterns by tenants may
result from a variety of social, legal and economic factors, including, without
limitation, the rate of inflation and unemployment levels and may be reflected
in the rental rates offered for comparable space. In addition, upon reletting or
renewing existing leases at commercial properties, borrowers will likely be
required to pay leasing commissions and tenant improvement costs which may
adversely affect cash flow from the related Mortgaged Property. There can be no
assurances whether, or to what extent, economic, legal or social factors will
affect future rental or repayment patterns.
Performance of Mortgaged Properties Dependent on Management. In general, a
Mortgaged Property will be managed by a manager (which may be the borrower or an
affiliate of the borrower), which is responsible for responding to changes in
the local market for the facilities offered at the property, planning and
implementing the rental or pricing structure, including staggering durations of
leases and establishing levels of rent payments, and causing maintenance and
capital improvements to be carried out in a timely fashion. Management errors
may adversely affect the long-term viability of a Mortgaged Property. In the
case of certain Mortgage Asset Pools, multiple Mortgaged Properties may be
managed by the same property manager. A concentration of property management of
Mortgaged Properties securing or underlying the Mortgage Assets in any Mortgage
Asset Pool will increase the risk that the poor performance of a single property
manager will have widespread effect on such Mortgage Asset Pool.
In the case of Mortgaged Properties used for certain commercial purposes,
the performance and liquidation value of such properties may be dependent upon
the business operated by tenants, the creditworthiness of such tenants and/or
the number of tenants. In some cases, a single tenant or a relatively small
number of tenants may account for all or a disproportionately large share of the
rentable space or rental income of a Mortgaged Property. Accordingly, a decline
in the financial condition of a significant or sole tenant, as the case may be,
or other adverse circumstances of such a tenant (such as bankruptcy or
insolvency), may have a disproportionately greater effect on the net operating
income derived from such property than would be the case if rentable space or
rental income were more evenly distributed among a greater number of tenants at
such property.
Performance of Mortgaged Properties Dependent on Competition. Other
comparable multifamily/commercial properties located in the same areas will
compete with the Mortgaged Properties to attract residents, retail sellers,
tenants, customers, patients and/or guests. The leasing of real estate is highly
competitive. The principal means of competition are price, location and the
nature and condition of the facility to be leased. A mortgagor competes with all
lessors and developers of comparable types of real estate in the area in which
the related Mortgaged Property is located. Such lessors or developers could have
lower rents, lower operating costs, more favorable locations or better
facilities. While a mortgagor may renovate, refurbish or expand the related
Mortgaged Property to
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maintain such Mortgaged Property and remain competitive, such renovation,
refurbishment or expansion may itself entail significant risks. Increased
competition could adversely affect income from and the market value of the
Mortgaged Properties. In addition, the business conducted at each Mortgaged
Property may face competition from other industries and industry segments.
Effects of Property Location and Condition on Occupancy. The location and
construction quality of a particular Mortgaged Property may affect the occupancy
level as well as the rents that may be charged. The characteristics of an area
or neighborhood in which a Mortgaged Property is located may change over time or
in relation to competing facilities. The effects of poor construction quality
will increase over time in the form of increased maintenance and capital
improvements. Even good construction will deteriorate over time if the
management company does not schedule and perform adequate maintenance in a
timely fashion. Although the Master Servicer or the Special Servicer, as
applicable, generally will be required to inspect the related Mortgaged
Properties (but not mortgaged properties securing mortgage loans Underlying MBS)
periodically, there can be no assurance that such inspections will detect damage
or prevent a default.
Risks of Geographic Concentration. Certain geographic regions of the
United States from time to time will experience weaker regional economic
conditions and housing markets, and, consequently, will experience higher rates
of loss and delinquency than will be experienced on mortgage loans generally.
For example, a region's economic condition and housing market may be directly,
or indirectly, adversely affected by natural disasters or civil disturbances
such as earthquakes, hurricanes, floods, eruptions or riots. The economic impact
of any of these types of events may also be felt in areas beyond the region
immediately affected by the disaster or disturbance. The Mortgage Loans included
in any particular Mortgage Asset Pool may be concentrated in these regions, and
such concentration may present risk considerations in addition to those
generally present for similar mortgage-backed securities without such
concentration.
Risk of Liability Arising From Environmental Conditions. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, a lender may be liable, as
an "owner" or "operator", for costs of addressing releases or threatened
releases of hazardous substances at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or threat was caused by the
borrower or a prior owner. A lender also risks such liability on foreclosure of
the mortgage. Unless otherwise specified in the related Prospectus Supplement,
if a Mortgage Asset Pool includes Mortgage Loans, then the related S&A Agreement
(as defined herein) will contain provisions generally to the effect that neither
the Master Servicer nor the Special Servicer may, on behalf of the related
Securityholders and, if applicable, the related Issuer, acquire title to a
Mortgaged Property or assume control of its operation unless the Special
Servicer, based upon a report prepared by a person who regularly conducts
environmental site assessments, has made the determination that it is
appropriate to do so, as described under "Servicing and Administration of the
Mortgage Assets--Realization Upon Defaulted Mortgage Loans". See "Certain Legal
Aspects of Mortgage Loans--Environmental Considerations".
Lack of Insurance Coverage for Certain Special Hazard Losses. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
and Special Servicer for any Mortgage Asset Pool will be required to cause the
borrower on each Mortgage Loan in such Mortgage Asset Pool to maintain such
insurance coverage in respect of the related Mortgaged Property as is required
under the related Mortgage, including hazard insurance; provided that, as and to
the extent described herein and in the related Prospectus Supplement, each of
the Master Servicer and the Special Servicer may satisfy its obligation to cause
hazard insurance to be maintained with respect to any Mortgaged Property through
acquisition of a blanket policy. In general, the standard form of fire and
extended coverage policy
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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 covering the Mortgaged Properties 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, 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
risks. Unless the related Mortgage specifically requires the mortgagor to insure
against physical damage arising from such causes, then, to the extent any
consequent losses are not covered by Credit Support, such losses may be borne,
at least in part, by the holders of one or more Classes of Offered Securities of
the related Series. See "Servicing and Administration of the Mortgage
Assets--Hazard Insurance Policies".
Risks Due to Changes in Laws. Increases in income, service or other taxes
(other than real estate taxes) in respect of a Mortgaged Property generally are
not passed through to tenants under leases and may adversely affect the related
mortgagor's funds from operations. Similarly, changes in laws increasing the
potential liability for environmental conditions existing on a Mortgaged
Property or increasing the restrictions on discharges or other conditions may
result in significant unanticipated expenditures, which could adversely affect
the related mortgagor's funds from operations. In the case of properties used as
casinos, there is the risk that gambling could cease to be permitted. See
"--Risks of Liability Arising From Environmental Conditions" herein.
Adverse Effects on Property Performance Due to Litigation. There may be
legal proceedings pending and, from time to time, threatened against certain
mortgagors under the Mortgage Loans, managers of the Mortgaged Properties and
their respective affiliates arising out of the ordinary business of such
mortgagors, managers and affiliates. There can be no assurance that such
litigation may not have a material adverse effect on payments to holders of
Bonds secured by, or distributions to holders of Certificates evidencing
interests in, such Mortgage Loans.
Limitations on Recovery Due to Limitations on Enforceability of
Assignments of Leases and Rents. In general, any Mortgage Loan that is secured
by a Mortgaged Property that is subject to leases, will be secured by an
assignment of leases and rents pursuant to which the borrower assigns to the
lender its right, title and interest as landlord under the leases of the related
Mortgaged Property, and the income derived therefrom, as further security for
the related Mortgage Loan, while retaining a license to collect rents for so
long as there is no default. If the borrower defaults, the license terminates
and the lender is entitled to collect rents. 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 borrower, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of Mortgage Loans--Leases and Rents".
Limitations on Recovery Due to Limitations on Enforceability of
Cross-Collateralization. A Mortgage Asset Pool may include groups of Mortgage
Loans which are cross-collateralized and cross-defaulted. These arrangements are
designed primarily to ensure that all of the collateral pledged to secure the
respective Mortgage Loans in a cross-collateralized group, and the cash flows
generated thereby, are available to support debt service on, and ultimate
repayment of, the aggregate indebtedness evidenced by those Mortgage Loans.
These arrangements thus seek to reduce the risk that the inability of one or
more of the Mortgaged Properties securing any such group of Mortgage Loans to
generate net operating income sufficient to pay debt service will result in
defaults and ultimate losses.
There may not be complete identity of ownership of the Mortgaged
Properties securing a group of cross-collateralized Mortgage Loans. In such an
instance, creditors of one or more of the related borrowers could challenge the
cross-collateralization arrangement as a fraudulent conveyance. Generally, under
federal and state fraudulent conveyance statutes, the incurring of an obligation
or the
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transfer of property by a person will be subject to avoidance under certain
circumstances if the person did not receive fair consideration or reasonably
equivalent value in exchange for such obligation or transfer and was then
insolvent or was rendered insolvent by such obligation or transfer. Accordingly,
a creditor seeking to realize against a Mortgaged Property subject to such
cross-collateralization to repay such creditor's claim against the related
borrower could assert (i) that such borrower was insolvent at the time the
cross-collateralized Mortgage Loans were made and (ii) that such borrower did
not, when it allowed its property to be encumbered by a lien securing the
indebtedness represented by the other Mortgage Loans in the group of
cross-collateralized Mortgage Loans, receive fair consideration or reasonably
equivalent value for, in effect, "guaranteeing" the performance of the other
borrowers. Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, there can be no
assurance that such exchanged "guarantees" would be found to constitute fair
consideration or be of reasonably equivalent value, and no unqualified legal
opinion to that effect will be obtained.
The cross-collateralized Mortgage Loans constituting any group thereof may
be secured by mortgage liens on Mortgaged Properties located in different
states. Because of various state laws governing foreclosure or the exercise of a
power of sale, and because, in general, foreclosure actions are brought in state
court, and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon a default under any such Mortgage Loan
to foreclose on the related Mortgaged Properties in a particular order rather
than simultaneously in order to ensure that the lien of the related Mortgages is
not impaired or released.
Inclusion of Sub-Prime, Delinquent and Under-Performing Mortgage Loans in a
Mortgage Asset Pool
If so provided in the related Prospectus Supplement, the Mortgage Asset
Pool for a particular Series may include Mortgage Loans that are classified
as sub-prime, that are past due or are under-performing or that have
loan-to-value ratios in excess of 100% or debt service coverage ratios that
are below 1.0x. If so specified in the related Prospectus Supplement, the
servicing of such Mortgage Loans will be performed by the Special Servicer;
however, the same entity may act as both Master Servicer and Special
Servicer. When a Mortgage Loan has a loan-to-value ratio of 100% or more, the
related borrower will have no equity in the related Mortgaged Property. In
such cases, the related borrower may not have an incentive to continue to
perform under the subject Mortgage Loan. In addition, when the debt service
coverage ratio of a Mortgage Loan is below 1.0x, the revenue derived from the
use and operation of the related Mortgaged Property is insufficient to cover
the operating expenses of such Mortgaged Property and to pay debt service on
such Mortgage Loan and all mortgage loans senior thereto. In such cases, the
related borrower will be required to pay a portion of such items from sources
other than cash flow from the related Mortgaged Property. If the related
borrower ceases to use such alternative cash sources at a time when operating
revenue from the related Mortgaged Property is still insufficient to cover
such items, deferred maintenance at the related Mortgaged Property and/or a
default under the subject Mortgage Loan may occur. Credit Support provided
with respect to a particular Series may not cover all losses related to such
sub-prime, delinquent or under-performing Mortgage Loans, and investors
should consider the risk that the inclusion of such Mortgage Loans in the
Mortgage Asset Pool may adversely affect the rate of defaults and prepayments
in respect of such Mortgage Asset Pool and the yield on the Offered
Certificates of such Series. See "Description of the Underlying
Assets--Mortgage Loans--General".
Limited Liquidity of Offered Securities
General. The Offered Securities of any Series may have limited or no
liquidity. Accordingly, an investor may be forced to bear the risk of its
investment in any Offered Securities for an indefinite period of time.
Furthermore, except to the extent described herein and in the related Prospectus
Supplement, holders of Securities will have no redemption rights, and the
Offered Securities of each Series are subject to early
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retirement only under certain specified circumstances described herein and in
the related Prospectus Supplement. See "Description of the Securities--Optional
Redemption of Bonds","--Special Redemption of Bonds" and "--Termination of a
Trust Fund".
Lack of a Secondary Market for Offered Securities. There can be no
assurance that a secondary market for the Offered Securities of any Series will
develop or, if it does develop, that it will provide holders with liquidity of
investment or that it will continue for as long as such Securities remain
outstanding. The Prospectus Supplement for the Offered Securities of any Series
may indicate that an underwriter specified therein intends to establish a
secondary market in such Offered Securities; however, no underwriter will be
obligated to do so. Any such secondary market may provide less liquidity to
investors than any comparable market for securities that are secured by or
evidence interests in single-family mortgage loans. Unless otherwise provided in
the related Prospectus Supplement, the Offered Securities will not be listed on
any securities exchange.
Sensitivity of Market Value of Offered Securities to Fluctuations in
Prevailing Interest Rates. Insofar as a secondary market does develop with
respect to the Offered Securities of any Series or with respect to any Class
thereof, the market value of such Securities will be affected by several
factors, including the perceived liquidity thereof, the anticipated cash flow
thereon (which may vary widely depending upon the prepayment and default
assumptions applied in respect of the underlying Mortgage Loans) and prevailing
interest rates. The price payable at any given time in respect of certain
Classes of Security (in particular, a Class with a relatively long average life,
a Class that has features that make it more likely to be prepaid or a Class of
Stripped Interest Securities or Stripped Principal Securities) may be extremely
sensitive to small fluctuations in prevailing interest rates; and the relative
change in price for an Offered Security in response to an upward or downward
movement in prevailing interest rates may not necessarily equal the relative
change in price for such Security in response to an equal but opposite movement
in such rates. Accordingly, the sale of Offered Securities by a holder in any
secondary market that may develop may be at a discount from the price paid by
such holder. The Company is not aware of any source through which price
information about the Offered Securities will be generally available on an
ongoing basis.
Limited Nature of Ongoing Information Available to Holders of Offered
Securities. The primary source of ongoing information regarding the Offered
Securities of any Series, including information regarding the status of the
related Mortgage Assets and any Credit Support for such Securities, will be the
periodic reports to holders of such Securities to be delivered pursuant to the
related Indenture or related Pooling Agreement, as applicable, as described
herein under the heading "Description of the Securities--Reports to
Securityholders". There can be no assurance that any additional ongoing
information regarding the Offered Securities of any Series will be available
through any other source. The limited nature of such information in respect of
the Offered Securities of any Series may adversely affect the liquidity thereof,
even if a secondary market for such Securities does develop.
Credit Support Limitations
Limitations Regarding Types of Losses Covered. The Prospectus Supplement
for the Offered Securities of any Series will describe any Credit Support
provided with respect thereto. 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;
for example, Credit Support may or may not cover loss by reason of fraud or
negligence by a mortgage loan originator or other parties. Any such losses not
covered by Credit Support may, at least in part, be allocated to one or more
Classes of Offered Securities.
Disproportionate Benefits to Certain Classes and Series. A Series of
Securities may include one or more Classes of Subordinate Securities (which may
include Offered Securities) or, in the case of a Bond Series, may be supported
by the Issuer's equity (if any) in the related Collateral, if so provided in the
related Prospectus Supplement. Although subordination (whether of Subordinate
Securities or
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of an Issuer's equity in the related Collateral) is intended to reduce the
likelihood of temporary shortfalls and ultimate losses to holders of Offered
Securities senior thereto, the amount of subordination will be limited and may
decline under certain circumstances. In addition, if principal payments on one
or more Classes of Offered Securities of a Series are made in a specified order
of priority, any related Credit Support may be exhausted before the principal of
the later paid Classes of Offered Securities of such Series has been repaid in
full. As a result, the impact of losses and shortfalls experienced with respect
to the related Mortgage Assets may fall primarily upon those Classes of Offered
Securities having a later right of payment. Moreover, if a form of Credit
Support covers the Offered Securities of more than one Series and losses on the
related Mortgage Assets exceed the amount of such Credit Support, it is possible
that the holders of Offered Securities of one (or more) such Series will be
disproportionately benefited by such Credit Support to the detriment of the
holders of Offered Securities of one (or more) other such Series.
Limitations Regarding the Amount of Credit Support. The amount of any
applicable Credit Support supporting one or more Classes of Offered Securities,
including the subordination of one or more other Classes of Securities of the
same Series or, in the case of a Bond Series, the subordination of the Issuer's
equity (if any) in the related Collateral, will be determined on the basis of
criteria established by each Rating Agency rating such Classes of Securities
based on an assumed level of defaults, delinquencies and losses on the related
Mortgage Assets and certain other factors. There can, however, be no assurance
that the loss experience on the related Mortgage Assets will not exceed such
assumed levels. See "Description of the Securities--Allocation of Losses and
Shortfalls" and "Description of Credit Support". If the losses on the related
Mortgage Assets do exceed such assumed levels, the holders of one or more
Classes of Offered Securities will be required to bear such additional losses.
Effects on Market Value and Liquidity of Offered Securities Due to Adverse
Changes in Rating
Any rating assigned by a Rating Agency to a Class of Offered Securities
will reflect only its assessment of the likelihood that holders of such Offered
Securities will receive payments to which such Securityholders are entitled
under the related Indenture or Pooling Agreement, as applicable. If the factors
considered by such Rating Agency in making such assessment change in a manner
adverse to a Class of Offered Securities rated by such Rating Agency, such
Rating Agency may qualify, downgrade or withdraw its rating of such Class of
Offered Securities. Any such qualification, downgrade or withdrawal of a rating
assigned to any Class of Offered Securities will likely adversely effect the
liquidity and market value of those Securities.
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a Class of Offered Securities
will reflect only its assessment of the likelihood that holders of such Offered
Securities will receive payments to which such Securityholders are entitled
under the related Indenture or Pooling Agreement, as applicable. Such rating
will not constitute an assessment of the likelihood that principal prepayments
on the underlying 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 redemption of such Bonds or early optional termination of the related
Trust Fund, as applicable. Furthermore, such rating will not address the
possibility that prepayment of the related Mortgage Loans at a higher or lower
rate than anticipated by an investor may cause such investor to experience a
lower than anticipated yield or that an investor that purchases an Offered
Security at a significant premium might fail to recover its initial investment
under certain prepayment scenarios. Hence, a rating assigned by a Rating Agency
does not guarantee or ensure the realization of any anticipated yield on a Class
of Offered Securities.
The amount, type and nature of Credit Support, if any, provided with
respect to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating Classes of the Securities of such
Series. Those criteria are sometimes based upon an actuarial analysis of the
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behavior of mortgage loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the data derived from a large pool of
mortgage loans will accurately predict the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. In other cases, such
criteria may be based upon determinations of the values of the Mortgaged
Properties that provide security for the Mortgage Loans. However, no assurance
can be given that those values will not decline in the future. As a result, the
Credit Support required in respect of the Offered Securities of any Series may
be insufficient to fully protect the holders thereof from losses on the related
Mortgage Asset Pool. See "Description of Credit Support" and "Rating".
Issuer Events of Default; Bankruptcy or Insolvency of the Issuer
Limited Issuer Events of Default. With certain exceptions described
herein, and unless otherwise provided in the related Prospectus Supplement, the
holders of Bonds of any Bond 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. Unless otherwise specified in the Prospectus Supplement for any Bond
Series, 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 Collection 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, unless otherwise specified in
the Prospectus Supplement for any Bond Series, it will not be an Issuer Event of
Default 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. See "Description of the Indentures--Issuer Events of
Default".
Bondholders Have Limited Ability to Force Sale of Collateral following
Non-Payment of Principal or Interest. Unless otherwise specified in the related
Prospectus Supplement, following an Issuer Event of Default in respect of any
Bond Series, the Trustee for such Series may (and, at the direction of the
holders of Bonds representing more than 50% of the aggregate Bond Principal
Amount (or, in the case of certain Classes of Stripped Interest Bonds and
certain Classes of Bonds that constitute REMIC Residual Securities, the
aggregate Bond Notional Amount) of each Class of Bonds of such Series, shall)
declare all the Bonds of such Series to be due and payable. In addition, unless
otherwise specified in the related Prospectus Supplement, following any such
declaration of acceleration, the Trustee for such Series may, generally with the
consent or at the direction of the holders of Bonds representing an even greater
percentage of the aggregate Bond Principal Amount (or, in the case of certain
Classes of Stripped Interest Bonds and certain Classes of Bonds that constitute
REMIC Residual Securities, the aggregate Bond Notional Amount) of each Class of
Bonds of such Series, liquidate the related Mortgage Assets. Unless otherwise
specified in the related Prospectus Supplement, any 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 (or, in the case of certain Classes of Stripped
Interest Bonds and certain Classes of Bonds that constitute REMIC Residual
Securities, the aggregate Bond Notional Amount) of each Class of Bonds of such
Series. 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
Indentures--Issuer Events 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, in general, be the sole remedy against the Issuer
for the holders of the Offered Bonds upon an Issuer Event of Default. 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 Assets pledged to secure any Bond Series
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 Assets pledged to secure the affected Bond Series will be
equal to or greater than the unpaid principal and accrued interest due on the
Bonds of such Series, together with any other
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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 Assets 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 the holders of a particular Class of Bonds independently
to force the sale of the related Mortgage Assets even though an Issuer Event of
Default has occurred that affects such Class of Bondholders (as defined herein),
and the inability of Bondholders generally to force a sale of the related
Mortgage Assets 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, may adversely affect the holders of one or
more Classes of Offered Bonds.
Bankruptcy or Insolvency of the Issuer. The bankruptcy or insolvency of
the Issuer of any Bond Series 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 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 Assets. 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 issued
discount ("accreted value"). There is no assurance as to how such accreted value
would be determined if such event occurred. However, the Issuer of each Bond
Series will be structured to limit the likelihood of bankruptcy or insolvency.
Potential Conflicts of Interest
If so specified in the related Prospectus Supplement, the Master Servicer
may also perform the duties of Special Servicer, and the Master Servicer, the
Special Servicer or the Trustee may also perform the duties of REMIC
Administrator and/or MBS Administrator, as applicable. If so specified in the
related Prospectus Supplement, the Mortgage Asset Seller or an affiliate of
the Mortgage Asset Seller or the Company, may perform the functions of Master
Servicer, Special Servicer, REMIC Administrator and/or MBS Administrator, as
applicable. In addition, any party to a Pooling Agreement, an Indenture or a
separate S&A Agreement or any affiliate thereof may own Securities. Investors in
the Offered Securities should consider that any resulting conflicts of interest
could affect the performance of duties under a Pooling Agreement, an Indenture
or a separate S&A Agreement. For example, if the Master Servicer or Special
Servicer for any Mortgage Asset Pool owns a significant portion of any Class of
Securities of the related Series, then, notwithstanding the applicable servicing
standard imposed by the related S&A Agreement, such fact could influence
servicing decisions in respect of the Mortgage Loans in such Mortgage Asset
Pool. Also, if specified in the related Prospectus Supplement, the Company,
the Issuer of a Bond Series or the holders of a specified Class or Classes of
Subordinate Securities may have the ability to replace the Special Servicer or
direct the Special Servicer's actions in connection with liquidating or
modifying defaulted Mortgage Loans. The Company, such Issuer or the investors
in such specified Class or Classes of Subordinate Securities may have interests
when dealing with defaulted Mortgage Loans that are in conflict with those of
the holders of the Offered Securities of the relevant Series.
In the case of certain Mortgage Loans, an affiliate of the Company may
provide additional financing (a "Mezzanine Loan") to an affiliate of the
borrower under the particular Mortgage Loan, and in connection therewith, such
affiliate of the Company (the "Mezzanine Lender") will acquire a nominal
interest in both the borrower under such Mezzanine Loan and the borrower under
such Mortgage Loan. In the event of a default under the Mezzanine Loan, the
Mezzanine Loan documents entitle the Mezzanine Lender to control both such
borrowers. Upon gaining control of a borrower under a
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Mortgage Loan, the lender on the Mezzanine Loan may take actions which conflict
with the interests of the related Securityholders. In addition, if an affiliate
of the Company is acting as Master Servicer or Special Servicer with respect to
the related Mortgage Asset Pool, it may have interests that conflict with those
of related Securityholders when dealing with a Mortgage Loan that has associated
therewith a related Mezzanine Loan.
Substitution, Acquisition, Release and Repurchase of Mortgage Assets
If so specified in the Prospectus Supplement for the Offered Securities of
any Series, the Company, the Issuer for a Bond Series or another specified
person or entity may be permitted, at its option, but subject to the conditions
specified in such Prospectus Supplement, to replace related Mortgage Assets with
(or, in the case of a Bond Series, to obtain a release of the related Mortgage
Assets in exchange for) other mortgage loans or mortgage-backed securities that
conform to the description of "Mortgage Assets" herein and satisfy the criteria
set forth in the related Prospectus Supplement. In addition, if so specified in
the related Prospectus Supplement, the Trustee for any Series may be authorized
or required (including at the direction of the Company or, in the case of a
Bond Series, the Issuer) to apply collections on the related Mortgage Assets to
acquire new mortgage loans or mortgage-backed securities that conform to the
description of "Mortgage Assets" herein and satisfy the criteria set forth in
the related Prospectus Supplement. No such substitution of Mortgage Assets or
acquisition of new Mortgage Assets will be permitted if it would result in a
qualification, downgrade or withdrawal of the then-current rating assigned by
any Rating Agency to any Class of Offered Securities of the related Series.
If so specified in the Prospectus Supplement for the Offered Securities of
any Series, the Company, the Issuer for a Bond Series or another specified
person or entity may be permitted, at it option, but subject to the conditions
specified in such Prospectus Supplement, to obtain the release of Mortgage
Assets constituting Collateral for a Bond Series or to repurchase Mortgage
Assets included in a Trust Fund for a Certificate Series. Any such release or
repurchase of Mortgage Assets will likely result in the pay down of the
aggregate Outstanding Principal of the related Series of Securities.
Certain Federal Tax Considerations Regarding REMIC Residual Securities
Holders of REMIC Residual Securities will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the related REMIC, regardless of the amount or timing of their
receipt of cash payments, as described under "Material Federal Income Tax
Consequences--REMICs". Accordingly, under certain circumstances, holders of
Offered Securities that constitute REMIC Residual Securities may have taxable
income and tax liabilities arising from such investment during a taxable year in
excess of the cash received during such period. The requirement that holders of
REMIC Residual Securities report their pro rata share of the taxable income and
net loss of the related REMIC will continue until the aggregate Outstanding
Principal of all Classes of Securities of the related Series have been reduced
to zero, even though holders of REMIC Residual Securities have received full
payment of their stated interest and principal. A portion (or, in certain
circumstances, all) of any such Securityholder's share of the related REMIC's
taxable income (i) may be treated as "excess inclusion" income to such holder,
which generally will not be subject to offset by losses from other activities,
(ii) for a tax-exempt holder, will be treated as unrelated business taxable
income and (iii) for a foreign holder, will not qualify for exemption from
withholding tax. Individual holders of REMIC Residual Securities may be limited
in their ability to deduct servicing fees and other expenses of the related
REMIC. In addition, REMIC Residual Securities are subject to certain
restrictions on transfer. Because of the special tax treatment of REMIC Residual
Securities, the taxable income arising in a given year on a REMIC Residual
Security will not be equal to the taxable income associated with investment in a
corporate bond or stripped instrument having similar cash flow characteristics
and pre-tax yield. In particular, REMIC Residual Securities may have "phantom
income" associated with them. That is, taxable income may be reportable with
respect to a REMIC Residual Security early in the term of the
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related REMIC with a corresponding amount of tax losses reportable in later
years of that REMIC's term. Under these circumstances, the present value of the
tax detriments with respect to the related REMIC Residual Security may
significantly exceed the present value of the related tax benefits accruing
later. Therefore, the after-tax yield on a REMIC Residual Security may be
significantly less than that of a corporate bond or stripped instrument having
similar cash flow characteristics, and certain REMIC Residual Securities may
have a negative "value".
DESCRIPTION OF THE UNDERLYING ASSETS
General
The assets that constitute the Collateral for any Series of Bonds or
the Trust Fund for any Series of Certificates are herein referred to as
"Underlying Assets". The primary Underlying Assets included as part of the
Collateral or Trust Fund, as the case may be, for any Series will consist of
Mortgage Loans, Underlying MBS or some combination thereof. Each Mortgage
Asset will be selected by the Company for inclusion as part of the Collateral
or Trust Fund, as the case may be, for any Series from among those purchased,
either directly or indirectly, from a prior holder thereof (a "Mortgage Asset
Seller"), which prior holder may or may not be an affiliate of the Company
and may or may not be the originator of such Mortgage Loan or the issuer of
such Underlying MBS. The Mortgage Assets will not be guaranteed or insured by
the Company or any of its affiliates or, except as contemplated hereby and
further discussed in the related Prospectus Supplement, by any governmental
agency or instrumentality or by any other person. The discussion below under
the heading "--Mortgage Loans", unless otherwise noted, applies equally to
real estate loans underlying any Underlying MBS included as part of the
Collateral or the Trust Fund, as the case may be.
Mortgage Loans
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust, deeds to secure debt
or similar security instruments (the "Mortgages") that create first or junior
liens on fee or leasehold estates in, or cooperative shares relating to,
Mortgaged Properties consisting of one or more of the following types of real
property: (i) residential properties ("Multifamily Properties") consisting of
rental or cooperatively-owned buildings with multiple dwelling units and
mobile home parks; (ii) commercial properties ("Commercial Properties")
consisting of office buildings, retail facilities (such as shopping centers,
malls and individual stores, shops and other businesses) related to the sale
of goods and products (such as department stores, grocery stores, convenience
stores, specialty stores, gas stations and auto dealerships) and facilities
related to providing entertainment, recreation or personal services (such as
movie theaters, fitness centers, bowling alleys, salons, dry cleaners and
automotive service centers), hotels or motels, casinos, health care-related
facilities (such as hospitals, skilled nursing facilities, nursing homes,
congregate care facilities and senior housing), recreational vehicle parks,
warehouse facilities, mini-warehouse facilities, self-storage facilities,
industrial facilities, parking lots and garages, auto parks, golf courses,
arenas, marinas, resort properties and restaurants; and (iii) mixed use
properties (that is, any combination of the foregoing) and unimproved land.
The Mortgaged Properties may include mixed commercial and residential
structures and apartment buildings or commercial structures owned by private
cooperative housing corporations ("Cooperatives"). If so specified in the
related Propectus Supplement, certain Mortgage Loans (the "Cooperative
Loans") will be secured by security interests in shares in a Cooperative
("Cooperative Shares") that give the owner thereof the right to occupy
particular multiple dwelling units or a particular commercial unit in the
cooperative building or complex. Each Mortgage will create a first or junior
priority mortgage lien on a fee or leasehold estate in a Mortgaged Property.
Each Mortgage Loan will have been originated by a person (the "Originator")
other than the Company, although any Originator may be an affiliate of the
Company.
The Mortgaged Properties securing the Mortgage Loans in any Mortgage Asset
Pool may be located in the United States, its territories and possessions, the
Commonwealth of Puerto Rico and, in a limited number of cases, outside the
foregoing jurisdictions.
If so provided in the related Prospectus Supplement, Mortgage Assets for a
Series of Securities may include Mortgage Loans secured by junior liens, and the
loans secured by the related senior liens ("Senior Liens") may not be included
in the related Mortgage Asset Pool. The primary risk to holders of Mortgage
Loans secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related Senior Liens to satisfy
fully both the Senior Liens and the Mortgage Loan. In the event that a holder of
a Senior Lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or
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similar sale will be applied first to the payment of court costs and fees in
connection with the foreclosure, second to real estate taxes, third in
satisfaction of all principal, interest, prepayment or acceleration penalties,
if any, and any other sums due and owing to the holder of the Senior Liens. The
claims of the holders of the Senior Liens will be satisfied in full out of
proceeds of the liquidation of the related Mortgaged Property, if such proceeds
are sufficient, before the Trustee, as holder of the junior lien on behalf of
Securityholders, receives any payments in respect of the Mortgage Loan. If the
Master Servicer were to foreclose on any Mortgage Loan, it would do so subject
to any related Senior Liens. In order for the debt related to such Mortgage Loan
to be paid in full at such sale, a bidder at the foreclosure sale of such
Mortgage Loan would have to bid an amount sufficient to pay off all sums due
under the Mortgage Loan and any Senior Liens or purchase the Mortgaged Property
subject to such Senior Liens. In the event that such proceeds from a foreclosure
or similar sale of the related Mortgaged Property are insufficient to satisfy
all Senior Liens and the Mortgage Loan in the aggregate, the Trustee as the
holder of the junior lien on behalf of the Securityholders, and, accordingly,
one or more Classes of such Securityholders bear (i) the risk of delay in
distributions while a deficiency judgment against the borrower is obtained and
(ii) the risk of loss if the deficiency judgment is not obtained and satisfied.
Moreover, deficiency judgments may not be available in certain jurisdictions, or
the particular Mortgage Loan may be a nonrecourse loan, which means that, absent
special facts, recourse in the case of default will be limited to the Mortgaged
Property and such other assets, if any, that were pledged to secure repayment of
the Mortgage Loan.
If so specified in the related Prospectus Supplement, the Mortgage Assets
for a particular series may include Mortgage Loans that are insured by the FHA
under the Housing Act.
In those circumstances where a material concentration of Mortgage Loans
included in a Mortgage Asset Pool were originated by, or specifically for sale
to, a particular entity, the Company will undertake to obtain and include in the
related Prospectus Supplement such information relating to the delinquency and
loss experience of such entity in respect of comparable mortgage loans
originated or acquired by it, as is meaningful to an investment decision with
respect to the related Offered Securities, including (i) as of a date not more
than 16 months prior to the issuance of the related Offered Securities, the
number and aggregate principal amount of such comparable mortgage loans that are
more than 30 days delinquent, are in foreclosure or have been converted to owned
real estate and (ii) for a twelve-month period ending not more than 16 months
prior to the issuance of the related Offered Securities, the aggregate losses
incurred in respect of such comparable mortgage loans.
If so specified in the related Prospectus Supplement, the Mortgage
Assets for a particular Series of Securities may include Mortgage Loans that
are delinquent or under-performing as of the date such Securities are issued.
In that case, the related Prospectus Supplement will set forth, as to each
such Mortgage Loan, available information as to the period of any
delinquency, the terms of any forbearance arrangement then in effect, the
condition of the related Mortgaged Property and the ability of the Mortgaged
Property to generate income to service the mortgage debt. In addition, if so
specified in the related Prospectus Supplement, the Mortgage Assets for a
particular Series of Securities may include Mortgage Loans that are sub-prime
and/or have loan-to-value ratios of greater than 100% or debt service
coverage ratios of less than 1.0x.
If so specified in the related Prospectus Supplement, a Mortgage Asset
Pool may include Mortgage Loans in respect of which an affiliate of the Company
has provided a Mezzanine Loan to an affiliate of the borrower under such
Mortgage Loan, and in connection therewith, such affiliate of the Company as
Mezzanine Lender has acquired a nominal interest in both the borrower under such
Mezzanine Loan and the borrower under such Mortgage Loan. In the event of a
default under the Mezzanine Loan, the Mezzanine Loan documents will entitle the
Mezzanine Lender to control both such borrowers.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, as noted above, some or all of the
Mortgage Loans included in a particular Mortgage Asset Pool may be nonrecourse
loans.
Lenders typically look to the debt service coverage ratio of a loan
secured by income-producing property as an important factor in evaluating the
likelihood of default on such a loan. As more particularly described in the
related Prospectus Supplement, the "debt service coverage ratio" of a Mortgage
Loan reflects the ability of the net operating income derived from the related
Mortgaged Property to service the debt that constitutes such Mortgage Loan. As
more particularly described in the related Prospectus Supplement, "net
operating income" means, for any given period, subject to various adjustments
(including the inclusion or exclusion of various items as income or expenses),
the total operating revenues
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derived from a Mortgaged Property during such period, minus the total operating
expenses incurred in respect of such Mortgaged Property during such period.
The net operating income of a Mortgaged Property will generally fluctuate over
time and may or may not be sufficient to cover debt service on the related
Mortgage Loan at any given time. As the primary source of the operating revenues
of a nonowner-occupied, income-producing property, rental income (and, with
respect to a Mortgage Loan secured by a Cooperative apartment building,
maintenance payments from tenant-stockholders of a Cooperative) may be affected
by the condition of the applicable real estate market and/or area economy. In
addition, properties typically leased, occupied or used on a short-term basis,
such as certain health care-related facilities, hotels and motels, recreational
vehicle parks, and mini-warehouse and self-storage facilities, tend to be
affected more rapidly by changes in market or business conditions than do
properties typically leased for longer periods, such as warehouses, retail
stores, office buildings and industrial facilities. Commercial Properties may be
owner-occupied or leased to one tenant or a small number of tenants. Thus, the
net operating income of such a Mortgaged Property may depend substantially on
the financial condition of the borrower or a tenant, and Mortgage Loans secured
by liens on such properties may pose a greater likelihood of default and loss
than loans secured by liens on Multifamily Properties or on multi-tenant
Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a 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
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will result
in stable net operating income to the borrower/landlord only to the extent
that the lessee is able to absorb operating expense increases while continuing
to make rent payments.
Lenders also look to the loan-to-value ratio of a mortgage loan as a
factor in evaluating the likelihood of loss if a property must be liquidated
following a default. As more particularly described in the related Prospectus
Supplement, the "loan-to-value ratio" of a Mortgage Loan at any given time
is the ratio (expressed as a percentage) of (i) the then outstanding principal
balance of the Mortgage Loan and any other loans senior thereto that are secured
by the related Mortgaged Property to (ii) the value of the related Mortgaged
Property (calculated as described in the related Prospectus Supplement). The
lower the loan-to-value ratio, the greater the percentage of the borrower's
equity in a Mortgaged Property, and thus (a) the greater the incentive of the
borrower to perform under the terms of the related Mortgage Loan (in order to
protect such equity) and (b) the greater the cushion provided to the lender
against loss on liquidation following a default.
Loan-to-value ratios will not necessarily constitute an accurate measure
of the likelihood of liquidation loss in a pool of Mortgage Loans. For example,
the value of a Mortgaged Property as of the date of initial issuance of
Securities of the related Series may be less than the value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are generally
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 can present analytical difficulties. 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
and/or discount rate. Where more than one of these appraisal methods are used
and provide significantly different results, an accurate determination of value
and, correspondingly, a reliable analysis of the likelihood of default and loss,
is even more difficult.
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Although there may be multiple methods for determining the value of a
Mortgaged Property, value will in all cases be affected by property
performance. As a result, if a Mortgage Loan defaults because the income
generated by the related Mortgaged Property is insufficient to cover operating
costs and expenses and pay debt service, then the value of the Mortgaged
Property will reflect such and a liquidation loss may occur.
While the Company believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be
no assurance that all of such factors will in fact have been prudently
considered by the Originators of the Mortgage Loans, or that, for a
particular Mortgage Loan, they are complete or relevant. See "Risk
Factors--Certain Factor Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans--General" and "--Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans--Increased Risk of Default
Associated With Balloon Payments".
Payment Provisions of the Mortgage Loans. All of the Mortgage Loans
will (i) have had original terms to maturity of not more than approximately
40 years and (ii) provide for scheduled payments of principal, interest or
both, to be made on specified dates ("Due Dates") that occur monthly,
quarterly, semi-annually or annually. A Mortgage Loan (i) may provide for no
accrual of interest or for accrual of interest thereon at a Mortgage Rate
that is fixed over its term or that adjusts or resets one or more times over
its term, or that may be converted at the borrower's election from an
adjustable to a fixed Mortgage Rate, or from a fixed to an adjustable
Mortgage Rate, (ii) may provide for level payments to maturity or for amount
that adjust from time to time to accommodate changes in the Mortgage Rate or
to reflect the occurrence of certain events, and may permit negative
amortization, (iii) may be fully amortizing or may be partially amortizing or
nonamortizing, with a balloon payment due on its stated maturity date, and
(iv) may prohibit over its term or for a certain period prepayments (the
period of such prohibition, a "Lock-out Period" and its date of expiration, a
"Lock-out Date") and/or require payment of a premium or a yield maintenance
amount (a "Prepayment Premium") in connection with certain prepayments, in
each case as described in the related Prospectus Supplement. A Mortgage Loan
may also contain a provision that entitles the lender to a share of
appreciation of the related Mortgaged Property, or profits realized from the
operation or disposition of such Mortgaged Property or the benefit, if any,
resulting from the refinancing of the Mortgage Loan (any such provision, an
"Equity Participation"), as described in the related Prospectus Supplement.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Mortgage Asset Pool, which, to the extent then applicable, will
generally include the following: (i) the aggregate outstanding principal balance
and the largest, smallest and average outstanding principal balance of the
Mortgage Loans, (ii) the type or types of property that provide security for
repayment of the Mortgage Loans, (iii) the earliest and latest maturity date
of the Mortgage Loans, (iv) the original and remaining terms to maturity of the
Mortgage Loans, or the respective ranges thereof, and the weighted average
original and remaining terms to maturity of the Mortgage Loans, (v) the
loan-to-value ratios of the Mortgage Loans (either at origination or as of a
more recent date), or the range thereof, and the weighted average of such
loan-to-value ratios, (vi) the Mortgage Rates borne by the Mortgage Loans, or
the range thereof, and the weighted average Mortgage Rate borne by the Mortgage
Loans, (vii) with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM
Loans"), the index or indices upon which such adjustments are based, the
adjustment dates, the range of gross margins and the weighted average gross
margin, and any limits on Mortgage Rate adjustments at the time of any
adjustment and over the life of the ARM Loan, (viii) information regarding the
payment characteristics of the Mortgage Loans, including, without limitation,
balloon payment and other amortization provisions, Lock-out Periods and
Prepayment Premiums, (ix) the debt service coverage ratios of the Mortgage
Loans (either at origination or as of a more recent date), or the range thereof,
and the weighted average of such debt service coverage ratios, and (x) whether
any of the Mortgage Loans are more than 30 days' delinquent (and the aggregate
principal balance thereof) as of the related Cut-off Date (or, alternatively,
the related Closing Date) and specific identification of Mortgage Loans that are
more than 60 days' delinquent or in foreclosure, and (xi) the geographic
distribution of the Mortgaged Properties on a state-by-state basis. In
appropriate cases,
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the related Prospectus Supplement will also contain certain information
available to the Company that pertains to the provisions of leases and the
nature of tenants of the Mortgaged Properties. If the Company is unable to
provide the specific information described above at the time Offered Securities
of a Series are initially offered, more general information of the nature
described above will be provided in the related Prospectus Supplement, and
specific information will be set forth in a report which will be available to
purchasers of those Securities at or before the initial issuance thereof and
will be filed as part of a Current Report on Form 8-K with the Commission within
fifteen days following such issuance.
If any Mortgage Loan, or group of related Mortgage Loans (by reason or
cross-collateralization, common borrower or affiliation of borrowers),
constitutes a concentration of credit risk, financial statements or other
financial information with respect to the related Mortgaged Property or
Mortgaged Properties will be included in the related Prospectus Supplement.
If and to the extent available and relevant to an investment decision in
the Offered Securities of the related Series, information regarding the
prepayment experience of a Master Servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related Prospectus
Supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
addition, the relevant characteristics of a Master Servicer's servicing
portfolio may be so materially different from those of the related Mortgage
Asset Pool that such prepayment experience would not be meaningful to an
investor. For example, differences in geographic dispersion, property type
and/or loan terms (e.g., mortgage rates, terms to maturity and/or prepayment
restrictions) between the two pools of loans could render the Master Servicer's
prepayment experience irrelevant. Because of the nature of the assets to be
serviced and administered by a Special Servicer, no comparable prepayment
information will be presented with respect to the Special Servicer's multifamily
and/or commercial mortgage loan servicing portfolio.
Underlying MBS
Underlying MBS may include (i) private-label (that is, not issued, insured
or guaranteed by the United States or any agency or instrumentality thereof)
mortgage participations, mortgage pass-through certificates, collateralized
mortgage obligations or other mortgage-backed securities or (ii) certificates
issued and/or insured or guaranteed by the Federal Home Loan Mortgage
Corporation ("FHLMC"; and such certificates issued and/or insured or guaranteed
thereby, "FHLMC Certificates"), the Federal National Mortgage Association
("FNMA", and such certificates issued and/or guaranteed thereby, "FNMA
Certificates"), the Government National Mortgage Association ("GNMA"; and such
certificates issued and/or guaranteed thereby, "GNMA Certificates") or the
Federal Agricultural Mortgage Corporation ("FAMC"; and such certificates
issued and/or guaranteed thereby, "FAMC Certificates"), provided that, unless
otherwise specified in the related Prospectus Supplement, each Underlying MBS
will evidence an interest in, or will be secured by a pledge of, real estate
loans that conform to the descriptions of the Mortgage Loans contained herein.
Unless previously discussed with the Commission prior to issuance of
the related Securities, and except as described under "Description of the
Securities--The Two Trust Structure", each Underlying MBS included in a
Mortgage Asset Pool: (a) will have been acquired in bona fide secondary
market transactions; and (b) will either (i) have been previously registered
under the Securities Act, (ii) be exempt from such registration requirements,
or (iii) have been held for at least the holding period specified in Rule
144(k) under the Securities Act.
Any Underlying MBS will have been issued pursuant to a participation
and servicing agreement, a pooling and servicing agreement, an indenture or
similar agreement (an "MBS Agreement"). The issuer of the MBS (the "MBS
Issuer") and/or the servicer of the underlying real estate loans (the "MBS
Servicer") will
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be parties to the MBS Agreement, generally together with a trustee (the "MBS
Trustee") or, in the alternative, together with the original purchaser or
purchasers of the Underlying MBS.
The Underlying MBS may have been issued in one or more Classes with
characteristics similar to the Classes of Certificates described herein.
Distributions in respect of the Underlying MBS will be made by the MBS Issuer,
the MBS Servicer or the MBS Trustee on the dates specified in the related
Prospectus Supplement. The MBS Issuer or the MBS Servicer or another person
specified in the related Prospectus Supplement may have the right or obligation
to repurchase or substitute assets underlying the Underlying MBS after a certain
date or under other circumstances specified in the related Prospectus
Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the Underlying MBS. The type, characteristics and
amount of such credit support, if any, will be a function of the characteristics
of the underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the Underlying MBS, or by the initial purchasers of the
Underlying MBS.
The Prospectus Supplement for a Series of Securities that are secured by
or evidence interests in Underlying MBS will specify: (i) the aggregate
approximate initial and outstanding principal amount(s) and type of the
Underlying MBS to be included as part of the related Mortgage Asset Pool, (ii)
the original and remaining term(s) to stated maturity of the Underlying MBS, if
applicable, (iii) the pass-through or bond interest rate(s) of the Underlying
MBS or the formula for determining such rate(s), (iv) the payment
characteristics of the Underlying MBS, (v) the MBS Issuer, MBS Servicer and MBS
Trustee, as applicable, of each of the Underlying MBS, (vi) a description of the
related credit support, if any, (vii) the circumstances under which the related
underlying mortgage loans, or the Underlying MBS themselves, may be purchased
prior to their maturity, (viii) the terms on which real estate loans may be
substituted for those originally underlying the Underlying MBS, (ix) the type of
mortgage loans underlying the Underlying MBS and, to the extent appropriate
under the circumstances, such other information in respect of the underlying
real estate loans described under "--Mortgage Loans--Mortgage Loan Information
in Prospectus Supplements", and (x) the characteristics of any cash flow
arrangements that relate to the Underlying MBS.
The Company will provide the same information regarding the Underlying MBS
that constitute part of the Mortgage Asset Pool for any Series in its reports
filed under the Exchange Act with respect to such Series as was provided by the
related MBS Issuer in its own such reports if such Underlying MBS was publicly
offered or the reports the related MBS Issuer provides the related MBS Trustee
if such Underlying MBS was privately issued.
Substitution, Acquisition, Release and Repurchase of Mortgage Assets
If so specified in the Prospectus Supplement for the Offered Securities of
any Series, the Company, the Issuer of a Bond Series or another specified
person or entity may be permitted, at its option, but subject to the conditions
specified in such Prospectus Supplement, to replace related Mortgage Assets with
(or, in the case of a Bond Series, to obtain a release of the related Mortgage
Assets in exchange for) other mortgage loans or mortgage-backed securities that
conform to the description of "Mortgage Assets" herein and satisfy the criteria
set forth in the related Prospectus Supplement. In addition, if so specified in
the related Prospectus Supplement, the Trustee for any Series may be authorized
or required (including at the direction of the Company or the Issuer of a Bond
Series) to apply collections on the related Mortgage Assets to acquire new
mortgage loans or mortgage-backed securities that conform to the description
of "Mortgage Assets" herein and satisfy the criteria set forth in the related
Prospectus Supplement. No such substitution of Mortgage Assets or acquisition of
new Mortgage Assets will be permitted if it would result in a qualification,
downgrade or withdrawal of the then-current rating assigned by any Rating Agency
to any Class of Offered Securities of the related Series.
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If so specified in the Prospectus Supplement for the Offered Securities of
any Series, the Company, the Issuer of a Bond Series or another specified
person or entity may be permitted, at it option, but subject to the conditions
specified in such Prospectus Supplement, to obtain the release of Mortgage
Assets constituting Collateral for a Bond Series or to repurchase Mortgage
Assets included in a Trust Fund for a Certificate Series. Any such release or
repurchase of Mortgage Assets will likely result in the pay down of the
aggregate Outstanding Principal of the related Series of Securities.
Undelivered Mortgage Assets
Except as described below, the Initial Pool Balance of a Mortgage Asset
Pool will equal or exceed the initial aggregate Outstanding Principal of the
Securities of the related Series. In the event that the related Mortgage
Asset Pool is not at least equal to the initial aggregate Outstanding Principal
of the Securities of any Series, the Company or, in the case of a Bond Series,
the Issuer may, in lieu of delivering the Undelivered Mortgage Assets, deposit
with the Trustee for such Series on the related Closing Date cash or Permitted
Investments on an interim basis (such cash and/or Permitted Investments to
collectively constitute, and be held as part of, a "Pre-Funding Account" ) to
cover the shortfall amount; provided that the shortfall may in no event be more
than 25% of the initial aggregate Outstanding Principal of the Securities of the
related Series). During the 90-day period following the related Closing Date,
the Company or, in the case of a Bond Series, the Issuer will be entitled to
obtain a release of such cash or Permitted Investments to the extent that it
delivers a corresponding amount of Undelivered Mortgage Assets. The parameters
of the Undelivered Mortgage Assets will be specified in the related Prospectus
Supplement, and no Undelivered Mortgage Asset may be included as part of the
Collateral or Trust Fund for a Series after the related Closing Date if it would
result in a qualification, downgrade or withdrawal of the then-current rating
assigned by any Rating Agency to any Class or Offered Securities of such Series.
If and to the extent all the Undelivered Mortgage Assets are not delivered
during the 90-day period following the related Closing Date, amounts in the
Pre-Funding Account will be applied to pay a corresponding amount of principal
of the Securities of such Series to the extent set forth, and on the dates
specified, in the related Prospectus Supplement.
Collection Accounts
The Collateral or Trust Fund, as the case may be, for any Series of
Securities will include one or more accounts (collectively, the "Collection
Account") established and maintained on behalf of the Securityholders into which
all payments and collections received or advanced with respect to the Mortgage
Assets and other assets in the Trust Fund will be deposited to the extent
described herein and in the related Prospectus Supplement. See "Servicing and
Administration of the Mortgage Assets--Collection Account".
Credit Support
If so provided in the Prospectus Supplement for the Offered Securities of
any Series, partial or full protection against certain defaults and losses on
the Mortgage Assets in the related Mortgage Asset Pool may be provided to one or
more Classes of Securities of such Series in the form of subordination of one or
more other Classes of Securities of such Series, in the form of subordination
(in the case of a Bond Series) of the related Issuer's interest in and right to
receive payments on its equity (if any) in the related Collateral, or by one or
more other types of Credit Support, which may include a letter of credit, a
surety bond, an insurance policy, a guarantee, a reserve fund or any combination
thereof. The amount and types of such Credit Support in respect of the Offered
Securities of any Series, the identity of the entity providing it (if
applicable) and related information with respect to each type of such Credit
Support, if any, will be set forth in the Prospectus Supplement for such Offered
Securities. See "Risk Factors--Credit Support Limitations" and "Description of
Credit Support".
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Cash Flow Arrangements
If so provided in the Prospectus Supplement for the Offered Securities of
any Series, the related Collateral or Trust Fund, as the case may be, may
include (i) guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for such Series will be invested at a specified
rate; (ii) interest rate exchange agreements, interest rate cap or floor
agreements, or other agreements designed to reduce the effects of interest rate
fluctuations on the Mortgage Assets on one or more Classes of Securities of such
Series; or (iii) letters of credit, surety bonds, insurance policies, guarantees
and/or reserve funds intended to offset a slower than anticipated rate of
principal payments on the related Mortgage Assets. The principal terms of any
such Cash Flow Arrangement, 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 related Prospectus
Supplement. The related Prospectus Supplement will also identify the obligor (if
applicable) under any agreement constituting a Cash Flow Arrangement.
YIELD AND MATURITY CONSIDERATIONS
General
The yield on any Offered Security will depend on the price paid by the
holder thereof, the Certificate Interest Rate of the Security and the amount
and timing of distributions on the Security. See "Risk Factors--Effect of
Prepayments on Average Life of Securities". The following discussion
generally contemplates a Mortgage Asset Pool that consists solely of Mortgage
Loans. Although the characteristics and behavior of real estate loans
underlying an Underlying MBS can generally be expected to have the same
effect on the yield to maturity and/or weighted average life of a Class of
Securities as will the characteristics and behavior of comparable Mortgage
Loans, the effect may differ due to the payment characteristics of the
Underlying MBS. If a Series is secured by, or evidences interests in,
Underlying MBS, the related Prospectus Supplement will discuss the effect, if
any, that the payment characteristics of such Underlying MBS may have on the
yield to maturity and weighted average lives of the Offered Securities of
such Series.
Underlying MBS can generally be expected to have the same effect on the yield to
maturity and/or weighted average life of a Class of Securities as will the
characteristics and behavior of comparable Mortgage Loans, the effect may differ
due to the payment characteristics of the Underlying MBS. If a Series is secured
by, or evidences interests in, Underlying MBS, the related Prospectus Supplement
will discuss the effect, if any, that the payment characteristics of such
Underlying MBS may have on the yield to maturity and weighted average lives of
the Offered Securities of such Series.
Security Interest Rate
The Securities of any Class within a Series may have a fixed, variable or
adjustable Bond Interest Rate or Certificate Interest Rate, as the case may be
(in either case, a "Security Interest Rate"), which may or may not be based upon
the interest rates borne by the underlying Mortgage Assets. The Prospectus
Supplement with respect to the Offered Securities of any Series will specify the
Security Interest Rate for each Class of such Offered Securities or, in the case
of a Class of Offered Securities with a variable or adjustable Security Interest
Rate, the method of determining such Security Interest Rate; the effect, if any,
of the prepayment of any Mortgage Asset in the related Mortgage Asset Pool on
the Security Interest Rate for each Class of such Offered Securities, and
whether the payments or distributions of interest on any Class of such Offered
Securities will be dependent, in whole or in part, on the performance of any
obligor under any instrument constituting a Cash Flow Arrangement.
Payment Delays
With respect to any Series, a period of time will elapse between the date
upon which payments on the underlying Mortgage Loans are due and the Payment
Date or Distribution Date, as the case may be, on which such payments are
applied to make payments to, or passed through to, Securityholders. That delay
will effectively reduce the yield that would otherwise be produced if payments
on such Mortgage Loans were applied to make payments to, or distributed to,
Securityholders on the date they were due.
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Certain Shortfalls in Collections of Interest
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on any Series of
Securities and payable thereon on any Payment Date, or distributable thereon on
any Distribution Date, will generally correspond to interest accrued on the
Mortgage Loans to their respective Due Dates during the related Due Period. A
"Due Period" will be a specified time period (generally corresponding in length
to the period between Payment Dates or Distribution Dates, as the case may be)
and all scheduled payments on the underlying Mortgage Loans that are due during
a given Due Period will, to the extent received by a specified date (the
"Determination Date") or otherwise advanced by the related Master Servicer,
Special Servicer or other specified person, be applied to make payments to, or
distributed to, the holders of the Securities of such Series on the next
succeeding Payment Date or Distribution Date, as applicable. Consequently, if a
prepayment on any Mortgage Loan is payable or distributable to Securityholders
on a particular Payment Date or Distribution Date, as applicable, but such
prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Securities of the related Series. If and to
the extent that any such shortfall is allocated to a Class of Offered
Securities, the yield thereon will be adversely affected. The related Prospectus
Supplement will describe the manner in which any such shortfalls will be
allocated among the Classes of Securities of the related Series. The related
Prospectus Supplement will also describe any amounts available to offset such
shortfalls.
Yield and Prepayment Considerations
The yield to maturity on any Stripped Interest Security or any other
Security purchased at a discount or a premium will be affected by the rate of
principal payments on the Mortgage Loans in the related Mortgage Asset Pool and
the extent to which such principal payments are applied to reduce, or otherwise
result in the reduction of, the Bond Principal Amount (or, in the case of a
Stripped Interest Bond, the Bond Notional Amount) or the Certificate Principal
Balance (or, in the case of a Stripped Interest Certificate, the Certificate
Notional Amount), as the case may be, of such Security. The rate of principal
payments on the Mortgage Loans in any Mortgage Asset Pool will in turn be
affected by the amortization schedules thereof (which, in the case of ARM Loans,
may change periodically to accommodate adjustments to the Mortgage Rates
thereon), the dates on which any balloon payments are due, and the rate of
principal prepayments thereon (including for this purpose, voluntary prepayments
by borrowers and also prepayments resulting from liquidations of Mortgage Loans
due to defaults, casualties or condemnations affecting the related Mortgaged
Properties, releases of Mortgage Loans as Collateral, or purchases of Mortgage
Loans out of the related Trust Fund, as applicable). Because the rate of
principal prepayments on the Mortgage Loans in any Mortgage Asset Pool will
depend on future events and a variety of factors (as described below), no
assurance can be given as to such rate.
An investor should consider, in the case of any Offered Security purchased
at a discount, the risk that a slower than anticipated rate of principal
payments on the Mortgage Loans in the related Mortgage Asset Pool could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Security purchased at a premium, the risk that a
faster than anticipated rate of principal payments on the Mortgage Loans in the
related Mortgage Asset Pool could result in an actual yield to such investor
that is lower than the anticipated yield. In addition, if an investor purchases
an Offered Security at a discount (or premium), and principal payments are made
in reduction of the Bond Principal Amount or Bond Notional Amount (or, in the
case of a Certificate, the Certificate Principal Balance or Certificate Notional
Amount), as applicable, of such Offered Security at a rate slower (or faster)
than the rate anticipated by the investor during any particular period, any
consequent adverse effects on such investor's yield would not be fully offset by
a subsequent like increase (or decrease) in the rate of principal payments.
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In general, the aggregate Bond Notional Amount or Certificate Notional
Amount, as the case may be, of a Class of Stripped Interest Securities will
either (i) be based on the principal balances of some or all of the Mortgage
Assets in the related Mortgage Asset Pool or (ii) equal the aggregate Bond
Principal Amount or Certificate Principal Balance, as applicable, of one or more
of the other Classes of Securities of the same Series. Accordingly, the yield on
such Stripped Interest Securities will be inversely related to the rate at which
payments and other collections of principal are received on such Mortgage Assets
or payments or distributions are made in reduction of the aggregate Bond
Principal Amount or Certificate Principal Balance, as applicable, of such
Classes of Securities, as the case may be.
Consistent with the foregoing, if a Class of Securities of any Series
consists of Stripped Interest Securities or Stripped Principal Securities, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Mortgage Asset Pool will negatively affect the yield to investors in
Stripped Principal Securities, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Securities. If the Offered Securities of a Series include
any Stripped Interest Securities or Stripped Principal Securities, the related
Prospectus Supplement will include a table showing the effect of various
constant assumed levels of prepayment on yields on such Securities. Such tables
will be intended to illustrate the sensitivity of yields to various constant
assumed prepayment rates and will not be intended to predict, or to provide
information that will enable investors to predict, yields or prepayment rates.
The extent of prepayments of principal of the Mortgage Loans in any
Mortgage Asset Pool may be affected by a number of factors, including, without
limitation, the availability of mortgage credit, the relative economic vitality
of the area in which the Mortgaged Properties are located, the quality of
management of the Mortgaged Properties, the servicing of the Mortgage Loans,
possible changes in tax laws and other opportunities for investment. In general,
those factors which increase the attractiveness of selling a Mortgaged Property
or refinancing a Mortgage Loan or which enhance a borrower's ability to do so,
as well as those factors which increase the likelihood of default under a
Mortgage Loan, would be expected to cause the rate of prepayment in respect of
any Mortgage Asset Pool to accelerate. In contrast, those factors having an
opposite effect would be expected to cause the rate of prepayment of any
Mortgage Asset Pool to slow.
The rate of principal payments on the Mortgage Loans in any Mortgage Asset
Pool may also be affected by the existence of Lock-out Periods and requirements
that principal prepayments be accompanied by Prepayment Premiums, and by the
extent to which such provisions may be practicably enforced. To the extent
enforceable, such provisions could constitute either an absolute prohibition (in
the case of a Lock-out Period) or a disincentive (in the case of a Prepayment
Premium) to a borrower's voluntarily prepaying its Mortgage Loan, thereby
slowing the rate of prepayments.
The rate of prepayment on a pool of mortgage loans 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 coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may have
an increased incentive to refinance for purposes of either (i) converting to a
fixed rate loan and thereby "locking in" such rate or (ii) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan. Therefore, as prevailing market interest rates decline, prepayment speeds
would be expected to accelerate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers 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. The Company
makes no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Mortgage Asset Pool, as to the relative
importance of such
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factors, as to the percentage of the principal balance of such Mortgage Loans
that will be paid as of any date or as to the overall rate of prepayment on such
Mortgage Loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the Mortgage Loans
underlying any Series of Securities will affect the ultimate maturity and the
weighted average life of one or more Classes of such Securities. Weighted
average life generally refers to the average amount of time that will elapse
from the date of issuance of an instrument until each dollar allocable as
principal of such instrument is repaid to the investor.
The weighted average life and maturity of a Class of Securities of any
Series will be influenced by the rate at which principal on the related Mortgage
Loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of Mortgage Loans due to default,
casualties or condemnations affecting the related Mortgaged Properties, releases
of Mortgage Loans as part of the related Collateral and/or purchases of Mortgage
Loans out of the related Trust Fund, as applicable), is paid to such Class.
Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment model
or the Standard Prepayment Assumption ("SPA") prepayment model. CPR represents
an assumed constant rate of prepayment each month (expressed as an annual
percentage) relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of mortgage loans, with
different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month, and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA 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 particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the Mortgage Loans included in any Mortgage Asset Pool
will conform to any particular level of CPR or SPA.
The Prospectus Supplement with respect to the Offered Securities of any
Series will contain tables, if applicable, setting forth the projected weighted
average life of each Class of such Offered Securities with an aggregate Bond
Principal Amount or Certificate Principal Balance, as the case may be, and the
percentage of the initial aggregate Bond Principal Amount or Certificate
Principal Balance, as the case may be, of each such Class of such Offered
Securities that would be outstanding on specified dates, based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the related Mortgage Loans are made at rates corresponding to
various percentages of CPR or SPA, or at such other rates specified in such
Prospectus Supplement. Such tables and assumptions will illustrate the
sensitivity of the weighted average lives of the Offered Securities to various
assumed prepayment rates and will not be intended to predict, or to provide
information that will enable investors to predict, the actual weighted average
lives of the Offered Securities.
Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage
Loans included in a particular Mortgage Asset Pool may require that balloon
payments be made at maturity. 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, there is a possibility that
Mortgage Loans that require balloon payments
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may default at maturity, or that the maturity of such a Mortgage Loan may be
extended in connection with a workout. In the case of defaults, recovery of
proceeds may be delayed by, among other things, bankruptcy of the borrower or
adverse conditions in the market where the property is located. In order to
minimize losses on defaulted Mortgage Loans, the Master Servicer or the Special
Servicer, to the extent and under the circumstances set forth herein and in the
related Prospectus Supplement, may be authorized 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 may
delay payments or distributions of principal on a Class of Offered Securities
and thereby extend the weighted average life of such Securities and, if such
Securities were purchased at a discount, reduce the yield thereon.
Negative Amortization. The weighted average life of a Class of Securities
can be affected by Mortgage Loans that permit negative amortization to occur
(that is, Mortgage Loans that provide for the current payment of interest
calculated at a rate lower than the rate at which interest accrues thereon, with
the unpaid portion of such interest being added to the related principal
balance). Negative amortization on one or more Mortgage Loans in any Mortgage
Asset Pool may result in negative amortization on the Offered Securities of the
related Series. The related Prospectus Supplement will describe, if applicable,
the manner in which negative amortization in respect of the Mortgage Loans in
any Mortgage Asset Pool is allocated among the respective Classes of Securities
of the related Series. The portion of any Mortgage Loan negative amortization
allocated to a Class of Securities may result in a deferral of some or all of
the interest payable thereon, which deferred interest may be added to the
aggregate Outstanding Principal thereof. In addition, an ARM Loan that permits
negative amortization would be expected during a period of increasing interest
rates to amortize at a slower rate (and perhaps not at all) than if interest
rates were declining or were remaining constant. Such slower rate of Mortgage
Loan amortization would correspondingly be reflected in a slower rate of
amortization for one or more Classes of Securities of the related Series.
Accordingly, the weighted average lives of Mortgage Loans that permit negative
amortization (and that of the Classes of Securities to which any such negative
amortization would be allocated or that would bear the effects of a slower rate
of amortization on such Mortgage Loans) may increase as a result of such
feature.
Negative amortization may occur in respect of an ARM Loan that (i) limits
the amount by which its scheduled payment may adjust in response to a change in
its Mortgage Rate, (ii) provides that its scheduled payment will adjust less
frequently than its Mortgage Rate or (iii) provides for constant scheduled
payments notwithstanding adjustments to its Mortgage Rate. Accordingly, during a
period of declining interest rates, the scheduled payment on such a Mortgage
Loan may exceed the amount necessary to amortize the loan fully over its
remaining amortization schedule and pay interest at the then applicable Mortgage
Rate, thereby resulting in the accelerated amortization of such Mortgage Loan.
Any such acceleration in amortization of its principal balance will shorten the
weighted average life of such Mortgage Loan and, correspondingly, the weighted
average lives of those Classes of Securities entitled to a portion of the
principal payments on such Mortgage Loan.
The extent to which the yield on any Offered Security will be affected by
the inclusion in the related Mortgage Asset Pool of Mortgage Loans that permit
negative amortization, will depend upon (i) whether such Offered Security was
purchased at a premium or a discount and (ii) the extent to which the payment
characteristics of such Mortgage Loans delay or accelerate the distributions of
principal on such Security (or, in the case of a Stripped Interest Security,
delay or accelerate the reduction of the notional amount thereof).
See "--Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans 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 lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Securities of the
related Series. 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 or otherwise, may also
have
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an effect upon the payment patterns of particular Mortgage Loans and thus the
weighted average lives of and yields on the Securities of the related Series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Securities of any Series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the underlying Mortgage Loans and the
timing of such losses and shortfalls. In general, the earlier that any such loss
or shortfall occurs, the greater will be the negative effect on yield for any
Class of Securities that is required to bear the effects thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Mortgage Asset Pool (to the extent not covered or offset by draws
on any reserve fund or under any instrument of Credit Support and, in the case
of a Bond Series, to the extent in excess of the Issuer's equity (if any) in the
related Collateral) will be allocated among the respective Classes of Securities
of the related Series in the priority and manner, and subject to the
limitations, specified in the related Prospectus Supplement. As described in the
related Prospectus Supplement, such allocations may be effected by (i) a
reduction in the entitlements to interest and/or the aggregate Outstanding
Principal of one or more such Classes of Securities and/or (ii) establishing a
priority of payments among such Classes of Securities.
The yield to maturity on a Class of Subordinate Securities may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Mortgage Asset Pool.
Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may during specified periods range from
none to all) of the principal payments received on the Mortgage Assets in the
related Mortgage Asset Pool, one or more Classes of Securities of any Series,
including one or more Classes of Offered Securities of such Series, may provide
for payments or distributions of principal thereof from (i) amounts attributable
to interest accrued but not currently payable or distributable, as the case may
be, on one or more Classes of Accrual Securities, (ii) Excess Funds or (iii) any
other amounts described in the related Prospectus Supplement."Excess Funds"
will, in general, represent that portion of the amounts payable or distributable
in respect of the Securities of any Series on any Payment Date or Distribution
Date, as the case may be, that represent (i) interest received or advanced on
the Mortgage Assets in the related Mortgage Asset Pool that is in excess of the
interest currently accrued on the Securities of such Series, and/or (ii) such
other amounts described in the related Prospectus Supplement.
The amortization of any Class of Securities out of the sources described
in the preceding paragraph would shorten the weighted average life of such
Securities and, if such Securities were purchased at a premium, reduce the yield
thereon. The related Prospectus Supplement will discuss the relevant factors to
be considered in determining whether payments or distributions of principal of
any Class of Offered Securities out of such sources is likely to have any
material effect on the rate at which such Securities are amortized and the
consequent yield with respect thereto.
THE COMPANY
The Company will act as depositor in connection with the formation of
the Trust Fund for each Certificate Series, and an Owner Trust established
by the Company will act as Issuer with respect to each Bond Series.
The Company was incorporated in the State of Delaware on August 13, 1997
and is a wholly-owned subsidiary of CRIIMI MAE Inc. See "CRIIMI MAE Inc." below.
The Company was organized, among other things, for the purposes of issuing debt
securities, establishing trusts and selling beneficial interests therein and/or
debt securities thereof, and acquiring and selling or otherwise transferring
mortgage assets to such trusts. The principal executive offices of the Company
are located at 11200 Rockville Pike, Rockville, Maryland 20852. Its telephone
number is (301) 816-2300. The Company does not have and is not expected
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to have any significant assets other than (i) Mortgage Assets on a temporary
basis pending issuance of the related Series and (ii) certain debt securities of
and/or beneficial interests in trusts established by it.
CRIIMI MAE INC.
CRIIMI MAE Inc. ("CRIIMI MAE") is a full-service commercial mortgage
company structured as a self-administered real estate investment trust. CRIIMI
MAE invests in government insured and guaranteed mortgages secured by
multifamily housing complexes located throughout the United States and in
uninsured mortgages and mortgage related investments backed by multifamily and
commercial mortgages, including subordinated securities. As of June 30, 1997,
CRIIMI MAE's total consolidated assets were equal to approximately $1.4 billion.
CRIIMI MAE's principal offices are located at 11200 Rockville Pike,
Rockville, Maryland 20852 and its telephone number is (301) 816-2300.
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 Company, 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 Company
will convey to the Owner Trust Mortgage Assets and other Underlying Assets to
secure one or more Bond Series 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 Company may in turn sell or assign the
certificates of beneficial interest and any Bonds so received to one or more
persons or entities, including affiliates of the Company.
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 Bond Series. The holders of the beneficial
interest in an Owner Trust which issues a Bond Series 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 SECURITIES
General
The Securities consist of Bonds and Certificates, issuable in Series. Each
Series will consist of one or more Classes of Securities. The following
summaries describe certain provisions common to each Series of Securities. The
summaries do not purport to be complete and are subject to and are qualified in
their entirety by reference to, the provisions of the Indenture or Pooling
Agreement, as applicable, and the Prospectus Supplement relating to each Series.
The Bonds
General. Each Bond Series will be issued pursuant to the related
Indenture. As will be described in the related Prospectus Supplement, the Bonds
of each Bond Series, including the Offered Bonds of such Series, may consist of
one or more Classes of Bonds that, among other things: (i) provide for the
accrual of interest on the Bond Principal Amount or Bond Notional Amount thereof
at a fixed, variable or adjustable Bond Interest Rate; (ii) constitute Senior
Bonds or Subordinate Bonds; (iii) constitute Stripped Interest Bonds or Stripped
Principal Bonds; (iv) provide for payments of interest or principal thereon that
commence only after the occurrence of certain events, such as the retirement of
one or more other Classes of Bonds of such Series; (v) provide for payments of
principal thereon to be made, from time to time or for designated periods, at a
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rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the related Mortgage Assets; (vi)
provide for payments of principal thereon to be made, subject to available
funds, based on a specified principal payment schedule or other methodology; or
(vii) provide for payments thereon that constitute prepayment premiums or yield
maintenance payments in connection with certain redemptions thereof or provide
for payments thereon based on collections on the related Mortgage Assets
attributable to Prepayment Premiums and Equity Participations.
If so specified in the related Prospectus Supplement, a Class of Bonds may
have two or more component parts, each having characteristics that are otherwise
described herein as being attributable to separate and distinct Classes. For
example, a Class of Bonds may have a Bond Principal Amount on which it accrues
interest at a fixed, variable or adjustable Bond Interest Rate. Such Class of
Bonds may also have certain characteristics attributable to Stripped Interest
Bonds insofar as it may also entitle the holders thereof to payments of interest
accrued on an aggregate Bond Notional Amount at a different fixed, variable or
adjustable Bond Interest Rate. In addition, a Class of Bonds may accrue interest
on one portion of its aggregate Bond Principal Amount or Bond Notional Amount at
one fixed, variable or adjustable Bond Interest Rate and on another portion of
its aggregate Bond Principal Amount or Bond Notional Amount at a different
fixed, variable or adjustable Bond Interest Rate.
The Offered Bonds of each Bond Series will be issued in minimum
denominations corresponding to the Bond Principal Amounts or, in case of certain
Stripped Interest Bonds or Bonds that constitute REMIC Residual Securities, the
Bond Notional Amounts, specified in the related Prospectus Supplement. As
provided in the related Prospectus Supplement, one or more Classes of Offered
Bonds of any Bond Series may be issued in fully registered, definitive form
(such Bonds, "Definitive Bonds" and also "Definitive Securities") or may be
offered in book-entry format (such Bonds, "Book-Entry Bonds" and also
"Book-Entry Securities") through the facilities of DTC. The Offered Bonds of
each Bond Series (if issued as Definitive Bonds) may be transferred or
exchanged, subject to any restrictions on transfer described in the related
Prospectus Supplement, at the location specified in the related Prospectus
Supplement, without the payment of any service charges, other than any tax or
other governmental charge payable in connection therewith. Interests in a Class
of Book-Entry Bonds will be transferred on the book-entry records of DTC and its
participating organizations. If so specified in the related Prospectus
Supplement, arrangements may be made for clearance and settlement through CEDEL,
S.A. or the Euroclear System, if they are participants in DTC.
Payments on the Bonds. Payments on the Bonds of each Bond Series will be
made on each Payment Date from the Available Payment Amount in respect of such
Series for such Payment Date. The "Available Payment Amount" in respect of any
Bond Series for any Payment Date will refer to the total of all payments or
other collections (or advances in lieu thereof) on, under or in respect of the
related Mortgage Assets and any other assets included as part of the related
Collateral that are available for payments of principal and interest to the
holders of Bonds of such Series on such date. The particular components of the
Available Payment Amount for any Bond Series and Payment Date will be more
specifically described in the related Prospectus Supplement. The Payment Date
for each Bond Series will be specified in the related Prospectus Supplement.
Except for the final payment on any Class of Bonds, payments on the
Bonds of each Bond Series (other than the final payment on any such Bond) will
be made to the persons in whose names such Bonds are registered (the
"Bondholders" and also "Securityholders") at the close of business on a
specified date (the "Record Date") prior to the applicable Payment Date and the
amount of each payment will be determined as of the close of business on the
date (the "Determination Date") specified in the related Prospectus Supplement.
All payments with respect to each Class of Bonds on each Payment Date will be
allocated pro rata among such Bonds in accordance with their respective Bond
Principal Amounts or Bond Notional Amounts, or will be allocated on such other
basis specified in the related Prospectus Supplement. 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 provided the person
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required to make such payments with wiring instructions no later than the
related Record Date or such other date specified in the related Prospectus
Supplement (and, if so provided in the related Prospectus Supplement, such
Bondholder holds Bonds in the requisite amount or denomination specified
therein), or by check mailed to the address of such Bondholder as it appears on
the Bond register; provided, however, that the final payment on of any Class of
Bonds (whether Definitive Bonds or Book-Entry Bonds) will be made only upon
presentation and surrender of such Bonds at the location specified in the notice
to the affected Bondholders of such final payment.
Payments of Interest on the Bonds. Each Class of Bonds of each Bond Series
(other than certain Classes of Stripped Principal Bonds and certain Classes of
Bonds constituting REMIC Residual Securities that have no Bond Interest Rate)
may have a different Bond Interest Rate, which in each case may be fixed,
variable or adjustable. The related Prospectus Supplement will specify the Bond
Interest Rate or, in the case of a variable or adjustable Bond Interest Rate,
the method for determining the Bond Interest Rate, for each Class of Offered
Bonds. The related Prospectus Supplement will specify whether interest on the
Bonds of any Bond Series will be calculated on the basis of a 360-day year
consisting of twelve 30-day months or on an alternative basis.
Payments of interest in respect of any Class of Bonds (other than a 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 other than certain Classes of Stripped
Principal Bonds and certain Classes of Bonds that constitute REMIC Residual
Securities, which are not entitled to any payments of interest) will be made on
each Payment Date based on the Accrued Bond Interest for such Class of Bonds and
such Payment Date, subject to the sufficiency of that portion, if any, of the
Available Payment Amount allocable to such Class of Bonds on such Payment Date.
Prior to the time interest is payable on each Class of Accrual Bonds, the amount
of Accrued Bond Interest otherwise payable on each such Bond will be added to
the Bond Principal Amount thereof on each Payment Date or otherwise deferred as
described in the related Prospectus Supplement. With respect to each Class of
Bonds (other than certain Classes of Stripped Interest Bonds and certain Classes
of Bonds that constitute REMIC Residual Securities), the "Accrued Bond Interest"
for each Payment Date will be equal to interest at the applicable Bond Interest
Rate accrued for a specified period (generally the most recently ended calendar
month) on the aggregate outstanding Bond Principal Amount of such Class of Bonds
immediately prior to such Payment Date. The Accrued Bond Interest for each
Payment Date on certain Classes of Stripped Interest Bonds will, as to any
such Class, be similarly calculated except that it will accrue on an aggregate
Bond Notional Amount that, in general, will either be (i) based on the principal
balances of some or all of the related Mortgage Assets or (ii) equal to the
aggregate Bond Principal Amount of one or more other Classes of Bonds of the
same Series. Reference to a Bond Notional Amount with respect to a Stripped
Interest Bond is solely for convenience in making certain calculations and does
not represent the right to receive any payments of principal. If so specified in
the related Prospectus Supplement, 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 aggregate Bond Principal Amount of) one or more Classes of Bonds of
a Bond Series may be reduced to the extent that any Prepayment Interest
Shortfalls, as described under "Yield and Maturity Considerations--Certain
Shortfalls in Collections of Interest", exceed the amount of any sums that are
applied to offset the amount of such shortfalls. The particular manner in which
such shortfalls will 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 aggregate Bond Principal Amount of) a
Class of Offered Bonds may be reduced or deferred as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the related Mortgage Assets. If so provided in the related
Prospectus Supplement, 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 or in respect of the related Mortgage
Assets may result in a corresponding increase in the aggregate Bond Principal
Amount of such Class. See "Risk Factors--Effect of Prepayments on Average Life
of Securities" and "--Effect of Prepayments on Yield of Securities " and "Yield
and Maturity Considerations--Certain Shortfalls in Collections of Interest".
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Payments of Principal on the Bonds. Each Class of Bonds of each Bond
Series (other than certain Classes of Stripped Interest Bonds and certain
Classes of Bonds that constitute REMIC Residual Securities) will have an
aggregate Bond Principal Amount, which, at any time, will equal the then maximum
amount of principal payments the holders of Bonds of such Class will be entitled
to receive from the Issuer, subject to the nonrecourse provisions of such Bonds.
The aggregate outstanding Bond Principal Amount of a Class of Bonds will be
reduced by payments of principal made thereon from time to time and, if and to
the extent so provided in the related Prospectus Supplement, further by any
losses incurred in respect of the related Mortgage Assets and any unanticipated
expenses allocated thereto from time to time. In turn, the aggregate outstanding
Bond Principal Amount of a Class of Bonds may be increased as a result of any
deferred interest on or in respect of the related Mortgage Assets being
allocated thereto from time to time, and will be increased, in the case of a
Class of Accrual Bonds prior to the Payment Date on which payments of interest
thereon are required to commence, by the amount of any Accrued Bond Interest in
respect thereof (reduced as described above). Except under the circumstances
described herein involving Undelivered Mortgage Assets, the initial aggregate
Bond Principal Amount of all Bonds of any particular Bond Series will not be
greater than the aggregate outstanding principal balance of the related Mortgage
Assets as of the related Cutoff Date. The initial aggregate Bond Principal
Amount of each Class of Offered Bonds will be specified in the related
Prospectus Supplement. As and to the extent described in the related Prospectus
Supplement, payments of principal with respect to the Bonds of any Bond Series
will be made on each Payment Date to the holders of the Class or Classes of
Bonds of such Series entitled thereto until, in the case of each such Class, the
aggregate Bond Principal Amount thereof has been reduced to zero. Payments of
principal with respect to one or more Classes of Bonds may be made at a rate
that is faster (and, in some cases, substantially faster) than the rate at which
payments or other collections of principal are received on the related Mortgage
Assets. Payments of principal with respect to one or more Classes of Bonds may
not commence until the occurrence of certain events, such as the retirement of
one or more other Classes of Bonds of the same Series, or may be made at a rate
that is slower (and, in some cases, substantially slower) than the rate at which
payments or other collections of principal are received on the related Mortgage
Assets.
Payments on the Bonds in Respect 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 received on
or in connection with the related Mortgage Assets will be distributed on each
Payment Date to the holders of the Class or Classes of Bonds of the related Bond
Series entitled thereto in accordance with the provisions described in such
Prospectus Supplement. Alternatively, such items may be retained by the Company
or any of its affiliates or by any other specified person and/or may be excluded
as Underlying Assets. In addition, certain redemptions of Bonds may be
conditioned on the Issuer's making an additional payment in the nature of a
prepayment premium or yield maintenance payment that may or may not be based on
any such amount payable under the related Mortgage Assets.
The Certificates
General. Each Certificate Series will represent the entire beneficial
ownership interest in the Trust Fund created pursuant to the related Pooling
Agreement. As will be described in the related Prospectus Supplement, the
Certificates of each Certificate Series, including the Offered Certificates of
such Series, may consist of one or more Classes of Certificates that, among
other things: (i) provide for the accrual of interest on the aggregate
Certificate Principal Balance or Certificate Notional Amount thereof at a fixed,
variable or adjustable Certificate Interest Rate; (ii) constitute Senior
Certificates or Subordinate Certificates; (iii) constitute Stripped Interest
Certificates or Stripped Principal Certificates; (iv) provide for distributions
of interest thereon or principal thereof that commence only after the occurrence
of certain events, such as the retirement of one or more other Classes of
Certificates of such Series; (v) provide for distributions of principal thereof
to be made, from time to time or for designated periods, at a rate that is
faster (and, in some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the related Mortgage Assets; (vi) provide for
distributions of principal thereof to be made, subject to available funds, based
on a specified principal payment schedule or other methodology;
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or (vii) provide for distributions based on collections on the related Mortgage
Assets attributable to Prepayment Premiums and Equity Participations.
If so specified in the related Prospectus Supplement, a Class of
Certificates may have two or more component parts, each having characteristics
that are otherwise described herein as being attributable to separate and
distinct Classes. For example, a Class of Certificates may have an aggregate
Certificate Principal Balance on which it accrues interest at a fixed, variable
or adjustable Certificate Interest Rate. Such Class of Certificates may also
have certain characteristics attributable to Stripped Interest Certificates
insofar as it may also entitle the holders thereof to distributions of interest
accrued on an aggregate Certificate Notional Amount at a different fixed,
variable or adjustable Certificate Interest Rate. In addition, a Class of
Certificates may accrue interest on one portion of its aggregate Certificate
Principal Balance or Certificate Notional Amount at one fixed, variable or
adjustable Certificate Interest Rate and on another portion of its aggregate
Certificate Principal Balance or Certificate Notional Amount at a different
fixed, variable or adjustable Certificate Interest Rate.
The Offered Certificates of each Certificate Series will be issued in
minimum denominations corresponding to Certificate Principal Balances or, in
case of certain Stripped Interest Certificates or Certificates that constitute
REMIC Residual Securities, the Certificate Notional Amounts or percentage
interests, specified in the related Prospectus Supplement. As provided in the
related Prospectus Supplement, one or more Classes of Offered Certificates of
any Certificate Series may be issued in fully registered, definitive form (such
Certificates, "Definitive Certificates" and also "Definitive Securities") or may
be offered in book-entry format (such Certificates, "Book-Entry Certificates"
and also "Book-Entry Securities") through the facilities of DTC. The Offered
Certificates of each Certificate Series (if issued as Definitive Certificates)
may be transferred or exchanged, subject to any restrictions on transfer
described in the related Prospectus Supplement, at the location specified in the
related Prospectus Supplement, without the payment of any service charges, other
than any tax or other governmental charge payable in connection therewith.
Interests in a Class of Book-Entry Certificates will be transferred on the
book-entry records of DTC and its participating organizations. If so specified
in the related Prospectus Supplement, arrangements may be made for clearance and
settlement through CEDEL, S.A. or the Euroclear System, if they are participants
in DTC.
Distributions on the Certificates. Distributions on the Certificates of
each Certificate Series will be made on each Distribution Date from the
Available Distribution Amount in respect of such Series for such Distribution
Date. The "Available Distribution Amount" in respect of any Certificate Series
for any Distribution Date will refer to the total of all payments or other
collections (or advances in lieu thereof) on, under or in respect of the related
Mortgage Assets and any other assets included in the related Trust Fund that are
available for distributions of principal and interest to the holders of
Certificates of such Series on such date. The particular components of the
Available Distribution Amount for any Certificate Series and Distribution Date
will be more specifically described in the related Prospectus Supplement. The
Distribution Date for each Certificate Series will be specified in the related
Prospectus Supplement.
Except for the final distribution on any Class of Certificates,
distributions on the Certificates of each Certificate Series (other than the
final distribution in retirement of any such Certificate) will be made to the
persons in whose names such Certificates are registered (the
"Certificateholders" and also "Securityholders") at the close of business on a
specified date (the "Record Date") prior to the applicable Distribution Date,
and the amount of each distribution will be determined as of the close of
business on the date (the "Determination Date") specified in the related
Prospectus Supplement. All distributions with respect to each Class of
Certificates on each Distribution Date will be allocated pro rata among such
Certificates in such Class in proportion to the respective Percentage Interests
evidenced thereby, or will be allocated on such other basis specified in the
related Prospectus Supplement. Payments will be made either by wire transfer in
immediately available funds to the account of a Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
has provided the person required to make such payments with wiring instructions
no later than the related Record Date or such other date specified in the
related Prospectus Supplement (and, if so provided in the related Prospectus
Supplement, such
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Certificateholder holds Certificates in the requisite amount or denomination
specified therein), or by check mailed to the address of such Certificateholder
as it appears on the Certificate register; provided, however, that the final
distribution in retirement of any Class of Certificates (whether Definitive
Certificates or Book-Entry Certificates) will be made only upon presentation and
surrender of such Certificates at the location specified in the notice to the
affected Certificateholders of such final distribution. The undivided percentage
interest (the "Percentage Interest") in any Class of Offered Certificates that
is represented by any particular Certificate of such Class will be equal to the
percentage obtained by dividing the initial Certificate Principal Balance or
Certificate Notional Amount of such Certificate by the initial aggregate
Certificate Principal Balance or Certificate Notional Amount of such Class.
Distributions of Interest on the Certificates. Each Class of Certificates
of each Certificate Series (other than certain Classes of Stripped Principal
Certificates and certain Classes of Certificates constituting REMIC Residual
Securities that have no Certificate Interest Rate) may have a different
Certificate Interest Rate, which in each case may be fixed, variable or
adjustable. The related Prospectus Supplement will specify the Certificate
Interest Rate or, in the case of a variable or adjustable Certificate Interest
Rate, the method for determining the Certificate Interest Rate, for each Class
of Offered Certificates. The related Prospectus Supplement will specify
whether interest on the Certificates of any Certificate Series will be
calculated on the basis of a 360-day year consisting of twelve 30-day months or
on an alternative basis.
Distributions of interest in respect of any Class of Certificates (other
than a Class of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement, and other than
certain Classes of Stripped Principal Certificates and certain Classes of
Certificates that constitute REMIC Residual Securities, which are not entitled
to any distributions of interest) will be made on each Distribution Date based
on the Accrued Certificate Interest for such Class of Certificates and such
Distribution Date, subject to the sufficiency of that portion, if any, of the
Available Distribution Amount allocable to such Class of Certificates on such
Distribution Date. Prior to the time interest is distributable on any Class of
Accrual Certificates, the amount of Accrued Certificate Interest otherwise
distributable on each such Certificate will be added to the Certificate
Principal Balance thereof on each Distribution Date or otherwise deferred as
described in the related Prospectus Supplement. With respect to each Class of
Certificates (other than certain Classes of Stripped Interest Certificates and
certain Classes of Certificates that constitute REMIC Residual Securities), the
"Accrued Certificate Interest" for each Distribution Date will be equal to
interest at the applicable Certificate Interest Rate accrued for a specified
period (generally the most recently ended calendar month) on the aggregate
outstanding Certificate Principal Balance of such Class of Certificates
immediately prior to such Distribution Date. The Accrued Certificate Interest
for each Distribution Date on certain Classes of Stripped Interest
Certificates will, as to any such Class, be similarly calculated except that it
will accrue on an aggregate Certificate Notional Amount that, in general, will
either be (i) based on the principal balances of some or all of the related
Mortgage Assets or (ii) equal to the aggregate Certificate Principal Balance of
one or more other Classes of Certificates of the same Series. Reference to a
Certificate Notional Amount with respect to a Stripped Interest Certificate is
solely for convenience in making certain calculations and does not represent the
right to receive any distributions of principal. If so specified in the related
Prospectus Supplement, the amount of Accrued Certificate Interest that is
otherwise distributable on (or, in the case of Accrual Certificates, that may
otherwise be added to the aggregate Certificate Principal Balance of) one or
more Classes of Certificates of a Certificate Series may be reduced to the
extent that any Prepayment Interest Shortfalls, as described under "Yield and
Maturity Considerations--Certain Shortfalls in Collections of Interest", exceed
the amount of any sums that are applied to offset the amount of such shortfalls.
The particular manner in which such shortfalls will be allocated among some or
all of the Classes of Certificates of that Series will be specified in the
related Prospectus Supplement. The related Prospectus Supplement will also
describe the extent to which the amount of Accrued Certificate Interest that is
otherwise distributable on (or, in the case of Accrual Certificates, that may
otherwise be added to the aggregate Certificate Principal Balance of) a Class of
Offered Certificates may be reduced or deferred as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the related Mortgage Assets. If so provided in the related
Prospectus Supplement, any reduction in the amount of Accrued Certificate
Interest
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otherwise distributable on a Class of Certificates by reason of the allocation
to such Class of a portion of any deferred interest on or in respect of the
related Mortgage Assets may result in a corresponding increase in the
aggregate Certificate Principal Balance of such Class. See "Risk Factors--Effect
of Prepayments on Average Life of Securities" and "--Effect of Prepayments on
Yield of Securities" and "Yield and Maturity Considerations--Certain Shortfalls
in Collections of Interest".
Distributions of Principal of the Certificates. Each Class of Certificates
of each Certificate Series (other than certain Classes of Stripped Interest
Certificates and certain Classes of Certificates that constitute REMIC Residual
Securities) will have an aggregate Certificate Principal Balance, which, at any
time, will equal the then maximum amount that the holders of Certificates of
such Class will be entitled to receive as principal out of the future cash flow
on the Mortgage Assets and other assets included in the related Trust Fund. The
aggregate outstanding Certificate Principal Balance of a Class of Certificates
will be reduced by distributions of principal made thereon from time to time
and, if and to the extent so provided in the related Prospectus Supplement,
further by any losses incurred in respect of the related Mortgage Assets and any
unanticipated expenses allocated thereto from time to time. In turn, the
outstanding aggregate Certificate Principal Balance of a Class of Certificates
may be increased as a result of any deferred interest on or in respect of the
related Mortgage Assets being allocated thereto from time to time, and will be
increased, in the case of a Class of Accrual Certificates prior to the
Distribution Date on which distributions of interest thereon are required to
commence, by the amount of any Accrued Certificate Interest in respect thereof
(reduced as described above). Except under the circumstances described herein
involving Undelivered Mortgage Assets, the initial aggregate Certificate
Principal Balance of all Certificates of any particular Certificate Series will
not be greater than the aggregate outstanding principal balance of the related
Mortgage Assets as of the related Cut-off Date. The initial aggregate
Certificate Principal Balance of each Class of Offered Certificates will be
specified in the related Prospectus Supplement. As and to the extent described
in the related Prospectus Supplement, distributions of principal with respect to
the Certificates of any Certificate Series will be made on each Distribution
Date to the holders of the Class or Classes of Certificates of such Series
entitled thereto until, in the case of each such Class, the aggregate
Certificate Principal Balance thereof has been reduced to zero. Distributions of
principal with respect to one or more Classes of Certificates may be made at a
rate that is faster (and, in some cases, substantially faster) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund. Distributions of principal with respect to one
or more Classes of Certificates may not commence until the occurrence of certain
events, such as the retirement of one or more other Classes of Certificates of
the same Series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions on the Certificates in Respect 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
received on or in connection with the Mortgage Assets in any Trust Fund will be
distributed on each Distribution Date to the holders of the Class of
Certificates of the related Series entitled thereto in accordance with the
provisions described in such Prospectus Supplement. Alternatively, such items
may be retained by the Company or any of its affiliates or by any other
specified person and/or may be excluded as Underlying Assets.
The Two Trust Structure
In connection with the issuance of certain Stripped Interest
Securities, the Company may cause the creation of both an Owner Trust and a
Trust Fund (the resulting structure being herein referred to as the "Two
Trust Structure"). The Owner Trust would issue one or more Classes of Bonds.
The Company would thereupon deposit or cause the Owner Trust to deposit some
or all of those Classes of Bonds into a Trust Fund, the entire beneficial
ownership interest of which would be evidenced by a Series of Certificates
that consists of (i) one or more Classes that represent interest-only
strips off the Classes of Bonds so deposited and (ii) one or more Classes
that represent the principal and remaining interest with respect to each
Class of Bonds so deposited. Some or all of such Certificates would then be
sold to entities other than CRIIMI MAE and its wholly owned subsidiaries, while
the equity interests in the Owner Trust (which held the related Mortgage Asset
Pool) would remain one hundred percent owned by CRIIMI MAE and its wholly
owned subsidiaries.
The Company intends to use the Two Trust Structure from time to time to
raise money through transactions treated as borrowings. Under the Code,
CRIIMI MAE, as a REIT, is subject to certain restrictions on the sale of its
assets, directly or through wholly owned subsidiaries (such as the Company).
Failure to comply with such restrictions on sales could result in the
imposition of "prohibited transaction" taxes on CRIIMI MAE. In the Two Trust
Structure, the Stripped Interest Securities represent interests in Bonds
issued by the Owner Trust rather than interests in the related Mortgage Assets.
Allocation of Losses and Shortfalls
The amount of any losses or shortfalls in collections on the Mortgage
Assets included as part of the Mortgage Asset Pool for any Series and the amount
of any unanticipated expenses for such Series (in each case, to the extent not
covered or offset by draws on any reserve fund or under any instrument of Credit
Support and, in the case of a Bond Series, to the extent in excess of the
Issuer's equity (if any) in the related Collateral) will be allocated among the
respective Classes of Securities of such Series in the priority and manner, and
subject to the limitations, specified in the related Prospectus Supplement. As
will be described in the related Prospectus Supplement, such allocations may be
effected by (i) a reduction in the entitlements to interest and/or the aggregate
Outstanding Principal of one or more such Classes of Securities and/or (ii)
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establishing a priority of payments among such Classes of Securities. If such
losses and expenses are not allocated to reduce the aggregate Outstanding
Principal of the Securities of the related Series and are not otherwise covered
by any fund or agreement constituting Credit Support or, in the case of a Bond
Series, any equity of the related Issuer in the related Collateral, the
aggregate Outstanding Principal of the Securities of such Series will exceed
and, accordingly, not be supported by the aggregate principal balance of the
related Mortgage Assets. See "Description of Credit Support".
Advances in Respect of Delinquencies
If and to the extent provided in the related Prospectus Supplement, if a
Mortgage Asset Pool includes Mortgage Loans, the Master Servicer, the Special
Servicer, the Trustee, any provider of Credit Support and/or any other specified
person may be obligated to advance, or have the option of advancing, on or
before each Payment Date or Distribution Date, as the case may be, from its or
their own funds or from excess funds held in the related Collection Account that
are not part of the Available Payment Amount or Available Distribution Amount,
as the case may be, for the related Series for such Payment Date or Distribution
Date, as the case may be, an amount up to the aggregate of any payments of
principal (other than the principal portion of any balloon payments) and
interest that were due on or in respect of such Mortgage Loans during the
related Due Period and were delinquent on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the Class or Classes of Securities entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts drawn under any fund
or instrument constituting Credit Support) with respect to which such advances
were made (as to any Mortgage Loan, "Related Proceeds") and such other specific
sources as may be identified in the related Prospectus Supplement, including, in
the case of a Series that includes one or more Classes of Subordinate
Securities, if so identified, collections on other Mortgage Assets included in
the related Mortgage Asset Pool that would otherwise be distributable to the
holders of one or more Classes of such Subordinate Securities. No advance will
be required to be made by a Master Servicer, Special Servicer or Trustee if, in
the judgment of the Master Servicer, Special Servicer or Trustee, as the case
may be, such advance would not be recoverable from Related Proceeds or another
specifically identified source (any such advance, a "Nonrecoverable Advance");
and, if previously made by a Master Servicer, Special Servicer or Trustee, a
Nonrecoverable Advance will be reimbursable thereto from any amounts in the
related Collection Account prior to any payments or distributions being made to
the holders of the related Series of Securities.
If advances have been made by a Master Servicer, Special Servicer, Trustee
or other entity from excess funds in a Collection Account, such Master Servicer,
Special Servicer, Trustee or other entity, as the case may be, will be required
to replace such funds in such Collection Account on or prior to any future
Payment Date or Distribution Date, as applicable, to the extent that funds in
such Collection Account on such Payment Date or Distribution Date are less than
payments required to be made to the holders of the related Series of Securities
on such date. If so specified in the related Prospectus Supplement, the
obligation of a Master Servicer, Special Servicer, Trustee or other entity to
make advances may be backed or secured by a cash advance reserve fund, a
guarantee, a letter of credit or a surety bond. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any such
guarantee, letter of credit or surety bond, will be set forth in the related
Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such Prospectus Supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the Mortgage Assets included as part of the related Mortgage Asset Pool prior to
any payment to the related Series of Securityholders or as otherwise described
in such Prospectus Supplement.
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If the Mortgage Asset Pool for any Series includes Underlying MBS, the
related Prospectus Supplement will describe any comparable advancing obligation
of a party to the related Indenture, the related Pooling Agreement or any
separate related S&A Agreement, as the case may be, or of a party to the related
MBS Agreement.
Reports to Securityholders
On each Payment Date or Distribution Date, as applicable, for a Series,
together with the payment or distribution to the holders of each Class of the
Offered Securities of such Series, a Master Servicer, Manager, Trustee or other
specified person, as provided in the related Prospectus Supplement, will forward
to each such holder, a statement (a "Securityholder Statement") substantially in
the form, or specifying the information, set forth in the related Prospectus
Supplement. In general, the Securityholder Statement for each Payment Date or
Distribution Date, as applicable, will detail the distributions on the related
Series of Securities on such Payment Date or Distribution Date and the
performance of the related Mortgage Assets.
Within a reasonable period of time after the end of each calendar year,
the Issuer, Master Servicer, Manager or Trustee, as the case may be, for a
Series will be required to furnish to each person who at any time during the
calendar year was a holder of an Offered Security of such Series a statement
containing information regarding the principal, interest and other payments or
distributions on the applicable Class of Offered Securities, aggregated for such
calendar year or the applicable portion thereof during which such person was a
Securityholder. Such obligation will be deemed to have been satisfied to the
extent that substantially comparable information is provided pursuant to any
requirements of the Code as are from time to time in force. See, however,
"--Book-Entry Registration and Definitive Securities" below.
If the Mortgage Asset Pool for any Series includes Underlying MBS, the
ability of the related Issuer, Master Servicer, Manager or Trustee, as the case
may be, to include in any Securityholder Statement information regarding the
mortgage loans underlying such Underlying MBS will depend on the reports
received with respect to such Underlying MBS. In such cases, the related
Prospectus Supplement will describe the loan-specific information to be included
in the Securityholder Statements that will be forwarded to the holders of the
Offered Securities of that Series in connection with payments or distributions
made to them.
Voting Rights
If so provided in the related Prospectus Supplement, specific voting
rights evidenced by the Securities of each Series (collectively as to such
Series, the "Voting Rights") will be allocated among the respective Classes of
such Series in the manner described in the related Prospectus Supplement. In the
case of any particular Bond Series, the Bondholders of such Series may also vote
or otherwise take action based upon the aggregate Bond Principal Amounts or Bond
Notional Amounts of their Bonds.
Securityholders will generally not have a right to vote, except with
respect to certain amendments of related transaction documents (including the
related Indenture or Pooling Agreement, as applicable) and as otherwise
specified in the related Prospectus Supplement. See "Description of the
Indentures--Modification of the Indenture" and "Description of the Pooling
Agreements--Amendment". The holders of specified amounts of Voting Rights (or,
in the case of certain Bond Series, of specified Bond Principal Amounts and/or
Bond Notional Amounts) of a particular Series will have the right to act as a
group to remove the related Trustee and also upon the occurrence of certain
events which if continuing would constitute an Event of Default (as defined
herein) on the part of the related Issuer, Master Servicer, Special Servicer,
Manager or REMIC Administrator. See "--The Trustee", "Description of the
Indenture--Issuer Events of Default" and "Servicing and Administration of the
Mortgage Assets--S&A Events of Default" and "--Rights Upon Event of Default".
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Special Redemption of Bonds
If specified in the related Prospectus Supplement, the Bonds of any Bond
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 Assets
securing such Bonds or the low yield available for reinvestment or both, the
Trustee determined (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
Arrangement for such Series) that the amount anticipated to be available in the
Collection 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 Principal Payment Amount 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
Bond 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
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 Bond 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 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.
Notwithstanding the foregoing, however, no such optional redemption of the Bonds
of any Bond Series may occur until the aggregate outstanding principal amount of
such Bonds has declined to 25% or less of the initial aggregate outstanding
principal amount thereof (or, if the optional redemption is on a Class-by-Class
basis, no such optional redemption of the Bonds of any Class of Offered Bonds
may occur until the aggregate outstanding principal amount of such Class of
Offered Bonds has declined to 25% or less of the initial aggregate outstanding
principal amount thereof). The maximum aggregate Bond Principal Amount of the
Bonds of any Bond Series that may be outstanding before any optional redemption
may be effected will be disclosed in the related Prospectus Supplement.
The inclusion of an "early call" provision in the Indenture for any Bond
Series allows the Company greater flexibility in the financing of its assets and
facilitates the treatment of the subject Securities as debt for tax and
accounting purposes. The Company's parent, CRIIMI MAE, Inc., is a real estate
investment trust and, accordingly, is subject to certain restrictions regarding
the sale of assets by it and its wholly owned subsidiaries.
In general, the primary beneficiaries of an optional redemption of Bonds
will be the related Issuer, the Company and/or the Company's parent, CRIIMI MAE
Inc. Subject to an Issuer's being required to pay any prepayment premium or
yield maintenance amount in connection with an optional redemption of its Bonds,
such Issuer will have an incentive to exercise any such right of optional
redemption when it (or, alternatively, the Company or CRIIMI MAE Inc.) can
either (i) take advantage of an increase in the value of the subject Collateral
(because prevailing interest rates have declined or the Collateral has performed
better than expected); or (ii) obtain alternative financing for the subject
Collateral at lower interest rates (which may coincide with lower interest rates
generally). An "early call" provision thus increases an investor's reinvestment
risk.
Termination of a Trust Fund
The Trust Fund, and the obligations created by the corresponding Pooling
Agreement, for each Certificate Series will terminate following (i) the final
payment or other liquidation of the last Mortgage Asset in such Trust Fund or
the disposition of all property acquired upon foreclosure of any Mortgage Loan
in such Trust Fund and (ii) the payment (or provision for payment) to the
Certificateholders of that Series of all amounts required to be paid to them
pursuant to such Pooling Agreement. Written notice of termination of a Trust
Fund and the related Pooling Agreement will be given to each Certificateholder
of the related Certificate Series, and the final distribution will be made only
upon presentation and surrender of the Certificates of such Series at the
location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a Certificate Series
may be subject to optional early termination through the purchase of all the
Mortgage Assets remaining in the related Trust Fund by
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the party or parties specified therein, under the circumstances and in the
manner set forth therein; provided that the related Pooling Agreement will
provide that such termination may not occur until the aggregate scheduled
principal balance of the related Mortgage Asset Pool has declined to 10% or less
of the greater of the Initial Pool Balance of such Mortgage Asset Pool or the
initial aggregate Certificate Principal Balance of the Certificates of the
subject Certificate Series. The purchase price for some or all of the Mortgage
Assets remaining in the related Trust Fund may be based on fair market value
(which, because prevailing interest rates have risen or certain of the related
Mortgage Assets have experienced defaults, may be less than the unpaid balance
of, and other amounts due on, such Mortgage Assets) and, therefore, the
aggregate purchase price for all the Mortgage Assets may be insufficient to pay
the aggregate Certificate Principal Balance of, and accrued and unpaid interest
on, all the Certificates of the related Certificate Series (thus resulting in a
loss to the holders of one or more Classes of Certificates of such Series).
Because servicing and trustee fees are generally calculated as a percentage of
the outstanding balance of the related Mortgage Assets, and because the costs of
servicing and administering a Mortgage Asset Pool may exceed such fees as the
balance of such pool declines, the parties responsible for such servicing and
administration are likely to be the prime beneficiaries of an optional
termination of a Trust Fund. The party exercising any optional termination of a
Trust Fund as described above may also derive a benefit if the termination price
is par and the fair market value of the remaining Mortgage Assets is greater
than par (because prevailing interest rates have declined or the Mortgage Assets
have performed better than expected).
In addition, if so provided in the related Prospectus Supplement upon the
reduction of the aggregate Certificate Principal Balance of a specified Class or
Classes of Certificates by a specified percentage or amount or upon a specified
date, a party designated therein may be authorized or required to solicit bids
for the purchase of all the Mortgage Assets of the related Trust Fund, or of a
sufficient portion of such Mortgage Assets to retire such Class or Classes,
under the circumstances and in the manner set forth therein. The solicitation of
bids will be conducted in a commercially reasonable manner and, generally,
assets will be sold at their fair market value. Circumstances may arise in
which, because prevailing interest rates have risen or certain of the related
Mortgage Assets have experienced defaults, such fair market value may be less
than the unpaid balance of, and other amounts due on, the Mortgage Assets sold
and therefore, as a result of such a sale, the Certificateholders of one or more
Classes of Certificates may receive an amount less than the aggregate
Certificate Principal Balance of, and accrued unpaid interest on, their
Certificates and thus incur a loss. The prime beneficiaries of any such Mortgage
Asset sales would be the Certificateholders that expected their Certificates to
be retired by a specified date.
Sales of Mortgage Assets as contemplated under this "--Termination of a
Trust Fund" section are to be made without any continuing direct or indirect
liability to the purchaser on the part of the related Trust Fund or the related
Certificateholders.
The Trustee
General. The Trustee under each Indenture and Pooling Agreement will be
named in the related Prospectus Supplement. In the case of a Bond Series, the
Trustee will be a bank or trust company qualified under the TIA. The
commercial bank, national banking association, banking corporation or trust
company that serves as Trustee may have typical banking relationships with the
Company and its affiliates and with any Master Servicer, Special Servicer,
Manager or REMIC Administrator and its affiliates.
Certain Matters Regarding the Trustee. If no Event of Default on the part
of any related Issuer, Master Servicer, Special Servicer, Manager or REMIC
Administrator has occurred and is continuing, the Trustee for each Series will
be required to perform only those duties specifically required under the related
Indenture or Pooling Agreement, as applicable.
As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be an expense of the related
Issuer, Master Servicer or other specified person or entity or may be payable
out of collections on the related Mortgage Assets.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each Series will be entitled to indemnification, from amounts held
in the Collection Account for such Series, for any loss, liability or expense
incurred by the Trustee in connection with the Trustee's acceptance or
administration of its trusts under the related Indenture or Pooling Agreement,
as applicable; provided, however, that such indemnification will not extend to
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or gross negligence on the part of the Trustee in the performance of its
obligations and duties thereunder, or by reason of its reckless disregard of
such obligations or duties.
The rights of the Trustee to receive out of the related Trust Fund or
Collateral, as the case may be, any compensation or reimbursement to which it is
entitled under the related Pooling Agreement or Indenture,
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as the case may be, will be senior to the rights of Securityholders of the
related Series to receive payments on their Securities.
The Trustee for each Series will be entitled to execute any of its trusts
or powers under the related Indenture or Pooling Agreement, as applicable, or
perform any of its duties thereunder either directly or by or through agents or
attorneys; however, unless otherwise specified in the related Prospectus
Supplement, the Trustee will not be responsible for any willful misconduct or
gross negligence on the part of any such agent or attorney appointed by it with
due care.
Resignation and Removal of the Trustee. The Trustee for a Series may
resign at any time, in which event the Company or, in the case of certain
Bond Series, the Issuer will be obligated to appoint a successor Trustee. The
Company or, in the case of certain Bond Series, the Issuer may also remove the
Trustee for such Series if such Trustee ceases to be eligible to continue as
such under the related Indenture or Pooling Agreement, as applicable, or if such
Trustee becomes insolvent. Upon becoming aware of such circumstances, the
Company or, in the case of certain Bond Series, the Issuer will be obligated to
appoint a successor Trustee. In addition, unless otherwise specified in the
related Prospectus Supplement, the Trustee for any Series may also be removed at
any time by the holders of Securities of such Series of more than 50% of the
Voting Rights for or, in the case of most Bond Series, the aggregate Bond
Principal Amount of such Series; provided that if such removal was without
cause, the Securityholders effecting such removal may be responsible for any
costs and expenses incurred by the terminated Trustee in connection with its
removal. Any resignation or removal of the Trustee for any Series and
appointment of a successor trustee for such Series will not become effective
until acceptance of the appointment by the successor trustee. Notwithstanding
anything herein to the contrary, if any entity is acting as both Trustee and
REMIC Administrator for a Series, then any resignation or removal of such entity
as the Trustee will also constitute the resignation or removal of such entity as
REMIC Administrator, and the successor trustee will also serve as the successor
REMIC Administrator as well.
Book-Entry Registration and Definitive Securities
If so provided in the related Prospectus Supplement, one or more Classes
of the Offered Securities will be offered in book-entry format through the
facilities of The Depository Trust Company ("DTC"), and each such Class will be
represented by one or more global Securities registered in the name of DTC or
its nominee. If so provided in the related Prospectus Supplement, arrangements
may be made for clearance and settlement through the Euroclear System or CEDEL,
S.A., if they are participants in DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participants (the "DTC Participants") and
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic computerized book-entry changes in their
accounts, thereby eliminating the need for physical movement of securities
certificates. DTC Participants that maintain accounts with DTC include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include other organizations. DTC is owned by a number of DTC
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as banks, brokers, dealers
and trust companies that directly or indirectly clear through or maintain a
custodial relationship with a DTC Participant that maintains as account with
DTC. The rules applicable to DTC and DTC Participants are on file with the
Commission.
Purchases of Book-Entry Securities under the DTC system must be made by or
through, and will be recorded on the records of, the brokerage firm, bank,
thrift institution or other financial intermediary (each, a "Financial
Intermediary") that maintains the beneficial owner's account for such purpose.
In turn, the
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Financial Intermediary's ownership of such Securities will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC Participant).
Therefore, the beneficial owner must rely on the foregoing procedures to
evidence its beneficial ownership of such Securities. The beneficial ownership
interest of the actual beneficial owner of a Book-Entry Security (a "Security
Owner") may only be transferred in compliance with the rules, regulations and
procedures of such Financial Intermediaries and DTC Participants.
DTC has no knowledge of the actual Security Owners; DTC's records reflect
only the identity of the DTC Participants to whose accounts the related
Securities are credited, which may or may not be the Security Owners. The DTC
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to DTC Participants
and by DTC Participants to Financial Intermediaries and Security Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Payments or distributions on the Book-Entry Securities will be made to
DTC. DTC's practice is to credit DTC Participants' accounts on the related
Payment Date or Distribution Date, as applicable, in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payment on such date. Disbursement of such payments or
distributions by DTC Participants to Financial Intermediaries and Security
Owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of each such DTC
Participant (and not of DTC, the Company or any Owner Trust, Trustee, Master
Servicer, Special Servicer or Manager), subject to any statutory or regulatory
requirements as may be in effect from time to time. Accordingly, under a
book-entry system, Security Owners may receive payments after the related
Payment Date or Distribution Date, as applicable.
The only "Bondholder" (as such term is used in the related Indenture) of
Book-Entry Bonds and the only "Certificateholder" (as such term is used in the
related Pooling Agreement) of Book-Entry Certificates will be the nominee of
DTC, and the Security Owners will not be recognized as Bondholders under any
Indenture or as Certificateholders under any Pooling Agreement. Security Owners
will be permitted to exercise the rights of Bondholders under the related
Indenture or Certificateholders under the related Pooling Agreement, as
applicable, only indirectly through the DTC Participants who in turn will
exercise their rights through DTC. The Company has been informed that DTC will
take action permitted to be taken by a Bondholder under an Indenture or a
Certificateholder under a Pooling Agreement, in any case, only at the direction
of one or more DTC Participants to whose account with DTC interests in the
applicable Book-Entry Securities are credited. DTC may take conflicting actions
with respect to the Book-Entry Securities of any Series to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Securities.
Because DTC can act only on behalf of DTC Participants, who in turn act on
behalf of Financial Intermediaries and certain Security Owners, the ability of a
Security Owner to pledge its interest in Book-Entry Securities to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in Book-Entry Securities, may be limited due to the lack
of a physical security evidencing such interest.
Securities of any Series initially issued in book-entry form will be
issued as Definitive Securities to the related Security Owners or their
nominees, rather than to DTC or its nominee, only if (i) the Company or, in
the case of certain Bond Series, the Issuer, advises the Trustee for such
Series in writing that DTC is no longer willing or able to discharge properly
its responsibilities as depository with respect to such Securities and the
Company or, in the case of certain Bond Series, the Issuer is unable to locate a
qualified successor or (ii) the Company or, in the case of certain Bond
Series, the Issuer, at its option,
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elects to terminate the book-entry system through DTC with respect to such
Securities or (iii) such other circumstances as may be described in the related
Prospectus Supplement occur. Upon the occurrence of either of the events
described in the preceding sentence, DTC will be required to notify all DTC
Participants of the availability through DTC of Definitive Securities. Upon
surrender by DTC of the physical security or securities representing a Class of
Book-Entry Securities, together with instructions for registration, the Trustee
for the related Series or other designated party will be required to issue to
the Security Owners identified in such instructions the Definitive Securities to
which they are entitled, and thereafter the holders of such Definitive
Securities will be recognized, as applicable, as "Bondholders" under and within
the meaning of the related Indenture or as "Certificateholders" under and within
the meaning of the related Pooling Agreement.
DESCRIPTION OF THE INDENTURES
General
Each Bond Series will be issued pursuant to a Terms Indenture, between the
Issuer and the Trustee, which shall incorporate by reference certain standard
indenture provisions of the Company applicable to owner trusts established
thereby. The Terms Indenture for any particular Bond Series, as and to the
extent it incorporates by reference such standard indenture provisions, will
constitute the Indenture for such Series. The standard indenture provisions that
may be used with respect to any Bond Series shall be substantially in the form
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. A copy of the Terms Indenture for any Bond 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 such Bonds.
The provisions of the Indenture for each Bond Series will vary depending
upon the nature of such Bonds and the nature of the related Collateral. The
following summaries describe certain provisions that may appear in an Indenture.
The Prospectus Supplement for the Offered Bonds of any Bond Series will describe
any provision of the related Indenture that materially differs from the
description thereof contained in this Prospectus. The summaries herein 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 Indenture for each Bond Series and
the description of such provisions in the related Prospectus Supplement. The
Company will provide a copy of the Indenture that relates to any Bond Series
without charge upon written request of a holder of a Bond of such Series
addressed to it at its principal executive offices specified herein under "The
Company".
Pledge of Mortgage Assets
General. At the time of issuance of any Bond Series, the Issuer will grant
to the designated Trustee to secure payment of the Bonds of such Series a
security interest in, among other things, the Mortgage Assets to be included as
part of the related Collateral, together with, unless otherwise specified in the
related Prospectus Supplement, all principal and interest to be received on or
with respect to such Mortgage Assets after the related Cut-off Date, other than
principal and interest due on or before the related Cut-off Date. The Trustee
will hold such Mortgage Assets as security only for that Bond Series, 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 Trustee will, concurrently with such
grant, deliver such Bonds to or at the direction of the Issuer. Each Mortgage
Asset to be included as part of the related Collateral will be identified in a
schedule appearing as an exhibit to the related Terms Indenture. Such schedule
generally will include detailed information that pertains to each Mortgage Asset
included as part of the related Collateral, which information will typically
include: (i) in the case of each Mortgage Loan, if any, the address of the
related Mortgaged Property and type of such property, the Mortgage Rate (and, if
applicable, the applicable index, gross margin, adjustment date and any rate cap
information), the original and remaining term to maturity, the amortization
term, and the original and outstanding principal balance; and (ii) in the case
of each Underlying MBS, if any, the outstanding principal balance and the
pass-through rate or coupon rate.
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Delivery of Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, the Issuer will, as to each Mortgage Loan to be included
as part of the related Collateral, deliver, or cause to be delivered, to the
related Trustee (or to a custodian appointed by the Trustee as described below)
the Mortgage Note endorsed, without recourse, either in blank or to the order of
such Trustee (or its nominee), the Mortgage with evidence of recording indicated
thereon (except for any Mortgage not returned from the public recording office),
an assignment of the Mortgage in blank or to the Trustee (or its nominee) in
recordable form, together with any intervening assignments of the Mortgage with
evidence of recording thereon (except for any such assignment not returned from
the public recording office), and, if applicable, any riders or modifications to
such Mortgage Note and Mortgage, together with certain other documents, at such
times as are set forth in the related Indenture. Such assignments may be blanket
assignments covering Mortgages on Mortgaged Properties located in the same
county, if permitted by law. Notwithstanding the foregoing, the Collateral for a
Bond Series may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Issuer delivers, or causes to be delivered, to
the related Trustee (or such custodian) a copy or a duplicate original of the
Mortgage Note, together with an affidavit of the Issuer or a prior holder of
such Mortgage Note certifying that the original thereof has been lost or
destroyed. In addition, if the Issuer cannot deliver, with respect to any
Mortgage Loan, the Mortgage or any intervening assignment (with evidence of
recording thereon) concurrently with the execution and delivery of the related
Terms Indenture because of a delay caused by the public recording office, the
Issuer will deliver, or cause to be delivered, to the related Trustee (or such
custodian) a true and correct photocopy of such Mortgage or assignment as
submitted for recording. The Issuer will deliver, or cause to be delivered, to
the related Trustee (or such custodian) such Mortgage or assignment with
evidence of recording indicated thereon after receipt thereof from the public
recording office. If the Issuer cannot deliver, or cause to be delivered, with
respect to any Mortgage Loan, the Mortgage or any intervening assignment (with
evidence of recording thereon) concurrently with the execution and delivery of
the related Terms Indenture because such Mortgage or assignment has been lost,
the Issuer will deliver, or cause to be delivered, to the related Trustee (or
such custodian) a true and correct photocopy of such Mortgage or assignment
(with evidence of recording thereon). Unless otherwise specified in the related
Prospectus Supplement, assignments of Mortgage to the Trustee (or its nominee)
will be recorded in the appropriate public recording office, except in states
where, in the opinion of counsel acceptable to the Trustee, such recording is
not required to protect the Trustee's interests in the Mortgage Loan against the
claim of any subsequent transferee or any successor to or creditor of the
Issuer, the related Mortgage Asset Seller or the originator of such Mortgage
Loan.
The Trustee (or a custodian appointed by the Trustee) for a Bond Series
will be required to review the Mortgage Loan documents delivered to it within a
specified period of days after receipt thereof, and the Trustee (or such
custodian) will hold such documents in trust for the benefit of the Bondholders
of such Series.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold legal title to the Mortgage
Loans securing any Bond Series and to maintain possession of and, if applicable,
to review the documents relating to such Mortgage Loans, in any case as the
agent of the Trustee.
Delivery of Underlying MBS. Unless otherwise specified in the Prospectus
Supplement for the Offered Bonds of any Bond Series, the related Indenture will
provide that such steps will be taken as will be necessary to cause the Trustee
for such Series to become the registered owner of each Underlying MBS which is
included as part of the Collateral for such Series and to provide for all
distributions on each such Underlying MBS to be made either directly to the
Trustee or another MBS Administrator.
Representations and Warranties with Respect to Mortgage Assets; Repurchases and
Other Remedies
Unless otherwise provided in the Prospectus Supplement for the Offered
Bonds of any Bond Series, the Issuer will, with respect to each Mortgage Asset
included as part of the related Collateral, make or assign, or cause to be made
or assigned, certain representations and warranties (the person making such
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representations and warranties, the "Warranting Party") covering, by way of
example: (i) the accuracy of the information set forth for such Mortgage Asset
on the schedule of Mortgage Assets appearing as an exhibit to the related Terms
Indenture; (ii) the Warranting Party's title to the Mortgage Asset and the
authority of the Warranting Party to transfer (or, in the case of the Issuer,
grant a security interest in) such Mortgage Asset; and (iii) in the case of a
Mortgage Loan, the enforceability of the related Mortgage Note and Mortgage, the
existence of title insurance insuring the lien priority of the related Mortgage,
the payment status of the Mortgage Loan, and the delivery of all documents
required to be delivered to the Trustee with respect to the Mortgage Loan, as
contemplated under "--Pledge of Mortgage Assets--Delivery of Mortgage Loans". It
is expected that in most cases the Warranting Party will be the Mortgage Asset
Seller; however, the Warranting Party may also be an affiliate of the Mortgage
Asset Seller, the Issuer, the Company, an affiliate of the Company, the Master
Servicer, the Special Servicer or another person acceptable to the Company. The
Warranting Party will be identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer and/or Trustee will be required to notify promptly any Warranting Party
of any breach of any representation or warranty made by it in respect of a
Mortgage Asset that materially and adversely affects the interests of the
Bondholders of the related Bond Series. If such Warranting Party cannot cure
such breach within a specified period following the date on which it was
notified of such breach, then, unless otherwise provided in the related
Prospectus Supplement, it will be obligated to repurchase such Mortgage Asset
from the Trustee at a price (or, in the case of the Issuer, remove such Mortgage
Asset as part of the related Collateral and pay to the Trustee a cash amount) no
less than the unpaid principal balance of such Mortgage Asset as of the date of
purchase (or removal), together with accrued interest thereon at the related
Mortgage Rate (or, in the case of an Underlying MBS, the related pass-through
rate or coupon rate) to a date on or about the date of purchase (or removal)
and, in the case a Mortgage Loan, certain related unreimbursed servicing
expenses (in any event, the "Release Price"). If so provided in the related
Prospectus Supplement, in lieu of repurchasing a Mortgage Asset as to which a
material breach has occurred (or, in the case of the Issuer, removing such
Mortgage Asset as part of the related Collateral), a Warranting Party will have
the option, exercisable upon certain conditions and/or within a specified period
after initial issuance of the related Series, to replace such Mortgage Asset
with one or more other mortgage loans or mortgage-backed securities, as
applicable, that in each case meet the criteria for a "Mortgage Asset" specified
herein, in accordance with standards that will be described in the Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
this obligation of the Warranting Party to repurchase, remove or replace a
defective Mortgage Asset will constitute the sole remedy available to holders of
the Bonds of any Bond Series or to the related Trustee on their behalf for a
breach of representation and warranty by a Warranting Party, and no other person
or entity will be obligated to purchase or replace a Mortgage Asset if a
Warranting Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Asset as of a date prior to the date upon which the
related Bond Series is issued, and thus may not address events that may occur
following the date as of which they were made. The date as of which the
representations and warranties regarding the Mortgage Assets securing any Bond
Series were made will be specified in the related Prospectus Supplement.
Certain Covenants
For so long as the Bonds of any Bond Series is outstanding, except in
connection with the consummation of one of the transactions contemplated by the
following sentence, the Issuer of such Series may not liquidate or dissolve and
must maintain its continued existence. In addition, for so long as the Bonds of
any Bond Series are outstanding, the Issuer of such Bonds also may not
consolidate or merge with or into any other person or, except as described
herein, convey or transfer its properties and assets substantially as an
entirety, without the consent of the holders of Bonds of such Series entitled to
not less than 66-2/3% of the aggregate Bond Principal Amount of such Series, and
unless, among other things, (a) the person formed or surviving such merger or
consolidation or acquiring such assets is organized under the laws of the United
States of America or any State thereof and shall have expressly assumed, by
supplemental indenture, the due
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and punctual payment of principal of and interest on all Bonds of such Series
and the performance of every applicable covenant of the related Indenture to be
performed by the Issuer, (b) immediately after giving effect to such
transaction, no Issuer Event of Default (nor any event that with notice or lapse
of time or both would become an Issuer Event of Default) shall have occurred and
be continuing, (c) the Trustee for such Series shall have received written
confirmation from each Rating Agency in respect of such Series to the effect
that the consummation of such transaction will not cause such Rating Agency to
qualify, downgrade or withdraw its then-current rating of any Class of Bonds of
such Series and (d) the Trustee for such Series shall have received from the
Issuer an officers' certificate and an opinion of counsel, each to the effect
that, among other things, such transaction complies with the foregoing
requirements.
With limited exception, the Issuer may not incur, assume, have outstanding
or guarantee any indebtedness other than Bonds pursuant to an Indenture and
other than obligations incidental to the issuance of Bonds.
Modification of Indenture
Except as set forth below, and unless otherwise specified in the related
Prospectus Supplement, with the consent of the holders of Bonds representing
more than 50% of the aggregate Bond Principal Amount of any Bond Series, the
Trustee and the Issuer for such Series may amend the related Indenture or
execute a supplemental indenture, to add provisions to or change or eliminate
any provisions of the related Indenture, or modify the rights of the holders of
the Bonds of that Series.
Without the consent of the holder of each outstanding Bond affected,
however, except as provided below, no such amendment or supplemental indenture
shall (i) change the date of payment of any installment of principal of or
interest on any Bond or reduce the principal amount thereof, the Bond Interest
Rate therefor or the Redemption Price with respect thereto, or change the
provisions of the related Indenture relating to the application of collections
on or with respect to the related Collateral to payment of principal of or
interest on any Bond, or change any place of payment where, or the coin or
currency in which, any Bond or any interest thereon is payable, or impair the
right to institute suit for the enforcement of the provisions of the related
Indenture regarding payment, (ii) reduce the percentage of Voting Rights,
aggregate Bond Principal Amount or aggregate Bond Notional Amount, as the case
may be, represented by the Bonds of any Bond Series (or Class of such Series),
the consent of the holders of which is required for the authorization of any
such amendment or supplemental indenture or for any waiver of compliance with
certain provisions of the related Indenture or certain defaults thereunder and
their consequences, (iii) modify or alter the provisions of the related
Indenture defining the term "Outstanding", (iv) permit the creation of any lien
ranking prior to or on a parity with the lien of the related Indenture with
respect to any part of the property subject to the lien of such Indenture or
terminate the lien of such Indenture on any property at any time subject thereto
or deprive the holder of any Bond of the security afforded by the lien of the
related Indenture, except as expressly provided in the related Indenture, (v)
reduce the percentage of Voting Rights, aggregate Bond Principal Amount or
aggregate Bond Notional Amount, as the case may be, represented by the Bonds of
any Bond Series (or Class of such Series), the consent of the holders of which
is required to direct the Trustee to liquidate the Mortgage Assets for such
Series, (vi) modify any of the provisions of the related Indenture regarding the
calculation of the amount of any payment of interest or principal due and
payable on any Bond on any Payment Date, or (vii) modify the provisions of the
Indenture regarding any modifications of such Indenture requiring consent of the
holders of Bonds, except to increase the percentage of Voting Rights, aggregate
Bond Principal Amount or aggregate Bond Notional Amount, as the case may be,
required to consent to such modification of such Indenture or to provide that
additional provisions of the Indenture cannot be modified or waived without the
consent of the holder of each Bond affected thereby.
The Issuer and the Trustee for any Bond Series may also amend the related
Indenture or enter into supplemental indentures, without obtaining the consent
of holders of such Series to cure an ambiguity or to correct or supplement any
provision of the related Indenture or any supplemental indenture which may be
defective or inconsistent with any other provisions, or to make or amend any
other provisions with respect to
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matters or questions arising under the related Indenture or any supplemental
indenture, provided that such action shall not materially adversely affect the
interests of the holders of the Bonds of such Series. Such amendments may also
be made and such supplemental indentures may also be entered into without the
consent of Bondholders, among other things, to set forth the terms of and
security for additional Bond Series, to evidence the succession of another
person to the Issuer for any Bond Series, to add to the conditions, limitations
and restrictions on certain terms of any Bond Series and to the covenants of the
Issuer or Trustee of such Series, to surrender any right or power conferred upon
the Issuer for any Bond Series, to convey, transfer, assign, mortgage or pledge
any property to the Trustee for any Bond Series, to correct or amplify the
description of any property subject to the lien of any Indenture, to modify any
Indenture to the extent necessary to effect the related Trustee's qualifications
under the TIA or comply with the requirements of the TIA, to make any amendment
necessary or desirable to maintain the status of any portion of the related
Collateral as a REMIC, or to avoid certain taxes, to amend the provisions of any
Indenture relating to authentication and delivery of the Bonds of any Bond
Series with respect to which a Terms Indenture has not theretofore been
authorized or to evidence and provide for the acceptance of appointment by a
successor trustee.
Issuer Events of Default
Unless otherwise stated in the related Prospectus Supplement, an "Issuer
Event of Default" with respect to any Bond Series will consist of: (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 Trustee or to
the Issuer for such Series and the designated Trustee by the holders of Bonds
entitled to at least 25% 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 Trustee or to
the Issuer and the Trustee by the holders of Bonds representing at least 25% of
the aggregate Bond Principal Amount of 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 Bond Series includes a Class of Subordinate Bonds, the Terms 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 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.
Unless otherwise provided in the related Prospectus Supplement, if an
Issuer Event of Default with respect to any Bond Series should occur and be
continuing, the Trustee for such Series may (and, upon the written request of
the holders of Bonds representing more than 50% of the aggregate Bond Principal
Amount
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or Bond Notional Amount, as the case may be, of 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. Unless otherwise
specified in the related Prospectus Supplement, 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% of the aggregate Bond Principal Amount or Bond Notional Amount, as the case
may be, of each Class of Bonds of such Series.
The Indenture for each Bond Series will provide that the 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 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 Bond Series will not
necessarily be an Issuer Event of Default with respect to any other Bond Series.
Unless otherwise provided in the related Prospectus Supplement, if
following an Issuer Event of Default with respect to any Bond Series, the Bonds
of such Series have been declared to be due and payable, the Trustee may
liquidate the related Mortgage Assets, 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 distributable 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 Trustee (A)
determines that the Mortgage Assets securing such Series will not, taking into
account any Credit Support or Cash Flow Arrangement 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% of the
aggregate Bond Principal Amount or aggregate Bond Notional Amount of each Class
of Bonds of such Series. In addition, if following an Issuer Event of Default
with respect to any Bond Series, the Bonds of such Series have been declared to
be due and payable, the Trustee will be required to liquidate the related
Mortgage Assets (unless otherwise provided in the related Prospectus Supplement)
if the Bondholders of such Series so direct as described under "--Control by
Bondholders" below. Unless otherwise provided in the Prospectus Supplement for
the Offered Bonds of any Bond Series, the proceeds of a sale of Mortgage Assets
will be applied to the payment of amounts due the 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 distributed by the Trustee.
If the Bonds of any Bond 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 Trustee may,
but need not, elect to maintain possession of the Mortgage Assets securing such
Series; provided that the holders of Bonds of such Series shall not have
directed the Trustee as described under "--Control by Bondholders" below to sell
the Mortgage Assets securing such Series. It is the desire of the Issuer, the
Trustee and the Bondholders of each Series that there be at all times, taking
into account any Credit Support or Cash Flow Arrangement 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
Trustee shall take such desire into account when determining whether or not to
maintain possession of the Mortgage Assets securing any Series declared due and
payable. In determining whether to maintain possession of the Mortgage Assets
securing any Series declared due and payable, the 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
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as to the sufficiency of such Mortgage Assets for such purpose. Unless otherwise
provided in the related Prospectus Supplement, until the Trustee has elected or
has determined not to elect to retain the Mortgage Assets securing any Series
declared due and payable, and thereafter if the Trustee has elected to retain
the Mortgage Assets securing any Series declared due and payable, the Trustee
will continue to apply all payments, collections, distributions and other
amounts received on such Mortgage Assets and/or paid or drawn under any Credit
Support or Cash Flow Arrangement 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 Trustee shall not be deemed to have knowledge of any Issuer Event of
Default unless an officer in the Trustee's corporate trust department has actual
knowledge thereof. Subject to the provisions of the related Indenture regarding
the duties of the Trustee in case an Issuer Event of Default in respect of any
Bond Series shall occur and be continuing, the 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 Trustee reasonable security
or indemnity.
Control by Bondholders
Unless otherwise provided in the related Prospectus Supplement, the
holders of Bonds of any Bond Series representing more than 50% of the aggregate
Bond Principal Amount of 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 Trustee, or exercising any trust or power conferred on the
Trustee; provided, that:
(i) such direction may not be in conflict with any rule of law or
with the related Indenture;
(ii) the Trustee shall have been provided with indemnity reasonably
satisfactory to it;
(iii) any direction to the 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% of the aggregate Bond Principal Amount or
Bond Notional Amount, as the case may be, of each Class of such Series;
(iv) any direction to the Trustee to sell or liquidate all or any
portion of the Mortgage Assets securing such Series shall be by the
holders of Bonds representing not less than 66-2/3% of the aggregate Bond
Principal Amount or Bond Notional Amount, as the case may be, of each
Class of such Series (except that, notwithstanding the foregoing, if the
condition to retention of the Mortgage Assets securing such Series set
forth under "--Issuer Events of Default" above has been satisfied and the
Trustee elects to retain such Mortgage Assets as described thereunder,
then any direction to the Trustee by the holders of less than all the
Bonds of such Series to sell or liquidate all or any portion of such
Mortgage Assets shall be of no force and effect); and
(v) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Notwithstanding the rights of Bondholders of any Series set forth above,
the 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, unless
otherwise specified in the related Prospectus Supplement, the holders of Bonds
representing more than 50% of the aggregate Bond Principal Amount or Bond
Notional Amount, as the case may be, of each Class of such Series may, on behalf
of the holders of all the Bonds of
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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.
Unless otherwise specified in the related Prospectus Supplement, no holder
of Bonds of any Bond Series will have the right to institute any Proceedings
with respect to the related Indenture, unless (i) such holder previously has
given to the 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% of the aggregate Bond Principal Amount of such Series (or such
other group of Bondholders of such Series as may be required for directing the
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% of the aggregate Bond Principal Amount of
such Series) shall have made written request to the Trustee to institute
Proceedings in respect of such Issuer Event of Default in its own name as
Trustee under the related Indenture; (iii) such holder or holders of Bonds have
offered to the 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 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 Trustee for such Series during such 60-day
period by the holders of Bonds representing more than 50% of the aggregate Bond
Principal Amount of such Series; provided, however, that in the event that the
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 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 Company or any affiliate thereof
will be deemed not to be outstanding.
Authentication and Delivery of Bonds
The Issuer for any Bond Series may from time to time deliver Bonds of such
Series executed by it to the Trustee for such Series and order that such Trustee
authenticate such Bonds. Upon the receipt of such Bonds and such order and
subject to the Issuer's compliance with certain conditions specified in the
related Indenture, the Trustee for such Series will authenticate and deliver
such Bonds as the Issuer may direct. Unless otherwise specified in the related
Prospectus Supplement, the Trustee for any Bond Series will be authorized to
appoint an agent for purposes of authenticating and delivering the Bonds of such
Series (the "Authenticating Agent").
Satisfaction and Discharge of the Indenture
The related Indenture will be discharged as to any Bond Series (except
with respect to certain continuing rights specified in such Indenture), (a)(1)
upon the delivery to the related 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 Trustee or other Bond registrar have become
due and payable or, within one year, will become due and payable or
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be called for redemption, and the Issuer for such Series shall have deposited
with the related 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 Assets 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 (see "Servicing and Administration of the Mortgage
Assets--Realization Upon Defaulted Mortgage Loans"); (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 Asset (see
"--Pledge of Mortgage Assets" and "--Representations and Warranties with Respect
to Mortgage Assets; Repurchases and Other Remedies" above); and (iv) as
otherwise specified in the related Prospectus Supplement.
Compliance Certificates and Opinions
In connection with the authentication and delivery of any Bond Series at
initial issuance, the release or the release and substitution of property
subject to the lien of the related Indenture, and the satisfaction and discharge
of the related Indenture, and otherwise upon any application or request by the
Issuer to the Trustee to take any action under any provision of the related
Indenture, the Issuer will be required to furnish to the Trustee (i) an
officer's certificate stating that all conditions precedent, if any, provided
for in the related Indenture relating to the proposed action have been complied
with, (ii) an opinion of counsel stating that in the opinion of such counsel all
such conditions precedent, if any, have been complied with, and (iii) (if
required by the TIA) a certificate or opinion from an accountant stating that in
the opinion of such accountant all such conditions precedent, if any, subject to
verification by accountants have been complied with. In connection with the
authentication and delivery of any Bond Series at initial issuance, the
accountant rendering the certificate or opinion referred to in clause (iii) of
the preceding sentence is to be an accountant independent of the Issuer, the
Company or any affiliate thereof that was selected or approved by the Trustee in
the exercise of reasonable care.
Every such certificate or opinion with respect to compliance with a
condition or covenant will be required to include: (i) a statement that each
signatory of such certificate or opinion has read or has caused to be read such
covenant or condition; (ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (iii) a statement that, in the opinion of
each such signatory, such signatory has made such examination or investigation
as is necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with; and (iv) a
statement as to whether, in the opinion of each such signatory, such condition
or covenant has been complied with.
In addition, the Issuer for each Bond Series will be required to file
annually with the Trustee for such Series a written statement as to fulfillment
of its obligations under the related Indenture.
List of Bondholders
Three or more Bondholders of any Bond Series which have each owned Bonds
of such Series for at least six months may, by written application to the
Trustee for such Series, request access to the list maintained by such 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 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 Trustee or, at the expense of such applicants, to mail copies of the
particular communication to such other Bondholders.
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Meetings of Bondholders
Meetings of Bondholders of any Bond Series 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 Trustee for such Series, give directions
to the 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 Trustee for
such Series or appoint a successor 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 Trustee, the Issuer or the holders of Bonds representing
(unless otherwise specified in the related Prospectus Supplement) at least 10%
of the aggregate Bond Principal Amount of any Bond Series.
Fiscal Year
The fiscal year of each Issuer ends on December 31.
Trustee's Annual Report
The Trustee for each Bond Series 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 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
Trustee in its individual capacity, the property and funds physically held by
such 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 Trustee which materially
affects the Bonds and which has not been previously reported.
General 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 Trustee in
an officer's certificate of the Issuer shall be deemed action taken by the
Issuer for all purposes under such Indenture.
Unless otherwise specified in the related Prospectus Supplement, it is
expected that the Issuer for each Bond Series will enter into an administration
agreement with an administrator acceptable to the Rating Agencies rating Bonds
of such Series (the "General Administrator") pursuant to which advisory,
administrative, accounting and clerical services will be provided to such Issuer
with respect to such Series. The Trustee, Master Servicer or Manager may serve
as the General Administrator. In addition, under the related Indenture, the
Issuer for each Bond Series will be responsible for certain administrative and
accounting matters relating to the Bonds of such Series, and it is intended that
the General Administrator will perform these services on behalf of the Issuer.
DESCRIPTION OF THE POOLING AGREEMENTS
General
Each Certificate Series will be issued pursuant to a Pooling Agreement. In
general, the parties to a Pooling Agreement will include (in addition to the
Company as depositor) the Trustee, the Master Servicer, the Special Servicer
and, if one or more REMIC elections have been made with respect to the related
Trust Fund, the REMIC Administrator. However, a Pooling Agreement that relates
to a Trust Fund that includes Underlying MBS may include a Manager as a party,
but may not include a Master Servicer, Special Servicer
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or other servicer as a party. All parties to each Pooling Agreement under which
a Certificate Series is issued will be identified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Asset Seller or an affiliate thereof may perform the functions of Master
Servicer, Special Servicer, Manager or REMIC Administrator. If so specified in
the related Prospectus Supplement, the Master Servicer may also perform the
duties of Special Servicer, and the Master Servicer, the Special Servicer or the
Trustee may also perform the duties of REMIC Administrator. Any party to a
Pooling Agreement or any affiliate thereof may own Certificates issued
thereunder; however, except in limited circumstances (including with respect to
required consents to certain amendments to a Pooling Agreement), Certificates
issued thereunder that are held by the Master Servicer or Special Servicer for
the related Series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust Fund.
The following summaries describe certain provisions that may appear in a Pooling
Agreement. The Prospectus Supplement for the Offered Certificates of any
Certificate Series will describe any provision of the related Pooling Agreement
that materially differs from the description thereof contained in this
Prospectus. The summaries herein 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 Pooling Agreement for each Certificate Series and the description of such
provisions in the related Prospectus Supplement. The Company will provide a copy
of the Pooling Agreement (without exhibits) that relates to any Certificate
Series without charge upon written request of a holder of a Certificate of such
Series addressed to it at its principal executive offices specified herein under
"The Company".
Transfer of Mortgage Assets
General. At the time of issuance of any Certificate Series, the Company as
depositor will assign (or cause to be assigned) to the designated Trustee the
Mortgage Assets to be included in the related Trust Fund, together with, unless
otherwise specified in the related Prospectus Supplement, all principal and
interest to be received on or with respect to such Mortgage Assets after the
related Cut-off Date, other than principal and interest due on or before the
related Cut-off Date. The Trustee will, concurrently with such assignment,
deliver the Certificates of such Series to or at the direction of the Company in
exchange for the Mortgage Assets and the other assets to be included in the
Trust Fund for such Series. Each Mortgage Asset to be included as part of the
related Trust Fund will be identified in a schedule appearing as an exhibit to
the related Pooling Agreement. Such schedule generally will include detailed
information that pertains to each Mortgage Asset included in the related Trust
Fund, which information will typically include: (i) in the case of each Mortgage
Loan, if any, the address of the related Mortgaged Property and type of such
property, the Mortgage Rate (and, if applicable, the applicable index, gross
margin, adjustment date and any rate cap information), the original and
remaining term to maturity, the amortization term, and the original and
outstanding principal balance; and (ii) in the case of each Underlying MBS, if
any, the outstanding principal balance and the pass-through rate or coupon rate.
Delivery of Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, the Company as depositor will, as to each Mortgage Loan
to be included in a Trust Fund, deliver, or cause to be delivered to the related
Trustee (or to a custodian appointed by the Trustee as described below) the
Mortgage Note endorsed, without recourse, either in blank or to the order of
such Trustee (or its nominee), the Mortgage with evidence of recording indicated
thereon (except for any Mortgage not returned from the public recording office),
an assignment of the Mortgage in blank or to the Trustee (or its nominee) in
recordable form, together with any intervening assignments of the Mortgage with
evidence of recording thereon (except for any such assignment not returned from
the public recording office), and, if applicable, any riders or modifications to
such Mortgage Note and Mortgage, together with certain other documents, at such
times as set forth in the related Pooling Agreement. Such assignments may be
blanket assignments covering Mortgages on Mortgaged Properties located in the
same county, if permitted by law. Notwithstanding the
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foregoing, a Trust Fund may include Mortgage Loans where the original Mortgage
Note is not delivered to the Trustee if the Company delivers, or causes to be
delivered, to the related Trustee (or such custodian) a copy or a duplicate
original of the Mortgage Note, together with an affidavit of the Company or a
prior holder of such Mortgage Note certifying that the original thereof has been
lost or destroyed. In addition, if the Company cannot deliver, with respect to
any Mortgage Loan, the Mortgage or any intervening assignment (with evidence of
recording thereon) concurrently with the execution and delivery of the related
Pooling Agreement because of a delay caused by the public recording office, the
Company will deliver, or cause to be delivered, to the related Trustee (or such
custodian) a true and correct photocopy of such Mortgage or assignment as
submitted for recording. The Company will deliver, or cause to be delivered, to
the related Trustee (or such custodian) such Mortgage or assignment (with
evidence of recording indicated thereon) after receipt thereof from the public
recording office. If the Company cannot deliver, with respect to any Mortgage
Loan, the Mortgage or any intervening assignment (with evidence of recording
thereon) concurrently with the execution and delivery of the related Pooling
Agreement because such Mortgage or assignment has been lost, the Company will
deliver, or cause to be delivered, to the related Trustee (or such custodian) a
true and correct photocopy of such Mortgage or assignment (with evidence of
recording thereon). Unless otherwise specified in the related Prospectus
Supplement, assignments of Mortgage to the Trustee (or its nominee) will be
recorded in the appropriate public recording office, except in states where, in
the opinion of counsel acceptable to the Trustee, such recording is not required
to protect the Trustee's interests in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Company or the
originator of such Mortgage Loan.
The Trustee (or a custodian appointed by the Trustee) for a Certificate
Series will be required to review the Mortgage Loan documents delivered to it
within a specified period of days after receipt thereof, and the Trustee (or
such custodian) will hold such documents in trust for the benefit of the
Certificateholders of such Series.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
in any Trust Fund and to maintain possession of and, if applicable, to review
the documents relating to such Mortgage Loans, in any case as the agent of the
Trustee.
Delivery of Underlying MBS. Unless otherwise specified in the Prospectus
Supplement for the Offered Certificates of any Certificate Series, the related
Pooling Agreement will provide that such steps will be taken as will be
necessary to cause the Trustee for such Series to become the registered owner of
each Underlying MBS which is included in the related Trust Fund and to provide
for all distributions on each such Underlying MBS to be made either directly to
the Trustee for such Series or to another MBS Administrator.
Representations and Warranties with Respect to Mortgage Assets; Repurchases and
Other Remedies
Unless otherwise provided in the Prospectus Supplement for a Certificates
Series, the Company as depositor will, with respect to each Mortgage Asset in
the related Trust Fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making such representations and
warranties, the "Warranting Party") covering, by way of example: (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 Pooling Agreement; (ii)
the Warranting Party's title to the Mortgage Asset and the authority of the
Warranting Party to sell the Mortgage Asset; and (iii) in the case of a Mortgage
Loan, the enforceability of the related Mortgage Note and Mortgage, the
existence of title insurance insuring the lien priority of the related Mortgage,
the payment status of the Mortgage Loan, and the delivery of all documents
required to be delivered to the related Trustee with respect to the Mortgage
Loan, as contemplated under "--Transfer of Mortgage Assets--Delivery of Mortgage
Loans" above. It is expected that in most cases the Warranting Party will be the
Mortgage Asset Seller; however, the Warranting Party may also be an affiliate of
the Mortgage Asset Seller, the Company or an affiliate of the Company, the
Master Servicer, the Special Servicer or another person acceptable to the
Company. The Warranting Party will be identified in the related Prospectus
Supplement.
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Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will provide that the Master Servicer and/or Trustee will be
required to notify promptly any Warranting Party of any breach of any
representation or warranty made by it in respect of a Mortgage Asset that
materially and adversely affects the interests of the Certificateholders of the
related Certificate Series. If such Warranting Party cannot cure such breach
within a specified period following the date on which it was notified of such
breach, then, unless otherwise provided in the related Prospectus Supplement, it
will be obligated to repurchase such Mortgage Asset from the Trustee at a price
no less than the unpaid principal balance of such Mortgage Asset as of the date
of purchase, together with accrued interest thereon at the related Mortgage Rate
(or, in the case of an Underlying MBS, the related pass-through rate or coupon
rate) to a date on or about the date of purchase and, in the case of a Mortgage
Loan, certain related unreimbursed servicing expenses (in any event, the
"Purchase Price"). If so provided in the related Prospectus Supplement, in lieu
of repurchasing a Mortgage Asset as to which a material breach has occurred, a
Warranty Party will have the option, exercisable upon certain conditions and/or
within a specified period after initial issuance of the related Series, to
replace such Mortgage Asset with one or more other mortgage loans or
mortgage-backed securities that in each case meet the criteria for a "Mortgage
Asset" specified herein, in accordance with standards that will be described in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, this repurchase or substitution obligation will
constitute the sole remedy available to holders of the Certificates of any
Certificate Series or to the related Trustee on their behalf for a breach of
representation and warranty by a Warranting Party, and no other person or entity
will be obligated to purchase or replace a Mortgage Loan if a Warranting Party
defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Asset as of a date prior to the date upon which the
related Certificate Series is issued, and thus may not address events that may
occur following the date as of which they were made. The date as of which the
representations and warranties regarding the Mortgage Assets in any Trust Fund
were made will be specified in the related Prospectus Supplement.
Amendment
Except as otherwise specified in the related Prospectus Supplement, each
Pooling Agreement may be amended by the parties thereto, without the consent of
any of the holders of Certificates covered by such Pooling Agreement: (i) to
cure any ambiguity; (ii) to correct, modify or supplement any provision therein
which may be inconsistent with any other provision therein or to correct any
error; (iii) to add any other provisions with respect to matters or questions
arising thereunder which shall not be inconsistent with the provisions thereof;
(iv) if a REMIC election has been made with respect to any portion of the
related Trust Fund, to relax or eliminate any requirement thereunder imposed by
the provisions of the Code relating to REMICs if such provisions are amended or
clarified such that any such requirement may be relaxed or eliminated; (v) to
relax or eliminate any requirement thereunder imposed by the Securities Act or
the rules thereunder if the Securities Act or such rules are amended or
clarified such that any requirement may be relaxed or eliminated; (vi) if a
REMIC election has been made with respect to any portion of the related Trust
Fund, and if such amendment, as evidenced by an opinion of counsel delivered to
the related Trustee and REMIC Administrator, is reasonably necessary to comply
with any requirements imposed by the Code or any successor or amendatory statute
or any temporary or final regulation, revenue ruling, revenue procedure or other
written official announcement or interpretation relating to federal income tax
laws or any such proposed action which, if made effective, would apply
retroactively to any REMIC created under such Pooling Agreement at least from
the effective date of such amendment, or would be necessary to avoid the
occurrence of a prohibited transaction or to reduce the incidence of any tax
that would arise from any actions taken with respect to the operation of any
REMIC created under such Pooling Agreement; (vii) if a REMIC election has been
made with respect to any portion of the related Trust Fund, to modify, add to or
eliminate certain transfer restrictions relating to Certificates constituting
REMIC Residual Securities; or (viii) for any other purpose; provided that such
amendment of such Pooling Agreement (other than any amendment for any of the
specific purposes described in clause (vi) above) may not, as evidenced by an
opinion of counsel obtained by or delivered to the Trustee, adversely affect in
any material respect the interests of any holder of Certificates of
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the related Certificate Series without such holder's consent; and provided
further that any amendment covered solely by clause (viii) above may not
adversely affect the then current rating assigned to any Class of Certificates
of the related Certificate Series by any Rating Agency, as evidenced by written
confirmation to such effect from each applicable Rating Agency obtained by or
delivered to the Trustee.
Except as otherwise specified in the related Prospectus Supplement, each
Pooling Agreement may also be amended by the parties thereto, with the consent
of the holders of Certificates of the respective Classes affected thereby
evidencing, in the aggregate, not less than 66-2/3% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights allocated
to such Classes, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Pooling Agreement or of
modifying in any manner the rights of the holders of Certificates covered by
such Pooling Agreement, except that no such amendment of a Pooling Agreement may
(i) reduce in any manner the amount of, or delay the timing of, payments
received on the related Mortgage Assets which are required to be distributed on
a Certificate of the related Certificate Series without the consent of the
holder of such Certificate, (ii) adversely affect in any material respect the
interests of the holders of any Class of Certificates of the related Certificate
Series in a manner other than as described in the immediately preceding clause
(i) without the consent of the holders of all Certificates of such Class or
(iii) modify the provisions of such Pooling Agreement relating to amendments
thereof without the consent of the holders of all Certificates of the related
Certificate Series then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be required to consent
to any amendment to a Pooling Agreement without having first received an opinion
of counsel to the effect that such amendment or the exercise of any power
granted to any party to such Pooling Agreement or any other specified person in
accordance with such amendment will not result in the imposition of a tax on the
related Trust Fund or cause such Trust Fund (or any designated portion thereof)
to fail to qualify as a REMIC.
Certain Matters Affecting Certificateholders
No Certificateholder will have any right under any Pooling Agreement to
institute any proceeding with respect to such Pooling Agreement unless such
holder previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates of the related
Certificate Series entitled to not less than 25% of the Voting Rights for such
Series have made written request upon the Trustee to institute such proceeding
in its own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity and the Trustee for 60 days after receipt of such request and
indemnity has neglected or refused to institute any such proceeding. However,
the Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by any Pooling Agreement or to institute, conduct or defend any
litigation thereunder or in relation thereto at the request, order or direction
of any of the holders of Certificates of the related Certificate Series, unless
such Certificateholders have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
List of Certificateholders
Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for purposes
of communicating with other holders of Certificates of the same Certificate
Series with respect to their rights under the related Pooling Agreement, the
related Trustee or other specified person will afford such Certificateholders
access during normal business hours to the most recent list of
Certificateholders of that Series held by such person. If such list is as of a
date more than 90 days prior to the date of receipt of such Certificateholders'
request, then such person, if not the registrar for such Certificate Series,
will be required to request from such registrar a current list and to afford
such requesting Certificateholders access thereto promptly upon receipt.
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SERVICING AND ADMINISTRATION OF THE MORTGAGE ASSETS
General
The Mortgage Loans included in any Mortgage Asset Pool will generally be
serviced and administered by the Master Servicer and/or Special Servicer for the
related Series, and the Underlying MBS in any Mortgage Asset Pool will generally
be administered by the Trustee, Master Servicer or Manager for the related
Series. In any event, such servicing and administration will be effected
pursuant to either the related Indenture, the related Pooling Agreement or a
separate servicing and administration agreement or other comparable agreement.
In any event, the agreement(s) pursuant to which the Mortgage Assets included in
any Mortgage Asset Pool are to be serviced and administered, is (are
collectively) herein referred to as an "S&A Agreement".
The provisions of each S&A Agreement will vary depending upon the nature
of the related Mortgage Assets to be serviced and administered thereunder. The
following summaries describe certain provisions that may appear in any S&A
Agreement. The Prospectus Supplement for a Series will describe any provision of
the related S&A Agreement that materially differs from the description thereof
contained in this Prospectus. The summaries herein 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 S&A Agreement for each Series and the description of such
provisions in the related Prospectus Supplement. The Company will provide a copy
of the S&A Agreement (without exhibits) that relates to any Series without
charge upon written request of a holder of a Security of such Series addressed
to it at its principal executive offices specified herein under "The Company".
Collection and Other Servicing Procedures with Respect to Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and the Special Servicer for any Mortgage Asset Pool, directly
or through Sub-Servicers, will each be obligated under the related S&A Agreement
to service and administer the Mortgage Loans in such Mortgage Asset Pool for the
benefit of the related Securityholders, in accordance with applicable law and
further in accordance with the terms of such S&A Agreement, such Mortgage Loans
and any instrument of Credit Support included as part of the related Collateral
or Trust Fund, as the case may be. Subject to the foregoing, the Master Servicer
and the Special Servicer will each have full power and authority to do any and
all things in connection with such servicing and administration that it may deem
necessary and desirable.
As part of its servicing duties, each of the Master Servicer and the
Special Servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans that it
services and will be obligated to follow such collection procedures as it would
follow with respect to mortgage loans that are comparable to such Mortgage Loans
and held for its own account, provided (i) such procedures are consistent with
the terms of the related S&A Agreement and (ii) do not impair recovery under any
instrument of Credit Support included as part of the related Collateral or Trust
Fund, as the case may be. Consistent with the foregoing, the Master Servicer and
the Special Servicer will each be permitted, in its discretion, unless otherwise
specified in the related Prospectus Supplement, to waive any Prepayment Premium,
late payment charge or other charge in connection with any Mortgage Loan.
The Master Servicer and the Special Servicer for any Mortgage Asset Pool,
either separately or jointly, directly or through Sub-Servicers, will also be
required to perform as to the Mortgage Loans in such Mortgage Asset Pool various
other customary functions of a servicer of comparable loans, including
maintaining escrow or impound accounts, if required under the related S&A
Agreement, for payment of taxes, insurance premiums, ground rents and similar
items, or otherwise monitoring the timely payment of those items; attempting to
collect delinquent payments; supervising foreclosures; negotiating
modifications; conducting property inspections on a periodic or other basis;
managing (or overseeing the management of) Mortgaged Properties acquired on
behalf of the Securityholders of the related Series through foreclosure,
deed-in-lieu of foreclosure or otherwise (each, an "REO Property"); and
maintaining servicing records relating
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to such Mortgage Loans. The related Prospectus Supplement will specify when and
the extent to which servicing of a Mortgage Loan is to be transferred from the
Master Servicer to the Special Servicer. In general, and subject to the
discussion in the related Prospectus Supplement, a Special Servicer will be
responsible for the servicing and administration of: (i) Mortgage Loans that are
delinquent in respect of a specified number of scheduled payments; (ii) Mortgage
Loans as to which the related borrower has entered into or consented to
bankruptcy, appointment of a receiver or conservator or similar insolvency
proceeding, or the related borrower has become the subject of a decree or order
for such a proceeding which shall have remained in force undischarged or
unstayed for a specified number of days; and (iii) REO Properties. If so
specified in the related Prospectus Supplement, the related S&A Agreement also
may provide that if a default on a Mortgage Loan has occurred or, in the
judgment of the related Master Servicer, a payment default is reasonably
foreseeable, the related Master Servicer may elect to transfer the servicing
thereof, in whole or in part, to the related Special Servicer. Unless otherwise
provided in the related Prospectus Supplement, when the circumstances no longer
warrant a Special Servicer's continuing to service a particular Mortgage Loan
(e.g., the related borrower is paying in accordance with the forbearance
arrangement entered into between the Special Servicer and such borrower), the
Master Servicer will resume the servicing duties with respect thereto. If and to
the extent provided in the related S&A Agreement and described in the related
Prospectus Supplement, a Special Servicer may perform certain limited duties in
respect of Mortgage Loans for which the Master Servicer is primarily responsible
(including, if so specified, performing property inspections and evaluating
financial statements); and a Master Servicer may perform certain limited duties
in respect of any Mortgage Loan for which the Special Servicer is primarily
responsible (including, if so specified, continuing to receive payments on such
Mortgage Loan (including amounts collected by the Special Servicer), making
certain calculations with respect to such Mortgage Loan and making remittances
and preparing certain reports to the related Trustee and/or Securityholders with
respect to such Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Mortgage Loans under any applicable
instrument of Credit Support. See "Description of Credit Support".
A mortgagor's failure to make required Mortgage Loan payments may mean
that operating income is insufficient to service the mortgage debt, or may
reflect the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related Mortgaged Property. In general, the related Special Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the mortgagor if cure is likely, inspect
the related Mortgaged Property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the Special
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Special Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a Mortgaged Property in
lieu of foreclosure) on behalf of the Securityholders of the related Series 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. If a mortgagor files a bankruptcy petition, the Special Servicer may
not be permitted to accelerate the maturity of the Mortgage Loan or to foreclose
on the related Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws".
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. In general, the Master Servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectability of, the related Mortgage
Loan. Any fee collected by the Master Servicer for processing such request will
be retained by the Master Servicer as additional servicing compensation.
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In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under the
Senior Lien for the protection of the related Trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
also will be required to notify any superior lienholder in writing of the
existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the mortgagor or the Mortgaged Property by
the superior lienholder. If the Master Servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related Senior Lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related Mortgaged Property sold or foreclosed,
then, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and the Special Servicer will each be required to take whatever
actions are necessary to protect the interests of the related Securityholders
and/or to preserve the security of the related Mortgage Loan, subject to the
application of the REMIC Provisions (as defined herein). Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or Special
Servicer, as applicable, will be required to advance the necessary funds to cure
the default or reinstate the Senior Lien, if such advance is in the best
interests of the related Securityholders and the Master Servicer or Special
Servicer, as applicable, determines such advances are recoverable out of
payments on or proceeds of the related Mortgage Loan.
Sub-Servicers
A Master Servicer or Special Servicer may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that, unless otherwise
specified in the related Prospectus Supplement, such Master Servicer or Special
Servicer will remain obligated under the related S&A Agreement. Unless otherwise
provided in the related Prospectus Supplement, each sub-servicing agreement
between a Master Servicer or Special Servicer, as applicable, and a Sub-Servicer
(a "Sub-Servicing Agreement") must provide for servicing of the applicable
Mortgage Loans consistent with the related S&A Agreement. The Master Servicer
and Special Servicer in respect of any Mortgage Asset Pool will each be required
to monitor the performance of Sub-Servicers retained by it and will have the
right to remove a Sub-Servicer retained by it at any time it considers such
removal to be in the best interests of the related Securityholders.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer will be solely liable for all fees owed by it to
any Sub-Servicer, irrespective of whether the Master Servicer's or Special
Servicer's compensation pursuant to the related S&A Agreement is sufficient to
pay such fees. Each Sub-Servicer will be reimbursed by the Master Servicer or
Special Servicer, as the case may be, that retained it for certain expenditures
which it makes, generally to the same extent such Master Servicer or Special
Servicer would be reimbursed under an S&A Agreement. See "--Collection Account"
and "--Servicing Compensation and Payment of Expenses".
Collection of Payments on Underlying MBS
Unless otherwise specified in the related Prospectus Supplement, the
Underlying MBS, if any, included in the Mortgage Asset Pool with respect to any
Series will be registered in the name of the related Trustee. All distributions
thereon will be made either directly to the Trustee or to an MBS Administrator
other than the Trustee, if any. Unless otherwise specified in the related
Prospectus Supplement, the related S&A Agreement will provide that, if the
related Trustee or such other MBS Administrator, as applicable, has not received
a distribution with respect to any Underlying MBS by a specified day after the
date on which such distribution was due and payable pursuant to the terms of
such Underlying MBS, the Trustee or such other MBS Administrator, as applicable,
is to request the paying agent of such Underlying MBS to make such payment as
promptly as possible and legally permitted and may take such legal action in
such regard as the
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related Trustee or such other MBS Administrator, as applicable, deems
appropriate under the circumstances, including the prosecution of any claims in
connection therewith. The reasonable legal fees and expenses incurred by the
related Trustee or such other MBS Administrator, as applicable, in connection
with the prosecution of any such legal action will be reimbursable thereto (with
interest) out of the related Collateral or Trust Fund, as the case may be. In
the event that the related Trustee or such other MBS Administrator, as
applicable, has reason to believe that the proceeds of any such legal action may
be insufficient to reimburse it for its projected legal fees and expenses (with
interest), the related Trustee or such other MBS Administrator, as applicable,
will notify the Securityholders of the affected Series that it is not obligated
to pursue any such available remedies unless adequate indemnity for its legal
fees and expenses is provided by such Securityholders.
Collection Account
General. The related Trustee and any related Master Servicer, Special
Servicer and/or Manager, as applicable, will establish and maintain, or cause to
be established and maintained, one or more Collection Accounts in respect of
each Series, which will be established so as to comply with the standards of
each Rating Agency that has rated any one or more Classes of Securities of the
related Series. A Collection Account may be maintained as an interest-bearing or
a noninterest-bearing account and the funds held therein may be invested pending
each succeeding Distribution Date in United States government securities and
other obligations that are acceptable to each Rating Agency that has rated any
one or more Classes of Securities of the related Series ("Permitted
Investments"). Unless otherwise provided in the related Prospectus Supplement,
any interest or other income earned on funds in a Collection Account will be
paid to the related Trustee, Master Servicer, Special Servicer and/or Manager,
as applicable, as additional compensation. A Collection Account may be
maintained with the related Trustee, Master Servicer, Special Servicer, Manager
or Mortgage Asset Seller or with a depository institution that is an affiliate
of any of the foregoing or of the Company, provided that it complies with
applicable Rating Agency standards. If permitted by the applicable Rating Agency
or Agencies, a Collection Account may contain funds relating to more than one
series of mortgage-backed securities and may contain other funds representing
payments on mortgage assets owned by the related Master Servicer or Special
Servicer or serviced by either on behalf of others.
Deposits. Unless otherwise provided in the related Indenture, the related
Pooling Agreement and/or a separate S&A Agreement and described in the related
Prospectus Supplement, the following payments and collections in respect of the
Underlying Assets included as part of the Collateral or Trust Fund, as the case
may be, for any Series, that are received or made by the Trustee, the Master
Servicer, the Special Servicer, the MBS Administrator or the Manager, as
applicable, subsequent to the related Cut-off Date (other than payments due on
or before the related Cut-off Date), are to be deposited in the Collection
Account for such Series within a certain period following receipt (in the case
of collections on or in respect of the Underlying Assets) or otherwise as
provided in the related Indenture, the related Pooling Agreement and/or a
separate S&A Agreement:
(i) if the related Mortgage Asset Pool includes Mortgage Loans, all
payments on account of principal, including principal prepayments, on such
Mortgage Loans;
(ii) if the related Mortgage Asset Pool includes Mortgage Loans, all
payments on account of interest on such Mortgage Loans, including any default
interest collected, in each case net of any portion thereof retained by the
Master Servicer or the Special Servicer as its servicing compensation or as
compensation to the Trustee;
(iii) if the related Mortgage Asset Pool includes Mortgage Loans, all
proceeds received under any hazard, title or other insurance policy that
provides coverage with respect to a Mortgaged Property or the related Mortgage
Loan or in connection with the full or partial condemnation of a Mortgaged
Property (other than proceeds applied to the restoration of the property or
released to the related borrower) ("Insurance Proceeds" and "Condemnation
Proceeds", respectively) and all other amounts received and retained in
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connection with the liquidation of defaulted Mortgage Loans or property acquired
in respect thereof, by foreclosure or otherwise (such amounts, together with
those amounts listed in clause (vii) below, "Liquidation Proceeds"), together
with the net operating income (less reasonable reserves for future expenses)
derived from the operation of any Mortgaged Properties acquired on behalf of the
related Securityholders through foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for such Series;
(v) if the related Mortgage Asset Pool includes Mortgage Loans, any
advances made with respect to delinquent scheduled payments of principal and
interest on such Mortgage Loans;
(vi) any amounts paid under any instrument or drawn from any fund that
constitutes a Cash Flow Arrangement for such Series;
(vii) if the related Mortgage Asset Pool includes Mortgage Loans, all
proceeds of the purchase of any such Mortgage Loan, or property acquired in
respect thereof, by the Company, any Mortgage Asset Seller or any other
specified person as described under "Description of the
Indentures--Representations and Warranties with respect to Mortgage Assets;
Repurchases and Other Remedies" and "Description of the Pooling
Agreements--Representations and Warranties with respect to Mortgage Assets;
Repurchases and Other Remedies", all proceeds of the purchase of any defaulted
Mortgage Loan as described under "--Realization Upon Defaulted Mortgage Loans",
and all proceeds of any such Mortgage Loan purchased as described under
"Description of the Underlying Assets--Substitution, Acquisition, Release and
Repurchase of Mortgage Assets" and "Description of the Securities--Termination
of a Trust Fund";
(viii) if the related Mortgage Asset Pool includes Mortgage Loans, and to
the extent that any such item does not constitute additional servicing
compensation to the Master Servicer or the Special Servicer and is not otherwise
retained by the Company or another specified person, any payments on account of
modification or assumption fees, late payment charges, Prepayment Premiums or
Equity Participations with respect to the Mortgage Loans;
(ix) if the related Mortgage Asset Pool includes Mortgage Loans, all
payments required to be deposited in the Collection Account with respect to any
deductible clause in any blanket insurance policy as described under "--Hazard
Insurance Policies";
(x) any amount required to be deposited by the Master Servicer, the
Special Servicer, the Manager or the Trustee in connection with losses realized
on investments for the benefit of the Master Servicer, the Special Servicer, the
Manager or the Trustee, as the case may be, of funds held in the Collection
Account;
(xi) if the related Mortgage Asset Pool includes Underlying MBS, all
payments on such Underlying MBS;
(xii) if the related Mortgage Asset Pool includes Underlying MBS, all
proceeds of the purchase of any such Underlying MBS by the Company or any other
specified person as described under "Description of the
Indentures--Representations and Warranties with respect to Mortgage Assets;
Repurchases and Other Remedies" and "Description of the Pooling
Agreements--Representations and Warranties with respect to Mortgage Assets;
Repurchases and Other Remedies" and all proceeds of any such Underlying MBS
purchased as described under "Description of the Underlying
Assets--Substitution, Acquisition, Release and Repurchase of Mortgage Assets"
and "Description of the Securities--Termination of a Trust Fund";
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(xiii) any other amounts received on or in respect of the Mortgage Assets
required to be deposited in the Collection Account as provided in the related
Indenture, the related Pooling Agreement or any separate S&A Agreement and
described in the related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Indenture, the
related Pooling Agreement or any separate S&A Agreement and described in the
related Prospectus Supplement, a Trustee, Master Servicer, Special Servicer or
Manager, as applicable, in respect of any Series may make withdrawals from the
Collection Account for such Series for any of the following purposes:
(i) to make distributions to the related Securityholders on each Payment
Date or Distribution Date, as applicable;
(ii) if the related Mortgage Asset Pool includes Mortgage Loans, then as
and to the extent, and from the sources, described in the related Prospectus
Supplement, to pay the related Master Servicer or Special Servicer any servicing
fees to which it is entitled in respect of such Mortgage Loans and that were not
previously retained thereby;
(iii) if the related Mortgage Asset Pool includes Mortgage Loans, to
reimburse the related Master Servicer, the related Special Servicer or any other
specified person for unreimbursed advances of delinquent scheduled payments of
principal and interest made by it, and certain unreimbursed servicing expenses
incurred by it, with respect to such Mortgage Loans and any properties acquired
in respect thereof, such reimbursement to be made out of amounts that represent
late payments collected on the particular Mortgage Loans, Liquidation Proceeds,
Insurance Proceeds and Condemnation Proceeds collected on the particular
Mortgage Loans and properties, and net operating income collected on the
particular properties, with respect to which such advances were made or such
expenses were incurred or out of amounts drawn under any form of Credit Support
with respect to such Mortgage Loans and properties, or if in the judgment of the
Master Servicer, the Special Servicer or such other person, as applicable, such
advances and/or expenses will not be recoverable from such amounts, such
reimbursement to be made from amounts collected on other Mortgage Assets in the
same Mortgage Asset Pool or, if and to the extent so provided by the related S&A
Agreement and described in the related Prospectus Supplement, only from that
portion of amounts collected on such other Mortgage Assets that is otherwise
distributable on one or more Classes of Subordinate Securities of such Series;
(iv) if and to the extent, and from the sources, described in the related
Prospectus Supplement, to pay the related Master Servicer, the related Special
Servicer or any other specified person interest accrued on outstanding advances
and servicing expenses, if any, described in clause (iii) above made or incurred
by it;
(v) to reimburse the Company, the related Trustee, any related Master
Servicer, Special Servicer, REMIC Administrator or Manager and/or any of their
respective directors, officers, employees and agents, as the case may be, for
certain expenses, costs and liabilities incurred thereby, as and to the extent
described under "--Certain Matters Regarding the Master Servicer, the Special
Servicer, the REMIC Administrator, the Manager and the Company" below and
"Description of the Securities--The Trustee--Certain Matters Regarding the
Trustee";
(vi) if and to the extent, and from the sources, described in the related
Prospectus Supplement, to pay the fees of the related Trustee and of any related
REMIC Administrator, Manager, provider of Credit Support, obligor on a Cash Flow
Agreement and General Administrator;
(vii) if and to the extent, and from the sources, described in the related
Prospectus Supplement, to reimburse prior draws on any fund or instrument
constituting Credit Support in respect of the related Series;
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(viii) if so specified in the related Prospectus Supplement, to pay the
related Master Servicer, the related Special Servicer, the related Manager
and/or the related Trustee, as appropriate, interest and investment income
earned in respect of amounts held in the Collection Account as additional
compensation;
(ix) if a Mortgage Asset Pool includes Mortgage Loans, to pay any
servicing expenses not otherwise required to be advanced by the related Master
Servicer, the related Special Servicer or any other specified person, including
for environmental site assessments performed with respect to Mortgaged
Properties that constitute security for defaulted Mortgage Loans, and for any
containment, clean-up or remediation of hazardous wastes and materials present
on such Mortgaged Properties, as described under "--Realization Upon Defaulted
Mortgage Loans";
(x) if one or more elections have been made to treat the related
Collateral or Trust Fund, as the case may be, or designated portions thereof, as
a REMIC, to pay any federal, state or local taxes imposed on such REMIC or its
assets or transactions, as and to the extent described under "Material Federal
Income Tax Consequences--REMICs--Prohibited Transactions Tax and Other Taxes";
(xi) to pay for the cost of various opinions of counsel obtained pursuant
to the related S&A Agreement for the benefit of Securityholders or otherwise in
connection with the servicing or administration of the related Mortgage Assets;
(xii) to make any other withdrawals permitted by the related Indenture,
the related Pooling Agreement or a separate related S&A Agreement and described
in the related Prospectus Supplement; and
(xiii) to clear and terminate the Collection Account upon the
release/termination of the related Collateral or Trust Fund, as the case may be.
Modifications, Waivers and Amendments of Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and the Special Servicer may each agree to modify, waive or
amend any term of any Mortgage Loan serviced by it in a manner consistent with
the applicable servicing standard to be described in the related Prospectus
Supplement; provided that the modification, waiver or amendment (i) will not
affect the amount or timing of any scheduled payments of principal or interest
on the Mortgage Loan, and (ii) will not, in the judgment of the Master Servicer
or the Special Servicer, as the case may be, materially impair the security for
the Mortgage Loan or reduce the likelihood of timely payment of amounts due
thereon. Unless otherwise provided in the related Prospectus Supplement, the
Special Servicer also may agree to any other modification, waiver or amendment
if, in its judgment (i) a material default on the Mortgage Loan has occurred or
a payment default is imminent, (ii) such modification, waiver or amendment is
reasonably likely to produce a greater recovery with respect to the Mortgage
Loan, taking into account the time value of money, than would liquidation and
(iii) such modification, waiver or amendment will not adversely affect the
coverage under any applicable instrument of Credit Support.
Realization Upon Defaulted Mortgage Loans
If a default on a Mortgage Loan has occurred or, in the Special Servicer's
judgment, a payment default is imminent, the Special Servicer, on behalf of the
Trustee, may at any time institute foreclosure proceedings, exercise any power
of sale contained in the related Mortgage, obtain a deed in lieu of foreclosure,
or otherwise acquire title to the related Mortgaged Property and/or other
collateral, by operation of law or otherwise. Unless otherwise specified in the
related Prospectus Supplement, the Special Servicer may not, however, acquire
title to any Mortgaged Property, have a receiver of rents appointed with respect
to any Mortgaged Property or take any other action with respect to any Mortgaged
Property that would cause the Trustee, for the benefit of the related Series of
Securityholders, or any other person associated with the related Series of
Securities, to be considered to hold title to, to be a "mortgagee-in-possession"
of, or to be an "owner" or an "operator" of such
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Mortgaged Property within the meaning of certain federal environmental laws,
unless the Special Servicer has previously received a report prepared by a
person who regularly conducts environmental audits (the expense of which report
will constitute a reimbursable servicing advance or be payable directly out of
the related Collection Account) and either:
(i) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b)
there are no circumstances or conditions present at the Mortgaged Property
that have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(ii) the Special Servicer, based solely (as to environmental matters
and related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the Mortgaged Property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (i)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value
of money, than not taking such actions. See "Certain Legal Aspects of
Mortgage Loans--Environmental Considerations".
The related S&A Agreement may grant to the Master Servicer, the Special
Servicer, a provider of Credit Support and/or the holder or holders of certain
Classes of Securities of the related Series a right of first refusal to purchase
from the Trustee (in such capacity), at a predetermined price (which, if less
than the Release Price or Purchase Price, as applicable, specified herein, will
be specified in the related Prospectus Supplement), any Mortgage Loan as to
which a specified number of scheduled payments are delinquent or foreclosure is
anticipated. In addition, unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may offer to sell any defaulted Mortgage Loan
if and when the Special Servicer determines, consistent with its normal
servicing procedures, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
Mortgaged Property. In the absence of any such sale, the Special Servicer will
generally be required to proceed against the related Mortgaged Property, subject
to the discussion above.
Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired as part of the Collateral or a Trust Fund
as to which a REMIC election has been made, the Special Servicer, on behalf of
the related Securityholders, will be required to sell the Mortgaged Property
by the end of the third calendar year following the year of acquisition, unless
(i) the Internal Revenue Service (the "IRS") grants an extension of time to sell
such property or (ii) the Trustee receives an opinion of independent counsel to
the effect that the holding of the property on behalf of the related
Securityholders beyond such point in time will not result in the imposition of
a tax on the related REMIC or cause the related REMIC to fail to qualify as a
REMIC under the Code at any time that any related Security is outstanding.
Subject to the foregoing and any other tax-related limitations, the Special
Servicer will generally be required to attempt to sell any Mortgaged Property so
acquired on the same terms and conditions it would if it were the owner. Unless
otherwise provided in the related Prospectus Supplement, if title to any
Mortgaged Property is acquired as part of the Collateral or a Trust Fund as to
which a REMIC election has been made, the Special Servicer will also be required
to ensure that the Mortgaged Property is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times. If title to any Mortgaged Property is acquired on behalf of the related
Securityholders, the Special Servicer may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Special Servicer of its obligation to manage such
Mortgaged Property as required under the related S&A Agreement. Under certain
circumstances, the Special Servicer may be authorized to incur a tax if doing so
would, in the reasonable discretion of the Special Servicer, maximize the net
after-tax proceeds to Securityholders.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate
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amount of reimbursable expenses incurred by the Special Servicer and/or the
Master Servicer in connection with such Mortgage Loan, then, to the extent that
such shortfall is not covered by any instrument or fund constituting Credit
Support, a loss in the amount of such shortfall will be realized. The Special
Servicer and/or the Master Servicer will be entitled to reimbursement out of the
Liquidation Proceeds recovered on any defaulted Mortgage Loan, prior to the
payment or distribution of such Liquidation Proceeds to Securityholders, any and
all amounts that represent unpaid servicing compensation in respect of 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. In addition, if and to the extent set forth in the
related Prospectus Supplement, amounts otherwise payable or distributable on the
Securities may be further reduced by interest payable to the Master Servicer
and/or Special Servicer on such servicing expenses and advances.
With respect to collateral securing a Cooperative Loan, any prospective
purchaser will generally have to obtain the approval of the board of
directors of the relevant Cooperative before purchasing the shares and
acquiring rights under the proprietary lease or occupancy agreement securing
the Cooperative Loan. See "--Certain Legal Aspects of Mortgage
Loans--Foreclosure on Cooperative Shares." This approval is usually based on
the purchaser's income and net worth and numerous other factors. The
necessity of acquiring such approval could limit the number of potential
purchasers for those shares and otherwise limit the Master Servicer's ability
to sell, and realize the value of, those shares.
If any Mortgaged Property suffers damage such that the proceeds, if any,
of the related hazard insurance policy are insufficient to restore fully the
damaged property, neither the Special Servicer nor the Master Servicer will be
required to expend its own funds to effect such restoration unless (and to the
extent not otherwise provided in the related Prospectus Supplement) it
determines (i) that such restoration will increase the proceeds to
Securityholders on liquidation of the Mortgage Loan after reimbursement of the
Special Servicer or the Master Servicer, as the case may be, for its expenses
and (ii) that such expenses will be recoverable by it from related Insurance
Proceeds, Condemnation Proceeds, Liquidation Proceeds and/or amounts drawn on
any instrument or fund constituting Credit Support.
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, if a
Mortgage Asset Pool includes Mortgage Loans, the related S&A Agreement will
require the Master Servicer (or the Special Servicer with respect to Mortgage
Loans serviced thereby) to use reasonable efforts to cause each Mortgage Loan
borrower to maintain a hazard insurance policy that provides for such coverage
as is required under the related Mortgage or, if the Mortgage permits the holder
thereof to dictate to the borrower the insurance coverage to be maintained on
the related Mortgaged Property, such coverage as is consistent with the Master
Servicer's (or Special Servicer's) normal servicing procedures. Unless otherwise
specified in the related Prospectus Supplement, such coverage generally will be
in an amount equal to the lesser of the principal balance owing on such Mortgage
Loan and the replacement cost of the related Mortgaged Property. The ability of
a Master Servicer (or Special 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 concerning covered
losses is furnished by borrowers. All amounts collected by a Master Servicer (or
Special Servicer) under any such policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the borrower in
accordance with the Master Servicer's (or Special Servicer's) normal servicing
procedures and/or to the terms and conditions of the related Mortgage and
Mortgage Note) will be deposited in the related Collection Account. The Master
Servicer (or Special Servicer) may satisfy its obligation to cause each borrower
to maintain such a hazard insurance policy by maintaining a blanket policy
insuring against hazard losses on the Mortgage Loans in a Mortgage Asset Pool.
If such blanket policy contains a deductible clause, the Master Servicer (or
Special Servicer) will be required, in the event of a casualty covered by such
blanket policy, to deposit in the related Collection Account all additional sums
that would have been deposited therein under an individual policy but were not
because of such deductible clause.
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 covering the Mortgaged Properties 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, 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,
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landslides and mudflows), wet or dry rot, vermin and domestic animals.
Accordingly, a Mortgaged Property may not be insured for losses arising from any
such cause unless the related Mortgage specifically requires, or permits the
holder thereof to require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an 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 clauses generally provide 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.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer (or Special Servicer) will determine whether to exercise any right the
Trustee may have under any such provision in a manner consistent with the Master
Servicer's (or Special Servicer's) normal servicing procedures. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or Special
Servicer, as applicable, will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
Mortgaged Property. See "Certain Legal Aspects of Mortgage Loans--Due-on-Sale
and Due-on-Encumbrance Provisions".
Servicing Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a Series will come
from the periodic payment to it of a specified portion of the interest payments
on each Mortgage Loan in the related Mortgage Asset Pool, including Mortgage
Loans serviced by the related Special Servicer. If and to the extent described
in the related Prospectus Supplement, a Special Servicer's primary compensation
with respect to a Series may consist of any or all of the following components:
(i) a specified portion of the interest payments on each Mortgage Loan in the
related Mortgage Asset Pool, whether or not serviced by it; (ii) an additional
specified portion of the interest payments on each Mortgage Loan then currently
serviced by it; and (iii) subject to any specified limitations, a fixed
percentage of some or all of the collections and proceeds received with respect
to each Mortgage Loan which was at any time serviced by it, including Mortgage
Loans for which servicing was returned to the Master Servicer. Insofar as any
portion of the Master Servicer's or Special Servicer's compensation consists of
a specified portion of the interest payments on a Mortgage Loan, such
compensation will generally be based on a percentage of the principal balance of
such Mortgage Loan outstanding from time to time and, accordingly, will decrease
with the amortization of the Mortgage Loan. As additional compensation, a Master
Servicer or Special Servicer may be entitled to retain all or a portion of late
payment charges, Prepayment Premiums, modification fees and other fees collected
from borrowers and any interest or other income that may be earned on funds held
in the related Collection Account. A more detailed description of each Master
Servicer's and Special Servicer's compensation will be provided in the related
Prospectus Supplement. Any Sub-Servicer will receive as its sub-servicing
compensation a portion of the servicing compensation to be paid to the Master
Servicer or Special Servicer that retained such Sub-Servicer.
In addition to amounts payable to any Sub-Servicer, a Master Servicer or
Special Servicer may be required, to the extent provided in the related
Prospectus Supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the servicing and
administration of the related Collateral or Trust Fund, as the case may be,
including, without limitation, payment of the fees and
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disbursements of independent accountants, payment of fees and disbursements of
the Trustee and any custodians appointed thereby and payment of expenses
incurred in connection with distributions and reports to Securityholders.
Certain other expenses, including certain expenses related to Mortgage Loan
defaults and liquidations and, to the extent so provided in the related
Prospectus Supplement, interest on such expenses at the rate specified therein,
may be required to be paid (or reimbursed to a Master Servicer or Special
Servicer) out of collections on the related Mortgage Assets.
Evidence as to Compliance
Unless otherwise specified in the related Prospectus Supplement, if a
Mortgage Asset Pool includes Mortgage Loans, the related S&A Agreement will
provide that on or before a specified date in each year, beginning the first
such date that is at least a specified number of months after the Cut-off Date,
there will be furnished to the related Trustee a report of a firm of independent
certified public accountants stating that (i) it has obtained a letter of
representation regarding certain matters from the management of the Master
Servicer which includes an assertion that the Master Servicer has complied with
certain minimum mortgage loan servicing standards (to the extent applicable to
commercial and multifamily mortgage loans), identified in the Uniform Single
Attestation Program for Mortgage Bankers established by the Mortgage Bankers
Association of America, with respect to the Master Servicer's servicing of
commercial and multifamily mortgage loans during the most recently completed
calendar year, and (ii) on the basis of an examination conducted by such firm in
accordance with standards established by the American Institute of Certified
Public Accountants, such representation is fairly stated in all material
respects, subject to such exceptions and other qualifications that, in the
opinion of such firm, such standards require it to report. In rendering its
report such firm may rely, as to the matters relating to the direct servicing of
commercial and multifamily mortgage loans by Sub-Servicers, upon comparable
reports of firms of independent public accountants rendered on the basis of
examinations conducted in accordance the same standards (rendered within one
year of such report) with respect to those Sub-Servicers. The related S&A
Agreement may provide that additional reports of independent certified public
accountants relating to the servicing of mortgage loans may be required to be
delivered to the Trustee.
If a Mortgage Asset Pool includes Mortgage Loans, the related S&A
Agreement will also provide that, on or before a specified date in each year,
beginning the first such date that is at least a specified number of months
after the related Cut-off Date, the Master Servicer and Special Servicer shall
each deliver to the related Trustee an annual statement signed by one or more
officers of the Master Servicer or the Special Servicer, as the case may be, to
the effect that, to the best knowledge of each such officer, the Master Servicer
or the Special Servicer, as the case may be, has fulfilled in all material
respects its obligations under the related S&A Agreement throughout the
preceding year or, if there has been a material default in the fulfillment of
any such obligation, such statement shall specify each such known default and
the nature and status thereof. Such statement may be provided as a single form
making the required statements as to more than one S&A Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies of
the annual accountants' statement and the annual statement of officers of a
Master Servicer or Special Servicer may be obtained by Securityholders upon
written request to the Trustee.
Certain Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator, the Manager and the Company
Unless otherwise specified in the Prospectus Supplement for a Series, the
related S&A Agreement will permit any related Master Servicer, Special Servicer,
REMIC Administrator or Manager to resign from its obligations in such capacity
thereunder only upon (a) the appointment of, and the acceptance of such
appointment by, a successor thereto and receipt by the Trustee of written
confirmation from each applicable Rating Agency that such resignation and
appointment will not have an adverse effect on the rating assigned by such
Rating Agency to any Class of Securities of such Series or (b) a determination
that such obligations
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are no longer permissible under applicable law or are in material conflict by
reason of applicable law with any other activities carried on by it. No such
resignation will become effective until the Trustee or other successor has
assumed the obligations and duties of the resigning Master Servicer, Special
Servicer, REMIC Administrator or Manager, as the case may be, under the related
S&A Agreement. Each Master Servicer, Special Servicer and, if it receives
distributions on Underlying MBS, Manager for a Mortgage Asset Pool will be
required to maintain a fidelity bond and errors and omissions policy or their
equivalent that provides coverage against losses that may be sustained as a
result of an officer's or employee's misappropriation of funds or errors and
omissions, subject to certain limitations as to amount of coverage, deductible
amounts, conditions, exclusions and exceptions permitted by the related S&A
Agreement.
Unless otherwise specified in the related Prospectus Supplement, each S&A
Agreement will further provide that none of the Company (as depositor of the
related Trust Fund, if applicable), any related Master Servicer, Special
Servicer, REMIC Administrator or Manager, or any director, officer, employee or
agent of any of them will be under any liability to the related Securityholders
for any action taken, or not taken, in good faith pursuant to such S&A Agreement
or for errors in judgment; provided, however, that no such person or entity will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of
obligations or duties thereunder or by reason of reckless disregard of such
obligations and duties. Unless otherwise specified in the related Prospectus
Supplement, each S&A Agreement will further provide that the Company (as
depositor of the related Trust Fund, if applicable), any related Master
Servicer, Special Servicer, REMIC Administrator and Manager, and any director,
officer, employee or agent of any of them will be entitled to indemnification
out of the related Collateral or Trust Fund, as the case may be, against any
loss, liability or expense incurred in connection with any legal action that
relates to such S&A Agreement or the related Series; provided, however, that
such indemnification will not extend to any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or gross negligence in the
performance of obligations or duties under such S&A Agreement, or by reason of
reckless disregard of such obligations or duties. In addition, each S&A
Agreement will provide that neither the Company (as depositor of the related
Trust Fund, if applicable) nor any related Master Servicer, Special Servicer,
REMIC Administrator or Manager will be under any obligation to appear in,
prosecute or defend any legal action that is not incidental to its respective
responsibilities under the S&A Agreement and that in its opinion may involve it
in any expense or liability. However, any such party may be permitted, in the
exercise of its discretion, to undertake any such action that it may deem
necessary or desirable with respect to the enforcement and/or protection of the
rights and duties of the parties to the S&A Agreement and the interests of the
related Series of Securityholders 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 related Series of Securityholders, and
the Company (as depositor of the related Trust Fund, if applicable), the
Master Servicer, the Special Servicer, the REMIC Administrator or the Manager,
as the case may be, will be entitled to charge the related Collection Account
therefor.
Any person into which a Master Servicer, a Special Servicer, a REMIC
Administrator, a Manager or the Company may be merged or consolidated, or any
person resulting from any merger or consolidation to which a Master Servicer, a
Special Servicer, a REMIC Administrator, a Manager or the Company is a party, or
any person succeeding to the business of a Master Servicer, a Special Servicer,
a REMIC Administrator, a Manager or the Company, will be the successor of the
Master Servicer, the Special Servicer, the REMIC Administrator, the Manager or
the Company (as depositor of the related Trust Fund, if applicable), as the
case may be, under the related S&A Agreement.
Unless otherwise specified in the related Prospectus Supplement, a REMIC
Administrator will be entitled to perform any of its duties under the related
S&A Agreement either directly or by or through agents or attorneys, and the
REMIC Administrator will not be responsible for any willful misconduct or gross
negligence on the part of any such agent or attorney appointed by it with due
care.
S&A Events of Default
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Unless otherwise provided in the Prospectus Supplement for any Series,
"S&A Events of Default" under the related S&A Agreement will include, without
limitation, (i) any failure by a Master Servicer or a Manager to distribute or
cause to be distributed to the Securityholders of such Series, or to remit to
the related Trustee for distribution to such Securityholders, any amount
required to be so distributed or remitted, which failure continues unremedied
for five days after written notice thereof has been given to the Master Servicer
or the Manager, as the case may be, by any other party to the related S&A
Agreement, or to the Master Servicer or the Manager, as the case may be, with a
copy to each other party to the related S&A Agreement, by the holders of
Securities representing not less than 25% (or such other percentage specified in
the related Prospectus Supplement) of the Voting Rights for (or, in the case of
most Bond Series, the aggregate Bond Principal Amount of) such Series; (ii) any
failure by a Special Servicer to remit to the related Master Servicer or
Trustee, as applicable, any amount required to be so remitted, which failure
continues unremedied for five days after written notice thereof has been given
to the Special Servicer by any other party to the related S&A Agreement, or to
the Special Servicer, with a copy to each other party to the related S&A
Agreement, by the holders of Securities representing not less than 25% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for (or, in the case of most Bond Series, the aggregate Bond Principal
Amount of) such Series; (iii) any failure by a Master Servicer, a Special
Servicer or a Manager duly to observe or perform in any material respect any of
its other covenants or obligations under the related S&A Agreement, which
failure continues unremedied for sixty days after written notice thereof has
been given to the Master Servicer, the Special Servicer or the Manager, as the
case may be, by any other party to the related S&A Agreement, or to the Master
Servicer, the Special Servicer or the Manager, as the case may be, with a copy
to each other party to the related S&A Agreement, by the holders of Securities
representing not less than 25% (or such other percentage specified in the
related Prospectus Supplement) of the Voting Rights for (or, in the case of most
Bond Series, the aggregate Bond Principal Amount of) such Series; (iv) any
failure by a REMIC Administrator duly to observe or perform in any material
respect any of its covenants or obligations under the related S&A Agreement,
which failure continues unremedied for sixty days after written notice thereof
has been given to the REMIC Administrator by any other party to the related S&A
Agreement, or to the REMIC Administrator, with a copy to each other party to the
related S&A Agreement, by the holders of Securities representing not less than
25% (or such other percentage specified in the related Prospectus Supplement) of
the Voting Rights for (or, in the case of most Bond Series, the aggregate Bond
Principal Amount of) such Series; and (v) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings in respect of or relating to a Master Servicer, a Special Servicer,
a Manager or a REMIC Administrator, and certain actions by or on behalf of any
such party indicating its insolvency or inability to pay its obligations.
Material variations to the foregoing S&A Events of Default (other than to add
thereto or shorten cure periods or eliminate notice requirements) will be
specified in the related Prospectus Supplement. S&A Events of Default and Issuer
Events of Default are collectively referred to herein as "Events of Default".
Rights Upon S&A Event of Default
If an S&A Event of Default occurs with respect to a Master Servicer, a
Special Servicer, a Manager or a REMIC Administrator (other than the Trustee)
under any S&A Agreement, then, in each and every such case, so long as the S&A
Event of Default remains unremedied, and unless otherwise specified in the
related Prospectus Supplement, the Company (or, in the case of a Bond Series,
the Issuer) or the Trustee for the related Series will be authorized, and at the
direction of the holders of Securities of the related Series representing more
than 50% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for (or, in the case of most Bond Series, the
aggregate Bond Principal Amount of) such Series, the Trustee will be required,
to terminate all of the rights and obligations of the defaulting party as Master
Servicer, Special Servicer, MBS Administrator or REMIC Administrator, as
applicable, under the S&A Agreement, whereupon the Trustee (except under the
circumstances contemplated in the next paragraph) will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as Master
Servicer, Special Servicer, Manager or REMIC Administrator, as applicable, under
the S&A Agreement (except that if the defaulting party is required to make
advances thereunder regarding delinquent Mortgage Loans, but the Trustee is
prohibited by law from obligating itself to make such advances, or if the
related Prospectus
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Supplement so specifies, the Trustee will not be obligated to make such
advances) and will be entitled to similar compensation arrangements. Unless
otherwise specified in the related Prospectus Supplement, if the Trustee is
unwilling or unable so to act, it may (or, at the written request of
Securityholders of the related Series entitled to not less than 51% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such Series, it will be required to) appoint, or petition a court of
competent jurisdiction to appoint, a loan servicing institution or other
appropriate entity that (unless otherwise provided in the related Prospectus
Supplement) is acceptable to each applicable Rating Agency to act as successor
to the Master Servicer, Special Servicer, Manager or REMIC Administrator, as the
case may be, under the S&A Agreement. Pending such appointment, the Trustee will
be obligated to act in such capacity.
Notwithstanding the foregoing, if the same entity is acting as both
Trustee and REMIC Administrator, it may be removed in both such capacities as
described under "Description of the Securities--The Trustee--Resignation and
Removal of the Trustee".
DESCRIPTION OF CREDIT SUPPORT
General
Credit Support may be provided with respect to one or more Classes of the
Securities of any Series or with respect to the related Mortgage Assets. Credit
Support may be in the form of a letter of credit, the subordination of one or
more other Classes of Securities of such Series or, in the case of a Bond
Series, the subordination of the Issuer's equity (if any) in the related
Collateral, the use of a surety bond, an insurance policy or a guarantee, the
establishment of one or more reserve funds, or any combination of the foregoing.
If and to the extent so provided in the related Prospectus Supplement, any of
the foregoing forms of Credit Support may provide credit enhancement for more
than one Series.
The Credit Support may not provide protection against all risks of loss
and will not guarantee payment to Offered Securityholders of all amounts to
which they are entitled under the related Indenture or Pooling Agreement, as
applicable. If losses or shortfalls occur that exceed the amount covered by the
related Credit Support or that are of a type not covered by such Credit Support,
Offered Securityholders will bear their allocable share of deficiencies.
Moreover, if a form of Credit Support covers the Offered Securities of more than
one Series and losses on the related Mortgage Assets exceed the amount of such
Credit Support, it is possible that the holders of Offered Securities of one (or
more) such Series will be disproportionately benefited by such Credit Support to
the detriment of the holders of Offered Securities of one (or more) other such
Series.
If Credit Support is provided with respect to one or more Classes of
Securities of a Series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) 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 (iv) the material
provisions relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor, if
any, under any instrument of Credit Support. See "Risk Factors--Credit Support
Limitations".
Subordinate Securities and Issuer's Equity
If so specified in the related Prospectus Supplement, one or more Classes
of Securities of a Series may be Subordinate Securities. To the extent specified
in the related Prospectus Supplement, the rights of the holders of Subordinate
Securities to receive payments or distributions from the Collection Account on
any Payment Date or Distribution Date, as the case may be, will be subordinated
to the corresponding rights of the holders of Senior Securities. If so provided
in the related Prospectus Supplement, the subordination of a
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Class of Securities may apply only in the event of certain types of losses or
shortfalls. The related Prospectus Supplement will set forth information
concerning the method and amount of subordination provided by a Class or Classes
of Subordinate Securities in a Series and the circumstances under which such
subordination will be available.
If the Mortgage Assets that constitute Collateral for any Bond Series or
the Trust Fund for any Certificate Series are divided into separate groups, each
supporting a separate Class or Classes of Securities of the related Series,
Credit Support may be provided by cross-support provisions requiring that
payments or distributions be made on Senior Securities primarily relating to one
group of such Mortgage Assets prior to distributions on Subordinate Securities
primarily relating to a different group of such Mortgage Assets. The Prospectus
Supplement for a Series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
In the case of a Bond Series, the related Issuer's equity (if any) in the
Collateral for such Series may be subordinated in the same manner as a Class of
Subordinate Securities, and similar type information will be provided as to such
subordination.
Insurance or Guarantees with Respect to Mortgage Loans
If so provided in the Prospectus Supplement for a Series of Securities,
Mortgage Loans included as part of the related Collateral or Trust Fund will be
covered for certain default risks by insurance policies or guarantees. The
related Prospectus Supplement will describe the nature of such default risks and
the extent of such coverage.
Letter of Credit
If so provided in the Prospectus Supplement for a Series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain Classes
thereof will be covered by one or more letters of credit, issued by a bank or
other financial institution specified in such Prospectus Supplement (the "Letter
of Credit Bank"). Under a letter of credit, the Letter of Credit 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 some or
all of the related Mortgage Assets on the related Cut-off Date or of the initial
aggregate Outstanding Principal of one or more Classes of Securities. If so
specified in the related Prospectus Supplement, the letter of credit may permit
draws only in the event of 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 Letter of
Credit Bank under the letter of credit for any Series will expire at the earlier
of the date specified in the related Prospectus Supplement or the
release/termination of the related Collateral or Trust Fund, as the case may be.
Certificate Insurance and Surety Bonds
If so provided in the Prospectus Supplement for a Series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain Classes
thereof will be covered by insurance policies or surety bonds provided by one or
more insurance companies or sureties. Such instruments may cover, with respect
to one or more Classes of Securities of the related Series, timely payments or
distributions of interest and/or payments or distributions of principal on the
basis of a schedule of principal payments or distributions set forth in or
determined in the manner specified in the related Prospectus Supplement. The
related Prospectus Supplement will describe any limitations on the draws that
may be made under any such instrument.
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Reserve Funds
If so provided in the Prospectus Supplement for a Series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain Classes
thereof will be covered (to the extent of available funds) 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 specified in
such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the reserve fund for a Series may also be funded over time by a
specified amount of certain collections received on the related Mortgage Assets.
Amounts on deposit in any reserve fund for a Series will be applied for
the purposes, in the manner, and to the extent specified in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement,
reserve funds may be established to provide protection only against certain
types of losses and shortfalls. Following each Payment Date or Distribution
Date, as applicable, for a Series, amounts in any reserve fund for such Series
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.
If so specified in the related Prospectus Supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
Series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related Master Servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a Certificate Series will not be a part of the related
Trust Fund unless otherwise specified in the related Prospectus Supplement.
Credit Support with Respect to MBS
If so provided in the Prospectus Supplement for a Series, any Underlying
MBS included as part of the related Collateral or Trust Fund and/or the related
mortgage loans underlying such Underlying MBS may be covered by one or more of
the types of Credit Support described herein. The related Prospectus Supplement
will specify, as to each such form of Credit Support, the information indicated
above with respect thereto, to the extent such information is material and
available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by liens on commercial and multifamily
residential properties located in the United States and security interests in
Cooperative Shares with respect to such types of properties. Because such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete, to reflect the laws
of any particular state, or to encompass the laws of all states in which the
security for the Mortgage Loans (or mortgage loans underlying any Underlying
MBS) is situated. Accordingly, the summaries are qualified in their entirety
by reference to the applicable laws of those states. See "Description of the
Trust Funds--Mortgage Loans". If a significant percentage of Mortgage Loans
(or mortgage loans underlying any Underlying MBS), by balance, are secured by
properties in a particular state, relevant state laws, to the extent they vary
materially from this discussion, will be discussed in the Prospectus
Supplement. For purposes of the following discussion, "Mortgage Loan" includes
a real estate loan underlying an Underlying MBS.
General
Except as described below with respect to Cooperative Loans (see
"--Cooperative Loans" below), each Mortgage Loan will be evidenced by a note or
bond and secured by an instrument granting a security interest in real
property, which may be a mortgage, deed of trust or a deed to secure debt,
depending upon the prevailing practice and law in the state in which the
related Mortgaged Property is located. Mortgages, deeds of trust and deeds
to secure debt are herein collectively referred to as "mortgages". A mortgage
creates a lien upon, or grants a title interest in, the real property covered
thereby, and represents
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the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
Types of Mortgage Instruments
There are two parties to a mortgage: 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
borrower), a trustee to whom the real property is conveyed, and a beneficiary
(the lender) for whose benefit the conveyance is made. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust
and generally with a power of sale, to the trustee to secure repayment of the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties, pursuant to which the borrower, or grantor, conveys title to the
real property to the grantee, or lender, generally with a power of sale, until
such time as the debt is repaid. In a case where the borrower 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 borrower.
At origination of a mortgage loan involving a land trust, the borrower may
execute a separate undertaking to make payments on the mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
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 related instrument, the law of the state in which
the real property is located, certain federal laws and, in some deed of trust
transactions, the directions of the beneficiary.
Leases and Rents
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower 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 Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Mortgage Asset Pool even if the security interest in
the room rates was not perfected or the requisite UCC filings were allowed to
lapse. Even if the lender's security interest in room rates is perfected under
applicable nonbankruptcy law, it will generally be required to commence a
foreclosure action or otherwise take possession of the property in order to
enforce its rights to collect the room rates following a default. In the
bankruptcy setting, however, the lender will be stayed from enforcing its rights
to collect room rates, but those room rates (in light of certain revisions to
the Bankruptcy Code which are effective for all bankruptcy cases commenced on or
after October 22, 1994) constitute "cash collateral" and therefore cannot be
used by the bankruptcy debtor without a hearing or lender's consent and unless
the lender's interest in the room rates is given adequate protection (e.g., cash
payment for otherwise encumbered funds or a replacement lien on unencumbered
property, in either case equal in value to the amount of room rates that the
debtor proposes to use, or other similar relief). See "--Bankruptcy Laws".
Cooperative Loans
In the case of a Cooperative Loan, the Cooperative owns or has a
leasehold interest in all the real property and owns in fee or leases the
building and all separate units therein. The Cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes, other governmental impositions and hazard and liability insurance. If
there is a blanket mortgage on the cooperative building and/or underlying
land, as is generally the case, or an underlying lease of the land, as is the
case in some instances, the Cooperative, as project mortgagor, or lessee, as
the case may be, is also responsible for meeting these blanket mortgage or
rental obligations. A blanket mortgage is ordinarily incurred by the
Cooperative in connection with either the construction or purchase of the
Cooperative's building or the obtaining of capital by the Cooperative. The
interests of the occupants under proprietary leases or occupancy agreements
as to which the Cooperative is the landlord are generally subordinate to the
interests of the holder of the blanket mortgage and to the interest of the
holder of a land lease. If the Cooperative is unable to meet the payment
obligations (i) arising under its blanket mortgage, the mortgagee holding the
blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements or (ii) arising under
its land lease, the holder of the landlord's interest under the land lease
could terminate it and all subordinate proprietary leases and occupancy
agreements. Also, the blanket mortgage on a Cooperative may provide financing
in the form of a mortgage loan that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity.
The inability of the Cooperative to refinance this mortgage and its
consequent inability to make such final payment could lead to foreclosure by
the mortgagee. Similarly, a land lease has an expiration date and the
inability of the Cooperative to extend its term or, in the alternative, to
purchase the land could lead to termination of the Cooperative's interest in
the property and termination of all proprietary leases and occupancy
agreements. In either event, foreclosure by the holder of the blanket
mortgage or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by the lender that
financed the purchase by an individual tenant-stockholder of Cooperative
Shares or, in the case of the Trust Fund, the collateral securing the
Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership
of stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a Cooperative must
make a monthly payment to the Cooperative representing such
tenant-stockholder's pro rata share of the Cooperative's payments for its
blanket mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. An ownership interest in a Cooperative and accompanying
occupancy rights is financed through a Cooperative Loan evidenced by a
promissory note and secured by an assignment of and a security interest in
the occupancy agreement or proprietary lease and a security interest in the
related Cooperative Shares. The lender generally takes possession of the
share certificate and a counterpart of the proprietary lease or occupancy
agreement, and a financing statement covering the proprietary lease or
occupancy agreement and the Cooperative Shares is filed in the appropriate
state and local offices to perfect the lender's interest in its collateral.
Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in
the security agreement covering the assignment of the proprietary lease or
occupancy agreement and the pledge of Cooperative Shares. See "--Foreclosure
on Cooperative Shares" below.
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Personalty
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Mortgage Asset Pool even if the security interest
in such personal property was not perfected or the requisite UCC filings were
allowed to lapse.
Foreclosure on Mortgages
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and nonjudicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
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 requires several years to complete.
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 and Other Limitations on Enforceability of Certain Provisions.
United States courts have traditionally imposed general equitable principles to
limit the remedies available to lenders in foreclosure actions. These principles
are generally designed to relieve borrowers from the effects of mortgage
defaults 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 actions to determine the cause of the
borrower's default and the likelihood that the borrower 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 borrowers who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose in the case of a nonmonetary default, such as a failure to
adequately maintain the mortgaged property or an impermissible further
encumbrance of the mortgaged property. Finally, some courts have addressed the
issue of whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that a borrower 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 trigger constitutional protections.
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In addition, some states may have statutory protection such as the right
of the borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained in
any other type of mortgage instrument if applicable law so permits. A power of
sale under a deed of trust allows a nonjudicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the trustee under the deed of trust must record a
notice of default and notice of sale and send a copy to the borrower 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 borrower 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 regard to the acceleration of the
indebtedness), plus the lender's expenses incurred in enforcing the obligation.
In other states, the borrower 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, state law governs the procedure for
public sale, the parties entitled to notice, the method of giving notice and the
applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Potential
buyers may also be reluctant to purchase property at a foreclosure sale in light
of state law fraudulent conveyance concerns. Therefore, it is common for the
lender to purchase the mortgaged property for an amount equal to the secured
indebtedness and accrued and unpaid interest plus the expenses of foreclosure,
in which event the borrower's debt will be extinguished, or for a lesser amount
in order to preserve its right to seek a deficiency judgment if such is
available under state law and under the terms of the Mortgage Loan documents.
(The Mortgage Loans, however, may be nonrecourse. See "Risk Factors--Certain
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans--Limited Recourse Nature of the Mortgage Loans".) Thereafter, subject to
the borrower's right in some states to remain in possession during a redemption
period, the lender will become the owner of the property and have both the
benefits and burdens of ownership, including the obligation to pay debt service
on any senior mortgages, to pay taxes, to obtain casualty insurance and to make
such repairs as are necessary to render the property suitable for sale. 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 lender also will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale or lease 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, because of the expenses associated with acquiring, owning and selling
a mortgaged property, a lender could realize an overall loss on a mortgage loan
even if the mortgaged property is sold at foreclosure, or resold after it is
acquired through foreclosure, for an amount equal to the full outstanding
principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
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Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. 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 terminated.
The equity of redemption is a common-law (nonstatutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower 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 because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. 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 in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot obtain a deficiency judgment against the borrower following foreclosure
or sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes may require the lender to exhaust the security afforded
under a mortgage before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
Leasehold Considerations. Mortgage Loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure
sale, and contains certain other protective provisions typically included in a
"mortgageable" ground lease. Certain Mortgage Loans, however, may be secured by
ground leases which do not contain these provisions.
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Foreclosure on Cooperative Shares
The Cooperative Shares and proprietary lease or occupancy agreement
owned by the tenant-stockholder and pledged to the lender are, in almost all
cases, subject to restrictions on transfer as set forth in the Cooperative's
certificate of incorporation and by-laws, as well as in the proprietary
lease or occupancy agreement, and may be canceled by the Cooperative for
failure by the tenant-stockholder to pay rent or other obligations or charges
owed by such tenant-stockholder, including mechancies' liens against the
Cooperative building incurred by such tenant-stockholder. Typically, rent and
other obligations and charges arising under a proprietary lease or occupancy
agreement that are owed to the Cooperative are made liens upon the shares to
which the proprietary lease or occupancy agreement relates. In addition, the
proprietary lease or occupancy agreement generally permits the Cooperative to
terminate such lease or agreement in the event the tenant-stockholder fails to
make payments or defaults in the performance of covenants required thereunder.
Typically, the lender protection provisions contained in the
proprietary lease or a recognition agreement signed by the Cooperative
establish the rights and obligations of the lender in the event of the
default by the tenant-stockholder on its obligations under the proprietary
lease or occupancy agreement. A default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default
under the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with notice of and an
opportunity to cure the default. The recognition agreement typically provides
that if the proprietary lease or occupancy agreement is terminated, the
Cooperative will recognize the lender's lien against proceeds from a sale of
the Cooperative unit, subject, however, to the Cooperative's right to sums
due under such proprietary lease or occupancy agreement or that have become
liens on the shares relating to the proprietary lease or occupancy agreement.
The total amount owed to the Cooperative by the tenant-stockholder, which
the lender generally cannot restrict and does not monitor, could reduce the
value of the collateral below the outstanding principal balance of the
Cooperative Loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure on
a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative Shares or assigning the proprietary lease. Generally, the lender
is not limited in any rights it may have to dispossess the
tenant-stockholders.
Under the laws applicable in most states, foreclosure on the Cooperative
Shares is accomplished by a sale in accordance with the provisions of Article
9 of the UCC and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a "commercially reasonable"
manner. Whether a foreclosure sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor
and the method, manner, time, place and terms of the foreclosure. Generally,
a sale conducted according to the usual practice of banks selling similar
collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy
the indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the Cooperative to receive sums due
under the proprietary lease or occupancy agreement. If there are proceeds,
remaining, the lender must account to the tenant-stockholder for the surplus.
Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. However, some
courts have interpreted Section 9-504 of the UCC to prohibit a deficiency
award unless the creditor establishes that the sale of the collateral (which,
in the case of a Cooperative Loan, would be the pledged Cooperative Shares
and the related proprietary lease or occupancy agreement) was conducted in a
commercially reasonably manner.
Bankruptcy Laws
Operation of 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) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and its consequences caused by
the 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 protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan 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, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a mortgage loan payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the section entitled "--Leases and Rents", the amendments
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provide that a pre-petition security interest in rents or hotel revenues is
designed to overcome those cases holding that a security interest in rents is
unperfected under the laws of certain states until the lender has taken some
further action, such as commencing foreclosure or obtaining a receiver prior to
activation of the assignment of rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (i)
assume the lease and retain it or assign it to a third party or (ii) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor (except potentially to the extent of
any security deposit) with respect to its claim for damages for termination of
the lease. The Bankruptcy Code also limits a lessor's damages for lease
rejection to (a) the rent reserved under the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease plus (b) unpaid rent to the earlier of the
surrender of the property or the lessee's bankruptcy filing.
Environmental Considerations
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien".
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
participated in the management of such mortgaged property or the operations of
the borrower. Such liability may exist even if the lender did not cause or
contribute to the contamination and regardless of whether the lender has
actually taken possession of a mortgaged property through foreclosure, deed in
lieu of foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator", however, is a person who without participating in the management
of the facility, holds indicia of ownership primarily to protect his security
interest. This is the so called "secured creditor exemption".
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Lender Liability Act") amended, among other things, the provisions of
CERCLA with respect to lender liability and the secured creditor exemption. The
Lender Liability Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for a lender
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to be deemed to have participated in the management of a mortgaged property, the
lender must actually participate in the operational affairs of the property of
the borrower. The Lender Liability Act provides that "merely having the capacity
to influence, or unexercised right to control" operations does not constitute
participation in management. A lender will lose the protection of the secured
creditor exemption 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 operational functions
of the mortgaged property. The Lender Liability Act also provides that a lender
will continue to have the benefit of the secured creditor exemption even if it
forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell the
mortgaged property at the earliest practicable commercially reasonable time on
commercially reasonable terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation and
Recovery Act.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Certain federal, state and local laws, regulations and ordinances govern
the management, removal, encapsulation or disturbance of asbestos-containing
materials ("ACMs"). Such laws, as well as common law standards, may impose
liability for releases of or exposure to ACMs and may provide for third parties
to seek recovery from owners or operators of real properties for personal
injuries associated with such releases.
Recent federal legislation will in the future require owners of
residential housing constructed prior to 1978 to disclose to potential residents
or purchasers any known lead-based paint hazards and will impose treble damages
for any failure to so notify. In addition, the ingestion of lead-based paint
chips or dust particles by children can result in lead poisoning, and the owner
of a property where such circumstances exist may be held liable for such
injuries and for the costs of removal or encapsulation of the lead-based paint.
Testing for lead-based paint or lead in the water was conducted with respect to
certain of the Mortgaged Properties, generally based on the age and/or condition
thereof.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold a
lender liable in such cases, unanticipated or uninsured liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
Federal, state and local environmental regulatory requirements change
often. It is possible that compliance with a new regulatory requirement could
impose significant compliance costs on a borrower. Such costs may jeopardize the
borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability payable out of the related Collateral or Trust Fund and occasion a
loss to the related Securityholders.
To reduce the likelihood of such a loss, unless otherwise specified in the
related Prospectus Supplement, the S&A Agreement will provide that neither the
Master Servicer nor the Special Servicer, acting on behalf of the Trustee, may
acquire title to a Mortgaged Property or take over its operation unless the
Special Servicer, based solely (as to environmental matters) on a report
prepared by a person who regularly conducts environmental audits, has made the
determination that certain conditions relating to environmental matters, as
described under "Servicing and Administration of the Mortgage Assets-Realization
Upon Defaulted Mortgage Loans", have been satisfied.
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related Securities. Environmental site assessments, however,
vary
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considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn Act") generally preempts state laws that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limitations as set forth in the Garn Act
and the regulations promulgated thereunder. Accordingly, a Master Servicer may
nevertheless have the right to accelerate the maturity of a Mortgage Loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
Junior Liens; Rights of Holders of Senior Liens
If so provided in the related Prospectus Supplement, a Mortgage
Asset Pool may include Mortgage Loans secured by junior liens, and the loans
secured by the related Senior Liens may not be included in the Mortgage Asset
Pool. The primary risk to holders of Mortgage Loans secured by junior liens is
the possibility that adequate funds will not be received in connection with a
foreclosure of the related Senior Liens to satisfy fully both the Senior Liens
and the Mortgage Loan. In the event that a holder of a Senior Lien forecloses on
a Mortgaged Property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the related Mortgaged Property, if such proceeds are sufficient, before the
Trustee as holder of the junior lien receives any payments in respect of the
Mortgage Loan. In the event that such proceeds from a foreclosure or similar
sale of the related Mortgaged Property are insufficient to satisfy all Senior
Liens and the Mortgage Loan in the aggregate, the holders of one or more Classes
of Securities of the related Series may be required to bear (i) the risk of
delay in distributions while a deficiency judgment against the borrower is
obtained and (ii) the risk of loss if the deficiency judgment is not realized
upon. Moreover, deficiency judgments may not be available in certain
jurisdictions or the Mortgage Loan may be nonrecourse.
Subordinate Financing
The terms of certain of the Mortgage Loans may not restrict the ability of
the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the senior lender
is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior loan
does not, a borrower may have more incentive to repay sums due on the
subordinate 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 borrower 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 borrower is additionally burdened.
Third, if the borrower 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.
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Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V 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.
Certain Laws and Regulations
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
Americans with Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable". In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
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 borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower 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
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borrower's active duty status, unless a court orders otherwise upon application
of the lender. The Relief Act applies to individuals 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 individuals 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
with individuals as borrowers 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 a Master Servicer or Special 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 could
result in a reduction of the amounts distributable to the holders of Securities
of the related Series, and would not be covered by advances or, unless otherwise
specified in the related Prospectus Supplement, any fund or agreement
constituting Credit Support in respect of such Securities. In addition, the
Relief Act imposes limitations that would impair the ability of the Master
Servicer or Special Servicer to foreclose on an affected Mortgage Loan during
the borrower's period of active duty status, and, under certain circumstances,
during an additional three month period thereafter.
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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of Offered
Securities. This discussion was prepared by Sidley & Austin, special tax counsel
to the Company and, to the extent it expresses opinions or conclusions as to
federal income tax law, represents the opinion of Sidley & Austin as to such
matters. It is directed to Securityholders that hold the Offered Securities as
"capital assets" within the meaning of section 1221 of the Code and does not
purport to discuss all federal income tax consequences that may be applicable to
the individual circumstances of particular investors, some of which (such as
banks, insurance companies and foreign investors) may be subject to special
treatment under the Code. 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 IRS with respect to
any of the federal income tax consequences discussed below, and no assurance can
be given the IRS will not take contrary positions. Taxpayers and preparers of
tax returns should also be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their tax advisors and tax return preparers regarding the treatment of any item
on their tax returns, even where the anticipated tax consequences have been
discussed herein. In addition to the federal
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income tax consequences described herein, potential investors are advised to
consider the state and local tax consequences, if any, of the purchase,
ownership and disposition of Offered Securities. See "State and Other Tax
Consequences".
The following discussion addresses Securities of three general types: (i)
Securities ("REMIC Securities") constituting "regular interests" or "residual
interests" in a "real estate mortgage investment conduit", or REMIC, as defined
in section 860D of the Code; (ii) Grantor Trust Certificates representing
interests in a Trust Fund (a "Grantor Trust Fund"), as to which no REMIC
election is made, and (iii) Bonds characterized as indebtedness of the related
Issuer for federal income tax purposes ("Debt Securities"), as to which no REMIC
election is made. The Prospectus Supplement for each Series will indicate
whether a REMIC election (or elections) will be made for the related Collateral
or Trust Fund under sections 860A through 860G (the "REMIC Provisions") of the
Code and, if such an election is to be made, will identify all "regular
interests" and "residual interests" in the REMIC or REMICs to be created. Any
pool of Underlying Assets as to which a REMIC election is made will be referred
to as a "REMIC Pool" in this discussion. If no REMIC election is made with
respect to a Series, the related Prospectus Supplement will specify whether the
Securities offered thereunder are Grantor Trust Certificates or Debt Securities.
For purposes of this discussion, references to a "Securityholder", a
"Certificateholder", a "Bondholder" or a "holder" are to the beneficial owner of
a Certificate or Bond, as applicable.
The following discussion is limited in applicability to Offered
Securities. Moreover, this discussion applies only to the extent that the
related Mortgage Assets consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including Underlying MBS, are to be included as
Collateral or in a Trust Fund, the federal income tax consequences associated
with the inclusion of such assets will be described in the related Prospectus
Supplement. In addition, if Cash Flow Arrangements other than guaranteed
investment contracts are included as Collateral or in a Trust Fund, the
anticipated material federal income tax consequences associated with such Cash
Flow Arrangements also will be discussed in the related Prospectus Supplement.
See "Description of the Trust Funds--Cash Flow Arrangements".
The following four paragraphs represent only a summary of the more
detailed discussion of material federal income tax consequences of investment in
the Offered Securities that follows. This summary is subject to that more
detailed discussion in its entirety.
A REMIC is not, subject to certain exceptions that are not anticipated to
have a material adverse effect on Holders of REMIC Regular Certificates,
generally subject to taxation under the Code. REMIC Regular Securities generally
will be treated as debt obligations of the related REMIC for federal income tax
purposes. In general, REMIC Regular Securities owned by a real estate investment
trust will be treated as "real estate assets" for purposes of Section
856(c)(5)(A) of the Code and interest income therefrom will be treated as
"interest on obligations secured by mortgages on real property" for purposes of
Section 856(c)(3)(B) of the Code. In addition, REMIC Regular Securities that are
held by another REMIC will be "qualified mortgages" within the meaning of
Section 860G(a)(3) of the Code. However, REMIC Regular Securities owned by a
thrift institution will constitute "loans ... secured by an interest in real
property" for purposes of Section 7701(a)(19)(C)(v) of the Code only to the
extent specified in the related Prospectus Supplement. Holders of REMIC Regular
Securities must report income with respect thereto on the accrual method,
regardless of their method of tax accounting generally. Holders of REMIC Regular
Securities issued with original issue discount generally will be required to
include such original issue discount in income as it accrues, using a prepayment
assumption as to the Mortgage Loans and taking into account, from time to time,
actual prepayments that occur at a rate different than the assumed prepayment
rate.
REMIC Residual Securities generally will be treated as representing an
interest in qualifying assets and income to the same extent described above for
taxpayers subject to Sections 856(c)(5)(A) and 856(c)(3)(B) of the Code, but not
for purposes of Section 7701(a)(19)(C)(v) of the Code unless otherwise stated in
the related Prospectus Supplement. REMIC Residual Certificates will not be
"qualified
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mortgages" under Section 860(G)(a)(3) of the Code and may not be held by another
REMIC. All or a portion of the income from REMIC Residual Certificates may be
treated as "excess inclusions" for federal income tax purposes that (i) may not
be offset by other deductions or losses of their holder, (ii) is treated as
unrelated business taxable income to otherwise tax-exempt holders and (iii) is
subject to a 30% United States withholding tax on payments to foreign holders,
regardless of any tax treaty provision to the contrary. In addition, transfers
of REMIC Residual Securities are prohibited, or may be disregarded for federal
income tax purposes, as to certain types of transferees under circumstances
described more fully below. REMIC Residual Certificates may have negative
"value" due to their federal income tax characteristics and are generally not
suitable investments for individuals or for pass-through entities, such as
partnerships and S corporations, that have individuals as partners or
shareholders.
Grantor trusts are not subject to federal income taxation. Holders of
Grantor Trust Certificates will be treated for federal income tax purposes as
owners of an undivided interest in the assets of the related Grantor Trust Fund.
Accordingly, such Holders generally will be required to report as gross income
their shares of the interest and discount income (including amounts of gross
income used to pay servicing and other fees and expenses) derived from such
assets and will be entitled, subject to certain limitations, to deduct their
shares of servicing and other fees and expenses incurred during the year, all in
accordance with their usual methods of accounting for federal income tax
purposes. Subject to the following sentence and the more detailed discussion
below, holders of Grantor Trust Certificates generally will be treated as owning
an interest in qualifying assets and income under sections 856(c)(5)(A),
856(c)(3)(B), 860G(a)(3)(A) and, to the extent stated in the related Prospectus
Supplement, 7701(a)(19)(C) of the Code. The taxation of holders of
"interest-only" Grantor Trust Certificates, which evidence only ownership of a
portion of the interest paid on the underlying Mortgage Loans, and of no or
nominal principal amounts paid on the Mortgage Loans, is uncertain in various
respects, including in particular the characterization of such holders'
investment for purposes of the foregoing sections of the Code. Under legislation
enacted in 1997, as to taxable years beginning after the enactment of such
legislation, holders of Grantor Trust Certificates will report original issue
discount, if any, derived from of their ownership of Grantor Trust Certificates
on the same general method as that used with respect to REMIC Regular
Certificates, including the use of a prepayment assumption with respect to the
Mortgage Loans.
Offered Bonds generally will be treated as debt obligations of the related
Issuer for federal income tax purposes, and holders will be required to include
interest paid or accrued thereon in income in accordance with their general
methods of accounting for federal income tax purposes. Subject to the more
detailed discussion below under "Debt Securities -- General -- TMP
Considerations", each Issuer is anticipated generally not to be required to pay
federal income taxes as an entity. The Offered Bonds will not constitute
"loans... secured by an interest in real property" within the meaning of section
7701(a)(19)(C)(v) of the Code, "real estate assets" within the meaning of
section 856(c)(5)(A) of the Code, or "qualified mortgages" within the meaning of
section 860G(a)(3) of the Code. In addition, interest on Offered Bonds will not
constitute "interest on obligations secured by mortgages on real property"
within the meaning of section 856(c)(3)(B) of the Code. Holders of Offered Bonds
issued with original issue discount generally will be required to report such
original issue discount under the same method as that applicable to REMIC
Regular Certificates, including the use of a prepayment assumption with respect
to the Mortgage Loans.
With respect to each series of Securities, the Company will file or cause
to be filed a tax opinion and related consent concerning the tax disclosure in
the related Prospectus Supplement as exhibits either to the related Form 8-K or
to a post-effective amendment to the Registration Statement of which this
Prospectus is a part.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury regulations issued
thereunder (the
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"REMIC Regulations"). The OID Regulations do not adequately address certain
issues relevant to, and in some instances provide that they are not applicable
to, securities such as the Offered Securities.
REMICs
General
Classification of REMICs. With respect to each Series of REMIC Securities,
Sidley & Austin, special tax counsel to the Company, will deliver its opinion
generally to the effect that, assuming compliance with the related Indenture or
Pooling Agreement, as applicable, and other related transactional documents (and
subject to certain other assumptions set forth in such opinion), the related
REMIC Pool will qualify as a REMIC and the REMIC Securities offered with respect
thereto will be "regular interests" or "residual interests" therein within the
meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity may lose its status as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation,
and the related REMIC Securities may not be accorded the status or given the tax
treatment described below. Although the Code authorizes the Treasury Department
to issue regulations providing relief in the event of an inadvertent termination
of REMIC status, no such regulations have been issued. Any such relief,
moreover, may be accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the REMIC Pool's income for the period in which the
requirements for such status are not satisfied. The Indenture or Pooling
Agreement, as applicable, with respect to each Series of REMIC Securities will
include provisions designed to maintain the status of the related REMIC Pool as
a REMIC under the REMIC Provisions. It is not anticipated that the status of any
REMIC Pool as a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Securities. If and to the
extent described in the related Prospectus Supplement, the REMIC Securities will
be "real estate assets" within the meaning of section 856(c)(5)(A) of the Code
and assets described in section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC Pool underlying such Securities would be
so treated. In general, to the extent that the REMIC Pool's assets constitute
mortgages on property not used for residential or certain other prescribed
purposes, the REMIC Securities will not be treated as assets qualifying under
section 7701(a)(19)(C). However, if 95% or more of the assets of the REMIC
Pool qualify for any of the foregoing characterizations at all times during a
calendar year, the REMIC Securities will qualify for the corresponding status in
their entirety for that calendar year. Interest (including original issue
discount) on the REMIC Regular Securities and income allocated to the REMIC
Residual Securities will be interest described in section 856(c)(3)(B) of the
Code to the extent that such Securities are treated as "real estate assets"
within the meaning of section 856(c)(5)(A) of the Code. In addition, the REMIC
Regular Securities will be "qualified mortgages" within the meaning of section
860G(a)(3) of the Code. The determination as to the percentage of the REMIC
Pool's assets that constitute assets described in the foregoing sections of the
Code will be made with respect to each calendar quarter based on the average
adjusted basis of each category of the assets held by the REMIC Pool during such
calendar quarter. The REMIC Administrator will report those determinations to
the related Securityholders in the manner and at the times required by
applicable Treasury regulations.
The assets of a REMIC Pool will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the related REMIC
Securities and any property acquired by foreclosure held pending sale, and may
include amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale, and amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections of the Code)
otherwise would receive the same treatment as the Mortgage Loans for purposes of
all of the foregoing sections of the Code. In addition, in some instances
Mortgage Loans may not be treated entirely as assets described in the foregoing
sections of the Code. If so, the related Prospectus Supplement will describe the
Mortgage Loans that may not be so treated. The REMIC Regulations do provide,
however, that cash received
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from payments on Mortgage Loans held pending distribution is considered part of
the Mortgage Loans for purposes of section 856(c)(5)(A) of the Code.
Tiered REMIC Structures. For certain Series of REMIC Securities, two or
more separate elections may be made to treat designated portions of the related
Collateral or Trust Fund as separate REMICs ("Tiered REMICs") for federal income
tax purposes. As to each such Series of REMIC Securities, in the opinion of
counsel to the Company, assuming compliance with all provisions of the related
Indenture or Pooling Agreement, as the case may be, the Tiered REMICs will each
qualify as a REMIC and the REMIC Securities issued by the Tiered REMICs, will be
considered to evidence ownership of REMIC Regular Securities or REMIC Residual
Securities in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Securities will be
"real estate assets" within the meaning of section 856(c)(5)(A) of the Code, and
"loans secured by an interest in real property" under section 7701(a)(19)(C) of
the Code, and whether the income on such Securities is interest described in
section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Securities
General. Except as otherwise stated in this discussion, REMIC Regular
Securities will be treated for federal income tax purposes as debt instruments
issued by the related REMIC and not as ownership interests in the REMIC or its
assets. Holders of REMIC Regular Securities that generally report income using a
cash method of accounting will nevertheless be required to report income with
respect to REMIC Regular Securities under an accrual method. In the case of
certain REMIC Regular Securities, the required use of the accrual method may
cause interest income to be subject to taxation prior to receipt of the related
cash.
Original Issue Discount. Certain REMIC Regular Securities may be issued
with "original issue discount" within the meaning of section 1273(a) of the
Code. Any holders of REMIC Regular Securities issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the "constant yield" method described below,
in advance of the receipt of the cash attributable to such income. In addition,
section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Securities and certain other debt instruments issued with original issue
discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Securities issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations yet to be issued. The Conference Committee Report
accompanying the Tax Reform Act of 1986 (the "Committee Report") indicates that
the regulations will provide that the prepayment assumption used with respect to
a REMIC Regular Security must be the same as that used in pricing the initial
offering of such REMIC Regular Security. The prepayment assumption (the
"Prepayment Assumption") used in reporting original issue discount for each
Series of REMIC Regular Securities will be consistent with this standard and
will be disclosed in the related Prospectus Supplement. However, neither the
Company nor any other person will make any representation that the Mortgage
Loans will in fact prepay at a rate conforming to the Prepayment Assumption or
at any other rate or that such Prepayment Assumption will not be challenged by
the Internal Revenue Service (the "IRS") on audit.
The original issue discount, if any, on a REMIC Regular Security will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular Class of REMIC Regular Securities will be the first
cash price at which a substantial amount of REMIC Regular Securities of that
Class is sold (excluding sales to bond houses, brokers and underwriters). If
less than a substantial amount of a particular Class of REMIC Regular Securities
is sold for cash on or prior to the related Closing Date, the issue
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price for such Class will be the fair market value of such Class on such Closing
Date. Under the OID Regulations, the stated redemption price of a REMIC Regular
Security is equal to the total of all payments to be made on such Security other
than "qualified stated interest". "Qualified stated interest" is interest that
is unconditionally payable at least annually (during the entire term of the
instrument) at a single fixed rate, or at a "qualified floating rate", an
"objective rate", a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate", or at a
combination of "qualified floating rates" that does not operate in a manner that
accelerates or defers interest payments on such REMIC Regular Security.
In the case of REMIC Regular Securities bearing adjustable interest rates,
the determination of the total amount of original issue discount and the timing
of the inclusion thereof will vary according to the characteristics of such
REMIC Regular Securities. If the original issue discount rules apply to such
Securities, the related Prospectus Supplement will describe the manner in which
such rules will be applied with respect to those Securities in preparing
information returns to the related Securityholders and the IRS.
Certain Classes of the REMIC Regular Securities may provide for the first
interest payment with respect to such Securities to be made more than one month
after the date of issuance, a period which is longer than the subsequent monthly
intervals between interest payments. Assuming the "accrual period" (as defined
below) for original issue discount is each monthly period that ends on a Payment
Date or Distribution Date, in some cases, as a consequence of this "long first
accrual period", some or all interest payments may be required to be included in
the stated redemption price of the REMIC Regular Security and accounted for as
original issue discount. Because interest on REMIC Regular Securities must in
any event be accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion in income of
the yield on the REMIC Regular Securities.
In addition, if the accrued interest to be paid on the first Payment Date
or Distribution Date is computed with respect to a period that begins prior to
the Closing Date, a portion of the purchase price paid for a REMIC Regular
Security will reflect such accrued interest. In such cases, information returns
provided to the Securityholders and the IRS will be based on the position that
the portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Security (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Payment Date or
Distribution Date) and that portion of the interest paid on the first Payment
Date or Distribution Date in excess of interest accrued for a number of days
corresponding to the number of days from the Closing Date to the first Payment
Date or Distribution Date should be included in the stated redemption price of
such REMIC Regular Security. However, the OID Regulations state that all or some
portion of such accrued interest may be treated as a separate asset the cost of
which is recovered entirely out of interest paid on the first Payment Date or
Distribution Date. It is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be made unilaterally by a
Securityholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Security will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Security multiplied by its weighted average maturity. For this purpose,
the weighted average maturity of the REMIC Regular Security is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Security, by multiplying (i) the number
of complete years (rounding down for partial years) from the issue date until
such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Security. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Security. The OID Regulations also would
permit a Securityholder to elect
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to accrue de minimis original issue discount into income currently based on a
constant yield method. See "--Taxation of Owners of REMIC Regular
Securities--Market Discount" below for a description of such election under the
OID Regulations.
If original issue discount on a REMIC Regular Security is in excess of a
de minimis amount, the holder of such Security must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Security, including
the purchase date but excluding the disposition date. In the case of an original
holder of a REMIC Regular Security, the daily portions of original issue
discount will be determined as follows.
As to each "accrual period" (that is, in general, each period that begins
on a date that corresponds to a Payment Date or Distribution Date (or, in the
case of the first such period, begins on the Closing Date) and ends on the day
preceding the immediately following Payment Date or Distribution Date), a
calculation will be made of the portion of the original issue discount that
accrued during such accrual period. The portion of original issue discount that
accrues in any accrual period will equal the excess, if any, of (i) the sum of
(a) the present value, as of the end of the accrual period, of all of the
distributions remaining to be made on the REMIC Regular Security, if any, in
future periods and (b) the distributions made on such REMIC Regular Security
during the accrual period of amounts included in the stated redemption price,
over (ii) the adjusted issue price of such REMIC Regular Security at the
beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that distributions on the REMIC Regular Security will be received in
future periods based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption, (ii) using a discount rate equal to the original yield to
maturity of the Security and (iii) taking into account events (including actual
prepayments) that have occurred before the close of the accrual period. For
these purposes, the original yield to maturity of the Security will be
calculated based on its issue price and assuming that distributions on the
Security will be made in all accrual periods based on the Mortgage Loans being
prepaid at a rate equal to the Prepayment Assumption. The adjusted issue price
of a REMIC Regular Security at the beginning of any accrual period will equal
the issue price of such Security, increased by the aggregate amount of original
issue discount that accrued with respect to such Security in prior accrual
periods, and reduced by the amount of any distributions made on such REMIC
Regular Security in prior accrual periods of amounts included in the stated
redemption price. The original issue discount accruing during any accrual
period, computed as described above, will be allocated ratably to each day
during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a REMIC Regular Security that purchases such
Security at a cost (excluding any portion of such cost attributable to accrued
qualified stated interest) less than its remaining stated redemption price will
also be required to include in gross income the daily portions of any original
issue discount with respect to such Security. However, each such daily portion
will be reduced, if such cost is in excess of its "adjusted issue price", in
proportion to the ratio such excess bears to the aggregate original issue
discount remaining to be accrued on such REMIC Regular Security. The adjusted
issue price of a REMIC Regular Security on any given day equals the sum of (i)
the adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Security at the beginning of the accrual period which includes
such day and (ii) the daily portions of original issue discount for all days
during such accrual period prior to such day.
Market Discount. A Securityholder that purchases a REMIC Regular Security
at a market discount (other than a de minimis amount), that is, in the case of a
REMIC Regular Security issued without original issue discount, at a purchase
price less than its remaining stated principal amount, or in the case of a REMIC
Regular Security issued with original issue discount, at a purchase price less
than its adjusted issue price, will recognize gain upon receipt of each
distribution representing stated redemption price. Under section 1276 of the
Code, such a Securityholder generally will be required to report as ordinary
income the lesser of the amount of such distribution and the amount of accrued
market discount. A Securityholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such an election applies to all market
discount bonds acquired by the taxpayer during or after the first taxable year
to which such election applies.
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The OID Regulations also permit a Securityholder to elect to accrue all
interest and discount (including de minimis market or original issue discount)
in income as interest, and to amortize premium, based on a constant yield
method. If such an election were made with respect to a REMIC Regular Security
with market discount, the Securityholder would be deemed to have made an
election to include currently market discount in income with respect to all
other debt instruments having market discount that such Securityholder acquires
during or after the taxable year of the election, and possibly previously
acquired instruments. Similarly, a Securityholder that made this election with
respect to a Security that is acquired at a premium would be deemed to have made
an election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Securityholder owns or acquires. See
"--Taxation of Owners of REMIC Regular Securities--Premium" below. The elections
described in this and the preceding paragraph are irrevocable except with the
approval of the IRS.
Market discount with respect to a REMIC Regular Security will be
considered to be de minimis for purposes of section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Security multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--Taxation of Owners of REMIC Regular
Securities--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Securities should
accrue, at the Securityholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Security issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Security as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Security issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Security at the beginning of the accrual
period. The Prepayment Assumption used in calculating the accrual of original
issue discount is also to be used in calculating the accrual of market discount.
Because the regulations referred to in this paragraph have not been issued, it
is not possible to predict what effect such regulations might have on the tax
treatment of a REMIC Regular Security purchased at a discount in the secondary
market.
To the extent that REMIC Regular Securities provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Security generally will be required to treat a portion of any gain on the sale
or exchange of such Security 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.
Further, under section 1277 of the Code a holder of a REMIC Regular
Security may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry a REMIC Regular Security purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed
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the market discount that accrues during such taxable year and is, in general,
allowed as a deduction not later than the year in which such market discount is
includible in income. If such holder, however, has elected to include market
discount in income currently as it accrues, the interest deferral rule described
above would not apply.
Premium. A REMIC Regular Security purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. On June 27, 1996, the IRS published in the Federal Register proposed
regulations on the amortization of bond premium. Under those regulations, if a
holder elects to amortize bond premium, bond premium would be amortized on a
constant yield method and would be applied against qualified stated interest.
The proposed regulations generally would be effective for Securities acquired on
or after the date 60 days after the date final regulations are published in the
Federal Register. Holders of each such Class of Securities should consult their
tax advisors regarding the possibility of making an election to amortize such
premium. The OID Regulations also permit Securityholders to elect to include all
interest, discount and premium in income based on a constant yield method,
further treating the Securityholder as having made the election to amortize
premium generally. See "--Taxation of Owners of REMIC Regular Securities--Market
Discount" above. The Committee Report states that the same rules that apply to
accrual of market discount (which rules will require use of a Prepayment
Assumption in accruing market discount with respect to REMIC Regular Securities
without regard to whether such Securities have original issue discount) will
also apply in amortizing bond premium under section 171 of the Code.
Realized Losses. Under section 166 of the Code, both corporate holders of
the REMIC Regular Securities and noncorporate holders of the REMIC Regular
Securities that acquire such Securities in connection with a trade or business
should be allowed to deduct, as ordinary losses, any losses sustained during a
taxable year in which their Securities become wholly or partially worthless as
the result of one or more realized losses on the Mortgage Loans. However, it
appears that a noncorporate holder that does not acquire a REMIC Regular
Security in connection with a trade or business will not be entitled to deduct a
loss under section 166 of the Code until such holder's Security becomes wholly
worthless and that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Security will be required to accrue
interest and original issue discount with respect to such Security, based on the
assumption that no defaults or delinquencies will occur in any future period
with respect to the Mortgage Loans and without giving effect to any reductions
in distributions attributable to defaults or delinquencies on the Mortgage Loans
that may have occurred with respect thereto until it can be established that any
such reduction ultimately will not be recoverable. As a result, the amount of
taxable income reported in any period by the holder of a REMIC Regular Security,
particularly during the early years of its term, could exceed the amount of
economic income actually realized by the holder in such period. Although the
holder of a REMIC Regular Security eventually will recognize a loss or reduction
in income attributable to previously accrued and included income that, as the
result of a realized loss, ultimately will not be realized, the law is unclear
with respect to the timing and character of such loss or reduction in income.
Moreover, in these circumstances, the present value of the tax detriment
associated with the inclusion of such income early in the term of the REMIC
Regular Security would generally exceed the present value of the subsequent tax
benefit associated with such eventual loss or reduction in income, assuming no
changes in prevailing tax rates.
Taxation of Owners of REMIC Residual Securities
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"--Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Securities. Accordingly, the REMIC Residual Securities will
be subject to tax rules that differ significantly from those
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that would apply if the REMIC Residual Securities were treated for federal
income tax purposes as direct ownership interests in the Mortgage Loans or as
debt instruments issued by the REMIC.
A holder of a REMIC Residual Security generally will be required to report
its daily portion of the taxable income or, subject to the limitations noted in
this discussion, the net loss of the REMIC for each day during a calendar
quarter that such holder owned such REMIC Residual Security. For this purpose,
the taxable income or net loss of the REMIC will be allocated to each day in the
calendar quarter ratably using a "30 days per month/90 days per quarter/360 days
per year" convention or such other convention as may be disclosed in the
related Prospectus Supplement. The daily amounts so allocated will then be
allocated among the REMIC Residual Securityholders in proportion to their
respective ownership interests on such day. Any amount included in the gross
income or allowed as a loss of any REMIC Residual Securityholder by virtue of
this paragraph will be treated as ordinary income or loss. The taxable income of
the REMIC will be determined under the rules described below in "--Taxable
Income of the REMIC" and will be taxable to the REMIC Residual Securityholders
without regard to the timing or amount of cash distributions by the REMIC until
the REMIC's termination. Ordinary income derived from REMIC Residual Securities
will be "portfolio income" for purposes of the taxation of taxpayers subject to
limitations under section 469 of the Code on the deductibility of "passive
losses".
A holder of a REMIC Residual Security that purchased such Security from a
prior holder of such Security also will be required to report on its federal
income tax return amounts representing its daily share of the taxable income (or
net loss) of the REMIC for each day that it holds such REMIC Residual Security.
Those daily amounts generally will equal the amounts of taxable income or net
loss determined as described above. The Committee Report indicates that certain
modifications of the general rules may be made, by regulations, legislation or
otherwise to reduce (or increase) the income of a Securityholder that purchased
such REMIC Residual Security from a prior holder of such Security at a price
different from the adjusted basis (as defined below) that such REMIC Residual
Security would have had in the hands of an original holder of such Security. The
REMIC Regulations, however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Security from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Security will be taken into account in determining the income of such
holder for federal income tax purposes. Although it appears likely that any such
payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Securities should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Securityholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Securityholders should have other sources of funds
sufficient to pay any federal income taxes due as a result of their ownership of
REMIC Residual Securities or unrelated deductions against which income may be
offset, subject to the rules relating to "excess inclusions", residual interests
without "significant value" and "noneconomic" residual interests discussed
below. The fact that the tax liability associated with the income allocated to
REMIC Residual Securityholders may exceed the cash distributions received by
such REMIC Residual Securityholders for the corresponding period may
significantly adversely affect such REMIC Residual Securityholders' after-tax
rate of return. Such disparity between income and distributions may not be
offset by corresponding losses or reductions of income attributable to the REMIC
Residual Securityholder until subsequent tax years and, then, may not be
completely offset due to changes in the Code, tax rates or character of the
income or loss. REMIC Residual Securities may in some instances have negative
"value". See "Risk Factors--Certain Federal Tax Considerations Regarding REMIC
Residual Securities".
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the
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allocation of realized losses to REMIC Regular Securities, less the deductions
allowed to the REMIC for interest (including original issue discount and reduced
by any premium on issuance) on the REMIC Regular Securities (and any other Class
of REMIC Securities constituting "regular interests" in the REMIC not offered
hereby), for amortization of any premium on the Mortgage Loans, for bad debt
losses with respect to the Mortgage Loans and, except as described below, for
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Securities (or, if a Class of REMIC Securities is not sold initially,
their fair market values). Such aggregate basis will be allocated among the
Mortgage Loans and the other assets of the REMIC in proportion to their
respective fair market values. The issue price of any REMIC Securities offered
hereby will be determined in the manner described above under "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount". The issue price
of a REMIC Security received in exchange for an interest in the Mortgage Loans
or other property will equal the fair market value of such interests in the
Mortgage Loans or other property. Accordingly, if one or more Classes of REMIC
Securities are retained initially rather than sold, the REMIC Administrator may
be required to estimate the fair market value of such interests in order to
determine the basis of the REMIC in the Mortgage Loans and other property held
by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Securities (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant yield basis. See "--Taxation of Owners of REMIC Regular
Securities" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Securities. It is anticipated that each REMIC will
elect under section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Securities (including any other Class of REMIC
Securities constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Securities
(including any other Class of REMIC Securities constituting "regular interests"
in the REMIC not offered hereby) were indebtedness of the REMIC. Original issue
discount will be considered to accrue for this purpose as described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount",
except that the de minimis rule and the adjustments for subsequent holders of
REMIC Regular Securities (including any other Class of REMIC Securities
constituting "regular interests" in the REMIC not offered hereby) described
therein will not apply.
If a Class of REMIC Regular Securities is issued at a price in excess of
the stated redemption price of such Class (such excess "Issue Premium"), the net
amount of interest deductions that are allowed the REMIC in each taxable year
with respect to the REMIC Regular Securities of such Class will be reduced by an
amount equal to the portion of the Issue Premium that is considered to be
amortized or repaid in that year. Although the matter is not entirely certain,
it is likely that Issue Premium would be amortized under a constant yield method
in a manner analogous to the method of accruing original issue discount
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount".
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As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes".
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other noninterest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Securities, subject to the limitation of
section 67 of the Code. See "-- Pass-Through of Miscellaneous Itemized
Deductions". If the deductions allowed to the REMIC exceed its gross income for
a calendar quarter, such excess will be the net loss for the REMIC for that
calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Security will be equal to the amount paid for such REMIC Residual
Security, increased by amounts included in the income of the REMIC Residual
Securityholder and decreased (but not below zero) by distributions made, and by
net losses allocated, to such REMIC Residual Securityholder.
A REMIC Residual Securityholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Securityholder's adjusted basis in its REMIC Residual Security as of
the close of such calendar quarter (determined without regard to such net loss).
Any loss that is not currently deductible by reason of this limitation may be
carried forward indefinitely to future calendar quarters and, subject to the
same limitation, may be used only to offset income from the REMIC Residual
Security. The ability of REMIC Residual Securityholders to deduct net losses may
be subject to additional limitations under the Code, as to which REMIC Residual
Securityholders should consult their tax advisors.
Any distribution on a REMIC Residual Security will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Security. To the extent a distribution on
a REMIC Residual Security exceeds such adjusted basis, it will be treated as
gain from the sale of such REMIC Residual Security. Holders of certain REMIC
Residual Securities may be entitled to distributions early in the term of the
related REMIC under circumstances in which their bases in such REMIC Residual
Securities will not be sufficiently large that such distributions will be
treated as nontaxable returns of capital. Their bases in such REMIC Residual
Securities will initially equal the amount paid for such REMIC Residual
Securities and will be increased by their allocable shares of taxable income of
the REMIC. However, such bases increases may not occur until the end of the
calendar quarter, or perhaps the end of the calendar year, with respect to which
such REMIC taxable income is allocated to the REMIC Residual Securityholders. To
the extent such REMIC Residual Securityholders' initial bases are less than the
distributions to such REMIC Residual Securityholders, and increases in such
initial bases either occur after such payments or distributions or (together
with their initial bases) are less than the amount of such payments or
distributions, gain will be recognized to such REMIC Residual Securityholders on
such distributions and will be treated as gain from the sale of their REMIC
Residual Securities.
The effect of these rules is that a REMIC Residual Securityholder may not
amortize its basis in a REMIC Residual Security, but may only recover its basis
through payments or distributions, through the deduction of any net losses of
the REMIC or upon the sale of its REMIC Residual Security. See "--Sales of REMIC
Securities" below. The Committee Report suggests that future regulations may
require adjustments to the REMIC's income allocable to a holder of a REMIC
Residual Security that is not an original holder in order to reflect any
difference between the basis of such REMIC Residual Security to such REMIC
Residual Securityholder and the adjusted basis such REMIC Residual Security
would have had in the hands of an original holder see "--Taxation of Owners of
REMIC Residual Certificates--General".
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Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Security will be subject to federal income tax in all events. In
general, the "excess inclusions" with respect to a REMIC Residual Security for
any calendar quarter will be the excess, if any, of (i) the daily portions of
REMIC taxable income allocable to such REMIC Residual Security over (ii) the sum
of the "daily accruals" (as defined below) for each day during such quarter that
such REMIC Residual Security was held by such REMIC Residual Securityholder. The
daily accruals of a REMIC Residual Securityholder will be determined by
allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Security at the
beginning of the calendar quarter and 120% of the "long-term Federal rate" in
effect on the Closing Date. For this purpose, the adjusted issue price of a
REMIC Residual Security as of the beginning of any calendar quarter will be
equal to the issue price of the REMIC Residual Security, increased by the sum of
the daily accruals for all prior quarters and decreased (but not below zero) by
any distributions made with respect to such REMIC Residual Security before the
beginning of such quarter. The issue price of a REMIC Residual Security is the
initial offering price to the public (excluding bond houses and brokers) at
which a substantial amount of the REMIC Residual Securities were sold. The
"long-term Federal rate" is an average of current yields on Treasury securities
with a remaining term of greater than nine years, computed and published monthly
by the IRS.
Although it has not done so, the Treasury also has authority to issue
regulations that would treat the entire amount of income accruing on a REMIC
Residual Security as an excess inclusion if the REMIC Residual Securities are
considered not to have "significant value". The REMIC Regulations provide that
in order to be treated as having significant value, the REMIC Residual
Securities must have an aggregate issue price at least equal to two percent of
the aggregate issue prices of all of the related REMIC's regular and residual
interests. In addition, based on the Prepayment Assumption, the anticipated
weighted average life of the REMIC Residual Securities must equal or exceed 20
percent of the anticipated weighted average life of the REMIC, based on the
Prepayment Assumption and on any required or permitted clean up calls or
required liquidation provided for in the REMIC's organizational documents. The
related Prospectus Supplement will disclose whether offered REMIC Residual
Securities may be considered to have "significant value" under the REMIC
Regulations; provided, however, that any disclosure that a REMIC Residual
Security will have "significant value" will be based upon certain assumptions,
and the Company will make no representation that a REMIC Residual Security will
have "significant value" for purposes of the above-described rules.
For REMIC Residual Securityholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Securities".
In the case of any REMIC Residual Securities held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Securities, reduced (but not below zero) by the real estate investment
trust taxable income (within the meaning of section 857(b)(2) of the Code,
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Security as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives, but
the REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Securities. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Securities will be disregarded for all
federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Security. The REMIC Regulations provide that a REMIC Residual Security
is noneconomic unless, based on the Prepayment Assumption and on any required or
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permitted clean up calls, or required liquidation provided for in the REMIC's
organizational documents, (1) the present value of the expected future
distributions (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Security, which rate is
computed and published monthly by the IRS) on the REMIC Residual Security equals
at least the present value of the expected tax on the anticipated excess
inclusions, and (2) the transferor reasonably expects that the transferee will
receive distributions with respect to the REMIC Residual Security at or after
the time the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. Accordingly, all transfers of REMIC
Residual Securities that may constitute noneconomic residual interests will be
subject to certain restrictions under the terms of the related Indenture or
Pooling Agreement that are intended to reduce the possibility of any such
transfer being disregarded. Such restrictions will require each party to a
transfer to provide an affidavit that no purpose of such transfer is to impede
the assessment or collection of tax, including certain representations as to the
financial condition of the prospective transferee, as to which the transferor is
also required to make a reasonable investigation to determine such transferee's
historic payment of its debts and ability to continue to pay its debts as they
come due in the future. Prior to purchasing a REMIC Residual Security,
prospective purchasers should consider the possibility that a purported transfer
of such REMIC Residual Security by such a purchaser thereafter might be
disregarded under these rules, resulting in the retention of any tax liability
associated with the REMIC Residual Security by such purchaser.
The related Prospectus Supplement will disclose whether REMIC Residual
Securities offered thereunder may be considered "noneconomic" residual interests
under the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Security will or may not be considered "noneconomic" will be based upon
certain assumptions, and the Company will make no representation that a REMIC
Residual Security will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Securities" below for
additional restrictions applicable to transfers of certain REMIC Residual
Securities to foreign persons.
Mark-to-Market Rules. The IRS has released regulations under section 475
of the Code (the "Mark-to-Market Regulations") relating to the requirement that
a securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held for
investment. The Mark-to-Market Regulations provide that for purposes of this
mark-to-market requirement, a REMIC Residual Security is not treated as a
security for purposes of section 475 of the Code, and thus is not subject to the
mark-to-market rules. Prospective purchasers of a REMIC Residual Security should
consult their tax advisors regarding the Mark-to-Market Regulations.
Tax and Restrictions on Transfers of REMIC Residual Securities to Certain
Organizations. If a REMIC Residual Security is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Security) of the total anticipated
excess inclusions with respect to such REMIC Residual Security for periods after
the transfer and (ii) the highest marginal federal income tax rate applicable to
corporations. The anticipated excess inclusions must be determined as of the
date that the REMIC Residual Security is transferred and must be based on events
that have occurred up to the time of such transfer, the Prepayment Assumption
and any required or permitted clean up calls or required liquidation provided
for in the REMIC's organizational documents. Such a tax generally would be
imposed on the transferor of the REMIC Residual Security, except that where such
transfer is through an agent for a disqualified organization, the tax would
instead be imposed on such agent. However, a transferor of a REMIC Residual
Security would in no event be liable for such tax with respect to a transfer if
the transferee furnishes to the transferor an affidavit that the transferee is
not a disqualified organization and, as of the time of the transfer, the
transferor does not have actual knowledge that such affidavit is false.
Moreover, an entity will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that (i) residual interests in such entity are
not held by disqualified organizations and (ii) information necessary
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for the application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Securities and certain other
provisions that are intended to meet this requirement will be included in the
related Indenture or Pooling Agreement, as the case may be, and will be
discussed in any Prospectus Supplement relating to the offering of any REMIC
Residual Security.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Security, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Security that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by section 511
of the Code or (iii) any organization described in section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
Pass-Through of Miscellaneous Itemized Deductions
Fees and expenses of a REMIC generally will be allocated to the holders of
the related REMIC Residual Securities. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single Class
grantor trust, all or a portion of such fees and expenses should be allocated to
the holders of the related REMIC Regular Securities. In general, such fees and
expenses will be allocated to holders of the related REMIC Residual Securities
in their entirety and will not be allocated to the holders of the related REMIC
Regular Securities, except as disclosed in the related Prospectus Supplement.
With respect to REMIC Residual Securities or REMIC Regular Securities the
holders of which receive an allocation of fees and expenses in accordance with
the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitations of section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate 2% of a taxpayer's adjusted gross income. In
addition, section 68 of the Code provides that the amount of itemized deductions
otherwise allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over such amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The amount of
additional taxable income reportable by REMIC Securityholders that are subject
to the limitations of either section 67 or section 68 of the Code may be
substantial. Furthermore, in determining the alternative minimum taxable income
of a holder of a REMIC Security that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Securities will
generally not be appropriate investments for individuals,
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estates, or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should consult with
their tax advisors prior to making an investment in such Securities.
Sales of REMIC Securities
If a REMIC Security is sold, the selling Securityholder will recognize
gain or loss equal to the difference between the amount realized on the sale and
its adjusted basis in the REMIC Security. The adjusted basis of a REMIC Regular
Security generally will equal the cost of such REMIC Regular Security to such
Securityholder, increased by income reported by such Securityholder with respect
to such REMIC Regular Security (including original issue discount and market
discount income) and reduced (but not below zero) by distributions on such REMIC
Regular Security received by such Securityholder and by any amortized premium.
The adjusted basis of a REMIC Residual Security will be determined as described
under "--Taxation of Owners of REMIC Residual Securities--Basis Rules, Net
Losses and Distributions". Except as described below, any such gain or loss will
be capital gain or loss, provided such REMIC Security is held as a capital asset
(generally, property held for investment) within the meaning of section 1221 of
the Code. The Code as of the date of this Prospectus provides for generally
lower rates on capital gains of individuals other than short term capital gains.
No such rate differential exists for corporations as of the date hereof. In
addition, the distinction between a capital gain or loss and ordinary income or
loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Security that might otherwise be a
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Security assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on Treasury
securities having a maturity comparable to that of the Security based on the
application of the Prepayment Assumption to such Security), determined as of the
date of purchase of such REMIC Regular Security, over (ii) the amount of
ordinary income actually includible in the seller's income prior to such sale.
In addition, gain recognized on the sale of a REMIC Regular Security by a seller
who purchased such REMIC Regular Security at a market discount will be taxable
as ordinary income in an amount not exceeding the portion of such discount that
accrued during the period such REMIC Security was held by such holder, reduced
by any market discount included in income under the rules described above under
"--Taxation of Owners of REMIC Regular Securities--Market Discount" and
"--Premium".
REMIC Securities will be "evidences of indebtedness" within the meaning of
section 582(c)(1) of the Code, so that gain or loss recognized from the sale of
a REMIC Security by a bank or thrift institution to which such Section applies
will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Security that might
otherwise be capital gain may be treated as ordinary income to the extent that
such Security is held as part of a "conversion transaction" within the meaning
of section 1258 of the Code. A conversion transaction generally is one in which
the taxpayer has taken two or more positions in the same or similar property
that reduce or eliminate market risk, if substantially all of the taxpayer's
return is attributable to the time value of the taxpayer's net investment in
such transaction. The amount of gain so realized in a conversion transaction
that is recharacterized as ordinary income generally will not exceed the amount
of interest that would have accrued on the taxpayer's net investment at 120% of
the appropriate "applicable Federal rate" at the time the taxpayer enters into
the conversion transaction, subject to appropriate reduction for prior inclusion
of interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
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Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Security reacquires such REMIC Residual Security, or
acquires any other residual interest in a REMIC or any similar interest in a
"taxable mortgage pool" (as defined in section 7701(i) of the Code) during the
period beginning six months before, and ending six months after, the date of
such sale, such sale will be subject to the "wash sale" rules of section 1091 of
the Code. In that event, any loss realized by the REMIC Residual
Certificateholder on the sale will not be deductible, but instead will be added
to such REMIC Residual Certificateholder's adjusted basis in the newly-acquired
asset.
Prohibited Transactions Tax and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (a "Prohibited Transactions Tax"). In general,
with certain exceptions, a prohibited transaction means the disposition of a
Mortgage Loan, the receipt of income from a source other than a Mortgage Loan or
certain other permitted investments, the receipt of compensation for services,
or gain from the disposition of an asset purchased with the collections on the
Mortgage Loans being held in temporary investments pending distribution on the
REMIC Securities. With the exception of certain circumstances under which the
Special Servicer may incur such a tax in connection with the operation of
foreclosure property if doing so would in the reasonable judgment of the Special
Servicer be in the best interest of Securityholders, it is not anticipated that
any REMIC will engage in any prohibited transactions as to which it would be
subject to a material Prohibited Transaction Tax.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Indenture, Pooling Agreement and separate S&A
Agreement for a Series of REMIC Securities will include provisions designed to
prevent the acceptance of any contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property", determined by reference to the
rules applicable to real estate investment trusts. "Net income from foreclosure
property" generally means income from foreclosure property other than qualifying
rents and other qualifying income for a real estate investment trust. Under
certain circumstances, the Special Servicer may be authorized to incur a tax if
doing so would, in the reasonable judgment of the Special Servicer, maximize the
net after-tax proceeds to Securityholders.
It is not anticipated that any material state or local income or
franchise tax will be imposed on any REMIC. The related Prospectus Supplement
will include relevant disclosure when such is not the case.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related REMIC Administrator, Master Servicer, Special Servicer, Manager or
Trustee, in any case out of its own funds, provided that such person has
sufficient assets to do so, and provided further that such tax arises out of a
breach of such person's obligations under the related transaction documents
(including any Indenture, Pooling Agreement and separate S&A Agreement). Any
such tax not borne by a REMIC Administrator, a Master Servicer, Special
Servicer, Manager or Trustee would be charged against the related Collateral or
Trust Fund resulting in a reduction in amounts payable to holders of the related
REMIC Securities.
Termination
A REMIC will terminate immediately after the Payment Date or Distribution
Date, as applicable, following receipt by the REMIC of the final payment or
distribution in respect of the Mortgage Loans or upon a sale of the REMIC's
assets following the adoption by the REMIC of a plan of complete liquidation.
The last payment or distribution on a REMIC Regular Security will be treated as
a payment in retirement of a debt
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instrument. In the case of a REMIC Residual Security, if the last payment or
distribution on such REMIC Residual Security is less than the REMIC Residual
Certificateholder's adjusted basis in such Security, such REMIC Residual
Securityholder should (but may not) be treated as realizing a capital loss equal
to the amount of such difference.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the Code, the
REMIC will be treated as a partnership and REMIC Residual Securityholders will
be treated as partners. The REMIC Administrator or another party specified in
the related Prospectus Supplement will file REMIC federal income tax returns on
behalf of the related REMIC, will be designated and act as (or as agent on
behalf of) the "tax matters person" with respect to the related REMIC in all
respects and may hold at least a nominal amount of the related Class of REMIC
Residual Securities.
As the tax matters person, the REMIC Administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Securityholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Securityholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item. Adjustments made to the REMIC's tax return may require a
REMIC Residual Securityholder to make corresponding adjustments on its return,
and an audit of the REMIC's tax return, or the adjustments resulting from such
an audit, could result in an audit of a REMIC Residual Securityholder's return.
No REMIC will be registered as a tax shelter pursuant to section 6111 of the
Code because it is not anticipated that any REMIC will have a net loss for any
of the first five taxable years of its existence. Any person that holds a REMIC
Residual Security as a nominee for another person may be required to furnish to
the related REMIC, in a manner to be provided in Treasury regulations, the name
and address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Securities is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Securities that are corporations, trusts,
securities dealers and certain other nonindividuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Security issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring such information to be reported to the IRS. Reporting with respect
to REMIC Residual Securities, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the REMIC's assets
will be made as required under the Treasury regulations, generally on a
quarterly basis.
As applicable, the REMIC Regular Security information reports will include
a statement of the adjusted issue price of the REMIC Regular Security at the
beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Securities--Market Discount".
The responsibility for complying with the foregoing reporting rules will
be borne by the REMIC Administrator or by such other party as may be specified
in the related Prospectus Supplement.
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Backup Withholding with Respect to REMIC Securities
Payments of interest and principal, as well as payments of proceeds from
the sale of REMIC Securities, 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 distribution 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.
Foreign Investors in REMIC Securities
A REMIC Regular Securityholder that is not a "United States Person" (as
defined below) and is not subject to federal income tax as a result of any
direct or indirect connection to the United States in addition to its ownership
of a REMIC Regular Security will not, except under the circumstances, if any,
disclosed in the related Prospectus Supplement, be subject to United States
federal income or withholding tax in respect of a distribution on a REMIC
Regular Security, provided that the holder complies to the extent necessary with
certain identification requirements (including delivery of a statement, signed
by the Securityholder under penalties of perjury, certifying that such
Securityholder is not a United States Person and providing the name and address
of such Securityholder). For these purposes, "United States Person" means a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in, or under the laws of, the United States or any
political subdivision thereof, an estate whose income from sources without the
United States is includible in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States or a trust as to which (i) a court in the United States
is able to exercise primary supervision over the administration of the trust and
(ii) one or more United States fiduciaries have the right to control all
substantial decisions of the trust.
It is possible that the IRS may assert that the foregoing tax exemption
should not apply with respect to a REMIC Regular Security held by a REMIC
Residual Securityholder that owns directly or indirectly a 10% or greater
interest in the REMIC Residual Securities or possibly, in a mortgagor with
respect to one or more of the Mortgage Loans. In addition, the foregoing rules
may not apply to exempt a controlled foreign corporation from withholding taxes
on such controlled foreign corporation's allocable portion of the interest
income received by such controlled foreign corporation through a REMIC from a
mortgagor with respect to one or more Mortgage Loans that is a "related person"
to such controlled foreign corporation. If the holder does not qualify for
exemption, distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to a withholding
tax rate of 30%, subject to reduction under any applicable tax treaty.
Further, it appears that a REMIC Regular Security would not be included in
the estate of a nonresident alien individual and would not be subject to United
States estate taxes. However, Securityholders who are nonresident alien
individuals should consult their tax advisors concerning this question.
Transfers of REMIC Residual Securities to investors that are not United
States Persons will be prohibited under the related Indenture or Pooling
Agreement, as applicable.
Grantor Trusts
General
Classification of Grantor Trust Funds. With respect to each Series of
Grantor Trust Certificates, Sidley & Austin, special tax counsel to the Company,
will deliver its opinion to the effect that, assuming compliance with all
provisions of the related Pooling Agreement, the related Grantor Trust Fund will
be
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classified as a grantor trust under subpart E, part I of subchapter J of the
Code and not as a partnership or an association taxable as a corporation.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a Certificate Interest Rate, will be referred to as a
"Grantor Trust Fractional Interest Certificate". A Grantor Trust Certificate
representing ownership of all or a portion of the difference between interest
paid on the Mortgage Loans constituting the related Grantor Trust Fund (net of
normal administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund
will be referred to as a "Grantor Trust Strip Certificate". A Grantor Trust
Strip Certificate may also evidence a nominal or minor ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust Certificates. If and to
the extent described in the related Prospectus Supplement, Grantor Trust
Fractional Interest Certificates will represent interests in (i) "loans . . .
secured by an interest in real property" within the meaning of section
7701(a)(19)(C)(v) of the Code (but generally only to the extent that the
underlying Mortgage Loans have been made with respect to property that is used
for residential or certain other prescribed purposes); (ii) "obligation[s]
(including any participation or Certificate of beneficial ownership therein)
which . . .[are] principally secured by an interest in real property" within the
meaning of section 860G(a)(3) of the Code; and (iii) "real estate assets" within
the meaning of section 856(c)(5)(A) of the Code. In addition, if and to the
extent described in the related Prospectus Supplement, counsel to the Company
will deliver an opinion that interest on Grantor Trust Fractional Interest
Certificates will to the same extent be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of section 856(c)(3)(B) of the Code.
However, even if Grantor Trust Strip Certificates evidence an interest in
a Grantor Trust Fund consisting of Mortgage Loans that are "loans . . . secured
by an interest in real property" within the meaning of section 7701(a)(19)(C)(v)
of the Code and "real estate assets" within the meaning of section 856(c)(5)(A)
of the Code, and the interest on which is "interest on obligations secured by
mortgages on real property" within the meaning of section 856(c)(3)(A) of the
Code, it is unclear whether the Grantor Trust Strip Certificates, and the income
therefrom, will be so characterized. Counsel to the Company will not deliver any
opinion on these questions. Prospective purchasers to which such
characterization of an investment in Grantor Trust Strip Certificates is
material should consult their tax advisors regarding whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular Series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual
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whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
such amount or (ii) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. The amount of additional taxable income reportable by
holders of Grantor Trust Fractional Interest Certificates who are subject to the
limitations of either section 67 or section 68 of the Code may be substantial.
Further, Certificateholders (other than corporations) subject to the alternative
minimum tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple Classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are issued, such fees
and expenses should be allocated among the Classes of Grantor Trust Certificates
using a method that recognizes that each such Class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and Certificateholders on a method that allocates such
expenses among Classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such Class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any Series will depend on whether they are subject to the
"stripped bond" rules of section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a Class of Grantor
Trust Strip Certificates is issued as part of the same Certificate Series or
(ii) the Company or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
related Prospectus Supplement will include information regarding servicing fees
paid to a Master Servicer, a Special Servicer, any Sub-Servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "--Sales of Grantor Trust Certificates" below) and the yield of such
Grantor Trust Fractional Interest Certificate to such holder. Such yield would
be computed as the rate (compounded based on the regular interval between
payment dates) that, if used to discount the holder's share of future payments
on the Mortgage Loans, would cause the present value of those future payments to
equal the price at which the holder purchased such Certificate. In computing
yield under the stripped bond rules, a Certificateholder's share of future
payments on the Mortgage Loans will not include any payments made in respect of
any ownership interest in the Mortgage Loans retained by the Company, the Master
Servicer, the Special Servicer, any Sub-Servicer or their respective affiliates,
but will include such Certificateholder's share of any reasonable servicing fees
and other expenses.
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Since its enactment in 1986, section 1272(a)(6) of the Code has required
(i) the use of a reasonable prepayment assumption in accruing original issue
discount and (ii) adjustments in the accrual of original issue discount when
prepayments do not conform to the prepayment assumption, with respect to REMIC
regular interests and debt instruments with payments that depend on the receipt
of payments on other debt instruments pledged to secure them. Regulations could
have been, but were not, adopted applying those provisions to securities such
as the Grantor Trust Fractional Interest Certificates. The recently enacted
Taxpayer Relief Act of 1997 (the ("1997 Act") extends those rules to "any pool
of debt instruments the yield on which may be affected by reason of prepayments
(or to the extent provided in regulations, by reason of other events)",
effective with respect to tax years beginning after the date of enactment. Until
this new statute is effective, it is unclear whether use of a reasonable
prepayment assumption may be required or permitted without reliance on these
rules. However, taxpayers that account for their income from investments in
pools of prepayable debt instruments in a manner inconsistent with section
1272(a)(6) of the Code will be required to change their existing methods of
accounting for all such investments to be consistent with section 1272(a)(6) of
the Code for taxable years beginning after the enactment of the 1997 Act,
regardless of the date such investments were acquired. Any adjustment to income
or loss due to the change in accounting method will be taken into account
ratably over the four year period beginning with such taxable year. It remains
uncertain, however, whether the assumed prepayment rate would be determined
based on conditions at the time of the first sale of the Grantor Trust
Fractional Interest Certificate (that is, in a manner similar to REMIC Regular
Securities) or, with respect to a particular holder, at the time that holder
purchase the Grantor Trust Fractional Interest Certificate. Certificateholders
are advised to consult their tax advisors concerning reporting original issue
discount in general and, in particular, the use of a prepayment assumption in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates for taxable years beginning both before and after the
enactment of the 1997 Act. No regulations have been issued under section
1272(a)(6) of the Code.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income. If a prepayment assumption is
used, it further appears that no separate item of income or loss should be
recognized upon a prepayment of any particular Mortgage Loan. Instead, a
prepayment should be treated as a partial payment of the stated redemption price
of the Grantor Trust Fractional Interest Certificate and accounted for under a
method similar to that described for taking account of original issue discount
on REMIC Regular Securities. See "--REMICs--Taxation of Owners of REMIC Regular
Securities--Original Issue Discount" above. It is unclear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
In the absence of administrative or further statutory clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each Class of Certificates. However,
neither the Company nor any other person will make any representation that the
Mortgage Loans will in fact prepay at a rate conforming to such Prepayment
Assumption or any other rate or that the Prepayment Assumption will not be
challenged by the IRS on audit. Certificateholders also should bear in mind that
the use of a representative initial offering price will mean that such
information returns or reports, even if otherwise accepted as accurate by the
IRS, will in any event be accurate only as to the initial Certificateholders of
each Certificate Series who bought at that price.
Under Treasury Regulation ss.1.1286-1T, certain stripped bonds are to be
treated as market discount bonds and, accordingly, any purchaser of such a bond
is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing
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of the bond or coupon (i) there is no original issue discount (or only a de
minimis amount of original issue discount) or (ii) the annual stated rate of
interest payable on the original bond is no more than one percentage point lower
than the gross interest rate payable on the original mortgage loan (before
subtracting any servicing fee or any stripped coupon). If interest payable on a
Grantor Trust Fractional Interest Certificate is more than one percentage point
lower than the gross interest rate payable on the Mortgage Loans, the related
Prospectus Supplement will disclose that fact. If the original issue discount or
market discount on a Grantor Trust Fractional Interest Certificate determined
under the stripped bond rules is less than 0.25% of the stated redemption price
multiplied by the weighted average maturity of the Mortgage Loans, then such
original issue discount or market discount will be considered to be de minimis.
Original issue discount or market discount of only a de minimis amount will be
included in income in the same manner as de minimis original issue and market
discount described in "--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--If Stripped Bond Rules Do Not Apply" and "--Market Discount"
below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. In that case, the original
issue discount rules will apply, even if the stripped bond rules do not apply,
to a Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in Mortgage Loans issued with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and their
issue price. For a definition of "stated redemption price," see "Taxation of
Owners of REMIC Regular Securities Original Issue Discount" above. In general,
the issue price of a Mortgage Loan will be the amount received by the borrower
from the lender under the terms of the Mortgage Loan, less any "points" paid by
the borrower, and the stated redemption price of a Mortgage Loan will equal its
principal amount, unless the Mortgage Loan provides for an initial "teaser," or
below-market interest rate. The determination as to whether original issue
discount will be considered to be de minimis will be calculated using the same
test as in the REMIC discussion. See "--Taxation of Owners of REMIC Regular
Securities--Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount.
However, the 1997 Act requires the use of a prepayment assumption with respect
to any pool of debt instruments the yield on which may be affected by
prepayments. It is unclear at this time whether grantor trust information
reports or returns to the IRS and Certificateholders should be based on the use
of a prepayment assumption, particularly in transactions not subject to the
stripped bond rules. Certificateholders are advised to consult their own tax
advisors concerning whether a prepayment assumption should be used in reporting
original issue discount with respect to Grantor Trust Fractional Interest
Certificates, particularly those not subject to the stripped bond rules.
Certificateholders should refer to the related Prospectus Supplement with
respect to each Certificate Series to determine whether and in what manner the
original issue discount rules will apply to Mortgage Loans in such Series and
the method on which information returns or reports to the IRS will be prepared.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage
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Loans. However, each such daily portion will be reduced, if the cost of such
Grantor Trust Fractional Interest Certificate to such purchaser is in excess of
such Certificate's allocable portion of the aggregate "adjusted issue prices" of
the Mortgage Loans held in the related Trust Fund, approximately in proportion
to the ratio such excess bears to such Certificate's allocable portion of the
aggregate original issue discount remaining to be accrued on such Mortgage
Loans. The adjusted issue price of a Mortgage Loan on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Mortgage Loan at the beginning of the accrual
period that includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day. The adjusted
issue price of a Mortgage Loan at the beginning of any accrual period will equal
the issue price of such Mortgage Loan, increased by the aggregate amount of
original issue discount with respect to such Mortgage Loan that accrued in prior
accrual periods, and reduced by the amount of any payments made on such Mortgage
Loan in prior accrual periods of amounts included in its stated redemption
price.
In general, the Trustee or another party specified in the related
Prospectus Supplement will provide to any holder of a Grantor Trust Fractional
Interest Certificate such information as such holder may reasonably request from
time to time with respect to original issue discount accruing on Grantor Trust
Fractional Interest Certificates. See "--Grantor Trust Reporting" below.
Market Discount. If the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent a
Grantor Trust Fractional Interest Certificate is considered to evidence
ownership of an interest in a pool of Mortgage Loans purchased at a "market
discount", that is, in the case of Mortgage Loan issued without original issue
discount, at a purchase price less than their remaining stated redemption prices
(as defined above), or in the case of Mortgage Loans issued with original issue
discount, at a purchase price less than their adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited to payments of stated redemption price on such Mortgage Loan
that are received by (or, in the case of accrual basis Certificateholders, due
to) the Trust Fund in that month. A Certificateholder may elect to include
market discount in income currently as it accrues (under a constant yield method
based on the yield of the Certificate to such holder) rather than including it
on a deferred basis in accordance with the foregoing under rules similar to
those described in "--Taxation of Owners of REMIC Regular Securities--Market
Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, (ii) in the case
of a Mortgage Loan issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. Under
the 1997 Act, it appears that the prepayment assumption, if any, that is used in
calculating the accrual of original issue discount (or the prepayment assumption
that would have been used had there been original issue discount) is to be used
in calculating the accrual of market discount. The effect of using a prepayment
assumption would be to accelerate the reporting of such discount income. Because
the regulations referred to in this paragraph have not been issued and because
the 1997 Act does not specify what rules are to applied with respect to market
discount with respect to pools of loans held in grantor trusts, it is not
possible to predict what effect any such regulations or rules might have on the
tax treatment of a Grantor Trust Fractional Interest purchased at a discount in
the secondary market.
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Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "--REMICs--Taxation of Owners of REMIC Regular
Securities--Original Issue Discount" above.
Further, under the rules described above in --REMICs--Taxation of Owners
of REMIC Regular Securities--Market Discount", any discount that is not original
issue discount and exceeds a de minimis amount may require the deferral of
interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under section 171 of the Code for prior
taxable years, but it appears that a prepayment assumption should be used with
respect to taxable years beginning after the enactment of the 1997 Act. If
premium is not subject to amortization using a prepayment assumption and a
Mortgage Loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the adjusted basis
of the Certificate that is allocable to the Mortgage Loan. If a prepayment
assumption is used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC Regular
Securities. See "--REMICs--Taxation of Owners of REMIC Regular
Securities--Original Issue Discount" above. It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates.
The "stripped coupon" rules of section 1286 of the Code will apply to the
Grantor Trust Strip Certificates. Except as described above in "--Taxation of
Owners of Grantor Trust Fractional Interest Certificates--If Stripped Bond Rules
Apply", no regulations or published rulings under Section 1286 of the Code have
been issued and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates. Accordingly, holders of
Grantor Trust Strip Certificates should consult their tax advisors concerning
the method to be used in reporting income or loss with respect to such
Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "--Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
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Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. No regulations have been adopted applying
those provisions to the Grantor Trust Strip Certificates. The 1997 Act extends
section 1272(a)(6) to any pool of debt instruments the yield on which may be
affected by reason of prepayments, however, for all taxable years beginning
after the enactment of the 1997 Act. It is unclear whether use of a prepayment
assumption may be required or permitted with respect to earlier taxable years in
the absence of regulations and not entirely clear that stripped coupons are
intended to be covered by section 1272(a)(6) as amended by the 1997 Act. It is
also uncertain, in using a prepayment assumption, whether the assumed prepayment
rate would be determined based on conditions at the time of the first sale of
the Grantor Trust Strip Certificate (as would be the case in the case of a REMIC
Regular Security with the same characteristics) or, with respect to any
subsequent holder, based on conditions at the time of purchase of the Grantor
Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower using a prepayment assumption if yield is computed assuming
no prepayments. In the absence of administrative or further statutory
clarification, it currently is intended to base information returns or reports
to the IRS and Certificateholders on the Prepayment Assumption disclosed in the
related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each Class of Certificates, computed
in the manner described herein with respect to REMIC Regular Securities.
However, neither the Company nor any other person will make any representation
that the Mortgage Loans will in fact prepay at a rate conforming to the
Prepayment Assumption or at any other rate or that the Prepayment Assumption
will not be challenged by the IRS on audit. Certificateholders also should bear
in mind that the use of a representative initial offering price will mean that
such information returns or reports, even if otherwise accepted as accurate by
the IRS, will in any event be accurate only as to the initial Certificateholders
of each Certificate Series who bought at that price. Prospective purchasers of
the Grantor Trust Strip Certificates should consult their tax advisors regarding
the use of the Prepayment Assumption.
If the computational method described in "Taxation of Holders of REMIC
Regular Securities --Original Issue Discount" herein produces a negative number,
it appears under section 1272(a)(6) of the Code, as amended by the 1997 Act,
that such amount may not be taken as a current loss or deduction, but may be
required to be carried over and deducted or offset only against future income
derived from the Grantor Trust Strip Certificate or realized only upon its sale.
Such deferral may cause such a loss to be a capital loss. Prospective purchasers
are advised to consult their tax advisers about this issue, particularly in
light of the amendments made by the 1997 Act.
Possible Application of Proposed Contingent Payment Rules. The coupon
stripping rules' general treatment of stripped coupons is to regard them as
newly issued debt instruments in the hands of each purchaser. To the extent that
payments on the Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments. Under the
OID Regulations, debt instruments providing for contingent payments are not
subject to the same rules as debt instruments providing for noncontingent
payments. Final regulations have been promulgated regarding contingent payment
debt instruments. As in the case of the OID
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Regulations, such regulations do not specifically address securities, such as
the Grantor Trust Strip Certificates, that are subject to the stripped bond
rules of section 1286 of the Code or debt instruments subject to section
1272(a)(6) of the Code. It is also uncertain what effect the enactment of the
1997 Act, extending section 1272(a)(6) of the Code to "any pool of debt
instruments the yield on which may be affected by reason of prepayments" may be
with respect to the possible application of the contingent payment debt
instrument rules to Grantor Trust Strip Certificates.
However, if the contingent payment rules under the regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply a "noncontingent bond method". Under that method, the issuer of a Grantor
Trust Strip Certificate would determine a projected payment schedule with
respect to such Grantor Trust Strip Certificate. Holders of Grantor Trust Strip
Certificates would be bound by the issuer's projected payment schedule, which
would consist of all noncontingent payments and a projected amount for each
contingent payment based on the projected yield (as described below) of the
Grantor Trust Strip Certificate. The projected amount of each payment would be
determined so that the projected payment schedule reflected the projected yield
reasonably expected to be received by the holder of a Grantor Trust Strip
Certificate. The projected yield referred to above would be a reasonable rate,
not less than the "applicable Federal rate" that, as of the issue date,
reflected general market conditions, the credit quality of the issuer, and the
terms and conditions of the Mortgage Loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the projected yield, and would add to, or subtract
from, such income any variation between the payment actually received in such
month and the payment originally projected to be made in such month.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus provides lower rates for
individuals on capital gains than ordinary income, but not for corporations. In
addition, the distinction between a capital gain or loss and ordinary income or
loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
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Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. In general, the Trustee or another person
specified in the related Prospectus Supplement will furnish to each holder of a
Grantor Trust Certificate with each distribution a statement setting forth the
amount of such distribution allocable to principal on the underlying Mortgage
Loans and to interest thereon at the related Certificate Interest Rate. In
addition, the Trustee or Master Servicer, as applicable, will furnish, within a
reasonable time after the end of each calendar year, to each holder of a Grantor
Trust Certificate who was such a holder at any time during such year,
information regarding the amount of servicing compensation received by the
Master Servicer, the Special Servicer or any Sub-Servicer, and such other
customary factual information as the Company or the reporting party deems
necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the Trustee's
or Master Servicer's, as the case may be, information reports of such items of
income and expense. Moreover, such information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their Certificates at the representative
initial offering price used in preparing such reports.
Backup Withholding. In general, the rules described above in
"--REMICs--Backup Withholding with Respect to REMIC Securities" will also apply
to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Securities in "--REMICs--Foreign Investors in REMIC Securities" above
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, except under the circumstances, if any, disclosed in the related
Prospectus Supplement, be eligible for exemption from U.S. withholding tax,
subject to the conditions described in such discussion, only to the extent the
related Mortgage Loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
Debt Securities
General
Classification as Debt. With respect to each Series of Debt Securities,
Sidley & Austin, special tax counsel to the Company will delivery its opinion to
the effect that, assuming compliance with all provisions of the related
Indenture and certain other documents (and subject to certain assumptions
therein), the Offered Bonds of such Series will be characterized as indebtedness
of the related Issuer, and not as an ownership interest in the Mortgage Loans
pledged to secure the Offered Bonds or in Issuer. For purposes of the following
discussion, references to "Bond" or "Offered Bond" (or to the plural forms
thereof) are to only such Bonds as constitute Debt Securities.
TMP Considerations. 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 corporation. 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
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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, or possibly the Collateral, for certain
Bond Series 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 one
or more "qualified REIT subsidiaries" (as defined in section 856(i) of the Code)
of CRIIMI MAE, 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 CRIIMI MAE
and such owner or owners qualify as a REIT and as qualified REIT subsidiaries,
respectively, characterization of the Issuer as a TMP will result only in the
shareholders of CRIIMI MAE 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
"real estate mortgage investment conduit," or REMIC, within the mean of Section
860D of the Code. Characterization of the Issuer as an owner's trust or a
"qualified REIT subsidiary" would not result in entity-level, corporate income
taxation with respect to the Issuer. In the event of CRIIMI MAE's failure to
continue to qualify as a REIT or the failure of the owner or owners of the
Issuer to continue to qualify as "qualified REIT subsidiaries" 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's trust or a "qualified REIT
subsidiary" or of the Company as a "qualified REIT subsidiary" for federal tax
purposes.
Taxation of Bondholders
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.
Interest and Original Issue Discount. Certain Classes of Bonds may be
issued with original issue discount. Any holders of Bonds issued with original
issue discount generally will be required to include original issue discount in
income as it accrues, in accordance with the method described below, in advance
of the receipt of the cash attributable to such income. In addition, section
1272(a)(6) of the Code provides special rules applicable to any Class of Offered
Bonds issued with original issue discount. Regulations have not been issued
under section 1272(a)(6).
Under the OID Regulations, a holder of an Offered Bond issued with a de
minimis amount of original issue discount must include such de minimis discount
in income, on a pro rata basis, as principal payments are made on the Bond.
Stated interest on the Offered Bonds will be taxable to a Bondholder as ordinary
interest income when received or accrued in accordance with such Bondholder's
method of tax accounting.
Section 1272(a)(6) of the Code requires that a prepayment assumption (the
"Prepayment Assumption") be used with respect to the collateral underlying debt
instruments in computing the accrual of original issue discount if payments
under such debt instruments may be accelerated by reason of prepayments of other
obligations securing such debt instruments, and that adjustments be made in the
amount and rate of accrual of such discount to reflect differences between the
actual prepayment rate and the Prepayment Assumption. The Prepayment Assumption
is to be determined in a manner prescribed in Treasury regulations; as noted
above,
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those regulations have not been issued. The Conference Committee Report (the
"Committee Report") accompanying the Tax Reform Act of 1986 indicates that the
regulations will provide that the Prepayment Assumption used with respect to an
Offered Bond must be the same as that used in pricing the initial offering of
such Bond.
Market Discount. A Bondholder that purchases an Offered Bond at a market
discount, that is, in the case of an Offered Bond issued without original issue
discount, at a purchase price less than its remaining stated principal amount,
or in the case of a Bond issued with original issue discount, at a purchase
price, less than its adjusted issue price, will recognize gain upon receipt of
each payment representing stated redemption price. In particular, under section
1276 of the Code, such a Bondholder generally will be required to allocate the
portion of each such payment representing stated redemption price first to
accrued market discount not previously included in income, and to recognize
ordinary income to that extent. The holder of an Offered Bond may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such Bondholder on or after
the first day of the first taxable year to which such election applies. In
addition, the OID Regulations permit the holder of an Offered Bond to elect to
accrue all interest, discount (including de minimis market or original issue
discount) and premium in income as interest, based on a constant yield method.
If such an election were made with respect to an Offered Bond with market
discount, the Bondholder would be deemed to have made an election to include
currently market discount in income with respect to all other debt instruments
having market discount that such Bondholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Bondholder that made this election for an Offered Bond that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Bondholder owns or acquires. See "--Debt Securities--Premium" below.
Each of these elections to accrue interest, discount and premium with respect to
an Offered Bond on a constant yield method or as interest would be irrevocable.
However, market discount with respect to an Offered Bond will be
considered to be de minimis for purposes section 1276 of the Code if such market
discount is less than 0.25% of the remaining stated redemption price of such
Bond multiplied by the number of complete years to maturity remaining after the
date of its purchase. In interpreting a similar rule with respect to original
issue discount on obligations payable in installments, the OID Regulations refer
to the weighted average maturity of obligations, and it is likely that the same
rule will be applied with respect to market discount, presumably taking into
account the Prepayment Assumption. If market discount is treated as de minimis
under this rule, it appears that the actual discount would be treated in a
manner similar to original issue discount of a de minimis amount. See
"--Interest and Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on Offered Bonds should accrue, at
the Bondholder's option: (i) on the basis of a constant yield method, (ii) in
the case of an Offered Bond issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total amount of stated interest
remaining to be paid on the Offered Bonds as of the beginning of the accrual
period or (iii) in the case of an Offered Bond issued with original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining on the Offered Bond at the beginning
of the accrual period. Moreover, the Prepayment Assumption that would be used in
calculating the accrual of original issue discount is also used in calculating
the accrual of market discount. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of an Offered Bond purchased at a
discount in the secondary market.
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To the extent that Offered Bonds provide for monthly or other periodic
payments throughout their term, the effect of these rules may be to require
market discount to be includible in income at a rate that is not significantly
slower than the rate at which such discount would accrue if it were original
issue discount. Moreover, in any event a holder of an Offered Bond generally
will be required to treat a portion of any gain on the sale or exchange of such
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.
Further, under section 1277 of the Code, a holder of an Offered Bond may
be required to defer a portion of its interest deductions for the taxable year
attributable to any indebtedness incurred or continued to purchase or carry an
Offered Bond purchased with market discount. For these purposes, the de minimis
rule referred to above applies. Any such deferred interest expense would not
exceed the market discount that accrues during such taxable year and is, in
general, allowed as a deduction not later than the year in which such market
discount is includible in income. If such holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
Premium. An Offered Bond purchased at a cost (excluding any portion of
such cost attributable to accrued qualified stated interest) greater than its
remaining stated redemption price will be considered to be purchased at a
premium. The holder of such an Offered Bond may elect under section 171 of the
Code to amortize such premium under the constant yield method over the remaining
term of the Bond. If made, such an election will apply to all debt instruments
having amortizable bond premium that the holder owns or subsequently acquires.
Amortizable premium will be treated as an offset to interest income on the
related Offered Bond, rather than as a separate interest deduction. The OID
Regulations also permit holders of Offered Bonds to elect to include all
interest, discount and premium in income based on a constant yield method,
further treating the Bondholder as having made the election to amortize premium
generally. See "--Debt Securities--Market Discount" above. The Committee Report
states that the same rules that apply to accrual of market discount (which rules
may require use of a prepayment assumption in accruing market discount with
respect to Offered Bonds without regard to whether such Bonds have original
issue discount) would also apply in amortizing bond premium under section 171 of
the Code.
Realized Losses. Under section 166 of the Code, both corporate holders of
the Offered Bonds and noncorporate holders of the Offered Bonds that acquire
such Bonds in connection with a trade or business should be allowed to deduct,
as ordinary losses, any losses sustained during a taxable year in which their
Bonds become wholly or partially worthless as the result of one or more realized
losses on the related Mortgage Assets. However, it appears that a noncorporate
holder that does not acquire an Offered Bond in connection with a trade or
business will not be entitled to deduct a loss under section 166 of the Code
until such holder's Offered Bond becomes wholly worthless and that the loss will
be characterized as a short-term capital loss.
Each holder of an Offered Bond will be required to accrue interest and
original issue discount with respect to such Bond, without giving effect to any
reductions in distributions attributable to defaults or delinquencies on the
related Mortgage Assets until it can be established that any such reduction
ultimately will not be recoverable. As a result, the amount of taxable income
reported in any period by the holder of an Offered Bond could exceed the amount
of economic income actually realized by the holder in such period. Although the
holder of an Offered Bond eventually will recognize a loss or reduction in
income attributable to previously accrued and included income that, as the
result of a realized loss, ultimately will not be realized, the law is unclear
with respect to the timing and character of such loss or reduction in income.
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Sales of Offered Bonds. If an Offered Bond is sold, the selling Bondholder
will recognize gain or loss equal to the difference between the amount realized
on the sale and its adjusted basis in the Offered Bond. The adjusted basis of an
Offered Bond generally will equal the cost of such Bond to such Bondholder,
increased by income reported by such Bondholder with respect to such Bond
(including original issue discount and market discount income) and reduced (but
not below zero) by any amortized premium and any payments on such Offered Bond
received by such Bondholder. Except as provided in the following three
paragraphs, any such gain or loss will be capital gain or loss, provided such
Offered Bond is held as a capital asset (generally, property held for
investment) within the meaning of Section 1221 of the Code. The Code as of the
date of this Prospectus generally lower tax rates on the capital gains of
individuals other than short-term capital gains. No such rate differential
exists for corporations. In addition, the distinction between a capital gain or
loss and ordinary income or loss remains relevant for other purposes.
Gain recognized on the sale of an Offered Bond by a seller who purchased
such Bond at a market discount will be taxable as ordinary income in an amount
not exceeding the portion of such discount that accrued during the period such
Bond was held by such holder, reduced by any market discount included in income
under the rules described above under "--Debt Securities--Market Discount" and
"--Debt Securities--Premium."
A portion of any gain from the sale of an Offered Bond that might
otherwise be capital gain may be treated as ordinary income to the extent that
such Bond is held as part of a "conversion transaction" within the meaning of
section 1258 of the Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in the same or similar property that
reduce or eliminate market risk, if substantially all of the taxpayer's return
is attributable to the time value of the taxpayer's net investment in such
transaction. The amount of gain so realized in a conversion transaction that is
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment at 120% of the
appropriate "applicable Federal rate" (which rate is computed and published
monthly by the IRS) at the time the taxpayer enters into the conversion
transaction, subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
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 distribution 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, the General Administrator or another specified party on
behalf of the related 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.
Tax Treatment of Foreign Investors. Interest paid on an Offered Bond to a
nonresident alien individual, foreign partnership or foreign corporation that
has no connection with the United States other than holding Bonds
("Nonresidents") will normally qualify as portfolio interest (except where (i)
the recipient is a holder, directly or by attribution, of 10% or more of the
capital or profits interest in CRIIMI MAE, the Company or the Issuer or,
possibly, in a mortgagor on a Mortgage Loan or (ii) the recipient is a
controlled foreign corporation to which CRIIMI MAE, the Company or the Issuer
or, possibly, a mortgagor on a Mortgage Loan is a related person) and will be
exempt from federal income tax. Upon receipt of appropriate
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ownership statements, the Issuer normally will be relieved of obligations to
withhold tax from such interest payments. These provisions supersede the
generally applicable provisions of United States law that would otherwise
require the issuer to withhold at a 30% rate (unless such rate were reduced or
eliminated by an applicable tax treaty) on, among other things, interest and
other fixed or determinable, annual or periodic income paid to Nonresidents.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Material Federal Income Tax Consequences", potential investors should consider
the state and local tax consequences of the acquisition, ownership, and
disposition of Offered Securities. State tax law may differ substantially from
the corresponding federal law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their tax advisors with respect
to the various tax consequences of investments in the Offered Securities.
ERISA CONSIDERATIONS
Summary
As outlined below, the Employee Retirement Income Security Act of 1974,
as amended, ("ERISA") prohibits plans subject to ERISA and entities holding
assets of such plans (as well as certain other plans that are subject to Section
4975 of the Code) from purchasing Offered Securities if such purchase and/or the
holding of such Offered Securities would constitute a "prohibited transaction,"
as described below, for which no exemptive relief is available. In general,
certain prohibited transaction class exemptions, issued by the Department of
Labor may provide an exemption for the purchase and holding of the Offered
Securities, if the applicable requirements of such exemptions are satisfied. In
addition to the discussion below, the applicable Prospectus Supplement may
contain information regarding the availability of individual or class
exemptions. Accordingly, each investor using assets of a plan subject to ERISA
or Section 4975 of the Code must review with its counsel the discussion below
along with the applicable Prospectus Supplement with respect to the availability
of any such exemption.
General
ERISA and the Code impose certain requirements on employee benefit plans,
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts (and as applicable, insurance company general accounts) in
which such plans, accounts or arrangements are invested, that are subject to the
fiduciary responsibility provisions of ERISA or Section 4975 of the Code
("Plans"), and on persons who are fiduciaries with respect to such Plans, in
connection with the investment of Plan assets. Certain employee benefit plans,
such as governmental plans (as defined in Section 3(32) of ERISA), and, if no
election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA or Section 4975 of
the Code. Accordingly, assets of such plans may be invested in Offered
Securities without regard to the ERISA considerations described below, subject
to the provisions of other applicable federal and state law. Any such plan which
is qualified under Sections 401(a) of the Code and whose underlying trust is
exempt from taxation under Section 501(a) of the Code, however, is subject to
the prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of
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the Code prohibit a broad range of transactions involving assets of a Plan and
persons ("parties in interest" within the meaning of ERISA and "disqualified
persons" within the meaning of the Code; collectively, "Parties in Interest")
who have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. The types of transactions between Plans
and Parties in Interest that are prohibited include: (a) sales, exchanges or
leases of property, (b) loans or other extensions of credit, (c) the furnishing
of goods and services, and (d) any transaction in which a Plan fiduciary deals
with assets of the Plan in his own interest or for his own account. Certain
Parties in Interest that participate in a prohibited transaction may be subject
to an excise tax imposed pursuant to Section 4975 of the Code or a penalty
imposed pursuant to Section 502(i) of ERISA, unless a statutory or
administrative exemption is available. In addition, the persons involved in the
prohibited transaction may have to rescind the transaction and pay an amount to
the Plan for any losses realized by the Plan or profits realized by such
persons, individual retirement accounts involved in the transaction may be
disqualified resulting in adverse tax consequences to the owner of such account
and certain other liabilities could result that would have a significant adverse
effect on such person.
Plan Asset Regulations
A Plan's investment in Offered Securities may cause the underlying
Mortgage Assets and other assets included in a related Trust Fund to be deemed
assets of such Plan. Section 2510.3-101 of the regulations (the "Plan Asset
Regulations") of the United States Department of Labor (the "DOL") provides that
when a Plan acquires an equity interest in an entity, the Plan's assets include
both such equity interest and an undivided interest in each of the underlying
assets of the entity, unless certain exceptions apply, including that the equity
participation in the entity by "benefit plan investors" (i.e., Plans and certain
employee benefit plans not subject to ERISA) is not "significant", both as
defined therein. For this purpose, in general, equity participation by benefit
plan investors will be "significant" on any date if 25% or more of the value of
any class of equity interests in the entity is held by benefit plan investors
(determined by not including the investments of persons with discretionary
authority or control over the assets of such entity, of any person who provides
investment advice for a fee (direct or indirect) with respect to such assets,
and "affiliates" (as defined in the DOL regulations relating to Plan assets) of
such persons). The Certificates of a Series will, and the Bonds of a Series
could, be treated as "equity" for purposes of these regulations. Equity
participation in the Trust Fund for any Certificate Series will be significant
on any date if, immediately after the most recent acquisition of any Certificate
of that Series, 25% or more of any Class of Certificates of that Series is held
by benefit plan investors (determined by not including the investments of the
Company, the Trustee, the Master Servicer, the Special Servicer, any other
parties with discretionary authority over the assets of such Trust Fund and
their respective affiliates). There can be no assurance that the Offered Bonds
of any Bond Series will not also be characterized as representing an equity
interest in the related Issuer or in the Collateral securing such Offered Bonds
(in which case the preceding sentence would likewise apply to any Class of
Offered Bonds so characterized). If a Class of Offered Bonds is characterized as
"debt" rather than "equity" for purposes of the Plan Asset Regulations, then the
related Underlying Assets would not be treated as assets of Plans that directly
or indirectly purchase such Offered Bonds, solely on account of such purchase.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Underlying Assets in respect of any Series constitute Plan assets,
then any party exercising management or discretionary control regarding those
assets, such as a Master Servicer, a Special Servicer, any Sub-Servicer, a
Manager, a Trustee, the obligor under any related credit enhancement mechanism,
or certain affiliates thereof, may be deemed to be a Plan "fiduciary" with
respect to the investing Plan and thus subject to the fiduciary responsibility
provisions of ERISA. In addition, if the Underlying Assets for any Series
constitute Plan assets, the Company, the Issuer (in the case of a Bond Series),
any related REMIC Administrator, any mortgagor with respect to a related
Mortgage Loan or a mortgage loan underlying a related Underlying MBS, as well as
each of the parties described in the preceding sentence, may become Parties in
Interest with respect to an investing Plan (or of a Plan holding an interest in
an investing entity). Thus, if the Underlying Assets, including the Mortgage
Assets, for any Series constitute Plan assets, the operation of the related
Collateral or Trust Fund, as the case may be, may involve a prohibited
transaction
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under ERISA or the Code. For example, if a person who is a Party in Interest
with respect to an investing Plan is a mortgagor with respect to a Mortgage Loan
included in a Mortgage Asset Pool, the purchase of Securities of the related
Series by the Plan could constitute a prohibited loan between a Plan and a Party
in Interest.
The Plan Asset Regulations provide that where a Plan acquires a
"guaranteed governmental mortgage pool certificate", the Plan's assets include
such certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" certain FHLMC Certificates, GNMA Certificates and
FNMA Certificates, but do not include FAMC Certificates. Accordingly, even if
such types of Underlying MBS (other than FAMC Certificates) included in a
Mortgage Asset Pool were deemed to be assets of Plan investors, the mortgages
underlying such Underlying MBS (other than FAMC Certificates) would not be
treated as assets of such Plans. Thus, the prohibited transaction described in
the preceding paragraph (regarding a prohibited loan) would not occur with
respect to such types of Underlying MBS (other than FAMC Certificates) held in a
Mortgage Asset Pool, even if such Underlying MBS were treated as assets of
Plans. Private label mortgage participations, mortgage pass-through
certificates, FAMC Certificates or other mortgage-backed securities are not
"guaranteed governmental mortgage pool certificates" within the meaning of the
Plan Asset Regulations.
In addition, and without regard to whether the Mortgage Assets and other
Underlying Assets in respect of any Series constitute Plan assets, the
acquisition or holding of Securities by or on behalf of a Plan could give rise
to a prohibited transaction if the Company, the related Trustee or any related
Underwriter, Master Servicer, Special Servicer, Sub-Servicer, REMIC
Administrator, Manager, mortgagor or obligor under any credit enhancement
mechanism, or any of certain affiliates thereof, is or becomes a Party in
Interest with respect to an investing Plan. Accordingly, potential Plan
investors should consult their counsel and review the ERISA discussion in the
related Prospectus Supplement before purchasing any Offered Securities.
Prohibited Transaction Exemptions
In considering an investment in the Offered Securities, a Plan fiduciary
should consider the availability of prohibited transaction exemptions
promulgated by the DOL including, among others, Prohibited Transaction Class
Exemption ("PTCE") 75-1, which exempts certain transactions involving Plans and
certain broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts
certain transactions between insurance company separate accounts and Parties in
Interest; PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager"; PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest; and PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager". There can be no assurance that any of these class exemptions will
apply with respect to any particular Plan investment in the Securities or, even
if it were deemed to apply, that any exemption would apply to all transactions
that may occur in connection with such investment. The Prospectus Supplement
with respect to the Offered Securities of any Series may contain additional
information regarding the availability of other individual or class exemptions
with respect to such Offered Securities.
Insurance Company General Accounts
In addition to any exemption that may be available under PTCE 95-60 for
the purchase and holding of Offered Securities by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the Code, for transactions involving an insurance company
general account. Pursuant to Section 401(c) of ERISA, the DOL is required to
issue final regulations ("401(c) Regulations") no later than December 31, 1997,
which are to provide guidance for the purpose of determining,
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in cases where insurance policies supported by an insurer's general account are
issued to or for the benefit of a Plan on or before December 31, 1998, which
general account assets constitute Plan assets. Section 401(c) of ERISA generally
provides that, until the date which is 18 months after the 401(c) Regulations
become final, no person shall be subject to liability under Part 4 of Title I of
ERISA or Section 4975 of the Code on the basis of a claim that the assets of an
insurance company general account constitute Plan assets, unless (i) as
otherwise provided by the Secretary of Labor in the 401(c) Regulations to
prevent avoidance of the regulations or (ii) an action is brought by the
Secretary of Labor for certain breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies issued to a
Plan after December 31, 1998 or issued to Plans on or before December 31, 1998
for which the insurance company does not comply with the 401(c) Regulations may
be treated as Plan assets. In addition, because Section 401(c) of ERISA does not
relate to insurance company separate accounts, separate account assets are still
treated as Plan assets of any Plan invested in such separate account. Insurance
companies contemplating the investment of general account assets in Offered
Securities should consult with their legal counsel with respect to the
applicability of Section 401(c) of ERISA, including the general account's
ability to continue to hold such Securities after the date which is 18 months
after the date the 401(c) Regulations become final.
Consultation With Counsel
Any Plan fiduciary which proposes to purchase Offered Securities on behalf
of or with assets of a Plan should consider its general fiduciary obligations
under ERISA and should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and the availability of
any prohibited transaction exemption in connection therewith.
Tax Exempt Investors
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusions" of a REMIC allocated to a REMIC Residual Security held by a
Tax-Exempt Investor will be considered UBTI and thus will be subject to federal
income tax. See "Material Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Residual Securities--Excess Inclusions".
LEGAL INVESTMENT
If and to the extent so specified in the related Prospectus Supplement,
the Offered Securities of any Series will constitute "mortgage related
securities" for purposes of SMMEA. "Mortgage related securities" are legal
investments 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 persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, insurance companies and pension funds
created pursuant to or existing under the laws of the United States or of any
state), the authorized investments of which are subject to state regulation.
Prior to December 31, 1996, only Classes of Offered Securities that were,
among other things, (i) rated in one of the two highest rating categories by one
or more Rating Agencies and (ii) part of a Series evidencing interests in a
Trust Fund, or secured by Collateral, consisting of loans directly secured by a
first lien on a single parcel of real estate, including stock allocated to a
dwelling unit in a residential cooperative housing corporation, upon which is
located a dwelling or mixed residential and commercial structure, and originated
by the types of originators specified in SMMEA, would be "mortgage related
securities" for purposes of SMMEA. Furthermore, under SMMEA as originally
enacted, if a state enacted legislation prior to October 3, 1991 that
specifically limited the legal investment authority of any the entities
referred to in the preceding paragraph with respect to "mortgage related
securities" under such definition,
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Offered Securities would constitute legal investments for entities subject to
such legislation only to the extent provided in such legislation.
Effective December 31, 1996, the definition of "mortgage related
securities" was modified to include among the types of loans to which such
securities may relate, loans secured by "one or more parcels of real estate upon
which is located one or more commercial structures". In addition, the related
legislative history states that this expanded definition includes multifamily
loans secured by more than one parcel of real estate upon which is located more
than one structure. Until September 23, 2001, any state may enact legislation
limiting the extent to which "mortgage related securities" under this expanded
definition would constitute legal investments under that state's laws.
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
with "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. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe. In
this connection, effective December 31, 1996, the Office of the Comptroller of
the Currency (the "OCC") 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. Section 1.5), certain "Type IV securities", defined in
12 C.F.R. Section 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 Securities will qualify as "commercial
mortgage-related securities", and thus as "Type IV securities", for investment
by national banks. Federal credit unions should review NCUA Letter to Credit
Unions No. 96, as modified by Letter to Credit Unions No. 108, which includes
guidelines to assist federal credit unions in making investment decisions for
mortgage related securities. The NCUA has adopted rules, codified as 12 C.F.R.
Section 703.5(f)-(k), which prohibit federal credit unions from investing in
certain mortgage related securities (including securities such as certain
Classes of Offered Securities), except under limited circumstances.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities". The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS (as defined herein). The
Policy Statement generally indicates that a mortgage derivative product will be
deemed to be high risk if it exhibits greater price volatility than a standard
fixed rate thirty-year mortgage security. According to the Policy Statement,
prior to purchase, a depository institution will be required to determine
whether a mortgage derivative product that it is considering acquiring is
high-risk, and if so that the proposed acquisition would reduce the
institution's overall interest rate risk. Reliance on analysis and documentation
obtained from a securities dealer or other outside party without internal
analysis by the institution would be unacceptable. There can be no assurance as
to which Classes of Securities, including Offered Securities, will be treated as
high-risk under the Policy Statement.
The predecessor to the Office of Thrift Supervision (the "OTS") issued a
bulletin, entitled "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage
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derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain Classes of
Offered Securities. In addition, the National Credit Union Administration has
issued regulations governing federal credit union investments which prohibit
investment in certain specified types of securities, which may include certain
Classes of Offered Securities. Similar policy statements have been issued by
regulators having jurisdiction over other types of depository institutions.
There may be other restrictions on the ability of certain investors either
to purchase certain Classes of Offered Securities or to purchase any Class of
Offered Securities representing more than a specified percentage of the
investor's assets. The Company makes no representations as to the proper
characterization of any Class of Offered Securities for legal investment or
other purposes, or as to the ability of particular investors to purchase any
Class of Offered Securities under applicable legal investment restrictions.
These uncertainties may adversely affect the liquidity of any Class of Offered
Securities. 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 legal advisors in
determining whether and to what extent the Offered Securities of any Class and
Series constitute legal investments or are subject to investment, capital or
other restrictions.
USE OF PROCEEDS
Unless the Company has obtained the related Mortgage Assets through a
contribution of capital, the net proceeds to be received from the sale of the
Securities of any Series will be applied by the Company to the purchase of
Mortgage Assets, to repay financing used to effect such purchase or to cover
expenses related thereto and to the issuance of such Securities. The Company
expects to sell, or cause the sale of, the Securities from time to time, but the
timing and amount of offerings of Securities will depend on a number of factors,
including the volume of Mortgage Assets acquired by the Company, prevailing
interest rates, availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplements
will be offered in Series through one or more of the methods described below.
The Prospectus Supplement prepared for each Series will describe the method of
offering being utilized for the Offered Securities of that Series and will state
the net proceeds to the Company (or, in the case of a Bond Series, the Owner
Trust acting as Issuer) from the sale of such Offered Securities.
The Company intends that Offered Securities will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the Offered
Securities of a particular Series may be made through a combination of two or
more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public offering by one or more underwriters specified in the related
Prospectus Supplement;
2. By placements by the Company (or, in the case of a Bond Series,
the Owner Trust acting as Issuer) with institutional investors through
dealers; and
3. By direct placements by the Company (or, in the case of a Bond
Series, the Owner Trust acting as Issuer) with institutional investors.
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In addition, if specified in the related Prospectus Supplement, the
Offered Securities of a Series may be offered in whole or in part to the seller
of the related Mortgage Assets that would comprise the Collateral or Trust Fund
for such Securities.
The Securities, including the Offered Securities, of any Series may be
resecuritized, and Securities issued as part of such resecuritization may be
offered pursuant hereto.
If underwriters are used in a sale of any Offered Securities (other than
in connection with an underwriting on a best efforts basis), such Securities
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. The
managing underwriter or underwriters with respect to the offer and sale of
Offered Securities of a particular Series will be set forth on the cover of the
Prospectus Supplement relating to such Series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement.
In connection with the sale of Offered Securities, underwriters may
receive compensation from the Company (or, in the case of a Bond Series, the
Owner Trust acting as Issuer) or from purchasers of the Offered Securities in
the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the Offered Securities may be deemed to be
underwriters in connection with such Securities, and any discounts or
commissions received by them from the Company and any profit on the resale of
Offered Securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act.
It is anticipated that the underwriting agreement pertaining to the sale
of the Offered Securities of any Series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Securities if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company and, in the case of a
Bond Series, the related Issuer will indemnify the several underwriters and the
underwriters will indemnify the Company or, in the case of a Bond Series, the
related Issuer against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments required to be made in
respect thereof.
The Prospectus Supplement with respect to any Series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Company or, in the case of a
Bond Series, the related Issuer and purchasers of Offered Securities of such
Series.
The Company anticipates that the Offered Securities will be sold primarily
to institutional investors. Purchasers of Offered Securities, including dealers,
may, depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
reoffers and sales by them of Offered Securities. Holders of Offered Securities
should consult with their legal advisors in this regard prior to any such
reoffer or sale.
As to any Series of Securities, only those Classes rated in an investment
grade rating category by any Rating Agency will be offered hereby. Any unrated
Class may be initially retained by the Company or an affiliate thereof and may
be sold thereby at any time to one or more institutional investors.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters in connection with the Securities of each Series, including
certain federal income tax consequences, will be passed upon for the Company
and, in the case of a Bond Series, the related Issuer by Sidley & Austin.
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FINANCIAL INFORMATION
It is generally expected that a new Trust Fund or Owner Trust, as
applicable, will be formed with respect to each Series of Securities; and, in
any event, no Trust Fund or Owner Trust will engage in any business activities
or have any assets or obligations other than in connection with the related
Series. Accordingly, no financial statements with respect to any Trust Fund or
Owner Trust will be included in this Prospectus or in the related Prospectus
Supplement. The Company has determined that its financial statements will not be
material to the offering of any Offered Securities.
RATING
It is a condition to the issuance of any Class of Offered Securities that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage-backed securities address the likelihood of receipt by
the holders thereof of all payments, or collections on the underlying mortgage
assets, of principal and interest to which such holders are entitled. These
ratings address the structural, legal and issuer-related aspects associated with
such securities, the nature of the underlying mortgage assets 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 borrowers
on the underlying mortgage loans or of the degree by which such prepayments
might differ from those originally anticipated. As a result, Securityholders
might suffer a lower than anticipated yield, and, in addition, holders of
Stripped Interest Securities might, in certain cases fail to recoup their
initial investments. Furthermore, ratings on mortgage-backed securities do not
address the price of such securities or the suitability of such securities to
the investor.
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.
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INDEX OF PRINCIPAL DEFINITIONS
1997 Act ................................................................. 124
401(c) Regulations ....................................................... 137
Accrual Bonds ............................................................ 16
Accrual Certificates ..................................................... 17
Accrual Securities ....................................................... 16
Accrued Bond Interest .................................................... 53
Accrued Certificate Interest ............................................. 56
ADA ...................................................................... 102
ARM Loans ................................................................ 41
Authenticating Agent ..................................................... 71
Available Distribution Amount ............................................ 55
Available Payment Amount ................................................. 52
Bankruptcy Code .......................................................... 36
Bond Interest Rate ....................................................... 14
Bond Notional Amount ..................................................... 14
Bond Principal Amount .................................................... 14
Bond Series .............................................................. 2
Bondholders .............................................................. 52
Bonds .................................................................... 1
Book-Entry Bonds ......................................................... 52
Book-Entry Certificates .................................................. 55
Book-Entry Securities ................................................. 52, 55
Call Risk ................................................................ 25
Cash Flow Arrangement .................................................... 22
CERCLA ................................................................... 99
Certificate Interest Rate ................................................ 15
Certificate Notional Amount .............................................. 15
Certificate Principal Balance ............................................ 15
Certificate Series ....................................................... 2
Certificateholders ....................................................... 55
Certificates ............................................................. 1
Class .................................................................... 1
Closing Date ............................................................. 12
Code ..................................................................... 23
Collateral ............................................................... 1
Collection Account ....................................................... 44
Commercial Properties .................................................... 38
Commission ............................................................... 3
Committee Report .................................................... 107, 132
Company .................................................................. 1
Condemnation Proceeds .................................................... 81
Contributions Tax ........................................................ 119
Cooperatives ............................................................. 38
CPR ...................................................................... 48
Credit Support ........................................................... 22
CRIIMI MAE ............................................................... 51
Crime Control Act ........................................................ 103
Cut-off Date ............................................................. 12
Debt Securities .......................................................... 104
Definitive Bonds ......................................................... 52
Definitive Certificates .................................................. 55
Definitive Securities ................................................. 52, 55
Deposit Trust Agreement .................................................. 13
Determination Date ................................................ 46, 52, 55
Distribution Date ........................................................ 17
DOL ...................................................................... 136
DTC ...................................................................... 62
DTC Participants ......................................................... 62
Due Dates ................................................................ 41
Due Period ............................................................... 46
Equity Participation ..................................................... 41
ERISA ............................................................... 24, 135
Events of Default ........................................................ 90
Excess Funds ............................................................. 50
Exchange Act ............................................................. 4
Extension Risk ........................................................... 25
FAMC ..................................................................... 42
FAMC Certificates ........................................................ 42
FHA ...................................................................... 10
FHLMC .................................................................... 42
FHLMC Certificates ....................................................... 42
Final Scheduled Distribution Date ........................................ 20
Financial Intermediary ................................................... 62
FNMA ..................................................................... 42
FNMA Certificates ........................................................ 42
Garn Act ................................................................. 101
General Administrator .................................................... 73
GNMA ..................................................................... 42
GNMA Certificates ........................................................ 42
Grantor Trust Certificates ............................................... 23
Grantor Trust Fractional Interest Certificate ............................ 122
Grantor Trust Fund ....................................................... 104
Grantor Trust Strip Certificate .......................................... 122
Holding Act .............................................................. 10
Housing Act .............................................................. 10
Indenture ................................................................ 13
Initial Pool Balance ..................................................... 12
Insurance Proceeds ....................................................... 81
IRS .................................................................. 85, 107
Issue Premium ............................................................ 113
Issuer ................................................................... 9
Issuer Event of Default .................................................. 68
Lender Liability Act ..................................................... 99
Letter of Credit Bank .................................................... 92
Liquidation Proceeds ..................................................... 82
Lock-out Date ............................................................ 41
Lock-out Period .......................................................... 41
-143-
<PAGE>
Manager ................................................................. 9
Mark-to-Market Regulations .............................................. 116
Master Servicer ......................................................... 9
MBS Administrator ....................................................... 9
MBS Agreement ........................................................... 42
MBS Issuer .............................................................. 42
MBS Servicer ............................................................ 42
MBS Trustee ............................................................. 43
Mezzanine Lender ........................................................ 36
Mezzanine Loan .......................................................... 36
Mortgage Asset Pool ..................................................... 1
Mortgage Asset Seller ................................................... 38
Mortgage Assets ......................................................... 1
Mortgage Loan ........................................................... 93
Mortgage Loans .......................................................... 1
Mortgage Notes .......................................................... 38
Mortgage Rate ........................................................... 11
Mortgaged Property ...................................................... 1
Mortgages ............................................................... 38
Multifamily Properties .................................................. 38
Net Leases .............................................................. 40
Nonrecoverable Advance .................................................. 58
Nonresidents ............................................................ 134
OCC ..................................................................... 139
Offered Bonds ........................................................... 1
Offered Certificates .................................................... 1
Offered Securities ...................................................... 1
OID Regulations ......................................................... 105
Originator .............................................................. 38
OTS ..................................................................... 139
Outstanding Principal ................................................... 19
Owner Trust ............................................................. 1
Owner Trustee ........................................................... 13
Parties in Interest ..................................................... 136
Payment Date ............................................................ 16
Percentage Interest ..................................................... 55
Permitted Investments ................................................... 81
Plan Asset Regulations .................................................. 136
Plans ................................................................... 135
Policy Statement ........................................................ 139
Pooling Agreement ....................................................... 14
Pre-Funding Account ..................................................... 44
Prepayment Assumption ........................................ 107, 124, 131
Prepayment Interest Shortfall ........................................... 46
Prepayment Premium ...................................................... 41
Principal Distribution Amount ........................................... 18
Principal Payment Amount ................................................ 17
Proceeding .............................................................. 70
Prohibited Transactions Tax ............................................. 119
Prospectus Supplement ................................................... 1
PTCE .................................................................... 137
Purchase Price .......................................................... 76
Rating Agency ........................................................... 24
Record Date .......................................................... 52, 55
Redemption Price ........................................................ 21
REIT .................................................................... 131
Related Proceeds ........................................................ 58
Release Price ........................................................... 66
Relief Act .............................................................. 102
REMIC ................................................................. 2, 23
REMIC Administrator ................................................... 3, 10
REMIC Pool .............................................................. 104
REMIC Provisions ........................................................ 104
REMIC Regular Securities ................................................ 23
REMIC Regulations ....................................................... 106
REMIC Residual Securities ............................................... 23
REMIC Securities ........................................................ 104
REO Property ............................................................ 78
RICO .................................................................... 103
S&A Agreement ........................................................... 78
S&A Events of Default ................................................... 90
Securities .............................................................. 1
Securities Act .......................................................... 3
Security Interest Rate .................................................. 45
Security Owner .......................................................... 63
Securityholder Statement ................................................ 59
Securityholders ...................................................... 52, 55
Senior Bonds ............................................................ 13
Senior Certificates ..................................................... 14
Senior Liens ............................................................ 38
Senior Securities .................................................... 13, 15
Series .................................................................. 1
SMMEA ................................................................... 24
SPA ..................................................................... 48
Special Redemption Date ................................................. 20
Special Servicer ........................................................ 9
Stated Maturity ......................................................... 19
Stripped Interest Bonds ................................................. 14
Stripped Interest Certificates .......................................... 15
Stripped Interest Securities ............................................ 14
Stripped Principal Bonds ................................................ 13
Stripped Principal Certificates ......................................... 15
Stripped Principal Securities ........................................ 14, 15
Sub-Servicer ............................................................ 80
Sub-Servicing Agreement ................................................. 80
Subordinate Bonds ....................................................... 13
Subordinate Certificates ................................................ 15
Subordinate Securities ............................................... 13, 15
Tax Exempt Investor ..................................................... 138
Terms Indenture ......................................................... 13
TIA ..................................................................... 9
Tiered REMICs ........................................................... 107
Title V ................................................................. 102
TMP ..................................................................... 130
Trust Fund .............................................................. 1
Trustee ................................................................. 9
-144-
<PAGE>
UBTI .................................................................... 138
UCC ..................................................................... 94
Undelivered Mortgage Assets ............................................. 12
Underlying Assets ....................................................... 38
Underlying MBS .......................................................... 1
United States Person .................................................... 121
Voting Rights ........................................................... 59
Warranting Party ..................................................... 66, 75
-145-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance and
distribution of the Securities being registered, other than underwriting
compensation, are as set forth below.
Filing Fee for Registration Statement ...... $ 303.03
Legal Fees and Expenses...............................___________*
Accounting Fees and Expenses..........................___________*
Trustee's Fees and Expenses
(including counsel fees).....................___________*
Blue Sky Fees and Expenses............................___________*
Printing and Engraving Fees...........................___________*
Rating Agency Fees....................................___________*
Miscellaneous.........................................___________*
Total..........................................$ 303.03
- ----------
* To be provided by amendment.
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
The Pooling Agreements will provide that no director, officer, employee or agent
of the Registrant is liable to the Trust Fund or the Certificateholders, except
for such person's own willful misfeasance, bad faith or gross negligence in the
performance of duties or reckless disregard of obligations and duties. The
Pooling Agreements will further provide that, with the exceptions stated above,
a director, officer, employee or agent of the Registrant is entitled to be
indemnified against any loss, liability or expense incurred in connection with
legal actions relating to such Pooling Agreements and related Certificates other
than such expenses related to particular Mortgage Assets.
Any purchase agreement pursuant to which the Registrant acquires Mortgage Assets
for inclusion in or as part of the Trust Fund or Collateral, as the case may be,
with respect to any Series of Securities may provide under certain circumstances
that each director of the Registrant, each officer of the Registrant that signed
this Registration Statement or any amendment hereof, and certain controlling
persons of the Registrant, are entitled to be indemnified by the seller of such
Mortgage Assets or an affiliate against certain liabilities, including
liabilities under the Securities Act of 1933, relating to such Mortgage Assets.
Any underwriters who execute an Underwriting Agreement in the form filed as
Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
and certain controlling persons of the Registrant against certain liabilities
which might arise under the Securities Act of 1933 from certain information
furnished to the Registrant by or on behalf of such indemnifying party.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no
II-1
<PAGE>
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine that despite the adjudication of liability
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
Section 145 further provides that to the extent a director, officer, employee or
agent of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The By-Laws of the Registrant provide, in effect, that to the extent and under
the circumstances permitted by subsections (a) and (b) of Section 145 of the
General Corporation Law of the State of Delaware, the Registrant (i) shall
indemnify and hold harmless each person who was or is a party or is threatened
to be made a party to any action, suit or proceeding described in said
subsections (a) and (b) by reason of the fact that he is or was a director or
officer, or his testator or intestate is or was a director or officer of the
Registrant, against expenses, judgments, fines and amounts paid in settlement,
and (ii) shall indemnify and hold harmless each person who was or is a party or
is threatened to be made a party to any such action, suit or proceeding if such
person is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
EXHIBITS (ITEM 16 OF FORM S-3).
Exhibits--
1.1 -- Form of Underwriting Agreement*
4.1 -- Form of Pooling and Servicing Agreement*
4.2 -- Form of Standard Indenture Provisions
4.3 -- Form of Terms Indenture*
5.1 -- Opinion of Sidley & Austin with respect to legality*
8.1 -- Opinion of Sidley & Austin with respect to certain tax matters*
23.1 -- Consent of Sidley & Austin (included as part of Exhibit 5.1 and
Exhibit 8.1)*
24.1 -- Power of Attorney (included in signature pages to this
Registration Statement)*
25.1 -- Statement of Eligibility of Trustee*
99.1 -- Form of Servicing and Administration Agreement*
99.2 -- Form of Mortgage Loan Purchase Agreement*
99.3 -- Form of General Administration Agreement*
99.4 -- Form of Deposit Trust Agreement*
99.5 -- Form of Letter of Representations*
- ----------
* Previously filed.
UNDERTAKINGS (ITEM 17 OF FORM S-3).
A. UNDERTAKINGS PURSUANT TO RULE 415.
The undersigned Registrant hereby undertakes:
(a) (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 Securities
Act of 1933, (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, and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; provided, however, that
paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this Registration Statement.
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<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the 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.
(f) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(j) To file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section 310
of the Trust Indenture Act of 1939 in accordance with the rules and
regulations prescribed by the Securities and Exchange Commission under
Section 305(b)(2) of the Trust Indenture Act of 1939.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant 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 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement contained in Transaction Requirement I.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 Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rockville,
State of Maryland on the 31st day of July, 1998.
CRIIMI MAE CMBS CORP.
By: *
------------------------------------
Name: H. William Willoughby
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
* President and Director July 31, 1998
- ----------------------- (principal executive officer)
H. William Willoughby
* Chairman of the Board and July 31, 1998
- ----------------------- Director
William B. Dockser
* Senior Vice President and July 31, 1998
- ----------------------- Chief Financial Officer (principal
Cynthia O. Azzara financial and accounting officer)
*
- ----------------------- Director July 31, 1998
Bruce S. Lane
- ----------
* David B. Iannarone, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.
/s/ David B. Iannarone
------------------------------
David B. Iannarone
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Number
- ------ ------
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Pooling and Servicing Agreement.*
4.2 -- Form of Standard Indenture Provisions.
4.3 -- Form of Terms Indenture.*
5.1 -- Opinion of Sidley & Austin with respect to legality.*
8.1 -- Opinion of Sidley & Austin with respect to certain
tax matters.*
23.1 -- Consent of Sidley & Austin (included as part of Exhibit
5.1 and Exhibit 8.1).*
24.1 -- Power of Attorney (included in signature pages to this
Registration Statement).*
25.1 -- Statement of Eligibility of Trustee*
99.1 -- Form of Servicing and Administration Agreement.*
99.2 -- Form of Mortagage Loan Purchase Agreement.*
99.3 -- Form of General Administration Agreement.*
99.4 -- Form of Deposit Trust Agreement.*
99.5 -- Form of Letter of Representations*
- ----------
* Previously filed.
<PAGE>
Exhibit 4.2
------------------------------------------------
STANDARD INDENTURE PROVISIONS
Dated as of May 8, 1998
------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS
(issuable in Series)
Issuable by separate trusts
to be organized by
CRIIMI MAE CMBS CORP.
------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. Definitions................................................1
SECTION 1.02. Incorporation by Reference of Trust
Indenture Act.............................................17
SECTION 1.03. Rules of Construction.....................................18
ARTICLE II
THE BONDS
SECTION 2.01. Forms of Bonds and Certificate of
Authentication............................................18
SECTION 2.02. Amount Unlimited; Bonds Issuable in Series;
Certain Related Provisions................................19
SECTION 2.03. Denominations.............................................22
SECTION 2.04. Execution, Authentication, Delivery
and Dating................................................22
SECTION 2.05. Registration of Transfer and Exchange
of Bonds..................................................23
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Bonds................24
SECTION 2.07. Payment of Principal and Interest.........................25
SECTION 2.08. Persons Deemed Owners.....................................29
SECTION 2.09. Cancellation..............................................29
SECTION 2.10. Authentication and Delivery of Bonds......................29
SECTION 2.11. Substitution of Collateral................................30
SECTION 2.12. Book-Entry Bonds..........................................30
ARTICLE III
COVENANTS; WARRANTIES
SECTION 3.01. Payment of Principal, Premium (if any) and
Interest..................................................32
SECTION 3.02. Maintenance of Office or Agency...........................32
SECTION 3.03. Money for Bond Payments to Be Held in Trust...............33
SECTION 3.04. Corporate Existence of Owner Trustee......................35
SECTION 3.05. Trust Existence...........................................35
SECTION 3.06. Payment of Taxes and Other Claims.........................35
SECTION 3.07. Protection of Trust Estate................................36
SECTION 3.08. Opinions as to Trust Estate...............................37
SECTION 3.09. Performance of Obligations................................37
SECTION 3.10. Payment of Certain Fees...................................38
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SECTION 3.11. Negative Covenants........................................38
SECTION 3.12. Annual Statement as to Compliance.........................39
SECTION 3.13. Issuer may Consolidate, Etc., only on
Certain Terms.............................................40
SECTION 3.14. Purchase of Bonds.........................................42
SECTION 3.15. Servicing and Administration Agreement....................42
SECTION 3.16. Covenants, Representations and Warranties
of the Issuer.............................................47
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. Satisfaction and Discharge of Indenture...................47
SECTION 4.02. Application of Trust Money................................49
SECTION 4.03. Repayment of Monies Held by Paying Agent..................49
ARTICLE V
ISSUER EVENTS OF DEFAULT; REMEDIES
SECTION 5.01. Issuer Events of Default..................................49
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment.................................................51
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee..........................53
SECTION 5.04. Remedies..................................................55
SECTION 5.05. Optional Preservation of Trust Estate.....................57
SECTION 5.06. Application of Money Collected............................58
SECTION 5.07. Limitation on Suits.......................................59
SECTION 5.08. Unconditional Right of Bondholders to Receive
Principal and Interest....................................60
SECTION 5.09. Restoration of Rights and Remedies........................60
SECTION 5.10. Rights and Remedies Cumulative............................60
SECTION 5.11. Delay or Omission Not Waiver..............................61
SECTION 5.12. Control by Bondholders....................................61
SECTION 5.13. Waiver of Past Issuer Defaults............................62
SECTION 5.14. Undertaking for Costs.....................................62
SECTION 5.15. Waiver of Stay or Extension Laws..........................63
SECTION 5.16. Sale of Trust Estate......................................63
SECTION 5.17. Action on Bonds...........................................64
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.01. Certain Duties and Responsibilities.......................64
SECTION 6.02. Notice of Issuer Defaults.................................66
SECTION 6.03. Certain Rights of Indenture Trustee.......................67
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SECTION 6.04. Not Responsible for Recitals or
Issuance of Bonds.........................................69
SECTION 6.05. May Hold Bonds............................................69
SECTION 6.06. Money Held in Trust.......................................69
SECTION 6.07. Compensation and Reimbursement............................70
SECTION 6.08. Eligibility; Disqualification.............................71
SECTION 6.09. Resignation and Removal; Appointment of
Successor.................................................71
SECTION 6.10. Acceptance of Appointment by Successor....................74
SECTION 6.11. Merger, Conversion, Consolidation or
Succession to Business....................................75
SECTION 6.12. Preferential Collection of Claims against the
Issuer....................................................75
SECTION 6.13. Separate Trustees and Co-Trustees.........................75
SECTION 6.14. Appointment of Custodians.................................77
ARTICLE VII
BONDHOLDER LISTS AND REPORTS
SECTION 7.01. Issuer to Furnish Indenture Trustee Names and
Addresses of Bondholders..................................78
SECTION 7.02. Preservation of Information; Communications
to Bondholders............................................78
SECTION 7.03. Reports by Indenture Trustee..............................78
SECTION 7.04. Reports by Issuer.........................................79
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.01. Collection of Money.......................................80
SECTION 8.02. Bond Account..............................................81
SECTION 8.03. Other Accounts............................................82
SECTION 8.04. Release of Trust Estate...................................82
SECTION 8.05. Opinion of Counsel........................................83
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures Without Consent of
Bondholders...............................................84
SECTION 9.02. Supplemental Indentures With Consent of
Bondholders...............................................85
SECTION 9.03. Additional Conditions to Supplemental
Indentures................................................87
SECTION 9.04. Delivery of Supplements and Amendments....................87
iii
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----
SECTION 9.05. Execution of Supplemental Indentures......................88
SECTION 9.06. Effect of Supplemental Indentures.........................88
SECTION 9.07. Conformity with Trust Indenture Act.......................88
SECTION 9.08. Reference in Bonds to Supplemental Indentures.............88
ARTICLE X
OPTIONAL REDEMPTION OF BONDS BY ISSUER
AND SPECIAL REDEMPTION OF BONDS
SECTION 10.01. Optional Redemption by Issuer............................89
SECTION 10.02. Form of Optional Redemption or Special
Redemption Notice........................................90
SECTION 10.03. Bonds Payable on Redemption Date or Special
Redemption Date..........................................91
SECTION 10.04. Special Redemptions......................................91
ARTICLE XI
BONDHOLDERS' MEETING
SECTION 11.01. Purposes for Which Meetings May Be Called................92
SECTION 11.02. Manner of Calling Meetings...............................93
SECTION 11.03. Call of Meeting by Issuer or Bondholders.................93
SECTION 11.04. Who May Attend and Vote at Meetings......................94
SECTION 11.05. Regulations May Be Made by Indenture Trustee.............94
SECTION 11.06. Manner of Voting at Meetings and Records To Be
Kept.....................................................95
SECTION 11.07. Exercise of Rights of Indenture Trustee and
Bondholders Not To Be Hindered or Delayed................95
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Compliance Certificates and Opinions, etc.................96
SECTION 12.02. Form of Documents Delivered to Indenture
Trustee...................................................97
SECTION 12.03. Acts of Bondholders.......................................99
SECTION 12.04. Notice, etc., to Indenture Trustee and Issuer.............99
SECTION 12.05. Notices to Bondholders; Notification
Requirements and Waiver..................................100
SECTION 12.06. Alternate Payment and Notice Provisions..................100
SECTION 12.07. Conflict with Trust Indenture Act........................101
SECTION 12.08. Effect of Headings and Table of Contents.................101
SECTION 12.09. Successors and Assigns...................................101
SECTION 12.10. Separability Clause......................................101
SECTION 12.11. Benefits of Indenture....................................101
SECTION 12.12. Legal Holidays...........................................101
SECTION 12.13. GOVERNING LAW............................................102
iv
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Page
----
SECTION 12.14. Execution Counterparts..................................102
SECTION 12.15. Recording of Indenture..................................102
SECTION 12.16. Trust Obligation........................................102
SECTION 12.17. No Petition.............................................103
SECTION 12.18. Inspection..............................................103
SECTION 12.19. Usury...................................................103
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STANDARD INDENTURE PROVISIONS, DATED AS OF MAY 8, 1998
RELATING TO COLLATERALIZED MORTGAGE OBLIGATIONS,
ISSUABLE IN SERIES BY SEPARATE TRUSTS TO BE ORGANIZED BY
CRIIMI MAE CMBS CORP.
Cross-reference sheet showing the location in this Indenture of the provisions
inserted pursuant to Sections 310 through 318(a) inclusive of the Trust
Indenture Act of 1939
Note: This cross-reference sheet shall not, for any purpose, be deemed to
constitute a part of this Indenture.
TIA Indenture Section
--- -----------------
Section 310 (a)(1) 6.08
(a)(2) 6.08
(a)(3) 6.13(b)
(a)(4) Not Applicable
(a)(5) 6.08
(b) 6.08, 6.09(c), 6.09(g)
Section 311 (a) 6.12
(b) 6.12
Section 312 (a) 7.01, 7.02(a)
(b) 7.02(b)
(c) 7.02(c)
Section 313 (a) 6.02, 7.03(a)
(b) 7.03(a)
(c) 7.03(a)
(d) 7.03(b)
Section 314 (a) 3.12, 7.04(a)
(b) 3.08
(c)(1) 2.10(b), 4.01, 8.04(c), 12.01(a)
(c)(2) 2.10(b), 4.01, 8.04(c), 12.01(a)
(c)(3) 2.10(b), 4.01, 8.04(c), 12.01(a)
(d)(1) 8.04(c), 12.01(a)
(d)(2) 2.10(b), 8.04(c), 12.01(a)
(d)(3) 2.10(b), 8.04(c), 12.01(a)
(e) 12.01(a)
Section 315 (a) 6.01(a)
(b) 6.02
(c) 6.01(b)
(d) 6.01(c)
(e) 5.14
Section 316 (a)(1)(A) 5.02, 5.12
(a)(1)(B) 5.02, 5.13
(a)(2) Not Applicable
(b) 5.08
Section 317 (a)(1) 5.03, 5.04
(a)(2) 5.03
(b) 3.03
Section 318 (a) 12.07
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RECITALS
From time to time CRIIMI MAE CMBS Corp. a Delaware corporation
(together with its successors in interest, the "Depositor") may establish one or
more trusts (individually a "Trust" and together "Trusts") for the purpose of
causing each such Trust to issue one or more series of collateralized mortgage
obligations ("Bonds"). Each such series of Bonds will be issued under a separate
Indenture consisting of a Terms Indenture which incorporates by reference these
Standard Indenture Provisions and such series of Bonds will be limited to the
amount therein prescribed. The Terms Indenture will be duly executed and
delivered by the Trust issuing the particular series of Bonds, acting through an
Owner Trustee, by the Indenture Trustee on behalf of the holders of such series
of Bonds and by such other parties, if any, as may therein be provided.
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. Definitions.
(a) Unless a different meaning shall be applicable for a Series as
provided in the related Terms Indenture, the following terms have the respective
meanings set forth below for all purposes of this Indenture.
"Account": Any account or fund, including any Pledged Fund or Account
established hereunder.
"Accountants": A person engaged in the practice of accounting who (except
when this Indenture requires an Independent Accountant) may be employed by or
affiliated with the Issuer or an Affiliate of the Issuer.
"Accrual Date": With respect to any Series or Class, the date upon which
interest begins accruing on such Series or Class, as specified in such Bonds and
in the related Terms Indenture.
"Accrual Termination Date": With respect to a Class of Compound Interest
Bonds, the first Payment Date as of which all interest accrued in respect of the
Bonds of such Class during the related Interest Accrual Period is, subject to
available funds, payable in full, as specified in the related Terms Indenture.
"Act": As defined in Section 12.03 hereof.
"Additional Expense": With respect to any Series, any costs, expenses and
liabilities (exclusive of Administrative Expenses and S&A Expenses) that are
required to be borne by the Issuer or otherwise in respect of the related Trust
Estate in
<PAGE>
accordance with applicable law or the terms of this Indenture (including any
federal, state and local taxes and the cost of various opinions of and advice
from counsel required to be obtained in connection with the Indenture Trustee's
performance of its duties under this Indenture).
"Administrative Expenses": With respect to a Series, the fees and expenses
of the Indenture Trustee pursuant to Section 6.07(a)(1) and such other fees and
expenses as may be specified as such in the related Terms Indenture.
"Adverse Rating Event": With respect to any Class of Rated Bonds, as of
any date determination, the qualification, downgrade or withdrawal of the rating
then assigned thereto by any Rating Agency.
"Adverse REMIC Event": Either (i) the endangerment of the status of any
REMIC Pool as a REMIC or (ii) the imposition of a tax upon any REMIC Pool or any
of its assets or transactions (including the tax on prohibited transactions as
defined in Section 860F(a)(2) of the Code and the tax on prohibited
contributions set forth in Section 860G(d) of the Code).
"Affiliate": With respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities or
other beneficial interest, by contract or otherwise; and the terms "controlling"
and "controlled" have the meanings correlative to the foregoing.
"Agent": A person authorized by or appointed by the Issuer to perform
duties with respect to the Bonds of any Series specified in a writing signed by
such Agent and the Issuer and acknowledged by the Indenture Trustee, or by such
Agent and the Indenture Trustee and acknowledged by the Issuer, including any
Paying Agent.
"Authenticating Agent": As defined in Section 2.04(c).
"Authorized Officer": With respect to the Owner Trustee, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of authorized officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date for
each Series (as such list may be modified or supplemented from time to time
thereafter); and, with respect to any other Person, the Chairman, President, any
Senior Vice President, any Vice President or any Assistant Vice President, and
the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller,
the
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Secretary or an Assistant Secretary (provided that, when any provision hereof
requires signatures of two Authorized Officers of any such other Person, at
least one of such Authorized Officers shall be the Chairman, President or any
Vice President).
"Bankruptcy Code": The federal Bankruptcy Code, as amended from time to
time (Title 11 of the United States Code).
"Bond Account": As defined in Section 8.02.
"Bondholder": The Person in whose name a Bond is registered on the Bond
Register for any Series.
"Bond Interest Rate": With respect to any Series or Class, the per annum
rate at which interest accrues on the Bonds of such Series or Class, which rate
shall be specified in the related Terms Indenture.
"Bond Owner": With respect to a Book-Entry Bond, the Person who is the
beneficial owner of such Bond as reflected on the books of the Depository or on
the books of a Depository Participant or on the books of an indirect
participating brokerage firm for which a Depository Participant acts as agent.
"Bond Register" and "Bond Registrar": The respective meanings specified in
Section 2.05. The principal office of the Bond Registrar, if other than the
Corporate Trust Office, shall be specified in the related Terms Indenture.
"Bonds": As defined in the Recitals to these Standard Indenture
Provisions.
"Book-Entry Bonds": Bonds of a Series for which the related Terms
Indenture provides that ownership and transfers of beneficial ownership
interests in such Bonds shall be made through book entries by the Depository, as
described in Section 2.12 hereof; provided, however, that after the occurrence
of a condition whereupon book-entry registration is no longer permitted,
Definitive Bonds shall be issued to the Bond Owners of such Bonds and such Bonds
shall no longer be "Book-Entry Bonds."
"Business Day": Any day other than a Saturday, a Sunday or a day on which
banking institutions in Rockville, Maryland, New York, New York or any other
city in which the Corporate Trust Office is then located, are authorized or
obligated by law or executive order to be closed.
"Cash Flow Agreement": With respect to any Series, (i) any guaranteed
investment contract pursuant to which monies held in any Account with respect to
such Series are invested, (ii) any interest rate exchange agreement, interest
rate cap or floor agreement, or other agreement designed to reduce the effects
of interest rate fluctuations on the related Mortgage Collateral or
3
<PAGE>
on one or more Classes of such Series and (iii) any letter of credit, surety
bond, insurance policy, guarantee or other agreement or instrument intended to
offset a slower than anticipated rate of principal payments, collections and/or
distributions on the related Mortgage Collateral, in any event as specified in
the related Terms Indenture.
"Class": All Bonds of a Series having the same alphabetical and/or
numerical class designation and otherwise having the same characteristics, as
described in the related Terms Indenture.
"Closing Date": The date specified in the related Terms Indenture as the
Closing Date for a Series.
"Code": The Internal Revenue Code of 1986, as amended, and Treasury
Regulations promulgated thereunder including proposed regulations to the extent
that by reason of their effective date they could apply to a Series.
"Collateral": With respect to a Series, the Trust Estate securing such
Series. An "item" of Collateral refers to a specific item of Mortgage Collateral
or other asset, which is Granted to the Indenture Trustee under the related
Terms Indenture as part of the Trust Estate for such Series.
"Commission": The Securities and Exchange Commission or any successor.
"Compound Interest Bond": Any Bond of a Series on which interest accrues
and is periodically added (in whole or in part) to the principal of such Bond in
accordance with the terms thereof and the related Terms Indenture, but with
respect to which no principal shall be payable except during the period or
periods specified in the related Terms Indenture and with respect to which no
interest (or only a portion of the accrued interest) is payable until the
Payment Date on or following the Accrual Termination Date.
"Controlling Class": With respect to any Series, any Class or Classes of
such Series designated as such under the related Terms Indenture, as
contemplated by Section 3.15(a)(vii).
"Corporate Trust Office": The principal corporate trust office of the
Indenture Trustee at which at any particular time its corporate trust business
with respect to this Indenture shall be administered, which office at the date
of the execution of any Terms Indenture shall be located at the address
specified therein.
"Credit Support Agreement": With respect to any Series, any instrument or
agreement issued by a bank, insurance company or other financial institution,
including an instrument or agreement in the form of an irrevocable letter of
credit, a committed line
4
<PAGE>
of credit, a repurchase commitment, a surety bond, a financial guaranty
insurance policy, cash collateral account or an insurance contract which assures
payment of all or any part of the principal of or interest on Bonds of such
Series, or one or more Classes of such Series or the related Mortgage
Collateral, or a servicer's or master servicer's obligation, if any, to make
advances on the related Mortgage Collateral or any other instrument or agreement
specified in the related Terms Indenture.
"Custodian": A Person who is at any time appointed by the Indenture
Trustee pursuant to Section 6.14 as a document custodian.
"Cut-Off Date": With respect to a Series, any date designated as such in
the related Terms Indenture.
"Definitive Bond": As defined in Section 2.12(a).
"Deposit Trust Agreement": With respect to any Trust, the deposit trust
agreement, between the Depositor and the Owner Trustee, pursuant to which such
Trust was created.
"Depositor": As defined in the Recitals to these Standard Indenture
Provisions.
"Depository": The Depository Trust Company and any successor thereto
appointed by the Issuer as a Depository; provided that the Depository shall at
all times be a "clearing corporation" as defined in Section 8-102(3) of the
Uniform Commercial Code of the State of New York and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act; and
provided, further, that no entity shall be a successor Depository unless Bonds
held through such entity or its nominees are treated for U.S. Federal income tax
purposes as being in "registered form" within the meaning of Section 163(f) of
the Code.
"Depository Participant": A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
"Designated Interest Accrual Date": As specified in the related Terms
Indenture, the date preceding a Redemption Date or Special Redemption Date
through which accrued interest is paid upon redemption or special redemption.
"Dollar" or "$": A dollar or other equivalent unit in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public or private debts.
"Duff & Phelps": Duff & Phelps Credit Rating Co. or its successor in
interest.
5
<PAGE>
"Enhancement": With respect to any Series, any Credit Support Agreement,
Cash Flow Agreement or Reserve Fund.
"ERISA": The Employee Retirement Income Security Act of 1974, as amended.
"Excess Cash Flow": With respect to any Series, as specified in the
related Terms Indenture, certain monies held hereunder that as of any Payment
Date are in excess of that necessary to pay in accordance herewith any
Administrative Expenses, S&A Expenses and Additional Expenses then remaining
unpaid with respect to such Series and principal, premium (if any) and interest
then due and owing on the Bonds of such Series.
"Exchange Act": The Securities Exchange Act of 1934, as amended, and the
rules, regulations and published interpretations of the Commission promulgated
thereunder from time to time.
"FAMC": The Federal Agricultural Mortgage Corporation or any successor
thereto.
"FDIC": The Federal Deposit Insurance Corporation or any successor
thereto.
"FHA": The Federal Housing Administration or any successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation or any successor
thereto.
"Fitch": Fitch IBCA, Inc. or its successor in interest.
"FNMA": The Federal National Mortgage Association or any successor
thereto.
"GAAP": Generally accepted accounting principles as in effect in the
United States.
"GNMA": The Government National Mortgage Association or any successor
thereto.
"Grant": To mortgage, pledge, bargain, sell, warrant, alienate, demise,
convey, assign, transfer, create and grant a security interest in and right of
setoff against, deposit, set over and confirm. A Grant of Collateral shall
include all rights, powers and options (but none of the obligations) of the
Granting party thereunder, including the immediate and continuing right to claim
for, collect, receive and give receipt for principal and interest payments in
respect of the Collateral and all other monies and proceeds payable thereunder,
to give and receive notices and other communications, to make waivers or other
agreements, to exercise all rights and options, to bring
6
<PAGE>
Proceedings in the name of the Granting party or otherwise, and generally to do
and receive anything which the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Highest Lawful Rate": As defined in Section 12.19.
"Holder": A Bondholder.
"Indenture": With respect to any Series, the related Terms Indenture as
originally executed, together with these Standard Indenture Provisions in the
form in which they are incorporated by reference into such Terms Indenture on
the date of such execution; and, if from time to time thereafter either is, with
respect to such Series, supplemented or amended, such documents together as so
supplemented or amended.
"Indenture Trustee": Any Person eligible under Section 6.08 and
designated as "Indenture Trustee" in the related Terms Indenture, in its
capacity as trustee under this Indenture, or its successor in interest, or
any successor trustee appointed as provided in this Indenture.
"Independent": When used with respect to any specified Person, any such
Person who (i) is in fact independent of the Issuer, any other obligor on the
Bonds, the Depositor and any and all Affiliates thereof, (ii) does not have any
direct financial interest in or any material indirect financial interest in any
of the Issuer, such other obligor, the Depositor or any Affiliate thereof, and
(iii) is not connected with the Issuer, such other obligor, the Depositor or any
Affiliate thereof as an officer, employee, promoter, underwriter, trustee,
partner, director or Person performing similar functions.
"Individual Bond": A Bond of an original Principal Amount or Notional
Amount equal to the minimum denomination for Bonds of a Series or Class as
specified in the related Terms Indenture; a Bond of an original Principal Amount
or Notional Amount, as the case may be, in excess of such minimum denomination
shall be deemed to be a number of Individual Bonds equal to the quotient
obtained by dividing such original Principal Amount or Notional Amount, as the
case may be, by such minimum denomination.
"Institutional Accredited Investor": An "accredited investor" as defined
in any of paragraphs (1), (2), (3) and (7) of Rule 501(a) under the Securities
Act or any entity in which all of the equity owners come within such paragraphs.
"Interest Accrual Period": With respect to any Class of a Series, the
period specified as the Interest Accrual Period in the related Terms Indenture
for such Series, during which
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interest accrues with respect to any Payment Date, Redemption Date or Special
Redemption Date.
"Interest Only Bond": A Bond entitled to receive payments only of interest
based upon the Notional Amount of the Bond and/or premium (if any) (but not
payments of principal).
"Investment Company Act": The Investment Company Act of 1940, as amended,
and the rules, regulations and published interpretations of the Commission
promulgated thereunder from time to time.
"IRS": The Internal Revenue Service or any successor thereto.
"Issuer": With respect to any Series, the Trust identified in the related
Terms Indenture unless a successor Person shall have become the Issuer pursuant
to the applicable provisions of this Indenture, and thereafter "Issuer" shall
mean such successor Person. All actions by, and rights and obligations of, the
Issuer under this Indenture and the Bonds of each Series issued thereby are
actions by, and rights and obligations of, the applicable Trust.
"Issuer Default": Any occurrence which is, or with notice or the lapse of
time or both would become, an Issuer Event of Default.
"Issuer Event of Default": As defined in Section 5.01.
"Issuer Request" or "Issuer Order": A written request or order signed in
the name of the Issuer by an Authorized Officer of the Owner Trustee and
delivered to the Indenture Trustee.
"Maturity": With respect to any Bond, the date, if any, as of which the
principal of and interest on such Bond has become due and payable as herein
provided, whether at Stated Maturity, if any, by declaration of acceleration or
otherwise.
"Moody's": Moody's Investors Service, Inc. or its successor in interest.
"Mortgage-Backed Security" or "MBS": Any mortgage participation, mortgage
pass-through certificate, collateralized mortgage obligation or other security
representing an interest in, or evidencing a debt secured by, one or more
Mortgage Loans.
"Mortgage Collateral": The Pledged Mortgage-Backed Securities, Pledged
Mortgage Loans or REO Properties which are Granted to the Indenture Trustee
under the related Terms Indenture as security for a Series. An "item" of
Mortgage Collateral refers to a specific Pledged Mortgage-Backed Security,
Pledged Mortgage Loan or REO Property which is Granted to the
8
<PAGE>
Indenture Trustee under the related Terms Indenture and is referred to as an
item of Mortgage Collateral.
"Mortgage Loan": An obligation incurred in connection with a transaction
in real property, including indebtedness evidenced by a note, bond or other
written evidence of such indebtedness and secured by a mortgage, deed of trust,
deed to secure debt or similar document or instrument creating a lien on the
related Mortgaged Property, together with all related loan documents, and
including Mortgage Loans which at the time of their Grant are subperforming or
non-performing.
"Mortgage Collateral Pool": With respect to any Series, the segregated
pool consisting of all Mortgage Collateral securing such Series.
"Mortgaged Property": The real multifamily or commercial property,
together with improvements thereto, securing any Mortgage Loan.
"Nominee": A person in whose name Collateral Granted to the Indenture
Trustee may be recorded, registered or issued as the designated nominee of the
Indenture Trustee in lieu of registration in the name of the Indenture Trustee,
provided that the following conditions shall be satisfied in connection with
such issuance or registration:
(a) the instruments governing the creation and operation of the nominee
provide that neither the nominee nor any owner of an interest in the nominee
(other than the Indenture Trustee) shall have any interest, beneficial or
otherwise, in any item of Collateral at any time held in the name of the
nominee, except for the purpose of transferring and holding legal title thereto;
(b) the nominee and the Trustee have entered into a binding agreement:
(i) establishing that any Collateral held in the name of the nominee
is held by the nominee as agent (other than commission agent or broker) or
nominee for the account of the Indenture Trustee, and
(ii) appointing the Indenture Trustee as the agent and attorney of
the nominee with full power and authority irrevocably to sell, assign,
endorse, transfer and deliver any item of Collateral standing in the name
of the nominee, and to execute and deliver all such instruments as may be
necessary and proper for such purpose; and
(c) in connection with the recordation or registration of any item of
Collateral in the name of the nominee all requirements under applicable law and
governmental regulations
9
<PAGE>
necessary to effect a valid recordation, registration, issuance or transfer of
such Collateral are complied with.
"Non-Registered Bond": Any Bond that has not been registered under the
Securities Act.
"Notional Amount": A hypothetical or notional amount on which a Bond
accrues interest from time to time, as specified in the related Terms Indenture.
"Officer's Certificate": A certificate signed by any one Authorized
Officer of the Person from whom said certificate is required or, in the case of
an Officer's Certificate of the Issuer, a certificate signed by any Authorized
Officer of the Owner Trustee, and, to the extent delivered to the Indenture
Trustee, complying with the applicable requirements of Section 12.01. Unless
otherwise specified, any reference in this Indenture to an Officer's Certificate
shall be to an Officer's Certificate of the Issuer.
"Opinion of Counsel": A written opinion of an attorney at law admitted to
practice before the highest court of any State and who may, except as otherwise
expressly provided in this Indenture, be counsel for the Issuer (including
in-house counsel employed full-time by the Issuer or any Affiliate); provided
that any Opinion of Counsel relating to federal income tax matters shall be an
opinion of Independent outside counsel.
"OTS": The Office of Thrift Supervision or any successor thereto.
"Outstanding": With respect to any Series, as of any date of
determination, all Bonds of such Series theretofore authenticated and delivered
under this Indenture, except:
(i) Bonds of such Series theretofore canceled by the Bond Registrar
or delivered to the Bond Registrar for cancellation;
(ii) Bonds of such Series or portions thereof for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Indenture Trustee or any other Paying Agent (other than the
Issuer) in trust for the Holders of such Bonds; provided, however, that if
such Bonds are to be redeemed, notice of such redemption has been duly
given hereunder or provision therefor, satisfactory to the Indenture
Trustee or any other Paying Agent, has been made; and
(iii) Bonds of such Series in exchange for or in lieu of which other
Bonds of such Series have been authenticated and delivered pursuant to
this Indenture, other than any such Bonds in respect of which there shall
have been presented to
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the Bond Registrar proof satisfactory to it that such Bonds are held by a
bona fide purchaser in whose hands such Bonds are valid obligations of the
Issuer;
provided, however, that in determining whether the Holders of Bonds of any
Series with the requisite aggregate Principal Amount or Notional Amount, or
representing the requisite percentage of Voting Rights, have given any request,
demand, authorization, vote, direction, notice, consent or waiver hereunder,
except as otherwise expressly provided herein, Bonds owned by the Issuer, any
other obligor on Bonds of such Series, the Depositor or any other Person
specifically identified in the related Terms Indenture (each of the foregoing
Persons, solely for purposes of this definition, an "Interested Person") or by
any Affiliate of an Interested Person shall be disregarded and deemed not to be
Outstanding (unless any such Person or Persons owns all the Bonds of such
Series), except that, in determining whether the Indenture Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Bonds which the Bond Registrar knows to be so
owned shall be so disregarded, and also except that Bonds so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Bond Registrar in its sole discretion the
pledgee's right to act with respect to such Bonds and that the pledgee is not an
Interested Person or any Affiliate of an Interested Person.
"Owner Trust Certificates": The owner trust certificates issued under a
Deposit Trust Agreement and evidencing the entire beneficial ownership interest
in a Trust.
"Owner Trustee": Wilmington Trust Company, a Delaware banking corporation,
not in its individual capacity but solely as owner trustee under any Deposit
Trust Agreement, or such other Person as shall succeed, or act in lieu of,
Wilmington Trust Company as owner trustee pursuant to any Deposit Trust
Agreement.
"Ownership Interest": As to any Bond, any ownership or security interest
in such Bond as the Holder thereof and any other interest therein, whether
direct or indirect, legal or beneficial, as owner or as pledgee.
"Paying Agent": With respect to any Series, the Indenture Trustee or any
other Person that meets the eligibility standards for a Paying Agent specified
in Section 3.03 and is authorized and appointed pursuant to Section 3.03 by the
Issuer to pay the principal of, premium (if any) on or interest on any Bonds of
such Series on behalf of the Issuer. The principal office of the Paying Agent,
if other than the Corporate Trust Office, shall be specified in the related
Terms Indenture.
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"Payment Date": With respect to a Series or Class, each date specified as
a Payment Date for such Series or Class in the related Terms Indenture.
"Permitted Investment": With respect to any Series, any obligation,
security or other instrument in which monies on deposit in the Accounts for such
Series may be invested, as specified in the related Terms Indenture.
"Person": Any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, estate, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan": Any employee benefit plan or other retirement arrangement,
including individual retirement accounts and annuities, Keogh plans and
collective investment funds and separate accounts in which such plans, accounts
or arrangements are invested, including insurance company general accounts, that
is subject to ERISA or the Code.
"Pledged Fund or Account": Any fund or account, including the Bond Account
or any Reserve Fund established with respect to, and Granted as security for, a
Series.
"Pledged Mortgage Loan": With respect to any Series, any Mortgage Loan
Granted to the Indenture Trustee by the Issuer to secure such Series, as from
time to time is held as a part of the related Trust Estate, including any such
Mortgage Loan as may constitute Substitute Mortgage Collateral.
"Pledged Mortgage-Backed Security" or "Pledged MBS": With respect to any
Series, any Mortgage-Backed Security Granted to the Indenture Trustee by the
Issuer to secure such Series, as from time to time is held as a part of the
related Trust Estate, including any such Mortgage-Backed Security as may
constitute Substitute Mortgage Collateral.
"Predecessor Bond": With respect to any Bond of a Series and Class, every
previous Bond of that Series and Class evidencing all or a portion of the same
debt as that evidenced by such Bond; for the purpose of this definition, any
Bond of a Series authenticated and delivered under Section 2.06 in lieu of a
mutilated, lost, destroyed or stolen Bond of the same Series and Class shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Bond.
"Principal Amount": The unpaid principal amount of a Bond outstanding from
time to time (including, in the case of a Compound Interest Bond, any interest
added to such principal amount prior to the related Accrual Termination Date),
calculated as provided in the related Terms Indenture.
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"Principal Only Bond": Any Bond that does not bear a stated Bond Interest
Rate and entitles the Holder thereof to payments of principal (but not payments
of interest).
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"QIB": A "qualified institutional buyer" as defined in Rule 144A under the
Securities Act.
"QRS": A qualified REIT subsidiary within the meaning of Section 856(i) of
the Code.
"Rated Bond": Any Bond of a Class to which a rating has been assigned by a
Rating Agency at the request of the Depositor or Issuer.
"Rating Agency": Any nationally recognized statistical rating organization
(including Duff & Phelps, Fitch, Moody's and Standard & Poor's) that has
assigned a rating to any Class at the request of the Depositor or the Issuer.
"Redemption Date": The Payment Date specified by the Issuer for the
redemption of Bonds of any Series or Class pursuant to Section 10.01 or the
related Terms Indenture.
"Redemption Price": With respect to any Bond of a Series or Class to be
redeemed, in whole or in part, pursuant to Section 10.01 or the related Terms
Indenture, the price to be paid in connection with such redemption.
"Registered Bond": Any Bond registered under the Securities Act.
"Registered Holder": The Person whose name appears on the Bond Register on
the applicable Regular Record Date or Special Redemption Record Date, as the
case may be.
"Regular Record Date": The record date set for purposes of making payments
on any Payment Date or Redemption Date for any Series, as specified in the
related Terms Indenture.
"REIT": A real estate investment trust within the meaning of Section
856(a) of the Code.
"REMIC": A "real estate mortgage investment conduit" as defined in Section
860D of the Code.
"REMIC Pool": With respect to any Series, the segregated pool of assets
constituting any REMIC created hereunder.
"REMIC Provisions": Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which
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appear at Sections 860A through 860G of Subchapter M of Chapter 1 of the Code,
and related provisions, and proposed, temporary and final Treasury regulations
and any published rulings, notices and announcements promulgated thereunder, as
the foregoing may be in effect from time to time.
"REO Property": A Mortgaged Property acquired as part of the Trust Estate
securing any Series through foreclosure, deed-in-lieu of foreclosure or
otherwise in connection with a defaulted Mortgage Loan.
"Reserve Fund": With respect to any Series, any fund or funds established,
funded and maintained pursuant to the related Terms Indenture for the same
intended purposes as a Cash Flow Agreement or a Credit Support Agreement.
"Resolution": A copy of a resolution certified by an Authorized Officer of
the Owner Trustee to have been duly adopted by the Owner Trustee and to be in
full force and effect on the date of such certification.
"Responsible Officer": With respect to the Indenture Trustee, any officer
within the Corporate Trust Office of the Indenture Trustee, including any Vice
President, Assistant Vice President, Treasurer, Assistant Treasurer, Secretary,
Assistant Secretary or an other officer of the Indenture Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Rule 144A": Rule 144A under the Securities Act.
"S&A Event of Default": Any "Event of Default" or "S&A Event of Default"
on the part of a servicer, a master servicer, a special servicer, an MBS
administrator or a REMIC administrator under a Terms Indenture or a Servicing
and Administration Agreement.
"S&A Expense": Any fees, expenses or advances payable or reimbursable to a
servicer, a master servicer, a special servicer, an MBS administrator or a REMIC
administrator under a Terms Indenture or a Servicing and Administration
Agreement or otherwise in connection with the servicing and administration of
the Mortgage Collateral thereunder.
"Schedule of Mortgage Collateral": The description of the Mortgage
Collateral being Granted to the Trustee on the Closing Date for a Series,
attached as a schedule to the related Terms Indenture.
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"Securities Act": The Securities Act of 1933, as amended, and the rules,
regulations and published interpretations of the Commission promulgated
thereunder from time to time.
"Senior Bondholder": A Holder of a Senior Bond.
"Seller": Any Person from whom the Depositor acquired, directly or
indirectly, any item of Mortgage Collateral, that is specified as a "Seller" in
the related Terms Indenture.
"Senior Bonds": With respect to a Series, any Bond other than a
Subordinate Bond.
"Series": A separate series of Bonds issued pursuant to this Indenture.
"Servicing and Administration Agreement": With respect to any Series, as
specified in the related Terms Indenture, any agreement separate from the
related Terms Indenture (or, if more than one, all such separate agreements
collectively), together with all attachments thereto, entered into by the Issuer
and/or the Indenture Trustee with one or more other parties, pursuant to which a
servicer, a master servicer, a special servicer, an MBS administrator or a REMIC
administrator has agreed to perform the duties specified therein incident to the
servicing and administration of one or more items of Mortgage Collateral, as
such agreement or agreements may be amended or modified from time to time.
"Special Redemption Date": With respect to a Series other than a Series
with monthly Payment Dates, the date in each month (other than any month in
which a Payment Date occurs) on which Bonds of that Series may be redeemed
pursuant to Section 10.04 hereof or the related Terms Indenture as part of a
special redemption, which date shall be the same day of the month as the day on
which Payment Dates for the Bonds of that Series occur.
"Special Redemption Price": With respect to any Bond of a Series or Class
to be redeemed, in whole or in part, pursuant to Section 10.04 or the related
Terms Indenture as part of a special redemption, the price to be paid in
connection with such special redemption.
"Special Redemption Record Date": With respect to a Series, the record
date for a special redemption, as specified in the related Terms Indenture.
"Standard Indenture Provisions": These Standard Indenture Provisions dated
as of May 8, 1998, applicable to the issuance of Bonds in Series by Trusts
organized by the Depositor, as such provisions may be amended or supplemented
from time to time.
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"Standard & Poor's": Standard & Poor's Rating Services, a Division of the
McGraw-Hill Companies, Inc. or its successor in interest.
"State": Any one of the 50 states of the United States of America, or the
District of Columbia.
"Stated Maturity": If so specified in the related Terms Indenture, with
respect to the entire unpaid Principal Amount of or any installment of principal
of or interest on any Bond, the date specified in such Bond as the fixed date on
which the entire remaining unpaid Principal Amount, if any, of such Bond or the
entire amount of such installment of principal or interest is due and payable.
"Subordinate Bondholders": A Holder of a Subordinate Bond.
"Subordinate Bonds": Any Bonds of a Series that entitle the Holders
thereof to a right to receive timely payment of principal or interest that is
subordinated in whole or in part to the prior right of Holders of other Bonds of
the same Series but a different Class.
"Substitute Mortgage Collateral": Any Mortgage Collateral that is Granted
to the Indenture Trustee under the related Terms Indenture as security for a
Series, as contemplated by Section 2.11, in lieu of any Mortgage Collateral
previously so Granted to the Indenture Trustee for such Series (or in lieu of
cash deposited in any Pledged Fund or Account on the Closing Date).
"Successor Person": As defined in Section 3.13(a).
"Terms Indenture": An indenture between the Issuer and the Indenture
Trustee providing for the issuance of a Series and into which these Standard
Indenture Provisions are incorporated by reference.
"TMP": A taxable mortgage pool within the meaning of the Code.
"Treasury Regulations": Temporary, final or proposed regulations (to the
extent that by reason of their proposed effective date such proposed regulations
would apply to the Issuer or a Trust Estate) of the United States Department of
the Treasury.
"Trust": As defined in the Recitals to these Standard Indenture
Provisions.
"Trust Estate": With respect to any Series, all money, instruments,
securities and other property, including all proceeds thereof, which are subject
or intended to be subject to the lien of this Indenture for the benefit of such
Series as of
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any particular time (including all Mortgage Collateral and other property and
interests Granted to the Indenture Trustee in the Terms Indenture for such
Series).
"Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939, as
amended, and the rules, regulations and published interpretations of the
Commission promulgated thereunder from time to time.
"UCC Financing Statement": A financing statement executed and in form
sufficient for filing pursuant to the Uniform Commercial Code, as in effect in
the relevant jurisdiction.
"Uniform Commercial Code" or "UCC": The Uniform Commercial Code as in
effect in any applicable jurisdiction, as amended from time to time.
"Voting Rights": If so provided in the related Terms Indenture, the voting
rights for any Series allocable among the Bonds thereof in accordance with such
related Terms Indenture.
(b) The Terms Indenture for a Series may modify the definition of any term
and such modified definition, and not the one specified or incorporated by
reference in Section 1.01(a) shall apply with respect to such Series.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Bonds;
"indenture security holder" means a Bondholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Indenture
Trustee; and
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used, but not expressly defined, in this Indenture
that are defined by the TIA, defined by TIA reference to another statute or
defined by Commission rule have the respective meanings assigned to them by such
definitions.
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SECTION 1.03. Rules of Construction.
(a) The definition of any term in these Standard Indenture Provisions or
in a Terms Indenture shall be equally applicable to the singular and plural
forms of such term and to the masculine, feminine and neuter genders of such
term. The words "herein", "hereof", "hereunder" and other words of similar
import refer to this Indenture as a whole, including, in the case of a Series or
Class, the Terms Indenture related to such Series or Class and not to any
particular Article, Section or other subdivision.
(b) References herein to "Articles", "Sections", "Subsections",
"Paragraphs", and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other subdivisions of
these Standard Indenture Provisions (if the reference is contained in these
Standard Indenture Provisions) or in the particular Terms Indenture (if the
reference is contained in a Terms Indenture).
(c) A reference to a Subsection without further reference to a Section is
a reference to such Subsection as contained in the same Section in which the
reference appears, and this rule shall also apply to Paragraphs and other
subdivisions.
(d) The word "or", as used herein, is not exclusive.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP.
(f) The words "include" and "including" shall mean without limitation by
reason of enumeration and shall be construed to be followed by the words
"without limitation".
(g) The pronouns used herein are used in the masculine and neuter genders
but shall be construed as feminine, masculine or neuter, as the context
requires.
ARTICLE II
THE BONDS
SECTION 2.01. Forms of Bonds and Certificate of Authentication.
(a) The form of each Class of Bonds of a Series and the Indenture
Trustee's certificate of authentication shall be in substantially the forms set
forth in the related Terms Indenture, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange on which the Bonds
may be listed, or as may be required
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by any applicable regulation (whether proposed, temporary or final) promulgated
pursuant to the Code, including any legend required in respect of original issue
discount on any Bond or Class, as applicable, or as may, consistently herewith,
be determined to otherwise be necessary, appropriate or convenient by the
Issuer, as evidenced by its execution of the Bonds. If a REMIC election is made
in connection with any Series, the Terms Indenture relating to a Series may
provide (subject to any conditions therein specified) that one or more regular
interests in the related REMIC Pool or REMIC Pools will not be evidenced by a
certificated Bond or may provide that a certificated Bond with respect to any
regular interest in the related REMIC Pool or REMIC Pools may be surrendered and
thereafter such regular interest will not be evidenced by a Bond.
(b) The definitive Bonds shall be printed, lithographed or engraved
or produced by any combination of these methods (with or without steel engraved
borders) or may be produced in any other manner permitted by any Terms Indenture
or the rules of any securities exchange on which the Bonds of any Series may be
listed, all as determined by the Issuer, as evidenced by its execution of such
Bonds.
SECTION 2.02. Amount Unlimited; Bonds Issuable in Series; Certain Related
Provisions.
The Bonds may be issued in one or more Series, and each Series may be
issued in one or more Classes. The Bonds shall be designated generally as the
"Collateralized Mortgage Obligations" of the Issuer, or such other designation
specified in the related Terms Indenture, with such further particular
designations added or incorporated in such title for any Series or Class as the
Issuer may determine. Each Bond shall bear upon its face the designation so
selected for the Series and Class to which it belongs. All Bonds of the same
Class shall be identical in all respects except for the denominations thereof
and any particular marks of identification. A Terms Indenture may provide for
Enhancement for the related Series or for a Class or Classes within such Series.
To the extent specified in the related Terms Indenture, all Bonds of a Class
issued under this Indenture shall in all other respects be equally and ratably
entitled to the benefits hereof without preference, priority or distinction on
account of the actual time or times of authentication and delivery, all in
accordance with the terms and provisions of this Indenture.
Each Series shall be created by a Terms Indenture, authorized by the
Issuer, that establishes the terms and provisions of such Series. A Series may
differ from another Series in respect of any of the following matters and as
otherwise specified in the related Terms Indenture and in these Standard
Indenture Provisions:
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(a) designation of the Trust issuing the Series of Bonds, and identity of
the Owner Trustee related to such Trust;
(b) designation of the Series;
(c) dating of the Bonds and Accrual Dates;
(d) the number of Classes, the maximum aggregate principal amount of Bonds
of each Class which may be issued, the priority of payment among Classes and
Bonds, the allocation (if at all) of unanticipated expenses and losses on the
related Mortgage Collateral among Classes, and the designation of a Class or
Classes as Compound Interest Bonds, Senior Bonds, Subordinate Bonds, Interest
Only Bonds, Principal Only Bonds or any other Class of Bonds specified in the
related Terms Indenture;
(e) the Bond Interest Rate for each Class and, if the Bond Interest Rate
for one or more Classes of a Series is to be a variable or an adjustable rate,
the basis or method by which the variable or adjustable rate on each such Class
is to be determined and the dates upon which such variable or adjustable rate is
to be determined to be effective and other matters with respect thereto,
including defining any terms with respect to such Class or Classes of Bonds;
(f) Stated Maturities, if any, of principal, and special or optional
redemption provisions, for each Class;
(g) the amount and timing of payments of interest, principal and other
amounts on the Bonds of a Series or among the respective Classes thereof;
(h) the basis for scheduled, optional or special principal payments on the
Bonds of a Class, pro rata or by random lot, which basis may vary between
Classes;
(i) the place or places for the payment of principal;
(j) the authorized denominations, which may vary between Classes;
(k) the Payment Dates, Interest Accrual Periods, and other dates and
periods as are relevant to payments, collections and/or distributions on the
Mortgage Collateral and the other Collateral and any Enhancement;
(l) the types and characteristics of Collateral, and in particular
Mortgage Collateral, that will be pledged to secure a Series;
(m) the documents and/or instruments to be delivered to the Indenture
Trustee or to a Custodian appointed thereby with respect to any particular item
of Mortgage Collateral and any
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further requirements regarding the recording, filing or re-registration of any
such document or any particular item of Mortgage Collateral;
(n) the servicing and administration of Mortgage Collateral and the
amendment of, monitoring of performance under and enforcement of any separate
Servicing and Administration Agreement;
(o) rights and obligations of the Issuer or other particular Persons to
purchase or substitute particular items of Mortgage Collateral;
(p) transfer restrictions with respect to the Bonds, which may vary
between Classes;
(q) the amount, if any, to be deposited on the Closing Date in the Bond
Account for a Series;
(r) the manner in which any Pledged Fund or Account, if established, is to
be funded and maintained, the amount, if any, to be deposited therein on the
Closing Date and the amount to be maintained, if any, in any Pledged Fund or
Account for a Series;
(s) the required characteristics and terms of any Cash Flow Agreement or
Credit Support Agreement;
(t) the applicability of the redemption provisions of Article X.
(u) the requirements of any Enhancement applicable to a Series or a Class
or to any Pledged Fund or Account;
(v) each Rating Agency that will, at the Closing Date, assign its bond
rating to the Series;
(w) if so provided in the related Terms Indenture, the Voting Rights
allocated to the respective Classes of a Series;
(x) tax treatment of the Bonds, which may vary by Class; and
(y) any other provisions expressing or referring to the terms and
conditions upon which the Bonds of the applicable Series are to be issued under
this Indenture, which do not prevent the Registered Bonds of such Series from
being rated in one of the four highest rating categories of each Rating Agency
rating such Bonds.
In addition, provisions with respect to terms for which the definitions
set forth in Article I require further specification in the related Terms
Indenture will be so further specified.
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SECTION 2.03. Denominations.
The Bonds of a Series shall be issuable in registered form only in the
denominations prescribed by the related Terms Indenture; provided that in
accordance with Section 2.12 beneficial ownership interests in Book-Entry Bonds
shall initially be held and transferred through the book-entry facilities of the
Depository.
SECTION 2.04. Execution, Authentication, Delivery and Dating.
(a) At any time and from time to time after the execution and delivery of
this Indenture, the Issuer may deliver Bonds executed by the Issuer to the
Indenture Trustee for authentication; and the Indenture Trustee shall
authenticate and deliver such Bonds only as provided in this Indenture.
(b) The Bonds shall be executed by manual or facsimile signature on behalf
of the Issuer by any Authorized Officer of the Owner Trustee. Bonds bearing the
manual or facsimile signatures of individuals who were at any time the
Authorized Officers of the Owner Trustee shall bind the Issuer, notwithstanding
that such individuals or any of them have ceased to hold such offices prior to
the authentication and delivery of such Bonds or did not hold such offices at
the date of such Bonds. No Bond shall be entitled to any benefit under this
Indenture, or be valid for any purpose, however, unless there appears on such
Bond a certificate of authentication substantially in the form provided for in
the related Terms Indenture executed by the Indenture Trustee by manual
signature, and such certificate of authentication upon any Bond shall be
conclusive evidence, and the only evidence, that such Bond has been duly
authenticated and delivered hereunder. All Bonds shall be dated the date of
their authentication.
(c) The Indenture Trustee may, at its option, appoint one or more agents
(each an "Authenticating Agent") with power to act on its behalf and subject to
its direction in the authentication of Bonds in connection with transfers and
exchanges under Sections 2.05 and 2.06 and under any other applicable provisions
of the related Terms Indenture, as fully to all intents and purposes as though
each such Authenticating Agent had been expressly authorized by those Sections
to authenticate the Bonds. For all purposes of this Indenture, the
authentication of Bonds by an Authenticating Agent shall be deemed to be the
authentication of Bonds "by the Indenture Trustee".
Any corporation, bank, trust company or association into which any
Authenticating Agent may be merged or converted or with which it may be
consolidated, or any corporation, bank, trust company or association resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party,
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or any corporation, bank, trust company or association succeeding to the
corporate trust business of any Authenticating Agent, shall be the successor of
such Authenticating Agent hereunder, without the execution or filing of any
further act on the part of the parties hereto or such Authenticating Agent or
such successor corporation, bank, trust company or association.
Any Authenticating Agent may at any time resign by giving written notice
of resignation to the Indenture Trustee and the Issuer. The Indenture Trustee
may at any time terminate the agency of any Authenticating Agent by giving
written notice of termination to such Authenticating Agent and the Issuer. Upon
receiving such notice of resignation or upon such a termination, the Indenture
Trustee may, or at the direction of the Issuer shall, promptly appoint a
successor Authenticating Agent, give written notice of such appointment to the
Issuer and give notice of such appointment to the Bondholders.
Each Authenticating Agent shall, with respect to acts taken or not taken
within the scope of its permitted appointment, be entitled to all limitations on
liability, rights of reimbursement and indemnities that the Indenture Trustee is
entitled to hereunder as if it were the Indenture Trustee.
Unless otherwise provided in the related Terms Indenture, the Indenture
Trustee shall be responsible for any compensation and expenses of an
Authenticating Agent appointed thereby and shall not be relieved of
responsibility for the timely performance of any of its duties and obligations
under this Indenture by reason of the appointment of an Authenticating Agent.
SECTION 2.05. Registration of Transfer and Exchange of Bonds.
(a) The Issuer shall cause to be kept a register (the "Bond Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Bonds and of transfers and exchanges of
Bonds as herein provided. Unless otherwise provided in the related Terms
Indenture, the Indenture Trustee shall serve as "Bond Registrar" for the purpose
of registering Bonds and transfers and exchanges of Bonds as herein provided.
Upon any resignation or removal of the Indenture Trustee as provided herein, the
successor trustee shall immediately succeed to its predecessor's duties as Bond
Registrar.
(b) The related Terms Indenture shall set forth any restrictions on
transfer with respect to the Bonds of a Series, which restrictions may vary by
Class.
(c) Subject to any applicable restrictions on transfer provided for in the
related Terms Indenture, upon surrender for
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registration of transfer of any Bond at the office designated by the Issuer
pursuant to Section 3.02, the Issuer shall execute and the Indenture Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Bonds of the same Series and Class in authorized
denominations representing a like aggregate Principal Amount or Notional Amount,
as applicable.
(d) At the option of any Holder, its Bonds may be exchanged for other
Bonds of the same Series and Class in different authorized denominations
representing a like aggregate Principal Amount or Notional Amount, as
applicable, upon surrender of the Bonds to be exchanged at the office designated
by the Issuer pursuant to Section 3.02. Whenever any Bonds are so surrendered
for exchange, the Issuer shall execute and the Indenture Trustee shall
authenticate and deliver the Bonds which the Bondholder making the exchange is
entitled to receive.
(e) All Bonds issued upon any registration of transfer or exchange of
Bonds shall be the valid obligations of the Issuer, evidencing the same debt and
entitled to the same benefits under this Indenture, as the Bonds surrendered
upon such registration of transfer or exchange.
(f) Every Bond presented or surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by (i) a written instrument
of transfer duly executed, by the Holder thereof or its attorney duly authorized
in writing, with such signature guaranteed by a commercial bank or trust company
located, or having a correspondent located, in the City of New York or the city
in which the Corporate Trust Office is located, or by a member firm of a
national securities exchange, and (ii) such other documents as may be required
pursuant to the related Terms Indenture.
(g) No service charge shall be imposed for any registration of transfer or
exchange of Bonds pursuant to this Section 2.05, but the Issuer, the Indenture
Trustee or any other Bond Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any such transfer or exchange of Bonds.
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Bonds.
If (i) any mutilated Bond is surrendered to the Issuer or the Indenture
Trustee, or the Issuer and the Indenture Trustee receive evidence to their
satisfaction of the destruction (including mutilation tantamount to
destruction), loss or theft of any Bond and the ownership thereof, and (ii)
there is delivered to the Issuer and the Indenture Trustee such security or
indemnity as may be reasonably required by them to hold each of them and any
agent of any of them harmless, then, in the absence of notice to the Issuer or
the Indenture Trustee that
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such Bond has been acquired by a bona fide purchaser, the Issuer shall execute
and the Indenture Trustee shall authenticate and deliver, in lieu of any such
mutilated, destroyed, lost or stolen Bond, a new Bond of like Series, Class,
tenor and denomination registered in the same manner, dated the date of its
authentication and bearing a number not contemporaneously outstanding. If, after
the delivery of such new Bond, a bona fide purchaser of the Predecessor Bond
presents for payment or transfer such Predecessor Bond, the Issuer and the
Indenture Trustee shall be entitled to recover such new Bond from the Person to
whom it was delivered or any Person taking therefrom, except a bona fide
purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expenses incurred
by the Issuer or the Indenture Trustee in connection therewith. If any such
mutilated, destroyed, lost or stolen Bond shall have become, or within seven
days shall be, due and payable, or shall have been selected or called for
redemption, instead of issuing a new Bond, the Issuer may pay such Bond when so
due or payable or upon the Redemption Date or Special Redemption Date without
surrender thereof, except that any mutilated Bond shall be surrendered.
Upon the issuance of any new Bond under this Section 2.06, the Issuer, the
Indenture Trustee or any other Bond Registrar may require payment of an amount
sufficient to pay or discharge any tax or other governmental charge that may be
imposed in relation thereto and any other reasonable expenses (including the
reasonable fees and expenses of the Authenticating Agent and the Bond Registrar)
in connection therewith.
Every new Bond issued pursuant to this Section 2.06 in lieu of any
mutilated, destroyed, lost or stolen Bond shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Bond shall be at any time enforceable by any Person,
and such new Bond shall be entitled to all the benefits of this Indenture
equally and proportionately with any and all other Bonds of the same Series and
Class duly issued hereunder.
The provisions of this Section 2.06 are exclusive and shall preclude (to
the extent permitted by applicable law) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Bonds.
SECTION 2.07. Payment of Principal and Interest.
(a) Except as otherwise provided in Section 2.07(e) below or in the
related Terms Indenture, any installment of interest or principal or any other
amount payable on any Bonds of any Series on any Payment Date, Redemption Date
or Special Redemption Date (whether such installment of interest or principal or
such other amount is being punctually paid or duly provided for by the Issuer on
such date or is overdue as of such date) shall be paid
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to the Person in whose name such Bond (or one or more Predecessor Bonds) is
registered on the Regular Record Date for such Payment Date or Redemption
Date or on the Special Redemption Record Date for such Special Redemption
Date, as the case may be. Unless otherwise provided in the related Terms
Indenture, in the case of Bonds other than Book-Entry Bonds, such payment
shall be made by check mailed to such Person's address as it appears in the
Bond Register on such Regular Record Date or Special Redemption Record Date
or, upon written request to the Paying Agent five (5) Business Days prior to
the related Regular Record Date or Special Redemption Record Date by any
Holder, by wire transfer in immediately available funds to the account of
such Holder specified in the request. Any permitted request for receipt of
wire transfers shall remain effective until modified or rescinded by the
Holder that requested such wire transfers. Unless otherwise provided in the
related Terms Indenture, in the case of Book-Entry Bonds, such payment shall
be made by wire transfer to the Depository in immediately available funds.
(b) Except as set forth in the related Terms Indenture, all computations
of interest due with respect to any Bond shall be made as provided in this
Section 2.07(b) and on the basis of a 360-day year consisting of 12 30-day
months. As more specifically provided in the related Terms Indenture, each Class
that bears interest shall accrue such interest at the applicable Bond Interest
Rate specified in such Terms Indenture on the aggregate Principal Amount or
Notional Amount (as specified in such Terms Indenture) outstanding from time to
time. Except as otherwise stated in the related Terms Indenture, interest due
and payable on a Payment Date for a Series, other than on Compound Interest
Bonds, will be equal to the amount of unpaid interest that will have accrued in
accordance with the related Terms Indenture through the end of the Interest
Accrual Period for such Payment Date. The Interest Accrual Periods for any Class
may, in each case, end prior to the applicable Payment Date. For each Class of
Compound Interest Bonds, except as provided in the related Terms Indenture,
interest accrued during each Interest Accrual Period ending on or prior to the
applicable Accrual Termination Date will be added to the principal of such Class
of Compound Interest Bonds on the related Payment Date, or on such more or less
frequent basis, as is provided in the related Terms Indenture. Interest on a
Class of Compound Interest Bonds will be due and payable, except as provided in
the related Terms Indenture, on each Payment Date commencing on the Payment Date
coinciding with or next following the Accrual Termination Date for the Class. In
the case of the first Payment Date, interest on a Series or Class will accrue
from the related Accrual Date. If and to the extent so provided in the
applicable Terms Indenture, any overdue payment of interest on any Bond shall
bear interest (to the extent that payment thereof shall be legally
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enforceable) at the applicable Bond Interest Rate from and to the respective
dates set forth in such Terms Indenture.
(c) Bonds of each Series shall have such Stated Maturities, if any, as
shall be specified in the related Terms Indenture. The principal of each Bond
shall be payable in installments commencing on such date or under such
circumstances as is provided in the related Terms Indenture and ending no later
than the Stated Maturity thereof, if any, unless such Bond becomes due and
payable at an earlier date by declaration of acceleration, call for redemption
or special redemption or otherwise. On each Payment Date for a Series, payments
of principal of the Bonds of such Series shall be allocated among the respective
Classes of such Series as specified in the related Terms Indenture and shall be
allocated among the Bonds of each such Class entitled to some or all of such
payments of principal on a pro rata or random lot basis as specified in the
related Terms Indenture. All reductions in the principal amount of a Bond (or
one or more Predecessor Bonds) effected by payments of installments of principal
made on any Payment Date, Redemption Date or Special Redemption Date shall be
binding upon all future Holders of the Bond and of any Bond issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof,
whether or not such principal payment is noted on such Bond.
(d) If and to the extent so provided in the related Terms Indenture, any
Bond may entitle its Holder to payments of amounts other than principal and
interest.
(e) Unless otherwise provided in the related Terms Indenture, the
Redemption Price or Special Redemption Price for any Bond, the final installment
of principal of any Bond or, in the case of an Interest Only Bond or a Bond that
continues to accrue interest after its Principal Amount has been reduced to
zero, the final installment of interest thereon payable on any Redemption Date,
Special Redemption Date or Payment Date, respectively, shall be paid only upon
presentation and surrender of such Bond on or after the related Special
Redemption Date, Redemption Date or Payment Date, as the case may be, at the
office designated by the Issuer pursuant to Section 3.02 or at the office of any
Paying Agent for the Series of which such Bond is a part, in either case within
the continental United States.
Whenever, on the basis of payments, collections and/or distributions on
the Mortgage Collateral securing a Series received during any applicable period,
the entire remaining unpaid principal amount of or, in the case of an Interest
Only Bond or a Bond that continues to accrue interest after its Principal Amount
has been reduced to zero, the final installment of interest on any Bond of such
Series will become due and payable on the next Payment Date, Redemption Date or
Special Redemption Date, the Paying Agent shall notify the Person in whose name
such Bond is registered as of the close of business on
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the Regular Record Date prior to such Payment Date or Redemption Date or on the
Special Redemption Record Date prior to such Special Redemption Date (unless a
different time and date are specified in the related Terms Indenture) that such
final installment is expected to be paid on such Payment Date, Redemption Date
or Special Redemption Date, as the case may be, and that any and all interest in
respect of such Bond will cease to accrue as of the end of the corresponding
Interest Accrual Period for such Payment Date or Redemption Date or as of the
Designated Interest Accrual Date for such Special Redemption Date, as the case
may be. Unless otherwise specified in the related Terms Indenture, such notice
shall be mailed no later than the third day prior to such Payment Date,
Redemption Date or Special Redemption Date and shall contain the information set
forth in, and be mailed in accordance with, Section 10.02.
(f) Notwithstanding any of the foregoing provisions with respect to
payments of principal of, premium, if any, on and interest on the Bonds, if a
Series has become or been declared due and payable following an Issuer Event of
Default pursuant to Section 5.02 and such acceleration of maturity and its
consequences have not been rescinded and annulled, and distributions on the
Trust Estate for such Series are not being applied pursuant to Section 5.05,
then payments of principal of, premium, if any, on and interest on such Bonds
shall be made in accordance with Section 5.06.
(g) Unless the related Terms Indenture provides otherwise, the Bonds are
nonrecourse obligations solely of the Issuer and will not be insured or
guaranteed by any governmental instrumentality, CRIIMI MAE Inc. or any Affiliate
thereof or any other person or entity and will be payable only from the Grant of
Collateral with respect to the related Series. Each Bondholder and the holders
of any Bonds now or in the future issued by the Issuer will be deemed to have
agreed that they have no rights or claims against the Issuer directly and may
only look to the Trust Estate related to the issuance of such Bonds to satisfy
the Issuer's obligations hereunder. No judgment lien, prejudgment lien or other
attachment against the Issuer for any amount due with respect to one Series may
be enforced against the Trust Estate securing any other Series. Notwithstanding
the provisions of this Section 2.07(g), but subject to the third paragraph of
Section 8.01, the Issuer may at any time advance funds to the Indenture Trustee
for the purpose of allowing the Paying Agent to make required payments on the
Bonds. If the Issuer makes such an advance, it shall be entitled to withdraw
from the related Bond Account on any Payment Date the amount so advanced.
(h) As a condition to the payment of principal, premium (if any) and
interest on any Bond that may be beneficially owned by a non-U.S. person,
without the imposition of United States withholding tax, the Issuer shall
require certification or satisfaction of such other procedures as are acceptable
to it and
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the Bond Registrar to enable the Issuer, the Indenture Trustee, the Bond
Registrar and any Paying Agent to determine their duties and liabilities with
respect to any taxes or other charges that they may be required to deduct or
withhold from payments in respect of such Bond under any present or future law
or regulation of the United States or any present or future law or regulation of
any political subdivision thereof or taxing authority therein or to comply with
any reporting or other requirements under any such law or regulation.
SECTION 2.08. Persons Deemed Owners.
Prior to due presentation for registration of transfer of any Bond, the
Issuer, the Indenture Trustee and any Agent thereof shall treat the Person in
whose name any Bond is registered (a) on any Regular Record Date or Special
Redemption Record Date, for the purpose of receiving payments of principal of,
premium, if any, on and interest on such Bond (subject to Section 2.07) and (b)
on any other date for any other purpose, as the owner (whether or not such Bond
be overdue as to any payment thereon), and none of the Issuer, the Indenture
Trustee or any Agent thereof shall be affected by notice to the contrary.
SECTION 2.09. Cancellation.
All Bonds surrendered for payment, registration of transfer, exchange or
redemption shall, if surrendered to any person other than the Bond Registrar, be
delivered to and promptly canceled by the Bond Registrar. The Issuer may at any
time deliver to the Bond Registrar for cancellation any Bonds previously
authenticated and delivered hereunder that the Issuer may have acquired in any
manner whatsoever, and all Bonds so delivered shall be promptly canceled by the
Bond Registrar. No Bonds shall be authenticated in lieu of or in exchange for
any Bonds canceled as provided in this Section 2.09, except as expressly
permitted by this Indenture. All canceled Bonds shall be held by the Bond
Registrar in accordance with its standard retention policy unless the Issuer
shall direct by an Issuer Order that they be returned to it.
SECTION 2.10. Authentication and Delivery of Bonds.
(a) Bonds of a new Series may from time to time be executed by the Issuer
and delivered to the Indenture Trustee for authentication, and thereupon the
same shall be authenticated and delivered to or at the direction of the Issuer
by the Indenture Trustee, but only upon satisfaction of the following conditions
(provided, however, that compliance with such conditions shall only be required
in connection with the issuance of Bonds of such Series on the related Closing
Date):
(i) Issuer Order. The Issuer shall have delivered to the Indenture
Trustee an Issuer Order authorizing the
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execution, authentication and delivery of the Series, the related Terms
Indenture and any agreements to be executed by the Indenture Trustee with
respect to such Series and specifying the Series, the Classes within such
Series and their respective Stated Maturities, if any, initial aggregate
Principal Amounts and/or Notional Amounts, initial Bond Interest Rates, if
any, and ratings, if any, assigned by the designated Rating Agency or
Rating Agencies.
(ii) Terms Indenture and Servicing and Administration Agreement. The
related Terms Indenture and any Servicing and Administration Agreement
specified therein shall have been executed by all parties thereto. Such
Terms Indenture may modify or amend the terms of this Indenture solely as
applied to such new Series and otherwise shall incorporate by reference
these Standard Indenture Provisions.
(iii) Rating Agency Confirmation. The Issuer shall have delivered to
the Indenture Trustee written confirmation (which need not be addressed to
the Indenture Trustee) from each designated Rating Agency that it has
assigned to the Class or Classes rated by it the ratings specified in the
Issuer Order referred to in clause (i) above or in the related Terms
Indenture.
(iv) Additional Terms and Conditions. Such additional terms and
conditions, if any, relating to the initial issuance of any Series as may
be specified in the related Terms Indenture shall have been satisfied.
(b) In connection with the authentication and delivery of the Bonds
of each Series upon initial issuance of such Series, the Issuer shall deliver to
the Indenture Trustee an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA) a certificate or opinion from an Accountant, in accordance
with TIA ss. 314(c) and meeting the applicable requirements of Section 12.01(a).
SECTION 2.11. Substitution of Collateral.
Subject to Section 12.01, and only if and to the extent, and under the
circumstances, expressly permitted in the related Terms Indenture, the Issuer or
another specified Person may, in substitution of any one or more items of
Mortgage Collateral or other Collateral securing any Series or any cash
deposited in any Pledged Fund or Account on the related Closing Date, deliver
other Mortgage Loans, other Mortgage-Backed Securities and/or other forms of
Enhancement as new Collateral.
SECTION 2.12. Book-Entry Bonds.
(a) If so provided in the related Terms Indenture, Bonds of a Series or of
any Class of such Series may initially be issued as one or more Bonds registered
in the name of the Depository or
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its nominee and, except as provided in Section 2.12(c), transfer of such Bonds
may not be registered by the Bond Registrar unless such transfer is to a
successor Depository that agrees to hold such Bonds for the respective Bond
Owners with Ownership Interests therein. Such Bond Owners shall hold and,
subject to the related Terms Indenture, transfer their respective Ownership
Interests in and to such Bonds through the book-entry facilities of the
Depository and, except as provided in Section 2.12(c), shall not be entitled to
physical, fully registered Bonds (each a "Definitive Bond") in respect of such
Ownership Interests. All transfers by Bond Owners of their respective Ownership
Interests in the Book-Entry Bonds shall be made in accordance with the
procedures established by the Depository Participant or brokerage firm
representing each such Bond Owner. Each Depository Participant shall only
transfer the Ownership Interests in the Book-Entry Bonds of Bond Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository's normal procedures.
(b) The Issuer, the Indenture Trustee and any agent of either may for all
purposes, including the making of payments due on the Book-Entry Bonds, deal
with the Depository as the authorized representative of the Bond Owners with
respect to such Bonds for the purposes of exercising the rights of Bondholders
hereunder. The rights of Bond Owners with respect to the Book-Entry Bonds shall
be limited to those established by law and agreements between such Bond Owners
and the Depository Participants and brokerage firms representing such Bond
Owners. Multiple requests and directions from, and votes of, the Depository as
Holder of the Book-Entry Bonds with respect to any particular matter shall not
be deemed inconsistent if they are made with respect to different Bond Owners.
The Indenture Trustee may establish a reasonable record date in connection with
solicitations of consents from or voting by Bondholders and shall give notice to
the Depository of such record date.
(c) If (i) the Issuer advises the Indenture Trustee and the Bond Registrar
in writing that the Depository is no longer willing or able to properly
discharge its responsibilities with respect to any Class of Book-Entry Bonds,
and the Issuer is unable to locate a qualified successor, or (ii) the Issuer at
its option advises the Indenture Trustee and the Bond Registrar in writing that
it elects to terminate the book-entry system through the Depository with respect
to any Class of Book-Entry Bonds (or any portion of any Class thereof), the Bond
Registrar shall notify all affected Bond Owners, through the Depository, of the
occurrence of any such event and of the availability of Definitive Bonds to such
Bond Owners requesting the same. Upon surrender to the Bond Registrar of any
Class of Book-Entry Bonds (or any portion of any Class thereof) by the
Depository, accompanied by registration instructions from the Depository for
registration of transfer, the Issuer shall execute, and the Indenture Trustee
shall authenticate and deliver, the Definitive
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Bonds in respect of such Class (or portion thereof) to the Bond Owners
identified in such instructions. None of the Issuer, the Indenture Trustee or
any Agent thereof shall be liable for any delay in delivery of such instructions
and may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Bonds for purposes of evidencing
ownership of any Book-Entry Bonds, the registered holders of such Definitive
Bonds shall be recognized as Bondholders hereunder and, accordingly, shall be
entitled directly to all benefits associated with such Definitive Bond and to
transfer and exchange such Definitive Bonds.
ARTICLE III
COVENANTS; WARRANTIES
SECTION 3.01. Payment of Principal, Premium (if any) and Interest.
Subject to Section 2.07(g), the Issuer shall duly and punctually pay the
principal of, premium (if any) on and interest on the Bonds in accordance with
the terms of the Bonds and this Indenture. Amounts properly withheld under the
Code by any Person from a payment to any Bondholder of interest, premium (if
any) or principal shall be considered as having been paid by the Issuer to such
Bondholder for all purposes of this Indenture.
SECTION 3.02. Maintenance of Office or Agency.
The Issuer shall maintain in the continental United States an office or
agency where Bonds may be presented or surrendered for payment, where Bonds my
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer in respect of the Bonds and this Indenture may be
served. The Issuer will give prompt written notice to the Indenture Trustee and
the Bondholders of the location, and of any change in the location, of any such
office or agency. If at any time the Issuer shall fail to maintain any such
office or agency, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints the
Indenture Trustee at the Corporate Trust Office its agent to receive all such
presentations, surrenders, notices and demands.
The Issuer may also from time to time designate one or more other offices
or agencies outside the continental United States where the Bonds may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Issuer of its obligation to maintain
an office or agency in accordance with the requirements set forth in the
preceding paragraph. The Issuer shall give prompt written notice to the
Indenture Trustee and
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Bondholders of any such designation or rescission and of any change in the
location of such office or agency.
SECTION 3.03. Money for Bond Payments to Be Held in Trust.
All payments of amounts due and payable with respect to any Bonds which
are to be made from amounts withdrawn from the related Bond Account pursuant to
Section 8.02(b) shall be made on behalf of the Issuer by the Indenture Trustee
or another Paying Agent, and, except as provided in the related Terms Indenture,
no amounts so withdrawn from a Bond Account for payments of Bonds shall be paid
over to the Issuer except as provided in this Section 3.03 or as provided in
Section 5.06 or 8.02 (and, in either such case, the related Terms Indenture).
Any Paying Agent other than the Indenture Trustee shall be appointed by
Issuer Order. The Issuer shall not appoint any Paying Agent that does not, at
the time of such appointment, meet the qualification and eligibility standards
for an Indenture Trustee set forth in Section 6.08. If, with respect to any
Series, either (i) no other Paying Agent shall have been so appointed and shall
have executed and delivered the instrument provided for in the second following
paragraph or (iii) any such other Paying Agent shall have resigned or been
discharged without a successor having been so appointed and having executed and
delivered the instrument provided for in the second following paragraph, then
the Indenture Trustee shall be the Paying Agent for such Series.
Whenever the Issuer shall have one or more Paying Agents, it will deliver
or contract to have delivered to such Paying Agent or Agents (subject to Section
2.07(g)), on or before the Business Day next preceding each Payment Date,
Redemption Date and Special Redemption Date for each Series, an aggregate sum
sufficient to pay the amounts then becoming due with respect to the Bonds of
such Series, such sum to be deposited in the Bond Account and held in trust for
the benefit of the Persons entitled thereto, and (unless such Paying Agent is
the Indenture Trustee) the Issuer will promptly notify the Indenture Trustee of
its action or failure so to act. Any monies deposited with a Paying Agent, other
than the Indenture Trustee, in excess of an amount sufficient to pay the amounts
then becoming due and payable on the Bonds with respect to which such deposit
was made shall be retained by such Paying Agent or Agents for application in
accordance with Article VIII.
The Issuer will cause each such Paying Agent (other than the Indenture
Trustee) to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
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(i) hold all sums received by it for the payment of Bonds in trust
for the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and will
pay such sums to such Persons as herein provided;
(ii) if such Paying Agent is not the Indenture Trustee, give the
Indenture Trustee notice of any default by the Issuer in the making of any
payment required to be made with respect to any Series for which it is
acting as Paying Agent;
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, if such Paying Agent is not
the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so
held in trust by such Paying Agent;
(iv) if such Paying Agent is not the Indenture Trustee, immediately
resign as a Paying Agent and forthwith pay to the successor Paying Agent
all sums held by it in trust for the payment of Bonds if at any time it
ceases to meet the standards required to be met by a Paying Agent at the
time of its appointment; and
(v) comply with all requirements imposed upon it under the Code with
respect to the withholding from any payments made by it on any Bonds of
any applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Issuer Order direct
any Paying Agent to pay to the Indenture Trustee all sums held in trust by such
Paying Agent, such sums to be held by the Indenture Trustee upon the same trust
as those upon which the sums were held by such Paying Agent; and upon such
payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Subject to the applicable requirements of abandoned property laws, any
money held by any Paying Agent in trust for the payment of any amount due with
respect to any Bond and remaining unclaimed for two years after such amount has
become due and payable shall be discharged from such trust and, unless otherwise
provided in the related Terms Indenture, shall be paid to the Issuer on Issuer
Request; and the Holder of such Bond shall thereafter, as an unsecured general
creditor, look only to the Issuer for payment thereof (but only to the extent of
the amounts so paid to the Issuer), and all liability of the Issuer or such
Paying Agent with respect to such trust money shall thereupon cease; provided
however, that the Issuer or such Paying Agent
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shall cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in the City of New York and in the city in which the Corporate Trust Office is
then located, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be paid to
the Issuer (the cost of such publication to be paid out of such unclaimed funds
or, if that is prohibited by law, by the Issuer).
SECTION 3.04. Corporate Existence of Owner Trustee.
(a) Subject to Section 3.04(b), the Person acting as Owner Trustee shall
keep in full effect its existence as a legal entity under the laws of the
jurisdiction of its organization.
(b) Any successor to the Owner Trustee appointed pursuant to the terms of
the related Deposit Trust Agreement shall be the successor Owner Trustee under
and with respect to this Indenture without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto.
SECTION 3.05. Trust Existence.
The Issuer will keep in full effect its existence, rights and franchises
as a trust under the laws of Delaware (unless it or any successor Issuer becomes
a trust under the laws of any other State or the United States of America in
which case the Issuer shall keep in full effect its existence, rights and
franchises as a trust under the laws of such other jurisdiction), and will
obtain and preserve its qualification to do business as a foreign entity in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Indenture, the Bonds issued thereby, and any
other agreement to which it is a party relating to any Series; provided,
however, that the Owner Trustee shall not be required to do business as a
foreign entity in any jurisdiction for the purposes of satisfying the
requirements of this Section 3.05.
SECTION 3.06. Payment of Taxes and Other Claims.
The Issuer shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, all taxes, assessments and governmental
charges levied or imposed upon the Issuer or upon the income, profits or
property of the Issuer, or shown to be due on the tax returns filed by the Owner
Trustee on behalf of the Issuer, except any such taxes, assessments,
governmental charges or claims which the Owner Trustee on behalf of the Issuer
is in good faith contesting in appropriate proceedings and with respect to which
reserves are established if
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required in accordance with GAAP, provided, however, that such failure to pay or
discharge will not cause a forfeiture of, or a lien to encumber, any property
included in the Trust Estate securing any Series. The Owner Trustee, in its
individual capacity, shall not be liable for any such taxes, assessments,
governmental charges or claims. The Indenture Trustee is authorized to pay out
of the related Bond Account, prior to making payments on the Bonds, any such
taxes, assessments, governmental charges or claims which, if not paid, would
cause a forfeiture of, or a lien to encumber, any property included in the Trust
Estate securing any Series.
SECTION 3.07. Protection of Trust Estate.
The Issuer and, if and as directed by the Issuer or, unless otherwise
specified in the related Terms Indenture, by the Holders of Bonds of the
affected Series representing more than 50% of the aggregate Principal Amount of
such Series, the Indenture Trustee will from time to time execute and deliver
all such amendments and supplements hereto (subject to Sections 9.01, and 9.03)
and all such financing statements, continuation statements, instruments of
further assurance and other instruments, and will from time to time take such
other action necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust Estate
securing any Series;
(ii) maintain or preserve the lien (and the priority thereof) of this
Indenture or carry out more effectively the purposes hereof;
(iii) perfect, publish notice of, or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any of the items of Collateral, Permitted Investments or
other instruments or agreements included in the Trust Estate
securing any Series; or
(v) preserve and defend title to the Trust Estate securing any Series
and the rights of the Indenture Trustee, and of the Holders of Bonds
of such Series, in such Trust Estate against the claims of all
Persons and parties.
The Issuer hereby designates the Indenture Trustee, its agent and
attorney-in-fact, to execute any financing statement, continuation statement or
other instrument required pursuant to this Section 3.07; provided that, subject
to and consistent with Section 4.01, the Indenture Trustee will not be obligated
to prepare or file any such statements or instruments.
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SECTION 3.08. Opinions as to Trust Estate.
(a) If any Series is to be secured by the mortgage or pledge of property,
then:
(i) Promptly (and in any event within 90 days) after the Closing Date
for such Series, the Issuer shall furnish to the Indenture Trustee
an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording
and filing of this Indenture as is necessary to make effective the
lien intended to be created by this Indenture with respect to the
Trust Estate securing such Series, and reciting the details of such
action, or stating that, in the opinion of such counsel, no such
action is necessary to make such lien effective.
(ii) On or before March 30 of each calendar year commencing more than
three months after the Closing Date for a Series, the Issuer shall
furnish to the Indenture Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been
taken with respect to the recording, filing, re-recording and
refiling of this Indenture as is necessary to maintain the lien of
this Indenture with respect to the Trust Estate securing such
Series, and reciting the details of such action, or stating that, in
the opinion of such counsel, no such action is necessary to maintain
such lien.
(b) The related Terms Indenture may require that the Opinions of Counsel
referred to in Section 3.08(a) cover, or may provide for other Opinions of
Counsel to be delivered from time to time that cover, such additional matters,
if any, as may be specified in such Terms Indenture.
SECTION 3.09. Performance of Obligations.
(a) The Issuer will not take any action, and will use its best efforts not
to permit any action to be taken by others, which would release any Person from
any of such Person's covenants or obligations under any instrument included in a
Trust Estate, or which would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument, except as expressly provided in this
Indenture or such other instrument; provided, however, the Issuer may take any
such action with respect to any such instrument if such action relates solely to
rights under such instrument that are not included in a Trust Estate.
(b) The Issuer may contract with other Persons to assist it in performing
its duties hereunder and any performance of such
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duties (other than execution of Issuer Orders, Issuer Requests and Officer's
Certificates of the Issuer) by a Person identified to the Indenture Trustee in
an Officer's Certificate of the Issuer shall be deemed action taken by the
Issuer for all purposes hereunder.
SECTION 3.10. Payment of Certain Fees.
If and to the extent provided in the Terms Indenture for any Series, the
Indenture Trustee will be authorized and directed to pay out of the Bond Account
for such Series, prior to making payments on the Bonds, the fees and expenses of
the Owner Trustee in accordance with the related Deposit Trust Agreement, the
fees of any of the Persons referred to in Section 3.09(b) assisting the Issuer
with respect to such Series and the fees of any Rating Agency assigning a rating
to the Bonds of such Series. Otherwise, the Issuer or another party will be
responsible for such fees.
SECTION 3.11. Negative Covenants.
The Issuer shall not:
(i) sell, transfer, exchange or otherwise dispose of any of the
Trust Estate with respect to any Series, except as expressly permitted by
this Indenture or any separate Servicing and Administration Agreement;
(ii) claim any credit on, make any deduction from the principal,
premium, if any, or interest payable in respect of the Bonds (other than
amounts properly withheld from such payments under the Code or any
applicable state law) for or assert any claim against any present or
former Bondholder by reason of the payment of any taxes levied or assessed
upon any of the Trust Estate with respect to any Series;
(iii)(A) permit the validity or effectiveness of this Indenture or
any Grant under this Indenture to be impaired, or permit the lien of this
Indenture with respect to the Trust Estate securing any Series to be
subordinated, terminated or discharged with respect to any Series, or
permit any Person to be released from any covenants or obligations with
respect to any Series under this Indenture, except as may be expressly
permitted hereby, (B) permit any lien, charge, adverse claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture and any other lien expressly permitted hereby) to be created on
or extend to or otherwise arise upon or burden the Trust Estate securing
any Series or any part thereof or any interest therein or the proceeds
thereof, except as expressly permitted hereby, or (C) permit the lien of
this Indenture not to constitute a valid first priority perfected security
interest in the Trust Estate securing any Series
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(subject only to those liens expressly permitted hereby to be senior to
the lien of this Indenture);
(iv) dissolve or liquidate, in whole or in part, except as expressly
permitted by this Indenture or, with respect to items of Mortgage
Collateral, any separate Servicing and Administration Agreement;
(v) engage, directly or indirectly, in any business other than that
arising out of the issuance of Bonds, and the actions contemplated or
required to be performed under this Indenture or the documents
constituting part of the Trust Estate(s) securing such Bonds;
(vi) incur, create or assume any indebtedness for borrowed money
other than pursuant to this Indenture or any related Enhancement in
connection with the issuance of Bonds;
(vii) make or permit to remain outstanding, any loan or advance to,
or own or acquire any stock or securities of, any Person other than the
Mortgage Collateral and any other instruments constituting part of the
Trust Estate securing any Series;
(viii) commence a voluntary case or proceeding under any
applicable federal or state delinquency, bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or consent to the entry of a
decree or order for relief in an involuntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or file a petition or answer
or consent seeking reorganization or relief under any applicable
federal or state law, or consent to the filing of such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of or
for it or of any substantial part of its property, or make an
assignment for the benefit of creditors, or admit in writing its
inability to pay its debts generally as they become due, or take
corporate action in furtherance of any such action; or
(ix) with respect to any Series, take any other action that is
expressly prohibited in the related Terms Indenture.
SECTION 3.12. Annual Statement as to Compliance.
With respect to each Series, on or before March 30 in each calendar
year, commencing March 30 of the calendar year following the year in which such
Series was initially issued, the Issuer shall deliver to the Indenture Trustee,
a written statement signed by an Authorized Officer of the Owner Trustee,
stating that:
(a) a review of the activities of the Issuer during the preceding calendar
year and of performance under this Indenture has been made under his or her
supervision; and
(b) to the best of such officer's knowledge, based on such review, the
Issuer has fulfilled all its obligations under this Indenture throughout the
preceding calendar year, or, if there has been an Issuer Default in the
fulfillment of any such obligation, specifying each such Issuer Default known to
him or her and the nature and status thereof.
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SECTION 3.13. Issuer may Consolidate, Etc., only on Certain Terms.
(a) The Issuer shall not consolidate or merge with or into any other
Person or convey or transfer the Trust Estate securing any Series to any Person
without the consent of the Holders of Bonds representing not less than 66-2/3%
of the aggregate Principal Amount of each affected Series, and unless:
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger or that acquires by conveyance or transfer
the Trust Estate securing any Series (the "Successor Person"), shall be a
Person organized and existing under the laws of the United States of
America or any State, and shall have expressly assumed, by a supplemental
indenture, executed and delivered to the Indenture Trustee, (A) the
obligation (to the same extent as the Issuer was so obligated) to make
payments of principal, interest and other amounts on all of the Bonds
issued by the Issuer, in the case of any such consolidation or merger,
and, in the case of any conveyance or transfer of a Trust Estate, the
Bonds secured by such Trust Estate and (B) the obligation to perform every
covenant of this Indenture on the part of the Issuer with respect to each
affected Series to be performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no Issuer
Default or Issuer Event of Default with respect to any Series shall have
occurred and be continuing;
(iii) the Issuer shall have caused the Indenture Trustee to have
received written confirmation from each Rating Agency rating any of the
Bonds issued by the Issuer, in the case of any such consolidation or
merger, and, in the case of any conveyance or transfer of a Trust Estate,
any of the Bonds secured by such Trust Estate, to the effect that the
consummation of such transaction will not result in an Adverse Rating
Event with respect to any Class of such Bonds;
(iv) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with and satisfy all conditions precedent relating to the
transactions set forth in this Section 3.13 and in Article IX; and
(v) the Successor Person shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that, with respect to a Successor Person that is a corporation,
partnership, limited liability
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company or trust, such Successor Person shall be duly organized, validly
existing and in good standing in the jurisdiction in which such Successor
Person is organized; that the Successor Person has sufficient power and
authority to assume the obligations set forth in clause (i) above and to
execute and deliver an indenture supplemental hereto for the purpose of
assuming such obligations; that the Successor Person has duly authorized
the execution, delivery and performance of an indenture supplemental
hereto for the purpose of assuming such obligations and that such
supplemental indenture is a valid, legal and binding obligation of the
Successor Person, enforceable in accordance with its terms, subject only
to bankruptcy, reorganization, insolvency, moratorium, and other laws
affecting the enforcement of creditor's rights generally and to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or law); and that, immediately
following the event which causes the Successor Person to become the
Successor Person, (A) the Successor Person has good and marketable title,
free and clear of any lien, security interest or charge other than the
lien and security interest of this Indenture and any other lien permitted
hereby, to the Mortgage Collateral securing, in the case of a
consolidation or merger of the Issuer, all of the Bonds issued thereby or,
in the case of any conveyance or transfer of the Trust Estate securing any
Series, all of the Bonds of such Series and (B) the Indenture Trustee
continues to have a perfected first priority security interest in the
Mortgage Collateral securing, in the case of a consolidation or merger of
the Issuer, all of the Bonds issued thereby or, in the case of any
conveyance or transfer of the Trust Estate securing any Series, all of the
Bonds of such Series.
(b) Upon any consolidation or merger, or any conveyance or transfer of the
Trust Estate securing any Series, the Successor Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer under
this Indenture with respect to each affected Series with the same effect as if
such Successor Person had been named as the "Issuer" in the applicable Terms
Indenture(s). In the event of any such conveyance or transfer of the Trust
Estate(s) securing all of the then Outstanding Bonds of the Issuer permitted by
this Article III, the Person named as the "Issuer" in the applicable Terms
Indenture(s), or any successor that shall theretofore have become such in the
manner prescribed in this Article III and that has thereafter effected such a
conveyance or transfer, may be dissolved, wound-up and liquidated at any time
thereafter, and such Person thereafter shall be released from its liabilities as
obligor and maker on all of the then Outstanding Bonds issued by it and from its
obligations under this Indenture; and, in the event of any such conveyance or
transfer of the Trust Estate(s) securing less than all of the then Outstanding
Bonds of the
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Issuer, such Person shall be released from its liabilities as obligor and maker
on the then Outstanding Bonds secured by such Trust Estate(s) and from its
obligations with respect thereto under this Indenture.
(c) Nothing in this Section 3.13 shall prohibit the sale or transfer of
the Owner Trust Certificates.
SECTION 3.14. Purchase of Bonds.
The Issuer may reacquire Bonds of a Series, in its discretion, by open
market purchases in privately negotiated transactions or otherwise.
SECTION 3.15. Servicing and Administration Agreement.
(a) If any item of Mortgage Collateral for a Series is subject to a
separate Servicing and Administration Agreement, then (unless the related Terms
Indenture provides otherwise):
(i) The Issuer and the Indenture Trustee shall punctually perform
and observe all of their respective obligations and agreements, if any,
contained in such Servicing and Administration Agreement.
(ii) Unless otherwise provided in the related Terms Indenture, the
Issuer may, but is not obligated to, enforce the obligations of any
servicer, master servicer, special servicer, MBS administrator or REMIC
administrator under such Servicing and Administration Agreement and may,
but is not obligated to, perform, or cause a designee to perform, any
defaulted obligation of any such party thereunder or exercise the rights
of any such party thereunder; provided, however, that no servicer, master
servicer, special servicer, MBS administrator or REMIC administrator under
such Servicing and Administration Agreement shall be relieved of any of
its obligations thereunder by virtue of such performance by the Issuer or
its designee. Unless otherwise provided in the related Terms Indenture,
the Issuer shall not have any responsibility or liability for any action
or failure to act by a servicer, a master servicer, a special servicer, an
MBS administrator or a REMIC administrator under such Servicing and
Administration Agreement and shall not be obligated to supervise the
performance of any such party thereunder.
(iii) Upon any resignation or termination of a servicer, a master
servicer, a special servicer, an MBS administrator or a REMIC
administrator pursuant to such Servicing and Administration Agreement or
any appointment of a successor to any such party pursuant to such
Servicing and Administration Agreement, the Indenture Trustee shall give
prompt written notice thereof to all Holders of Bonds of the
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related Series at their respective addresses appearing in the related Bond
Register. In the event that the Indenture Trustee is to act or is acting
as successor servicer, master servicer, special servicer, MBS
administrator or REMIC administrator under such Servicing and
Administration Agreement, the Holders of Bonds representing (unless
otherwise specified in the related Terms Indenture) more than 50% of the
aggregate Principal Amount of the related Series shall be entitled to
direct the Indenture Trustee (and, upon the receipt of such direction, the
Indenture Trustee shall be required) to appoint or to petition a court of
competent jurisdiction to appoint an alternative successor that meets the
requirements of such Servicing and Administration Agreement.
(iv) Not later than the later of (i) ninety (90) days after the
occurrence of any event which constitutes or, with notice or lapse of time
or both, would constitute an S&A Event of Default under such Servicing and
Administration Agreement and (ii) five days after a Responsible Officer of
the Indenture Trustee has notice of the occurrence of such an event, the
Indenture Trustee shall transmit by mail to the Issuer and all Holders of
Bonds of the related Series notice of such occurrence, unless such default
shall have been remedied. Unless otherwise provided in the related Terms
Indenture, at the direction of the Holders of Bonds representing more than
50% of the aggregate Principal Amount of the related Series, the Indenture
Trustee shall terminate the rights and obligations of the defaulting party
under such Servicing and Administration Agreement as and to the extent
permitted thereby and shall, subject to the last sentence of Section
3.15(a)(iii), succeed the defaulting party in whatever capacity it served
under such Servicing and Administration Agreement.
(v) The Issuer and the Indenture Trustee may, with the consent of
the Holders of Bonds representing at least 66-2/3% of the aggregate
Principal Amount (or, in the case of a Class of Interest Only Bonds, the
aggregate Notional Amount) of each Class of the related Series, waive an
S&A Event of Default under such Servicing and Administration Agreement;
provided, however, that an S&A Event of Default relating to the handling,
holding and timely remittance of payments, collections and/or
distributions on the related Mortgage Collateral or under any Enhancement
may only be waived with the consent of each and every Bondholder of the
related Series. Upon any such waiver of an S&A Event of Default, such S&A
Event of Default shall cease to exist and shall be deemed to have been
remedied for every purpose hereunder and under such Servicing and
Administration Agreement. No such waiver shall extend to any subsequent or
other S&A Event of Default under such Servicing and Administration
Agreement or impair any right consequent thereon except to the extent
expressly so waived.
(vi) During the continuance of any S&A Event of Default under such
Servicing and Administration Agreement, so long as such S&A Event of
Default under such Servicing and Administration Agreement shall not have
been remedied, the Indenture Trustee, in addition to the right to remove
the defaulting party in the manner specified under such Servicing and
Administration Agreement, shall have the
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right, in its own name and as trustee of an express trust, to take all
actions now or hereafter existing at law, in equity or by statute to
enforce its rights and remedies and to protect the interests, and enforce
the rights and remedies, of Bondholders (including the institution and
prosecution of all judicial, administrative and other proceedings and the
filings of proofs of claim and debt in connection therewith). Except as
otherwise expressly provided in the related Terms Indenture or such
Servicing and Administration Agreement, no remedy provided for by this
Indenture or such Servicing and Administration Agreement with respect to
an S&A Event of Default under such Servicing and Administration Agreement
shall be exclusive of any other remedy, and each and every remedy shall be
cumulative and in addition to any other remedy, and no delay or omission
to exercise any right or remedy shall impair any such right or remedy or
shall be deemed to be a waiver of any such S&A Event of Default.
(vii) One or more Classes of the related Series may be designated,
separately or collectively, as the "Controlling Class" under the related
Terms Indenture, with such rights, powers and liabilities in respect of
the related Mortgage Collateral as may be provided for in the related
Terms Indenture and/or such Servicing and Administration Agreement. The
related Terms Indenture and/or such Servicing and Administration Agreement
may provide that such rights and powers may be exercised directly by the
Holders of Bonds of the Controlling Class or, alternatively, indirectly
through the Indenture Trustee, a servicer, a master servicer, a special
servicer, an MBS administrator and/or another representative. If the
Issuer, the Depositor or any Affiliate of either holds Bonds of the
Controlling Class, then (unless otherwise provided in the related Terms
Indenture and so long as no Issuer Event of Default has occurred and is
continuing) such Bonds shall be deemed to be Outstanding for purposes of
exercising all rights and powers of the Controlling Class as such,
anything herein to the contrary notwithstanding.
(viii) As and to the extent, and subject to the terms and
conditions, provided in the related Terms Indenture and/or such Servicing
and Administration Agreement, the Issuer shall be entitled to exercise
certain rights and powers, and/or to direct the Indenture Trustee, a
servicer, a master servicer, a special servicer or an MBS Administrator to
take or not take certain actions, in respect of the related Mortgage
Collateral or any Enhancement.
(b) If there is no separate Servicing and Administration Agreement in
respect of the Mortgage Collateral for any Series, and the provisions governing
servicing and administration of the
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related Mortgage Collateral are part of the related Terms Indenture, the
provisions of Section 3.15(a) shall (unless the related Terms Indenture
expressly states otherwise) apply to the related Terms Indenture.
(c) If any item of Mortgage Collateral for a Series is subject to a
separate Servicing and Administration Agreement, then any successor Issuer or
Indenture Trustee in respect of such Series under this Indenture shall be the
successor to the Issuer or the Indenture Trustee, as the case may be, under such
Servicing and Administration Agreement, without the execution or filing of any
paper or any further act on the part of any of the parties hereto or to such
Servicing and Administration Agreement, anything herein or in such Servicing and
Administration Agreement to the contrary notwithstanding.
(d) If any item of Mortgage Collateral for a Series is subject to a
separate Servicing and Administration Agreement, then (unless the related Terms
Indenture provides otherwise):
(i) The Issuer and the Indenture Trustee may enter into any
amendment of such Servicing and Administration Agreement from time to
time, without the consent of any of the Bondholders, (A) to cure any
ambiguity, (B) to correct, modify or supplement any provision therein
which may be inconsistent with any other provision herein or therein, (C)
to add any other provisions with respect to matters or questions arising
thereunder which shall not be inconsistent with the provisions hereof or
thereof, (D) if such item of Mortgage Collateral is included in a REMIC
Pool, either (1) to relax or eliminate any requirement thereunder imposed
by the REMIC Provisions (if the REMIC Provisions are amended or clarified
such that any such requirement may be relaxed or eliminated), or (2) to
comply with any requirements imposed by the Code or any successor or
amendatory statute or any temporary or final regulation, revenue ruling,
revenue procedure or other written official announcement or interpretation
relating to federal income tax laws or any such proposed action which, if
made effective, would apply retroactively to any related REMIC Pool at
least from the effective date of such amendment, insofar as such
compliance is necessary to preserve the status of any related REMIC Pool
as a REMIC, to avoid the occurrence of a prohibited transaction or to
reduce the incidence of any tax that would arise from any actions taken
with respect to the operation of any related REMIC Pool, or (E) for any
other purpose; provided that such amendment (other than any amendment for
any of the specific purposes described in clause (D)(2) above) shall not
adversely affect in any material respect the interests of any Holder of an
Outstanding Bond of the related Series as evidenced by either an Opinion
of Counsel to such effect or, in the case of a Class of Rated Bonds of the
related Series, written confirmation from each Rating
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Agency rating such Class that such amendment shall not result in an
Adverse Rating Event with respect thereto, in any event obtained by or
delivered to the Indenture Trustee.
(ii) The Issuer and the Indenture Trustee also may enter into any
amendment of such Servicing and Administration Agreement from time to
time, with the consent of the Holders of Bonds of the related Series
representing more than 50% of the aggregate Principal Amount (or, in the
case of a Class of Interest Only Bonds, the aggregate Notional Amount) of
each Class of the related Series, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of such
Servicing and Administration Agreement; provided, however, that no such
amendment shall (x) reduce in any manner the amount of, or delay the
timing of, payments, collections and/or distributions received or advanced
on Mortgage Collateral which are required to be paid on any Bond without
the consent of the Holder of such Bond, or (y) adversely affect in any
material respect the interests of the Holders of any Class of the related
Series in a manner other than as described in clause (x) above without the
consent of each and every Holder of Bonds of such Class. For purposes of
giving the consents contemplated by this Section 3.15(d)(ii), Bonds held
by the Issuer, the Depositor and any Affiliate thereof will be given the
same regard as Bonds held by any other Person.
(iii) Notwithstanding the foregoing, if such item of Mortgage
Collateral is included in a REMIC Pool, neither the Indenture Trustee nor
the Issuer shall consent to any amendment to such Servicing and
Administration Agreement unless it shall first have obtained or been
furnished with an Opinion of Counsel to the effect that such amendment or
the exercise of any power granted to any party to such Servicing and
Administration Agreement in accordance with such amendment will not result
in an Adverse REMIC Event with respect to any related REMIC Pool.
(iv) Promptly after the execution and delivery of any amendment of
such Servicing and Administration Agreement by all parties thereto, the
Indenture Trustee shall send a copy thereof to each Holder of a Bond of
the related Series.
(v) It shall not be necessary for the consent of Bondholders under
this Section 3.15(d) to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing
the authorization, execution and delivery thereof by Bondholders shall be
subject to such reasonable regulations as the Indenture Trustee may
prescribe.
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(vi) The Indenture Trustee may but shall not be obligated to enter
into any amendment of such Servicing and Administration Agreement pursuant
to this Section 3.15(d) that affects its rights, duties and immunities
thereunder or under this Indenture.
(vii) The cost of any Opinion of Counsel to be delivered pursuant
to Section 3.15(d)(i) shall be borne by the Person seeking the related
amendment, except that if the Indenture Trustee requests any amendment
of such Servicing and Administration Agreement that it reasonably
believes protects or is in furtherance of the rights and interests of
Bondholders, the cost of any Opinion of Counsel required in connection
therewith pursuant to Section 3.15(d)(i) shall be payable by the Issuer.
SECTION 3.16. Covenants, Representations and Warranties of the Issuer.
All covenants, representations and warranties of the Issuer in this
Indenture are covenants, representations and warranties solely of the Issuer and
not covenants, representations and warranties of the Owner Trustee or of the
Person acting as Owner Trustee in its individual capacity. The Owner Trustee is
entering into this Indenture solely as Owner Trustee and not in its individual
capacity, and in no case whatsoever shall the Owner Trustee be personally liable
on, or for any loss in respect of, any of the statements, representations,
warranties or obligations of the Issuer hereunder, as to all of which the
parties hereto agree to look solely to the property of the related Trust Estate.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect with respect to any
Series except as to (i) rights of registration of transfer and exchange, (ii)
substitution of mutilated, destroyed, lost or stolen Bonds, (iii) rights of
Bondholders of such Series to receive payments of principal thereof, premium, if
any, thereon and interest thereon, (iv) the rights, obligations and immunities
of the Indenture Trustee hereunder and (v) the rights of Bondholders of such
Series as beneficiaries hereof with respect to the property so deposited with
the Indenture Trustee payable to all or any of them, and the Indenture Trustee,
on demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to such
Series, when:
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(a) either (1) all Bonds of such Series theretofore authenticated and
delivered (other than (A) Bonds which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 2.06, and (B) Bonds of
such Series for which payment of money has theretofore been deposited in the
Bond Account by the Indenture Trustee and thereafter repaid to the Issuer or
discharged from such trust, as provided in Section 3.03) have been delivered to
the Bond Registrar for cancellation; or (2) all such Bonds of such Series not
theretofore delivered to the Bond Registrar for cancellation (A) have become due
and payable, (B) will become due and payable at their Stated Maturity, if any,
within one year, or (C) are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense, of the
Issuer; and the Issuer has deposited or caused to be deposited with the
Indenture Trustee or another Paying Agent, in trust for such purpose, an amount
sufficient to pay and discharge the entire indebtedness on such Bonds of such
Series not theretofore delivered to the Bond Registrar for cancellation, for
principal, premium, if any, and interest which would be payable on their Stated
Maturity, if any, or Redemption Date (if Bonds shall have been called for
redemption pursuant to Section 10.01), as the case may be, including for any and
all overdue principal, premium, if any, and interest payable on such Bonds;
(b) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer;
(c) any conditions set forth in the related Terms Indenture for the
satisfaction and discharge of this Indenture and the related Terms Indenture
with respect to such Series, have been satisfied; and
(d) the Issuer has delivered to the Indenture Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA) a certificate or
opinion from an Accountant, in accordance with TIA ss.314(c) and meeting the
applicable requirements of Section 12.01(a).
Notwithstanding the satisfaction and discharge of this Indenture with
respect to any Series, the obligations of the Issuer to the Indenture Trustee
under Section 6.07 and of the Indenture Trustee to the Issuer and the
Bondholders of such Series under Section 3.03, the obligations of the Indenture
Trustee to the Bondholders of such Series under Section 4.02 and the provisions
of Article II with respect to lost, stolen, destroyed or mutilated Bonds of such
Series, registration of transfers of Bonds of such Series, and rights to receive
payments of principal of and interest on the Bonds of such Series shall survive.
The applicable Terms Indentures, as they incorporate by reference these Standard
Indenture Provisions, shall remain in
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full force and effect with respect to all Series that remain Outstanding.
SECTION 4.02. Application of Trust Money.
All monies deposited with the Indenture Trustee or another Paying Agent
pursuant to Section 4.01 shall be held in trust and applied by the Indenture
Trustee or another Paying Agent, in accordance with the provisions of the Bonds
of the applicable Series and this Indenture, to the payment, either directly or
through any Paying Agent, as the Indenture Trustee may determine, to the Persons
entitled thereto, of all sums due and to become due on or with respect to the
Bonds for whose payment such money has been deposited with the Indenture Trustee
or another Paying Agent, but such money need not be segregated from other funds
except to the extent expressly required herein or required by law.
SECTION 4.03. Repayment of Monies Held by Paying Agent.
In connection with the satisfaction and discharge of this Indenture with
respect to any Series, all monies with respect to such Series then held by any
Paying Agent other than the Indenture Trustee under this Indenture shall, upon
demand of the Issuer, be paid to the Indenture Trustee to be held and applied
according to Section 3.03 and thereupon such Paying Agent shall be released from
all further liability with respect to such monies.
ARTICLE V
ISSUER EVENTS OF DEFAULT; REMEDIES
SECTION 5.01. Issuer Events of Default.
Unless otherwise specified in the related Terms Indenture, each of the
following shall constitute an "Issuer Event of Default" with respect to any
Series (whatever the reason for such Issuer Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) any failure to pay all interest on and principal of any Bond of
such Series by its Stated Maturity; or
(ii) any default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is
elsewhere in this Section 5.01 specifically dealt with) with respect to
such Series or any representation or warranty of the Issuer made in this
Indenture, or in any certificate or other writing
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delivered pursuant hereto or in connection herewith, 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, and 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 sixty (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% of the aggregate Principal Amount of such Series, a written
notice specifying such default and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
(iii) the entry by a court having jurisdiction over the Issuer of
(A) a decree or order for relief in respect of the Issuer in an
involuntary case or proceeding under any applicable federal or state
delinquency, bankruptcy, insolvency, reorganization or other similar law
or (B) a decree or order adjudging the Issuer as bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of or for the
Issuer under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Issuer or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other
decree or order not stayed or dismissed and in effect for a period of more
than ninety (90) consecutive days; or
(iv) the commencement by the Owner Trustee on behalf of the Issuer
of a voluntary case or proceeding under any applicable federal or state
delinquency, bankruptcy, insolvency, reorganization or other similar law
or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by the Issuer to the entry of a decree or order
for relief in respect of the Issuer in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Issuer, or the
filing by the Owner Trustee on behalf of the Issuer of a petition or
answer or consent seeking reorganization or relief under any applicable
federal or state law, or the consent by the Owner Trustee on behalf of the
Issuer to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of or for the
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Issuer or of any substantial part of the Issuer's property, or the making
by the Owner Trustee on behalf of the Issuer of an assignment for the
benefit of creditors, or the admission by the Owner Trustee on behalf of
the Issuer in writing of the Issuer's inability to pay its debts generally
as they become due, or the taking of corporate action by the Owner Trustee
on behalf of the Issuer in furtherance of any such action; or
(v) the impairment of the validity or effectiveness of this
Indenture or any Grant hereunder, or the subordination or, except as
permitted hereunder, the termination or discharge of the lien of this
Indenture, or the creation of any lien, charge, security interest,
mortgage or other encumbrance (other than the lien of this Indenture or
any other lien expressly permitted hereby) with respect to any part of the
related Trust Estate or any interest in or proceeds of the related Trust
Estate, or the failure of the lien of this Indenture to constitute a valid
first priority perfected security interest in the related Trust Estate
(subject only to those liens expressly permitted hereby to be prior to the
lien hereof), provided that, if such impairment, such subordination, the
creation of such lien, or the failure of the lien on the related Trust
Estate to constitute such a security interest shall be susceptible of
cure, no Issuer Event of Default shall arise until the continuation of any
such default unremedied for a period of thirty (30) days after receipt of
notice thereof; or
(vi) such other events, circumstances and conditions, if any,
identified in the related Terms Indenture as "Issuer Events of Default"
shall have occurred or exist.
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.
If an Issuer Event of Default should occur and be continuing with respect
to a Series, then and in every such case (unless the related Terms Indenture
provides otherwise) the Indenture Trustee may, or at the direction of the
Holders of Bonds representing more than 50% of the aggregate Principal Amount
(or, in the case of a Class of Interest Only Bonds, the aggregate Notional
Amount) of each Class of such Series, shall declare all of the Bonds of such
Series to be immediately due and payable, by a notice in writing to the Issuer,
and upon any such declaration the aggregate unpaid Principal Amount of such
Bonds, together with accrued and unpaid interest with respect thereto through
the end of the applicable Interest Accrual Period, shall become due and payable
on the next succeeding Payment Date and on each Payment Date thereafter, until
all such principal and interest is paid in full, and unless such declaration and
its consequences are earlier rescinded and annulled as provided in the following
paragraph.
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At any time after such declaration of acceleration has been made and
before a judgment or decree for payment of the money due in respect of the Bonds
has been obtained by the Indenture Trustee as hereinafter provided in this
Article V, unless the related Terms Indenture provides otherwise, the Holders of
Bonds representing more than 50% of the aggregate Principal Amount (or, in the
case of a Class of Interest Only Bonds, the aggregate Notional Amount) of each
Class of the Series that has been declared due and payable, by written notice to
the Issuer and the Indenture Trustee, may rescind and annul such declaration and
its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee or
another Paying Agent a sum sufficient to pay
(A) all payments of principal of, premium, if any, on and interest
on all Bonds of the Series that has been declared due and payable
and all other amounts which would then be due hereunder if the
Issuer Event of Default giving rise to such acceleration had not
occurred; and
(B) all Administrative Expenses and Additional Expenses remaining
unpaid with respect to the Series that has been declared due and
payable, together with all sums paid or advanced by the Indenture
Trustee or any other Paying Agent hereunder and the reasonable
compensation, fees, expenses, disbursement and advances of the
Indenture Trustee, any other Paying Agents, and its agents and
counsel;
(ii) all Issuer Events of Default with respect to the Series that
has been declared due and payable, other than the nonpayment of the
principal of or interest on Bonds of such Series, have been cured or
waived as provided in Section 5.13; and
(iii) any other conditions to such declaration and its consequences
being rescinded and annulled have been satisfied.
Upon such rescission and annulment, the related Issuer Event of Default
shall be deemed to have been cured; however, no such rescission and annulment
shall affect any subsequent Issuer Event of Default with respect to the affected
Series or any Issuer Event of Default with respect to any other Series or impair
any right or remedy which arises as a consequence thereof.
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SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) Unless otherwise specified in the related Terms Indenture, if an
Issuer Event of Default has occurred and is continuing with respect to any
Series and the Series has been declared due and payable pursuant to Section 5.02
and such declaration of acceleration has not been rescinded and annulled, the
Issuer shall pay to the Paying Agent upon demand, for the benefit of the
Bondholders of such Series, but only from the Trust Estate securing the Bonds of
such Series, (i) the entire aggregate unpaid Principal Amount of such Series
then due and payable, (ii) all accrued and unpaid interest with respect to such
Series through the end of the Interest Accrual Period for the next succeeding
Payment Date (including, if and to the extent so provided in the related Terms
Indenture, interest on overdue interest, but only to the extent that payment of
such interest on overdue interest shall be legally enforceable), and (iii) in
addition thereto, all Administrative Expenses or Additional Expenses with
respect to such Series then remaining unpaid, together with such further amount
as shall be sufficient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of the
Indenture Trustee, any other Paying Agent, and its agents and counsel.
Until such demand is made by the Indenture Trustee, the Issuer may pay the
principal of, premium (if any) on and interest on the Bonds of the relevant
Series to the registered Holders thereof in accordance with Section 2.07.
(b) Unless otherwise specified in the related Terms Indenture, if the
Issuer fails to pay all amounts due upon an acceleration of the Bonds of any
Series under Section 5.02 forthwith upon demand, the Indenture Trustee, in its
capacity as Indenture Trustee and as trustee of an express trust, may institute
any Proceeding for the collection of the sums so due and unpaid, may prosecute
such Proceeding to judgment or final decree and may enforce the same against the
Issuer or any other obligor upon such Bonds and collect the monies adjudged or
decreed to be payable in the manner provided by law out of the related Trust
Estate or, subject to Section 2.07(g), out of the property, wherever situated,
of the Issuer or any such other obligor upon such Bonds.
(c) If an Issuer Event of Default occurs and is continuing, the Indenture
Trustee may, in its discretion, subject to the terms of the related Terms
Indenture, proceed to protect and enforce its rights and the rights of the
Bondholders of any Series by such appropriate Proceedings as the Indenture
Trustee shall deem most effective to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted
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herein to enforce any other proper remedy or legal or equitable right vested in
the Indenture Trustee by this Indenture or by law.
(d) In case (i) there shall be pending, relative to the Issuer or any
other Person having or claiming an ownership interest in the Trust Estate
securing any Series or obligated to make payments on such Series, Proceedings
under Title 11 of the United States Code or any other applicable Federal or
state bankruptcy, insolvency or other similar law, (ii) a receiver, assignee or
trustee in bankruptcy or reorganization, liquidator, sequestrator or similar
official shall have been appointed for or shall have taken possession of the
Issuer or its property or such other Person or (iii) there shall be pending a
comparable judicial Proceeding brought by creditors of the Issuer or affecting
the property of the Issuer, the Indenture Trustee, irrespective of whether the
principal of or interest on any Bonds shall then be due and payable as provided
therein or by declaration of acceleration or otherwise, and irrespective of
whether the Indenture Trustee shall have made any demand pursuant to the
provisions of this Section 5.03, shall be entitled and empowered, by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims on behalf of the Bondholders
of any affected Series for the whole amount of principal and interest
owing and unpaid in respect of such Series and to file such other papers
or documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee (including any claim for reasonable compensation
to the Indenture Trustee and each predecessor Indenture Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee, except as a result of
willful misconduct, negligence or bad faith) and of the Bondholders
allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Bondholders of any affected Series in any election of a
trustee in bankruptcy or any other Person performing similar functions in
any such Proceedings;
(iii) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Bondholders of any affected Series and of the
Indenture Trustee on their and its behalf; and
(iv) to file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Indenture
Trustee or the Bondholders of
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any affected Series allowed in any judicial proceedings relative to the
Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such proceeding is hereby authorized by each of such Bondholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Bondholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of willful misconduct,
negligence or bad faith of the Indenture Trustee or predecessor Indenture
Trustee.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Bondholder any plan of reorganization, arrangement, adjustment or
composition affecting any Series or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Bondholder in any such Proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and claims under this Indenture or any of the
Bonds may be prosecuted and enforced by the Indenture Trustee without the
possession of any of the Bonds or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Indenture Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee, its
agents and counsel, shall be, except as otherwise stated in the related Terms
Indenture(s), for the ratable benefit of the Bondholders in respect of which
such judgment has been recovered.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture),
the Indenture Trustee shall be held to represent all the Bondholders of each
affected Series, and it shall not be necessary to make any Bondholder a party to
any such proceedings.
SECTION 5.04. Remedies.
Unless otherwise provided in the related Terms Indenture, if an Issuer
Event of Default with respect to any Series has occurred and is continuing, and
the Bonds of such Series have been declared due and payable pursuant to Section
5.02 and such declaration and its consequences have not been rescinded and
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annulled, the Indenture Trustee may do one or more of the following:
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on or under
this Indenture with respect to the Bonds of such Series, whether by
declaration of acceleration or otherwise, enforce any judgment obtained,
and collect from the Trust Estate securing such Series and, subject to
Section 2.07(g), from the Issuer or any other obligor on the Bonds of such
Series monies adjudged due;
(ii) sell or cause the sale of the Trust Estate securing such Series
or any portion thereof or rights or interest therein, at one or more
public or private sales called and conducted in any manner permitted by
law and in accordance with Section 5.16; provided, however, that the
Indenture Trustee shall give the Issuer written notice of any private sale
called by or on behalf of the Indenture Trustee pursuant to this Section
5.04(ii), at least 10 days prior to the date fixed for such private sale;
(iii) institute Proceedings from time to time for the complete or
partial foreclosure with respect to the Trust Estate securing such Series;
(iv) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and
enforce the rights and remedies of the Indenture Trustee or the Holders of
the Bonds of such Series hereunder; and
(v) make any claim against any Enhancement delivered with respect to
such Series in accordance with its terms and the terms of the related
Terms Indenture;
provided, however, that (subject to the provisions of the related Terms
Indenture) the Indenture Trustee may not, unless required by law, sell or
otherwise liquidate the Trust Estate securing such Series following any Issuer
Event of Default, other than an Issuer Event of Default described in Section
5.01(i), unless (A) each and every Bondholder of such Series consents thereto,
(B) the portion of the proceeds of such sale or liquidation that is
distributable to the Holders of Bonds of such Series is sufficient to discharge
in full all amounts then due and unpaid upon such Bonds for principal and
interest or (C) the Indenture Trustee (1) determines that the Trust Estate
securing such Series will not, taking into account any Enhancement 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 (2) obtains the consent of the Holders of Bonds representing at least
66-2/3% of the aggregate Principal Amount (or, in the case of a Class of
Interest Only Bonds, the
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aggregate Notional Amount) of each Class of such Series. In determining such
sufficiency or insufficiency with respect to clauses (B) and (C) of the proviso
to the preceding sentence, 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 the related Trust Estate for such purpose.
SECTION 5.05. Optional Preservation of Trust Estate.
If the Bonds of any Series have been declared to be due and payable
under Section 5.02 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 Terms Indenture provides otherwise) the
Indenture Trustee may, but need not, elect to maintain possession of the Trust
Estate securing such Series; provided that the Holders of Bonds of such Series
shall not have directed the Indenture Trustee in accordance with Section 5.12 to
sell the Trust Estate 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 Enhancement with respect to such Series, sufficient
funds for the payment of all principal of and interest on the Bonds of each
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 Trust Estate securing any Series declared due and payable. In
determining whether to maintain possession of the Trust Estate 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 Trust Estate for such purpose.
Until the Indenture Trustee has elected or has determined not to elect, in
either case subject to the terms of the related Terms Indenture, to retain the
Trust Estate securing a Series pursuant to this Section 5.05, and thereafter if
the Indenture Trustee has elected, subject to the terms of the related Terms
Indenture, to retain the Trust Estate securing a Series pursuant to this Section
5.05, the Indenture Trustee shall continue to apply all payments, collections,
distributions and other amounts received on such Trust Estate and/or paid under
the Enhancement, if any, for such Series, solely to the payment of principal of,
premium, if any, on and interest on the Bonds of such Series, and to the payment
of Administrative Expenses and Additional Expenses, as if there had not been
such a declaration of acceleration.
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SECTION 5.06. Application of Money Collected.
If a Series has been declared due and payable pursuant to Section 5.02
following an Issuer Event of Default and such declaration and its consequences
have not been rescinded and annulled, and payments, collections, distributions
and other amounts received on the Trust Estate for such Series and/or paid under
the Enhancement, if any, for such Series, are not being applied pursuant to
Section 5.05, any monies collected by the Indenture Trustee pursuant to this
Article V or otherwise held by the Indenture Trustee or any other Paying Agent
as part of such Trust Estate with respect to such Series shall, unless otherwise
provided in the related Terms Indenture, be applied on each Payment Date to the
extent permitted by applicable law for the following purposes and in the
following order of priority, subject to available funds and, in the case of
payments on the Bonds, subject to the first paragraph of Section 2.07(e):
FIRST: To pay all amounts due the Indenture Trustee with respect to
such Series pursuant to Section 6.07;
SECOND: To pay, in accordance with the related Terms Indenture or
any related Servicing and Administration Agreement, as applicable, all
amounts due the servicer, master servicer, special servicer, MBS
administrator or REMIC administrator, as applicable, thereunder, pro rata
based on the respective amounts payable to each such Person;
THIRD: To pay all other Administrative Expenses, S&A Expenses and
Additional Expenses remaining unpaid with respect to such Series, in such
order as the Indenture Trustee deems necessary and appropriate (but, in
each case, only if and to the extent that the failure to pay such would
result in a lien on the related Trust Estate that is prior to or of equal
priority with the lien of this Indenture or would otherwise materially and
adversely affect the interests of Bondholders of such Series);
FOURTH: To make payments on the Bonds of such Series as provided in
the related Terms Indenture;
FIFTH: To pay all Administrative Expenses, S&A Expenses and
Additional Expenses still remaining unpaid after giving effect to payments
under clauses FIRST, SECOND and THIRD above; and
SIXTH: To pay any surplus to the Issuer or any other Person legally
entitled thereto, including any Person that has provided Enhancement, if
any, with respect to such Series, in such order of priority as is
specified in the related Terms Indenture.
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SECTION 5.07. Limitation on Suits.
Unless otherwise specified in the related Terms Indenture, no Holder of
any Bond of any Series shall have any right to institute any Proceedings,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(i) such Holder has previously given written notice to the Indenture
Trustee of a continuing Issuer Event of Default with respect to such
Series;
(ii) the Holders of Bonds representing more than 50% of the
aggregate Principal Amount of such Series (or such other group of
Bondholders of such Series as may be required for directing the Indenture
Trustee to institute particular Proceedings pursuant to Section 5.12 and
as shall hold Bonds which, in the aggregate, shall represent more than 50%
of the aggregate Principal Amount of 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
hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee
adequate indemnity or security reasonably satisfactory to the Indenture
Trustee against the costs, expenses and liabilities to be incurred in
compliance with such request;
(iv) the Indenture Trustee has, for sixty (60) days after its
receipt of such notice, request and offer of indemnity or security, failed
to institute any such proceeding; and
(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the Holders of
Bonds representing more than 50% of the aggregate Principal Amount of such
Series;
it being understood and intended that no one or more of the Holders of Bonds of
any Series shall have any right in any manner whatever by virtue of, or by
availing itself or themselves of, any provision of this Indenture or the related
Terms Indenture to affect, disturb or prejudice the rights of any other Holders
of Bonds of such Series or to obtain or to seek to obtain priority or preference
over any other Holders of Bonds of such Series or to enforce any right under
this Indenture, except in the manner herein provided and, unless otherwise
provided in the related Terms Indenture, for the equal and ratable benefit of
all the Holders of Bonds of such Series. Subject to the foregoing restrictions,
the Bondholders may exercise their rights under this Section 5.07 independently.
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In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Bondholders of
the same series, each representing (unless otherwise specified in the related
Terms Indenture) less than a majority, by aggregate Principal Amount, of such
Series, the Indenture Trustee in its sole discretion may determine what action,
if any, shall be taken with respect to Proceedings, notwithstanding any other
provisions of this Indenture.
SECTION 5.08. Unconditional Right of Bondholders to Receive Principal and
Interest.
Notwithstanding any other provision in this Indenture (except those
specifically referenced in this Section 5.08), the Holder of any Bond shall have
the right, which is absolute and unconditional, to receive payment of the
principal of and interest on such Bond (subject to Section 2.07(g) and the
second sentence of Section 3.01) and, if the nonpayment constitutes an Issuer
Event of Default, to institute suit for the enforcement of any such payment
(subject to Section 5.07 and Section 12.17), and such rights shall not be
impaired without the consent of such Bondholder, unless a non-payment has been
cured pursuant to Section 5.02. The Issuer shall, however, be subject to only
one consolidated lawsuit by the Bondholders of any Series, or by the Indenture
Trustee on behalf of such Bondholders, for any one cause of action arising under
this Indenture or otherwise.
SECTION 5.09. Restoration of Rights and Remedies.
If the Indenture Trustee or any Bondholder of any Series has instituted
any Proceeding to enforce any right or remedy under this Indenture and such
Proceeding has been discontinued, waived, rescinded or abandoned for any reason,
or has been determined adversely to the Indenture Trustee or to such Bondholder,
then and in every such case, subject to any determination in such Proceeding,
the Issuer, the Indenture Trustee and the Bondholders of such Series shall be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Indenture Trustee and such Bondholders
shall continue as though no such Proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the related Terms Indenture, if any Issuer
Event of Default should occur with respect to any Series, no right or remedy
herein conferred upon or reserved to the Indenture Trustee or to the Bondholders
of such Series is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder or otherwise in respect of an Issuer Event of Default
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relating to any Series, shall not prevent the concurrent assertion or employment
of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver.
No delay or omission of the Indenture Trustee or any Bondholder to
exercise any right or remedy accruing upon any Issuer Event of Default shall
impair any such right or remedy or constitute a waiver of any such Issuer Event
of Default or an acquiescence therein. Every right and remedy given by this
Indenture or by law to the Indenture Trustee or to the Bondholders in respect of
any Issuer Event of Default may be exercised from time to time, and as often as
may be deemed expedient, to the extent permitted by applicable law, by the
Indenture Trustee or the Bondholders of the affected Series, as the case may be.
SECTION 5.12. Control by Bondholders.
Unless otherwise provided in the related Terms Indenture, the Holders of
Bonds of any Series representing more than 50% of the aggregate Principal Amount
of such Series shall have the right to direct the time, method and place of
conducting any 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 shall not be in conflict with any rule of law or
with this 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% of the aggregate Principal
Amount (or, in the case of a Class of Interest Only Bonds, the aggregate
Notional Amount) of each Class of such Series;
(iv) any direction to the Indenture Trustee to sell or liquidate the
Trust Estate securing such Series or any portion thereof shall be by the
Holders of Bonds representing not less than 66-2/3% of the aggregate
Principal Amount (or, in the case of a Class of Interest Only Bonds, the
aggregate Notional Amount) of each Class of such Series (except that,
notwithstanding the foregoing, if the condition to retention of the Trust
Estate securing such Series set forth in Section 5.05 has been satisfied
and the Indenture Trustee elects to retain such Trust Estate pursuant to
such section, then any direction to the Indenture Trustee by the Holders
of less than all the Bonds
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of such Series to sell or liquidate such Trust Estate or any portion
thereof 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 in this
Section 5.12, subject to Section 6.01 hereof, the Indenture Trustee need not
take any action which it determines might involve it in liability or may be
unjustly prejudicial to the Bondholders of such Series not consenting.
SECTION 5.13. Waiver of Past Issuer Defaults.
Prior to the declaration of the acceleration of the maturity of the Bonds
of any Series as provided in Section 5.02, unless otherwise specified in the
related Terms Indenture, the Holders of Bonds representing more than 50% of the
aggregate Principal Amount (or, in the case of a Class of Interest Only Bonds,
the aggregate Notional Amount) of each Class of such Series may, on behalf of
the Holders of all the Bonds of such Series, waive any past Issuer Default
hereunder and its consequences, except an Issuer 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 hereof which under
Article IX 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.
Upon any such waiver, such Issuer Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Issuer Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred,
for every purpose of this Indenture. In the case of any such waiver, the Issuer,
the Indenture Trustee and the Bondholders of such Series shall be restored to
their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other Issuer Default or impair any right
consequent thereto.
SECTION 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of a Bond by its
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Indenture Trustee for any action
taken, suffered or omitted by it as Indenture Trustee, the filing by any
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party litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in such
suit, having due regard to the merits and good faith of the claims or defenses
made by such party litigant; but the provisions of this Section 5.14 shall not
apply to any suit instituted by the Indenture Trustee, or to any suit instituted
by any Bondholder, or group of Bondholders, holding Bonds of any Series that
represent, in the aggregate, more than 10% of the aggregate Principal Amount of
the Outstanding Bonds of such Series or to any suit instituted by any Bondholder
for the enforcement of the payment of the principal of or interest on, or of the
Redemption Price or Special Redemption Price for, any Bond on or after the
Payment Date, Redemption Date or Special Redemption Date, as the case may be, on
which such payment was due (provided that the failure to make such payment
constitutes an Issuer Event of Default).
SECTION 5.15. Waiver of Stay or Extension Laws.
The Issuer covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim to
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the exercise of any power
herein granted to the Indenture Trustee, but will suffer and permit the exercise
of every such power as though no such law had been enacted.
SECTION 5.16. Sale of Trust Estate.
(a) The power to effect any public or private sale of any portion of the
Trust Estate for any Series pursuant to Section 5.04 shall not be exhausted by
any one or more sales as to any portion of the Trust Estate remaining unsold,
but shall continue unimpaired until either the entire Trust Estate for any
Series shall have been sold or all amounts payable on the Bonds of such Series
and under this Indenture with respect thereto shall have been paid. Subject to
the related Terms Indenture, the Indenture Trustee may from time to time
postpone any sale by public announcement made at the time and place of such
sale. Subject to the related Terms Indenture, the Indenture Trustee hereby
expressly waives its right to any amount fixed by law as compensation for any
such sale but such waiver does not apply to any amounts to which the Indenture
Trustee is otherwise entitled under Section 6.07 of this Indenture.
(b) The Indenture Trustee shall execute and deliver an appropriate
instrument(s) of conveyance (without recourse against the Indenture Trustee)
transferring its interest in any portion
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of the Trust Estate for any Series in connection with a sale thereof pursuant to
Section 5.04. In addition, the Indenture Trustee is hereby irrevocably appointed
an agent and attorney-in-fact of the Issuer to transfer and convey the Issuer's
interest in any portion of the Trust Estate for any Series in connection with a
sale thereof pursuant to Section 5.04, and to take all action necessary to
effect such sale. No purchaser or transferee at such a sale shall have any
obligation to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
monies.
(c) Any sale of any portion of the Trust Estate for any Series (i) shall
be made in compliance with all applicable laws and, in the case of Pledged
Mortgage-Backed Securities, the terms of such Pledged Mortgage-Backed Securities
and the respective agreements pursuant to which they were issued and (ii) shall
be subject to such additional restrictions and conditions as may be set forth in
the related Terms Indenture. The Indenture Trustee may use an agent to
conduct any such sale on its behalf and the expenses of such agent shall be
paid out of the proceeds received.
SECTION 5.17. Action on Bonds.
The Indenture Trustee's right to seek and recover judgment on the
Bonds of any Series or under this Indenture shall not be affected by the
seeking, obtaining or application of any other relief under or with respect to
this Indenture. Neither the lien of this Indenture nor any rights or remedies of
the Indenture Trustee or the Bondholders of any Series shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
securing such Series or, subject to Section 2.07(g), upon any other of the
assets of the Issuer.
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Issuer Event of Default with
respect to a Series:
(1) the Indenture Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture against
the Indenture Trustee; and
(2) in the absence of negligence or bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon certificates
or opinions furnished
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to the Indenture Trustee and conforming to the requirements of this
Indenture; but in the case of any such certificates or opinions which by
any provision hereof are specifically required to be furnished to the
Indenture Trustee, the Indenture Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements of
this Indenture.
(b) In case an Issuer Event of Default with respect to any Series has
occurred and is continuing, the Indenture Trustee shall exercise such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Indenture Trustee from liability for its own negligent action, its own negligent
failure to act, or its own wilful misconduct, except that
(i) this subsection shall not be construed to limit the effect of
Subsection (a) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall be
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the directions of the Holders of Bonds of any Series representing more
than 50% of the aggregate Principal Amount of such Series (unless an
alternative group of Bondholders of such Series is expressly permitted or
required to authorize such action hereunder, in which case in accordance
with the directions of such alternative group) relating to the time,
method and place of conducting any Proceeding for any remedy available to
the Indenture Trustee, or exercising any trust or power conferred upon the
Indenture Trustee, under this Indenture with respect to the Bonds of such
Series.
(d) No provision of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it. In determining that such repayment or indemnity is
not reasonably assured to it, the Indenture Trustee must consider not only the
likelihood of repayment or indemnity by or on behalf of the Issuer but also the
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likelihood of repayment or indemnity from amounts payable to it from the
applicable Trust Estate pursuant to Sections 5.06 and 8.02(b) and the related
Terms Indenture.
(e) The Indenture Trustee shall be under no obligation to institute any
suit, or to take any remedial Proceeding under this Indenture, or to enter any
appearance in or in any way defend any suit in which it may be made defendant,
or to take any steps in the execution of the trusts created hereby or in the
enforcement of any rights and powers hereunder until it shall be indemnified to
its reasonable satisfaction against any and all costs and expenses, outlays and
counsel fees and other reasonable disbursements and against all liability,
except liability which is adjudicated to have resulted from its negligence or
willful misconduct, in connection with any action so taken.
(f) Notwithstanding any extinguishment of all right, title and interest of
the Issuer in and to the Trust Estate for any Series following an Issuer Event
of Default and a consequent declaration of acceleration of the Maturity of the
Bonds of such Series, whether such extinguishment occurs through a foreclosure
upon and sale of such Trust Estate to another Person, the acquisition of such
Trust Estate by the Indenture Trustee or otherwise, the rights, powers and
duties of the Indenture Trustee with respect to such Trust Estate (or the
proceeds thereof) and the Bondholders of such Series, and the rights of the
Bondholders of such Series, shall continue to be governed by the terms of this
Indenture.
(g) For all purposes under this Indenture, the Indenture Trustee shall not
be deemed to have notice of any Issuer Default with respect to any Series unless
a Responsible Officer of the Indenture Trustee has actual knowledge thereof or
unless written notice of any event which is in fact such an Issuer Default is
received by the Indenture Trustee at the Corporate Trust Office, and such notice
references the related Series and this Indenture.
(h) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Indenture Trustee shall be subject to the provisions of this
Section 6.01; and, if and for so long as this Indenture is required to be
qualified under the Trust Indenture Act, every provision of this Indenture
relating to the conduct or affecting the liability of or affording protection to
the Indenture Trustee, including the provisions of this Section 6.01, shall be
subject to the provisions of the Trust Indenture Act.
SECTION 6.02. Notice of Issuer Defaults.
(a) If an Issuer Default occurs and is continuing with respect to any
Series and if it is known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to
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each Bondholder of such Series as described in TIA ss.313(c) and the
applicable Rating Agencies notice of such Issuer Default within ninety (90)
days after it occurs (or, if it becomes known to a Responsible Officer of the
Indenture Trustee after the end of such 90-day period, as soon as practicable
after it becomes so known); provided that, except in the case of a default in
the payment of the principal of or interest on any of the Bonds, the
Indenture Trustee shall be protected in withholding such notice to the
Bondholders of the affected Series for a period of no longer than 90 days if
and so long as the board of directors, the executive committee or a trust
committee composed of directors and/or Responsible Officers of the Indenture
Trustee reasonably and in good faith determines that the withholding of such
notice is in the best interest of the Bondholders of such Series.
SECTION 6.03. Certain Rights of Indenture Trustee.
Subject to the provisions of Section 6.01, in connection with this
Indenture:
(a) the Indenture Trustee may request and rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by an Issuer Request or Issuer Order, as the case may be;
(c) whenever in the administration of this Indenture the Indenture Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Indenture Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officer's Certificate;
(d) the Indenture Trustee may consult with counsel, and the written advice
of such counsel or any Opinion of Counsel rendered thereby shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(e) the Indenture Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Bondholders of any Series pursuant to this Indenture, unless such
Bondholders shall have offered to the Indenture Trustee reasonable security or
indemnity against the costs, expenses and liabilities that might be incurred by
it in compliance with such request or direction;
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(f) the Indenture Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, coupon, other evidence of indebtedness or other paper or
document, but the Indenture Trustee in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Indenture Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Issuer, personally or by agent or attorney; provided that, if the payment
within a reasonable time to the Indenture Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Indenture Trustee, not reasonably assured to the Indenture
Trustee by the security afforded to it by the terms of this Indenture, the
Indenture Trustee may require reasonable indemnity against such expense or
liability or payment of such estimated expenses as a condition to proceeding;
(g) the Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys of the Indenture Trustee; provided that (unless otherwise
specified in the related Terms Indenture) it shall remain liable for the acts of
all such attorneys and agents;
(h) to the extent a Person other than the Indenture Trustee is appointed
by the Issuer to act as a Paying Agent with respect to any Series, such Person
shall be the sole agent of the Issuer, and the Indenture Trustee shall not be
liable or responsible by reason of any act or omission of any such Person;
(i) the Indenture Trustee shall not be liable or responsible by reason of
any act or omission of any servicer, master servicer, special servicer, MBS
administrator or REMIC administrator under any Terms Indenture or any Servicing
and Administration Agreement, in each case that is not an Affiliate of the
Indenture Trustee, unless the Indenture Trustee itself is acting in such
capacity;
(j) the Indenture Trustee shall not be liable or responsible for releases
or releases and substitutions of any item of Collateral in compliance with any
provision of this Indenture;
(k) the Indenture Trustee shall not be required to provide any surety or
bond of any kind in connection with the execution or performance of its duties
hereunder; and
(l) the Indenture Trustee shall not at any time have any responsibility or
liability other than as may be expressly set forth in this Indenture or any
Servicing and Administration
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Agreement for or with respect to the legality, validity or enforceability of any
item of Mortgage Collateral.
SECTION 6.04. Not Responsible for Recitals or Issuance of Bonds.
The recitals contained herein and in the Bonds, except the certificates of
authentication on the Bonds and any such recitals that constitute express
representations, warranties, certifications or acknowledgments of or on the part
of the Indenture Trustee, shall be taken as the statements of the Issuer or
other appropriate party to any Terms Indenture, and the Indenture Trustee
assumes no responsibility for their correctness. Except as expressly set forth
in the related Terms Indenture, the Indenture Trustee makes no representation as
to the validity or sufficiency of this Indenture, the Bonds of any Series or any
Trust Estate. The Indenture Trustee shall not be accountable for the use or
application by the Issuer of the Bonds of any Series or of the proceeds thereof
or for the use or application of any funds paid to a servicer, a master
servicer, a special servicer or an MBS administrator, as applicable, in respect
of the Mortgage Collateral for any Series (unless it is acting in such capacity)
or deposited into an Account established hereunder that is not maintained by it.
SECTION 6.05. May Hold Bonds.
The Indenture Trustee, any Paying Agent, the Bond Registrar or any other
Agent, in its individual or any other capacity, may become the owner or pledgee
of bonds and, subject to Sections 6.08 and 6.13, may otherwise deal with the
Issuer or Owner Trustee with the same rights it would have if it were not
Indenture Trustee, Paying Agent, Bond Registrar or such other Agent.
SECTION 6.06. Money Held in Trust.
Money held by the Indenture Trustee in trust hereunder need not be
segregated from other funds except to the extent required herein or by law. The
Indenture Trustee shall be under no liability for interest on any money received
by it hereunder except as otherwise agreed with the Issuer and except to the
extent of (i) income or other gain on investments of monies held in any Account,
which investments are obligations of the Indenture Trustee, and (ii) income or
other gain actually received by the Indenture Trustee on investments of monies
held in any Account, including investments that are obligations of a third
party.
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SECTION 6.07. Compensation and Reimbursement.
(a) Subject to Section 6.07(b), the Issuer hereby agrees:
(1) to pay or cause to be paid to the Indenture Trustee from time to time
reasonable compensation (or, if so provided in the related Terms
Indenture, to pay or cause to be paid to the Indenture Trustee
compensation at such specific times and/or in such specific amounts as may
be set forth therein) for all services rendered by the Indenture Trustee
with respect to any Series hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust); and
(2) except as otherwise expressly provided in the related Terms Indenture,
to reimburse, indemnify and hold harmless the Indenture Trustee and any
director, officer, employee or agent of the Indenture Trustee for any
loss, liability or "out-of-pocket" expense (including costs and expenses
of litigation, and of investigation, counsel fees, damages, judgments and
amounts paid in settlement) incurred in connection with any act or
omission on the part of the Indenture Trustee hereunder or under any
related Servicing and Administration Agreement with respect to any Series
or the related Trust Estate (other than any expense expressly required to
be borne thereby, any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of duties,
or as may arise from a breach of any representation or warranty of the
Indenture Trustee set forth herein or in any Servicing and Administration
Agreement, and other than allocable overhead of the Indenture Trustee,
such as costs for office space, office equipment, supplies and related
expenses, employee salaries and related expenses, and similar internal
costs and expenses).
The Indenture Trustee agrees to fully perform its duties under this
Indenture notwithstanding any failure on the part of the Issuer to make any
payments, reimbursements or indemnifications to the Indenture Trustee pursuant
to this Section 6.07(a); provided, however, that (subject to Section 6.07(b))
nothing in this Section 6.07 shall be construed to limit the exercise by the
Indenture Trustee of any right or remedy permitted under this Indenture in the
event of the Issuer's failure to pay or cause the payment of any sums due the
Indenture Trustee pursuant to this Section 6.07.
(b) Unless otherwise provided in the related Terms Indenture, the
obligations of the Issuer set forth in Section 6.07(a) are nonrecourse
obligations solely of the Issuer and will
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be payable only from the Trust Estate securing the Series with respect to which
any claim of the Indenture Trustee under this Section 6.07 arose. In connection
with the foregoing, unless the related Terms Indenture expressly provides
otherwise, the Indenture Trustee may from time to time deduct (or cause to be
deducted and remitted to it) payments of all amounts due to it pursuant to
Section 6.07(a) in connection with any Series from monies on deposit in the Bond
Account for such Series and/or from any other Account established for such
purpose under the related Terms Indenture.
(c) The Indenture Trustee shall have, as security for the performance of
the Issuer under this Section 6.07, a lien ranking senior to the lien of the
Bonds of the Series with respect to which any claim of the Indenture Trustee
under this Section 6.07 arose upon all property and funds held or collected by
the Indenture Trustee in its capacity as such as part of the Trust Estate for
such Series; provided that the Indenture Trustee shall not institute any
Proceeding seeking the enforcement of such lien against such Trust Estate unless
Bonds of such Series have been declared due and payable pursuant to Section 5.02
following an Issuer Event of Default, such declaration of acceleration and its
consequences have not been rescinded and annulled, and monies collected by the
Indenture Trustee are being applied in accordance with Section 5.06.
SECTION 6.08. Eligibility; Disqualification.
There shall at all times be hereunder, with respect to each Series, an
Indenture Trustee, and such Indenture Trustee shall at all times be an
institutional trustee that satisfies the requirements of TIA ss.310(a) and such
additional requirements as may be set forth in the related Terms Indenture. If
and for so long as this Indenture is required to be qualified under the Trust
Indenture Act, the Indenture Trustee shall comply with and be subject to TIA
ss.310(b); provided that there shall be excluded from the operation of TIA
ss.310(b)(1) any indenture or indentures under which other securities of the
Issuer are outstanding if the requirements for such exclusion set forth in TIA
ss.310(b)(1) are met.
SECTION 6.09. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Indenture Trustee and no appointment
of a successor Indenture Trustee pursuant to this Article VI shall become
effective until the acceptance of appointment by the successor Indenture Trustee
in accordance with the applicable requirements of Section 6.10.
(b) The Indenture Trustee may resign at any time with respect to one or
more Series by giving written notice of such resignation to the Issuer and by
mailing notice of such
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resignation by first class mail, postage prepaid, to Holders of the applicable
Series, at their addresses appearing on the Bond Register.
(c) If at any time:
(1) the Indenture Trustee shall fail to comply with, or shall cease
to be eligible under, Section 6.08 with respect to any Series, and the
Indenture Trustee shall fail to resign after written request therefor has
been delivered to the Indenture Trustee by the Issuer or has been
delivered to the Indenture Trustee (with a copy to the Issuer) by any
Bondholder who has been a bona fide Holder of such Series for at least six
months, or
(2) (A) the Indenture Trustee shall become incapable of acting with
respect to any Series, (B) there shall have been entered a decree or order
for relief by a court having jurisdiction in the premises in respect of
the Indenture Trustee in an involuntary case under the federal bankruptcy
laws, as now or hereafter constituted, or any other applicable federal or
state bankruptcy, insolvency or other similar law, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Indenture Trustee or for any substantial part of
its property, or ordering the winding-up or liquidation of its affairs and
the continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days or (C) the Indenture Trustee commences a
voluntary case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or consents to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Indenture Trustee or of
any substantial part of its property, or the making by it of any
assignment for the benefit of creditors or the Indenture Trustee fails
generally to pay its debts as such debts become due or takes any corporate
action in furtherance of any of the foregoing,
then, in any such case, the Issuer, by an Issuer Order, may and shall remove the
Indenture Trustee with respect to the applicable Series.
(d) If the Indenture Trustee shall fail to comply with, or cease to be
eligible under, Section 6.08 with respect to any Series, any Bondholder that has
been a bona fide Holder of such Series for at least six months may, on its own
behalf and on behalf of all others similarly situated, petition any court of
competent jurisdiction for the removal of the Indenture Trustee and the
appointment of a successor Indenture Trustee.
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(e) Unless otherwise provided in the related Terms Indenture, the Holders
of Bonds representing more than 50% of the aggregate Principal Amount of any
Series may at any time remove the Indenture Trustee with respect to such Series
by delivering to the Indenture Trustee to be removed and to the Issuer, copies
of the record of the Act taken by the Holders, as provided in Section 12.03
hereof.
(f) The Indenture Trustee may, with respect to any Series, otherwise be
removed under the circumstances provided in the related Terms Indenture.
(g) If, with respect to any Series, the Indenture Trustee shall resign, be
removed or become incapable of acting, or if, with respect to any Series, a
vacancy shall occur in the office of Indenture Trustee for any cause, and in any
such case no successor Indenture Trustee with respect to such Series shall
otherwise have been appointed as provided herein, then the Issuer, by an Issuer
Order, shall promptly appoint a successor Indenture Trustee with respect to such
Series in accordance with the applicable requirements of Section 6.10. If,
within 60 days after such resignation, removal or incapacity, or the occurrence
of such vacancy, a successor Indenture Trustee with respect to such Series shall
not have been appointed by the Issuer and shall not have accepted such
appointment in accordance with the applicable requirements of Section 6.10, then
a successor Indenture Trustee shall be appointed by Act of the Holders of Bonds
of such Series representing more than (unless otherwise provided in the related
Terms Indenture) 50% of the aggregate Principal Amount of such Series delivered
to the Issuer and the retiring Indenture Trustee, and the successor Indenture
Trustee so appointed shall, forthwith upon its acceptance of such appointment in
accordance with the applicable requirements of Section 6.10, become the
successor Indenture Trustee with respect to such Series. If, within 120 days
after such resignation, removal or incapacity, or the occurrence of such
vacancy, no successor Indenture Trustee with respect to such Series shall have
been so appointed and accepted appointment in the manner required by Section
6.10, any Bondholder that has been a bona fide Holder of such Series for at
least six months may, on its own behalf and on behalf of all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Indenture Trustee for such Series.
(h) The Issuer shall give notice of any resignation or removal of the
Indenture Trustee with respect to any Series by mailing notice of such event by
first-class mail, postage prepaid, to the Holders of the applicable Series as
their names and addresses appear in the Bond Register. Each notice shall include
the name of the successor Indenture Trustee and the address of its Corporate
Trust Office.
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(i) In the event of any removal of or resignation by the Indenture Trustee
with respect to any Series, the Indenture Trustee's entitlement under Section
6.07 for compensation and reimbursement of costs and expenses accrued prior to
the time of such resignation or removal, and all rights pertaining thereto,
shall survive, provided, however, that if the Indenture Trustee is removed for
cause, the Indenture Trustee's right to such compensation and reimbursement may
be subject to offset for any damages relating to such removal.
SECTION 6.10. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Indenture Trustee with
respect to any Series, the successor Indenture Trustee so appointed shall
execute, acknowledge and deliver to the Issuer and to the retiring Indenture
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Indenture Trustee with respect to such Series shall
become effective and such successor Indenture Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Indenture Trustee with respect to such Series; provided
that on the request of the Issuer or the successor Indenture Trustee, such
retiring Indenture Trustee shall, upon payment of its then unpaid fees and
charges, execute and deliver an instrument transferring to such successor
Indenture Trustee all the rights, powers and trusts of the retiring Indenture
Trustee in respect of the applicable Series, shall duly assign, transfer and
deliver to such successor Indenture Trustee all property and money held by such
retiring Indenture Trustee hereunder in respect of the applicable Series, and
shall take such action as may be requested by the Issuer to provide for the
appropriate interest in the Trust Estate securing the applicable Series to be
vested in such successor Trustee (except that it shall not be responsible for
the recording of such documents and instruments as may be necessary to give
effect to the foregoing). Upon request of any such successor Indenture Trustee,
the Issuer shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Indenture Trustee all such rights,
powers and trusts in respect of the applicable Series referred to in this
Section 6.10.
Upon acceptance of appointment by a successor Indenture Trustee with
respect to any Series as provided in this Section 6.10, the Issuer shall mail
notice thereof by first-class mail, postage prepaid, to the Holders of such
Series at the Holders' addresses appearing upon the Bond Register. If the Issuer
fails to mail such notice within 10 days after acceptance of appointment by such
successor Indenture Trustee, such successor Indenture Trustee shall cause such
notice to be mailed at the expense of the Issuer.
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Any successor Indenture Trustee with respect to any Series must, at the
time of such successor's acceptance of its appointment, meet the eligibility
requirements set forth in Section 6.08 with respect to such Series.
SECTION 6.11. Merger, Conversion, Consolidation or Succession to Business.
Any institution into which the Indenture Trustee may be merged or
converted or with which it may be consolidated, or any institution resulting
from any merger, conversion or consolidation to which the Indenture Trustee
shall be a party, or any institution succeeding to all or substantially all the
corporate trust business of the Indenture Trustee, shall be the successor of the
Indenture Trustee hereunder, provided that such institution shall be otherwise
qualified and eligible under Section 6.08 with respect to each affected Series,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
SECTION 6.12. Preferential Collection of Claims against the Issuer.
If and for so long as this Indenture is required to be qualified under the
Trust Indenture Act, the Indenture Trustee shall be subject to TIA ss. 311(a),
excluding any creditor relationship listed in TIA ss. 311(b), and an Indenture
Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to
the extent indicated therein.
SECTION 6.13. Separate Trustees and Co-Trustees.
(a) Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting legal requirements of the Trust Indenture Act, if applicable,
or of any jurisdiction in which any part of a Trust Estate may at the time be
located, the Indenture Trustee shall have the power to, and shall execute and
deliver all instruments to, appoint one or more Persons to act as separate
trustees or co-trustees hereunder, jointly with the Indenture Trustee, of any
portion of a Trust Estate subject to this Indenture, and any such Persons shall
be such separate trustee or co-trustee, with such powers and duties consistent
with this Indenture as shall be specified in the instrument appointing such
Person but without thereby releasing the Indenture Trustee from any of its
duties hereunder. If the Indenture Trustee shall request the Issuer to do so,
the Issuer shall join with the Indenture Trustee in the execution of such
instrument, but the Indenture Trustee shall have the power to make such
appointment without making such request. A separate trustee or co-trustee
appointed pursuant to this Section 6.13 need not meet the eligibility
requirements of Section 6.08.
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(b) Every separate trustee and co-trustee shall, to the extent not
prohibited by law, be subject to the following terms and conditions:
(i) the rights, powers, duties and obligations conferred or imposed
upon such separate or co-trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee, or the Indenture Trustee
and such separate or co-trustee jointly, as shall be provided in the
appointing instrument, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed the Indenture
Trustee shall be incompetent or unqualified to perform such act, in which
event such rights, powers, duties and obligations shall be exercised and
performed by such separate trustee or co-trustee;
(ii) all powers, duties, obligations and rights conferred upon the
Indenture Trustee, in respect of the custody of all cash deposited
hereunder shall be exercised solely by the Indenture Trustee; and
(iii) the Indenture Trustee may at any time by written instrument
accept the resignation of or remove any such separate trustee or
co-trustee, and, upon the request of the Indenture Trustee, the Issuer
shall join with the Indenture Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to make
effective such resignation or removal, but the Indenture Trustee shall
have the power to accept such resignation or to make such removal without
making such request. A successor to a separate trustee or co-trustee so
resigning or removed may be appointed in the manner otherwise provided
herein.
(c) Such separate trustee or co-trustee, upon acceptance of such trust,
shall be vested with the estates or property specified in such instrument,
jointly with the Indenture Trustee, and the Indenture Trustee shall take such
action as may be necessary to provide for the appropriate interest in the
applicable Trust Estate to be vested in such separate trustee or co-trustee. Any
separate trustee or co-trustee may, at any time, by written instrument
constitute the Indenture Trustee, its agent or attorney in fact with respect to
any Series with full power and authority, to the extent permitted by law, to do
all acts and things in respect of such Series and exercise all discretion in
respect of such Series authorized or permitted by it, for and on behalf of it
and in its name. If any separate trustee or co-trustee shall be dissolved,
become incapable of acting, resign, be removed or die, all the estates,
property, rights, powers, trusts, duties and obligations of said separate
trustee or co-trustee, so far as permitted by law, shall vest in and be
exercised by the Indenture Trustee, without the appointment of a successor to
said separate trustee or co-trustee, until the
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appointment of a successor to said separate trustee or co-trustee is necessary
as provided in this Indenture. Except as otherwise provided in the related Terms
Indenture, the appointment of a separate or co-trustee shall in no way release
the Indenture Trustee from any of its duties or responsibilities hereunder.
(d) No co-trustee or separate trustee hereunder shall be liable by reason
of any act or omission of the Indenture Trustee or of any other such trustee
hereunder.
(e) Any notice, request or other writing, by or on behalf of any
Bondholder of any Series, delivered to the Indenture Trustee in respect of such
Series shall be deemed to have been delivered to all separate trustees and
co-trustees for such Series.
SECTION 6.14. Appointment of Custodians.
The Indenture Trustee may, with the consent of the Issuer, appoint at
the Trustee's own expense one or more Custodians to hold, as agent for the
Indenture Trustee, all or a portion of any documents and/or instruments
relating to the Mortgage Collateral otherwise required to be held by the
Indenture Trustee hereunder; provided that if the Custodian is an Affiliate
of the Indenture Trustee such consent of the Issuer need not be obtained and
the Indenture Trustee shall merely inform the Issuer of such appointment.
Each Custodian, unless otherwise specified in the related Terms Indenture,
shall be a depository institution supervised and regulated by a Federal or
State banking authority, shall have combined capital and surplus of at least
$10,000,000, shall be qualified to do business in the jurisdiction in which
it holds any documents relating to any item of Mortgage Collateral, shall not
be the Issuer, the Depositor, a Seller or any Affiliate of any of the
foregoing Persons, and shall have in place a fidelity bond and errors and
omissions policy, each in such form and amount as customarily required of
custodians acting on behalf of FHLMC or FNMA and as is commercially
reasonable and consistent with transactions of the kind contemplated by this
Indenture. Each Custodian shall be subject to the same obligations, standard
of care, protection and indemnities as would be imposed on, or would protect,
the Indenture Trustee hereunder in connection with the retention of documents
relating to any item of Mortgage Collateral directly by the Indenture
Trustee. Unless otherwise provided in the related Terms Indenture, the
appointment of one or more Custodians shall not relieve the Indenture Trustee
from any of its obligations hereunder, and the Indenture Trustee shall remain
responsible for all acts and omissions of any Custodians.
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ARTICLE VII
BONDHOLDER LISTS AND REPORTS
SECTION 7.01. Issuer to Furnish Indenture Trustee Names and Addresses of
Bondholders.
The Bond Registrar on behalf of the Issuer will, with respect to each
Series, furnish or cause to be furnished to the Indenture Trustee not more than
five days after each January 1 and June 1 (commencing with the first such date
that is not more than six months after the related Closing Date), and at such
other times as the Indenture Trustee may request in writing, a list, in such
form as the Indenture Trustee may reasonably require, of the names and addresses
of the Bondholders of such Series as of a date not more than 10 days prior to
the time such list is furnished; provided, however, that so long as the
Indenture Trustee is the Bond Registrar for any particular Series, no such list
shall be required to be furnished as to such Series.
SECTION 7.02. Preservation of Information; Communications to Bondholders.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.01.
The Indenture Trustee may destroy any list furnished to it as provided in such
Section 7.01 upon receipt of a new list so furnished.
(b) Bondholders may communicate pursuant to TIA ss. 312(b) with other
Bondholders with respect to their rights under this Indenture or under the
Bonds, and the Indenture Trustee shall comply with the TIA ss.312(b).
(c) The Issuer, the Indenture Trustee and the Bond Reg istrar shall have
the protection of TIA ss. 312(c).
SECTION 7.03. Reports by Indenture Trustee
(a) Within 30 days after May 15 of each year (the "reporting date"),
commencing with the first year after the Closing Date for any Series, the
Indenture Trustee shall mail to all Holders of such Series as described in
TIA ss. 313(c) and the applicable Rating Agencies, a brief report, dated as
of such reporting date with respect to such Series, that complies with TIA
ss. 313(a). The Indenture Trustee shall also mail to all such Bondholders and
the applicable Rating Agencies any reports required by TIA ss. 313(b). For
purposes of the information required to be included in such reports pursuant
to TIA ss.ss. 313(a)(3) or 313(b)(2), the principal amount of "indenture
securities" outstanding on the date as of which such information is provided
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shall be the aggregate Principal Amount of Outstanding Bonds of the Series
covered by the report.
(b) A copy of each report required under this Section 7.03 shall, at the
time of such transmission to Holders of the Series covered by such report, be
filed by the Indenture Trustee with the Commission and with each securities
exchange upon which Bonds of such Series are listed. The Issuer will notify the
Indenture Trustee when the Bonds of any Series are listed on any securities
exchange.
SECTION 7.04. Reports by Issuer.
(a) The Issuer shall:
(1) file with the Indenture Trustee, within 15 days after the Issuer is
required to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Issuer may be required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act; or, if the
Issuer is not required to file information, documents or reports pursuant to
either of said sections, then it shall file with the Indenture Trustee and the
Commission, in accordance with the rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations;
(2) file with the Indenture Trustee and the Commission in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Issuer with the conditions and covenants of this Indenture as may be required
from time to time by such rules and regulations;
(3) transmit or deliver to the Indenture Trustee, who shall, in turn,
transmit by mail to all Bondholders described in TIA ss. 313(c) and the
applicable Rating Agencies, such summaries of any information, documents and
reports required to be filed by the Issuer pursuant to clauses (1) and (2) of
this Section 7.04(a) as may be required by rules and regulations prescribed
from time to time by the Commission; and
(4) furnish to the Indenture Trustee not less often than annually, a
certificate from the principal executive officer, principal financial officer or
principal accounting officer of the Issuer as to such officer's knowledge of the
Issuer's compliance with all conditions and covenants of this Indenture
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which compliance shall be determined without regard to any period of grace or
requirement of notice provided hereunder.
(b) Unless and until changed by notice in writing from the Issuer to the
Indenture Trustee, the fiscal year of the Issuer shall end on December 31 of
each year.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.01. Collection of Money.
Except as otherwise expressly provided herein, the Indenture Trustee may
demand payment or delivery of, and shall receive and collect, directly and
without intervention or assistance from any fiscal agent or other intermediary,
all money and other property payable to or receivable by the Indenture Trustee
pursuant to this Indenture, including all payments due and payable to the
Indenture Trustee on or in respect of the Mortgage Collateral securing a Series
in accordance with the respective terms and conditions of the document or
documents pursuant to which it is being serviced and administered, in the case
of a Pledged Mortgage Loan or REO Property, or the respective terms and
conditions of such Mortgage Collateral and the document or documents pursuant to
which it was issued, in the case of a Pledged Mortgage-Backed Security. Except
as otherwise expressly provided herein, the Indenture Trustee shall hold all
such money and property received by it as part of the Trust Estate with respect
to the Series for which it was received and shall apply it as provided in this
Indenture.
All claims on and draws under any Enhancement in respect of any Series
shall be made by the Indenture Trustee or other specified Person in accordance
with the applicable Terms Indenture and/or any applicable Servicing and
Administration Agreement.
In the event that in any month any Paying Agent shall not have received
when due a payment required to be made thereto with respect to any item or items
of Mortgage Collateral in accordance with the respective terms and conditions of
the document or documents pursuant to which such Mortgage Collateral is being
serviced and administered, in the case of a Pledged Mortgage Loan or REO
Property, or was issued, in the case of a Pledged Mortgage-Backed Security, such
Paying Agent shall promptly notify the Indenture Trustee (except in the case
where the Indenture Trustee is the Paying Agent), and in any event (subject to
the terms and conditions of the applicable Terms Indenture or any applicable
Servicing and Administration Agreement) the Indenture Trustee shall, unless
within three Business Days following the date on which such payment was
scheduled to be made, such payment shall subsequently have been received by the
Indenture Trustee or
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other Paying Agent or unless the Issuer makes provisions for such payment
satisfactory to the Indenture Trustee, as soon as practicable thereafter request
the designated paying agent for such item or items of Mortgage Collateral to
make such payment on the earliest day permitted following such request. The
Indenture Trustee may withdraw such request upon subsequent receipt of such
payment. Notwithstanding any other provision hereof, the Paying Agent shall
deliver to the Issuer or its designee any payment with respect to any item of
Mortgage Collateral received after the scheduled date of receipt to the extent
the Issuer or its designee previously made provisions for such payment
satisfactory to the Paying Agent in accordance with this Section 8.01, and such
payment shall not be deemed part of the Trust Estate for any Series.
Except as otherwise expressly provided in the related Terms Indenture, if
following any request by the Indenture Trustee for payment of a late payment in
accordance with the preceding paragraph, any default occurs in the making of
such payment, or if a default occurs in any other performance required under any
Servicing and Administration Agreement, any Pledged Mortgage-Backed Security or
the document pursuant to which it was issued, any Credit Support Agreement or
any Cash Flow Agreement, the Indenture Trustee may, and upon the request of the
Issuer or the Holders of Bonds representing more than 50% of the aggregate
Principal Amount of the related Series shall, take such action as may be
appropriate to enforce such payment or performance, including the institution
and prosecution of appropriate Proceedings. Any such action shall be without
prejudice to any rights or remedies with respect to an Issuer Event of Default
under this Indenture as provided in Article V hereof.
SECTION 8.02. Bond Account.
(a) On or prior to the Closing Date for a Series, the Indenture Trustee or
other Paying Agent shall open and shall thereafter cause to be maintained, or
the Issuer shall cause a Paying Agent to open and thereafter to cause to be
maintained, one or more accounts (collectively, as to any Series, the "Bond
Account") out of which payments on the Bonds of such Series shall be made. Each
such account constituting the Bond Account for any Series shall be maintained in
such manner and/or with such depository institutions as shall be specified in
the related Terms Indenture. The Bond Account for any Series shall relate solely
to the Bonds of such Series, and funds in the Bond Account for any Series shall
not be commingled with any monies in any other Account. All payments to be made
from time to time to the Holders of any Series out of funds in the Bond Account
for such Series pursuant to this Indenture shall be made by the Indenture
Trustee or other Paying Agent. The Indenture Trustee or such other Paying Agent
shall make deposits to and disbursements from the Bond Account for a Series, and
shall invest any and all amounts held therein from time to time, as provided in
the
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related Terms Indenture and any applicable Servicing and Administration
Agreement. All monies deposited from time to time in the Bond Account for a
Series pursuant to this Indenture and all investments made with such monies,
including all income or other gain from such investments, shall be held by the
Indenture Trustee or other Paying Agent in such Bond Account as part of the
Trust Estate for the related Series as herein provided, subject to withdrawal by
the Indenture Trustee or such other Paying Agent for the purposes set forth in
the related Terms Indenture. The Indenture Trustee or other Paying Agent shall
promptly notify the Issuer, the Indenture Trustee (if it is not the Paying
Agent), each Rating Agency for the related Series and any other Person required
to make deposits to a Bond Account of the location of such Bond Account when
first established and prior to any change in such location.
(b) Unless the Bonds of a Series have been declared due and payable
pursuant to Section 5.02 and distributions from the Trust Estate for such Series
are being applied pursuant to Section 5.06, amounts on deposit in the related
Bond Account shall be applied, including in respect of payments on the Bonds of
such Series, as provided in the related Terms Indenture.
SECTION 8.03. Other Accounts.
As and when required by the related Terms Indenture or any applicable
Servicing and Administration Agreement, the Issuer, the Indenture Trustee and
the Paying Agent, as applicable, shall establish and maintain such other
Accounts (in addition to the Bond Account) in respect of a Series as are
specified by, and in such manner and amounts and with such depository
institutions as are specified in, the related Terms Indenture and/or any
applicable Servicing and Administration Agreement. Deposits to and disbursements
from such other Accounts, and investments of amounts held therein from time to
time, shall be made as provided in the related Terms Indenture or any related
Servicing and Administration Agreement.
SECTION 8.04. Release of Trust Estate.
(a) Subject to the payment of the Indenture Trustee's fees and expenses in
respect of any Series pursuant to Section 6.07 and to the payment of any other
Administrative Expenses, S&A Expenses or Additional Expenses in respect of such
Series, the Indenture Trustee may, and when required by the provisions of this
Indenture shall, execute instruments to release property, securities or funds
constituting part of the Trust Estate securing such Series from the lien of this
Indenture, or convey the Indenture Trustee's interest in the same, in a manner
and under circumstances which are not inconsistent with the provisions of this
Indenture. No party relying upon an instrument executed by the Indenture Trustee
as provided in this Article VIII shall be bound to ascertain the Indenture
Trustee's
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authority, inquire into the satisfaction of any conditions precedent or see to
the application of any monies.
(b) The Indenture Trustee shall, at such time as there are no Bonds of a
Series Outstanding, all sums due the Indenture Trustee in respect of such Series
pursuant to Section 6.07 have been paid and all other applicable conditions, if
any, set forth in the related Terms Indenture have been satisfied, release any
remaining portion of the Trust Estate that secured such Series from the lien of
this Indenture and release any funds then on deposit in any Account for such
Series.
(c) Without restricting any other provision hereof regarding the release
of property, securities or funds, the Indenture Trustee shall release property
from the lien of this Indenture pursuant to this Section 8.04 only upon receipt
of an Issuer Order accompanied by an Officer's Certificate, an Opinion of
Counsel and (if required by the TIA) a certificate or opinion from an
Accountant, in accordance with TIA ss. 314(c) and meeting the applicable
requirements of Section 12.01(a).
(d) Upon any release of property, securities or funds in accordance with
this Section 8.04, the Indenture Trustee shall automatically be released of any
obligations and responsibilities with respect to the property, securities and
funds so released (including being released from the claims of any Person
against such property, securities or funds released).
SECTION 8.05. Opinion of Counsel.
The Indenture Trustee shall receive at least seven (7) days' notice when
requested by the Issuer to take any action pursuant to Section 8.04(a),
accompanied by copies of any instruments involved, and the Indenture Trustee
shall also require, as a condition to such action, an Opinion of Counsel, in
form and substance satisfactory to the Indenture Trustee, stating the legal
effect of any such action, outlining the steps required to complete the same,
and concluding that all conditions precedent to the taking of such action have
been complied with and such action will not materially and adversely impair the
security for the Bonds of the affected Series or the rights of the Holders of
such Bond in contravention of the provisions of this Indenture; provided,
however, that such Opinion of Counsel shall not be required to express an
opinion as to the fair value of the Trust Estate securing such Series. Counsel
rendering any such opinion may rely, without independent investigation, on the
accuracy and validity of any certificate or other instrument delivered to the
Indenture Trustee in connection with any such action.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures Without Consent of Bondholders.
Without the consent of any Bondholders, the Issuer and the Indenture
Trustee, at any time and from time to time, may amend this Indenture or enter
into one or more Terms Indentures or indentures supplemental hereto, for any of
the following purposes:
(1) to correct and amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and confirm
unto the Indenture Trustee any property subject or required to be subjected to
the lien of this Indenture, or to subject to the lien of this Indenture
additional property; or
(2) to add to the conditions, limitations and restrictions on the
authorized amount, terms and purposes of the issuance, authentication and
delivery of any Series, as herein set forth, additional conditions, limitations
and restrictions thereafter to be observed; or
(3) to set forth the terms of, and security for, any Series that has not
theretofore been authorized by a Terms Indenture; or
(4) to amend Section 2.10, but only with respect to a Series that has not
theretofore been authorized by a Terms Indenture; or
(5) to evidence the succession, in compliance with the applicable
provisions herein, of another person to the Issuer, and the assumption by any
such successor of the covenants of the Issuer contained herein and in the Bonds;
or
(6) to add to the covenants of the Issuer or the Indenture Trustee, for
the benefit of the Holders, or to surrender any right or power herein conferred
upon the Issuer; or
(7) to convey, transfer, assign, mortgage or pledge any property to or
with the Indenture Trustee; or
(8) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provisions herein, or to
amend any other provisions with respect to matters or questions arising under
this Indenture, provided that such action shall not materially and adversely
affect the interests of any of the Holders of the affected Series as
evidenced by an Opinion of Counsel to such effect; or
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(9) to evidence and provide for the acceptance of appointment hereunder by
a successor trustee with respect to one or more Series and to add to or change
any of the provisions of this Indenture as shall be necessary to facilitate the
administration of the trusts hereunder by more than one trustee, pursuant to the
requirements of Section 6.10 or 6.13; or
(10) to modify this Indenture to the extent necessary to effect the
Indenture Trustee's qualification under the Trust Indenture Act or to comply
with the requirements of the Trust Indenture Act; or
(11) if one or more REMIC elections have been made with respect to any
Series, either (x) to relax or eliminate any requirement hereunder imposed by
the REMIC Provisions (if the REMIC Provisions are amended or clarified such that
any such requirement may be relaxed or eliminated), provided that such action
shall not materially and adversely affect the interests of any of the Holders of
the affected Series, or (y) to comply with any requirements imposed by the Code
or any successor or amendatory statute or any temporary or final regulation,
revenue ruling, revenue procedure or other written official announcement or
interpretation relating to federal income tax laws or any such proposed action
which, if made effective, would apply retroactively to any related REMIC Pool at
least from the effective date of such amendment, insofar as such compliance is
necessary to preserve the status of any related REMIC Pool as a REMIC, to avoid
the occurrence of a prohibited transaction or to reduce the incidence of any tax
that would arise from any actions taken with respect to the operation of any
related REMIC Pool.
The Indenture Trustee is hereby authorized to join in the execution of any
such amendment, Terms Indenture or supplemental indenture and to make any
further appropriate agreements and stipulations which may be therein contained
or required. In connection with any such amendment or supplemental indenture,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel
generally to the effect that such amendment will not adversely affect the
federal income tax status of the Issuer or of the Trust Estate for any Series
affected thereby. The Indenture Trustee may, in its discretion, elect not to
join in the execution of any amendment or supplemental indenture if it
determines that any such amendment or supplemental indenture materially and
adversely affects the rights, duties, liabilities and immunities of the
Indenture Trustee.
SECTION 9.02. Supplemental Indentures With Consent of Bondholders.
With the consent of the Holders of Bonds representing more than 50% of the
aggregate Principal Amount (or, in the case of a Class of Interest Only Bonds,
the aggregate Notional Amount) of each Class of any Series, the Issuer and the
Indenture Trustee
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may amend this Indenture or enter into one or more indentures supplemental
hereto for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Indenture with respect to such
Series or of modifying in any manner the rights of the Bondholders of such
Series under this Indenture; provided that no such amendment or supplemental
indenture shall result in an Adverse Rating Event in respect of any Class of
Bonds of such Series; and, provided, further, that no such amendment or
supplemental indenture shall, without the consent of the Holder of each
Outstanding Bond affected thereby:
(1) change the date of payment of any installment of principal of or
interest or premium, if any, on any Bond, or reduce the Principal Amount
thereof, the Bond Interest Rate thereon or the Redemption Price with respect
thereto, change the provisions of this Indenture relating to the application of
payments, collections and/or distributions on, or the proceeds of the sale of,
the related Trust Estate to payments of principal of or interest or premium, if
any on any Bonds or change any place of payment where, or the coin or currency
in which, any Bond or the interest or premium, if any, thereon is payable, or
impair the right to institute suit for the enforcement of the provisions of this
Indenture requiring the application of funds available therefor, as provided in
Article V, to the payment of any such amount due on any Bond on or after the
respective due dates thereof (or, in the case of redemption, on or after the
applicable Redemption Date);
(2) reduce the percentage of the Voting Rights for or allocated to, or the
percentage of the aggregate Principal Amount or Notional Amount of, any Class
and/or Series, the consent of the Holders of Bonds representing which is
required for any such supplemental indenture, or the consent of the Holders of
Bonds representing which is required for any waiver of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture;
(3) modify or alter the provisions of the proviso to the definition of the
term "Outstanding";
(4) reduce the percentage of the Voting Rights allocated to, or the
percentage of the aggregate Principal Amount or Notional Amount of, any Class of
any Series, the consent or direction of the Holders of Bonds representing which
is required to allow or direct the Indenture Trustee to sell or liquidate the
Trust Estate pursuant to Section 5.04 or Section 5.12;
(5) modify any provision of this Section 9.02, except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture cannot be modified or waived without the consent of the Holder of
each Outstanding Bond affected thereby;
(6) modify any of the provisions of this Indenture in such manner as to
affect the calculation of the amount of any payment
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of interest, premium (if any) or principal due on any Bond on any Payment Date
(including the calculation of any of the individual components of such
calculation) or to affect the rights of the Holders of any Series to the benefit
of any provisions for the mandatory redemption of the Bonds of such Series
contained herein; or
(7) permit the creation of any lien ranking prior to or on a parity with
the lien of this Indenture with respect to any part of the Trust Estate securing
any Series or terminate the lien of this Indenture on any property at any time
subject hereto or deprive the Holder of any Bond of the security afforded by the
lien of this Indenture, except as otherwise expressly permitted hereby.
The Indenture Trustee may in its discretion determine whether or not any
Bonds would be affected by any amendment or supplemental indenture and any such
determination shall be conclusive upon the Holders of all Bonds, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for the consent of Bondholders under this
Section 9.02 to approve the particular form of any proposed amendment or
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.
For purposes of giving the consents contemplated by this Section 9.02,
Bonds held by the Issuer, the Depositor and any Affiliate thereof will be given
the same regard as Bonds held by any other Person.
SECTION 9.03. Additional Conditions to Supplemental Indentures.
Any Terms Indenture may set forth additional conditions and restrictions
regarding amendments of and supplements to this Indenture with respect to the
related Series.
SECTION 9.04. Delivery of Supplements and Amendments.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture or amendment pursuant to the provisions hereof,
the Indenture Trustee, at the expense of the Issuer payable out of the
related Trust Estate pursuant to Section 6.07, shall mail, first class
postage prepaid, to each Holder of Bonds to which such supplemental indenture
or amendment relates and to the applicable Rating Agencies a notice setting
forth in general terms the substance of such supplemental indenture or
amendment. Any failure of the Indenture Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity
of any such supplemental indenture or amendment.
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SECTION 9.05. Execution of Supplemental Indentures.
In executing, or permitting the additional trusts created by, any
amendment or supplemental indenture permitted by this Article IX or in accepting
the modifications thereby of the trusts created by this Indenture, the Indenture
Trustee shall be entitled to receive, at the Issuer's expense payable out of the
related Trust Estate pursuant to Section 6.07, and subject to Sections 6.01 and
6.03, shall be fully protected in relying upon, an Opinion of Counsel stating
that the execution of such amendment or supplemental indenture is authorized or
permitted by this Indenture. The Indenture Trustee may, but shall not be
obligated to, enter into any such amendment or supplemental indenture that
affects the Indenture Trustee's own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.06. Effect of Supplemental Indentures.
Upon the execution of any amendment, supplemental indenture or Terms
Indenture pursuant to the provisions hereof, this Indenture shall be and shall
be deemed to be modified and amended in accordance therewith with respect to
each Series affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Indenture Trustee, the Issuer and the Holders of the Bonds of each Series
affected thereby shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and all
the terms and conditions of any such amendment, supplemental indenture or Terms
Indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
SECTION 9.07. Conformity with Trust Indenture Act.
Every amendment, supplemental indenture and Terms Indenture executed
pursuant to this Article IX shall conform to the requirements of the Trust
Indenture Act as then in effect so long as this Indenture shall then be required
to be qualified under the Trust Indenture Act.
SECTION 9.08. Reference in Bonds to Supplemental Indentures.
Bonds authenticated and delivered after the execution of any amendment or
supplemental indenture pursuant to this Article IX may, and if required by the
Indenture Trustee shall, bear a notation in form approved by the Indenture
Trustee as to any matter provided for in such amendment or supplemental
indenture that affects such Bonds. If the Issuer or the Indenture Trustee shall
so determine, new Bonds so modified as to conform, in the opinion of the
Indenture Trustee and the Issuer, to any such amendment or supplemental
indenture may be prepared and executed by the Issuer and authenticated and
delivered by the Indenture
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Trustee in exchange for Outstanding Bonds affected by such amendment or
supplemental indenture.
ARTICLE X
OPTIONAL REDEMPTION OF BONDS BY ISSUER
AND SPECIAL REDEMPTION OF BONDS
SECTION 10.01. Optional Redemption by Issuer.
(a) To the extent and subject to the conditions specified in the related
Terms Indenture, the Issuer may, at its option, redeem Bonds of any Series and
Class, in whole or in part, at the applicable Redemption Price therefor, on a
random lot or pro rata basis, on any date that would otherwise constitute a
Payment Date, all as permitted by the related Terms Indenture. If the Issuer
shall elect to redeem Bonds pursuant to this Section 10.01, subject to the
applicable provisions and restrictions set forth in the related Terms Indenture,
it shall furnish notice of such election to the Indenture Trustee not later than
30 days prior to the Redemption Date whereupon all such Bonds shall be due and
payable and the Issuer shall furnish a notice complying with Section 10.02 to
each Holder of the Class or Classes being called for redemption pursuant to this
Section 10.01. The Issuer's option to redeem Bonds shall be evidenced by an
Issuer Order directing the Indenture Trustee to redeem Bonds in the aggregate
Principal Amount or Notional Amount (as the case may be), on the Redemption Date
and at the Redemption Price specified in such Issuer Order.
(b) Unless otherwise stated in the related Terms Indenture, the Redemption
Price for any Bond of a Series to be redeemed pursuant to this Section 10.01
will be equal to 100% of the outstanding Principal Amount of such Bond, together
with accrued and unpaid interest thereon at the applicable Bond Interest Rate
through the end of the Interest Accrual Period relating to the Payment Date that
will also constitute the Redemption Date.
(c) In the case of a redemption pursuant to this Section 10.01, unless
otherwise specified in the related Terms Indenture, on or before the Business
Day next preceding the date on which notice of redemption is to be given as
provided in Section 10.02, the Issuer shall deposit with the Paying Agent cash
or Permitted Investments, in an amount sufficient (together with any amounts
then available for such purpose in the related Bond Account and/or any other
Pledged Fund or Account for such Series) to provide for payment on the
Redemption Date of the Redemption Price for the Bonds of such Series to be
redeemed.
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SECTION 10.02. Form of Optional Redemption or Special Redemption Notice.
Notice of redemption under Section 10.01 or of any special redemption
under Section 10.04 shall be given by the Issuer (or by the Indenture Trustee at
the Issuer's expense, if the Issuer, not less than 20 days prior to the
applicable Redemption Date or Special Redemption Date, as the case may be,
requests the Indenture Trustee to give such notice of redemption and furnishes
to the Indenture Trustee the proposed form thereof, complying with this Section
10.02) by first-class mail, postage prepaid, mailed not less than 10 days
(unless otherwise specified in the applicable Terms Indenture) prior to the
applicable Redemption Date, or five days (unless otherwise specified in the
applicable Terms Indenture) prior to the applicable Special Redemption Date, as
the case may be, to each Person in whose name a Bond to be redeemed is
registered (unless otherwise specified in the applicable Terms Indenture) as of
the close of business on the Regular Record Date preceding the applicable
Redemption Date that is also a Payment Date, or on the Special Redemption Record
Date preceding the applicable Special Redemption Date, at such Holder's address
appearing in the Bond Register; provided, however, that (unless otherwise
specified in the applicable Terms Indenture) no such notice of optional
redemption shall be mailed by the Indenture Trustee unless the applicable Bond
Account contains funds sufficient to pay the Redemption Price for the Bonds to
be redeemed.
All notices of redemption shall state:
(1) the Redemption Date or Special Redemption Date, as applicable;
(2) the Redemption Price or Special Redemption Price, as applicable;
(3) if Bonds of a Class are not to be paid in full on a Special
Redemption Date, that the Special Redemption Price will become due and
payable on such Special Redemption Date with respect to the principal
amount of each Individual Bond as shall be specified in such notice, that
the amount payable in respect of the principal amount of each such Bond
shall be limited to the principal portion of the Special Redemption Price
therefor, that no interest shall accrue on such principal amount to be so
redeemed for any period after the Designated Interest Accrual Date for
such Special Redemption Date and that payment of the Special Redemption
Price will be paid by check mailed to the Persons whose names appear as
the registered Holders thereof on the Bond Register as of the Special
redemption Record Date applicable to such Special Redemption Date and
identified in such notice of redemption; and
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(4) if Bonds of a Class are to be paid in full on a Redemption Date
or a Special Redemption Date, the fact of such expectation of payment in
full, the place(s) where such Bonds may be surrendered for payment of the
Redemption Price or the Special Redemption Price, as the case may be
(which shall include the office or agency to be maintained as provided in
Section 3.02), and that no interest shall accrue on such Bonds for any
period after either the end of the Interest Accrual Period relating to
such Redemption Date or the Designated Interest Accrual Date for such
Special Redemption Date, as the case may be.
Notice of redemption or special redemption as specified herein shall be
given by the Issuer, or by the Indenture Trustee in the name of and at the
expense of the Issuer if the Issuer requests the Indenture Trustee to do so as
provided above in this Section 10.02. Failure to give notice of redemption or
special redemption, or any defect therein, to any Holder of any Bond selected
for redemption or special redemption shall not impair or affect the validity of
the redemption or special redemption of any other Bond so selected.
SECTION 10.03. Bonds Payable on Redemption Date or Special Redemption
Date.
Notice of redemption or special redemption having been given as provided
in Section 10.02, the Bonds or portions thereof to be redeemed shall, on the
applicable Redemption Date or Special Redemption Date, as the case may be,
become due and payable at the Redemption Price or Special Redemption Price, as
the case may be, and unless (a) the Issuer shall default in the payment of the
Redemption Price or Special Redemption Price, as the case may be, or (b) as
otherwise specified in the related Terms Indenture, no interest shall accrue on
the Principal Amount of such Bonds or portions thereof to be redeemed for any
period after the end of the Interest Accrual Period relating to such Redemption
Date or after the Designated Interest Accrual Date for such Special Redemption
Date, as the case may be.
SECTION 10.04. Special Redemptions.
(a) If the related Terms Indenture provides for Payment Dates in respect
of any Series to occur less frequently than every month, and if the Indenture
Trustee or other specified Person determines (based on the assumptions, if any,
and as a result of the particular circumstances, if any, specified in the
related Terms Indenture and after giving effect to the amounts, if any,
available to be withdrawn under any form of Enhancement for such Series) that
the amount anticipated to be on deposit in the related Bond Account and
available to make payments on the Bonds of such Series on the next succeeding
Payment Date or other date specified in the related Terms Indenture, shall be
insufficient to pay interest and/or principal expected or
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assumed, as the case may be, to be due and payable on the Bonds of such Series
on such date, then, to the extent and subject to the conditions specified in the
related Terms Indenture, the Bonds of any Class of such Series may be subject to
special redemption, in whole or in part, at the applicable Special Redemption
Price therefor, on a pro rata basis, on any Special Redemption Date in any
calendar month during which a Payment Date does not also occur.
(b) There shall be no limit upon the number of times the Issuer may call
Bonds for special redemption and more than one Special Redemption Date may be
fixed by the Issuer between two succeeding Payment Dates so long as (i) the
requisite determinations contemplated by Section 10.04(a) and specified in the
related Terms Indenture are made, (ii) the other requirements of this Article X
are complied with and (iii) no more than one Special Redemption Date shall be
scheduled in any calendar month.
(c) Unless otherwise stated in the related Terms Indenture, the Special
Redemption Price for any Bond of a Series to be redeemed in connection with a
special redemption pursuant to this Section 10.04 will be equal to 100% of the
outstanding Principal Amount of such Bond or portion thereof to be so redeemed,
together with accrued and unpaid interest thereon at the applicable Bond
Interest Rate from the first day following the Interest Accrual Period relating
to the Payment Date immediately preceding the Special Redemption Date (or from
the Accrual Date in the case of a special redemption prior to the first Payment
Date for such Series) through the Designated Interest Accrual Date for the
Special Redemption Date.
ARTICLE XI
BONDHOLDERS' MEETING
SECTION 11.01. Purposes for Which Meetings May Be Called.
Unless otherwise specified in the related Terms Indenture, a meeting of
Bondholders of any Series or Class may be called at any time and from time to
time pursuant to the provisions of this Article XI for any of the following
purposes:
(a) to give any notice to the Issuer or to the Indenture Trustee, to
give any direction to the Indenture Trustee, to consent to the waiver of
any default hereunder and its consequences, or to take any other action
authorized to be taken by Bondholders pursuant to any of the provisions of
Article V;
(b) to remove the Indenture Trustee with respect to any Series and
appoint a successor trustee pursuant to the provisions of Article VI;
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(c) to consent to the execution of an amendment or amendments hereof
or to an indenture or indentures supplemental hereto pursuant to the
provisions of Article IX; or
(d) to take any other action authorized to be taken by or on behalf
of the Holders of any Class and/or Series under any other provision of
this Indenture or under applicable law.
SECTION 11.02. Manner of Calling Meetings.
The Indenture Trustee may at any time call a meeting of Bondholders of any
Class and/or Series to take any action specified in Section 11.01, to be held at
such time and at such place in the continental United States as the Indenture
Trustee shall determine. Notice of every meeting of the Bondholders of any Class
and/or Series, setting forth the time and the place of such meeting, shall be
mailed not less than 20 or more than 60 days prior to the date fixed for the
meeting to each such Bondholder as provided in Section 12.05. Any failure of the
Indenture Trustee to mail notice to every Bondholder of the applicable Class
and/or Series or any defect in mailing the notice shall not impair or affect the
validity of the meeting. The Indenture Trustee may fix, in advance, a date as
the record date for determining the Bondholders of the applicable Class and/or
Series entitled to notice of or to vote at any such meeting not less than 20 nor
more than 75 days prior to the date fixed for such meeting.
SECTION 11.03. Call of Meeting by Issuer or Bondholders.
If, at any time the issuer, pursuant to an Issuer Order, shall have
requested the Indenture Trustee to call a meeting of the Bondholders of any
Class and/or Series, or the Holders of Bonds representing (unless otherwise
specified in the related Terms Indenture) at least 10% of the aggregate
Principal Amount of any Class and/or Series shall have requested the Indenture
Trustee to call a meeting of Bondholders of such Class and/or Series, to take
any action authorized in Section 11.01, by written request setting forth in
reasonable detail the action proposed to be taken at such meeting, and the
Indenture Trustee shall not have mailed notice of such meeting within 15 days
after receipt of such request, then the Issuer or the Holders of Bonds of the
applicable Class and/or Series representing (unless otherwise specified in the
related Indenture) at least 10% of the aggregate Principal Amount of such Class
and/or Series may determine the time and the place for such meeting, the record
date for determining the Bondholders entitled to notice of or to vote at such
meeting, and may call such meeting only to take any action authorized in Section
11.01, by mailing notice thereof as provided in Section 11.02.
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SECTION 11.04. Who May Attend and Vote at Meetings.
To attend and to be entitled to vote at any meeting of Bondholders a
Person shall (i) be a Holder on the applicable record date of one or more Bonds
of the Class and/or Series with respect to which such meeting was called or (ii)
be a Person appointed by an instrument in writing as proxy by a Holder described
in the immediately preceding clause (i). The only Persons who shall be entitled
to be present or to speak at any meeting of Bondholders of any Class and/or
Series shall be the Persons entitled to vote at such meeting and their counsel,
and any representatives of the Issuer and the Indenture Trustee and their
counsel.
SECTION 11.05. Regulations May Be Made by Indenture Trustee.
Notwithstanding any other provisions of this Indenture, the Indenture
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Bondholders, in regard to proof of the appointment of proxies, and in
regard to the appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to vote,
and such other matters concerning the conduct of the meeting as it shall deem
appropriate. Except as otherwise permitted or required by any such regulations,
the holding of Bonds shall be proved in the manner specified in Section 12.03
and the appointment of any proxy shall be proved in the manner specified in such
Section 12.03; provided, however, that such regulations may provide that written
instruments appointing proxies regular on their face may be presumed valid and
genuine without the proof hereinabove or in such Section 12.03 specified.
The Indenture Trustee shall, by written instrument, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the Issuer
or by Bondholders as provided in Section 11.03, in which case the Issuer or the
Bondholders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and permanent secretary of
the meeting shall be elected by majority vote (calculated in accordance with the
following paragraph) of the Persons present at the meeting and entitled to vote.
At any meeting of Holders, unless otherwise provided in the related Terms
Indenture, each Person entitled to vote at such meeting shall be entitled to one
vote for each Individual Bond of the applicable Class and/or Series held and/or
represented by such Person; provided, however, that no vote shall be cast or
counted at any meeting in respect of any Bond challenged as not Outstanding and
ruled by the chairman of the meeting to be not Outstanding. The chairman of the
meeting shall have no right to vote other than by virtue of Bonds held by him or
instruments in writing as aforesaid duly designating such chairperson as the
proxy to vote on behalf of other Bondholders. Any meeting of
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Bondholders duly called pursuant to the provisions of Section 11.02 or 11.03 may
be adjourned from time to time, and the meeting may be held as so adjourned
without further notice.
At any meeting of Holders, unless otherwise provided in the related Terms
Indenture, the presence of Persons holding or representing Bonds of the
applicable Class and/or Series in an aggregate Principal Amount sufficient to
take action upon the business for the transaction of which such meeting was
called, shall be necessary to constitute a quorum; but, if less than a quorum be
present, the Persons holding or representing Bonds of the applicable Class
and/or Series with an aggregate Principal Amount of more than 50% of the
aggregate Principal Amount of all the Bonds of such Class and/or Series
represented at the meeting may adjourn such meeting with the same effect, for
all intents and purposes, as though a quorum had been present.
SECTION 11.06. Manner of Voting at Meetings and Records To Be Kept.
The vote upon any matter submitted to any meeting of Bondholders shall be
by written ballots on which shall be subscribed the signatures of such Holders
or of their representatives by proxy and the serial number or numbers of the
Bonds of the applicable Class and/or Series held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting. A record in duplicate of
the proceedings of each meeting of Bondholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more Persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was mailed as
provided in Section 11.02. The record shall show the serial numbers of the Bonds
voting in favor of and against any resolutions. The record shall be signed and
verified by the affidavits of the permanent chairman and secretary of the
meeting and one of the duplicates shall be delivered to the Issuer and the other
to the Indenture Trustee to be preserved by the Indenture Trustee.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
SECTION 11.07. Exercise of Rights of Indenture Trustee and Bondholders Not
To Be Hindered or Delayed.
Nothing contained in this Article XI shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Bondholders or any
rights expressly or impliedly
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conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Indenture Trustee or to
the Bondholders under any of the provisions of this Indenture or of the Bonds.
Unless otherwise provided in the related Terms Indenture, any action specified
in Section 11.01 may be effected by Act of the appropriate Bondholders or in any
other manner permitted hereby, without any meeting being called pursuant to this
Article XI.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Compliance Certificates and Opinions, etc.
(a) Upon any application or request by the Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, and in any event under
the circumstances provided in Sections 2.10(b), 4.01 and 8.04(a), the Issuer
shall furnish to the Indenture Trustee (i) an Officer's Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, and (iii) (if required by the TIA) a certificate or opinion from
an Accountant stating that in the opinion of such Accountant all such conditions
precedent, if any, subject to verification by Accountants have been complied
with, and in each such case meeting the applicable requirements of this Section
12.01(a), except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished. If
and for so long as this Indenture is required to be qualified under the Trust
Indenture Act, the Accountant rendering the certificate or opinion referred to
in clause (iii) of the preceding sentence shall, as and when required by TIA ss.
314(c)(3), be an Independent Accountant selected or approved by the Indenture
Trustee in the exercise of reasonable care.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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(iii) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) If this Indenture is or is to be secured by the mortgage or pledge of
property or securities, then (in addition to any obligation imposed in Section
12.01(a) or elsewhere in this Indenture):
(1) Whenever any property or securities are to be released from the lien
of this Indenture with respect to any Series, the Issuer shall furnish to the
Indenture Trustee a certificate or opinion of an engineer, appraiser or other
expert in such matters (which engineer, appraiser or other expert shall be
Independent as and when required by TIA ss. 314(d))certifying or stating the
opinion of such Person as to the fair value (within 90 days of such release) of
the property or securities proposed to be released and stating that in the
opinion of such Person the proposed release will not, in contravention of the
provisions hereof, impair the security under this Indenture with respect to such
Series.
(2) Prior to the deposit of any property or securities (other than Bonds
of the affected Series and securities secured by a lien prior to the lien of
this Indenture upon property subject to the lien of this Indenture with respect
to the affected Series) with the Indenture Trustee which deposit is to be made
the basis for (A) the authentication and delivery of any Series, (B) the
withdrawal of cash or any Enhancement constituting a part of the Trust Estate
for any Series or (C) the release of any property or securities subject to the
lien of this Indenture with respect to any Series, the Issuer shall furnish to
the Indenture Trustee a certificate or opinion of an engineer, appraiser or
other expert in such matters (which engineer, appraiser or other expert shall be
Independent as and when required by TIA ss. 314(d)) certifying or stating the
opinion of such Person as to the fair value (within 90 days of such deposit) to
the Issuer of the property or securities to be so deposited and the fair value
to the Issuer of such other property or securities as shall be required by TIA
ss. 314(d) to be covered by such certificate or opinion.
SECTION 12.02. Form of Documents Delivered to Indenture Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person,
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it is not necessary that all such matters be certified by, or covered by the
opinion of, only one such Person, or that they be so certified or covered by
only one document, but one such Person may certify or give an opinion with
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an Authorized Officer of the Owner Trustee
on behalf of the Issuer may be based, insofar as it relates to legal matters,
upon a certificate or opinion of, or representations by, counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon which
his certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers or other individual representative of the Owner Trustee, the
Indenture Trustee, the Depositor or other appropriate Person, stating that the
information with respect to such factual matters is in the possession of the
Owner Trustee, the Indenture Trustee, the Depositor or such other appropriate
Person, unless such Authorized Officer or counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
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SECTION 12.03. Acts of Bondholders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Bondholders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Bondholders in person or by agents duly appointed
in writing; and except as herein otherwise expressly provided such action shall
become effective when such instrument or instruments are delivered to the
Indenture Trustee and, where it is hereby expressly required, to the Issuer.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Bondholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.01) conclusive in favor of
the Indenture Trustee and the Issuer, if made in the manner provided in this
Section 12.03.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Bonds shall be proved by the Bond Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action of any Holder shall bind every future Holder of the same Bond
and the Holder of every Bond issued upon the transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, suffered or omitted to
be done by the Indenture Trustee or the Issuer in reliance thereon, whether or
not notation of such action is made upon such Bond.
SECTION 12.04. Notice, etc., to Indenture Trustee and Issuer.
Except as otherwise provided herein, any request, demand, authorization,
direction, notice, consent, waiver or Act of Bondholders or other communication
provided or permitted by this Indenture to be given to the Indenture Trustee or
the Issuer shall be in writing and deemed given when delivered to:
(a) the Indenture Trustee at its Corporate Trust Office, or
(b) the Issuer addressed to it in care of the Owner Trustee at the
address set forth in the Terms Indenture and/or at such other address as
may be set forth in the related Terms Indenture or otherwise furnished in
writing to the Indenture Trustee and each Holder of any affected
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Series. The Issuer shall promptly transmit any notice
received by it from any Bondholder to the Indenture Trustee.
SECTION 12.05. Notices to Bondholders; Notification Requirements and
Waiver.
Where this Indenture provides for notice to Bondholders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class, postage prepaid to each Bondholder
affected by such event, at its address as it appears on the Bond Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Bondholders is given
by mail, neither the failure to mail such notice nor any defect in any notice so
mailed to any particular Bondholder shall affect the sufficiency of such notice
with respect to other Bondholders, and any notice that is mailed in the manner
herein provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Bondholders shall be filed with the Indenture Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Bondholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies that have
assigned a rating to any Class of a Series, failure to give such notice shall
not affect any other rights or obligations created hereunder, and shall not
under any circumstance constitute an Issuer Default with respect to such Series.
SECTION 12.06. Alternate Payment and Notice Provisions.
Notwithstanding any provision of this Indenture or of any of the Bonds to
the contrary, the Issuer, with prior written consent of the Indenture Trustee
and any Paying Agent other than the Indenture Trustee, may enter into any
agreement with any Holder providing for a method of payment, or notice by the
Indenture Trustee or Paying Agent to such Holder, which is different from the
methods provided for in this Indenture. The Issuer will furnish to the Indenture
Trustee and the Paying Agent a copy of
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each such agreement and the Indenture Trustee and the Paying Agent will cause
payments to be made and notices to be given in accordance with such agreements.
SECTION 12.07. Conflict with Trust Indenture Act.
(a) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required or deemed to be included in this Indenture by
any of the provisions of the Trust Indenture Act, such required or deemed
provision shall control if and for so long as this Indenture is required to be
qualified under the Trust Indenture Act.
(b) If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by operation of TIA ss. 318(c), the imposed duties shall
control if and for so long as this Indenture is required to be qualified
under the Trust Indenture Act.
SECTION 12.08. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 12.09. Successors and Assigns.
All covenants and agreements in this Indenture by the Issuer shall bind
its successors and permitted assigns, whether so expressed or not.
SECTION 12.10. Separability Clause.
In case any provision of this Indenture or of the Bonds shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.11. Benefits of Indenture.
Nothing in this Indenture or in the Bonds, express or implied, shall give
to any Person, other than the parties hereto and their successors hereunder, the
Bondholders and any other party secured hereunder, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 12.12. Legal Holidays.
If any date on which principal of, premium, if any, on or interest on any
Bond is proposed to be paid hereunder, or any date on which mailing of notices
by the Indenture Trustee to any Person is required pursuant to any provision of
this Indenture, shall not be a Business Day, then (notwithstanding any other
provision of the Bonds or this Indenture) payment of such amount or mailing of
such notice need not be made on such date, but may
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be made or mailed on the next succeeding Business Day with the same force and
effect, and in the case of payments, no interest shall accrue for the period
from and after the date on which such payment was due to the next succeeding
Business Day when paid.
SECTION 12.13. GOVERNING LAW.
UNLESS OTHERWISE PROVIDED IN THE RELATED TERMS INDENTURE, THIS INDENTURE,
EACH INDENTURE SUPPLEMENTAL HERETO AND EACH BOND SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 12.14. Execution Counterparts.
This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 12.15. Recording of Indenture.
If this Indenture is subject to recording in any appropriate public
recording offices, such recording is to be effected by and at the expense of the
Issuer upon written request of the Indenture Trustee accompanied by an Opinion
of Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee and which shall be an expense of
the Issuer) to the effect that such recording is necessary either for the
protection of the Bondholders of any Series or any other Person secured
hereunder or for the enforcement of any right or remedy granted to the Indenture
Trustee under this Indenture.
SECTION 12.16. Trust Obligation.
No recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer on the Bonds or under this Indenture (other than with
respect to Permitted Investments as to which such Person is the issuer) or any
certificate or other writing delivered in connection herewith or therewith,
against (i) any owner of a beneficial interest in the Issuer, (ii) the Owner
Trustee or the Indenture Trustee in its individual capacity, (iii) any partner,
owner, beneficiary, agent, officer, director, employee or agent of the Owner
Trustee or the Indenture Trustee in its individual capacity, or (iv) any holder
of a beneficial interest in the Owner Trustee or the Indenture Trustee or of any
successor or assignee of the Owner Trustee or the Indenture Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that neither the Owner Trustee nor the Indenture Trustee has
any such obligations in its individual capacity).
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SECTION 12.17. No Petition.
Unless otherwise provided in the related Terms Indenture, The Indenture
Trustee, by entering into this Indenture, and each Bondholder, by accepting a
Bond, hereby covenant and agree that they will not at any time institute against
the Depositor or the Issuer, or join in any institution against the Depositor or
the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation Proceedings, or any other Proceedings under any United States
federal or state bankruptcy or similar law, in connection with any obligations
relating to the Bonds, this Indenture or any Servicing and Administration
Agreement.
SECTION 12.18. Inspection.
The Issuer agrees that, on reasonable prior notice, it will permit any
representative of the Indenture Trustee, during the Issuer's normal business
hours, to examine all the books of account, records, reports, and other papers
of the Issuer, to make copies and extracts therefrom, to cause such books to be
audited by Independent Accountants, and to discuss the Issuer's affairs,
finances and accounts with the Issuer's representatives, employees, and
Independent Accountants, all at such reasonable times and as often as may be
reasonably requested. The Indenture Trustee shall and shall cause its
representatives to hold in confidence all such information except to the extent
disclosure may be required by law and except to the extent that the Indenture
Trustee may reasonably determine that such disclosure is consistent with its
obligations hereunder.
SECTION 12.19. Usury.
The amount of interest payable or paid on any Bond under the terms of this
Indenture shall be limited to interest thereon at the maximum nonusurious rate
of interest permitted by the applicable laws of the State of New York (or the
laws of any other jurisdiction determined to be applicable by a court of
competent jurisdiction) or any applicable laws of the United States permitting a
higher maximum nonusurious rate that preempts such applicable New York (or
other) laws, which could lawfully be contracted for, charged or received (the
"Highest Lawful Rate"). In the event any payment of interest on any Bond is in
excess of interest thereon at the Highest Lawful Rate, the Issuer stipulates
that the excess payment of interest will be deemed to have been paid as a result
of an error on the part of both the Indenture Trustee (for which the Indenture
Trustee shall have no liability of any kind), acting on behalf of the Holder
receiving such excess payment, and the Issuer, and the Holder receiving such
excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Issuer or the Indenture Trustee, refund the amount of such
excess or, at the option of the Indenture Trustee, apply the excess to the
payment of principal of such Bond, if any, remaining unpaid. In addition, all
sums
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paid or agreed to be paid for the use, forbearance or detention of money shall,
to the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such Bonds.
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