DATED NOVEMBER 30, 1995
SUPPLEMENT TO PRELIMINARY PROSPECTUS SUPPLEMENT
DATED NOVEMBER 24, 1995
(To Prospectus Dated November 10, 1995)
AETNA 1995 COMMERCIAL MORTGAGE TRUST
MULTICLASS PASS-THROUGH CERTIFICATES, SERIES 1995-C5
---------------
With respect to the Waterworks Shopping Center Loan, the Seller
will transfer to the Depositor, and the Depositor will deposit in the Trust, not
a whole mortgage loan but a Senior Participation. References to the Waterworks
Mortgage Loan in the Prospectus Supplement shall be deemed to refer to such
Senior Participation where appropriate. The Senior Participation Percentage
Interest for such Mortgage Loan is 80%; the Cut-off Date Principal Balance of
the Senior Participation is $20,197,000. The total number of Senior
Participations included in the Mortgage Loans is now four instead of three.
The Normalized NOI for the Waterworks Shopping Center Property
for 1994, 1993 and 1992 is $3,066,152, $3,093,715, and $3,156,362, respectively,
not $4,102,930, $4,104,903 and $4,168,381, respectively, as formerly set forth
in Appendix B to the Prospectus Supplement. Accordingly, the Debt Service
Coverage Ratio for the Waterworks Mortgage Loan (i.e. the Senior Participation)
is 1.46x, whereas the Debt Service Coverage Ratio for the whole loan as formerly
set forth in Appendix B to the Prospectus Supplement was 1.57x.
The following categories of information set forth on page S-22 of
the Prospectus Supplement are revised as follows:
Initial Pool Balance . . . . . . . . . . . $443,516,354.24
Average Cut-off Date Balance . . . . . . . $10,817,472.05
Weighted Average Mortgage Rate . . . . . . 9.641%
Weighted Average Net Mortgage Rate . . . . 9.607%
Weighted Average Remaining Term
to Maturity (months) . . . . . . . . . . . 87.1
Weighted Average Cut-off Date
DSC Ratio . . . . . . . . . . . . . . . . 1.29x
Additionally, the Mortgaged Properties located in Pennsylvania
now constitute 18.5% of the Initial Pool Balance and the Mortgage Loans secured
by retail properties now constitute 29.2% of the Initial Pool Balance. Other
aggregate dollar amounts and percentages included throughout the Prospectus
Supplement shall be revised accordingly. Capitalized terms appearing and not
defined herein are used as defined in the Preliminary Prospectus Supplement
dated November 24, 1995 to the Prospectus dated November 10, 1995.
<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration File No.: 033-96378
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. OFFERS
TO BUY THESE SECURITIES MAY NOT BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL
PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING 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 NOVEMBER 24, 1995
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 10, 1995)
$ (APPROXIMATE)
AETNA 1995 COMMERCIAL MORTGAGE TRUST
MULTICLASS PASS-THROUGH CERTIFICATES, SERIES 1995-C5
----------------
Structured Asset Securities Corporation (the "DepositorDepositor") is
forming a trust, designated as Aetna 1995 Commercial Mortgage Trust (the
"Trust"), which will issue Multiclass Pass-Through Certificates, Series
1995-C5 (the "CertificatesCertificates") in the aggregate principal amount of
approximately $ . The Certificates will consist of twelve classes
(each, a "ClassClass"): the Class A-1 and Class A-2 Certificates
(collectively, the "Senior CertificatesSenior Certificates"); the Class B,
Class C, Class D, Class E, Class F, Class G and Class H Certificates
(collectively, the "Subordinate CertificatesSubordinate Certificates"); the
Class X Certificates; and the Class R-I and Class R-II Certificates
(collectively, the "Class R CertificatesResidual Certificates"). Only the
Senior Certificates and the Class B, Class C and Class D Certificates
(collectively, the "Offered CertificatesOffered Certificates") are being
offered hereby. It is a condition to their issuance that the Class A-1
Certificates and the Class A-2 Certificates be rated "AAA" by each of Fitch
Investors Service, L.P. ("Fitch") and Standard & Poor's Ratings Group
("S&PS&P", and together with Fitch, the "Rating AgenciesRating Agencies"),
FitchRating Agenciesthat the Class B Certificates be rated "AA" by each
Rating Agency, that the Class C Certificates be rated "A" by each Rating
Agency, and that the Class D Certificates be rated "BBB" by each Rating
Agency.
The Certificates will evidence, in the aggregate, the entire beneficial
ownership interest in the Trust, which will be established by the Depositor
pursuant to the Trust Agreement, to be dated as of December 1, 1995, among
the Depositor, Bankers Trust Company of California, N.A., as trustee (the
"TrusteeTrustee"), Fleet Real Estate Capital, Inc. as servicer (the
"ServicerServicer"), and J. E. Robert Company, Inc. as special servicer (the
"Special Servicer"). The Certificates will be payable solely from amounts
received with respect to the assets of the Trust. The Certificates will not
constitute obligations of the Depositor or the Seller (as defined herein) or
any of their affiliates and will not be insured or guaranteed by any
governmental agency or instrumentality or by Lehman Brothers Inc. ("Lehman
BrothersLehman Brothers" or the "UnderwriterUnderwriter") or the Seller or
any affiliate thereof or by any other person or entity. SEE "RISK FACTORS" AT
PAGE S-25 IN THIS PROSPECTUS SUPPLEMENT AND "RISK FACTORS" AT PAGE 26 IN THE
PROSPECTUS FOR CERTAIN FACTORS TO BE CONSIDERED IN PURCHASING THE OFFERED
CERTIFICATES.
The primary assets of the Trust will be a segregated pool (the "Mortgage
PoolMortgage Pool") of 41 fixed rate, commercial and multifamily mortgage
loans (or, with respect to 3 such mortgage loans, a senior participation
interest therein) and loan groups (collectively, the "Mortgage LoansMortgage
Loans") and certain Collection and Distribution Accounts (collectively, the
"Trust FundTrust Fund"). The Mortgage Loans had an aggregate principal
balance as of December 1, 1995 (the "Cut-Off DateCut-off Date") of
approximately $448,565,671.03 (the "Initial Pool BalanceInitial Pool
Balance"). On or before the date of initial issuance of the Certificates, the
Mortgage Loans will be acquired by the Depositor from Aetna Life Insurance
Company, a Connecticut corporation (the "Seller"), which originated the
Mortgage Loans or acquired the Mortgage Loans from an affiliate or, in the
case of two Mortgage Loans, from an unaffiliated third party originator.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
INITIAL
AGGREGATE ASSUMED RATED
CERTIFICATE CERTIFICATE FINAL FINAL
PRINCIPAL INTEREST DISTRIBUTION DISTRIBUTION CUSIP
CLASS AMOUNT(1) RATE DATE(2) DATE(3) NUMBER
- -------------- ---------------------- ---------------- -------------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Class A-1 ..... $ % 008098 AA3
Class A-2 ..... $ % 008098 AB1
Class B ....... $ % 008098 AC9
Class C ....... $ % 008098 AD7
Class D ....... $ % 008098 AE5
</TABLE>
(Footnotes to table on next page)
The Offered Certificates will be offered by Lehman Brothers from time to
time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The aggregate proceeds (excluding accrued
interest) to the Depositor from sale of the Offered Certificates will be
approximately $ , before deduction of expenses payable by the
Depositor.
The Offered Certificates will be offered by Lehman Brothers subject to
prior sale, to withdrawal, cancellation or modification of the offer without
notice, to delivery to and acceptance by Lehman Brothers and certain further
conditions. It is expected that the Offered Certificates will be delivered in
book-entry form through the Same-Day Funds Settlement System of The
Depository Trust Company on or about December 19, 1995.
----------------
LEHMAN BROTHERS
December , 1995
<PAGE>
The footnotes to the table on the previous page are as follows:
(1) The initial aggregate certificate principal amount ("Certificate
Principal AmountCertificate Principal Amount") of each Class of Offered
Certificates is subject to a permitted variance of plus or minus 5%,
depending on the Mortgage Loans actually delivered to the Trustee. The
Certificate Principal Amounts and the Cut-Off Date Balances of the
Mortgage Loans set forth above and herein and the Initial Pool Balance
set forth herein are based on the aggregate principal balances of the
Mortgage Loans on the date hereof after reducing the same by the
principal payments scheduled to be made on December 1, 1995. In certain
cases, the terms of the Mortgage Loans provide for the payment of
additional principal amounts that have not yet been determined.
Accordingly, the Certificate Principal Amounts of each Class of
Certificates may be reduced (pro rata or otherwise) by a variance equal
to such additional principal payments, in addition to the variance
described in the third preceding sentence.
(2) Determined on the basis of the assumptions set forth in "DESCRIPTION OF
THE CERTIFICATES--Assumed Final Distribution Date; Rated Final
Distribution Date" herein.
(3) The "Rated Final Distribution Date" is [ ], the first
Distribution Date that follows the end of the amortization term for the
Mortgage Loan that, as of the Cut-off Date, has the longest remaining
amortization term. See "DESCRIPTION OF THE CERTIFICATES--Assumed Final
Distribution Date; Rated Final Distribution Date" and "CERTIFICATE
RATING" herein.
Lehman Brothers, directly or through one or more of its affiliates,
currently intends to make a secondary market in the Offered Certificates but
is under no obligation to do so. There can be no assurance that a secondary
market for the Offered Certificates will develop or, if it does develop, that
it will continue. See "RISK FACTORS" herein.
This Prospectus Supplement does not contain complete information about the
offering of the Certificates. Additional information is contained in the
Prospectus and investors must read both the Prospectus and this Prospectus
Supplement to obtain material information about the offering. Sales of
Offered Certificates may not be consummated unless the purchaser has received
both the Prospectus and the Prospectus Supplement.
----------------
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. This is in addition to the obligation of
dealers acting as underwriters to deliver a Prospectus Supplement and the
Prospectus with respect to their unsold allotments or subscriptions.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Summary of Terms .................................................................... S-5
Risk Factors ....................................................................... S-28
The Certificates .................................................................. S-28
The Mortgage Loans ................................................................ S-29
DESCRIPTION OF THE CERTIFICATES .................................................... S-38
General ........................................................................... S-38
Certificate Principal Amounts and Certificate Notional Amounts .................... S-39
Registration; Denominations ....................................................... S-39
Certificate Interest Rates ........................................................ S-40
Distributions ..................................................................... S-41
Subordination; Allocation of Losses and Certain Expenses .......................... S-50
Prepayment Interest Shortfalls and Excess Prepayment Interest ..................... S-52
Advances .......................................................................... S-53
Reports to Certificateholders; Available Information .............................. S-54
Example of Distributions .......................................................... S-58
Assumed Final Distribution Date; Rated Final Distribution Date .................... S-59
Optional Termination .............................................................. S-60
Voting Rights; Lists of Certificateholders ........................................ S-61
Amendment ......................................................................... S-61
The Trustee ....................................................................... S-62
The Collection and Distribution Accounts .......................................... S-63
THE SELLER ......................................................................... S-64
UNDERWRITING PRACTICES ............................................................. S-64
DESCRIPTION OF THE MORTGAGE POOL ................................................... S-66
General ........................................................................... S-66
Mortgage Loan History ............................................................. S-67
Certain Terms and Conditions of the Mortgage Loans ................................ S-68
Assessments of Property Condition ................................................. S-70
Secondary Financing ............................................................... S-72
Other Liens ....................................................................... S-75
Senior Participations ............................................................. S-75
Additional Mortgage Loan Information .............................................. S-75
Assignment of the Mortgage Loans; Repurchases ..................................... S-85
Representations and Warranties; Repurchases ....................................... S-86
Changes in Mortgage Pool Characteristics .......................................... S-88
SERVICING OF MORTGAGE LOANS ........................................................ S-89
General ........................................................................... S-89
The Servicer ...................................................................... S-90
The Special Servicer .............................................................. S-92
The Operating Adviser ............................................................. S-94
The Extension Adviser ............................................................. S-97
Due-on-Sale and Due-on-Encumbrance Provisions ..................................... S-98
Maintenance of Insurance .......................................................... S-98
Mortgage Loan Modifications ....................................................... S-100
Sale of Defaulted Mortgage Loans and REO Properties ............................... S-101
Foreclosures ...................................................................... S-102
Certain Matters Regarding the Servicer and the Special Servicer ................... S-103
Events of Default ................................................................. S-105
Termination of the Servicer or Special Servicer ................................... S-106
S-3
<PAGE>
Appointment of a Successor Servicer or Special Servicer ........................... S-106
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS ...................................... S-106
General ........................................................................... S-106
Effects of Losses on the Mortgage Loans, Additional Trust Fund Expenses and
Other Matters .................................................................... S-108
Weighted Average Life ............................................................. S-108
LEGAL INVESTMENT CONSIDERATIONS .................................................... S-112
Certain Legal Aspects of Mortgage Loans Located in Pennsylvania, California, and
Florida ........................................................................... S-112
Pennsylvania ...................................................................... S-112
California ........................................................................ S-112
Florida ........................................................................... S-112
USE OF PROCEEDS .................................................................... S-113
ERISA Considerations ............................................................... S-113
Federal Income Tax Considerations .................................................. S-115
UNDERWRITING ....................................................................... S-116
Legal Matters ...................................................................... S-117
Certificate Rating ................................................................. S-117
Index of Principal Terms ........................................................... S-118
Appendix A--Summary of the Mortgage Loans and Mortgaged Properties ................ A-1
Appendix B--Description of the 15 Largest Mortgage Loans and Mortgaged Properties . B-1
Appendix C--Servicer Reports ....................................................... C-1
</TABLE>
S-4
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and
the Prospectus. Capitalized terms used and not otherwise defined herein have
the respective meanings assigned to them in the Prospectus. An "Index of
Principal Terms" is included at the end of this Prospectus Supplement and a
"Glossary" is included at the end of the Prospectus.
DEPOSITOR .............. Structured Asset Securities Corporation (the
"DepositorDepositor"). The Depositor's
principal offices are located at 3 World
Financial Center, New York, New York
10285, telephone (212) 526-5594. See "THE
ISSUER--The Company" in the Prospectus.
TITLE OF CERTIFICATES
AND DESIGNATION OF
CLASSES ............... Multiclass Pass-Through Certificates, Series
1995-C5 (the "CertificatesCertificates")
to be issued in the aggregate Certificate
Principal Amount of approximately [$] and
to consist of twelve classes (each, a
"ClassClass"): the Class A-1 and Class A-2
Certificates (collectively, the "Senior
CertificatesSenior Certificates"); the
Class B, Class C, Class D, Class E, Class
F, Class G and Class H Certificates
(collectively, the "Subordinate
CertificatesSubordinate Certificates");
the Class X Certificates (collectively
with the Senior Certificates and the
Subordinate Certificates, the "Regular
Interest Certificates"); and the Class R-I
and Class R-II Certificates (collectively,
the "Residual Certificates"). See
"DESCRIPTION OF THE CERTIFICATES" herein.
OFFERED CERTIFICATES ... Only the Senior Certificates and the Class
B, Class C and Class D Certificates
(collectively, the "Offered
CertificatesOffered Certificates") are
offered hereby. The respective Classes of
Offered Certificates, in each case, will
be issued in the initial aggregate
Certificate Principal Amount set forth on
the cover page of this Prospectus
Supplement. The initial aggregate
Certificate Principal Amount of any Class
of Offered Certificates is subject to a
permitted variance as set forth on the
cover page of this Prospectus Supplement.
The Offered Certificates will bear
interest at the respective rates per annum
set forth on the cover page hereof.
Interest on the Certificates will be
payable on the 25th day of each month (or,
if such day is not a Business Day, then
the next succeeding Business Day) (each
such date, a "Distribution
DateDistribution Date"), commencing in
January 1996. Principal payments on the
Certificates of each Class (other than the
Class X and Residual Certificates) will be
made in the amounts and in accordance with
the priorities described herein on a pro
rata basis among the Certificates of any
particular Class. If and to the extent
collected, Prepayment Premiums (as defined
herein) will generally be distributed
among the holders of each of the
respective Classes of Certificates whose
aggregate Certificate Principal Amount or
Certificate Notional Amount, as the case
may be, is reduced in connection with the
S-5
<PAGE>
distribution of the related prepayment of
principal, in the amounts and in
accordance with the priorities described
herein. Realized Losses (as defined
herein) with respect to the Mortgage Loans
and Additional Expense Losses (as defined
herein) will be allocated to the
Subordinate Certificates prior to
allocation thereof to the Senior
Certificates and will be allocated to each
Class of the Subordinate Certificates and
each Class of the Senior Certificates in
accordance with the priorities described
herein.
CERTIFICATES NOT
OFFERED ................ The Class E, Class F, Class G, Class H,
Class X, Class R-I and Class R-II
Certificates (collectively, the
"Non-Offered CertificatesNon-Offered
Certificates") have not been registered
under the Securities Act of 1933, as
amended (the "Securities Act"), and are
not offered hereby. The initial aggregate
Certificate Principal Amount of the
Non-Offered Certificates is approximately
[$] (subject to permitted variances
similar to those applicable to the Offered
Certificates, as set forth on the cover
page of this Prospectus Supplement),
representing approximately [%] of the
Initial Pool Balance. The Non- Offered
Certificates will be acquired by a
wholly-owned subsidiary of Aetna Life
Insurance Company. Such holder expects
initially to hold the Non-Offered
Certificates but is not obligated to do so
and may sell the same at any time.
DENOMINATIONS .......... The Class A-1, Class A-2, Class B, Class C
and Class D Certificates will be issued in
book-entry form in original denominations
of $100,000 Certificate Principal Amount
and in integral multiples of $1 in excess
thereof. One Certificate of each of the
foregoing Classes may be issued in a
different Certificate Principal Amount, to
accommodate the remainder of the initial
aggregate Certificate Principal Amount of
the Certificates of such Class. See
"DESCRIPTION OF THE
CERTIFICATES--Registration; Denominations"
herein and "DESCRIPTION OF THE
SECURITIES-- Book-Entry Registration" in
the Prospectus.
SELLER ................. On or before the Closing Date, the Depositor
will acquire the Mortgage Loans from Aetna
Life Insurance Company, a Connecticut
corporation (the "Seller"), which
originated the Mortgage Loans, with the
exception of six Mortgage Loans which were
originated by Aetna Casualty and Surety
Company, an affiliate of the Seller, and
with the exception of the 500 Westchester
Avenue Loan and the St. Marks Co-Op
Apartments Loan which were acquired
directly or indirectly from an
unaffiliated lender as part of the
Seller's ongoing business of purchasing
and selling mortgage loans and other
mortgage related assets. See "DESCRIPTION
OF THE MORTGAGE POOL--Mortgage Loan
History" herein. The Seller is a
wholly-owned subsidiary of Aetna Life and
Casualty Company, one of the largest
insurance and financial services
organizations in the United States. See
"THE SELLER" herein.
S-6
<PAGE>
TRUSTEE ................ Bankers Trust Company of California, N.A.
(the "TrusteeTrustee") will act as trustee
for the Trust and will also be obligated
to make any Advance (as defined herein)
that the Servicer is required, but fails,
to make. See "DESCRIPTION OF THE
CERTIFICATES--Advances" and "--The
Trustee" herein.
SERVICER ............... Fleet Real Estate Capital, Inc. (the
"ServicerServicer") will be responsible
for servicing the Mortgage Loans other
than the Specially Serviced Mortgage Loans
(as defined below). See "SERVICING OF
MORTGAGE LOANS--The Servicer" herein.
SPECIAL SERVICER ....... J.E. Robert Company, Inc. (the "Special
ServicerSpecial Servicer") will be
responsible for performing certain
servicing functions with respect to
Mortgage Loans ("Specially Serviced
Mortgage Loans") that, in general, are in
default (and, depending on the default,
have been so for a specified period of
time) or as to which such a default is
imminent or as to which certain bankruptcy
or insolvency events have occurred with
respect to the related borrower. The
Special Servicer will also be responsible
for the management of REO Properties (as
defined herein) acquired on behalf of the
Trust. See "SERVICING OF MORTGAGE
LOANS--The Special Servicer" herein.
OPERATING ADVISER ...... The majority holder (or holders) of the
Class of Certificates (other than the
Class X Certificates and the Residual
Certificates) with the latest alphabetical
Class designation will have the right,
subject to certain conditions described
herein, to elect an adviser (the
"Operating Adviser") from whom the Special
Servicer will seek advice and approval and
take direction under the various
circumstances described herein. The
initial Operating Adviser will be CMBS
Holdings, Inc., a wholly owned subsidiary
of the Seller. See "SERVICING OF MORTGAGE
LOANS--The Operating Adviser" herein.
EXTENSION ADVISER ...... The holders of Certificates evidencing
greater than 66 2/3 % of the aggregate
Certificate Principal Amount of all of the
Certificates (other than the Class X
Certificates and the Residual
Certificates) with earlier alphabetical
Class designations than that of the Class
of Certificates whose holders are entitled
to elect an Operating Adviser, if any,
will have the right, subject to certain
conditions described herein, to elect an
adviser (the "Extension Adviser") from
whom the Special Servicer will seek
approval prior to extending the maturity
of any Mortgage Loan beyond the third
anniversary of such loan's stated maturity
date. The initial Extension Adviser will
be the Operating Adviser. See "SERVICING
OF MORTGAGE LOANS--The Extension Adviser"
herein.
S-7
<PAGE>
CLOSING DATE ........... On or about December 19, 1995.
CUT-OFF DATE ........... December 1, 1995.
RECORD DATE ............ The record date (the "Record DateRecord
Date") for each Class of Offered
Certificates for each Distribution Date
will be the last day of the month
immediately preceding the month in which
such Distribution Date occurs or, if such
day is not a Business Day (as defined in
the Prospectus), the Business Day
immediately preceding such day.
DISTRIBUTION DATE ...... The 25th day of each month or, if such day
is not a Business Day, then the next
succeeding Business Day, commencing in
January 1996.
DESCRIPTION OF THE
CERTIFICATES ........... The Certificates will be issued, and the
trust (the "Trust") designated as the
Aetna 1995 Commercial Mortgage Trust will
be created, pursuant to a trust agreement
(the "Trust Agreement"), to be dated as of
the Cut-off Date, among the Depositor, the
Trustee, the Servicer and the Special
Servicer. See "DESCRIPTION OF THE
CERTIFICATES" herein.
CLASSES OF REGULAR INTEREST CERTIFICATES
[Graphic material (1) omitted: Graphic depicts credit support (as a percentage)
and ratings given by the Rating Agencies for each class of the Certificates,
also indicating the balance for each class of the Certificates in dollars and as
a percent of the Initial Pool Balance. Graphic also indicates which certificates
are publicly offered certificates and which are not.]
* Ratings indications appearing in parentheses on the left refer to the
ratings assigned by S&P; ratings indications appearing on the right refer
to the ratings assigned by Fitch. Classes in which the letters "NR"
appear in the position in which the rating of a particular Rating Agency
should appear will not be rated by such Rating Agency.
S-8
<PAGE>
CERTIFICATE PRINCIPAL
AMOUNTS AND
CERTIFICATE NOTIONAL
AMOUNTS ................ Upon initial issuance, and in each case
subject to the permitted variances as set
forth on the inside cover page of this
Prospectus Supplement,
(i) the Class A-1 Certificates will have an
aggregate Certificate Principal Amount
of [$ ], which will represent
approximately [ %] of the Initial Pool
Balance;
(ii) the Class A-2 Certificates will have an
aggregate Certificate Principal Amount
of [$], which will represent
approximately [ %] of the Initial Pool
Balance;
(iii) the Class B Certificates will have an
aggregate Certificate Principal Amount
of [$ ], which will represent
approximately [ %] of the Initial Pool
Balance;
(iv) the Class C Certificates will have an
aggregate Certificate Principal Amount
of [$], which will represent
approximately [ %] of the Initial Pool
Balance;
(v) the Class D Certificates will have an
aggregate Certificate Principal Amount
of [$], which will represent
approximately [ %] of the Initial Pool
Balance; and
(vi) the Class E, Class F, Class G and Class
H Certificates will have an aggregate
Certificate Principal Amount of [$],
which will represent approximately
[ %] of the Initial Pool Balance.
The "Certificate Principal Amount Certificate
Principal Amount" of any of the Class
A-1 through Class H Certificates, as of
any date of determination, represents
the maximum specified dollar amount of
principal to which the holder thereof is
then entitled pursuant to the Trust
Agreement, such amount being equal to
the initial principal amount set forth
on the face of such Certificate less the
amount of all principal distributions
previously made with respect to such
Certificate and less all Realized Losses
and Additional Expense Losses (each as
defined herein) previously allocated to
such Certificate pursuant to the Trust
Agreement.
The Class X Certificates will not have
Certificate Principal Amounts or entitle
their holders to distributions of
principal. Each such Certificate will,
however, represent the right to receive
distributions of interest accrued as
described herein on a notional amount (a
"Certificate Notional Amount") equal to
the product of the Percentage Interest
(as defined herein) represented by such
Certificate in such Class, multiplied by
the aggregate Certificate Notional
Amount of the Class X Certificates. The
aggregate Certificate Notional Amount of
the Class X Certificates will equal the
sum of the following five components
(each, a "Component"): (a) the aggregate
Certificate Principal Amount of the
Class A-1 Certificates outstanding from
time to time ("Component A-1"); (b) the
aggregate Certificate Principal Amount
of the Class A-2 Certificates
outstanding from time to time ("Com-
S-9
<PAGE>
ponent A-2"); (c) the aggregate
Certificate Principal Amount of the
Class B Certificates outstanding from
time to time ("Component B"); (d) the
aggregate Certificate Principal Amount
of the Class C Certificates outstanding
from time to time ("Component C"); and
(e) the aggregate Certificate Principal
Amount of the Class D Certificates
outstanding from time to time
("Component D"). The Class A-1 through
Class D Components of the Class X
Certificates are not separately
transferable.
The Residual Certificates will not have
Certificate Principal Amounts or
Certificate Notional Amounts. See
"DESCRIPTION OF THE
CERTIFICATES--Certificate Principal
Amounts and Certificate Notional
Amounts" herein.
CERTIFICATE INTEREST
RATES .................. The Certificate Interest Rate applicable to
the Class A-1 Certificates for each
Distribution Date will be a per annum rate
equal to [%]. The Certificate Interest
Rate applicable to the Class A-2
Certificates for each Distribution Date
will be a per annum rate equal to [%]. The
Certificate Interest Rate applicable to
the Class B Certificates for each
Distribution Date will be a per annum rate
equal to [%]. The Certificate Interest
Rate applicable to the Class C
Certificates for each Distribution Date
will be a per annum rate equal to [%]. The
Certificate Interest Rate applicable to
the Class D Certificates for each
Distribution Date will be a per annum rate
equal to [%]. The Certificate Interest
Rate applicable to the Class E, Class F,
Class G and Class H Certificates for each
Distribution Date will be a per annum rate
equal to the Weighted Average Net Mortgage
Rate for such Distribution Date.
The Certificate Interest Rate applicable to
the Class X Certificates with respect to
each Distribution Date will be a per annum
rate equal to the excess, if any, of (a)
the Weighted Average Net Mortgage Rate for
such Distribution Date, over (b) the
weighted average of the Certificate
Interest Rates for the Class A-1
Certificates, the Class A-2 Certificates,
the Class B Certificates, the Class C
Certificates and the Class D Certificates,
weighted by their respective aggregate
Certificate Principal Amounts immediately
prior to such Distribution Date.
The "Weighted Average Net Mortgage
RateWeighted Average Net Mortgage Rate"
for each Distribution Date is a per annum
rate equal to the weighted average,
expressed as a percentage and rounded to
five decimal places, of the Net Mortgage
Rates for the Mortgage Loans, weighted on
the basis of their respective unpaid
principal balances outstanding at the
beginning of the related Collection
Period. The "Net Mortgage RateNet Mortgage
Rate" on each Mortgage Loan is a fixed
rate per annum equal to the Mortgage Rate
on the Due Date occurring in the related
Due Period (a) reduced by the
Administrative Cost Rate and (b) if the
accrual of interest on such Mortgage Loan
is computed other
S-10
<PAGE>
than on the basis of a 360 day year
consisting of twelve 30-day months, then
adjusted to a rate of interest computed on
such basis.
DISTRIBUTIONS .......... As more particularly described herein, the
total of all payments or other collections
(or advances in lieu thereof) on or in
respect of the Mortgage Loans that are
available for distribution to
Certificateholders on any Distribution
Date (exclusive of Prepayment Premiums) is
herein referred to as the "Available
Distribution AmountAvailable Distribution
Amount" for such Distribution Date. See
"DESCRIPTION OF THE CERTIFICATES--
Distributions--The Available Distribution
Amount" herein.
On each Distribution Date, the Trustee or a
Paying Agent (as defined in the
Prospectus) will (except as otherwise
described under "DESCRIPTION OF THE
CERTIFICATES-- Optional Termination"
herein) apply the Available Distribution
Amount for such date for the following
purposes and in the following order of
priority, in each case to the extent of
remaining available funds:
(i) to distributions of interest to the
holders of the Class A-1 Certificates,
the holders of the Class A-2
Certificates and the holders of the
Class X Certificates, pro rata in
accordance with the respective amounts
of interest distributable on such
Classes of Certificates on such
Distribution Date described in this
clause (i), in an amount equal to all
Distributable Certificate Interest in
respect of the Class A-1 Certificates,
the Class A-2 Certificates, Component
A-1 of the Class X Certificates, and
Component A-2 of the Class X
Certificates for such Distribution Date
and, to the extent not previously paid,
for all prior Distribution Dates;
(ii) to distributions of principal to the
holders of the Class A-1 Certificates
in an amount (not to exceed the then
outstanding aggregate Certificate
Principal Amount of such Class of
Certificates) equal to the Principal
Payment Amount (as defined below) for
such Distribution Date, and then, if
the Class A-1 Certificates have been
retired, to distributions of principal
to the holders of the Class A-2
Certificates in an amount (not to
exceed the then outstanding aggregate
Certificate Principal Amount of such
Class of Certificates) equal to the
Principal Payment Amount for such
Distribution Date, less any portion
thereof distributed in retirement of
the Class A-1 Certificates; provided,
however, that if Realized Losses or
Additional Expense Losses are allocable
to either of such Classes of
Certificates on such Distribution Date
or prior Distribution Dates, such
distribution shall be made to the
holders of the Class A-1 Certificates
and the holders of the Class A-2
Certificates pro rata on the basis of
their respective aggregate outstanding
Certificate Prin-
S-11
<PAGE>
cipal Amounts on each Distribution Date
until such holders have been paid in
full;
(iii)to distributions to the holders of the
Class A-1 Certificates and the holders
of the Class A-2 Certificates, in an
amount equal to, and in reimbursement
of, all Realized Losses and Additional
Expense Losses, if any, previously
allocated to each such Class of
Certificates and for which no
reimbursement has previously been
received, pro rata on the basis of such
amounts so allocated to each such
Class;
(iv) to distributions of interest to the
holders of the Class B Certificates and
the holders of the Class X
Certificates, pro rata in accordance
with the respective amounts of interest
distributable on such Classes of
Certificates on such Distribution Date
described in this clause (iv), in an
amount equal to all Distributable
Certificate Interest in respect of the
Class B Certificates and Component B of
the Class X Certificates for such
Distribution Date and, to the extent
not previously paid, for all prior
Distribution Dates;
(v) if the Class A-1 and Class A-2
Certificates have been retired, to
distributions of principal to the
holders of the Class B Certificates in
an amount (not to exceed the then
outstanding aggregate Certificate
Principal Amount of such Class of
Certificates) equal to the Principal
Payment Amount for such Distribution
Date, less any portion thereof
distributed in retirement of the Class
A-1 or Class A-2 Certificates;
(vi) to distributions to the holders of the
Class B Certificates, in an amount
equal to, and in reimbursement of, all
Realized Losses and Additional Expense
Losses, if any, previously allocated to
such Class of Certificates and for
which no reimbursement has previously
been received;
(vii) to distributions of interest to the
holders of the Class C Certificates and
the holders of the Class X
Certificates, pro rata in accordance
with the respective amounts of interest
distributable on such Classes of
Certificates on such Distribution Date
described in this clause (vii), in an
amount equal to all Distributable
Certificate Interest in respect of the
Class C Certificates and Component C of
the Class X Certificates for such
Distribution Date and, to the extent
not previously paid, for all prior
Distribution Dates;
(viii) if the Class A-1, Class A-2 and Class
B Certificates have been retired, to
distributions of principal to the
holders of the Class C Certificates in
an amount (not to exceed the then
outstanding aggregate Certificate
Principal Amount of such Class of
Certificates) equal to the Principal
Payment Amount for such Distribution
Date,
S-12
<PAGE>
less any portion thereof distributed
in retirement of the Class A-1, Class
A-2 or Class B Certificates;
(ix) to distributions to the holders of the
Class C Certificates, in an amount
equal to, and in reimbursement of, all
Realized Losses and Additional Expense
Losses, if any, previously allocated to
such Class of Certificates and for
which no reimbursement has previously
been received;
(x) to distributions of interest to the
holders of the Class D Certificates and
the holders of the Class X
Certificates, pro rata in accordance
with the respective amounts of interest
distributable on such Classes of
Certificates on such Distribution Date
described in this clause (x), in an
amount equal to all Distributable
Certificate Interest in respect of the
Class D Certificates and Component D of
the Class X Certificates for such
Distribution Date and, to the extent
not previously paid, for all prior
Distribution Dates;
(xi) if the Class A-1, Class A-2, Class B
and Class C Certificates have been
retired, to distributions of principal
to the holders of the Class D
Certificates in an amount (not to
exceed the then outstanding aggregate
Certificate Principal Amount of such
Class of Certificates) equal to the
Principal Payment Amount for such
Distribution Date, less any portion
thereof distributed in retirement of
the Class A-1, Class A-2, Class B or
Class C Certificates;
(xii) to distributions to the holders of the
Class D Certificates, in an amount
equal to, and in reimbursement of, all
Realized Losses and Additional Expense
Losses, if any, previously allocated to
such Class of Certificates and for
which no reimbursement has previously
been received; and
(xiii) to distributions to the holders of the
respective Classes of Non-Offered
Certificates as described herein
(provided that no distributions of
principal will be made in respect of
any Class of Non-Offered Certificates
until the aggregate Certificate
Principal Amount of the Class A-1,
Class A-2, Class B, Class C and Class D
Certificates has been reduced to zero).
See "DESCRIPTION OF THE
CERTIFICATES--Distributions--
Application of the Available
Distribution Amount" herein.
The "Distributable Certificate
InterestDistributable Certificate
Interest" in respect of any Class of
Offered Certificates for any
Distribution Date generally will equal
one month's interest (calculated on the
basis of a 360-day year consisting of
twelve 30-day months) accrued at the
applicable Certificate Interest Rate on
the aggregate Certificate Principal
Amount of such Class of Certificates
outstanding immediately prior to such
Distribution Date, reduced (to not less
than zero) by such Class's allocable
share (in each case, calculated as
described herein) of any Net
S-13
<PAGE>
Aggregate Prepayment Interest Shortfall
(as defined herein) for such
Distribution Date. See "SERVICING OF
MORTGAGE LOANS--The
Servicer--Adjustment to Servicer's Fee
in Connection with Prepaid Mortgage
Loans" and "DESCRIPTION OF THE
CERTIFICATES--Distributions--
Distributable Certificate Interest" and
"--Prepayment Interest Shortfalls and
Excess Prepayment Interest" herein.
As more particularly described herein,
the "Principal Payment Amount" for any
Distribution Date will generally equal
that portion of the Available
Distribution Amount for such
Distribution Date allocable to
principal of the Mortgage Loans. See
"DESCRIPTION OF THE CERTIFICATES--
Distributions--Principal Payment
Amount" herein.
On each Distribution Date, any Prepayment
Premium collected on a Mortgage Loan
during the one month period that
constitutes the "Collection Period" (as
specified herein) for such Distribution
Date will be distributed, separate from
the Available Distribution Amount for
such date, in the following order of
priority, in each case subject to
remaining available funds:
(i) to the holders of the Class A-1
Certificates and the holders of the
Class X Certificates, pro rata in
accordance with their respective
entitlements pursuant to this clause
(i), in an amount equal to the PV Yield
Loss Amount (as defined below) for the
Class A-1 Certificates and Component
A-1 of the Class X Certificates in
respect of the prepayment of principal
in connection with which such
Prepayment Premium was received, and
then to the holders of the Class A-2
Certificates and the holders of the
Class X Certificates, pro rata in
accordance with their respective
entitlements pursuant to this clause
(i), in an amount equal to the PV Yield
Loss Amount for the Class A-2
Certificates and Component A-2 of the
Class X Certificates in respect of the
prepayment of principal in connection
with which such Prepayment Premium was
received; provided, however, that if
there are not sufficient funds to pay
the PV Yield Loss Amount for all of the
Class A-1 Certificates, Component A-1
of the Class X Certificates, the Class
A-2 Certificates and Component A-2 of
the Class X Certificates, then such
Prepayment Premium shall be distributed
to the holders of the Class A-1
Certificates, the holders of the Class
A-2 Certificates and the holders of the
Class X Certificates pro rata on the
basis of the PV Yield Loss Amount to
which each such Class is entitled under
this clause (i);
(ii) to the holders of the Class B
Certificates and the holders of the
Class X Certificates, pro rata in
accordance with their respective
entitlements pursuant to this clause
(ii), in an amount equal to the PV
Yield Loss Amount for the Class B
Certificates and Component B of the
Class X Certificates in respect of the
prepayment of principal in
S-14
<PAGE>
connection with which such Prepayment
Premium was received;
(iii) to the holders of the Class C
Certificates and the holders of the
Class X Certificates, pro rata in
accordance with their respective
entitlements pursuant to this clause
(iii), in an amount equal to the PV
Yield Loss Amount for the Class C
Certificates and Component C of the
Class X Certificates in respect of the
prepayment of principal in connection
with which such Prepayment Premium was
received;
(iv) to the holders of the Class D
Certificates and the holders of the
Class X Certificates, pro rata in
accordance with their respective
entitlements pursuant to this clause
(iv), in an amount equal to the PV
Yield Loss Amount for the Class D
Certificates and Component D of the
Class X Certificates in respect of the
prepayment of principal in connection
with which such Prepayment Premium was
received;
(v) sequentially in alphabetical order of
Class designation, to the holders of
the Class E through Class H
Certificates, in each such case in an
amount equal to the PV Yield Loss
Amount for the particular Class of
Certificates in respect of the
prepayment of principal in connection
with which such Prepayment Premium was
received; and
(vi) to the holders of the Class R-I
Certificates, the balance.
A PV Yield Loss Amount will be calculated
as described herein with respect to
each Class of Regular Interest
Certificates (or, in the case of the
Class X Certificates, each Component
thereof) in connection with each
Principal Prepayment (as defined in the
Prospectus); however, unless the
aggregate Certificate Principal Amount
or Certificate Notional Amount, as the
case may be, of such Class of Regular
Interest Certificates is to be reduced
in connection with the distribution of
such Principal Prepayment, the related
PV Yield Loss Amount for such Class of
Regular Interest Certificates will be
zero. The portion of any Prepayment
Premium actually distributed in respect
of any Class of Regular Interest
Certificates may not equal the
corresponding PV Loss Yield Amount and
may be insufficient to offset any
adverse effect on the yield to maturity
of such Class resulting from the
related Principal Prepayment. See
"DESCRIPTION OF THE CERTIFICATES--
Distributions--Distributions
of Prepayment Premiums" and "RISK
FACTORS--The Mortgage Loans--Prepayment
Premiums" herein.
ALLOCATION OF LOSSES AND
CERTAIN EXPENSES ...... On each Distribution Date, following all
distributions on the Certificates to be
made on such date, the aggregate of all
losses on the Mortgage Loans (as more
particularly described herein, "Realized
LossesRealized Losses") and shortfalls (as
more particu-
S-15
<PAGE>
larly described herein, "Additional
Expense Losses") resulting from certain
Trust Fund expenses (as more particularly
described herein, "Additional Trust Fund
ExpensesAdditional Trust Fund Expenses")
that, in each case, have been incurred
since the Cut-off Date through the end of
the related Collection Period, but have
not previously been allocated as described
below, will be allocated (subject to
certain limitations described herein)
sequentially to the Class H, Class G,
Class F, Class E, Class D, Class C, and
Class B Certificates, in that order, and
last, to the Class A-2 and Class A-1
Certificates, pro rata based on the
outstanding Certificate Principal Amounts
of such Classes, until the aggregate
Certificate Principal Amount of each such
Class is reduced to zero. See "DESCRIPTION
OF THE CERTIFICATES--Subordination;
Allocation of Losses and Certain Expenses"
herein.
PREPAYMENT INTEREST
SHORTFALLS AND EXCESS
PREPAYMENT INTEREST ... A "Prepayment Interest ShortfallPrepayment
Interest Shortfall" is a shortfall in the
collection of a full month's interest on
any Mortgage Loan by reason of a full or
partial Principal Prepayment (other than a
Principal Prepayment in full due to a
default, casualty, condemnation or
liquidation) or a Balloon Payment (as
defined below) made during any Collection
Period prior to the Due Date for such
Mortgage Loan in the related Due Period.
In any case in which a full or partial
Principal Prepayment or a Balloon Payment
is made during any Collection Period but
after the Due Date for such Mortgage Loan
in the related Due Period, "Excess
Prepayment InterestExcess Prepayment
Interest" will arise. The amount of Excess
Prepayment Interest in any such case will
equal, to the extent collected, the
interest that accrues on such Principal
Prepayment or the principal portion of
such Balloon Payment from the last Due
Date for such Mortgage Loan to the date
such payment was made. To the extent that
the aggregate of all Prepayment Interest
Shortfalls for any Collection Period
exceeds the aggregate of all Excess
Prepayment Interest for such Collection
Period, the Servicer's servicing fee (but
not the compensation of the Special
Servicer or the Trustee) for the
corresponding period will be reduced in an
amount necessary to offset such additional
remaining Prepayment Interest Shortfalls.
See "SERVICING OF MORTGAGE LOANS--The
Servicer--Adjustment to Servicer's Fee in
Connection with Prepaid Mortgage Loans"
herein. To the extent that the aggregate
of all Prepayment Interest Shortfalls for
any Collection Period exceeds the sum of
the aggregate of all Excess Prepayment
Interest for such Collection Period and
the Servicer's servicing fees (prior to
reduction as described above) for the
corresponding period, such excess (the
"Net Aggregate Prepayment Interest
ShortfallNet Aggregate Prepayment Interest
Shortfall") for the related Distribution
Date generally will be allocated to each
Class of Regular Interest Certificates in
the ratio that the interest otherwise
payable with respect to such Class of
Certificates on the related Distribution
Date, if there
S-16
<PAGE>
had been no Net Aggregate Prepayment
Interest Shortfall, bears to the total of
the interest payable with respect to all
such Classes of Certificates on the
related Distribution Date, if there had
been no Net Aggregate Prepayment Interest
Shortfall.
TREATMENT OF REO
PROPERTIES .............. Notwithstanding that a Mortgaged Property
may be acquired on behalf of the
Certificateholders through foreclosure,
deed in lieu of foreclosure or otherwise
(upon acquisition, an "REO PropertyREO
Property"), the related Mortgage Loan will
be treated, for purposes of, among other
things, determining distributions on the
Certificates, allocations of Realized
Losses and Additional Expense Losses to
the Certificates and the amount of fees
payable to the Servicer, the Special
Servicer and the Trustee, 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 Servicer or the Trustee in
connection with the operation and
disposition of such REO Property) will be
"applied" by the Servicer as principal,
interest and other amounts "due" on such
Mortgage Loan, and the Servicer or the
Trustee will be obligated to make Advances
in respect of such Mortgage Loan, in all
cases as if such Mortgage Loan had
remained outstanding.
OPTIONAL TERMINATION .... The holders of the Class R-I Certificates
and the Servicer will, subject to certain
conditions, each have the option to
purchase, in whole but not in part, the
Mortgage Loans and any REO Properties
remaining in the Trust Fund, and thereby
effect a termination of the Trust and
early retirement of the then outstanding
Certificates, on or after any Distribution
Date on which the aggregate unpaid
Certificate Principal Amount of the Class
A-1 through Class H Certificates is less
than or equal to 10% of the initial
aggregate Certificate Principal Amount of
the Certificates. See "DESCRIPTION OF THE
CERTIFICATES--Optional Termination"
herein.
THE MORTGAGE POOL ....... The Mortgage Pool will consist of 41 fixed
rate Mortgage Loans, three of which will
be Senior Participations with respect to
which the Depositor will acquire from
Aetna Life Insurance Company, as Seller,
and sell and transfer to the Trust such
Mortgage Loans subject in each case to a
subordinated undivided percentage
participation interest in the related
underlying Mortgage Loan (each such
Mortgage Loan subject to the subordinated
undivided percentage participation
interest in such Mortgage Loan being a
"Senior Participation"), with a subsidiary
of such Seller holding the subordinated
percentage interest in such related
underlying Mortgage Loan. See "DESCRIPTION
OF THE MORTGAGE POOL--Senior
Participations" herein.
S-17
<PAGE>
Three of the Mortgage Loans will be Groups
(as defined below) of mortgage loans, each
mortgage loan in such Group being due from
the same or affiliated borrowers and being
cross- collateralized and cross-defaulted
with the other mortgage loans in such
Group, and each such Group generally being
referred to as a single Mortgage Loan
herein. The Mortgage Loans (including, in
the case of a Senior Participation, only
the portion thereof allocable to the
Trust's percentage interest in the
Mortgage Loan underlying such Senior
Participation) will have an aggregate
Cut-Off Date Balance of $448,565,671.03
(the "Initial Pool Balance"), subject to
the variances described on the inside
cover page hereof. The "Cut-Off Date
Balance" of any Mortgage Loan is the
unpaid principal balance of such Mortgage
Loan (or, in the case of a Senior
Participation, the Trust's percentage
interest of the unpaid principal balance
of such Mortgage Loan) as of the Cut-Off
Date, after application of all payments of
principal due on or before the Cut-Off
Date, whether or not received. As used
herein, the term "Mortgage Loans" shall
include the mortgage loan underlying each
Senior Participation; provided that (a) in
connection with any calculations relating
to or based upon a Mortgage Loan with
respect to which the Trust holds only a
Senior Participation and in connection
with any collections, payments or advances
on a Mortgage Loan with respect to which
the Trust holds only a Senior
Participation, only the portion (or
percentage interest) of the underlying
Mortgage Loan represented by the Senior
Participation shall be recognized, but not
the portion (or percentage interest)
thereof allocable to the undivided
subordinated interest in such underlying
Mortgage Loan retained as described above,
and (b) all references herein to Scheduled
Payments, Scheduled Principal Balance,
Stated Principal Balance, Unpaid Principal
Balance, Principal Prepayments, Assumed
Scheduled Payments, Liquidation Proceeds,
Insurance Proceeds, Condemnation Proceeds,
Realized Losses and other amounts related
to a Mortgage Loan with respect to which
the Trust holds only a Senior
Participation shall include only the
portion (or percentage interest) of the
underlying Mortgage Loan represented by
the Senior Participation. All percentages
of the Mortgage Loans, or of any specified
group of Mortgage Loans, referred to
herein without further description are
approximate percentages by aggregate
Cut-off Date Balance. References to
percentages of Mortgaged Properties are
references to the percentages of the
Initial Pool Balance represented by the
aggregate Cut-off Date Balance of the
related Mortgage Loans. All numerical
information provided herein and in Annex A
hereto with respect to the Mortgage Loans
is provided on an approximate basis.
The Mortgage Loans are in most cases
non-recourse obligations of the related
borrowers. No Mortgage Loan will be
insured or guaranteed by any governmental
entity or private insurer.
S-18
<PAGE>
Each Mortgage Loan is secured by a first
mortgage lien on the borrower's fee simple
estate (or, with respect to three Mortgage
Loans, on the ground lessor's fee simple
estate and the borrower's leasehold estate
or, with respect to two Mortgage Loans, on
only the borrower's leasehold estate, or
with respect to the Blue Cross/Blue Shield
Building Loan (as defined below) on a
leasehold estate in a portion of the land
and improvements and on a fee estate in
the remaining land and improvements) in
one or more commercial or multifamily
properties (each, a "Mortgaged
PropertyMortgaged Property"). 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:
<TABLE>
<CAPTION>
NUMBER OF MORTGAGE PERCENTAGE OF INITIAL
PROPERTY TYPE LOANS POOL BALANCE
------------------- ------------------ ------------------------
<S> <C> <C>
Retail ............. 13 30.0%
Hotel .............. 8 24.7%
Office ............. 7 16.0%
Multifamily ........ 4 9.7%
Medical ............ 3 9.0%
Industrial/Flex ... 5 6.9%
Parking Garage ..... 1 3.8%
------------------ ------------------------
Total ............ 41 100.0%
================== ========================
</TABLE>
The Mortgaged Properties are located in 21
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
located in the three states with the
highest concentrations:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
STATE MORTGAGE LOANS INITIAL POOL BALANCE
-------------- -------------- --------------------
<S> <C> <C>
Pennsylvania . 6 19.5%
California .... 7 18.4%
Florida ....... 6 16.8%
-------------- --------------------
Total ....... 19 54.7%
============== ====================
</TABLE>
Three groups (each, a Group"Group") of
mortgage loans (the "Cross-Collateralized
Mortgage LoansCross- Collateralized
Mortgage Loans"), collectively
representing 5.0% of the Initial Pool
Balance, are, solely as among the mortgage
loans in each such particular Group,
cross- defaulted and cross-collateralized.
In each case, the aggregate unpaid
principal amount of the Group is evidenced
by four or more Mortgage Notes (as defined
herein) and secured by mortgage liens on
the borrowers' respective fee simple
interests in four or more Mortgaged
Properties. Each Mortgaged Property
securing a mortgage loan within such a
Group is a retail facility leased to
Wal-Mart Stores, Inc. pursuant to a
"triple net" lease. In each such case, all
mortgage loans within a Group are
generally treated for purposes of this
Prospectus Supplement and the Trust Agree-
S-19
<PAGE>
ment as one Mortgage Loan. Other manners
in which the cross-collateralization is
effected are described herein. See "RISK
FACTORS--The Mortgage Loans--Limitations
on Enforceability of
Cross-Collateralization" and "DESCRIPTION
OF THE MORTGAGE POOL--General" and "--
Cross-Collateralized Mortgage Loans"
herein. For purposes of this Prospectus
Supplement, each Mortgaged Property
securing a Group of Cross-Collateralized
Mortgage Loans will be designated as the
"Primary Mortgaged Property" for one of
the mortgage loans in such Group. Unless
the context otherwise requires, references
herein to "related Mortgaged Property" (or
"related REO Property") are, in the case
of a Cross-Collateralized Mortgage Loan,
references to the Mortgaged Property that
is (or the REO Property that was)
designated as the Primary Mortgaged
Property for such Mortgage Loan, and
references to "related Mortgage Loan" or
"related Cross-Collateralized Mortgage
Loan" are, in the case of a Mortgaged
Property that secures (or an REO Property
that secured) a Group of
Cross-Collateralized Mortgage Loans,
references to the Mortgage Loan as to
which such Mortgaged Property has (or such
REO Property had) been designated as the
Primary Mortgaged Property. Except where
otherwise specifically indicated,
statistical information provided herein
and in Annex A hereto with respect to the
Cross-Collateralized Mortgage Loans is so
provided without regard to the
cross-collateralization, and each
Cross-Collateralized Mortgage Loan will be
deemed to be secured only by a mortgage
lien on the related Primary Mortgaged
Property. No representation is made herein
as to the enforceability of any
cross-collateralization provision with
respect to any of the Mortgage Loans.
All of the Mortgage Loans bear interest at
fixed annualized rates (each, a "Mortgage
RateMortgage Rate") that will remain fixed
for their respective remaining loan terms
(or, in one case, that will increase by
fixed amounts after the Cut-Off Date on a
predetermined schedule). Scheduled
payments of principal and interest on the
mortgage loans ("Monthly PaymentsMonthly
Payments") are due monthly on the first
day of each month (each such day, as to
any Mortgage Loan, its "Due DateDue
Date").
Thirty-three of the Mortgage Loans,
representing 82.6% of the Initial Pool
Balance, provide for Monthly Payments
based on amortization schedules
significantly longer than their terms to
maturity (in several cases after an
initial period of interest only payments)
and three Mortgage Loans, representing
7.9% of the Initial Pool Balance, provide
for Monthly Payments of interest only with
no amortization prior to their maturity.
As a result, such Mortgage Loans ("Balloon
LoansBalloon Loans") will have substantial
principal amounts due and payable (each
such payment, together with the
corresponding interest payment, a "Balloon
PaymentBalloon Payment") on their
respective maturity dates, unless prepaid
prior thereto. Balloon Loans generally
S-20
<PAGE>
involve a greater risk of default than
fully-amortizing loans. Five of the
Mortgage Loans (including the three Groups
secured by Mortgaged Properties leased to
Wal-Mart Stores, Inc.), representing 9.6%
of the Initial Pool Balance, are fully
amortizing. See "RISK FACTORS--The
Mortgage Loans-- Balloon Payment at
Maturity and Extension of Maturity" herein
and "RISK FACTORS--Certain Mortgage Loans
and Mortgaged Property; Obligor Default"
in the Prospectus.
As of the Cut-off Date, 39 Mortgage Loans,
representing 96.6% of the Initial Pool
Balance, restrict or prohibit voluntary
principal prepayments. In general, as of
the Cut-off Date, those Mortgage Loans
either (i) permit voluntary prepayments of
principal provided that the prepayment is
accompanied by an additional amount (a
"Prepayment PremiumPrepayment Premium") in
excess of the amount prepaid (25 Mortgage
Loans, representing 59.2% of the Initial
Pool Balance), (ii) prohibit voluntary
prepayments of principal for a period (a
"Lock-out PeriodLock-out Period") ending
on a specified date after the Cut-Off Date
and impose Prepayment Premiums in
connection with prepayments made
thereafter (11 Mortgage Loans,
representing 30.7% of the Initial Pool
Balance), (iii) permit voluntary
prepayments without payment of a
Prepayment Premium for a period (the
"Chase-Away Period"), and impose
Prepayment Premiums in connection with
prepayments made thereafter (2 Mortgage
Loans, representing 4.6% of the Initial
Pool Balance) or (iv) prohibit voluntary
prepayments (1 Mortgage Loan, representing
2.1% of the Initial Pool Balance). The
Prepayment Premium requirements generally
expire in the last two to six months of
the Mortgage Loan term. The two remaining
Mortgage Loans permit voluntary
prepayments of principal without material
restriction. See "DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and
Conditions of the Mortgage
Loans--Prepayment Provisions" herein. If
and to the extent collected, Prepayment
Premiums will generally be distributed
among the holders of each of the
respective Classes of Regular Interest
Certificates whose aggregate Certificate
Principal Amount or Certificate Notional
Amount, as the case may be, is reduced in
connection with the distribution of the
related prepayment of principal, in the
amounts and in accordance with the
priorities described herein. See
"DESCRIPTION OF THE
CERTIFICATES--Distributions--Distributions
of Prepayment Premiums" herein. No
representation is made as to the
enforceability of the provision of any
Mortgage Note requiring the payment of a
Prepayment Premium, or of the
collectability of any Prepayment Premium.
See "RISK FACTORS--The Mortgage
Loans--Prepayment Premiums" herein.
Five of the Mortgage Loans, representing
8.9% of the Initial Pool Balance, were
originated prior to 1986. Thirty-five
S-21
<PAGE>
Mortgage Loans, representing 90.7% of the
Initial Pool Balance, were originated
during the years 1986 through 1990. The
remaining one Mortgage Loan representing
0.40% of the Initial Pool Balance, was
originated since 1990.
Set forth below is certain information
regarding the Mortgage Loans and the
Mortgaged Properties as of the Cut-off
Date (all weighted averages set forth
below are based on the Cut-off Date
Balances of the respective Mortgage
Loans). Such information is more fully
described, and additional information
regarding the Mortgage Loans and the
Mortgaged Properties is set forth, in the
tables under "DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan
Information" herein and in Annex A hereto:
<TABLE>
<CAPTION>
<S> <C>
Number of Mortgage Loans ........... 41
Initial Pool Balance ............... $448,565,671.03
Minimum Cut-off Date Balance ...... $ 1,815,478.73
Maximum Cut-off Date Balance ...... $ 25,939,913.05
Average Cut-off Date Balance ...... $ 10,940,626.12
Minimum Mortgage Rate .............. 8.125%
Maximum Mortgage Rate .............. 12.625%
Weighted Average Mortgage Rate .... 9.642%
Minimum Net Mortgage Rate .......... 8.091%
Maximum Net Mortgage Rate .......... 12.591%
Weighted Average Net Mortgage Rate 9.608%
Minimum Remaining Term to Maturity
(months) .......................... 9.0
Maximum Remaining Term to Maturity
(months) .......................... 306.0
Weighted Average Remaining Term to
Maturity (months) ................. 89.3
Minimum Cut-off Date DSC Ratio .... 0.99x
Maximum Cut-off Date DSC Ratio .... 2.72x
Weighted Average Cut-off Date DSC
Ratio ............................. 1.30x
</TABLE>
"Occupancy Rates" are calculated as
described under "DESCRIPTION OF THE
MORTGAGE POOL--Additional Mortgage Loan
Information" herein.
On or prior to the Closing Date, at the
direction of the Depositor, the Seller
will assign the Mortgage Loans, without
recourse, to the Trustee for the benefit
of the Certificateholders (or to the
Depositor with the Depositor then
assigning the same, without recourse, to
the Trustee for the benefit of the
Certificateholders). In connection with
such assignment, the Seller will make
certain representations and warranties
regarding the characteristics of the
Mortgage Loans assigned by it and, as more
particularly described herein, will agree
to cure any material breach thereof or, in
the absence of such a
S-22
<PAGE>
cure, to repurchase the affected Mortgage
Loan from the Trust. See "DESCRIPTION OF
THE MORTGAGE POOL--Representations and
Warranties; Repurchases" herein.
See "DESCRIPTION OF THE MORTGAGE POOL"
herein.
ADMINISTRATIVE
COST RATE ............. The administrative costs on each Mortgage
Loan will, as of any date of
determination, equal the sum of the
Servicing Fee and the Trustee Fee
(collectively, expressed as a per annum
rate on the Scheduled Principal Balance of
each Mortgage Loan, the "Administrative
Cost RateAdministrative Cost Rate"). The
Administrative Cost Rate will equal a
fixed rate of 0.034% per annum. See
"SERVICING OF MORTGAGE LOANS--The
Servicer-- Servicer Compensation and
Payment of Expenses" and "-- The Special
Servicer--Special Servicer Compensation
and Payment of Expenses" and "DESCRIPTION
OF THE CERTIFICATES--The Trustee" herein.
ADVANCES ............... The Servicer will be obligated to make
advances (each, an "AdvanceAdvance") of
delinquent interest and, except for the
principal portion of a Balloon Payment,
principal on the Mortgage Loans and to
cover certain servicing expenses
(including property protection expenses),
in any event under the circumstances and
subject to the limitations described
herein. In general, the Trustee will be
obligated to make any Advance that the
Servicer is required but fails to make.
The Servicer and the Trustee will be
obligated to make Advances only to the
extent that such Advances, together with
interest that will accrue thereon, are, in
the reasonable business judgment of the
Servicer or the Trustee (depending upon
which party is making the Advance),
ultimately recoverable 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. The amount
of required Advances are subject to
certain limitations based on the appraised
value of the related Mortgaged Property.
Each Advance will bear interest on the
amount thereof for the period during which
it is outstanding, such interest accruing
at the rate and payable to the Servicer or
the Trustee, as the case may be, under the
circumstances described herein. See
"DESCRIPTION OF THE CERTIFICATES--Advances"
herein.
CERTAIN INVESTMENT
CONSIDERATIONS ........ The yield to maturity of a Class A-1, Class
A-2, Class B, Class C or Class D
Certificate purchased at a discount or
premium will be affected by the rate of
prepayments and other unscheduled
collections of principal on or in respect
of the Mortgage Loans and the allocation
thereof to reduce the Certificate
Principal Amount of such Certificate. An
investor
S-23
<PAGE>
should consider, in the case of any such
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 such Certificate purchased at a
premium, the risk that a faster than
anticipated rate of prepayments could
result in a lower than anticipated yield.
See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" herein.
In addition, insofar as an investor's
initial investment in any Offered
Certificate is returned in the form of
payments of principal thereon, there can
be no assurance that such amounts can be
reinvested in comparable alternative
investments with comparable yields.
Investors in the Offered Certificates
should consider that the rate of
prepayments on the Mortgage Loans is
likely to be inversely related to the
level of prevailing market interest rates
(and, presumably, to the yields on
comparable alternative investments).
USE OF PROCEEDS ........ The Depositor will use substantially all of
the net proceeds from the sale of the
Certificates to purchase the Mortgage
Loans from the Seller and to pay certain
expenses in connection with the issuance
of the Certificates. See "USE OF PROCEEDS"
herein.
FEDERAL INCOME TAX
CONSIDERATIONS ........ Two separate "real estate mortgage
investment conduit" ("REMICREMIC")
elections will be made with respect to the
Trust for federal income tax purposes. The
assets of "REMIC IREMIC I" will consist of
the Mortgage Loans, any REO Properties
acquired on behalf of the
Certificateholders and the Collection and
Lower-Tier Distribution Accounts (see
"DESCRIPTION OF THE CERTIFICATES--The
Collection and Distribution Accounts"
herein). For federal income tax purposes
(a) the Class R-I Certificates will be the
sole class of "residual interests" in
REMIC I, (b) nine separate
non-certificated regular interests in
REMIC I will be the "regular interests" in
REMIC I and will constitute, together with
the Upper-Tier Distribution Account, the
assets of "REMIC IIREMIC II," (c) the
Regular Interest Certificates will
evidence the "regular interests" in REMIC
II, and (d) the Class R-II Certificates
will be the sole class of "residual
interests" in REMIC II.
Because they represent REMIC regular
interests, the Class A-1 Certificates,
Class A-2 Certificates, Class B
Certificates, Class C Certificates and
Class D Certificates generally will be
treated as debt for federal income tax
purposes. Holders of such Classes of
Certificates will be required to include
in income all interest on such
Certificates in accordance with the
accrual method of accounting regardless of
a Certificateholder's usual method of
accounting. See "FEDERAL INCOME TAX
CONSIDERATIONS" in the Prospectus.
The Class A-1, Class A-2 and Class B
Certificates will not, and the Class C and
Class D Certificates may, be treated as
S-24
<PAGE>
having been issued with original issue
discount for federal income tax reporting
purposes. The prepayment assumption that
will 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 equal to a CPR
of 0%. However, no representation is made
that the Mortgage Loans will not prepay or
that they will prepay at any particular
rate.
If the method for computing original issue
discount described in the Prospectus
results in a negative amount for any
period, a Certificateholder will be
permitted to offset such amount only
against the future original issue discount
(if any) from such Certificate. See
"FEDERAL INCOME TAX CONSIDERATIONS" herein
and "FEDERAL INCOME TAX
CONSIDERATIONS--Taxation of Regular
Interest Securities--Interest and
Acquisition Discount" in the Prospectus.
For further information regarding the
federal income tax consequences of
investing in the Offered Certificates, see
"FEDERAL INCOME TAX CONSIDERATIONS" herein
and in the Prospectus.
CERTIFICATE RATING ..... It is a condition of the issuance of the
Offered Certificates that they receive the
following credit ratings from Fitch
Investors Service, L.P. ("FitchFitch") and
Standard & Poor's Ratings Group ("S&P",
and together with Fitch, the "Rating
Agencies"):
<TABLE>
<CAPTION>
CLASS FITCH S&P
------------- --------- -------
<S> <C> <C>
Class A-1 AAA AAA
Class A-2 AAA AAA
Class B AA AA
Class C A A
Class D BBB BBB
</TABLE>
A securities rating addresses the likelihood
of the receipt by Certificateholders of
distributions due on the Certificates,
including, in the case of the Class A-1,
Class A-2, Class B, Class C and Class D
Certificates, distribution of all
principal thereof by the Rated Final
Distribution Date. The rating takes into
consideration the characteristics of the
Mortgage Loans and the structural and
legal aspects associated with the
Certificates. Each security rating
assigned to the Offered Certificates
should be evaluated independently of any
other security rating.
A credit 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. In
addition, a credit rating does not address
the likelihood or frequency of prepayments
of Mortgage Loans, or the corresponding
effect on yield to investors. See
"CERTIFICATE RATING" herein.
LEGAL INVESTMENT ....... The Offered Certificates will not constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
S-25
<PAGE>
Enhancement Act of 1984. 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 of any Class, may be subject
to significant interpretative
uncertainties. In addition, institutions
whose investment activities are subject to
review by federal or state regulatory
authorities may be or may become subject
to restrictions on the investment by such
institutions in certain forms of mortgage
backed securities. Investors should
consult their own legal advisors to
determine the extent to which the
Certificates may be purchased by such
investors. See "LEGAL INVESTMENT
CONSIDERATIONS" herein and "LEGAL
INVESTMENT" 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 ("ERISAERISA"), or
Section 4975 of the Code (a "PlanPlan")
should review carefully with its legal
advisors whether the purchase or holding
of the 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
Lehman Brothers an individual exemption,
Prohibited Transaction Exemption 91-14,
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 Sections
4975(a) and (b) of the Code transactions
relating to the purchase, sale and holding
of pass-through certificates underwritten
by Lehman Brothers and the servicing and
operation of related asset pools, provided
that certain conditions are satisfied.
The Depositor expects that Prohibited
Transaction Exemption 91-14 will generally
apply to the Senior Certificates, but it
will not apply to the other Classes of
Offered Certificates. ACCORDINGLY, THE
CLASS B, CLASS C AND CLASS D CERTIFICATES
SHOULD NOT BE ACQUIRED BY, ON BEHALF 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 SECTION 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.
BY PURCHASING A CLASS B, CLASS C OR CLASS D
CERTIFICATE EACH PURCHASER SHALL BE DEEMED
TO REPRESENT EITHER THAT IT IS NOT USING
ASSETS OF A PLAN SUBJECT TO ERISA OR
SECTION 4975 OF THE INTERNAL REVENUE CODE
S-26
<PAGE>
OR THAT IT IS PURCHASING THE CERTIFICATE
WITH THE ASSETS OF AN INSURANCE COMPANY
GENERAL ACCOUNT AND THAT THE EXEMPTIVE
RELIEF AFFORDED UNDER SECTION III OF
PROHIBITED TRANSACTION CLASS EXEMPTION
95-60 IS AVAILABLE FOR THE PURCHASE AND
HOLDING OF THE CERTIFICATE BY SUCH
PURCHASER. See "ERISA CONSIDERATIONS"
herein and in the Prospectus.
S-27
<PAGE>
RISK FACTORS
Prospective purchasers should consider, among other things, the following
factors (as well as the factors set forth under "RISK FACTORS" in the
Prospectus) in connection with an investment in the Offered Certificates.
THE CERTIFICATES
Limited Liquidity
There is currently no secondary market for the Offered Certificates, and
no listing on any securities exchange or other arrangement for secondary
market trading of the Offered Certificates is being made. While Lehman
Brothers has advised the Depositor that it (or its affiliates) currently
intends to make a secondary market in the Offered Certificates, it is under
no obligation to do so. Accordingly, there can be no assurance that such a
market will develop or, if it does develop, that it will provide holders of
the Offered Certificates with liquidity of investment or continue for the
life of such Certificates.
Certain Yield and Maturity Considerations
The yield on any Offered Certificate will depend on the price paid for
such Certificate and 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 rate, timing
and amount of principal payments and other collections on the Mortgage Loans
attributable to principal (including Principal Prepayments and proceeds from
liquidations of Mortgage Loans or as a result of repurchases of the Mortgage
Loans from the Trust by the Seller) and (ii) the order of priority of
distributions of principal in respect of the Certificates.
Prepayments on the Mortgage Loans will be influenced by the prepayment
provisions of the related Mortgage Notes and may also be affected by a
variety of economic, geographic and other factors, including the difference
between the Mortgage Rates on the Mortgage Loans and prevailing mortgage
rates (giving consideration to limitations imposed by lock-out provisions and
the cost of refinancing, including the payment of a Prepayment Premium) and
the availability of refinancing. In general, if prevailing interest rates
fall significantly below the Mortgage Rates on the Mortgage Loans, the rate
of prepayment on the Mortgage Loans would be expected to increase.
Conversely, if prevailing interest rates rise to a level significantly above
the Mortgage Rates, the rate of prepayment on the Mortgage Loans would be
expected to decrease. Most of the Mortgage Loans permit voluntary principal
prepayments only after the expiration of a Lock-out Period and/or upon
payment of a Prepayment Premium. The Depositor makes no representations as to
the effect of such Lock-out Periods or Prepayment Premiums on the rate of
prepayment of the related Mortgage Loans.
No representation is made as to whether the Prepayment Premiums provided
for by the Mortgage Loans are enforceable or, if enforceable, would
adequately compensate Certificateholders for the loss of value caused by a
Mortgage Loan prepayment. The Prepayment Premiums are calculated according to
varying formulas.
Delays in liquidations of defaulted Mortgage Loans and modifications
extending the maturity of Mortgage Loans will tend to extend the payment of
principal of the Mortgage Loans. Because approximately 90.4% of the Initial
Pool Balance consists of Balloon Loans and because the ability of Borrowera
borrower to make a Balloon Payment typically will depend upon its ability
either to refinance the Mortgage Loan or to sell the related Mortgaged
Property at a price sufficient to permit the borrower to make the Balloon
Payment, there is a risk that a number of Mortgage Loans having Balloon
Payments may default at maturity, or that, following or in anticipation of
such a default, the Servicer or the Special Servicer may extend the maturity
of a number of such Mortgage Loans in connection with working them out. 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 Mortgaged Property is located. In order to minimize losses on defaulted
Mortgage Loans, the Special Servicer, with the approval of the Operating
Adviser and, under certain circumstances, the Extension Adviser, is given
considerable flexibility under
S-28
<PAGE>
the Special Servicing Agreement (as defined herein) to modify or sell
Mortgage Loans as to which a payment or other material default has occurred
or is imminent. See "SERVICING OF MORTGAGE LOANS--Mortgage Loan
Modifications" and "--Sale of Defaulted Mortgage Loans and REO Properties"
herein.
Limited Obligations
The Certificates will represent beneficial ownership interests solely in
the assets of the Trust and will not represent an interest in or obligation
of Lehman Brothers, the Servicer, the Special Servicer, the Trustee, the
Seller, the Depositor or any of their respective affiliates or any other
person. Distributions on any Class of Certificates will depend solely on the
amount and timing of payments and other collections in respect of the
Mortgage Loans. Although amounts, if any, otherwise distributable in respect
of the Class E, Class F, Class G and Class H Certificates on any Distribution
Date will be available to make distributions on the Offered Certificates, in
the event that Realized Losses and/or Additional Expense Losses occur, there
can be no assurance that these amounts, together with other payments and
collections in respect of the Mortgage Loans, will be sufficient to make full
and timely distributions on the Offered Certificates.
Subordination of Subordinate Certificates and Class X Certificates
As and to the extent described herein, the rights of the holders of the
respective Classes of Subordinate Certificates (including the Class B, Class
C and Class D 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 the Senior Certificates and the holders of each other Class
of Subordinate Certificates, if any, with an earlier alphabetical Class
designation. With respect to distributions of interest and Prepayment
Premiums on the Class X Certificates, Component D of the Class X Certificates
will have the same payment priority and level of subordination as the Class D
Certificates, Component C of the Class X Certificates will have the same
payment priority and level of subordination as the Class C Certificates,
Component B of the Class X Certificates will have the same payment priority
and level of subordination as the Class B Certificates, Component A-2 of the
Class X Certificates and Component A-1 of the Class X Certificates will have
the same payment priority and level of subordination as the Class A-2
Certificates and the Class A-1 Certificates, respectively. See "DESCRIPTION
OF THE CERTIFICATES-- Distributions--Application of the Available
Distribution Amount" and "--Subordination; Allocation of Losses and Certain
Expenses" herein.
Special Servicer Actions at Direction of the Operating Adviser
In connection with the servicing of the Specially Serviced Mortgage Loans,
the Special Servicer may, at the direction of Operating Adviser, take actions
with respect to such Specially Serviced Mortgage Loans that could adversely
affect the holders of some or all of the Classes of Offered Certificates. As
described under "SERVICING OF MORTGAGE LOANS--The Operating Adviser," the
Operating Adviser will, in the absence of significant losses, be controlled
by the holders of the Class H Certificates or another Class of Non-Offered
Certificates, which may have interests in conflict with those of the holders
of the Offered Certificates. As a result, it is possible that the Operating
Adviser may direct the Special Servicer to take actions which conflict with
the interests of certain Classes of Offered Certificates.
THE MORTGAGE LOANS
Limited Recourse
The Mortgage Loans are not insured or guaranteed by any governmental
entity or private mortgage insurer. Most of the Mortgage Loans are
non-recourse to the related borrower. Although certain of the Mortgage Loans
may be guaranteed by, or provide for recourse under certain situations to,
the partners, shareholders or affiliates of the related borrowers (certain of
which may also be limited recourse entities), there can be no assurance that
any such guaranty or recourse is enforceable or will add significantly to the
recoveries of the Trust if a default occurs on the related Mortgage Loan. As
a result, it should be assumed
S-29
<PAGE>
that recourse in the case of a default on a Mortgage Loan will be limited to
the related Mortgaged Property. In the case of a Group of
Cross-Collateralized Mortgage Loans, recourse may also be available to the
related Mortgaged Properties, but provisions creating cross-collateralization
between those loans may not be enforceable. Recourse provisions, as a
practical matter, may be unenforceable in states with "one-form-of action" or
anti-deficiency or similar rules.
Commercial and Multifamily Lending Generally
Each Mortgage Loan is secured by a first lien on a fee simple interest
and/or leasehold interest in a multifamily property or a commercial property.
The ability of the borrowers to repay their respective Mortgage Loans and
meet their obligations in a timely manner will depend on a number of factors
that typically affect such types of properties, including the successful
operation of the related property and the value of such property. Various
factors, many of which are beyond the control of the borrower or the manager
of a Mortgaged Property, may affect the economic viability of the Mortgaged
Properties, including but not limited to national, regional and local
economic conditions (which may be adversely affected by industry slowdowns,
company relocations, prevailing employment conditions and levels of
employment and other factors); local real estate conditions (such as an
oversupply of facilities having the same businesses as the Mortgaged
Properties); changes or weaknesses in specific industry segments; perceptions
by prospective tenants of the safety, convenience, services and
attractiveness of the property; the willingness and ability of the property
owner to provide capable management and adequate maintenance; demographic
factors; retroactive changes to building or similar codes; and increases in
operating expenses (such as energy costs). Historical operating results of
the Mortgaged Properties may not be comparable to future operating results.
In addition, other factors may adversely affect a property's value without
affecting its then current net operating income, including changes in
government regulations, zoning or tax laws; potential environmental
liabilities or other legal liabilities; the availability of refinancing; and
changes in prevailing market rates of interest.
Multifamily and commercial lending is generally viewed as exposing the
lender to a greater risk of loss than one-to-four-family residential lending,
as it typically involves larger loans to a single obligor, or group of
related obligors, than residential one-to-four-family mortgage lending. Pools
consisting of mortgage loans secured by multifamily apartment buildings and
commercial structures may be more likely to be affected by natural disasters,
including earthquakes, fires and floods (the effects of which may not in all
cases be wholly recoverable from insurance) than pools consisting of mortgage
loans secured by one-to-four-family residential properties. Such events may
also have adverse effects on the long-term occupancy rates of the affected
buildings.
Additionally, a Mortgaged Property may not readily be converted to an
alternative use in the event that the operation of such Mortgaged Property
for its original purpose becomes unprofitable for any reason. In such cases,
the conversion of the Mortgaged Property to an alternative use would
generally require substantial capital expenditures. Thus, if the borrower
becomes unable to meet its obligations under the related Mortgage Loan, the
liquidation value of any such Mortgaged Property may be substantially less,
relative to the amount outstanding on the related Mortgage Loan, than would
be the case if such Mortgaged Property were readily adaptable to other uses.
In addition, commercial properties typically experience more rapid
deterioration when unoccupied. The Mortgaged Property securing the Mobil Oil
Building Loan is expected to be vacant beginning in January, 1996 (although
Mobil Oil Corporation, which is a 50% limited partner in the borrower,
remains liable on its lease until its termination in July, 2001, five months
prior to the maturity of the loan). One of the Mortgaged Properties (in
Linton, Indiana) securing a Wal-Mart Loan (as defined below) is vacant and
another of the Mortgaged Properties (in Irving, Texas) securing a Wal-Mart
Loan is vacant and has suffered significant structural damage, including
cracked and displaced walls (although Wal-Mart Stores, Inc. remains liable on
each of the related leases, which state that they are triple net leases and
which terminate after the maturity of the related Mortgage Loans).
Dependence on Management
Each Mortgaged Property (other than certain Mortgaged Properties occupied
by the borrower or an affiliate thereof or by one or two tenants) is managed
by a manager (which may be the borrower or an
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<PAGE>
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.
Accordingly, concentration of property management of the Mortgaged Properties
increases the risk that the poor performance of a single property manager
will have a widespread effect on the Mortgage Pool. Three Mortgage Loans (the
"Allendale Loans"), representing in the aggregate 3.3% of the Initial Pool
Balance, have been made to the same borrower and the property manager for
each of the Mortgaged Properties securing the Allendale Loans is the
borrower.
Dependence on Tenants
The borrower under a mortgage loan secured by income-producing property
generally relies on periodic lease or rental payments from tenants to pay for
maintenance and other operating expenses of the building, to fund capital
improvements and to service the mortgage loan and any other debt or
obligations it may have outstanding. 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. The income
of borrowers under the Mortgage Loans would be adversely affected if tenants
were unable to pay rent or if space was unable to be rented on favorable
terms or at all. For example, if any borrower under a Mortgage Loan were to
relet or renew the existing leases (or renegotiate existing leases) for a
significant amount of 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 (or renegotiating existing leases), the borrower under a
Mortgage Loan secured by commercial and industrial property will likely be
required to pay leasing commissions and tenant improvement costs which may
adversely affect cash flow from the Mortgaged Property. There will be
existing leases that expire during the term of a Mortgage Loan and there can
be no assurance that such leases will be renewed. There can be no assurances
whether, or to what extent, economic, legal or social factors will affect
future rental or repayment patterns.
In the case of retail, office and industrial properties, 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 relatively small number of tenants may account
for a disproportionately large share of the rentable space or rental income
of such property. Accordingly, a decline in the financial condition of a
significant tenant, or other adverse circumstances in respect 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 the tenants at such property. The Mortgaged Properties
securing eight Mortgage Loans (three of which are the Wal-Mart Groups),
representing in the aggregate 21.2% of the Initial Pool Balance, are each
100% leased (except, in the case of one such Mortgaged Property, 98% leased)
to a single tenant. The Mortgaged Property securing the Eagle/Hechinger Loan
is 50%/50% leased to two tenants.
The bankruptcy or insolvency of a major tenant or a number of smaller
tenants may have an adverse impact on the Mortgaged Properties leased to such
tenants and the income produced by such Mortgaged Properties. Under
bankruptcy law, a tenant has the option of assuming (continuing), or
rejecting (terminating) or, subject to certain conditions, assigning to a
third party any unexpired lease. If the tenant assumes its lease, the tenant
must cure all defaults under the lease and provide the landlord with adequate
assurance of its future performance under the lease. If the tenant rejects
the lease, the landlord's claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim. The
amount of the claim would be limited to the amount owed for unpaid
pre-petition lease payments unrelated to the rejection, plus the greater of
one year's lease payments or 15% of the remaining lease payments payable
under the lease (but not to exceed three years' lease payments). As a result
of these provisions, a credit lease lender may recover less from a bankrupt
credit tenant than it would recover if it held a direct unsecured debt
obligation of the same person (additional amounts may be recoverable,
however, by foreclosure on the related mortgaged property). If the tenant
assigns its lease, the tenant must cure all defaults under the lease and the
proposed assignee must demonstrate adequate assurance of future performance
under the lease.
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No assurance can be given that tenants in the Mortgaged Properties will
continue making payments under their leases or that such tenants will not
file for bankruptcy protection in the future or, if any tenants file, that
they will continue to make rental payments in a timely manner. In the case of
any single tenant property, a bankruptcy of the single tenant would have a
greater impact on the borrower and the related Mortgage Loan than if such
properties were leased to separate unaffiliated tenant operators. In
addition, a tenant may, from time to time, experience a downturn in its
business, which may weaken its financial condition and result in a reduction
or failure to make rental payments when due. If a tenant defaults in its
obligations to a borrower, the borrower may experience delays in enforcing
its rights as lessor and may incur substantial costs and experience
significant delays associated with protecting its investment, including costs
incurred in renovating and reletting the property.
If mortgaged properties are leased to single tenants, the lender does not
have the benefit of tenant credit risk diversification, and is substantially
reliant upon the creditworthiness of one tenant. The Mortgaged Properties
securing the Blue Cross/Blue Shield Loan, the 500 Westchester Avenue Loan,
the Mobil Oil Building Loan, the Koll Corporate Center Loan, the Polyclinic
Loan, and the three Wal-Mart Groups are in each case leased to one tenant
pursuant to net or triple net leases.
Additional risks are presented when a property is leased to a single
tenant and the lease expires prior to maturity of the mortgage loan secured
thereby. In the case of the Mobil Oil Building Loan and the Blue Cross/Blue
Shield Building Loan, the single tenant's lease expires before the maturity
of the related Mortgage Loan, such that the Mortgaged Property may be vacant
when substantial principal payments are due.
Risks Particular to Retail Properties
Mortgage Loans secured by retail properties represent 30.0% of the Initial
Pool Balance. Various factors affect the viability of retail properties,
including location, local, regional and national economic conditions and
increased competition. The success of a retail property is dependent to a
certain extent on the quality of the location of the property, which affects
the accessibility of the property to potential customers and the volume of
consumer traffic at the property. In addition, adverse developments in the
local, regional and national economies affect consumer spending and the cost
of operating a retail property and can have a significant effect on the
success of a retail property. Further, increased competition in the market of
a retail property through the addition of competing properties nearby or
otherwise can adversely impact the success of a retail operation, even if
(and possibly because) the local, regional and national economies are doing
well.
Risks Particular to Multifamily Properties
Mortgage Loans secured by multifamily properties represent 9.7% of the
Initial Pool Balance. In the case of multifamily lending in particular,
adverse economic conditions, either local, regional or national, may limit
the amount of rent that can be charged and may result in a reduction in
timely rent payments or a reduction in occupancy levels. Occupancy and rent
levels may also be affected by construction of additional housing units,
local military base closings and national and local politics, including
current or future rent stabilization and rent control laws and agreements. In
addition, the level of mortgage interest rates may encourage tenants to
purchase single-family housing. Further, the cost of operating a multifamily
property may increase, including the costs of utilities and the costs of
required capital expenditures. 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 Hotel Properties
Mortgage Loans secured by hotel properties represent 24.7% of the Initial
Pool Balance. Various factors, including location, quality and franchise
affiliation, affect the economic viability of a hotel. Adverse economic
conditions, either local, regional or national, may limit the amount that may
be charged for a room and may result in a reduction in occupancy levels. The
construction of competing hotels or motels can have similar effects. Because
hotel rooms generally are rented for short periods of
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time, hotel properties tend to respond more quickly to adverse economic
conditions and competition than do other commercial properties. In addition,
the transferability of franchise license agreements may be restricted, such
that foreclosure can result in loss of the franchise agreement and
substantial disruption of operations. Furthermore, the ability of a hotel to
attract customers, and some of such hotel's revenues, may depend in large
part on its having a liquor license. Such a license may not be transferable.
The borrowers in respect of two Mortgage Loans, the Holiday Inn
- --Fayetteville Loan and the Holiday Inn Conference Center Loan, together
representing 3.3% of the Initial Pool Balance, have franchise agreements with
the Holiday Inn system. Financial or other difficulties experienced by the
Holiday Inn system could have a substantial impact on both borrowers, and
could result in a decline in revenue and in the market value of the related
Mortgaged Properties. On the other hand, hotel properties without franchise
affiliations may suffer from a lack of name recognition.
In addition, to the extent that a hotel becomes REO Property and is
"owner-operated" by the Trust, all of the income earned with respect to such
REO Property could be subject to the 100% tax rate applicable to "prohibited
transactions" income of a REMIC.
Risks Particular to Medical Properties
Mortgage Loans secured by medical properties represent 9.0% of the Initial
Pool Balance. Mortgage Loans secured by medical properties subject lenders to
risks associated with the health care industry. The health care industry is
undergoing significant changes as third-party payors attempt to control the
cost, utilization and delivery of health care services. Recent health care
reform proposals include such elements as universal coverage and the
acquisition of coverage through regional health alliances. Political and
other cost-control initiatives regarding the cost and delivery of health care
are also currently being considered, and reductions in payments to physicians
or other changes in reimbursement for health care services by other
third-party payors could materially adversely affect the financial condition
of health care borrowers.
Healthcare operators are subject to federal and state laws and regulations
which govern financial and other arrangements between healthcare providers.
These laws prohibit certain direct and indirect payments or fee-splitting
arrangements between healthcare providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical products and services. They also require compliance with
a variety of safety, health and other requirements relating to the conditions
of the licensed facility and quality of care provided. Possible sanctions for
violation of these laws and regulations include loss of licensure or
certification, or the imposition of civil monetary and criminal penalties.
Realizing upon a lien on a medical property that operates pursuant to
government licenses may be complicated by restrictions or prohibitions on
transfer of such licenses.
Risks Particular to Garage Properties
The Downtown Center Parking Garage Loan represents 3.8% of the Initial
Pool Balance. Various factors including location and local economic
conditions affect the economic viability of parking garages. The volume of
vehicle traffic and demand for parking in the location of a parking garage
depends on the volume of daily commuters as well as other travelers such as
shoppers and tourists, and varies from location to location. Such things can
greatly impact the viability of a garage. Similarly, local economic
conditions affect the volume of consumer spending, the mode of transportation
chosen by commuters and shoppers, and the amount of tourism, among other
factors that contribute to the success of a garage. In addition, to the
extent that a parking garage becomes REO Property and is "owner-operated" by
the Trust, all of the income earned with respect to such REO Property could
be subject to the 100% tax rate applicable to "prohibited transactions"
income of a REMIC.
Risks Particular to Other Types of Mortgaged Properties
With respect to Mortgage Loans secured by retail properties or office
buildings, in addition to risks generally associated with real estate, such
Mortgage Loans are also affected significantly by adverse
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changes in consumer spending patterns, local competitive conditions (such as
the supply of retail or office space or the existence or construction of new
competitive shopping centers, shopping malls or office buildings),
alternative forms of retailing (such as direct mail and video shopping
networks, which reduce the need for retail space by retail companies), the
quality and philosophy of management, the attractiveness of the properties to
tenants and their customers or clients, the public perception of the safety
of customers at retail properties, and the need to make major repairs or
improvements to satisfy the needs of significant tenants. In addition,
significant tenants at a retail property play an important part in generating
customer traffic and making a retail property a desirable location for other
tenants of the retail property. Retail properties may be adversely affected
if a significant tenant ceases operations at such locations (which may occur
on account of a voluntary decision not to renew a lease, bankruptcy or
insolvency of such tenant, such tenant's general cessation of business
activities or for other reasons), even if such tenant is not a tenant in such
property. Certain tenants at retail properties may be entitled to have their
rent reduced or to terminate their leases if an "anchor tenant" ceases
operations at such property.
Industrial properties may be adversely affected by reduced demand for
industrial space occasioned by a decline in a particular industry segment
(for example, a decline in defense spending), and a particular industrial
property that suited the needs of its original tenant may be difficult to
relet to another tenant or may become functionally obsolete relative to newer
properties.
Competition
Other multifamily residences, hotels, retail shopping facilities, office
buildings, combination warehouse/ industrial/office facilities and parking
garages located in the areas of the Mortgaged Properties compete with the
Mortgaged Properties of such types to attract residents, retail sellers,
tenants, customers and 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 borrower under a
Mortgage Loan competes with all lessors and developers of comparable types of
real estate in the area in which the Mortgaged Property is located. Such
lessors or developers could have lower rentals, lower operating costs, more
favorable locations or better facilities. While a borrower under a Mortgage
Loan may renovate, refurbish or expand the Mortgaged Property to maintain it
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.
Environmental Law Considerations
Contamination of real property may give rise to a lien on that property to
assure payment of the cost of clean-up or, in certain circumstances, may
result in liability to the lender for that cost. Such contamination may also
reduce the value of a property. See "RISK FACTORS--Environmental Risks" and
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Environmental Matters" in the
Prospectus. A "Phase I" environmental site assessment was performed at each
of the Mortgaged Properties within three months prior to the date hereof. For
some Mortgaged Properties, depending upon the result of the "Phase I"
assessment, a "Phase II" environmental site assessment was performed. Certain
of the conditions noted in the "Phase I" and "Phase II" assessments are
described herein. In connection with its engagement of Dames & Moore, Inc.,
the environmental assessment firm that performed the site assessments
referred to herein, the Seller did not direct such firm to investigate or
recommend action in respect of potential sources of contamination, such as
leaking underground storage tanks, not located on the Mortgaged Properties.
See "DESCRIPTION OF THE MORTGAGE POOL--Assessments of Property
Condition--Environmental Assessments" herein.
The Seller has agreed to provide a limited environmental indemnity in
respect of liabilities for certain identified potential adverse environmental
conditions in respect of certain of the Mortgaged Properties. See
"DESCRIPTION OF THE MORTGAGE POOL--Assessments of Property Condition--
Environmental Assessments" herein.
The Special Servicer will be required to obtain an environmental site
assessment of a Mortgaged Property prior to acquiring title thereto or
assuming its operation. Such requirement effectively precludes
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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 will become liable for a material adverse environmental condition
at the Mortgaged Property. However, there can be no assurance that the
requirements of the Special Servicing Agreement will effectively insulate the
Trust from potential liability for a materially adverse environmental
condition at any Mortgaged Property. In some cases the Special Servicer is
permitted to foreclose on a Mortgaged Property notwithstanding the presence
of a known or suspected adverse environmental condition. See "SERVICING OF
THE MORTGAGE LOANS."
Concentrations of Mortgage Loans and Borrowers
Several of the Mortgage Loans have Cut-off Date Balances that are
substantially higher than the $10,940,626.12 average Cut-off Date Balance of
the Mortgage Loans. The largest Mortgage Loan represents approximately 5.8%
of the Initial Pool Balance, the three largest Mortgage Loans represent
approximately 16.4% of the Initial Pool Balance, and the ten largest Mortgage
Loans represent approximately 41.8% of the Initial Pool Balance.
There are three Groups of Cross-Collateralized Mortgage Loans. The largest
of those groups represents 2.6% of the Initial Pool Balance, and all of the
Groups together represent 5.0% of the Initial Pool Balance. Each of the
Mortgaged Properties associated with these Groups is leased to Wal-Mart
Stores, Inc. and the Groups were underwritten largely on the basis of the
creditworthiness of Wal-Mart. Accordingly, they present a concentration of
Wal-Mart credit risk. The three Allendale Corporate Center Loans are all due
from one borrower and are secured by Mortgaged Properties that are part of
the same complex, and together represent 3.3% of the Initial Pool Balance.
The Golfview Apartment Loan and the Doral Loan, together representing 4.4% of
the Initial Pool Balance, are both due from one borrower, Milton S. Jennings,
who is personally liable thereon.
In general, concentrations in a mortgage pool of loans with larger than
average principal balances can result in losses that are more severe (or have
more significant effects on yield, in the event of prepayment), relative to
the size of the pool, than would be the case if the aggregate principal
balance of the pool were more evenly distributed. Concentration of borrower
representation in a mortgage pool can pose similar risks because each
Mortgage Loan Group can be viewed in some respects as a single loan. Thus,
the commonly owned borrowers whose Mortgage Loans are cross-defaulted and
cross- collateralized with one another, under certain circumstances, could
determine that it was in their collective interest to file bankruptcy
petitions that would stay the enforcement of all those Mortgage Loans and
that might result in the interruption of related Monthly Payments for an
indefinite period. In addition, concentration of property management of the
Mortgaged Properties increases the risk that the poor performance of a single
property manager will have a widespread adverse effect on the Mortgage Pool.
Subordinate Debt and Other Encumbrances
The Mortgaged Properties securing nine Mortgage Loans (the Plaza at Boca
Hamptons Loan, the Hilton Hotel Stockton Loan, the Old Country Plaza Loan,
the Sheraton Hotel Loan, the Sturbridge Inn Loan, the St. Marks Co-Op
Apartments Loan, the Giant Eagle/Hechinger Loan, the Doral Apartments Loan
and the Golfview Apartments Loan), representing 18.1% of the initial Pool
Balance, are encumbered by second and in some cases third and fourth
mortgages. In the case of certain of these Mortgage Loans, the subordinate
lender has entered into an agreement with the Mortgagee prohibiting the
subordinate lender from exercising remedies in respect of the borrower or the
Mortgaged Property (including foreclosure or the filing of a bankruptcy
petition) and agreeing that a modification of the related Mortgage Loan would
not affect the subordination of the second, third or fourth lender's lien (an
"Intercreditor Agreement"). In most cases, the subordinate lender has not
entered into an Intercreditor Agreement.
In addition, eleven of the Mortgage Loans, representing 36.7% of the
initial Pool Balance, permit the borrower to enter into subordinate
indebtedness without requiring the subordinate lender to enter into an
Intercreditor Agreement. In most cases, preconditions (such as combined debt
service coverage ratios or combined loan to value ratios, or both) must be
satisfied prior to incurring subordinate indebtedness.
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The encumbrance of a property by subordinate indebtedness without
execution of an Intercreditor Agreement increases the risk to a first
lienholder posed by the subordinate debt. In such cases, a subordinate lender
may have the power to initiate foreclosure at a time when the first
lienholder might not consider the same prudent. The presence of subordinate
debt can hinder conveyance to the first lienholder by deed in lieu of
foreclosure, effectively forcing foreclosure. Similarly, the presence of
subordinate debt can hinder loan modification due to concern that
modification may vitiate subordination and place the subordinate lender in
pari passu status with the first lienholder in whole or in part.
In addition to subordinate debt, certain Mortgaged Properties are
encumbered by tax liens, mechanics liens, or liens in respect of judgments.
The Hilton Hotel Stockton Loan has a tax lien for $606,187.62. Pursuant to
the borrower's Plan of Reorganization dated December 2, 1992, these taxes are
to be paid in deferred cash payments over six years from March 15, 1993. The
Seller believes the borrower is current on taxes due for 1994 and 1995. The
Plano Property within the Wal-Mart No. 3 Loan has approximately $90,000 in
mechanics' liens which were filed in 1987. The Shadyside Medical Center
Property has a judgment lien against the owner of approximately $160,000 and
unpaid taxes for 1993 of approximately $59,000. Public records reflect that
certain other Mortgaged Properties are also subject to similar encumbrances,
generally in lesser amounts.
Borrower Bankruptcies; Modifications
The borrowers in respect of five of the Mortgage Loans have been the
subject of bankruptcy proceedings (which in each case have concluded prior to
the date hereof). The common borrower for the Golfview Apartments Loan and
the Doral Park Loan filed a petition for Chapter 11 bankruptcy protection on
February 8, 1991, and the Plan of Reorganization was confirmed on June 15,
1992. The Hilton Hotel Stockton Loan borrower filed a bankruptcy petition on
September 23, 1991, and the Plan of Reorganization was confirmed on December
2, 1992. The Plaza at Boca Hampton borrower filed a bankruptcy petition on
May 11, 1993 and its Plan of Reorganization was confirmed on December 2,
1994. The Holiday Inn Fayetteville borrower filed a bankruptcy petition on
September 18, 1990, and the Plan of Reorganization was confirmed on May 7,
1992. In addition, certain of the Mortgage Loans have been modified, in many
cases due to difficulties experienced by the borrowers in making timely
payments. See "DESCRIPTION OF THE MORTGAGE POOL--Additional Mortgage Loan
Information" and Appendix A-5, "Summary of Mortgage Loan Modifications."
No Appraisals
Most of the Mortgaged Properties were appraised at the time of origination
of the related Mortgage Loans. However, neither the Seller nor the Depositor
has caused an appraisal to be performed recently, and neither of such persons
has reliable information as to the current market values of the Mortgaged
Properties. Because many real estate markets in the United States have
experienced declining values since the period during which most of the
Mortgage Loans were originated, it is likely that some of the Mortgaged
Properties have declined in market value since that time.
Limitations on Enforceability of Cross-Collateralization
The Mortgage Pool includes three Groups of Cross-Collateralized Mortgage
Loans that collectively represent 5.0% of the Initial Pool Balance. These
arrangements seek to reduce the risk that the inability of one or more of the
Mortgaged Properties securing each such Group to generate net operating
income sufficient to pay debt service will result in defaults and ultimate
losses. However, cross-collateralization provisions may not be enforceable,
particularly (as a practical matter) in states with "one-form-of action" or
similar rules. Moreover, certain Groups of the Cross-Collateralized Mortgage
Loans are 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
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the Mortgages is not impaired or released. In addition, the grant of a lien
on a property to secure debt in respect of another property in some
circumstances may be subject to attack as a fraudulent conveyance or
fraudulent transfer.
Geographic Concentration
Repayments by borrowers and the market value of the Mortgaged Properties
can be affected by economic conditions generally or in regions where the
Mortgaged Properties are located, conditions in the real estate market where
the Mortgaged Properties are located, changes in governmental rules and
fiscal policies, acts of nature, including floods, tornadoes and earthquakes
(which may result in uninsured losses), and other factors that are beyond the
control of the borrowers.
Nineteen Mortgage Loans, representing 54.7% of the Initial Pool Balance,
are secured by Mortgaged Properties located in one of three states:
Pennsylvania (six Mortgage Loans, representing 19.5% of the Initial Pool
Balance); California (seven Mortgage Loans, representing 18.4% of the Initial
Pool Balance) and Florida (six Mortgage Loans, representing 16.8% of the
Initial Pool Balance). In general, that concentration increases the exposure
of the Certificateholders to any adverse economic or other developments or
acts of nature that may occur in those states. Three out of the seven
Mortgaged Properties located in California are not covered by earthquake
insurance. Of those Mortgage Loans that are covered by earthquake insurance,
some are covered for less than their principal balance and others have
significant deductibles.
Balloon Payment at Maturity and Extension of Maturity
Thirty-six Mortgage Loans, representing 90.4% of the Initial Pool Balance,
do not fully amortize over their terms to maturity and thus, in each case
will have a substantial payment (that is, a Balloon Payment) due at scheduled
maturity, unless previously prepaid. Mortgage loans with Balloon Payments
involve a greater risk to a lender than self-amortizing loans because the
ability of a borrower to make a Balloon Payment will normally depend on its
ability to fully refinance the loan or sell the related mortgaged property at
a price sufficient to permit the borrower to make the Balloon Payment. The
ability of a borrower to effect such a refinancing or sale 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 Mortgaged Property, the financial
condition and operating history of the borrower and the Mortgaged Property,
tax laws, 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 Depositor nor any of its affiliates is
under any obligation to refinance any Mortgage Loan.
The Servicer and the Special Servicer are permitted, and are obligated if
so directed by the Operating Adviser, to extend and modify a defaulted
Mortgage Loan (or one as to which default is reasonably foreseeable) under
certain circumstances and subject to certain limitations. See "SERVICING OF
MORTGAGE LOANS--Mortgage Loan Modifications" 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 the collection of a
Balloon Payment that would otherwise be distributable in respect of a Class
of Offered Certificates, whether due to default or to modification of the
related Mortgage Loan, will likely extend the weighted average life of such
Class of Offered Certificates.
Prepayment Premiums
Substantially all of the Mortgage Loans require for a specified period
following the related date of origination or, if applicable, the end of the
related Lock-out Period that any Principal Prepayment (as defined in the
Prospectus) be accompanied by a Prepayment Premium. Some Mortgage Loans
provide for prepayment without a Prepayment Premium in the event of a
casualty or condemnation of the related Mortgaged Property. See "DESCRIPTION
OF THE MORTGAGE POOL--Certain Terms and Conditions of the Mortgage
Loans--Prepayment Provisions" herein.
If and to the extent received, Prepayment Premiums will generally be
distributed among the holders of each of the respective Classes of Regular
Interest Certificates whose aggregate Certificate Principal
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Amount or Certificate Notional Amount, as the case may be, is reduced in
connection with the distribution of the related prepayment of principal, in
the amounts and in accordance with the priorities described herein. See
"DESCRIPTION OF THE CERTIFICATES--Distributions--Distributions of Prepayment
Premiums" herein. No representation is made herein as to the enforceability
of the provision of any Mortgage Note requiring the payment of a Prepayment
Premium, or of the collectability of any Prepayment Premium.
The enforceability, under the laws of a number of states, of provisions
similar to the provisions of the Mortgage Loans providing for the payment of
a Prepayment Premium upon a voluntary or involuntary prepayment is unclear.
In particular, no assurance can be given that, at any time that any
Prepayment Premium is required to be made in connection with an involuntary
prepayment, the obligation to pay such Prepayment Premium will be enforceable
under applicable law or, if enforceable, the foreclosure proceeds will be
sufficient to make such payment. Liquidation Proceeds recovered in respect of
any defaulted Mortgage Loan will, in general, be applied to cover outstanding
servicing expenses and unpaid principal and interest prior to being applied
to cover any Prepayment Premium due in connection with the liquidation of
such Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS--Enforceability of Prepayment and Late Payment Fees" in the Prospectus.
No Prepayment Premium will be payable in connection with any repurchase of
a Mortgage Loan by the Depositor or the Seller for a material breach of
representation or warranty on the part of the Depositor or the Seller or any
failure to deliver documentation relating thereto, nor will any Prepayment
Premium be payable in connection with the purchase of all the Mortgage Loans
and any REO Properties by the Servicer or the Class R-I Certificateholders in
connection with the termination of the Trust Fund. See "DESCRIPTION OF THE
MORTGAGE POOL--Assignment of the Mortgage Assets; Repurchases" and
"--Representations and Warranties; Repurchases" and "DESCRIPTION OF THE
CERTIFICATES--Optional Termination" herein.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Multiclass Pass-Through Certificates, Series 1995-C5 (the
"CertificatesCertificates") will be issued, and the trust (the "Trust")
designated as Aetna 1995 Commercial Mortgage Trust will be created, pursuant
to a trust agreement (the "Trust Agreement"), to be dated as
of the Cut-off Date, among the Depositor, the Trustee, the Servicer and the
Special Servicer. The following summaries describe certain provisions
relating to the Certificates. The summaries do not purport to be complete and
are subject, and qualified in their entirety by reference, to the provisions
of the Trust Agreement. When particular provisions or terms used in the Trust
Agreement are referred to herein, the actual provisions (including
definitions of terms) are deemed to be incorporated herein by reference.
Reference is made to the Prospectus for additional information regarding the
terms of the Trust Agreement, provided that the information contained in this
Prospectus Supplement supersedes any contrary information set forth in the
Prospectus. See "DESCRIPTION OF THE SECURITIES" and "THE TRUST AGREEMENT" in
the Prospectus.
The Certificates will represent in the aggregate the entire beneficial
ownership interest in the assets of the Trust (collectively, the "Trust
Fund"), consisting primarily of: (i) the Mortgage Loans and all
payments under and proceeds of the Mortgage Loans received or applicable to
periods after the Cut-off Date (exclusive of payments of principal and
interest due on or before the Cut-off Date); (ii) any Mortgaged Property
acquired on behalf of the Trust through foreclosure, deed in lieu of
foreclosure or otherwise (upon acquisition, an "REO Property");
and (iii) such funds or assets as from time to time are deposited in the
Collection and Distribution Accounts hereinafter described.
The Certificates will consist of twelve Classes: the Class A-1 and Class
A-2 Certificates (collectively, the "Senior Certificates");
the Class B, Class C, Class D, Class E, Class F, Class G and
Class H Certificates (collectively, the "Subordinate Certificates");
the Class X Certificates (collectively with the Senior
Certificates and the Subordinate Certificates, the "Regular Interest
Certificates"); and the Class R-I and Class R-II Certificates (collectively,
the "Residual Certificates"). Only the Senior Certificates and the
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Class B, Class C and Class D Certificates (collectively, the "Offered
CertificatesOffered Certificates") are being offered hereby. The Class E,
Class F, Class G, Class H, Class X, Class R-I and Class R-II Certificates
(collectively, the "Non-Offered CertificatesNon-Offered Certificates") have
not been registered under the Securities Act of 1933, as amended (the
"Securities ActSecurities Act"), and are not offered hereby. Accordingly,
information herein regarding the terms of the Non-Offered Certificates is
provided primarily because of its potential relevance to a prospective
purchaser of an Offered Certificate.
CERTIFICATE PRINCIPAL AMOUNTS AND CERTIFICATE NOTIONAL AMOUNTS
Upon initial issuance, the Class A-1, Class A-2, Class B, Class C and
Class D Certificates will have the respective aggregate Certificate Principal
Amounts set forth in the following table, in each case subject to a permitted
variance as set forth on the cover page of this Prospectus Supplement.
<TABLE>
<CAPTION>
INITIAL AGGREGATE CERTIFICATE APPROXIMATE % OF INITIAL
CLASS OF CERTIFICATES PRINCIPAL AMOUNT POOL BALANCE
- --------------------------- --------------------------------- ----------------------------
<S> <C> <C>
Class A-1 Certificates .... $ %
Class A-2 Certificates ....
Class B Certificates .......
Class C Certificates .......
Class D Certificates .......
--------------------------------- ----------------------------
Total .................... $ %
================================= ============================
</TABLE>
Upon initial issuance, the Class E, Class F, Class G and Class H
Certificates will have an aggregate Certificate Principal Amount of
approximately [$ ] (subject to a permitted variance similar to that
applicable to the Offered Certificates, as set forth on the cover page to
this Prospectus Supplement), representing approximately [ %] of the
Initial Pool Balance.
The "Certificate Principal Amount" of any Certificate, as of any date of
determination, represents the maximum specified dollar amount of principal to
which the holder thereof is then entitled pursuant to the Trust Agreement,
such amount being equal to the initial principal amount set forth on the face
of such Certificate less the amount of all principal distributions previously
made with respect to such Certificate and less all Realized Losses and
Additional Expense Losses previously allocated to such Certificate pursuant
to the Trust Agreement.
The Class X Certificates will not have Certificate Principal Amounts or
entitle their holders to distributions of principal. Each such Certificate
will, however, represent the right to receive distributions of interest
accrued as described herein on a notional amount (a "Certificate Notional
Amount") equal to the product of the Percentage Interest represented by such
Certificate in such Class, multiplied by the aggregate Certificate Notional
Amount of the Class X Certificates. The aggregate Certificate Notional Amount
of the Class X Certificates will equal the sum of the following five
components (each, a "Component"): (a) the aggregate Certificate Principal
Amount of the Class A-1 Certificates outstanding from time to time
("Component A-1"); (b) the aggregate Certificate Principal Amount of the
Class A-2 Certificates outstanding from time to time ("Component A-2"); (c)
the aggregate Certificate Principal Amount of the Class B Certificates
outstanding from time to time ("Component B"); (d) the aggregate Certificate
Principal Amount of the Class C Certificates outstanding from time to time
("Component C"); and (e) the aggregate Certificate Principal Amount of the
Class D Certificates outstanding from time to time ("Component D").
The Residual Certificates will not have Certificate Principal Amounts or
Certificate Notional Amounts.
REGISTRATION; DENOMINATIONS
The Class A-1, Class A-2, Class B, Class C and Class D Certificates
(collectively, the "Book Entry CertificatesBook-Entry Certificates") will be
issued in book-entry form through the facilities of The Depository Trust
Company ("DTCDTC") in denominations of $100,000 Certificate Principal Amount
and in integral multiples of $1 in
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excess thereof. One Certificate of each of the foregoing Classes may be
issued in a different principal amount to accommodate the remainder of the
initial aggregate Certificate Principal Amount of the Certificates of such
Class.
Each Class of Book-Entry Certificates will initially be represented by one
or more global 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 of any Class thereof (each, a
"Certificate Owner") will be entitled to receive a fully registered Certificate
(a "Definitive Certificate") representing its interest in such Class except
under the limited circumstances described in the Prospectus under "DESCRIPTION
OF THE SECURITIES--Book-Entry Registration." Unless and until Definitive
Certificates are issued in respect of a Class of Book-Entry Certificates,
beneficial ownership interests in such Class of Certificates will be maintained
and transferred on the book-entry records of DTC and its participating
organizations (the "Participants"), and all references to actions by holders of
such Class of Certificates will refer to actions taken by DTC upon instructions
received from the related Certificate Owners through the Participants in
accordance with DTC procedures, and all references herein to payments, notices,
reports and statements to holders of 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 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" in the Prospectus.
CERTIFICATE INTEREST RATES
The Certificate Interest Rates applicable to the respective Classes of
Offered Certificates for each Distribution Date are set forth on the cover
page hereof.
The Certificate Interest Rate applicable to each Class of Non-Offered
Certificates (other than the Class X Certificates and the Residual
Certificates) for each Distribution Date will be a per annum rate equal to
the Weighted Average Net Mortgage Rate for such Distribution Date. The
Certificate Interest Rate applicable to the Class X Certificates with respect
to each Distribution Date will be a per annum rate equal to the excess, if
any, of (a) the Weighted Average Net Mortgage Rate for such Distribution
Date, over (b) the weighted average of the Certificate Interest Rates for the
Class A-1 Certificates, the Class A-2 Certificates, the Class B Certificates,
the Class C Certificates and the Class D Certificates, weighted by the
respective aggregate Certificate Principal Amount of each such Class
immediately prior to such Distribution Date. The Residual Certificates will
not bear interest.
The "Weighted Average Net Mortgage Rate" for each Distribution Date is the
weighted average, expressed as a percentage and rounded to five decimal places,
of the Net Mortgage Rates for all of the Mortgage Loans, weighted on the basis
of their respective unpaid principal balances outstanding at the beginning of
the related Collection Period. The "Net Mortgage RateNet Mortgage Rate" for each
Mortgage Loan will be a fixed rate per annum equal to the Mortgage Rate on the
Due Date occurring in the related Due Period (a) reduced by the Administrative
Cost Rate and (b) if the accrual of interest on such Mortgage Loan is computed
other than on the basis of a 360 day year consisting of twelve 30-day months,
then adjusted to a rate of interest computed on such basis.
The "Stated Principal Balance" of any Mortgage Loan (including any Mortgage
Loan as to which the related Mortgaged Property has become an REO Property), as
of any date of determination coinciding with or following the Cut-off Date, will
generally be equal to the Cut-off Date Balance of such Mortgage Loan, reduced
(to not less than zero) by: (i) that portion of the Principal Payment Amount for
the Distribution Date immediately preceding such date of determination
(calculated without regard to clause (f) of the definition of "Principal Payment
Amount" set forth under "--Distributions--Principal Payment Amount" below) that
is attributable to such Mortgage Loan; and (ii) the principal portion of any
Realized Loss incurred in respect of such Mortgage Loan during the Collection
Period related to the Distribution Date immediately preceding such date of
determination. Notwithstanding the foregoing, if any Mortgage Loan is paid in
full, or if any Mortgage Loan or, if acquired in respect thereof, the related
Mortgaged
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Property, is liquidated, purchased out of the Trust Fund or otherwise
disposed of by the Trust, the "Stated Principal Balance" of such Mortgage
Loan will be zero commencing as of the Distribution Date on which amounts
received in connection with such payment in full, liquidation, purchase or
other disposition would be distributed on the Certificates.
The "Due Period" for any Distribution Date will be the period commencing
on the second day of the month preceding the month in which such Distribution
Date occurs (or in the case of the first Due Period, commencing on the day
immediately following the Cut-Off Date) and ending on the first day of the
month in which such Distribution Date occurs. The "Collection Period" for any
Distribution Date will end at the close of business on the Determination Date
for such Distribution Date and commence on the day immediately following the
end of the prior such period (or, in the case of the initial Collection
Period, commence immediately following the Cut-off Date). The "Determination
Date" for each Distribution Date will be the 12th day of the month in which
such Distribution Date occurs or, if such 12th day is not a Business Day,
then the next succeeding Business Day. For purposes of the Prospectus, the
Collection Period is the "Prepayment Period" for the related Distribution
Date.
DISTRIBUTIONS
General
Distributions of principal and interest on the Certificates will be made
by the Trustee or a Paying Agent (as defined in the Prospectus) out of the
related Available Distribution Amount on the 25th day of each month (or, if
such day is not a Business Day, then on the next succeeding Business Day)
(each such date, a "Distribution Date"), commencing in January 1996. 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 "Percentage Interest" in any Class
(other than a Class of Residual Certificates) evidenced by a Certificate thereof
at any time will equal a fraction (expressed as a percentage), the numerator of
which is the Certificate Principal Amount or the Certificate Notional Amount, as
the case may be, of such Certificate determined as of the close of business on
the Distribution Date immediately preceding such time, and the denominator of
which is the aggregate Certificate Principal Amount or the aggregate Certificate
Notional Amount, as the case may be, of such Class determined as of the close of
business on the Distribution Date immediately preceding such time.
The "Record Date" for each Class of Offered Certificates for each
Distribution Date will be the last day of the month preceding the month in which
such Distribution Date occurs or, if such day is not a Business Day, the
Business Day immediately preceding such day.
The Available Distribution Amount
The aggregate amount available for distribution of principal and/or
interest to Certificateholders on each Distribution Date (the "Available
Distribution Amount") will, in general, equal the sum of the following amounts:
(a) the aggregate of all cash amounts received on or in respect of the
Mortgage Loans and any REO Properties that is on deposit in the Collection
and Distribution Accounts as of the commencement of business on the second
Business Day preceding such Distribution Date (the "Servicer Remittance
Date") (which cash amounts will generally include all Monthly Payments,
including Balloon Payments, received on the Mortgage Loans and any other
payments of principal and/or interest received on a delinquent Balloon
Loan; any Principal Prepayments (together with the corresponding interest
payment and Prepayment Premium), Liquidation Proceeds, Insurance Proceeds
and Condemnation Proceeds (each as defined in the Prospectus) received on
the Mortgage Loans and any REO Properties; any other income collected with
respect to any REO Property, net of related expenses ("Net REO Proceeds");
any proceeds from the purchase of any Mortgage Loan required to be
repurchased by the Seller ("Repurchase Proceeds"); and any other amounts
required to be deposited in the Collection and/or Distribution Accounts
under the Trust Agreement, the Servicing Agreement (as defined herein) or
the Special Servicing Agreement (as defined herein); in each case to the
extent received on or prior to the related Determination Date and not
previously
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withdrawn from the Collection Account or the Distribution Accounts for
distribution to Certificateholders or otherwise prior to such 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 Due Period;
(ii) Principal Prepayments, Insurance Proceeds, Condemnation
Proceeds, Liquidation Proceeds and Net REO Income received after the
end of the related Collection Period (together with any accompanying
payments of interest for, in the case of any prepaid Mortgage Loan,
the period following the Due Date in the related Due Period);
(iii) Prepayment Premiums;
(iv) amounts that are currently payable or reimbursable to the
Servicer, the Special Servicer or the Trustee (including as
compensation or to reimburse the Servicer or the Trustee, as the case
may be, for outstanding Advances, together with interest thereon, or
to indemnify or reimburse the Trustee and certain related persons as
contemplated under "--The Trustee" below, or to indemnify or reimburse
the Servicer, the Special Servicer and certain related persons as
contemplated under "SERVICING OF MORTGAGE LOANS--Certain Matters
Regarding the Servicer and the Special Servicer" herein) or used to
pay certain unanticipated expenses of the Trust Fund, including
certain Additional Trust Fund Expenses not previously referenced;
(v) amounts received on Mortgage Loans and REO Properties
previously repurchased by the Seller or otherwise removed from the
Trust Fund; and
(vi) amounts deposited in the Collection Account or either
Distribution Account in error; and
(b) all P&I Advances made by the Servicer or the Trustee with respect
to such Distribution Date (see "--Advances" below).
With respect to the final Distribution Date, any Termination Price paid as
contemplated under "--Optional Termination" would constitute part of the
related Available Distribution Amount, subject to any withdrawals therefrom
to cover the items described in clause (a)(iv) above.
Application of the Available Distribution Amount
On each Distribution Date, the Trustee or a Paying Agent will (except as
otherwise described under "--Optional Termination" below) apply amounts on
deposit in the Distribution Account (as herein defined), to the extent of the
Available Distribution Amount for such Distribution Date, in the following
order of priority, in each case subject to remaining funds:
(1) to distributions of interest to the holders of the Class A-1
Certificates, the holders of the Class A-2 Certificates and the holders of
the Class X Certificates, pro rata in accordance with the respective
amounts of interest distributable on such Classes of Certificates on such
Distribution Date described in this clause (1), in an amount equal to all
Distributable Certificate Interest in respect of the Class A-1
Certificates, the Class A-2 Certificates, Component A-1 of the Class X
Certificates and Component A-2 of the Class X Certificates for such
Distribution Date and, to the extent not previously paid, for all prior
Distribution Dates;
(2) to distributions of principal to the holders of the Class A-1
Certificates in an amount (not to exceed the then outstanding aggregate
Certificate Principal Amount of the Class A-1 Certificates) equal to the
Principal Payment Amount for such Distribution Date, and then, if the
Class A-1 Certificates have been retired, to distributions of principal to
the holders of the Class A-2 Certificates in an amount (not to exceed the
then outstanding aggregate Certificate Principal Amount of the Class A-2
Certificates) equal to the Principal Payment Amount for such Distribution
Date, less any portion thereof distributed in retirement of the Class A-1
Certificates; provided, however, that if Realized Losses or Additional
Expense Losses are allocable to such Classes of Certificates on such
Distribution Date or have been allocated to such Classes of Certificates
on prior Distribution Dates,
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<PAGE>
such distribution of principal shall be made to the holders of the Class
A-1 Certificates and the holders of the Class A-2 Certificates pro rata on
the basis of their respective outstanding aggregate Certificate Principal
Amounts on each Distribution Date until such holders have been paid in
full;
(3) to distributions to the holders of the Class A-1 Certificates and
the holders of the Class A-2 Certificates, in an amount equal to, and in
reimbursement of, all Realized Losses and Additional Expense Losses, if
any, previously allocated to each such Class of Certificates and for which
no reimbursement has previously been received, pro rata on the basis of
such amounts so allocated to each such Class;
(4) to distributions of interest to the holders of the Class B
Certificates and the holders of the Class X Certificates, pro rata in
accordance with the respective amounts of interest distributable on such
Classes of Certificates on such Distribution Date described in this clause
(4), in an amount equal to all Distributable Certificate Interest in
respect of the Class B Certificates and Component B of the Class X
Certificates for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
(5) if the Class A-1 and Class A-2 Certificates have been retired, to
distributions of principal to the holders of the Class B Certificates in
an amount (not to exceed the then outstanding aggregate Certificate
Principal Amount of the Class B Certificates) equal to the Principal
Payment Amount for such Distribution Date, less any portion thereof
distributed in retirement of the Class A-1 or Class A-2 Certificates on
such Distribution Date;
(6) to distributions to the holders of the Class B Certificates, in an
amount equal to, and in reimbursement of, all Realized Losses and
Additional Expense Losses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(7) to distributions of interest to the holders of the Class C
Certificates and the holders of the Class X Certificates, pro rata in
accordance with the respective amounts of interest distributable on such
Classes of Certificates on such Distribution Date described in this clause
(7), in an amount equal to all Distributable Certificate Interest in
respect of the Class C Certificates and Component C of the Class X
Certificates for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
(8) if the Class A-1, Class A-2 and Class B Certificates have been
retired, to distributions of principal to the holders of the Class C
Certificates in an amount (not to exceed the then outstanding aggregate
Certificate Principal Amount of the Class C Certificates) equal to the
Principal Payment Amount for such Distribution Date, less any portion
thereof distributed in retirement of the Class A-1, Class A-2 or Class B
Certificates on such Distribution Date;
(9) to distributions to the holders of the Class C Certificates, in an
amount equal to, and in reimbursement of, all Realized Losses and
Additional Expense Losses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(10) to distributions of interest to the holders of the Class D
Certificates and the holders of the Class X Certificates, pro rata in
accordance with the respective amounts of interest distributable on such
Classes of Certificates on such Distribution Date described in this clause
(10), in an amount equal to all Distributable Certificate Interest in
respect of the Class D Certificates and Component D of the Class X
Certificates for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
(11) if the Class A-1, Class A-2, Class B and Class C Certificates
have been retired, to distributions of principal to the holders of the
Class D Certificates in an amount (not to exceed the then outstanding
aggregate Certificate Principal Amount of the Class D Certificates) equal
to the Principal Payment Amount for such Distribution Date, less any
portion thereof distributed in retirement of the Class A-1, Class A-2,
Class B or Class C Certificates on such Distribution Date;
(12) to distributions to the holders of the Class D Certificates, in
an amount equal to, and in reimbursement of, all Realized Losses and
Additional Expense Losses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
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<PAGE>
(13) to distributions of interest to the holders of the Class E
Certificates, in 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;
(14) if the Class A-1, Class A-2, Class B, Class C and Class D
Certificates have been retired, to distributions of principal to the
holders of the Class E Certificates in an amount (not to exceed the then
outstanding aggregate Certificate Principal Amount of the Class E
Certificates) equal to the Principal Payment Amount for such Distribution
Date, less any portion thereof distributed in retirement of the Class A-1,
Class A-2, Class B, Class C or Class D Certificates on such Distribution
Date;
(15) to distributions to the holders of the Class E Certificates, in
an amount equal to, and in reimbursement of, all Realized Losses and
Additional Expense Losses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(16) to distributions of interest to the holders of the Class F
Certificates, in 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;
(17) if the Class A-1, Class A-2, Class B, Class C, Class D and Class
E Certificates have been retired, to distributions of principal to the
holders of the Class F Certificates in an amount (not to exceed the then
outstanding aggregate Certificate Principal Amount of the Class F
Certificates) equal to the Principal Payment Amount for such Distribution
Date, less any portion thereof distributed in retirement of the Class A-1,
Class A-2, Class B, Class C, Class D or Class E Certificates on such
Distribution Date;
(18) to distributions to the holders of the Class F Certificates, in
an amount equal to, and in reimbursement of, all Realized Losses and
Additional Expense Losses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(19) to distributions of interest to the holders of the Class G
Certificates, in 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;
(20) if the Class A-1, Class A-2, Class B, Class C, Class D, Class E
and Class F Certificates have been retired, to distributions of principal
to the holders of the Class G Certificates in an amount (not to exceed the
then outstanding aggregate Certificate Principal Amount of the Class G
Certificates) equal to the Principal Payment Amount for such Distribution
Date, less any portion thereof distributed in retirement of the Class A-1,
Class A-2, Class B, Class C, Class D, Class E or Class F Certificates on
such Distribution Date;
(21) to distributions to the holders of the Class G Certificates, in
an amount equal to, and in reimbursement of, all Realized Losses and
Additional Expense Losses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
(22) to distributions of interest to the holders of the Class H
Certificates, in 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;
(23) if the Class A-1, Class A-2, Class B, Class C, Class D, Class E,
Class F and Class G Certificates have been retired, to distributions of
principal to the holders of the Class H Certificates in an amount (not to
exceed the then outstanding aggregate Certificate Principal Amount of the
Class H Certificates) equal to the Principal Payment Amount for such
Distribution Date, less any portion thereof distributed in retirement of
the Class A-1, Class A-2, Class B, Class C, Class D, Class E, Class F or
Class G Certificates;
(24) to distributions to the holders of the Class H Certificates, in
an amount equal to, and in reimbursement of, all Realized Losses and
Additional Expense Losses, if any, previously allocated to such Class of
Certificates and for which no reimbursement has previously been received;
and
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(25) to distributions to the holders of the Class R-I Certificates in
an amount equal to the balance, if any, of the Available Distribution
Amount remaining after the distributions to be made on such Distribution
Date as described in clauses (1) through (24) above.
Distributions of the Principal Payment Amount will constitute the only
distributions of principal on the Certificates; provided that,
notwithstanding anything to the contrary herein, on the Final Distribution
Date, the distributions of principal to be made pursuant to clauses (2), (5),
(8), (11), (14), (17), (20) and (23) above shall, in each such case, subject
to the then remaining portion of the Available Distribution Amount for such
date, be made to the holders of the relevant Class of Certificates otherwise
entitled to distributions of principal pursuant to such clause in an amount
equal to the entire aggregate Certificate Principal Amount of such Class
outstanding immediately prior to the Final Distribution Date. Reimbursements
of previously allocated Realized Losses and Additional Expense Losses will
not constitute distributions of principal for any purpose and will not result
in an additional reduction in the Certificate Principal Amounts of the
Certificates in respect of which any such reimbursements are made. No
distributions of principal will be made in respect of the Non-Offered
Certificates until the aggregate Certificate Principal Amount of the Class
A-1, Class A-2, Class B, Class C and Class D Certificates (and,
correspondingly, the aggregate Certificate Notional Amount of the Class X
Certificates) is reduced to zero.
Distributable Certificate Interest
The "Distributable Certificate Interest" in respect of each Class of Regular
Interest 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' allocable share (calculated as
described below) of the Net Aggregate Prepayment Interest Shortfall for such
Distribution Date.
The "Accrued Certificate Interest" in respect of each Class of Regular
Interest Certificates for each Distribution Date is equal to one month's
interest at the Certificate Interest Rate applicable to such Class of
Certificates for such Distribution Date accrued on the aggregate Certificate
Principal Amount of such Class of Certificates (or, in the case of the Class X
Certificates, on either the aggregate Certificate Notional Amount or a Component
thereof, as the context may require) 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. Without affecting the
amount of Accrued Certificate Interest in respect of any Class of Regular
Interest Certificates for any Distribution Date, the "accrual period" in respect
of such Class for such Distribution Date shall be the calendar month most
recently ended prior to such Distribution Date.
The Net Aggregate Prepayment Interest Shortfall for any Distribution Date
will be allocated among the respective Classes of Regular Interest
Certificates, pro rata in accordance with the respective amounts of Accrued
Certificate Interest for such Classes of Certificates for such Distribution
Date, and any such allocation of the Net Aggregate Prepayment Interest
Shortfall for any Distribution Date to the Class X Certificates shall be
further allocated among the Components of the Class X Certificates, pro rata
in accordance with the respective amounts of Accrued Certificate Interest for
such Components for such Distribution Date.
Principal Payment Amount
The "Principal Payment Amount" for each Distribution Date will generally
equal the aggregate of the following (without duplication):
(a) the aggregate of all payments of principal (other than Principal
Prepayments) received on the Mortgage Loans during the related Collection
Period, in each case net of any portion of the particular payment that
represents a late collection of principal due on or before the Cut-off
Date or for which a P&I Advance was previously made for a prior
Distribution Date or that represents the principal portion of a Monthly
Payment due on a Due Date subsequent to the related Due Period;
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(b) the aggregate of the principal portions of all Monthly Payments
due in respect of the Mortgage Loans for their respective Due Dates
occurring during the related Due Period that were received prior to the
related Collection Period;
(c) the aggregate of all Principal Prepayments received on the
Mortgage Loans during the related Collection Period;
(d) without duplication, the aggregate of all Liquidation Proceeds,
Condemnation Proceeds, Insurance Proceeds, Repurchase Proceeds and Net REO
Income received on or in respect of the Mortgage Loans and any REO
Properties during the related Collection Period and identified and applied
by the Servicer as recoveries of principal thereof (or, in the case of an
REO Property, of the related Mortgage Loan), in each case net of any
portion of such amounts that represents a late collection of principal due
on or before the Cut-off Date or for which a P&I Advance was previously
made for a prior Distribution Date;
(e) the aggregate of the principal portions of any P&I Advances made
by the Servicer or the Trustee for such Distribution Date; and
(f) if such Distribution Date is subsequent to the initial
Distribution Date, the excess, if any, of the Principal Payment Amount for
the immediately preceding Distribution Date, over the aggregate
distributions of principal made on the Certificates on such immediately
preceding Distribution Date.
Treatment of REO Properties
Notwithstanding that any Mortgaged Property may be acquired on behalf of
the Trust through foreclosure, deed in lieu of foreclosure or otherwise, the
related Mortgage Loan (which, if such Mortgaged Property secures a Group of
Cross-Collateralized Mortgage Loans, will for purposes of this Prospectus
Supplement be the Mortgage Loan as to which such Mortgaged Property was the
related Primary Mortgaged Property) will be treated, for purposes of, among
other things, determining distributions on the Certificates, allocations of
Realized Losses and Additional Expense Losses to the Certificates, and the
amount of fees payable to the Servicer, the Special Servicer and the Trustee,
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 Servicer or the Trustee in connection with the
operation or disposition of such REO Property) will be "applied" by the
Servicer as principal, interest and other amounts "due" on such Mortgage
Loan, and the Servicer and the Trustee will be obligated to make P&I Advances
in respect of such Mortgage Loan, in all cases as if such Mortgage Loan had
remained outstanding.
Distributions of Prepayment Premiums
On each Distribution Date, any Prepayment Premium collected on a Mortgage
Loan during the related Collection Period will be distributed, separate from
but in the same manner as the Available Distribution Amount for such date, in
the following order of priority, in each case subject to remaining funds:
(1) to the holders of the Class A-1 Certificates and the holders of
the Class X Certificates, pro rata in accordance with their respective
entitlements pursuant to this clause (1), in an amount equal to the PV
Yield Loss Amount for the Class A-1 Certificates and Component A-1 of the
Class X Certificates in respect of the prepayment of principal in
connection with which such Prepayment Premium was received, and then to
the holders of the Class A-2 Certificates and the holders of the Class X
Certificates, pro rata in accordance with their respective entitlements
pursuant to this clause (1), in an amount equal to the PV Yield Loss
Amount for the Class A-2 Certificates and Component A-2 of the Class X
Certificates in respect of the prepayment of principal in connection with
which such Prepayment Premium was received; provided, however, that if
there are not sufficient funds to pay the PV Yield Loss Amount for all of
the Class A-1 Certificates, Component A-1 of the Class X Certificates, the
Class A-2 Certificates and Component A-2 of the Class X Certificates, then
such
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Prepayment Premium shall be distributed to the holders of the Class A-1
Certificates, the holders of the Class A-2 Certificates and the holders of
the Class X Certificates pro rata on the basis of the PV Yield Loss Amount
to which each such Class is entitled under this clause (1);
(2) to the holders of the Class B Certificates and the holders of the
Class X Certificates, pro rata in accordance with their respective
entitlements pursuant to this clause (2), in an amount equal to the PV
Yield Loss Amount for the Class B Certificates and Component B of the
Class X Certificates in respect of the prepayment of principal in
connection with which such Prepayment Premium was received;
(3) to the holders of the Class C Certificates and the holders of the
Class X Certificates, pro rata in accordance with their respective
entitlements pursuant to this clause (3), in an amount equal to the PV
Yield Loss Amount for the Class C Certificates and Component C of the
Class X Certificates in respect of the prepayment of principal in
connection with which such Prepayment Premium was received;
(4) to the holders of the Class D Certificates and the holders of the
Class X Certificates, pro rata in accordance with their respective
entitlements pursuant to this clause (4), in an amount equal to the PV
Yield Loss Amount for the Class D Certificates and Component D of the
Class X Certificates in respect of the prepayment of principal in
connection with which such Prepayment Premium was received;
(5) to the holders of the Class E Certificates, in an amount equal to
the PV Yield Loss Amount for the Class E Certificates in respect of the
prepayment of principal in connection with which such Prepayment Premium
was received;
(6) to the holders of the Class F Certificates, in an amount equal to
the PV Yield Loss Amount for the Class F Certificates in respect of the
prepayment of principal in connection with which such Prepayment Premium
was received;
(7) to the holders of the Class G Certificates, in an amount equal to
the PV Yield Loss Amount for the Class G Certificates in respect of the
prepayment of principal in connection with which such Prepayment Premium
was received;
(8) to the holders of the Class H Certificates, in an amount equal to
the PV Yield Loss Amount for the Class H Certificates in respect of the
prepayment of principal in connection with which such Prepayment Premium
was received; and
(9) to the holders of the Class R-I Certificates, the balance, if any,
of such Prepayment Premium remaining after the distributions made on such
Distribution Date pursuant to clauses (1) through (8) above.
The "PV Yield Loss Amount" with respect to the Class A-1 through Class H
Certificates, as calculated on any Distribution Date in respect of any
prepayment of principal of a Mortgage Loan received during the related
Collection Period, will equal the present value of a series of monthly payments
each equal to the Interest Payment Adjustment for such Class of Certificates in
connection with such prepayment and payable on each subsequent Distribution Date
to and including the Assumed Final Distribution Date for such Class of
Certificates, discounted at the applicable Reinvestment Yield (monthly
compounding) for the number of months remaining from the current Distribution
Date to each such subsequent Distribution Date to and including the Assumed
Final Distribution Date. The "Interest Payment Adjustment" in respect of the
Class A-1 through Class H Certificates in connection with a prepayment of
principal of a Mortgage Loan during any Collection Period is equal to one-
twelfth of the product of (a) the amount, if any, by which the Certificate
Interest Rate for such Class of Certificates for the related Distribution Date
exceeds the applicable Reinvestment Yield, multiplied by (b) the amount of such
prepayment, multiplied by (c) a fraction, the numerator of which is the portion
of the Principal Payment Amount for such Distribution Date payable in reduction
of the aggregate Certificate Principal Amount of such Class of Certificates, and
the denominator of which is the Principal Payment Amount for such Distribution
Date.
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The "PV Yield Loss Amount" with respect to each Component of the
aggregate Certificate Notional Amount of the Class X Certificates, as
calculated on any Distribution Date in respect of any prepayment of principal
of a Mortgage Loan received during the related Collection Period, will equal
the aggregate of the present values of a series of monthly payments each
equal to the Interest Payment Adjustment for such Component in connection
with such prepayment and payable on each subsequent Distribution Date to and
including the Assumed Final Distribution Date for the Class A-1 Certificates
in the case of Component A-1, the Class A-2 Certificates in the case of
Component A-2, the Class B Certificates in the case of Component B, the Class
C Certificates in the case of Component C and the Class D Certificates in the
case of Component D, discounted at the applicable Reinvestment Yield (monthly
compounding) for the number of months remaining from the current Distribution
Date to each such subsequent Distribution Date to and including the Assumed
Final Distribution Date. The "Interest Payment Adjustment" in respect of any
Component of the aggregate Certificate Notional Amount of the Class X
Certificates in connection with a prepayment of principal of a Mortgage Loan
during any Collection Period is equal to one-twelfth of the product of (x)
the related Component Rate (that is, the Component Rate with the same letter
designation as such Component) for the related Distribution Date, multiplied
by (y) the amount of such prepayment, multiplied by (z) a fraction, the
numerator of which is the portion of the Principal Payment Amount for such
Distribution Date deemed payable in reduction of the amount of such
Component, and the denominator of which is the Principal Payment Amount for
such Distribution Date. The "Component Rate" for each Component of the
aggregate Certificate Notional Amount of the Class X Certificates for any
Distribution Date will be: (a) with respect to Component A-1, a per annum
rate equal to the difference between the Weighted Average Net Mortgage Rate
for such Distribution Date and the Certificate Interest Rate for the Class
A-1 Certificates for such Distribution Date (the "Component A-1 Rate"); (b)
with respect to Component A-2, a per annum rate equal to the difference
between the Weighted Average Net Mortgage Rate for such Distribution Date and
the Certificate Interest Rate for the Class A-2 Certificates for such
Distribution Date (the "Component A-2 Rate"); (c) with respect to Component
B, a per annum rate equal to the difference between the Weighted Average Net
Mortgage Rate for such Distribution Date and the Certificate Interest Rate
for the Class B Certificates for such Distribution Date (the "Component B
Rate"); (d) with respect to Component C, a per annum rate equal to the
difference between the Weighted Average Net Mortgage Rate for such
Distribution Date and the Certificate Interest Rate for the Class C
Certificates for such Distribution Date (the "Component C Rate"); and (e)
with respect to Component D, a per annum rate equal to the difference between
the Weighted Average Net Mortgage Rate for such Distribution Date and the
Certificate Interest Rate for the Class D Certificates for such Distribution
Date (the "Component D Rate").
The "Reinvestment Yield" applicable to any of the Class A through Class H
Certificates (and to the Component of the aggregate Certificate Notional
Amount of the Class X Certificates with the same letter designation as such
Class) for the foregoing purposes will be equal to the yield on the U.S.
Treasury issue (primary issue) with a maturity date closest to the Assumed
Final Distribution Date for such Class of Certificates. See "--Assumed Final
Distribution Date; Rated Final Distribution Date" below.
The following is an example of the foregoing allocation of Prepayment
Premiums, and is based on the assumptions that (i) a Mortgage Loan with a
$2,000,000 unpaid principal balance, a Mortgage Rate of 10% per annum and a
stated maturity date of January 1, 2006, prepays in full on its Due Date
during the initial Collection Period, (ii) such Mortgage Loan provides for
the payment of a Prepayment Premium calculated in accordance with the
"treasury" yield maintenance formula described under "DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and Conditions of the Mortgage Loans--
Prepayment Provisions" herein, (iii) the applicable Treasury Yield (as
defined herein) for such Mortgage Loan is % per annum (with an equivalent
annual rate of approximately 5.926% paid monthly), (iv) the Mortgage Loans
provide for scheduled payments of interest only on their respective Due Dates
during the initial Collection Period, (v) no other payment of principal is
received on any Mortgage Loan during the initial Collection Period and (vi)
the applicable Reinvestment Yield for the Class A-1 Certificates and
Component A-1 of the aggregate Certificate Notional Amount of the Class X
Certificates is 6% per annum (with an equivalent annual rate of approximately
5.926% paid monthly), and is otherwise based on the "Mortgage Loan
Assumptions" set forth under "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS--Weighted Average Life" herein:
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<PAGE>
(a) The Payment Differential (as defined herein) for the Mortgage
Loan being prepaid would equal (i) 10% (the loan's Mortgage Rate) minus
approximately % (the equivalent annual rate paid monthly of the
applicable Treasury Yield of %), divided by (ii) 12, multiplied by (iii)
$2,000,000 (the amount being prepaid), or $ . The Prepayment Premium
payable in connection with the assumed Principal Prepayment would equal
the present value of a series of payments each equal to such Payment
Differential and payable on each Due Date over the remaining term of the
Mortgage Loan being prepaid (which is 119 months) discounted at the
applicable Treasury Yield for the number of months remaining from the date
of prepayment to each such Due Date through the stated maturity date for
such loan, or $ .
(b) Because the assumed Principal Prepayment would be applied only in
reduction of the aggregate Certificate Principal Amount of the Class A-1
Certificates and Component A-1 of the aggregate Certificate Notional
Amount of the Class X Certificates, only the Class A-1 and Class X
Certificates would have a PV Yield Loss Amount greater than zero in
connection with such Principal Prepayment.
(c) The Interest Payment Adjustment for the Class A-1 Certificates in
connection with the assumed Principal Prepayment would equal one-twelfth
of (i) approximately % (the Certificate Interest Rate for the Class A-1
Certificates for the initial Distribution Date) minus approximately %
(the equivalent annual rate paid monthly of the applicable Treasury Yield
of %), multiplied by (ii) $2,000,000 (the amount prepaid), multiplied by
(iii) 100% (the portion of the Principal Payment Amount for the initial
Distribution Date payable in reduction of the aggregate Certificate
Principal Amount of the Class A-1 Certificates), or $ .
(d) The Interest Payment Adjustment for Component A-1 of the aggregate
Certificate Notional Amount of the Class X Certificates in connection with
the assumed Principal Prepayment would equal one-twelfth of (i) % (the
approximate Component A-1 Rate for the initial Distribution Date),
multiplied by (ii) $2,000,000 (the amount prepaid), multiplied by (iii)
100% (the portion of the Principal Payment Amount for the initial
Distribution Date payable in reduction of Component A-1 of the aggregate
Certificate Notional Amount of the Class X Certificates), or $ .
(e) The PV Yield Loss Amount for the Class A-1 Certificates would
equal the present value of a series of monthly payments (which is 119
payments) each equal to the Interest Payment Adjustment for such Class of
Certificates in connection with the assumed Principal Prepayment and
payable on each subsequent Distribution Date to and including the Assumed
Final Distribution Date for such Class of Certificates, discounted at the
applicable Reinvestment Yield (monthly compounding) for the number of
months remaining from the initial Distribution Date to each such
subsequent Distribution Date to and including the Assumed Final
Distribution Date, or $ .
(f) The PV Yield Loss Amount for the Class X Certificates would equal
the present value of a series of monthly payments (which is 119 payments)
each equal to the Interest Payment Adjustment for Component A-1 of the
aggregate Certificate Notional Amount of Class X Certificates in
connection with the assumed Principal Prepayment and payable on each
subsequent Distribution Date to and including the Assumed Final
Distribution Date for the Class A-1 Certificates, discounted at the
applicable Reinvestment Yield (monthly compounding) for the number of
months remaining from the initial Distribution Date to each such
subsequent Distribution Date to and including the Assumed Final
Distribution Date, or $ .
(g) On the initial Distribution Date, the above referenced $
Prepayment Premium would be paid to the holders of the Class A-1 and Class
X Certificates, in each case up to their respective PV Yield Loss Amounts,
and the balance would be paid to the holders of the Class R-I
Certificates.
No representation is made herein as to the enforceability of the provision
of any Mortgage Note requiring the payment of a Prepayment Premium, or of the
collectability of any Prepayment Premium. See "RISK FACTORS--The Mortgage
Loans--Prepayment Premiums" and "DESCRIPTION OF THE MORTGAGE POOL--Certain
Terms and Conditions of the Mortgage Loans--Prepayment Provisions" herein.
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<PAGE>
SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
The rights of holders of the Non-Offered Certificates (other than the
holders of the Class X Certificates) to receive distributions of amounts
collected or advanced on or in respect of the Mortgage Loans will be
subordinated, to the extent described herein, to the rights of holders of the
Offered Certificates. The rights of holders of the Class D Certificates to
receive distributions of amounts collected or advanced on or in respect of
the Mortgage Loans will be subordinated, to the extent described herein, to
the rights of holders of the other Classes of Offered Certificates and, with
respect to distributions to the holders of the Class X Certificates, will be
subordinated to distributions to be made with respect to Component A-1,
Component A-2, Component B and Component C of the aggregate Certificate
Notional Amount of the Class X Certificates. The rights of holders of the
Class C Certificates to receive distributions of amounts collected or
advanced on or in respect of the Mortgage Loans will be subordinated, to the
extent described herein, to the rights of holders of the Class A-1, Class A-2
and Class B Certificates and, with respect to distributions to the holders of
the Class X Certificates, will be subordinated to distributions to be made
with respect to Component A-1, Component A-2 and Component B of the aggregate
Certificate Notional Amount of the Class X Certificates. The rights of
holders of the Class B Certificates to receive distributions of amounts
collected or advanced on or in respect of the Mortgage Loans will be
subordinated, to the extent described herein, to the rights of holders of the
Class A-1 and Class A-2 Certificates and, with respect to distributions to
the holders of the Class X Certificates, will be subordinated to
distributions to be made with respect to Component A-1 and Component A-2 of
the aggregate Certificate Notional Amount of the Class X Certificates. This
subordination is intended to enhance the likelihood of timely receipt by the
holders of the Class A-1 Certificates, the Class A-2 Certificates, Component
A-1 of the Class X Certificates and Component A-2 of the Class X Certificates
of the full amount of all interest payable in respect of such Classes on each
Distribution Date, and the ultimate receipt by the holders of the Class A-1
Certificates and the Class A-2 Certificates of principal in an amount equal
to the entire aggregate Certificate Principal Amount of the Class A-1
Certificates and the Class A-2 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 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, in each such
case, the entire aggregate Certificate Principal Amount of such Class of
Certificates. The protection afforded to the holders of the Class D
Certificates and Component D of the Class X Certificates by means of the
subordination of the Class E, Class F, Class G and Class H Certificates, to
the holders of the Class C Certificates and Component C of the Class X
Certificates by means of the subordination of the Class D, Class E, Class F,
Class G and Class H Certificates and Component D of the aggregate Certificate
Notional Amount of the Class X Certificates, to the holders of the Class B
Certificates and Component B of the Class X Certificates by means of the
subordination of the Class C, Class D, Class E, Class F, Class G and Class H
Certificates and Component C and Component D of the aggregate Certificate
Notional Amount of the Class X Certificates, and to the holders of the A-1
Certificates and the Class A-2 Certificates and Components A-1 and A-2 of the
Class X Certificates by means of the subordination of the Class B, Class C,
Class D, Class E, Class F, Class G and Class H Certificates and Component B,
Component C and Component D of the aggregate Certificate Notional Amount of
the Class X Certificates, 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 enhancement
will be available for the benefit of the holders of the Offered Certificates.
Allocation to the Class A-1 Certificates, for so long as they are
outstanding, of the entire Principal Payment Amount for each Distribution
Date (subject to the limitations set forth herein) will generally have the
effect of reducing the aggregate Certificate Principal Amount of such Class
at a faster rate than the aggregate Stated Principal Balance of the Mortgage
Loans. Thus, as principal is distributed to the holders of the Class A-1
Certificates, the percentage interest in the Trust Fund evidenced by the
Class A-1 Certificates will generally be decreased (with a corresponding
increase in the percentage interest in the Trust Fund evidenced by the Class
A-2 Certificates and the Subordinate Certificates), thereby increasing,
relative to their aggregate Certificate Principal Amount, the subordination
afforded the Class A-1
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<PAGE>
Certificates (and, correspondingly, to the Component A-1 of the aggregate
Certificate Notional Amount of the Class X Certificates) by the Subordinate
Certificates. Following retirement of the Class A-1 Certificates, the herein
described successive allocation to the Class A-2 Certificates, the Class B
Certificates, the Class C Certificates and the Class D Certificates, in that
order, in each case for so long as they are outstanding, of the entire
Principal Payment Amount for each Distribution Date will provide a similar
benefit to each such Class of Certificates (and, correspondingly, to each
Component of the aggregate Certificate Notional Amount of the Class X
Certificates with the same alphabetical and, if applicable, numeric
designation) as regards the relative amount of subordination afforded thereto
by the Class E, Class F, Class G and Class H Certificates and, in the case of
the Class A-2, Class B and Class C Certificates, by the Class D Certificates
and, in the case of the Class A-2 and Class B Certificates, by the Class C
Certificates and, in the case of the Class A-2 Certificates, by the Class B
Certificates.
On each Distribution Date, following all distributions on the Certificates
to be made on such date, the aggregate of all Realized Losses and Additional
Expense Losses that, in each case, have been incurred since the Cut-off Date
through the end of the related Collection Period, but have not previously
been allocated as described below, will be allocated among the respective
Classes of Regular Interest Certificates (other than the Class X
Certificates) (in each such case, in reduction of their aggregate Certificate
Principal Amount) as follows, but in the aggregate only to the extent that
the aggregate Certificate Principal Amount of all the Regular Interest
Certificates (other than the Class X Certificates) remaining outstanding
after giving effect to the distributions on such Distribution Date (but
before giving effect to the allocations below) exceeds the aggregate Stated
Principal Balance of the Mortgage Pool that will be outstanding immediately
following such Distribution Date: first, to the Class H Certificates, until
the remaining aggregate Certificate Principal Amount of such Certificates is
reduced to zero; second, to the Class G Certificates, until the remaining
aggregate Certificate Principal Amount of such Certificates is reduced to
zero; third, to the Class F Certificates, until the remaining aggregate
Certificate Principal Amount of such Certificates is reduced to zero; fourth,
to the Class E Certificates, until the remaining aggregate Certificate
Principal Amount of such Certificates is reduced to zero; fifth, to the Class
D Certificates, until the remaining aggregate Certificate Principal Amount of
such Certificates (and, correspondingly, Component D of the aggregate
Certificate Notional Amount of the Class X Certificates) is reduced to zero;
sixth, to the Class C Certificates, until the remaining aggregate Certificate
Principal Amount of such Certificates (and, correspondingly, Component C of
the aggregate Certificate Notional Amount of the Class X Certificates) is
reduced to zero; seventh, to the Class B Certificates, until the remaining
aggregate Certificate Principal Amount of such Certificates (and,
correspondingly, Component B of the aggregate Certificate Notional Amount of
the Class X Certificates) is reduced to zero; and last, to the Class A-1 and
Class A-2 Certificates, pro rata, based on the outstanding aggregate
Certificate Principal Amount of each such Class until the remaining aggregate
Certificate Principal Amount of such Certificates (and, correspondingly,
Component A-1 and Component A-2 of the aggregate Certificate Notional Amount
of the Class X Certificates) is reduced to zero. Any Realized Loss or
Additional Expense Loss allocated as described above to a Class of
Certificates will be allocated among the respective Certificates of such
Class pro rata based on their respective Percentage Interests.
"Realized Losses" are losses arising from the inability to
collect all amounts due and owing under any defaulted Mortgage Loan,
including by reason of fraud or bankruptcy of the borrower or a casualty of
any nature at the related Mortgaged Property, to the extent not covered by
insurance. The Realized Loss in respect of a liquidated Mortgage Loan (or
related REO Property) is an amount generally equal to the excess, if any, of
(a) the outstanding principal balance of such Mortgage Loan (or deemed
principal balance in the case of REO Property) as of the date of final
liquidation, together with all accrued and unpaid interest thereon (or
interest deemed to have accrued in the case of REO Property) at the related
Mortgage Rate to but not including the Due Date in the Collection Period in
which the liquidation occurred, 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 such liquidation and unreimbursed Servicing Advances (including
interest thereon)). If any portion of the debt due under a 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 borrower, the amount
so forgiven also will be treated as a Realized Loss. Realized Losses on a
Mortgage Loan will be allocated first to the principal balance of that
Mortgage Loan, and then to interest.
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An "Additional Expense Loss" is any loss realized upon payment by the Trust
of an Additional Trust Fund Expense; provided that the payment of interest in
respect of unreimbursed Advances will be deemed not to be an Additional Expense
Loss to the extent that such payment is made out of late payment charges and/or
default interest collected on the related Mortgage Loan and the payment of any
Additional Trust Fund Expense will be deemed not to be an Additional Expense
Loss to the extent that such payment is made out of the portion of Repurchase
Proceeds paid in respect of the related Mortgage Loan or REO Property to cover
the same.
"Additional Trust Fund Expenses" include, among other things: (i) any
interest paid to the Servicer or the Trustee in respect of Advances unreimbursed
out of collections on the related Mortgage Loan or REO Property; (ii) certain
additional compensation payable to the Special Servicer in connection with a
Mortgage Loan becoming a Specially Serviced Mortgage Loan or an REO Property;
(iii) any outstanding and unreimbursed Servicing Advance that is not reimbursed
from recoveries on the related Mortgage Loan or REO Property as described under
"--Advances" below; and (iv) any of certain unanticipated, 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 "--The Trustee" below, certain reimbursements and
indemnification to the Servicer, the Special Servicer and certain related
persons described under "SERVICING OF MORTGAGE LOANS--Certain Matters Regarding
the Servicer and the Special Servicer" herein, certain taxes payable from the
assets of the Trust Fund and described under "SERVICING OF MORTGAGE LOANS--
Foreclosures" herein and under "FEDERAL INCOME TAX CONSEQUENCES--Taxation of the
REMIC--Income from Foreclosure Property" and "--Taxation of Holders of Residual
Interest Securities--Prohibited Transactions and Contributions Tax" in the
Prospectus, certain 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, in each case to the extent that the Trust
has not obtained, and in the reasonable good faith judgment of the Trustee shall
not obtain, reimbursement or indemnification thereof from any person or from the
proceeds of the liquidation or disposition of any Mortgage Loan or REO Property.
PREPAYMENT INTEREST SHORTFALLS AND EXCESS PREPAYMENT INTEREST
For any Distribution Date, a "Prepayment Interest Shortfall" will arise with
respect to any Mortgage Loan if a borrower makes a full or partial Principal
Prepayment or a Balloon Payment during the related Collection Period, and the
date such payment is made occurs prior to the Due Date for such Mortgage Loan in
the related Due Period. Such a shortfall arises because the amount of interest
which accrues on the amount of such Principal Prepayment or the principal
portion of such Balloon Payment, as the case may be, will be less than the
corresponding amount of interest accruing on the Certificates and fees payable
to the Servicer and the Trustee. In such case, the Prepayment Interest Shortfall
will generally equal the excess of (a) the aggregate amount of interest which
would have accrued on the Scheduled Principal Balance of such Mortgage Loan for
the one-month period ending on such Due Date if such Principal Prepayment or
Balloon Payment had not been made, over (b) the aggregate interest that did so
accrue during such period through the date such payment was made.
In any case in which a full or partial Principal Prepayment or a Balloon
Payment is made during any Collection Period after the Due Date for the
related Mortgage Loan in the related Due Period, "Excess Prepayment
Interest" will arise since the amount of interest which accrues on the amount of
such Principal Prepayment or the principal portion of such Balloon Payment will
exceed the corresponding amount of interest accruing on the Certificates and
fees payable to the Servicer and the Trustee. The amount of Excess Prepayment
Interest in any such case will equal, to the extent collected, the interest that
accrues on such Principal Prepayment or the principal portion of such Balloon
Payment from such Due Date to the date such payment was made.
To the extent that the aggregate of all such Prepayment Interest
Shortfalls for all Mortgage Loans for any Collection Period exceeds the
aggregate of all such Excess Prepayment Interest for all Mortgage Loans
Excess Prepayment Interest Shortfallfor such Collection Period, the Servicing
Fee (but not the compensation of the Special Servicer or the Trustee) for the
corresponding period will be reduced in an amount necessary to offset such
additional remaining Prepayment Interest Shortfalls. See "SERVICING OF
MORTGAGE LOANS--The Servicer--
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<PAGE>
Adjustment to Servicer's Fee in Connection with Prepaid Mortgage Loans"
herein. To the extent that the aggregate of all such Prepayment Interest
Shortfalls for all Mortgage Loans for any Collection Period exceeds the sum
of the aggregate of all such Excess Prepayment Interest for all Mortgage
Loans for such Collection Period and the Servicing Fee (prior to reduction as
described above) for the corresponding period, such excess (the "Net
Aggregate Prepayment Interest ShortfallNet Aggregate Prepayment Interest
Shortfall") for the related Distribution Date will generally be allocated
among the respective Classes of Regular Interest Certificates pro rata in
accordance with the respective amounts of Accrued Certificate Interest for
such Classes of Certificates for such Distribution Date, and any such
allocation of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date to the Class X Certificates shall be further allocated
among the Components of the Class X Certificates, pro rata in accordance with
the respective amounts of Accrued Certificate Interest for such Components
for such Distribution Date.
To the extent that the aggregate of all such Excess Prepayment Interest
for all Mortgage Loans for any Collection Period exceeds the aggregate of all
such Prepayment Interest Shortfalls for all Mortgage Loans for such
Collection Period, such excess amount (the "Net Aggregate Excess Prepayment
Interest") for such Collection Period will be payable to the Servicer as
additional compensation.
The "Scheduled Principal Balance" of any Mortgage Loan (including any
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property) will generally be equal to: (i) as of the Cut-off Date, the Cut-off
Date Balance of such Mortgage Loan; and (ii) as of any date subsequent to the
Cut-off Date, an amount equal to the Cut-off Date Balance of such Mortgage Loan,
reduced (to not less than zero) by the sum of the following (without
duplication):
(a) the aggregate of the principal portions of all Monthly Payments
(other than any Balloon Payment) due, and of any Assumed Payments deemed
due, in respect of such Mortgage Loan on all Due Dates subsequent to the
Cut-off Date through and including such date of determination, whether or
not received or advanced;
(b) the aggregate of all payments, Insurance Proceeds, Condemnation
Proceeds, Liquidation Proceeds, Repurchase Proceeds and other amounts
received on or in respect of such Mortgage Loan (or any related REO
Property) during the period subsequent to the Cut-off Date through and
including such date of determination that were applied by the Servicer as
recoveries of principal of such Mortgage Loan, in each case net of any
portion of the particular payment or other collection which represents a
recovery of the principal portion of any Monthly Payment (other than a
Balloon Payment) due, or of the principal portion of any Assumed Payment
deemed due, in respect of such Mortgage Loan on a Due Date on or prior to
such date of determination; and
(c) the principal portion of any Realized Loss incurred in respect of
such Mortgage Loan during the period subsequent to the Cut-off Date
through and including such date of determination.
Notwithstanding the foregoing, if any Mortgage Loan is paid in full, or if
any Mortgage Loan or, if acquired in respect thereof, the related Mortgaged
Property is liquidated, purchased out of the Trust Fund or otherwise disposed
of by the Trust Fund, the "Scheduled Principal Balance" of such Mortgage Loan
will be zero as of the date on which such payment in full, liquidation,
purchase or other disposition occurred and as of each date thereafter.
The "Assumed Payment" is an amount deemed due in respect of (i) any
Balloon Loan that is delinquent in respect of its Balloon Payment beyond the
end of the Collection Period in which its maturity date occurred and (ii) any
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property. With respect to any such delinquent Balloon Loan or any such
Mortgage Loan described in clause (ii) of the preceding sentence, the Assumed
Payment with respect to any Mortgage Loan Due Period following the maturity
date of such Balloon Loan (but not including any period following the
modification, forbearance or extension of such Balloon Mortgage Loan and
prior to its modified maturity date) or after acquisition of REO Property in
respect of such Mortgage Loan, will generally equal the Monthly Payment that
would have been due on the Mortgage Loan in accordance with the terms of the
Mortgage Note for such Mortgage Loan Due Period if (a) the maturity date for
such Mortgage Loan had not occurred, (b) the related Mortgaged Property had
not become an REO Property, such Mortgage Loan
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was still outstanding and no acceleration of the Mortgage Loan had occurred,
(c) in the case of any Mortgage Loan that provided for amortization of
principal prior to its maturity date, principal continued to amortize on such
schedule, and (d) in the case of any Mortgage Loan that did not provide for
amortization of principal prior to its maturity date, no principal is
amortized with respect to such Mortgage Loan.
ADVANCES
The Servicer, subject to the limitations described herein, and the
Trustee, if the Servicer fails to do so, will be obligated to make cash
advances ("P&I Advances"), with respect to each Distribution Date,
of: (i) with respect to all Mortgage Loans other than those described
in clause (ii) of this sentence, all delinquent Monthly Payments due during
the related Due Period; and (ii) in the case of a Balloon Loan delinquent in
respect of its Balloon Payment or a Mortgage Loan as to which the related
Mortgaged Property has become an REO Property, the excess, if any, of the
Assumed Payment deemed due in respect of such Mortgage Loan during the
related Due Period, over any amounts collected on or in respect of such
Mortgage Loan and applied as previously unadvanced principal of or interest
on such Mortgage Loan. With respect to any Senior Participation, the amount
of any P&I Advance shall be computed by reference to the portion of the
underlying Mortgage Loan owned by the Trust, and no advance of overdue
principal or interest shall be made with respect to the remaining portion of
the underlying Mortgage Loan. Notwithstanding the foregoing, with respect to
any Distribution Date, P&I Advances will only be made with respect to any
Seriously Delinquent Loan if and to the extent that the Available
Distribution Amount for such Distribution Date (exclusive of any P&I Advance
with respect to any Seriously Delinquent Loan) is not sufficient to make full
distributions to each of the Class A-1 through Class D Certificates and to
each Class of Certificates whose Certificate Principal Amount would not be
reduced by the Anticipated Loss with respect to all Seriously Delinquent
Loans. A "Seriously Delinquent Loan" is any Mortgage Loan that (i) is 90 days
or more delinquent or (ii) was 90 days or more delinquent and as to which the
related borrower has not made, since the most recent date on which such
Mortgage Loan was so delinquent, 24 consecutive Monthly Payments. With
respect to each Distribution Date, the Servicer is obligated to determine the
excess, if any, of (x) an amount equal to the sum of the following amounts
with respect to each Seriously Delinquent Loan: (i) the outstanding principal
balance thereof; (ii) the interest portion of any unreimbursed P&I Advances
with respect thereto; (iii) any unreimbursed Servicing Advances with respect
thereto; and (iv) any currently payable or delinquent property taxes with
respect thereto, over (y) the appraised value of each Mortgaged Property
securing such Seriously Delinquent Loan (based on an appraisal obtained upon
such Mortgage Loan becoming 90 days delinquent or as otherwise required
pursuant to the Special Servicing Agreement) (the aggregate of such amounts
for all Seriously Delinquent Loans, the "Anticipated Loss"). Therefore,
neither (i) the most subordinate Class (or Classes) of Certificates
outstanding at any time (other than the Class A-1 through Class D
Certificates) nor (ii) any other Class of Certificates (other than the Class
A-1 through Class D Certificates) whose Certificate Principal Amount would be
reduced if Realized Losses occurred in the amount of the Anticipated Loss
with respect to all Seriously Delinquent Loans will receive distributions on
any Distribution Date on which one or more Mortgage Loans is a Seriously
Delinquent Loan unless the Available Distribution Amount for such
Distribution Date (exclusive of any P&I Advances with respect to any
Seriously Delinquent Loans) exceeds the amount necessary to make full
distributions to each Class of Certificates that is senior to such Class.
The Servicer, subject to the limitations described herein, and the
Trustee, if the Servicer is required but fails to do so, will also be
obligated to make certain cash advances ("Servicing Advances," and together with
P&I Advances, "Advances") with respect to any Mortgaged Property to the extent
necessary to pay taxes and insurance premiums that the related borrower failed
to pay and for certain other servicing expenses.
The Servicer and the Trustee will not be obligated to make any such
Advances to the extent that such Advances, together with interest that will
accrue thereon, in the reasonable business judgment of the Servicer or the
Trustee, as applicable, are ultimately not recoverable from future payments
and other collections, including Insurance Proceeds, Condemnation Proceeds
and Liquidation Proceeds, on or in respect of the related Mortgage Loans and
REO Properties (any Advance that is not so recoverable, a
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"Nonrecoverable Advance"). Any determination of non-recoverability by the
Servicer or the Trustee is to be supported by an analysis by the Servicer or the
Trustee, as appropriate, of the possibility for repayment of such Advance giving
full consideration to the cash flow generated by and the value of the related
Mortgaged Property or Properties. To the extent such proceeds are not available
in respect of any Mortgage Loan or REO Property in an amount sufficient to
reimburse such Advances made thereon (or, in the case of an REO Property, the
related Mortgage Loan), the Servicer and/or the Trustee, as applicable, may be
reimbursed from collections with respect to other Mortgage Loans prior to
allocation thereof to pay interest and principal on the Certificates.
The Servicer and the Trustee are each entitled to interest on the
aggregate amount of Advances made thereby with respect to a Mortgage Loan or
REO Property. Interest will accrue on each such Advance at a per annum rate
equal to the "Prime Rate" (as published in the "Money Rates" section of The Wall
Street Journal or, if such section or publication no longer is available, such
other publication as determined by the Trustee in its reasonable discretion)
until repaid and will generally be payable out of late payment charges and/or
default interest, if any, collected in respect of the related Mortgage Loan or,
if such amounts are or will be insufficient, out of any amounts on deposit in
the Collection Account at the time such Advance is reimbursed. Pursuant to the
terms of the Trust Agreement, with respect to Advances made on all Mortgage
Loans, the Trustee will be entitled to recover all of its Advances (and interest
accrued thereon) before the Servicer is entitled to recover any of its aggregate
Advances (and interest accrued thereon).
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Trustee Reports
Based on information provided in monthly reports prepared by the Servicer
and the Special Servicer and delivered to the Trustee, the Trustee is
required to prepare and forward on each Distribution Date to each
Certificateholder, the Depositor, the Servicer, the Special Servicer, the
Operating Adviser and each Rating Agency:
1. A statement (a "Distribution Date Statement") setting forth, among
other things: (i) the amount of distributions, if any, made on such
Distribution Date to the holders of each Class of Offered Certificates
applied to reduce the respective Certificate Principal Amounts thereof;
(ii) the amount of distributions, if any, made on such Distribution Date to
holders of each Class of Offered Certificates allocable to (A) Distributable
Certificate Interest and/or (B) Prepayment Premiums; (iii) the number of
outstanding Mortgage Loans and the aggregate Scheduled Principal Balance,
the aggregate unpaid principal balance and the aggregate Stated Principal
Balance of the Mortgage Pool at the close of business on such Distribution
Date; (iv) the number and aggregate unpaid principal balance of Mortgage
Loans (a) delinquent one month, (b) delinquent two months, (c) delinquent
three or more months, (d) that are Specially Serviced Mortgage Loans that
are not delinquent, or (e) as to which foreclosure proceedings have been
commenced; (v) with respect to any Mortgage Loan as to which the related
Mortgaged Property became an REO Property during the related Collection
Period, the Scheduled Principal Balance, Stated Principal Balance and
unpaid principal balance of such Mortgage Loan as of the date such
Mortgaged Property became an REO Property; (vi) as to any Mortgage Loan
repurchased by the Seller or otherwise liquidated or disposed of during
the related Collection Period, the loan number thereof and the amount of
Repurchase Proceeds, Liquidation Proceeds and/or other amounts, if any,
received thereon during the related Collection Period and the portion
thereof included in the Available Distribution Amount for such
Distribution Date; (vii) with respect to any REO Property included in the
Trust Fund as of the close of business on the related Determination Date,
the loan number of the related Mortgage Loan, the book value of such REO
Property and the amount of Net REO Income and other amounts, if any,
received on such REO Property during the related Collection Period and the
portion thereof included in the Available Distribution Amount for such
Distribution Date; (viii) with respect to any REO Property sold or
otherwise disposed of during the related Collection Period, the loan
number of the related Mortgage Loan and the amount of sale proceeds and
other amounts, if any, received in respect of such REO
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Property during the related Collection Period and the portion thereof
included in the Available Distribution Amount for such Distribution Date;
(ix) the aggregate Certificate Principal Amount of each Class of Offered
Certificates before and after giving effect to the distributions made on
such Distribution Date, separately identifying any reduction in the
aggregate Certificate Principal Amount of each such Class due to Realized
Losses or Additional Expense Losses; (x) the aggregate amount of Principal
Prepayments made during the related Collection Period and any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date; (xi)
the Certificate Interest Rate applicable to each Class of Offered
Certificates for such Distribution Date; (xii) the aggregate amount of
servicing compensation retained by or paid to the Servicer and the Special
Servicer during the related Due Period; (xiii) the amount of Realized
Losses and/or Additional Expense Losses, if any, incurred with respect to
the Mortgage Loans during the related Collection Period; and (xiv) the
aggregate amount of Servicing Advances and P&I Advances outstanding which
have been made by the Servicer and the Trustee. In the case of information
furnished pursuant to subclauses (i), (ii) and (ix) above, the amounts
shall be expressed as a dollar amount in the aggregate for all
Certificates of each applicable Class and per single Certificate of a
specified minimum denomination.
2. A report containing information regarding the Mortgage Loans as of
the end of the related Due Period and Collection Period, which report
shall contain substantially the categories of information regarding the
Mortgage Loans set forth in this Prospectus Supplement in the tables under
the caption "DESCRIPTION OF THE MORTGAGE POOL--Additional Mortgage Loan
Information" (calculated where applicable on the basis of the most recent
relevant information provided by the borrowers to the Servicer or the
Special Servicer and by the Servicer or the Special Servicer, as the case
may be, to the Trustee) and such information shall be presented in a
tabular format substantially similar to the format utilized in this
Prospectus Supplement under such caption and a loan-by-loan listing
showing loan name, property type, location, unpaid principal balance,
Mortgage Rate, paid through date, and maturity date.
The Servicer is required to deliver to the Trustee prior to each
Distribution Date, and the Trustee is to deliver to each Certificateholder,
the Depositor, the Operating Adviser and each Rating Agency on each
Distribution Date, the following six reports:
(a) A Comparative Financial Status Report substantially in the form of
Appendix C-1 attached hereto, setting forth, among other things, the
occupancy, revenue, net operating income and debt service coverage ratio
for each Mortgage Loan as of the Determination Date immediately preceding
the preparation of such report for four periods: (i) the current
year-to-date, (ii) the previous two full calendar years, and (iii) the
"base year" (representing the original underwriting information used as of
the Cut-Off Date).
(b) A Delinquent Loan Status Report substantially in the form of
Appendix C-2 attached hereto, setting forth, among other things, those
Mortgage Loans which, as of the close of business on the Determination
Date immediately preceding the preparation of such report, were delinquent
30-59 days, delinquent 60-89 days, delinquent 90 days or more, current but
specially serviced, or in foreclosure but not REO Property.
(c) A Historical Loan Modification Report substantially in the form
of Appendix C-3 attached hereto, setting forth, among other things, those
Mortgage Loans which, as of the close of business on the Determination
Date immediately preceding the preparation of such report, have been
modified pursuant to the Servicing Agreement or the Special Servicing
Agreement (i) during the related Collection Period and (ii) since the
Cut-Off Date, showing the original and the revised terms thereof.
(d) A Historical Loss Estimate report substantially in the form of
Appendix C-4 attached hereto, setting forth, among other things, as of the
close of business on the Determination Date immediately preceding the
preparation of such report, (i) the aggregate amount of liquidation
proceeds and liquidation expenses, both for the current period and
historically, and (ii) the amount of Realized Losses occurring during the
related Collection Period, set forth on a Mortgage Loan-by-Mortgage Loan
basis.
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(e) A REO Status Report substantially in the form of Appendix C-5
attached hereto, setting forth, among other things, with respect to each
REO Property that was included in the Trust Fund as of the close of
business on the Determination Date immediately preceding the preparation
of such report, (i) the acquisition date of such REO Property, (ii) the
amount of Net Income and other amounts, if any, received on such REO
Property during the related Collection Period, and (iii) the value of the
REO Property based on the most recent appraisal or other valuation thereof
available to the Servicer as of such date of determination (including any
prepared internally by the Special Servicer).
(f) A Watch List substantially in the form of Appendix C-8 attached
hereto, setting forth, among other things, any Mortgage Loan that is in
jeopardy of becoming a Specially Serviced Mortgage Loan.
The information that pertains to Specially Serviced Mortgage Loans and REO
Properties reflected in such reports shall be based solely upon the reports
delivered by the Special Servicer to the Servicer on or prior to the related
Determination Date.
The Servicer is also required to deliver to the Trustee the following
materials:
(a) Annually, on or before April 30 of each year, commencing with
April 30, 1996, with respect to each Mortgaged Property and REO Property,
an Operating Statement Analysis substantially in the form of Appendix C-6
attached hereto as of the end of the preceding calendar year, together
with copies of the operating statements and rent rolls for such Mortgaged
Property or REO Property as of the end of the preceding calendar year. The
Servicer (or the Special Servicer in the case of Specially Serviced
Mortgage Loans and REO Properties) is required to use its best reasonable
efforts to obtain said annual operating statements and rent rolls.
(b) Quarterly, on or before the twentieth day following the end of
each calendar quarter, commencing on April 20, 1996, with respect to each
Mortgaged Property and REO Property, the then most current Operating
Statement Analysis, together with copies of the then most current
operating statements and rent rolls for such Mortgaged Property or REO
Property received by the Servicer. The Special Servicer is required to use
its best reasonable efforts to obtain quarterly operating statements and
rent rolls for each REO Property. The Servicer (or the Special Servicer in
the case of Specially Serviced Mortgage Loans) is required to use its best
reasonable efforts to obtain quarterly operating statements and rent rolls
for each Mortgaged Property if the related Mortgage Note or Mortgage
requires the borrower to provide such information, but if the related
Mortgage Note or Mortgage does not require the borrower to provide such
information, the Servicer or the Special Servicer, if applicable, is
required nonetheless to request such reports and, to the extent obtained,
to deliver such operating statements and rent rolls on the dates specified
above for the delivery of the same. None of the Mortgage Loans require the
borrowers to deliver quarterly operating statements.
(c) Upon receipt by the Servicer of annual operating statements, if
any, with respect to any Mortgaged Property, an NOI Adjustment Worksheet
for such Mortgaged Property substantially in the form of Appendix C-7
attached hereto (with the audited annual operating statements attached
thereto as an exhibit), presenting the computations made in accordance
with the methodology described in said Appendix C-7 to "normalize" the
full year net operating income and debt service coverage numbers used by
the Servicer in the other reports referenced above.
The Trustee is to deliver a copy of each Operating Statement Analysis
report that it receives from the Servicer to each Certificateholder, the
Depositor, the Operating Adviser and each Rating Agency promptly after its
receipt thereof. Any Certificateholder, the Depositor, the Operating Adviser
and either Rating Agency may obtain a copy of any NOI Adjustment Worksheet
for a Mortgaged Property or REO Property in the possession of the Trustee
upon request.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee is required to send to each person who at any time
during the calendar year was a Certificateholder of record, a report
summarizing on an annual basis (if appropriate) the items provided to
Certificateholders in the monthly Distribution Date Statements and such other
information as may be required to enable
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such Certificateholders to prepare their federal income tax returns. Such
information is to include the amount of original issue discount accrued on
each Class of Offered Certificates held by persons other than holders
exempted from the reporting requirements and information regarding the
expenses of the Trust Fund.
Other Information
The Trust Agreement requires that the Trustee make available at its
offices, during normal business hours, upon two Business Days prior notice,
for review by any holder of an Offered Certificate, the Depositor, the
Servicer, the Operating Adviser, the Extension Adviser and any Rating Agency,
originals or copies of, among other things, the following items to the extent
in its possession (except to the extent not permitted by applicable law or
under any of the Mortgage Loan documents): (i) the Trust Agreement, the
Servicing Agreement and the Special Servicing Agreement and any amendments
thereto, (ii) all Distribution Date Statements delivered to holders of the
relevant Class of Offered Certificates since the Closing Date, (iii) all
annual officer's certificates and accountants' reports delivered by the
Servicer and the Special Servicer to the Trustee since the Closing Date
regarding compliance with the relevant agreements (see "SERVICING MORTGAGE
LOANS--Evidence as to Compliance" in the Prospectus), (iv) the most recent
property inspection report prepared by or on behalf of the Servicer or the
Special Servicer in respect of each Mortgaged Property, (v) the most recent
annual (or more frequent, if available) operating statements, rent rolls
and/or lease summaries, if any, collected by or on behalf of the Servicer or
the Special Servicer with respect to each Mortgaged Property, (vi) any and
all modifications, waivers and amendments of the terms of a Mortgage Loan
entered into by the Servicer and/or the Special Servicer, and (vii) any and
all officers' certificates and other evidence delivered to or by the Trustee
to support the Servicer's or the Trustee's determination that any Advance, if
made, would be a Nonrecoverable Advance. 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 copies.
Book-Entry Certificates
Until such time as Definitive Certificates are issued in respect of the
Book-Entry Certificates, the foregoing information and access will be
available to the related Certificate Owners only to the extent it is
forwarded by or otherwise available through DTC and its Participants. Any
Certificate Owner who does not receive information through DTC or its
Participants may request that Trustee reports be mailed directly to it by
written request to the Trustee (accompanied by verification of such
Certificate Owner's ownership interest) at the Trustee's corporate trust
office. The manner in which notices and other communications are conveyed by
DTC to Participants, and by Participants to the Certificate Owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Special Servicer, the
Trustee 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.
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust's existence, assuming the
Certificates are issued in December, 1995:
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<TABLE>
<CAPTION>
<S> <C> <C>
December 1 ................(A) Cut-off Date.
December 29 .............. (B) Record Date for all Classes of Offered Certificates.
December 2-January 1 .... (C) The Due Period. The Servicer receives Monthly Payments due after the
Cut-off Date and on or prior to January 1, 1996, the last day of the
initial Due Period.
December 2-January 12 ... (D) The Collection Period. The Servicer receives any Principal Prepayments
made after the Cut-Off Date and on or prior to January 12, 1996, the
last day of the initial Collection Period.
January 12 ............... (E) Determination Date.
January 23 ............... (F) P&I Advance Date.
January 23 ............... (G) Servicer Remittance Date.
January 25 ............... (H) Distribution Date.
</TABLE>
Succeeding monthly periods follow the pattern of (B) through (H) (except as
described below).
- ------------
(A) The Initial Pool Balance will be the aggregate unpaid principal
balance of the Mortgage Loans at the close of business on December 1,
1995 (after deducting principal payments due on or before such date).
Those principal payments due on or before such date, and the
accompanying interest payments, are not part of the Trust.
(B) Distributions on the next Distribution Date will be made to those
persons that are Certificateholders of record at the close of
business on this date.
(C) Monthly Payments due after the Cut-off Date and on or prior to
January 1, 1996, to the extent collected prior to January 12, 1996
(the Determination Date), will be deposited in the Collection Account
as described in "--The Collection and Distribution Accounts" herein.
Each subsequent Due Period will begin on the second day of the month
preceding the month in which the related Distribution Date occurs and
will end on the first day of the month in which the related
Distribution Date occurs.
(D) Any Principal Prepayments made after the Cut-Off Date and on or prior
to January 12, 1996 will be deposited in the Collection Account as
described in "--The Collection and Distribution Accounts" herein.
Each subsequent Collection Period will begin immediately following
the preceding such period and will end at the close of business on
the Determination Date for the related Distribution Date. The
Servicer will offset any Prepayment Interest Shortfalls incurred
during any Collection Period and not otherwise offset by Excess
Prepayment Interest during such Collection Period, to the extent of
the aggregate amount of the Servicing Fee payable to the Servicer
with respect to the related Due Period. See "SERVICING OF MORTGAGE
LOANS--The Servicer--Adjustment to Servicer's Fee in Connection with
Prepaid Mortgage Loans" herein.
(E) The Determination Date will occur on the 12th day of each month or,
if such 12th day is not a Business Day, then on the next succeeding
Business Day.
(F) On the second Business Day preceding each Distribution Date, the
Servicer is to make, subject to the conditions described herein, P&I
Advances in respect of delinquent Monthly Payments due during the
related Due Period.
(G) On the second Business Day preceding each Distribution Date, the
Servicer is to remit to the Lower-Tier Distribution Account that
portion of the Available Distribution Amount then on deposit in the
Collection Account. See "--The Collection and Distribution Accounts"
herein.
(H) The Trustee will make distributions to Certificateholders on the 25th
day of each month or, if such day is not a Business Day, the next
succeeding Business Day.
ASSUMED FINAL DISTRIBUTION DATE; RATED FINAL DISTRIBUTION DATE
The "Assumed Final Distribution Date" with respect to any Class of Regular
Interest Certificates is the Distribution Date on which the aggregate
Certificate Principal Amount or aggregate Certificate Notional Amount, as the
case may be, of such Class of Certificates would be reduced to zero based on the
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assumption that no Mortgage Loan is voluntarily prepaid prior to its stated
maturity date and otherwise based on the "Mortgage Loan Assumptions" set
forth under "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS--Weighted Average
Life" herein, which Distribution Date shall in each case be as follows:
<TABLE>
<CAPTION>
CLASS DESIGNATION ASSUMED FINAL DISTRIBUTION DATE
- --------------------- -----------------------------------
<S> <C>
Class A-1
Class A-2
Class B
Class C
Class D
Class X
Class E
Class F
Class G
Class H
</TABLE>
The Assumed Final Distribution Dates set forth above were calculated
without regard to any delays in the collection of Balloon Payments and
without regard to a reasonable liquidation time with respect to any Mortgage
Loans that may be delinquent. Accordingly, in the event of defaults on the
Mortgage Loans, the actual final Distribution Date for one or more Classes of
the Offered Certificates may be later, and could be substantially later, than
the related Assumed Final Distribution Date(s).
In addition, the Assumed Final Distribution Dates set forth above were
calculated on the basis of a 0% CPR. Since the rate of payment (including
prepayments) of the Mortgage Loans can be expected to exceed the scheduled
rate of payments, and could exceed such scheduled rate by a substantial
amount, the actual final Distribution Date for one or more Classes of the
Offered Certificates may be earlier, and could be substantially earlier, than
the related Assumed Final Distribution Date(s). The rate of payments
(including prepayments) on the Mortgage Loans will depend on the
characteristics of the Mortgage Loans, as well as on the prevailing level of
interest rates and other economic factors, and no assurance can be given as
to actual payment experience. See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" and "DESCRIPTION OF THE MORTGAGE POOL" herein and "YIELD AND
PREPAYMENT CONSIDERATIONS" in the Prospectus.
The "Rated Final Distribution Date" with respect to each Class of Offered
Certificates is , the first Distribution Date that follows the end
of the amortization term for the Mortgage Loan that, as of the Cut-off Date,
has the longest remaining amortization term. The rating assigned by a Rating
Agency to any Class of Certificates entitled to receive distributions in
respect of principal reflects an assessment of the likelihood that
Certificateholders of such Class will receive, on or before the Rated Final
Distribution Date, the principal distributions to which they are entitled.
See "CERTIFICATE RATING" herein.
OPTIONAL TERMINATION
The holders of the Class R-I Certificates and the Servicer will, subject
to certain conditions, each have the option to purchase, in whole but not in
part, the Mortgage Loans and any REO Properties remaining in the Trust Fund
on any date on which the aggregate Certificate Principal Amount of the Class
A-1 through Class H Certificates then outstanding is less than or equal to
10% of the initial aggregate Certificate Principal Amount thereof. Such
purchase will be at a price (the "Termination Price") generally equal to the sum
of (a) 100% of the aggregate unpaid principal balance of the Mortgage Loans
(other than Mortgage Loans as to which the related Mortgaged Property has become
an REO Property) on the date of such purchase, plus accrued and unpaid interest
on each such Mortgage Loan at the related Mortgage Rate to the Due Date for such
Mortgage Loan in the Collection Period during which such purchase occurs, plus
any unpaid and outstanding Servicing Advances (with accrued but unpaid interest
thereon) related to such Mortgage Loans plus (b) the fair market value of all
REO Properties remaining in the Trust Fund. In the event that some but not all
of the holders of the Class R-I Certificates desire to exercise the option to
purchase set forth above, the holders of the Class R-I Certificates so
exercising the option to purchase shall divide the assets being purchased pro
rata. The optional termination of the Trust must
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be conducted so as to constitute a "qualified liquidation" of the Trust
under Section 860F of the Code. Upon any such termination, the purchase price
for the Mortgage Loans and any REO Properties remaining in the Trust Fund
(net of any portion of such purchase price that is allocable to cover the
items described in clause (a)(iv) of the definition of "Available
Distribution Amount" set forth under "--Distributions--The Available
Distribution Amount" above) will be applied to pay the outstanding Classes of
Offered Certificates generally in the manner provided under
"--Distributions--Application of the Available Distribution Amount" above,
except that, subject to available funds, distributions of principal on the
respective Classes of Regular Interest Certificates (other than the Class X
Certificates) will be made, in each such case, until the aggregate
Certificate Principal Amount of such Class is reduced to zero. Notice of any
optional termination must be mailed by the Trustee at least ten days prior to
the date set for optional termination.
ANY SUCH TERMINATION WOULD RESULT IN PREPAYMENT IN FULL OF THE
CERTIFICATES AND WOULD HAVE AN ADVERSE EFFECT ON THE YIELD OF ANY OUTSTANDING
CLASS X CERTIFICATES AND ANY OTHER OUTSTANDING CERTIFICATES PURCHASED AT A
PREMIUM, BECAUSE A TERMINATION WOULD HAVE THE SAME EFFECT AS A PREPAYMENT IN
FULL OF THE MORTGAGE LOANS. SEE "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" HEREIN.
VOTING RIGHTS; LISTS OF CERTIFICATEHOLDERS
At all times during the term of the Trust Agreement, 100% of the voting
rights for the series offered hereby (the "Voting RightsVoting Rights") will
be allocated among the various Classes of Regular Interest Certificates
(other than the Class X Certificates) in proportion to the respective
aggregate Certificate Principal Amounts of those Classes, and none of the
Voting Rights will be allocated among the Class X Certificates and the
Residual Certificates. Voting Rights allocated to a Class of Certificates
will be allocated among the related Certificateholders in proportion to the
Percentage Interests in such Class evidenced by their respective
Certificates.
If three or more Certificateholders (hereinafter referred to as
"applicants," with a single person which (together with its affiliates) is
the holder of more than one Class of Certificates being viewed as a single
"applicant" for these purposes) apply in writing to the Trustee, and such
application states that the applicants desire to communicate with other
Certificateholders with respect to their rights under the Trust Agreement or
under the Certificates and is accompanied by a copy of the communication
which such applicants propose to transmit, then the Trustee is required,
within five Business Days after the receipt of such application, to send, at
the applicants' expense, the written communication proffered by the
applicants to all Certificateholders at their addresses as they appear in the
Certificate Register.
AMENDMENT
The Trust Agreement may be amended from time to time by the parties
thereto (and the Trustee may agree to any amendment of the Servicing
Agreement or the Special Servicing Agreement), without notice to or the
consent of any of the Certificateholders, (i) to cure any ambiguity in the
Trust Agreement (or in the Servicing Agreement or the Special Servicing
Agreement), (ii) to cause the provisions in the Trust Agreement (or in the
Servicing Agreement or the Special Servicing Agreement) to conform to or be
consistent with or in furtherance of the statements made with respect to the
Certificates, the Trust Fund or the Trust Agreement (or with respect to the
Servicing Agreement or the Special Servicing Agreement) in this Prospectus
Supplement or the Prospectus, or to correct or supplement any provision in
the Trust Agreement (or in the Servicing Agreement or the Special Servicing
Agreement) which may be inconsistent with any other provisions in the Trust
Agreement (or in the Servicing Agreement or the Special Servicing Agreement),
(iii) to amend any provision of the Trust Agreement (or of the Servicing
Agreement or the Special Servicing Agreement) to the extent necessary or
desirable to maintain the status of each of REMIC I and REMIC II as a REMIC
for the purposes of federal income tax law or comparable provisions of state
income tax law, or (iv) any other amendment which does not adversely affect
any Certificateholder in any material respect. No such amendment effected (or
agreed to by the Trustee) pursuant to clause (iv) of the preceding sentence
shall adversely affect the status of either REMIC I or REMIC II as a REMIC.
Any amendment pursuant to clause (iv) of the second preceding sentence will
be deemed not to adversely affect in any material respect any holder of a
Certificate of any
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particular Class if the Trustee receives written confirmation from each
Rating Agency that such amendment will not cause such Rating Agency to
downgrade, qualify or withdraw the then current rating assigned to such
Class.
The Trust Agreement may also be amended from time to time by the parties
thereto (and the Trustee may agree to any amendment of the Servicing
Agreement or the Special Servicing Agreement) with the consent of the holders
of Certificates entitled to not less than 66 2/3% of the Voting Rights, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Trust Agreement (or of the Servicing
Agreement or the Special Servicing Agreement) or of modifying in any manner
the rights of the Certificateholders; provided that no such amendment may (i)
reduce in any manner the amount of, or delay the timing of, payments received
on the Mortgage Loans which are required to be distributed on any Certificate
without the consent of the holder of such Certificate, (ii) reduce the
aforesaid percentages of Voting Rights, the Certificateholders of which are
required to consent to any such amendment, without the consent of all the
Certificateholders, or (iii) adversely affect the status of REMIC I or REMIC
II as a REMIC for federal income tax purposes.
THE TRUSTEE
Bankers Trust Company of California, N.A. will act as Trustee of the
Trust. The Trustee is at all times to be, and will be required to resign if
it fails to be, (i) an institution insured by the FDIC, (ii) a corporation,
national bank or national banking association, organized and doing business
under the laws of the United States of America or any state thereof,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of not less than $50,000,000 and subject to
supervision or examination by federal or state authority, (iii) an
institution whose long-term senior unsecured debt is rated at least AA- by
each Rating Agency (or, in the case of either Rating Agency, such lower
rating by such Rating Agency as would not, as evidenced in writing by such
Rating Agency, adversely affect any of the ratings then assigned thereby to
the Certificates) and (iv) unaffiliated with the Seller, the Depositor, the
Servicer, the Special Servicer, the Operating Adviser, Lehman Brothers or any
other placement agent or underwriter in connection with the sale of the
Certificates, or any Mortgagor with respect to any Mortgage Loan or Mortgage
Loans representing more than five percent of the aggregate unamortized
principal balance of the assets in the Trust on the date of the initial
issuance of the Certificates. The corporate trust office of the Trustee
responsible for administration of the Trust (the "Corporate Trust
OfficeCorporate Trust Office") is located at 3 Park Plaza, 16th Floor,
Irvine, California 92714, Attention: Aetna 1995 Commercial Mortgage Trust.
The Trustee may be removed by the holders of Certificates entitled to more
than 50% of the Voting Rights, for cause, upon 30 days' written notice to the
Trustee and the Depositor.
As compensation for the performance of its duties, the Trustee will be
paid a monthly fee (the "Trustee FeeTrustee Fee"), out of general collections
on the Mortgage Loans, equal to one-month's interest (calculated on the basis
of a 360-day year consisting of twelve 30-day months) at 0.007% per annum
(the "Trustee Fee RateTrustee Fee Rate") accrued on the aggregate Scheduled
Principal Balance of the Mortgage Pool as of the commencement of each Due
Period; provided that in making such calculation in connection with any
Senior Participation, only the Trust's participation or beneficial interest
in the underlying Mortgage Loan shall be included. The Trustee shall also be
entitled to recover from the Trust Fund all reasonable unanticipated expenses
and disbursements incurred or made by the Trustee in accordance with any of
the provisions of the Trust Agreement, the Servicing Agreement and the
Special Servicing Agreement (including the reasonable compensation and the
reasonable expenses and disbursements of its counsel and for all persons not
regularly in its employ), but not including overhead or similar items or
expenses incurred in the ordinary course of performing its duties as Trustee
under such agreements and except any such expense, disbursement or advance as
may arise from its negligence or bad faith or which is the specific
responsibility of the holders of Certificates or the Trustee under such
agreements.
The Trustee and each of its directors, officers, employees and agents
shall be entitled to indemnification from the Trust Fund out of the
Collection Account for any loss, liability or expense incurred without
negligence or willful misconduct on their part, arising out of, or in
connection with, the acceptance or administration of the trust created under
the Trust Agreement, including, without limitation, any loss,
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liability or expense incurred in connection with any action or inaction of
the Servicer pursuant to the Trust Agreement or the Servicing Agreement or of
the Special Servicer pursuant to the Trust Agreement or the Special Servicing
Agreement and the costs and expenses of defending themselves against any
claim in connection with the exercise or performance of any of their powers
or duties under the Trust Agreement, the Servicing Agreement or the Special
Servicing Agreement; provided that:
(i) with respect to any such claim, the Trustee shall have given the
Depositor and the holders of the Certificates written notice thereof
promptly after the Trustee shall have knowledge thereof, except that
failure to give such notice will not affect the Trustee's rights to
indemnification unless the defense of such claim (or of any related claim
against the Trust or the Depositor) is materially prejudiced thereby;
(ii) while maintaining control over its own defense, the Trustee is to
cooperate and consult fully with the Depositor in preparing such defense;
and
(iii) the Trust Fund will not be liable for settlement of any such
claim by the Trustee entered into without the prior consent of the
Depositor, which consent is not to be unreasonably withheld.
The Trustee will not be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its duties as Trustee in
accordance with the Trust Agreement, the Servicing Agreement and the Special
Servicing Agreement (and, if it does, all legal expenses and costs of such
action will be expenses and costs of the Trust). The Trustee will not be
required to expend its own funds or otherwise incur any financial liability
in the performance of its duties if it has reasonable grounds for believing
that repayment of such funds or adequate indemnity against such liability is
not reasonably assured to it.
The Trustee will be responsible for various tax-related administrative
duties in respect of the Trust.
See "THE TRUST AGREEMENT--The Trustee", "--Duties of the Trustee" and
"--Resignation of the Trustee" in the Prospectus.
THE COLLECTION AND DISTRIBUTION ACCOUNTS
The "Custodial AccouontCollection Account" for the Trust will be
established by the Servicer in the name of the Trustee in an account or
accounts as described in the Trust Agreement (each, an "Eligible
AccountEligible Account") that are either (i) maintained with a depository
institution, under terms and conditions which will not adversely affect the
ratings of the Certificates by either Rating Agency or (ii) a segregated
trust account. The Servicer will deposit in the Collection Account on the
Business Day following the day of receipt or identification thereof all
payments and other collections received with respect to the Mortgage Loans
after the Cut-off Date (other than payments of principal and interest due on
or before the Cut-off Date), and will be permitted to make withdrawals
therefrom as set forth in the Servicing Agreement. See "SERVICING OF MORTGAGE
LOANS" in the Prospectus. Funds in the Collection Account may be invested
and, if invested, will be invested in the name of the Trustee (in its
capacity as such) in Eligible Investments that meet the criteria of S&P, as
specified in the Servicing Agreement, that mature not later than three
Business Days preceding each Distribution Date (or on the second Business Day
preceding the Distribution Date, if invested in obligations of the Servicer)
and that may not be sold or disposed of prior to their maturity. All income
and gain realized from any such investments will accrue to the benefit of the
Servicer, as additional servicing compensation, and will be subject to
withdrawal from time to time. Likewise, all losses realized from any such
investments will be borne by the Servicer.
The "Lower-Tier Distribution Account" relating to REMIC I and the
"Upper-Tier Distribution Account" relating to REMIC II (together, the
"Distribution Accounts") will be established by the Trustee in Eligible
Accounts. No later than the second Business Day preceding each Distribution
Date (the "Servicer Remittance DateServicer Remittance Date"), the net
collections and P&I Advances on or in respect of the Mortgage Loans then on
deposit in the Collection Account that constitute part of the Available
Distribution Amount for such Distribution Date, together with certain other
limited amounts then payable to the Trustee and any Prepayment Premiums
collected during the related Collection Period, are to be remitted by the
Servicer to the Trustee for deposit into the Lower-Tier Distribution Account.
On each Distribution Date, the Trustee will withdraw all amounts in the
Lower-Tier Distribution Account and, after paying fees
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and expenses described in the Trust Agreement, will make the payments on the
Certificates described herein (such payments to be made through the
Upper-Tier Distribution Account with respect to the Senior Certificates, the
Subordinate Certificates and the Class X and Class R-II Certificates). Funds
in the Distribution Accounts may not be invested.
THE SELLER
The Seller, Aetna Life Insurance Company, is a Connecticut corporation and
a subsidiary of Aetna Life and Casualty Company. Aetna Life and Casualty
Company was organized in 1967 as a Connecticut insurance corporation. Aetna
Life and Casualty Company and its subsidiaries (collectively, the "Company")
constitute one of the largest insurance and financial services organizations
in the United States. Based on published industry rankings, the Company is
also one of the nation's largest stock insurers of property-casualty lines
and one of the largest writers of health care, group life, annuity and
pension products. The Seller's principal offices are located at 151
Farmington Avenue, Hartford, Connecticut 06156.
UNDERWRITING PRACTICES
All of the Mortgage Loans, with the exception of the 500 Westchester
Avenue Loan and the St. Mark's Co-op Apartments Loan, were originated by the
Seller or its subsidiaries or its affiliate, Aetna Casualty and Surety
Company (collectively, "Aetna"). Aetna's general procedures relating to the
underwriting and origination of the Mortgage Loans are described below.
Correspondent Network. The Mortgage Loans originated by Aetna were
generated through Aetna's nationwide network of approximately 35 to 40
correspondent mortgage banking firms. Generally, each correspondent was
responsible for cultivating and canvassing its particular market area for
potential mortgage loans that met Aetna's then current criteria for such
loans, including that the proposed mortgaged property be a well-leased,
well-located income-producing property with strong ownership or other
sponsorship. A correspondent identifying a potentially suitable loan
opportunity submitted to Aetna a document package including the
correspondent's underwriting and valuation (usually based on capitalization
of income) analysis and recommendations. Aetna then independently
re-underwrote the proposed mortgage loan based on its own criteria (but in
many cases based upon appraisals performed by the staff of the correspondent)
and, if the proposal satisfied its criteria, Aetna, with its correspondent's
continued involvement, negotiated the terms and conditions of the loan
directly with the applicant- borrower. Before Aetna issued a loan commitment,
the loan application was reviewed and approved by the Aetna officers or
employees to whom appropriate authority had been delegated. After Aetna
funded the mortgage loan, its correspondent generally serviced the loan for
Aetna's benefit pursuant to its servicing agreement or arrangement with
Aetna.
General Underwriting Procedures. Aetna's underwriting procedures were
intended to evaluate, among other things, the income derived from the
proposed mortgaged property, the capabilities of the management of the
project, including a review of management's past performance record, its
management reporting and control procedures (to determine its ability to
recognize and respond to problems) and its accounting procedures to determine
cash management ability, the applicant/borrower's credit standing and
repayment ability and the value and adequacy of the mortgaged property as
collateral.
Appraisals. An appraisal of each proposed mortgaged property was
performed, in many cases by the staff of the correspondent. This appraisal
helped establish that at the time of the appraisal, the loan-to-value ratio
of the proposed mortgage loan conformed to Aetna's then-current loan-to-value
requirement (which was generally 75% during the period in which the Mortgage
Loans were originated).
In general, an appraisal represents the analysis and opinion of a
qualified valuation expert and is not a guarantee of present or future value.
Moreover, appraisals generally seek to establish the amount a typically
motivated buyer would pay a typically motivated seller acting without any
particular time or other pressure. Such amount could be significantly higher
than the amount obtained from the sale of a mortgaged property in a distress
or liquidation sale.
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Occupancy Statements, Operating Statements and Other Data. In connection
with its origination of mortgage loans, Aetna generally reviewed rent rolls
and related information or statements of occupancy rates, census data,
financial data, operating statements and, with respect to mortgage loans
secured by office properties and retail properties, selected major tenant
leases.
Zoning and Building Code Compliance. Under the related mortgage or loan
documents, each borrower generally represented as of the date on which the
mortgage loan was originated, or provided a legal opinion or other evidence
to the effect, that the use and operation of the related mortgaged property
was in material compliance with applicable zoning, environmental, building,
and other similar laws applicable to the mortgaged property, or covenanted to
cure any material violations of such laws that might exist.
Acquired Mortgage Loans. In evaluating the 500 Westchester Avenue Loan and
the St. Marks Co-Op Apartments Loan before acquiring them, Aetna applied
procedures substantially similar to those described above for mortgage loans
originated by Aetna, except that the 500 Westchester Avenue Loan and the St.
Marks Co-Op Apartments Loan were originated by other lenders and were not
generated through Aetna's correspondent network.
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<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
A summary description of the Mortgage Loans in tabular form is set forth
in Appendix A hereto. A narrative description of the fifteen largest loans by
outstanding principal balance is set forth in Appendix B hereto. Individual
Mortgage Loans and Mortgage Loan borrowers are identified throughout this
Prospectus Supplement by reference to the name of the related Mortgaged
Property as set forth in Appendix A.
The Mortgage Pool will consist of 41 fixed rate mortgage loans (the
"Mortgage LoansMortgage Loans"), three of which will be Senior Participations
(Mortgage Loans with respect to which the Depositor will acquire from Aetna
Life Insurance Company, as Seller, and sell and transfer to the Trust the
Mortgage Loan subject to an undivided subordinated percentage participation
interest being a "Senior Participation"). A subsidiary of the Seller will
hold the undivided subordinated percentage participation interest in each
Mortgage Loan underlying a Senior Participation. Three of the Mortgage Loans
will be Groups (as defined below) of mortgage loans, each mortgage loan in
such Group being due from the same or affiliated borrowers and being
cross-collateralized and cross-defaulted with the other mortgage loans in
such Group, and each such Group generally being referred to as a single
Mortgage Loan herein. The Mortgage Loans (including, in the case of a Senior
Participation, only the Trust's percentage interest in the Mortgage Loan
underlying such Senior Participation) will have an aggregate Cut-Off Date
Balance of $448,565,671.03 (the "Initial Pool Balance"), subject to the
variances set forth on the cover page to this Prospectus Supplement, with the
Senior Participations representing $29,480,550.00 of the Initial Pool
Balance, subject to such variances. The "Cut-Off Date Balance" of any
Mortgage Loan is the unpaid principal balance of such Mortgage Loan (or, in
the case of a Senior Participation, the Trust's percentage interest of the
unpaid principal balance of such Mortgage Loan) as of December 1, 1995 (the
"Cut-off DateCut-off Date"), after application of all payments due on such
Mortgage Loan on or before such date, whether or not received. All
percentages of the Mortgage Loans, or of any specified group of Mortgage
Loans, referred to herein without further description are approximate
percentages by aggregate Cut-off Date Balance. References to percentages of
Mortgaged Properties are references to the percentages of the Initial Pool
Balance represented by the aggregate Cut-off Date Balance of the related
Mortgage Loans. All statistical information provided herein with respect to
the Mortgage Pool is provided on an approximate basis.
Each Mortgage Loan (or in the case of the Groups, each
Cross-Collateralized Mortgage Loan) is evidenced by a promissory note (a
"Mortgage Note") and secured by a mortgage, deed of trust or
other similar security instrument (a "Mortgage"). With respect to 35
Mortgage Loans, the Mortgage creates a first mortgage lien on a borrower's
fee simple estate in the Mortgaged Property. With respect to three Mortgage
Loans, which represent 9.0% of the Initial Pool Balance, the Mortgage creates
a first lien on the ground lessor's fee simple estate and the borrower's
leasehold estate. With respect to two Mortgage Loans (the Stanford Park Hotel
Loan and the Children's Medical Center Loan), representing in the aggregate
5.3% of the Initial Pool Balance, the Mortgage creates a first lien only on
the borrower's leasehold estate, the fee interest in the property not being
subject thereto; the Blue Cross/Blue Shield Building Loan (as defined below)
is secured by a leasehold estate in a portion of the land and improvements
and by a fee estate in the remaining land and improvements. In the case of
the Children's Medical Center Loan, consent of the lessor (not to be
unreasonably withheld) is required to finance the leasehold estate. The
mortgage on the Shadyside Medical Center Property encumbers both the fee
estate and the leasehold estate in real property interests consisting of air
rights and improvements.
Thirteen Mortgage Loans, representing 30.0% of the Initial Pool Balance,
are secured by retail properties; eight Mortgage Loans, representing 24.7% of
the Initial Pool Balance, are secured by hotel properties, some of which are
affiliated with nationally recognized hotel franchisors; seven Mortgage
Loans, representing 16.0% of the Initial Pool Balance, are secured by office
properties; four Mortgage Loans, representing 9.7% of the Initial Pool
Balance, are secured by multifamily residential properties; three Mortgage
Loans, representing 9.0% of the Initial Pool Balance, are secured by medical
properties; five Mortgage Loans, representing 6.9% of the Initial Pool
Balance, are secured by industrial/flex properties; and one Mortgage Loan,
representing 3.8% of the Initial Pool Balance, is secured by a parking
garage.
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The Mortgage Loans are secured by mortgage liens on Mortgaged Properties
located in 21 states, including Pennsylvania (6 Mortgage Loans, representing
19.5% of the Initial Pool Balance), California (7 Mortgage Loans,
representing 18.4% of the Initial Pool Balance), and Florida (6 Mortgage
Loans, representing 16.8% of the Initial Pool Balance). Three out of the
seven Mortgaged Properties located in California are not covered by
earthquake insurance. In the case of the Buenaventura Plaza Loan, the
coverage of $7,500,000 with a 5% deductible is less than the Cut-off Date
unpaid principal balance of $9,259,254.33. In the case of the Koll Corporate
Center Loan, the coverage is for $69,000,000 with a 5% deductible and in the
case of the Collins Business Center Loan, the coverage is for $10,000,000 and
recovery is limited to one occurrence. In the case of the Covina Town Square
Loan, the coverage of $5,000,000 (with a deductible equal to the greater of
$100,000 or 5%), is less than the Cut-off Date unpaid principal balance of
$18,234,502.
Three groups (each, a "Group") of mortgage loans (the
"Cross-Collateralized Mortgage LoansCross-Collateralized Mortgage Loans"),
collectively representing 5.0% of the Initial Pool Balance, are, solely as
among the mortgage loans in each such particular Group, cross-defaulted and
cross-collateralized. In addition, the Mortgaged Properties securing the
Cross-Collateralized Mortgage Loans in Group 3 also secure the
Cross-Collateralized Mortgage Loans in Group 2. Each Cross-Collateralized
Mortgage Loan in each Group is evidenced by a separate Mortgage Note, and the
Mortgage on each related Mortgaged Property reflects that it is intended as
security for all the Mortgage Loans in such Group (but for purposes of this
Prospectus Supplement and the Trust Agreement, each of the Mortgaged
Properties securing any such Group has been designated as the "Primary
Mortgaged PropertyPrimary Mortgaged Property" for one of the Mortgage Loans
constituting such Group). See "RISK FACTORS--The Mortgage Loans--Limitations
on Enforceability of Cross-Collateralization" herein and
"--Cross-Collateralized Mortgage Loans" below. Unless the context otherwise
requires, references herein to "related Mortgaged Property" (or "related REO
Property") are, in the case of a Cross- Collateralized Mortgaged Loan,
references to the Mortgaged Property that is (or the REO Property that was)
the Primary Mortgaged Property for such Mortgage Loan, and references to
"related Mortgaged Loan" or "related Cross-Collateralized Mortgage Loan" are,
in the case of a Mortgaged Property that secures (or an REO Property that
secured) a Group of Cross-Collateralized Mortgage Loans, references to the
Mortgage Loan as to which such Mortgaged Property has (or such REO Property
had) been designated as the Primary Mortgaged Property. Except where
otherwise specifically indicated, statistical information provided herein and
in the Appendices hereto with respect to the Cross-Collateralized Mortgage
Loans is so provided without regard to the cross-collateralization, and each
Cross- Collateralized Mortgage Loan will be deemed to be secured only by a
mortgage lien on the related Primary Mortgaged Property.
None of the Mortgage Loans will be 30 days or more delinquent as of the
Cut-off Date, and no Mortgage Loan has been 30 days or more delinquent during
the 12 months preceding the Cut-off Date. Four of the borrowers (including
Milton Jennings, who is the borrower on two Mortgage Loans) have been the
subject of bankruptcy proceedings (all of which proceedings have concluded
prior to the date hereof).
MORTGAGE LOAN HISTORY
Thirty-three Mortgage Loans, representing 83.0% of the Initial Pool
Balance, were originated by the Seller; six Mortgage Loans, representing
12.1% of the Initial Pool Balance, were originated by Aetna Casualty and
Surety Company, an affiliate of the Seller utilizing the Seller's commercial
loan underwriting procedures; and two Mortgage Loans, representing 4.9% of
the Initial Pool Balance, were purchased directly or indirectly from
unaffiliated third-party originators in the secondary mortgage market. Five
Mortgage Loans, representing 8.9% of the Initial Pool Balance, were
originated prior to January 1, 1986. Thirty-five Mortgage Loans, representing
90.7% of the Initial Pool Balance, were originated subsequent to January 1,
1986 but prior to January 1, 1991. The remaining one Mortgage Loan,
representing 0.4% of the Initial Pool Balance, was originated subsequent to
January 1, 1991. The Mortgage Loans purchased by the Seller in the secondary
mortgage market were re-underwritten by the Seller at the time of their
respective purchases to confirm substantial compliance with the Seller's loan
underwriting procedures.
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CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Mortgage Rates; Calculations of Interest. All of the Mortgage Loans bear
interest at fixed Mortgage Rates that will remain fixed for their remaining
terms or, in one case (the Sheraton Maitland Loan), that will increase by
fixed amounts after the Cut-Off Date on a predetermined schedule.
Due Dates. The Mortgage Loans have Due Dates (that is, the dates upon
which the related Monthly Payments first become due) that occur on the first
day of each month.
Amortization. Five of the Mortgage Loans, representing 9.6% of the Initial
Pool Balance, are fully amortizing over their terms. Of the remaining
Mortgage Loans 33 Mortgage Loans, representing 82.6% of the Initial Pool
Balance, provide for Monthly Payments based on amortization schedules
significantly longer than their terms to maturity (in several cases after an
initial period of interest only payments) and three provide for Monthly
Payments of interest only with no amortization prior to their maturity,
thereby leaving Balloon Payments due and payable on their respective maturity
dates, unless prepaid prior thereto. See "RISK FACTORS--Balloon Payment at
Maturity and Extension of Maturity" herein.
Prepayment Provisions. As of the Cut-off Date, 39 of the Mortgage Loans,
representing 96.6% of the Initial Pool Balance, restrict or prohibit
voluntary principal prepayment. In general, as of the Cut-off Date those
Mortgage Loans either (i) prohibit voluntary prepayments of principal for a
period (a "Lock-out PeriodLock-out Period") ending on a date specified in the
related Mortgage Note and require that prepayments made thereafter be
accompanied by an additional amount (a "Prepayment PremiumPrepayment
Premium") in excess of the amount prepaid (11 Mortgage Loans, representing
30.7% of the Initial Pool Balance) or (ii) permit voluntary principal
payments provided that the prepayment is accompanied by a Prepayment Premium
(25 Mortgage Loans, representing 59.2% of the Initial Pool Balance) or (iii)
permit voluntary prepayments without payment of a Prepayment Premium for a
period (the "Chase-Away Period") of approximately two years and impose
Prepayment Premiums in connection with prepayments made thereafter (2
Mortgage Loans, representing 4.6% of the Initial Pool Balance) or (iv)
prohibit voluntary prepayment (1 Mortgage Loan, representing 2.1% of the
Initial Pool Balance). The two remaining Mortgage Loans, representing 3.4% of
the Initial Pool Balance, permit voluntary principal prepayments in whole
without material restriction. Prepayment Premiums are calculated either
solely pursuant to a "treasury" yield maintenance formula, calculated based
on the greater of a "treasury" yield maintenance formula or a percentage of
the amount prepaid (generally 1%) or calculated based solely as a percentage
of the amount prepaid (generally declining over time). In general, each
Mortgage Loan permits a Principal Prepayment in full (and, in certain cases,
in part) to be made without payment of any Prepayment Premium during the two
to six month period preceding its stated maturity date. In addition, various
Mortgage Loans permit prepayment without penalty in connection with certain
casualties and condemnations or certain preapproved property sales. For
samples of the "treasury" yield maintenance formulas included in the Mortgage
Loans, see the descriptions of the 15 largest Mortgage Loans (by outstanding
principal balance) set forth in Appendix B hereto.
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The table and accompanying bar chart set forth below indicate for each of
the specified prepayment provisions the portion of the Mortgage Pool
(expressed as a percentage of the Initial Pool Balance) to which such
provision is applicable as of the first day of each of the specified months
based on the assumption that no Mortgage Loan is voluntarily prepaid prior to
its stated maturity date and otherwise based on the "Mortgage Loan
Assumptions" set forth under "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS--Weighted Average Life" herein.
PREPAYMENT PROVISION TABLE
<TABLE>
<CAPTION>
% OF % OF % OF
POOL POOL POOL
PREPAYMENT DEC. 1 DEC. 1 DEC. 1
PROVISION 1995 1996 1997
- ---------------- -------- -------- --------
<S> <C> <C> <C>
LOP (1) ......... 32.81 26.88 19.71
- ---------------- -------- -------- --------
TYM (2) ......... 59.20 53.69 51.27
- ---------------- -------- -------- --------
7% of PP (3) ... 2.06
- ---------------- -------- -------- --------
6% of PP ........ 2.06
- ---------------- -------- -------- --------
Prepay Window(4) 4.58 4.58 2.79
- ---------------- -------- -------- --------
None (5) ........ 3.41 6.27 1.85
- ---------------- -------- -------- --------
Loans Matured .. 6.51 22.31
- ---------------- -------- -------- --------
Total ........... 100.0% 100.0% 100.0%
- ---------------- ======== ======== ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF % OF % OF % OF % OF % OF % OF
POOL POOL POOL POOL POOL POOL POOL % OF POOL
PREPAYMENT DEC. 1 DEC. 1 DEC. 1 DEC. 1 DEC. 1 DEC. 1 DEC. 1 DEC. 1,
PROVISION 1998 1999 2000 2001 2002 2003 2004 2005
- ---------------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOP (1) ......... 15.18 4.53 4.53 2.14 2.14 2.14 2.14 2.14
- ---------------- -------- -------- -------- -------- -------- -------- -------- ---------
TYM (2) ......... 52.80 48.49 40.71 35.49 35.49 33.67 19.85 19.85
- ---------------- -------- -------- -------- -------- -------- -------- -------- ---------
7% of PP (3) ...
- ---------------- -------- -------- -------- -------- -------- -------- -------- ---------
6% of PP ........
- ---------------- -------- -------- -------- -------- -------- -------- -------- ---------
Prepay Window(4)
- ---------------- -------- -------- -------- -------- -------- -------- -------- ---------
None (5) ........ 3.51 7.09 2.79 9.76
- ---------------- -------- -------- -------- -------- -------- -------- -------- ---------
Loans Matured .. 28.50 39.88 51.97 62.37 62.37 64.18 68.25 78.01
- ---------------- -------- -------- -------- -------- -------- -------- -------- ---------
Total ........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
- ---------------- ======== ======== ======== ======== ======== ======== ======== =========
</TABLE>
- ------------
(1) LOP: Lock-out Period
(2) TYM: Prepayment Premium based in whole or in part on a "treasury"
yield maintenance formula.
(3) PP: Principal Prepayment
(4) Prepay Window: For two Mortgage Loans that were modified, represents
the "chase away" period during which they may be prepaid at par before
converting to yield maintenance.
(5) None: No prepayment restriction
[Graphic material (2) omitted: Graphic depicts tabular data provided in
Prepayment Provision Table located on page S-69.]
S-69
<PAGE>
If and to the extent collected, Prepayment Premiums will be distributed
among the holders of the respective Classes of Certificates as described
herein under "DESCRIPTION OF THE CERTIFICATES-- Distributions--Distributions
of Prepayment Premiums". No representation is made herein as to the
enforceability of the terms of any Mortgage Note requiring the payment of a
Prepayment Premium, or as to the collectability of any Prepayment Premium.
See "RISK FACTORS--The Mortgage Loans-- Prepayment Premiums" herein.
Non-recourse Obligations. Most of the Mortgage Loans are non-recourse
obligations of the related borrowers and, upon any such borrower's default in
the payment of any amount due under the related Mortgage Loan, the holder
thereof may look only to the Mortgaged Property or Properties securing such
loan for satisfaction of the borrower's obligations. In addition, in those
cases where recourse to a borrower or guarantor is purportedly permitted, the
Depositor has not undertaken an evaluation of the financial condition of any
such person (which in some cases may itself be a limited recourse entity),
and prospective investors should thus consider all of the Mortgage Loans to
be non-recourse.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. Substantially all of
the Mortgages contain "due-on-sale" and "due-on-encumbrance" clauses that, in
general, permit the holder of the Mortgage to accelerate the maturity of the
related Mortgage Loan if the borrower sells or otherwise transfers or
encumbers the related Mortgaged Property or prohibit the borrower from doing
so without the consent of the holder of the Mortgage; provided that, in the
case of eleven of the Mortgage Loans, secondary financing would be permitted
without Mortgagee consent, in some cases upon the satisfaction of certain
criteria relating to, among other things, the loan-to-value ratio and debt
service coverage ratio for the related Mortgage Loan and the secondary
financing. At least nine of the Mortgaged Properties are currently encumbered
by subordinated debt. See "Description of the Mortgage Pool--Secondary
Financing" and "SERVICING OF MORTGAGE LOANS--Due-on-Sale and
Due-on-Encumbrance Provisions" herein.
Escrow and Reserve Provisions. Most of the Mortgage Loans require, at the
request of the lender, the establishment of reserves or escrows for taxes and
insurance premiums and, in several cases, for other items. However, no
reserve or escrow deposits have been required for the majority of the
Mortgage Loans. As of the Cut-Off Date, 19 Mortgage Loans have escrow or
reserve accounts established (with certain borrowers having multiple reserve
or escrow accounts) for such expenses, including tax payments (18 Mortgage
Loans), insurance premiums (4 Mortgage Loans), capital improvements (8
Mortgage Loans) and miscellaneous (7 Mortgage Loans).
Occupancy
Nine Mortgage Loans are secured by Mortgaged Properties occupied by one or
two tenants only (the Giant Eagle/Hechingers Loan, the Polyclinic Loan, the
Blue Cross/Blue Shield Loan, the 500 Westchester Avenue Loan, the Mobil Oil
Building Loan, the Koll Corporate Center Loan, and the three Wal-Mart
Groups). For the Giant Eagle/Hechingers Loan, there are two tenants, each
leasing 50% of the property. Both leases state that they are "triple net"
leases; both expire approximately nine years after the maturity of the loan.
The annual lease payments exceed the annual debt service on the loan.
The lender/borrower/tenant relationships for the Polyclinic Property, the
Blue Cross/Blue Shield Property, the 500 Westchester Avenue Property, the
Mobil Oil Building Property and the three Wal-Mart Group Properties are more
fully described in Appendix B. In the case of the Mobil Oil Building
Property, the lease expires four months prior to the maturity of the loan.
Although the annual rent (including payment of taxes, insurance, utilities
and other costs) from the sole tenant of the Blue Cross/Blue Shield Property
exceeds the annual debt service of the loan, the lease expires approximately
nine months prior to the maturity of the loan (subject to two five-year
extension options). For all of the Wal-Mart Groups, the annual rent exceeds
the annual debt service and the loans mature prior to the expiration of the
leases.
ASSESSMENTS OF PROPERTY CONDITION
Environmental Assessments
A "Phase I" environmental site assessment was performed by Dames & Moore,
Inc. with respect to each of the Mortgaged Properties within three months
prior to the date hereof. In connection with its
S-70
<PAGE>
engagement of Dames & Moore, Inc., the Seller did not direct such firm to
investigate or recommend action in respect of potential sources of
contamination, such as leaking underground storage tanks, not located on the
Mortgaged Properties. With respect to certain of the Mortgaged Properties,
depending on the results of the "Phase I" assessment, a "Phase II"
environmental assessment, was also performed.
With respect to the Wal-Mart facility in Durant, Oklahoma, the
environmental assessment noted acid staining from a used battery storage
area, oil staining from a used oil above-ground storage tank and past
undocumented removal of underground storage tanks. With respect to the
Wal-Mart facility in Tulsa, Oklahoma, the environmental assessment noted acid
staining from a used battery storage area. Both assessments recommended soil
borings to determine if soil contamination exists. However, the Seller
believes that Wal-Mart Stores, Inc., pursuant to indemnity provisions of the
leases for these facilities and/or under applicable environmental laws, is
liable for any expenses or liabilities that may be associated with the
environmental conditions observed at these two facilities, and has determined
that it will take no further action.
In connection with the Covina Town Square Property, the environmental
assessment noted the removal by Sears of two underground gasoline, and one
underground waste oil, storage tanks without documentation, and recommended
soil borings and ground water wells. However, the Seller believes that Sears,
as the owner and/or tenant of the parcel involved, and the facility operator
would be responsible for any expenses or liabilities associated with the
environmental conditions observed at this facility under environmental laws.
Based on its view of the creditworthiness of Sears, the Seller has determined
to take no further action in respect of these conditions.
In connection with 500 Westchester Property, the environmental assessment
noted the undocumented removal of three underground storage tanks in the
1980's and recommended soil borings and groundwater wells to determine if any
soil or groundwater contamination exists. Because an affiliate of NYNEX is
the partial owner of this property, the Seller believes that such affiliate
will be responsible for any expenses or liabilities that may be associated
with the environmental conditions observed at this property under applicable
environmental laws, and has determined that it will take no further action.
Issues relating to potential lead in drinking water are still being
investigated at four properties. At the Buenaventura Plaza Property, no
testing for lead in drinking water was performed because access was denied.
At the St. Mark's Co-op Apartments Property, no testing was performed for
lead in paint. Issues relating to potential radon gas are still being
investigated at two properties. Some slightly elevated radon levels were
identified at the Woodhawk Club Apartments Property, but access for further
radon testing was denied.
Asbestos-containing materials were identified at several Mortgaged
Properties. Dames & Moore Inc. recommended that these materials be left in
place using operations and maintenance programs in all cases except for the
Tradewinds Property, the 3400 Carlisle Property and the Buenaventura Plaza
Property where abatements estimated to cost $80,000, $9,600 and $50,000,
respectively, were recommended. Access for asbestos testing was denied at the
St. Marks Co-op Apartments Property.
The Dames & Moore Inc. environmental assessments also identified the
following issues: (i) Oak Park Commons Property: soil gas and soil samples
have been taken to determine the extent of contamination from an on-site dry
cleaner; the assessment indicated cleaning solvent contamination, which has
migrated to the top of bedrock; further investigation into the extent of
contamination has been recommended; (ii) Collins Business Center Property:
evaluation of landfill materials used onsite has been recommended; Dames &
Moore Inc. is awaiting further information as to the origin and disposition
of the materials; (iii) Shadyside Medical Center Property: groundwater wells
were recommended by Dames & Moore Inc. because of past use of the property as
an automobile wrecking yard, gas station and bottling plant; the Seller has
decided to take no further action because the lien of the mortgage does not
extend to, and the borrower does not own or operate, the land underlying the
building; (iv) Buenaventura Plaza Property: soil borings and/or wells have
been recommended to evaluate the impact of a former dry cleaner and gas
stations and underground storage tanks; however, the Seller anticipates that
access to this site will continue to be denied; and (vi) Blue Cross/Blue
Shield Property: monitoring wells recommended because of past use of the site
as a sawmill and the removal of two underground storage tanks in the 1980's;
access to the site is being arranged.
S-71
<PAGE>
With respect to certain of the properties described in the preceeding
paragraph, if the referenced issues are not satisfactorily resolved prior to
the Closing Date, the Seller and the Trustee will enter into a limited
environmental indemnity agreement, dated as of December 1, 1995 (the
"Environmental Indemnity Agreement"), with respect to certain of those
specific potential adverse environmental conditions ("Covered Conditions") on
certain of those Mortgaged Properties (the "Covered Properties"). The
Environmental Indemnity Agreement will provide that, prior to foreclosing
upon, accepting a deed in lieu of foreclosure or otherwise taking or
accepting title to a Covered Property, the Special Servicer acting on behalf
of the Trustee will obtain a "Phase II" environmental site assessment for
such Covered Property. If such "Phase II" assessment states that a Covered
Condition for such Covered Property then exists and is required under
applicable law to be remediated, removed or otherwise cured, the Seller
shall, at its option, either (1) purchase the related Mortgage Loan from the
Trust Fund at the Purchase Price, (2) deliver to the Trustee its written
undertaking to remediate, remove or otherwise cure the Covered Condition in
accordance with applicable law, or (3) deliver to the Trustee a written
indemnification undertaking pursuant to which the Seller will, subject to
certain conditions, agree to reimburse the Trustee for all reasonable direct
out-of-pocket expenses of the Trustee incurred within a year following such
undertaking for the remediation, removal and curing of the Covered Condition
in accordance with applicable law.
Engineering Assessments
In connection with the transfer of the Mortgage Loans by the Seller, an
architectural and/or engineering firm inspected the related Mortgaged
Property to assess the structure, exterior walls, roofing, interior structure
and mechanical and electrical systems. The resulting reports (the "A&E Reports")
indicated a variety of deferred maintenance items that required attention
generally in the first six months or year of the Mortgage Loan, and recommended
capital improvements at each of the properties. The estimated cost of the
recommended repairs or replacements, on a property-by-property basis, ranged
from $3,000 to $856,000.
SECONDARY FINANCING
Nine of the Mortgaged Properties, which represent security for 18.1% of
the Initial Pool Balance, are encumbered by subordinated debt.
Such Mortgaged Properties secure the following Mortgage Loans: the
Sheraton Maitland Loan, the Sturbridge Inn Loan, the St. Marks Co-Op
Apartments Loan, the Hilton Hotel - Stockton Loan, the Plaza at Boca Hamptons
Loan, the Golfview Apartments Loan, the Doral Apartments Loan, the Giant
Eagle/Hechingers Loan and the Old Country Plaza Loan.
The property securing the Golfview Apartments Mortgage Loan is encumbered
by a $3,560,000 second mortgage held by Barnett Bank of South Florida, N.A.
The second mortgage has an outstanding balance of $3,400,000, accrues
interest at prime plus 1% and matures on December 31, 1995. The Seller
believes that payments are current. A Subordination Agreement between Barnett
Bank and the senior lender, dated May 1, 1994, provides that Barnett Bank's
second mortgage is and will always be subordinate and subject to the senior
lender's lien and the its rights thereunder. Barnett Bank agreed that the
lender may modify its first mortgage without giving notice to or obtaining
the consent of Barnett Bank but has not agreed to refrain from exercising
remedies. The borrower has informed the Seller that it is attempting to
negotiate an extension of the maturity of this loan, in connection with which
the second lienholder may request a partial paydown.
With respect to the Doral Apartments Loan, Milton Jennings granted a
second mortgage on the Property in favor of Steven and Susan Clark in the
original principal amount of $30,000, dated December 18, 1990.
In connection with the second modification of the Sheraton Maitland Loan
on January 1, 1994, the lender agreed to allow a subordinate second lien on
the Sheraton Maitland Center Property in the amount of approximately $2.5
million in favor of Charles Wilson. The subordinate loan matures in August,
2001 (seven months before the maturity of the Sheraton Maitland Center Loan),
with interest accruing at 8.5%.
S-72
<PAGE>
In connection with the subordinate loan, Wilson entered into a Subordination
Agreement with the lender that provides that Wilson receives current payments
on the subordinate loan as long as there is no default on the Sheraton
Maitland Center Loan. Pursuant to the subordination agreement, Wilson waives
any right to marshal property pursuant to a foreclosure and agrees not to
exercise remedies without the consent of the senior lienholder. In addition,
the senior lender may modify the Sheraton Maitland Center Loan without
Wilson's consent.
The property securing the Sturbridge Inn Loan is encumbered by a second
mortgage in the original face amount of $7,500,000 which was purchased at a
discount by Loan Funding and Management Limited Partnership ("LFMLP"), a
Massachusetts limited partnership pursuant to an Absolute Assignment of
Mortgages dated as of August 31, 1993 between LFMLP and LW-SP2, L.P.
(successor in interest to Westinghouse Electric Corporation). The amount of
this second mortgage loan was increased by $992,059 in an Agreement dated
October 25, 1993, in connection with which Westinghouse and the Seller
simultaneously terminated an earlier $1,000,000 participation held by
Westinghouse in the Sturbridge Inn Loan and deemed the outstanding amount
thereof, $992,059, prepaid to the Seller. The second mortgage loan accrues
interest at the prime rate plus 2%, with a maturity that is coterminous with
the Sturbridge Inn loan. Westinghouse Credit Corporation (predecessor to
LW-SP2, L.P.) and the lender entered into a Subordination Agreement dated
December 5, 1986 that provides that the second mortgage is at all times
subordinate to the Sturbridge Inn Loan and mortgage; however, the second
mortgagee has not agreed to refrain from exercising remedies and has not
agreed that the senior lienholder can modify the Sturbridge Inn Loan without
its consent. The second mortgage may be replaced subject to certain
conditions, including that the new financing must be subject to the same
subordination provisions as the existing second mortgage. If the second
mortgage is satisfied in full, additional subordinate financing is allowed
subject to certain conditions, including that such financing must include
subordination provisions acceptable to the lender. However, no intercreditor
agreement is required. The Sturbridge Inn Property is also encumbered by a
third mortgage in the original face amount of $900,000. The Seller has no
information as to whether the second and third mortgage loans on the
Sturbridge Inn Property are current.
The property securing the St. Marks Co-Op Apartments Loan is encumbered by
a $50,000 mortgage created pursuant to a splitting agreement and supplemental
mortgage dated December 2, 1986, held by 115 East 9th Street Associates. The
interest rate is 9.75% and the maturity date is December 1, 2008. The holder
of this mortgage has not entered into a subordination agreement or
intercreditor agreement. The Seller has no information as to whether this
loan is current.
The property securing the Hilton Hotel - Stockton Loan is encumbered by a
second deed of trust, third deed of trust and a fourth deed of trust. The
second deed of trust, dated November 20, 1985, secures an indebtedness in the
original face amount of $800,000 in favor of Bank of Agriculture & Commerce.
Pursuant to the borrower's Plan of Reorganization dated December, 1992, this
indebtedness accrues and pays interest at 10% per annum, and matures on
August 1, 1997, which is the same date that the senior indebtedness matures.
The outstanding balance is approximately $689,000. The third deed of trust,
dated March 25, 1987, secures an indebtedness in the original face amount of
$400,000 in favor of Edward S. Hazard, which accrues and pays interest at
12%, and matures on August 1, 1997. The third deed of trust was assigned from
Edward S. Hazard to Bank of Agriculture & Commerce and then to John C.
Hazard. The Seller believes that the Hilton Hotel-Stockton borrower is
current on these second and third mortgage loans. The Hilton Hotel-Stockton
Property is also encumbered by a fourth deed of trust dated January 5, 1993
in the original face amount of $439,802 held by certain individuals. The
Seller has no information as to whether the fourth mortgage loan is current.
None of the subordinate lenders has entered into a subordination agreement or
intercreditor agreement.
The property securing the Plaza at Boca Hamptons Loan is encumbered by a
$1,400,000 second mortgage in favor of Bank of America N.T. & S.A. (as
successor in interest by assignment to Cenville Development Corp in July
1986) and modified pursuant to a modification agreement dated November 1,
1994. The second mortgage provides for interest at 8.875% and matures in
October, 2001. Bank of America has reduced the principal on the second
mortgage to $710,000. Bank of America entered into a
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<PAGE>
subordination agreement pursuant to which it agreed to be subordinated, but
did not agree to refrain from exercising remedies and did not agree that the
senior lienholder could modify the Plaza Boca Hamptons Loan without its
consent. The Seller believes that this second mortgage loan is current.
The Property securing the Old Country Plaza Loan is encumbered by a second
deed of trust dated December 28, 1990 in favor of the former owner of the
property Tanglewood Investors. Such deed of trust secures the obligation of
the current owner to Tanglewood Investors (i) to make payments to the
subordinate lender of 50% of net cash flow through December 31, 1999 up to
$2,500,000, (ii) to make certain additional payments on December 31, 1999
from the equity in the property provided first the total paid out of cash
flow and equity will not exceed $2,500,000, and (iii) with respect to a
$350,000 escrow established by Tanglewood Investors, the owner and the Seller
for the benefit of the property. The second deed of trust is expressly
subordinate to the Old Country Plaza Mortgage Loan, as amended, and to
refinancings thereof. The subordinate lender did not enter into a
subordination agreement or intercreditor agreement with the Seller. The
Seller has no information as to whether this second mortgage is current.
The property securing the Giant Eagle/Hechingers Mortgage Loan is
encumbered by a second mortgage in favor of L&M Associates, the prior owner
of the property. The mortgage provides for fixed monthly payments of $901.45
through June 1, 2000 which payments increase periodically until the
mortgage's maturity on December 1, 2015. The mortgage does not have a stated
principal amount. These payments may be reduced based on a formula provided
for in the note and the payments may also be deferred if rent does not exceed
certain thresholds set forth in the note. All deferred payments of principal
are due upon maturity, December 21, 2015. The mortgage also requires payments
calculated by reference to additional sources of income, including percentage
rent and common area maintenance charges collected by the Giant
Eagle/Hechingers Borrower. The second mortgage is expressly subordinate to
the Giant Eagle/Hechingers Mortgage Loan and to all refinancings thereof not
to exceed $7,100,000.
Other than as indicated above, the Seller and the Depositor are unable to
confirm if any other subordinate financing currently encumbers any Mortgaged
Property.
In addition, eleven of the Mortgage Loans (the Tradewinds Loan, the Tech
Data Loan, the Oak Park Loan, the 500 Westchester Avenue Loan, the Holiday
Inn Conference Center Loan, the Children's Medical Center Loan, the
Polyclinic Loan, the Shadyside Medical Center Loan, the Woodhawk Apartments
Loan, the Covina Town Square Loan, and the Waterworks Loan), representing
36.7% of the Initial Pool Balance, permit the borrower to enter into
subordinate indebtedness without the senior lienholder's consent. The
security documents generally do not require the subordinate lender to enter
into an intercreditor or subordination agreement. In most cases,
preconditions (such as combined debt service coverage ratios or combined loan
to value ratios, or both) must be satisfied prior to incurring subordinate
indebtedness.
The encumbrance of a property by subordinate indebtedness without
execution of an intercreditor agreement increases the risk to a first
lienholder posed by the subordinate debt. In such cases, there would be no
restriction on the junior lienholder's exercise of remedies. The presence of
subordinate debt can hinder conveyance to the first lienholder by deed in
lieu of foreclosure, effectively forcing foreclosure. Similarly, the presence
of subordinate debt can hinder loan modification due to concern that
modification may vitiate subordination and place the subordinate lender in
pari passu status with the first lienholder in whole or in part.
The existence of subordinated indebtedness encumbering any Mortgaged
Property may increase the difficulty of refinancing the related Mortgage Loan
at maturity and the possibility that reduced cash flow could result in
deferred maintenance. Also, in the event that the holder of the subordinated
debt has filed for bankruptcy or been placed in involuntary receivership,
foreclosing on the Mortgaged Property could be delayed. See "CERTAIN LEGAL
ASPECTS OF MORTGAGE LOANS--Secondary Financing; Due-on-Encumbrance
Provisions" in the Prospectus.
In addition, various borrowers under the Mortgage Loans are likely to be
obligors on various unsecured debt.
S-74
<PAGE>
OTHER LIENS
The Hilton Hotel Stockton Property is subject to a lien for unpaid
property taxes in the amount of $606,187. Pursuant to the borrower's Plan of
Reorganization dated December 2, 1992, these taxes are to be paid in deferred
cash payments over six years from March 15, 1993. The Seller believes the
borrower is current on taxes due for 1994 and 1995. The Plano Property within
the Wal-Mart No. 3 Loan is subject to approximately $90,000 in mechanic's
liens which were filed in 1987. The Shadyside Medical Center Property has a
judgement lien against the owner of approximately $160,000 and unpaid taxes
for 1993 of approximately $59,000. Public records reflect that certain other
Mortgaged Properties are also subject to similar encumbrances, generally in
lesser amounts.
SENIOR PARTICIPATIONS
The Mortgage Pool includes three Senior Participations, each of which is a
whole mortgage loan subject to a subordinated undivided percentage
participation interest (a "Junior Participation") in the related mortgage
loan. Each Junior Participation will be held by a wholly-owned subsidiary of
the Seller. Each of the participation agreements creating and governing the
Junior Participations provides that before default all payments received on
account of the loan will be allocated between the Senior Participation and
the Junior Participation pro rata in proportion to their respective
percentage interests in the loan and the holder of the junior participation
will not be required to refund amounts properly distributed to it. However,
if any payment received on account of the loan is less than the full amount
then due, it will first be used to pay the holder of the Senior Participation
the full amount it is then scheduled to receive before any amount is paid on
account of the Junior Participation. Furthermore, if any default shall occur
under the loan that results in the acceleration of the loan, all payments
received on the loan will first be used to pay the holder of the Senior
Participation the full amount of interest it is then scheduled to receive,
with the balance of such payment being applied to pay principal on the Senior
Participation until the Senior Participation is paid in full. If the
mortgagee becomes the owner of the related Mortgaged Property after a loan
default (such as through foreclosure or a conveyance in lieu of foreclosure),
all distributable cash received from or on account of the property (whether
as net operating cash flow, net sale proceeds or otherwise) will first be
applied to pay the unpaid balance of the Senior Participation in full before
any payment is made on account of the Junior Participation. The Senior
Participation holder will administer the loan and have the authority to make
all decisions with respect thereto.
The three Mortgage Loans underlying the three Senior Participations are
the following:
<TABLE>
<CAPTION>
CUT-OFF DATE
BALANCE SENIOR PARTICIPATION
PROPERTY (ENTIRE LOAN) PERCENTAGE INTEREST
- ------------------------------------- ------------------ --------------------
<S> <C> <C>
Holiday Inn Conference Center ....... $10,505,356.10 77.6%
Sheraton Hotel ...................... $15,091,761.68 83.0%
J.C. Penney Office Building ......... $11,504,702.52 76.5%
</TABLE>
ADDITIONAL MORTGAGE LOAN INFORMATION
The tables appearing on the following pages set forth certain information
with respect to the entire Mortgage Pool and with respect to the Mortgage
Loans secured by mortgage liens on the various types of Mortgaged Properties
and, in each such case, certain information with respect to the related
Mortgaged Properties. The statistics in certain of such tables were derived
primarily from unaudited information furnished by or on behalf of the related
borrowers and/or property managers, and such information has not been
independently verified by the Depositor, the Seller or the Underwriter. In
preparing such tables, each Cross-Collateralized Mortgage Group was treated
as an individual Mortgage Loan secured by a mortgage lien on the related
Primary Mortgaged Properties. For purposes of this Prospectus Supplement, and
in particular the following tables and Appendices A and B hereto:
1. "Normalized NOI" as used herein with respect to any Mortgaged Property
means the accrual calendar 1994 Annual Gross Operating Revenues less the
Annual Gross Operating Expenses making
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<PAGE>
certain adjustments as detailed below, and after making further deductions
for ongoing capital items such as leasing commissions, tenant improvements,
and replacement reserves, with the following exceptions: (i) in the cases of
the 3400 Carlisle Property and the Collins Business Center Property, the most
recent available 1995 rent rolls were used in order to account for new leases
in place and paying, (ii) in the case of the Hilton Hotel-Stockton Property,
the most recent available year-to-date property operations statements were
annualized for 1995 to account for improved performance, (iii) in the cases
of the triple net leased Wal-Mart and 500 Westchester Avenue loans, actual
lease terms were used to determine the Normalized NOI, and (iv) in the case
of the owner-occupied Tech Data Office Building for which the borrower is not
required to provide annual property statements, market revenues and expenses
were modeled to derive a Normalized NOI. The adjustments that were made to
arrive at Normalized NOI were as follows:
o Taxes were adjusted to the actual annual amount as verified by comparison
to the actual tax bills;
o Insurance premiums as stated in operating statements were compared to
industry standards for reasonableness;
o Non-recurring extraordinary income and expenses were excluded;
o Legal and consulting fees not pertaining to the operation of the
Mortgaged Property were removed;
o Capital expenses were removed from operating expense categories and
reclassified as capital expenses;
o Multifamily. For Mortgaged Properties that are multifamily rental
properties management fees are assumed to equal 4% of effective gross
income. Annual Gross Operating Expenses for such Mortgaged Properties
also generally reflect replacement reserves based on $175/unit/year for
multifamily rental properties that are less than ten years old and
$200/unit/year for multifamily rental properties that are between 10 and
20 years old.
o Hotels. For Mortgaged Properties that are hotels: (i) management fees are
assumed to equal 4% of gross revenue, (ii) franchise fees were verified
with the actual franchise agreements, which in all cases were between 3%
and 5% of gross room revenues unless there was a demonstrated history of
successful operation as an independent, in which case no franchise fee
was imposed; and (iii) replacement reserves are assumed to equal 4% of
gross revenues.
o Other Commercial Properties. For other types of commercial properties:
(i) management fees are set between 3% and 5% of total revenue, (ii)
replacement reserves are calculated at $.15/sq. ft./year in the case of
office properties that are less than 10 years old, $.20/sq. ft./year in
the case of office properties that are between 10 and 20 years old, and
$.30/sq. ft./year in the case of office properties that are more than 20
years old, $.15/sq. ft./year in the case of retail properties, and
$.05/sq. ft./year in the case of industrial properties; (iii) leasing
commissions are assumed to equal $2.50/sq. ft. in the case of office
properties, and $2.00/sq. ft. in the case of retail and industrial
properties (in all cases these amounts have been applied to both new and
renewal rentals); and (iv) tenant improvements are assumed to equal
$20/sq. ft. in the case of Class A office properties, $15/sq. ft. in the
case of Class B office properties, $10/sq. ft. in the case of retail
properties, and $.50/sq. ft. in the case of industrial properties (in all
cases these amounts have been applied to both new and renewal rentals).
No representation is made as to the future net operating income or net
cash flow of the Mortgaged Properties, nor is the Normalized NOI set forth
herein intended to represent such future operating income or cash flow.
Normalized NOI and the revenues and expenses used to determine Normalized
NOI for each Mortgaged Property are derived from unaudited information
provided by the respective borrowers and/or property managers. Net operating
income for a Mortgaged Property determined under Generally Accepted
Accounting Procedures ("GAAPGAAP") would not be the same as the Normalized
NOI for such Mortgaged Property set forth in Appendix A hereto and used in
calculating the Cut-off Date DSC Ratio for the related Mortgage Loan set
forth in the tables herein or in Appendix A hereto. Normalized NOI
S-76
<PAGE>
is not a substitute for or comparable to net operating income as determined
in accordance with GAAP as a measure of the results of a property's
operations or a substitute for cash flows from operating activities
determined in accordance with GAAP as a measure of liquidity.
2. "Annual Debt Service" means, for any Mortgage Loan, 12 times the amount of
the Monthly Payment under such Mortgage Loan as of the Cut-off Date, except
that, in the case of those Mortgage Loans that have future installments greater
than the installments as of the Cut-Off Date, this figure reflects increased
debt service for Mortgage Loans with step-up interest rates.
3. "Cut-off Date DSC Ratio" or "Cut-off Date Debt Service Coverage Ratio"
means, with respect to any Mortgage Loan, (a) the Normalized NOI for the related
Mortgaged Property, divided by (b) the Annual Debt Service for such Mortgage
Loan.
4. "Occupancy" means, with respect to any Mortgaged Property, (a) in the case
of multifamily properties, the percentage of units rented, (b) in the case of
hotel properties, the average annual occupancy rate (that is, for a specified
year, the percentage obtained by dividing the number of rooms actually rented
for all nights in such year by the number of rooms available to be rented for
all nights in such year), and(c) in the case of warehouse/industrial, office and
retail properties, the percentage of the net rentable square footage rented. See
the column headed "Occupancy as of Date" on page A-4 for the date as of which
(or the period for which) the Occupancy Rate set forth herein or on page A-4
with respect to any Mortgaged Property was determined.
5. References to "weighted average", "wtd avg" or "WA" are references to
an average weighted on the basis of the Cut-off Date Balances of the related
Mortgage Loans.
The Mortgage Pool
The following tables under this "--Additional Mortgage Loan
Information--The Mortgage Pool" section set forth the indicated information
as of the Cut-off Date with respect to all the Mortgage Loans and Mortgaged
Properties. The sum in any column of any of the following tables may not
equal the indicated total due to rounding.
S-77
<PAGE>
MORTGAGE LOANS BY
PROPERTY TYPE
<TABLE>
<CAPTION>
CUT-OFF DATE
AGGREGATE % BY AGG BALANCE
NUMBER OF CUT-OFF DATE CUT-OFF DATE -------------
PROPERTY TYPE LOANS BALANCE BALANCE MINIMUM
- ------------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
RETAIL 13 $134,377,461 30.0% $2,747,223
Hotel ............. 8 110,626,790 24.7 6,502,617
Office ............ 7 71,850,046 16.0 1,815,479
Multifamily ....... 4 43,435,523 9.7 9,478,851
Medical ........... 3 40,538,544 9.0 10,000,000
Industrial/Flex .. 5 30,825,404 6.9 3,678,068
Parking Garage ... 1 16,911,903 3.8 16,911,903
---------- -------------- -------------- -----------
Total/Min/Max/Avg: 41 $448,565,671 100% $ 1,815,479
========== ============== ============== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCE CUT-OFF DATE DSC RATIO WTD AVG WTD AVG
---------------------------- ---------------------------- OCCUPANCY MORTGAGE
PROPERTY TYPE MAXIMUM AVERAGE MINIMUM MAXIMUM WTD AVG RATE RATE
- ------------------ ------------- ------------- ------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail .... $25,246,317 $10,336,728 1.06X 2.72X 1.41X 93.5% 9.872%
Hotel ...... 25,939,913 13,828,349 1.00 1.47 1.28 72.4 9.439
Office ............ 17,350,000 10,264,292 1.02 1.33 1.14 99.6 9.845
Multifamily ....... 14,000,000 10,858,881 0.99 1.59 1.27 92.8 9.502
Medical ........... 20,280,934 13,512,848 1.13 1.34 1.22 97.0 9.742
Industrial/Flex .. 8,713,633 6,165,081 1.06 1.33 1.24 98.0 9.190
Parking Garage ... 16,911,903 16,911,903 1.47 1.47 1.47 97.0 9.235
------------- ------------- ------ --------- --------- ----------- ----------
Total/Min/Max/Avg: $25,939,913 $10,940,626 0.99x 2.72x 1.30x 90.0% 9.642%
============= ============= ====== ========= ========= =========== ==========
</TABLE>
S-78
<PAGE>
MORTGAGED PROPERTIES BY STATE (1)
<TABLE>
<CAPTION>
CUT-OFF DATE
AGGREGATE % BY AGG BALANCE
NUMBER OF CUT-OFF DATE CUT-OFF DATE -------------
STATE PROPERTIES BALANCE BALANCE MINIMUM
- ----- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Pennsylvania........ 6 $87,248,099 19.5% $6,952,067
California ......... 7 82,624,969 18.4 7,200,685
Florida ............ 6 75,338,905 16.8 8,030,900
New York ........... 3 30,090,292 6.7 7,981,271
Kansas ............. 3 29,462,052 6.6 1,123,369
Washington ......... 1 20,280,934 4.5 20,280,934
Ohio ............... 2 18,855,550 4.2 8,155,550
Virginia ........... 2 16,511,082 3.7 2,747,223
New Jersey ......... 3 14,911,086 3.3 3,678,068
Texas .............. 3 13,582,028 3.0 1,815,479
Massachusetts ...... 1 12,839,549 2.9 12,839,549
Maryland ........... 1 11,678,885 2.6 11,678,885
Georgia ............ 1 10,257,610 2.3 10,257,610
North Carolina ..... 1 6,502,617 1.5 6,502,617
Oklahoma ........... 2 4,704,359 1.1 1,544,416
Indiana ............ 4 3,650,793 0.8 711,410
Wisconsin .......... 3 2,677,305 0.6 695,135.7
Illinois ........... 2 2,357,918 0.5 875,336
Mississippi ........ 1 2,324,630 0.5 2,324,630
Colorado ........... 1 1,741,309 0.4 1,741,309
Iowa ............... 1 925,701 0.2 925,701
---------- ------------ ------------ -------------
Total/Min/Max/Avg: 54 $448,565,671 100.0% $ 695,136
========== ============ ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCE CUT-OFF DATE DSC RATIO WTD AVG WTD AVG
---------------------------- ----------------------------- OCCUPANCY MORTGAGE
STATE MAXIMUM AVERAGE MINIMUM MAXIMUM WTD AVG RATE RATE
- ----- ------------- ------------- -------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania ...... $25,246,317 $14,541,350 1.27X 1.59X 1.47X 88.6% 9.227%
California ........ 18,234,562 11,803,567 1.00 2.72 1.43 89.0 9.801
Florida ............ 25,939,913 12,556,484 1.03 1.28 1.17 83.2 9.809
New York ........... 12,500,000 10,030,097 0.99 1.39 1.23 100.0 10.113
Kansas ............. 17,350,000 9,820,684 1.05 1.26 1.13 99.3 9.579
Washington ......... 20,280,934 20,280,934 1.13 1.13 1.13 100.0 9.480
Ohio ............... 10,700,000 9,427,775 1.06 1.26 1.15 87.9 10.369
Virginia ........... 13,763,859 8,255,541 1.15 1.39 1.19 100.0 9.542
New Jersey ......... 5,765,620 4,970,362 1.06 1.32 1.20 100.0 9.250
Texas .............. 8,713,633 4,527,343 1.26 1.33 1.32 71.4 8.790
Massachusetts ...... 12,839,549 12,839,549 1.22 1.22 1.22 64.4 9.250
Maryland ........... 11,678,885 11,678,885 1.29 1.29 1.29 100.0 9.600
Georgia ............ 10,257,610 10,257,610 1.29 1.29 1.29 100.0 10.375
North Carolina ..... 6,502,617 6,502,617 1.25 1.25 1.25 78.9 10.000
Oklahoma ........... 3,159,942 2,352,179 1.25 1.26 1.25 100.0 9.788
Indiana ............ 1,150,199 912,698 1.26 1.44 1.35 74.0 9.788
Wisconsin .......... 1,078,837 892,435 1.25 1.25 1.25 100.0 9.788
Illinois ........... 1,482,582 1,178,959 1.44 1.44 1.44 100.0 9.788
Mississippi ........ 2,324,630 2,324,630 1.26 1.26 1.26 100.0 9.788
Colorado ........... 1,741,309 1,741,309 1.26 1.26 1.26 100.0 9.788
Iowa ............... 925,701 925,701 1.25 1.25 1.25 100.0 9.788
----------- ----------- ----- ------ ------- --------- --------
Total/Min/Max/Avg: $25,939,913 $ 8,306,772 0.99 2.72x 1.30x 90.0% 9.642%
=========== =========== ===== ====== ======= ========= ========
</TABLE>
- ------------
(1) Unlike the other tables shown in this section, this table provides
information on the number of properties, not the number of loans.
Hence, the information on minimum and average cut-off date balances
is different than in the other tables. The differences are entirely
attributable to three Wal-Mart loans which are secured by mortgages
on sixteen Wal-Mart properties.
S-79
<PAGE>
CALIFORNIA PROPERTIES
<TABLE>
<CAPTION>
CUT-OFF DATE
AVERAGE BALANCE
NUMBER OF CUT-OFF DATE % BY AVG (1) -------------
GEOGRAPHIC LOCATION PROPERTIES BALANCE BALANCE MINIMUM
- ------------------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Northern California 3 $39,336,349 8.8% $8,802,416
Southern California 4 43,288,620 9.7 7,200,685
---------- ------------- ====== ----------
Total/Min/Max/Avg: 7 $82,624,969 18.4% $7,200,685
========== ============= ====== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCE CUT-OFF DSC RATIO WTD AVG WTD AVG
---------------------------- ------------------------------ OCCUPANCY MORTGAGE
GEOGRAPHIC LOCATION MAXIMUM AVERAGE MINIMUM MAXIMUM WTD AVG RATE RATE
- ------------------- ------------- ------------- ------- -------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Northern California $16,911,903 $13,112,116 1.00X 1.47x 1.36X 86.4% 9.276%
Southern California 18,234,562 10,822,155 1.02 2.72 1.50 91.3 10.277
----------- ------------- ------ ------ --------- -------- ------
Total/Min/Max/Avg: $18,234,562 $11,803,567 1.00x 2.72x 1.43x 89.0% 9.801%
=========== ============ ====== ====== ========= ======= ======
</TABLE>
- ------------
(1) Represents the percentage of the aggregate Mortgage Pool ($448,565,671).
MORTGAGE LOANS BY
CUT-OFF DATE BALANCE
<TABLE>
<CAPTION>
CUT-OFF
DATE
AGGREGATE % BY AGG BALANCE
RANGE OF NUMBER CUT-OFF DATE CUT-OFF DATE -----------
CUT-OFF DATE BALANCES OF LOANS BALANCE BALANCE MINIMUM
- ---------------------------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
0.00-4,999,999.00 ..... 4 $ 12,387,872 2.8% $ 1,815,479
5,000,000.00-9,999,999.00 ..... 17 135,102,940 30.1 5,467,398
10,000,000.00-14,999,999.00 ... 13 154,866,516 34.5 10,000,000
15,000,000.00-19,999,999.00 ... 3 52,496,465 11.7 16,911,903
20,000,000.00-24,999,999.00 ... 2 42,525,649 9.5 20,280,934
25,000,000.00-29,999,999.00 ... 2 51,186,230 11.4 25,246,317
-------- ------------ --------- ------------
Total/Min/Max/Avg: ............ 41 $448,565,671 100.0% $ 1,815,479
======== ============ ========= ============
Average ................... $ 10,940,626
Minimum ................... $ 1,815,479
Maximum ................... $ 25,939,913
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCE CUT-OFF DATE DSC RATIO WTD AVG WTD AVG
RANGE OF ---------------------------- --------------------------------- OCCUPANCY MORTGAGE
CUT-OFF DATE BALANCES MAXIMUM AVERAGE MINIMUM MAXIMUM WTD AVG RATE RATE
- --------------------- ------------- ------------- ---------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
0.00- 4,999,999.00 ... $ 4,147,102 $ 3,096,968 1.21x 1.44x 1.35x 90.6% 9.098%
5,000,000.00- 9,999,999.00 ... 9,609,021 7,947,232 0.99 2.72 1.29 91.3 9.876
10,000,000.00-14,999,999.00 ... 14,000,000 11,912,809 1.06 1.59 1.29 89.1 9.577
15,000,000.00-19,999,999.00 ... 18,234,562 17,498,822 1.05 1.47 1.24 97.6 9.479
20,000,000.00-24,999,999.00 ... 22,244,715 21,262,824 1.13 1.45 1.30 81.6 8.771
25,000,000.00-29,999,999.00 ... 25,939,913 25,593,115 1.19 1.57 1.37 88.0 10.247
----------- ----------- ------- ----- ----- ----- --------
Total/Min/Max/Avg: ............ $25,939,913 $10,940,626 0.99x 2.72x 1.30x 90.0% 9.642%
=========== =========== ====== ======= ======= ===== ========
Average ...................
Minimum ...................
Maximum ...................
</TABLE>
S-80
<PAGE>
MORTGAGE LOANS BY
CUT-OFF DATE MORTGAGE RATE
<TABLE>
<CAPTION>
CUT-OFF DATE
AGGREGATE % BY AGG BALANCE
RANGE OF NUMBER OF CUT-OFF DATE CUT-OFF DATE -------------
MORTGAGE RATES LOANS BALANCE BALANCE MINIMUM
- ------------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
8.000- 8.499 ..... 2 $ 24,991,938 5.6% $2,747,223
8.500- 8.999 ..... 4 36,671,141 8.2 1,815,479
9.000- 9.499 ..... 8 86,974,372 19.4 3,678,068
9.500- 9.999 ..... 18 198,789,270 44.3 4,147,102
10.000-10.499 ..... 6 57,784,233 12.9 6,502,617
10.500-10.999 ..... 2 34,095,463 7.6 8,155,550
12.500-12.999 ..... 1 9,259,254 2.1 9,259,254
-------- ------------ ------- ------------
Total Min/Max/Avg: 41 $448,565,671 100.0% $1,815,479
========== ============ ======= ============
Weighted Average .............. 9.642%
Minimum ...................... 8.125%
Maximum ...................... 12.625%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCE CUT-OFF DATE DSC RATIO WTD AVG WTD AVG
RANGE OF ---------------------------- ----------------------------- OCCUPANCY MORTGAGE
MORTGAGE RATES MAXIMUM AVERAGE MINIMUM MAXIMUM WTD AVG RATE RATE
- -------------- ------------- ------------- ------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
8.000- 8.499 ..... $22,244,715 $12,495,969 1.39x 1.45x 1.45x 68.7% 8.139%
8.500- 8.999 ..... 13,622,029 9,167,785 1.28 1.47 1.37 82.4 8.634
9.000- 9.499 ..... 20,280,934 10,871,797 1.06 1.59 1.29 92.4 9.285
9.500- 9.999 ..... 25,246,317 11,043,848 0.99 1.57 1.26 95.7 9.675
10.000-10.499 ..... 12,500,000 9,630,705 1.00 1.32 1.16 92.9 10.262
10.500-10.999 ..... 25,939,913 17,047,732 1.19 1.26 1.21 75.4 10.690
12.500-12.999 ..... 9,259,254 9,259,254 2.72 2.72 2.72 67.0 12.625
------------- ------------- --------- ------ -------- ------ -------
Total Min/Max/Avg: $25,939,913 $10,940,626 0.99x 2.72x 1.30x 90.0% 9.642%
============= ============= ========= ====== ========= ====== =======
Weighted Average .................
Minimum .........................
Maximum .........................
</TABLE>
S-81
<PAGE>
MORTGAGE LOANS BY
CUT-OFF DATE DSC RATIO
<TABLE>
<CAPTION>
AGGREGATE % BY AGG
RANGE OF NUMBER OF CUT-OFF DATE CUT-OFF DATE
CUT-OFF DATE DSC RATIOS LOANS BALANCE BALANCE
- ----------------------- --------- ------------ --------------
<S> <C> <C> <C>
0.99-1.00 .............. 2 $ 18,411,437 4.1%
1.01-1.05 .............. 3 34,965,708 7.8
1.06-1.10 .............. 3 24,198,298 5.4
1.11-1.15 .............. 1 20,280,934 4.5
1.16-1.20 .............. 3 50,051,424 11.2
1.21-1.25 .............. 6 62,420,397 13.9
1.26-1.30 .............. 8 76,330,859 17.0
1.31-1.35 .............. 5 38,794,731 8.7
1.36-1.40 .............. 3 17,680,561 3.9
1.41-1.45 .............. 1 4,147,102 0.9
1.46-1.50 .............. 3 52,778,647 11.8
1.56-1.60 .............. 2 39,246,317 8.8
2.71-2.75 .............. 1 9,259,254 2.1
------- ------------ ------
Total/Min/Max/Avg: 41 $448,565,671 100.0%
======= ============= ======
Weighted Average ................... 1.30x
Minimum ........................... .99x
Maximum ........................... 2.72x
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCE WTD AVG WTD AVG WTD AVG
RANGE OF -------------------------------------------- CUT-OFF DATE OCCUPANCY MORTGAGE
CUT-OFF DATE DSC RATIOS MINIMUM MAXIMUM AVERAGE DSC RATIO RATE RATE
- ----------------------- ---------- ----------- -------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
0.99-1.00 .............. $ 8,802,416 $ 9,609,021 $ 9,205,719 0.99x 85.2% 9.935%
1.01-1.05 .............. 8,594,119 17,350,000 11,655,236 1.04 100.0 9.738
1.06-1.10 .............. 5,467,398 10,700,000 8,066,099 1.06 97.0 9.645
1.11-1.15 .............. 20,280,934 20,280,934 20,280,934 1.13 100.0 9.480
1.16-1.20 .............. 10,347,651 25,939,913 16,683,808 1.17 85.1 10.230
1.21-1.25 .............. 3,678,068 18,234,562 10,403,400 1.22 89.6 9.516
1.26-1.30 .............. 6,502,617 12,520,000 9,541,357 1.27 86.5 9.711
1.31-1.35 .............. 1,815,479 12,500,000 7,758,946 1.33 94.8 9.543
1.36-1.40 .............. 2,747,223 7,981,271 5,893,520 1.39 100.0 9.528
1.41-1.45 .............. 4,147,102 4,147,102 4,147,102 1.44 77.1 9.788
1.46-1.50 .............. 13,622,029 22,244,715 17,592,882 1.46 80.2 8.670
1.56-1.60 .............. 14,000,000 25,246,317 19,623,158 1.57 97.9 9.559
2.71-2.75 .............. 9,259,254 9,259,254 9,259,254 2.72 67.0 12.625
------------ ------------- ------------- ------ ------- --------
Total/Min/Max/Avg: $ 1,815,479 $25,939,913 $10,940,626 1.30x 90.0% 9.642%
============ ============= ============= ====== ======= ========
Weighted Average .....................
Minimum .............................
Maximum .............................
</TABLE>
S-82
<PAGE>
MORTGAGE LOANS BY
YEAR OF ORIGINATION OR MODIFICATION(1)
<TABLE>
<CAPTION>
CUT-OFF DATE
YEAR OF AGGREGATE % BY AGG BALANCE
ORIGINATION/ NUMBER OF CUT-OFF DATE CUT-OFF DATE -------------
MODIFICATION LOANS BALANCE BALANCE MINIMUM
- ------------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
1986 ............. 3 $ 28,020,218 6.3% $ 6,762,948
1987 ............. 2 12,952,102 2.9 4,147,102
1988 ............. 4 52,376,307 11.7 8,155,550
1989 ............. 8 127,195,185 28.4 10,000,000
1990 ............. 7 58,143,042 13.0 3,678,068
1991 ............. 1 6,952,067 1.6 6,952,067
1992 ............. 5 46,120,219 10.3 6,502,617
1993 ............. 5 53,268,995 11.9 1,815,479
1994 ............. 5 51,858,652 11.6 8,030,900
1995 ............. 1 11,678,885 2.6% 11,678,885
-------- ------------ ------- -----------
Total/Min/Max/Avg: 41 $448,565,671 100.0% $ 1,815,479
======== ============ ======= ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR OF CUT-OFF DATE BALANCE CUT-OFF DSC DATE RATIO WTD AVG WTD AVG
ORIGINATION/ ---------------------------- -------------------------------- OCCUPANCY MORTGAGE
MODIFICATION MAXIMUM AVERAGE MINIMUM MAXIMUM WTD AVG RATE RATE
- ---------------- ------------- ------------- ------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1986 ............ $11,648,249 $9,340,073 0.99x 1.26x 1.16x 89.1% 9.818%
1987 ............ 8,805,000 6,476,051 1.27 1.44 1.33 92.0 9.728
1988 ............ 25,939,913 13,094,077 1.03 2.72 1.44 78.1 10.956
1989 ............ 25,246,317 15,899,398 1.13 1.57 1.32 98.1 9.732
1990 ............ 17,350,000 8,306,149 1.05 1.39 1.15 100.0 9.697
1991 ............ 6,952,067 6,952,067 1.39 1.39 1.39 100.0 9.710
1992 ............ 10,988,683 9,224,044 1.00 1.25 1.18 85.7 9.675
1993 ............ 22,244,715 10,653,799 1.22 1.47 1.39 72.4 8.603
1994 ............ 14,000,000 10,371,730 1.02 1.59 1.30 89.0 8.958
1995 ............ 11,678,885 11,678,885 1.29 1.29 1.29 100.0 9.600
----------- ----------- ------ ------ ------- -------- -------
TOTAL/MIN/MAX/AVG: $25,939,913 $10,940,626 0.99x 2.72x 1.30x 90.0% 9.642%
=========== =========== ====== ====== ======= ======== =======
</TABLE>
- ------------
(1) Year shown represents the year each loan was originated unless the
loan has been modified, in which case the year of the most recent
modification is used.
S-83
<PAGE>
MORTGAGE LOANS BY
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
CUT-OFF DATE
RANGE OF AGGREGATE % BY AGG BALANCE
REMAINING TERMS NUMBER OF CUT-OFF DATE CUT-OFF DATE -------------
TO MATURITY (MONTHS) LOANS BALANCE BALANCE MINIMUM
- ------------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
1- 24 ........... 9 $100,082,083 22.3% $ 6,952,067
25- 60 .......... 14 $133,052,631 29.7 1,815,479
61-120 ......... 10 116,778,776 26.0 8,030,900
121-180 ........ 2 29,889,955 6.7 9,609,021
181-240 ........ 4 32,815,909 7.3 4,147,102
241-300 ........ 1 25,246,317 5.6 25,246,317
301-360 ........ 1 10,700,000 2.4 10,700,000
----- ------------ ----- ----------
Total/Min/Max/Avg: 41 $448,565,671 100.0% $ 1,815,479
===== ============= ====== ==========
Weighted Average .. 89 months
Minimum ........... 9 months
Maximum ........... 306 months
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RANGE OF
REMAINING TERMS CUT-OFF DATE BALANCE CUT-OFF DATE DSC RATIO WTD AVG WTD AVG
TO MATURITY ---------------------------- ----------------------------- OCCUPANCY MORTGAGE
(MONTHS) MAXIMUM AVERAGE MINIMUM MAXIMUM WTD AVG RATE RATE
- ------------------- ----------- ----------- -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1-24 ............... $22,244,715 $11,120,231 1.00x 1.47x 1.28x 80.5% 9.163%
25-60 .............. 25,939,913 9,503,759 1.06 2.72 1.42 90.8 9.992
61-120 ............. 18,234,562 11,677,878 1.03 1.34 1.19 92.0 9.496
121-180 ............ 20,280,934 14,944,977 0.99 1.13 1.08 100.0 9.607
181-240 ............ 11,648,249 8,203,977 1.25 1.44 1.29 87.8 9.971
241-300 ............ 25,246,317 25,246,317 1.57 1.57 1.57 100.0 9.730
301-360 ............ 10,700,000 10,700,000 1.06 1.06 1.06 100.0 10.270
----------- ----------- ----- ------ ------- --------- --------
Total/Min/Max/Avg: $25,939,913 $10,940,626 0.99x 2.72x 1.30x 90.0% 9.642%
=========== =========== ===== ====== ======= ========= ========
Weighted Average ..
Minimum ...........
Maximum ...........
</TABLE>
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Additional Information
For a detailed presentation of certain of the characteristics of the
Mortgage Loans and the Mortgaged Properties, on an individual basis, see
Appendices A and B hereto. Certain additional information regarding the
Mortgage Loans is contained in the Prospectus under "SECURITY FOR THE BONDS
AND CERTIFICATES" and "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS."
ASSIGNMENT OF THE MORTGAGE LOANS; REPURCHASES
At the time of issuance of the Certificates, the Depositor will cause the
Mortgage Loans to be assigned to the Trustee, together with all principal and
interest due on or with respect to such Mortgage Loans, other than principal,
interest and other amounts due on or before the Cut-off Date and Principal
Prepayments received on or before the Cut-off Date. The Trustee, concurrently
with such assignment, will execute and deliver Certificates evidencing the
beneficial ownership interests in the Trust Fund to or at the direction of
the Depositor in exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the Trust Agreement (the
"Mortgage Loan Schedule"). The Mortgage Loan Schedule will include, among
other things, as to each Mortgage Loan, information as to its Cut-off Date
Balance, Mortgage Rate, Monthly Payment as of the Cut-off Date and maturity
date.
In addition, the Depositor will deliver or cause to be delivered to the
Trustee or to a document custodian appointed by the Trustee (a "Custodian"),
among other things, the following documents with respect to each Mortgage
Loan (collectively, as to each Mortgage Loan, the "Mortgage File"): (i) the
original Mortgage Note, endorsed without recourse to the order of the
Trustee; (ii) the original or a certified copy of each Mortgage, together
with originals or certified copies of any intervening assignments of such
Mortgage, in each case with evidence of recording indicated thereon; (iii)
the original or a certified copy of each related assignment of leases (if
such item exists and is a document separate from the corresponding Mortgage),
together with originals or certified copies of any intervening assignments of
such document, in each case with evidence of recording indicated thereon;
(iv) an original assignment of each Mortgage in favor of the Trustee and in
recordable form; (v) an original assignment of each related assignment of
leases (if such item exists and is a document separate from the corresponding
Mortgage) in favor of the Trustee and in recordable form; (vi) originals or
certified copies of all assumption, modification, consolidation, extension
and substitution agreements in those instances where the terms or provisions
of a Mortgage or Mortgage Note have been modified or the Mortgage Loan has
been assumed; (vii) the original or copy of the lender's title insurance
policy issued on the date of the origination of such Mortgage Loan; and
(viii) with respect to each Senior Participation, a counterpart original of
the participation agreement relating thereto, together with an original
assignment of the related Mortgage Loan (subject to the related Junior
Participation) in favor of the Trustee.
The Trustee or a Custodian on its behalf will be required to review each
Mortgage File within a specified period following its receipt thereof. If any
of the above-described documents is found during the course of such review to
be missing from any Mortgage File or defective, and, in the latter case, such
omission or defect could materially and adversely affect the interests of the
Certificateholders, the Seller, if it cannot deliver or cause delivery of the
document or cure or cause the cure of the defect in all material respects
within a period of 90 days following its receipt of notice thereof, will be
obligated pursuant to the Mortgage Loan Purchase Agreement assigned to the
Trust within such 90-day period to repurchase the affected Mortgage Loan at a
price (the "Purchase Price") generally equal to the sum of (i) the unpaid
principal balance of such Mortgage Loan, (ii) unpaid accrued interest on such
Mortgage Loan (calculated at the Mortgage Rate) to but not including the Due
Date in the Collection Period in which the purchase is to occur, (iii) any
related unreimbursed Servicing Advances and (iv) the amount of any other
Additional Trust Fund Expenses specifically related to such Mortgage Loan
previously paid or reimbursed to or payable or reimbursable to the Servicer,
the Trustee, the Special Servicer or other persons.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any defect or
omission in the Mortgage File for a Mortgage Loan. None of the Depositor, the
Depositor's affiliates or any other person will be obligated to repurchase
any Mortgage Loan as to which there is a material defect or omission in the
related Mortgage File if the Seller defaults on its obligation to do so. If
the Seller is required to repurchase a Mortgage Loan (or a mortgage loan
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constituting part of a Group) which is a Cross-Collateralized Mortgage Loan,
and if related Cross- Collateralized Mortgage Loans secured by mortgage liens
on the same Mortgaged Properties are to remain part of the Trust, then the
Seller shall be required to either: (i) execute, acknowledge and deliver to
the Trustee all such additional documents and instruments and do or cause to
be done at the Seller's expense all such further acts and things as may be
reasonably necessary to eliminate the cross- collateralization of such
Cross-Collateralized Mortgage Loan being repurchased with each such other
Cross-Collateralized Mortgage Loan remaining in the Trust, provided that
thereafter each Cross- Collateralized Mortgage Loan (or the Group of
remaining Cross-Collateralized Mortgage Loans) remaining in the Trust must be
a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Code,
or (ii) also purchase all related Cross-Collateralized Mortgage Loans secured
by mortgage liens on the same Mortgaged Properties at the respective Purchase
Price therefor.
The Trust Agreement will require the Trustee within 30 days of the Closing
Date to cause each of the assignments described in clauses (iv) and (v) of
the third preceding paragraph to be submitted for recording in the real
property records of the jurisdiction in which the related Mortgaged Property
is located. See "THE TRUST AGREEMENT--Assignment of Mortgage Assets" in the
Prospectus.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
The Mortgage Loans will be acquired by the Depositor from the Seller
pursuant to a Mortgage Loan Purchase Agreement dated as of the Cut-off Date,
between the Seller and the Depositor (the "Mortgage Loan Purchase
Agreement"). The Depositor will assign to the Trustee all of its rights,
title and interest in the Mortgage Loan Purchase Agreement insofar as the
Mortgage Loan Purchase Agreement relates to representations, warranties,
covenants and agreements made by the Seller in respect of the Mortgage Loans
and any remedies provided thereunder for any breach of such representations,
warranties, covenants and agreements, which remedies may be enforced against
the Seller directly by the Trustee on behalf of the Certificateholders. The
Trust Agreement will obligate the Servicer on behalf of the Trust Fund to
enforce the relevant provisions of the Mortgage Loan Purchase Agreement
relating to the representations, warranties, covenants and agreements of the
Seller with respect to the Mortgage Loans. The Depositor will have no
responsibility for and will not make any representation with respect to the
origination of the Mortgage Loans, the management of the Mortgaged
Properties, the validity or enforceability or sufficiency of the security
arrangements with respect to the Mortgage Loans, the status or sufficiency of
the Mortgage Note, the Mortgage or any other documents or instruments
included in the Mortgage Files, the collectibility of amounts due under the
Mortgage Loans, or the validity or enforceability of the representations,
warranties, covenants or agreements made by the Seller with respect to the
Mortgage Loans or of any remedies provided by the Mortgage Loan Purchase
Agreement.
In the Mortgage Loan Purchase Agreement, the Seller will represent and
warrant with respect to each Mortgage Loan (including each Mortgage Loan
underlying a Senior Participation), as of the Cut-off Date, or as of such
other date specifically provided in the representation and warranty, among
other things, generally that:
(1) The information pertaining to such Mortgage Loan set forth in the
Mortgage Loan Schedule to the Trust Agreement was true and correct in all
material respects as of the Cut-off Date; provided, however, that in the
case of a Senior Participation, certain information pertains to the Senior
Participation interest in the related Mortgage Loan rather than the entire
Mortgage Loan;
(2) As of the date of its origination, the Mortgage Loan complied in
all material respects with, or was exempt from, all material requirements
of federal, state or local law relating to the origination of such
Mortgage Loan;
(3) The Seller owns the Mortgage Loan, has full right and authority
to sell, assign and transfer the Mortgage Loan and is transferring the
Mortgage Loan free and clear of any and all liens, pledges, charges or
security interests of any nature encumbering such Mortgage Loan;
(4) The proceeds of such Mortgage Loan have been fully disbursed and
there is no requirement for future advances thereunder;
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(5) Each of the related Mortgage Note, Mortgage, loan or credit
agreement (if any), and other material agreements executed in connection
therewith is the legal, valid and binding obligation of the maker thereof
(subject to any non-recourse provisions therein), enforceable in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at
law), and the Mortgagor has not asserted, and the Seller and the
affiliates, servicers and other agents of the Seller have not taken, any
action creating any offset, defense, counterclaim or right to rescission
with respect to such Mortgage Note, Mortgage, loan or credit agreement (if
any), or other material agreement and, to the Seller's knowledge, there is
no valid offset, defense, counterclaim or right to rescission with respect
to such Mortgage Note, Mortgage, loan or credit agreement (if any), or
other material agreement;
(6) The assignment of each related Mortgage in favor of the Trustee
constitutes the legal, valid and binding assignment of such Mortgage from
the Seller to the Depositor or its designee;
(7) Subject to the exceptions set forth below, the related Mortgage
is a valid first lien on the related Mortgaged Property, or, if not a
first lien, the first lien on such Mortgaged Property is represented by
another Mortgage Loan also included in the Trust, which Mortgaged Property
is free and clear of all encumbrances and liens having priority over, or
on a parity with, the lien of the Mortgage, except for (a) liens for real
estate taxes and special assessments not yet due and payable, (b)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mortgage,
such exceptions appearing of record being of a type or nature which are
acceptable to mortgage lending institutions generally, and (c) other
matters to which like properties are commonly subject which do not,
individually or in the aggregate, materially interfere with the benefits
of the security intended to be provided by such Mortgage;
(8) All taxes and governmental assessments that on or prior to the
Cut-off Date became due and owing in respect of, and affect, the related
Mortgaged Property have been paid, or an escrow of funds in an amount
sufficient to cover such payments has been established;
(9) There is no proceeding pending for the total or material partial
condemnation of the related Mortgaged Property;
(10) Except for those Mortgage Loans as to which all or substantially
all of the related Mortgaged Property has been leased to Wal-Mart and that
Mortgage Loan as to which all or substantially all of the related
Mortgaged Property has been leased to Mobil Oil Credit Corporation,
wherein the related Mortgaged Property is self-insured by the tenant and
the tenant has a current long-term investment rating of not less than "A"
or its equivalent, the related Mortgaged Property is insured by an
all-risk or a fire and extended perils insurance policy (which may be a
blanket policy that also covers other properties) providing coverage in an
amount not less than the lesser of (i) the insurable value of the
improvements, and (ii) the greater of (A) the amount necessary to avoid
the operation of any co-insurance provisions with respect to the Mortgaged
Property and (B) the unpaid principal balance of such Mortgage Loan as of
the Cut-Off Date; all premiums on such insurance policy have been paid
through the Cut-Off Date, such insurance policy requires prior notice to
the Mortgagee of termination or cancellation, and no such notice which
remains uncured has been received, and the related Mortgage obligates the
related Mortgagor to maintain all such insurance and, upon such
Mortgagor's failure to do so, authorizes the Mortgagee to maintain such
insurance at the Mortgagor's cost and expense and to seek reimbursement
therefor from such Mortgagor;
(11) No Mortgage Loan was 30 days or more past due as of, or during
the 12-month period preceding, the Cut-Off Date; and
(12) Each Mortgage Loan is a "qualified mortgage" within the meaning
of Section 860G(a)(3) of the Code (without regard to Treasury Regulation
Section 1.860G-2(f) or any similar rule that provides that a defective
obligation is a qualified mortgage for a temporary period).
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<PAGE>
In the case of a breach of any of the foregoing representations and
warranties that materially and adversely affects the value of any Mortgage
Loan or the interests of the Certificateholders therein, the Seller, if it
fails to cure such breach within a period of 90 days following its discovery
or its receipt of notice thereof, will be obligated pursuant to the Mortgage
Loan Purchase Agreement within such 90-day period to repurchase the affected
Mortgage Loan at its applicable Purchase Price; provided that, if the Seller
certifies to the Depositor and the Trustee that (i) such breach is not
reasonably susceptible of correction or cure within such 90-day period and is
susceptible of correction or cure within an additional 90-day period, (ii)
such breach and the proposed cure thereof does not and will not cause the
related Mortgage Loan to fail to be a "qualified mortgage" within the meaning
of Section 860G(a) (3) of the Code, (iii) the Seller is diligently
prosecuting the correction or cure of such breach, and (iv) the Servicer has
not determined in writing that any P&I Advance for such Mortgage Loan during
such additional 90-day period would be a Nonrecoverable Advance, then the
Seller shall have an additional period of 90 days in which to correct or cure
such breach, or failing such correction or cure, to repurchase such Mortgage
Loan.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any uncured breach of
the Seller's representations and warranties regarding the Mortgage Loans. The
Seller will be the sole warranting party in respect of the Mortgage Loans,
and none of the Depositor, its affiliates or any other person will be
obligated to repurchase any affected Mortgage Loan in connection with a
material breach of the Seller's representations and warranties if the Seller
defaults on its obligation to do so. See "THE TRUST AGREEMENT--Repurchase of
Non-Conforming Loans" in the Prospectus. If the Seller is required to
repurchase a Mortgage Loan (or a mortgage loan constituting part of a Group)
which is a Cross-Collateralized Mortgage Loan, and if related Cross-
Collateralized Mortgage Loans secured by mortgage liens on the same Mortgaged
Properties are to remain part of the Trust, then the Seller shall be required
to either: (i) execute, acknowledge and deliver to the Trustee all such
additional documents and instruments and do or cause to be done at the
Seller's expense all such further acts and things as may be reasonably
necessary to eliminate the cross- collateralization of such
Cross-Collateralized Mortgage Loan being repurchased with each such other
related Cross-Collateralized Mortgage Loan remaining in the Trust, provided
that thereafter each related Cross-Collateralized Mortgage Loan (or Group of
remaining related Cross-Collateralized Mortgage Loan) remaining in the Trust
which had been cross-collateralized with the Cross-Collateralized Mortgage
Loan being repurchased must be a "qualified mortgage" within the meaning of
Section 860G(a)(3) of the Code, or (ii) also purchase all related
Cross-Collateralized Mortgage Loans secured by mortgage liens on the same
Mortgaged Properties at the respective Purchase Price therefor.
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 the Mortgage Loans 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, as well as the other characteristics
of the Mortgage Loans described herein, 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 Trust Agreement, with the Securities and
Exchange 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.
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<PAGE>
SERVICING OF MORTGAGE LOANS
GENERAL
The servicing of the Mortgage Loans and any REO Properties will be
governed by the Trust Agreement, as well as by a servicing agreement (the
"Servicing Agreement") and a special servicing agreement (the "Special
Servicing Agreement", and together with the Trust Agreement and the Servicing
Agreement, the "Transaction Documents"), each to be dated as of the Cut-off
Date, among the Trustee, the Depositor, the Servicer and the Special
Servicer. The following summaries describe certain provisions of the
Transaction Documents relating to the servicing and administration of the
Mortgage Loans and any REO Properties. The summaries do not purport to be
complete and are subject, and qualified in their entirety by reference, to
the provisions of the Transaction Documents. When particular provisions or
terms used in the Transaction Documents are referred to herein, the actual
provisions (including definitions of terms) are deemed to be incorporated
herein by reference. Reference is made to the Prospectus for additional
information regarding the terms of the Transaction Documents relating to the
servicing and administration of the Mortgage Loans and any REO Properties,
provided that the information herein supersedes any contrary information set
forth in the Prospectus. See "SERVICING OF MORTGAGE LOANS" and "THE TRUST
AGREEMENT" in the Prospectus.
The Servicer and the Special Servicer each will be required to directly
service and administer the Mortgage Loans during the time it is responsible
for such servicing and administration, for and on behalf of the Trustee and
for the benefit of the Certificateholders, in accordance with applicable law,
the terms of the Transaction Documents, the respective Mortgage Loans and the
related Insurance Policies (as defined in the Prospectus) and, to the extent
consistent with the foregoing, in accordance with the applicable Accepted
Servicing Practices (as described below for each of the Servicer and the
Special Servicer under "--The Servicer" and "--The Special Servicer",
respectively).
The Servicer initially will be responsible for the servicing and
administration of the entire Mortgage Pool. Upon the occurrence of a
Servicing Transfer Event with respect to any Mortgage Loan, and prior to
acceleration of amounts due under the related Mortgage Note or commencement
of any foreclosure or similar proceedings, the Servicer will transfer its
servicing responsibilities with respect to such Mortgage Loan to the Special
Servicer (whereupon it will become a "Specially Serviced Mortgage Loan"), but
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, to make remittances to the Trustee and prepare certain
reports for distribution to the Certificateholders with respect to such
Mortgage Loan and to make Servicing Advances and/or to reimburse the Special
Servicer for any reimbursable servicing expenses incurred thereby with
respect to such Mortgage Loan. If any Mortgaged Property is acquired on
behalf of the Trust, whether through foreclosure, deed-in-lieu of foreclosure
or otherwise, the Special Servicer will be responsible for the operation and
management thereof. The Servicer will have no responsibility for the Special
Servicer's performance of its duties under the Transaction Documents.
A "Servicing Transfer Event" means, with respect to any Mortgage Loan, the
occurrence of any of the following: (i) if such Mortgage Loan is a Balloon
Loan, a payment default occurs on such Mortgage Loan at its original maturity
date and the Servicer does not extend the maturity of such Mortgage Loan
within 31 days following its maturity date or a payment default occurs on
such Mortgage Loan at its extended maturity date; (ii) any Monthly Payment
becomes more than 60 days delinquent; (iii) a payment default occurs or, in
the judgment of the Servicer, is imminent and is not likely to be cured by
the related borrower within 60 days of such occurrence (and in the case of a
Balloon Payment, the maturity of such Mortgage Loan is not likely to be
extended by the Servicer within 31 days following such Mortgage Loan's
maturity date); (iv) the maturity of such Mortgage Loan is accelerated by the
Servicer in connection with the enforcement of any "due-on-sale" or
"due-on-encumbrance" clause in the related Mortgage; (v) any other default
occurs that, in the good faith reasonable judgment of the Servicer,
materially impairs the use or marketability of any related Mortgaged Property
or the value thereof as security for such Mortgage Loan; (vi) the related
borrower enters into or consents to bankruptcy, appointment of a receiver or
conservator, or a similar insolvency or similar proceeding, or the related
borrower becomes the subject of
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a decree or order for such a proceeding that remains in full force
undischarged or unstayed for a period of 60 days; (vii) the related borrower
admits in writing its inability to pay its debts generally as they become
due, files a petition to take advantage of any applicable insolvency or
reorganization statute, makes an assignment for the benefit of its creditors
or voluntarily suspends payment of its obligations; or (viii) the Servicer
receives notice of the foreclosure or proposed foreclosure of any lien on any
related Mortgaged Property.
If any Specially Serviced Mortgage Loan as to which a Servicing Transfer
Event specified in clause (i), (ii) or (iii) of the preceding paragraph has
occurred becomes a performing Mortgage Loan for at least three consecutive
Monthly Payments, in accordance with its original terms or as modified in
accordance with the Transaction Documents, and all prior payment defaults
have been cured, or if, in the case of any Specially Serviced Mortgage Loan
as to which a Servicing Transfer Event specified in clause (iv), (v), (vi),
(vii) or (viii) has occurred, such event has been remedied, cured or
otherwise satisfactorily resolved (whereupon, in either case, such Specially
Serviced Mortgage Loan shall become a "Rehabilitated Mortgage
LoanRehabilitated Mortgage Loan"), the Special Servicer will transfer back
all servicing responsibilities therefor to the Servicer, and the Servicer
will be required to resume servicing such Mortgage Loan pursuant to the terms
of the Transaction Documents.
THE SERVICER
General
Fleet Real Estate Capital, Inc., a Rhode Island corporation, will act as
Servicer with respect to the Mortgage Pool. Fleet Real Estate Capital, Inc.
("FREC") is a nonbank, wholly-owned subsidiary of Fleet Financial Group
("FFG"), a bank holding company that reported on a consolidated basis total
assets of approximately $50.8 billion as of September 30, 1995. FREC,
headquartered in Boston, Massachusetts, offers primary/master loan servicing
and nonperforming asset valuation and management/special servicing services
to the commercial real estate industry. As of November 1, 1995, FREC is the
master, primary or special servicer of approximately $3.6 billion in
commercial mortgage loans. The foregoing information concerning the Servicer
has been provided by it. Accordingly, neither the Depositor nor the
Underwriter makes any representation or warranty as to the accuracy or
completeness of such information.
The Servicer will perform various customary functions of a servicer of
mortgage loans comparable to the Mortgage Loans, including the collection of
Monthly Payments and, if required by the related Mortgage and/or Mortgage
Note, escrow payments, the establishment and maintenance of Escrow Accounts
(if permitted by the related Mortgage and/or Mortgage Note) for the
collection of escrow payments in respect of hazard insurance premiums, real
estate taxes and assessments and similar items with respect to the Mortgage
Loans (including Specially Serviced Mortgage Loans), the establishment and
maintenance of any capital improvements reserve, replacement reserve or any
other reserve fund with respect to any Mortgaged Property pursuant to the
terms of the related Mortgage, and conducting inspections of each Mortgaged
Property at least once a year in such manner as will be consistent with the
applicable Accepted Servicing Practices. The Servicer is not permitted to use
sub-servicers.
The Servicing Agreement will provide that the Servicer will not take any
actions that violate the REMIC Provisions.
Accepted Servicing Practices
"Accepted Servicing Practices" means, in the case of the Servicer, the
higher of the following standards of care: (1) the same manner in which and
with the same care, skill, prudence and diligence with which the Servicer
services and administers similar mortgage loans for other third-party
portfolios, giving due consideration to the customary and usual standards of
practice of prudent institutional commercial and multifamily mortgage lenders
servicing their own mortgage loans and (2) the same care, skill, prudence and
diligence with which the Servicer services and administers mortgage loans
owned by the Servicer, in either case exercising reasonable business judgment
and acting in accordance with applicable
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law, the terms of the Servicing Agreement and the terms of the respective
Mortgage Loans and the related insurance policies and with a view to the
maximization of timely recovery of principal and interest on the Mortgage
Loans and the best interests of the Trust and the Certificateholders, but
without regard to: (i) any relationship that the Servicer or any affiliate of
the Servicer may have with the related borrower, the Depositor or other
parties to the transaction; (ii) the ownership of any Certificate by the
Servicer or any affiliate of the Servicer; (iii) the ownership by the
Servicer or any affiliate of the Servicer of any indebtedness secured by a
junior lien on the Mortgaged Property securing any Mortgage Loan; (iv) the
ownership by the Servicer or any affiliate of the Servicer of any subordinate
participation interest in a Mortgage Loan; (v) the Servicer's obligation to
make Advances as specified in the Transaction Documents; (vi) the Servicer's
right to receive compensation for its services under the Transaction
Documents or with respect to any particular transaction; (vii) the servicing
of Specially Serviced Mortgage Loans by the Special Servicer; and (viii) the
ownership, servicing or management for others of any other mortgage loans or
mortgaged properties.
Servicer Compensation and Payment of Expenses
The Servicer will be entitled to a monthly fee (the "Servicing
FeeServicing Fee"), payable out of collections and advances of interest on or
in respect of, and equal to one month's interest (calculated on the basis of
a 360-day year consisting of twelve 30-day months) at 0.027% per annum on the
Scheduled Principal Balance as of the first day of each Due Period of, each
Mortgage Loan (including Mortgage Loans as to which the related Mortgaged
Property has become an REO Property); provided that in making such
calculation in connection with any Senior Participation, only the Trust's
participation or beneficial interest in the underlying Mortgage Loan shall be
included. The Servicing Agreement permits the Servicer to extend the term of
a Balloon Loan for a period not to exceed six months past its original
maturity date upon the satisfaction of certain conditions stated in the
Servicing Agreement, and the Servicer will be entitled to any reasonable
extension fee collected in connection therewith up to $10,000. See
"--Mortgage Loan Modifications" herein. In addition, the Servicer will be
entitled to receive, as additional compensation, (i) late fees that are
collected by the Servicer with respect to Mortgage Loans (other than
Specially Serviced Mortgage Loans) after first paying therefrom all interest
on Advances then due and payable to the Trustee and the Servicer, (ii) a fee
in connection with the assumption of any Mortgage Loan not in excess of the
lesser of $50,000 or 1% of the unpaid principal balance of the related
Mortgage Loan, and (iii) any interest or other income earned on any
investment of the funds in the Collection Account. See "SERVICING OF MORTGAGE
LOANS--Servicing Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Servicer, and for
information regarding expenses payable by the Servicer.
Adjustment to Servicer's Fee in Connection with Prepaid Mortgage Loans
If a borrower makes a Principal Prepayment or Balloon Payment prior to the
Due Date for a Mortgage Loan in any Collection Period, a Prepayment Interest
Shortfall will result. If a borrower makes a Principal Prepayment or Balloon
Payment after the Due Date for a Mortgage Loan during any Collection Period,
Excess Prepayment InterestExcess Prepayment Interest will arise. See
"DESCRIPTION OF THE CERTIFICATES--Prepayment Interest Shortfalls and Excess
Prepayment Interest" herein. In order to mitigate any Prepayment Interest
Shortfalls (not including any such shortfalls arising from Principal
Prepayments due to casualty, condemnation or default) in full or in part on
the Mortgage Loans, the amount of the Servicing Fee (but not the fees payable
to the Special Servicer or the Trustee) payable on the related Distribution
Date will be reduced (to not less than zero) by the amount, if any, by which
the aggregate of all Prepayment Interest Shortfalls for all Mortgage Loans
(including, in the case of a Senior Participation, only the portion thereof
allocable to the Trust's participation or beneficial interest in the
underlying Mortgage Loan) for the related Distribution Date exceeds Excess
Prepayment Interest for all Mortgage Loans (including, in the case of a
Senior Participation, only the portion thereof allocable to the Trust's
participation or beneficial interest in the underlying Mortgage Loan) for
such Distribution Date. Any remaining Net Aggregate Prepayment Interest
Shortfall will be allocated among the respective Classes of Regular
Interest Certificates as set forth under "DESCRIPTION OF THE CERTIFICATES
- -- Prepayment Interest Shortfalls and Excess Prepayment Interest" herein.
To the extent the aggregate of
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all Excess Prepayment Interest for all Mortgage Loans (including, in the
case of a Senior Participation, only the portion thereof allocable to the
Trust's participation or beneficial interest in the underlying Mortgage Loan)
for any Distribution Date exceeds the aggregate of all Prepayment Interest
Shortfalls for all Mortgage Loans (including, in the case of a Senior
Participation, only the portion thereof allocable to the Trust's
participation or beneficial interest in the underlying Mortgage Loan) for
such Distribution Date, such excess amount will be payable to the Servicer as
additional compensation.
THE SPECIAL SERVICER
General
J. E. Robert Company, Inc., a Virginia corporation (the "Special
Servicer"), will act as the Special Servicer with respect to the Mortgage
Pool and in such capacity will be responsible for servicing and administering
the Specially Serviced Mortgage Loans and REO Properties.
The Special Servicer is a privately owned company whose principal
executive offices are located at 1650 Tysons Boulevard, Suite 1600, McLean,
Virginia 22102.
The principal business of the Special Servicer is the management and
capital recovery of distressed and underperforming real estate mortgage
loans, foreclosed real estate and related assets. The Special Servicer and
its affiliates have capabilities in a variety of disciplines including asset
management, crisis management of troubled financial institutions and
subsidiaries, marketing and sales, bulk portfolio acquisitions and litigation
support. The Special Servicer has regional offices in Irving, Dallas and
Houston, Texas; Milford and Stamford, Connecticut; and Los Angeles,
California, and field offices in Fort Lauderdale, Florida and Paris, France.
As of September 30, 1995, the Special Servicer was managing portfolios
including 2,384 loan assets with a book value of approximately $4.015
billion, 483 real estate owned assets with a book value of $1.621 billion and
9 other assets with a book value of $8 million. Of these assets,
approximately $5.018 billion, or 89%, comprise commercial real estate assets.
Commercial real estate assets include 603 multifamily mortgage loans totaling
approximately $1.054 billion and 95 owned multifamily properties totaling
approximately $357 million. The Special Servicer's managed assets are located
in 43 states.
The Special Servicer and its affiliates own and are in the business of
acquiring assets similar in type to the assets of the Trust Fund.
Accordingly, the assets of the Special Servicer and its affiliates may,
depending upon the particular circumstances, including, the nature and
location of such assets, compete with the Mortgaged Properties for tenants,
purchasers, financing and so forth. The foregoing information concerning the
Special Servicer has been provided by it. Accordingly, neither the Depositor
nor the Underwriter makes any representation or warranty as to the accuracy
or completeness of such information.
The Special Servicer will, among other things, oversee the resolution of
Specially Serviced Mortgage Loans, act as disposition manager of REO
Properties acquired on behalf of the Trust through foreclosure or deed in
lieu of foreclosure, maintain insurance with respect to REO Properties and
provide monthly reports to the Servicer. The Special Servicer will be
required, as and to the extent described herein, to seek advice and approval
and take direction from the Operating Adviser and/or the Extension Adviser.
The Special Servicer is not permitted to use sub-servicers.
The Special Servicing Agreement will provide that the Special Servicer
will not take any actions that violate the REMIC Provisions.
Accepted Servicing Practices
"Accepted Servicing Practices" means, in the case of the Special Servicer,
the higher of the following standards of care: (1) the same manner in which
and with the same care, skill, prudence and diligence with which the Special
Servicer services and administers similar mortgage loans and manages similar
REO Properties for other third-party portfolios, giving due consideration to
the customary and usual servicing standards and practices and asset
management standards and practices for performing and nonperforming
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commercial and multifamily mortgage loans and REO Properties, as the case
may be, and their related properties, that are customarily employed by
prudent institutional commercial and multifamily mortgage lenders servicing
their own mortgage loans and prudent institutional asset managers managing
their own REO Properties, and (2) the same care, skill, prudence and
diligence with which the Special Servicer services and administers mortgage
loans and manages REO Properties owned by the Special Servicer, in either
case exercising reasonable business judgment and acting in accordance with
applicable law, the terms of the Special Servicing Agreement and the terms of
the respective Mortgage Loans and the related insurance policies and with a
view to the maximization of timely recovery of principal and interest on the
Mortgage Loans and REO Properties and the best interests of the Trust and the
Certificateholders, but without regard to: (i) any relationship that the
Special Servicer or any affiliate of the Special Servicer may have with the
related borrower, the Depositor or other parties to the transaction; (ii) the
ownership of any Certificate by the Special Servicer or any affiliate of the
Special Servicer; (iii) the ownership by the Special Servicer or any
affiliate of the Special Servicer of any indebtedness secured by a junior
lien on the Mortgaged Property securing any Mortgage Loan; (iv) the ownership
by the Special Servicer or any affiliate of the Special Servicer of any
subordinate participation interest in a Mortgage Loan; (v) the Special
Servicer's right to receive compensation for its services under the
Transaction Documents or with respect to any particular transaction; (vi) the
servicing by the Servicer of the Mortgage Loans that are not Specially
Serviced Mortgaged Loans; and (vii) the ownership, servicing or management
for others of any other mortgage loans or mortgaged properties.
"Net Collections" will generally consist of, with respect to any Specially
Serviced Mortgage Loan (or a Mortgage Loan that previously was a Specially
Serviced Mortgage Loan) or any REO Property: (i) any payment of principal or
interest, net of related expenses, including, but not limited to, extension
fees, assumption fees, the Special Servicing Fee, and expenses of enforcing
the terms of the Specially Serviced Mortgage Loan (but excluding amounts set
forth in the following clauses (ii) and (iii) which are applied to any
payment described in this clause (i)), (ii) net operating income, and (iii)
net Liquidation Proceeds (not including net operating income), that is, in
each such case, allocable as a recovery of principal of and/or interest
(adjusted to the related Mortgage Rate, net of the Administrative Cost Rate)
on such Mortgage Loan or, in the case of an REO Property, the related
Mortgage Loan or as a recovery of a Prepayment Premium with respect thereto.
Special Servicer Compensation and Payment of Expenses
The Special Servicing Agreement will provide that the Special Servicer
will be entitled to certain fees, including (a) an administrative monthly fee
(the "Special Servicing Supplemental FeeistrationSpecial Servicing Fee"),
payable out of collections and advances of interest on or in respect of the
Specially Serviced Mortgage Loans and the Mortgage Loans as to which the
related Mortgaged Properties have become an REO Property, equal to one
month's interest (calculated on the basis of a 360-day year consisting of
twelve 30-day months) at 0.25% per annum on the aggregate Scheduled Principal
Balance as of the first day of each Due Period of all such Mortgage Loans
(including for purposes of this calculation with respect to each Senior
Participation, only the Trust's participation or beneficial interest in the
underlying Mortgage Loan), such Special Servicing Fee for any Due Period to
be allocated among all the Specially Serviced Mortgage Loans and Mortgage
Loans as to which the related Mortgaged Properties have become REO
Properties, pro rata in accordance with their respective Scheduled Principal
Balances outstanding as of the commencement of such Due Period, (b) with
respect to each Specially Serviced Mortgage Loan, a fee (the "Workout Fee")
equal to the product of (i) the applicable Workout Fee Rate, and (ii) Net
Collections received with respect to such Mortgage Loan (including after the
date on which such Mortgage Loan becomes a Rehabilitated Mortgage Loan).
Notwithstanding the foregoing, the Workout Fee payable in connection with a
sale of REO Property or upon a liquidation of any Specially Serviced Mortgage
Loan will equal the product of (a) the applicable Workout Fee Rate, and (b) a
fraction, the numerator of which is equal to the related Net Collections
received during the Collection Period of sale or liquidation, and the
denominator of which is equal to the unpaid principal balance of the related
Mortgage Loan plus accrued and unpaid interest thereon, and (c) the related
Net Collections received during the Collection Period of sale or liquidation.
If a Specially Serviced Mortgage Loan becomes a Rehabilitated Mortgage Loan
and then again becomes a Specially Serviced Mortgage Loan, any right to the
Workout Fee with respect to such Mortgage Loan earned in
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connection with the initial rehabilitation thereof shall terminate and a new
Workout Fee for such Specially Serviced Mortgage Loan shall be calculated
upon resolution of the subsequent Servicing Transfer Event. Under no
circumstances may any one Mortgage Loan be subject to more than one Workout
Fee at any one time, even if such Mortgage Loan becomes a Specially Serviced
Mortgage Loan on more than one occasion, (c) an assumption fee of $1,000 for
each Mortgage Loan that is not a Specially Serviced Mortgage Loan and is not
a Mortgage Loan as to which the related Mortgaged Property has become an REO
Property and that has been assumed with the consent of the Special Servicer,
such assumption fee being payable from such amount collected from the related
borrower, and (d) an extension fee of $1,000 for each Mortgage Loan that is a
Balloon Loan (and is not either a Specially Serviced Mortgage Loan or a
Mortgage Loan with respect to which the related Mortgaged Property has become
an REO Property) and has had its maturity date extended by the Servicer with
the consent of the Special Servicer, such extension fee being payable from
such amount collected from the related borrower.
The "Workout Fee Rate" will be one of the following percentages, as
applicable to a specific Specially Serviced Mortgage Loan (or a Mortgage Loan
that previously was a Specially Serviced Mortgage Loan):
(a) If the Specially Serviced Mortgage Loan becomes a Rehabilitated
Mortgage Loan or such Specially Serviced Mortgage Loan or the related REO
Property is sold or liquidated within 18 months after the date on which
such Mortgage Loan became a Specially Serviced Mortgaged Loan, one of the
following amounts:
(1) if the Scheduled Principal Balance of such Mortgage Loan as of
the date on which such Mortgage Loan became a Specially Serviced
Mortgage Loan was less than $7,499,999, 0.65%;
(2) if the Scheduled Principal Balance of such Mortgage Loan as of
the date on which such Mortgage Loan became a Specially Serviced
Mortgage Loan was equal to or greater than $7,500,000 but less than
$14,999,999, 0.50%; and
(3) if the Scheduled Principal Balance of such Mortgage Loan as of
the date on which such Mortgage Loan became a Specially Serviced
Mortgage Loan was equal to or greater than $15,000,000, 0.35%.
(b) If the Specially Serviced Mortgage Loan becomes a Rehabilitated
Mortgage Loan or such Specially Serviced Mortgage Loan or the related REO
Property is sold or liquidated on a date that is later than 18 months
after the date on which such Mortgage Loan became a Specially Serviced
Mortgage Loan, one of the following amounts:
(1) if the Scheduled Principal Balance of such Mortgage Loan as of
the date on which such Mortgage Loan became a Specially Serviced
Mortgage Loan was less than $7,499,999, 0.55%;
(2) if the Scheduled Principal Balance of such Mortgage Loan as of
the date on which such Mortgage Loan became a Specially Serviced
Mortgage Loan was equal to or greater than $7,500,000 but less than
$14,999,999, 0.43%; and
(3) if the Scheduled Principal Balance of such Mortgage Loan as of
the date on which such Mortgage Loan became a Specially Serviced
Mortgage Loan was equal to or greater than $15,000,000, 0.30%.
With respect to any Mortgage Loan, as of any date of determination, the
Servicing Fee Rate and the Trustee Fee Rate will collectively constitute the
"Administrative Cost RateAdministrative Cost Rate".
THE OPERATING ADVISER
Election of the Operating Adviser
On the Closing Date and as otherwise provided, the holder or holders of
Certificates with an aggregate Certificate Principal Amount equal to more
than 50% of the aggregate Certificate Principal Amount of the Controlling
Class will be entitled to elect a representative (the "Operating
Adviser") from whom the Special Servicer will seek advice
and approval and take direction as described below. Upon (i)
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the receipt by the Trustee of written requests for an election of an
Operating Adviser from the holders of Certificates representing more than 50%
of the aggregate Certificate Principal Amount of the then Controlling Class,
(ii) the resignation or removal of the person acting as Operating Adviser or
(iii) a determination by the Trustee that the Controlling Class has changed,
an election of a successor Operating Adviser will be held commencing as soon
as practicable thereafter. The Operating Adviser may be removed at any time
by the written vote of holders of Certificates representing more than 50% of
the aggregate Certificate Principal Amount of the then Controlling Class. The
initial Operating Adviser shall be CMBS Holdings, Inc., a wholly-owned
subsidiary of the Seller. In the event that after the Closing Date an
Operating Adviser shall have resigned or been removed and a successor
Operating Adviser shall not have been elected, there shall be no Operating
Adviser; and, notwithstanding anything to the contrary described herein, the
Special Servicer shall not have any right or obligation to consult with or to
seek and/or obtain approval or direction from an Operating Adviser, and the
provisions of the Transaction Documents relating thereto shall be of no
effect, in any event during any such period that there is no Operating
Adviser.
The "Controlling Class" will be, as of any date of determination, the
Class of Regular Interest Certificates (other than the Class X Certificates)
with the latest alphabetical Class designation that has a then aggregate
Certificate Principal Amount (net of any Uncovered Portion thereof) at
least equal to the lesser of (i) 25% of the initial aggregate Certificate
Principal Amount of such Class of Regular Interest Certificates as of
the Closing Date and (ii) 2% of the aggregate Certificate Principal
Amount (net of any Uncovered Portion thereof) of all the Regular Interest
Certificates (other than the Class X Certificates) as of such date of
determination. As of the Closing Date, the Controlling Class will be the
Class H Certificates.
If, at any time, the aggregate Assigned Asset Value of the Mortgage Pool
is less than the aggregate Certificate Principal Amount of the Regular
Interest Certificates (other than the Class X Certificates), such deficit
will be allocated among the respective Classes of Regular Interest
Certificates (other than the Class X Certificates), in reverse alphabetical
order of Class designation, in each case, to the extent of the aggregate
Certificate Principal Amount of such Class of Certificates. Such allocation
will not reduce the aggregate Certificate Principal Amount of any Class of
Regular Interest Certificates and is intended solely to identify the portion
(the "Uncovered PortionUncovered Portion") of the aggregate Certificate
Principal Amount of each such Class for which there is at such time no
corresponding aggregate Assigned Asset Value of the Mortgage Pool.
The "Assigned Asset Value" of any Mortgage Loan (other than a Specially
Serviced Mortgage Loan or a Mortgage Loan as to which the related Mortgaged
Property has become an REO Property), as of any date of determination, will
be the Stated Principal Balance of such Mortgage Loan as of such date of
determination. The "Assigned Asset Value" of any Specially Serviced Mortgage
Loan, as of any date of determination, will be the lesser of (a) the Stated
Principal Balance of such Mortgage Loan as of such date of determination
and (b) an amount equal to (i) 90% of the value of the related Mortgaged
Property based on the most recent appraisal or other valuation thereof
available to the Servicer as of such date of determination (including
any done internally by the Servicer or the Special Servicer), reduced (to not
less than zero) by (ii) the aggregate of (A) to the extent not previously
advanced by the Servicer or another party, all unpaid interest on such
Mortgage Loan at a per annum rate equal to the related Mortgage Rate as of
such date of determination, (B) all unreimbursed Advances in respect of such
Mortgage Loan (together with all accrued but unpaid interest thereon) as of
such date of determination, and (C) all currently due but unpaid real estate
taxes, assessments and insurance premiums in respect of the related Mortgaged
Property. The "Assigned Asset Value" of any REO Property, as of any date of
determination, will be an amount equal to (x) 90% of the value of such REO
Property based on the most recent appraisal or other valuation thereof
available to the Servicer as of such date of determination (including any
done internally by the Servicer or the Special Servicer), reduced (to not
less than zero) by (y) the aggregate of (i) to the extent not previously
advanced by the Servicer or another party, all unpaid interest on the related
Mortgage Loan (treated as if it had remained outstanding notwithstanding the
acquisition of such REO Property) at a per annum rate equal to the related
Mortgage Rate as of such date of determination, (ii) all unreimbursed
Advances in respect of such REO Property and/or the related Mortgage Loan
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(treated as if it had remained outstanding notwithstanding the acquisition
of such REO Property) (together with all accrued but unpaid interest thereon)
as of such date of determination, and (iii) all currently due but unpaid real
estate taxes, assessments and insurance premiums in respect of such REO
Property.
Duties of the Operating Adviser
The Operating Adviser will be entitled to advise the Special Servicer with
respect to the following actions of the Special Servicer, and the Special
Servicer will not be permitted to take any of the following actions unless
the Operating Adviser has approved such action in writing within ten days
after receiving from the Special Servicer written notice thereof and
sufficient information to make an informed decision (provided that if a
written objection to such action from the Operating Adviser has not been
received by the Special Servicer within said ten day period, then the
Operating Adviser's approval will be deemed to have been given):
(i) any initiation or consummation of foreclosure upon or comparable
conversion (which may include acquisition of an REO Property) of the
ownership of properties securing such of the Specially Serviced Mortgage
Loans as come into and continue in default provided that if immediate
initiation of foreclosure proceedings is necessary to preserve or protect
the Mortgaged Property or income therefrom, the Special Servicer may
initiate such proceedings and notify the Operating Adviser thereof within
72 hours;
(ii) any modification, amendment or waiver of, or with respect to, a
Mortgage Loan other than a modification consisting of the extension of the
maturity date of a Mortgage Loan for six months or less;
(iii) any acceptance of a discounted payoff of a Specially Serviced
Mortgage Loan;
(iv) any proposed sale of a Specially Serviced Mortgage Loan or REO
Property (other than in connection with the termination of the Trust Fund
as described under "DESCRIPTION OF THE CERTIFICATES--Optional Termination"
herein);
(v) any determination to bring an REO Property into compliance with
applicable environmental laws;
(vi) any acceptance of substitute or additional collateral or other
credit support for a Mortgage Loan;
(vii) any waiver of a "due-on-sale" or "due-on-encumbrance" clause;
(viii) any acceptance of an assumption agreement releasing a borrower
from liability under a Mortgage Loan; and
(ix) any capital improvements to an REO Property or any item of
maintenance or repair of an REO Property costing in excess of $250,000.
In addition, the Operating Adviser may direct the Special Servicer to
take, or to refrain from taking, such other actions as the Operating Adviser
may deem advisable; provided that no such direction shall (a) require or
cause the Special Servicer to violate the terms of any Mortgage Loan,
applicable law or any provision of the Trust Agreement, the Servicing
Agreement or the Special Servicing Agreement, including the Special
Servicer's obligation to act in accordance with Accepted Servicing Practices
and to maintain the REMIC status of any pool of assets designated as a REMIC
pursuant to the Trust Agreement, or (b) result in the imposition of a
"prohibited transaction" or "prohibited contribution" tax under the REMIC
Provisions, or (c) expose the Servicer, the Special Servicer, the Depositor,
the Seller, the Trust or the Trustee or their officers, directors, employees
or agents to claim, suit or liability, or (d) materially expand the scope of
the Special Servicer's responsibilities under the Trust Agreement or the
Special Servicing Agreement.
Limitation on Liability of Operating Adviser
The Operating Adviser will be acting solely as a representative of the
interests of the Class of Certificateholders that have elected the Operating
Adviser, and will have no liability to the Trust or the
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other Certificateholders for any action taken, or for refraining from the
taking of any action, in good faith pursuant to the Trust Agreement, or for
errors in judgment; provided that the Operating Adviser will not be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties. By its acceptance of a
Certificate, each Certificateholder confirms its understanding that the
Operating Adviser may take actions that favor the interests of one or more
Classes of the Certificates over other Classes of the Certificates, and that
the Operating Adviser may have special relationships and interests that
conflict with those of holders of some Classes of the Certificates and,
absent willful misfeasance, bad faith or negligence on the part of the
Operating Adviser, agree to take no action against the Operating Adviser or
any of its officers, directors, employees, principals or agents as a result
of such a special relationship or conflict.
THE EXTENSION ADVISER
Election of the Extension Adviser
On the Closing Date and as otherwise provided the holder or holders of
Certificates with an aggregate Certificate Principal Amount equal to more
than 66 2/3% of the aggregate Certificate Principal Amount of all of the
Regular Interest Certificates (exclusive of the Class X Certificates, the
Controlling Class and any Class or Classes of Regular Interest Certificates
subordinate to the Controlling Class) will be entitled to elect a
representative (the "Extension AdviserExtension Adviser") from whom the
Special Servicer will seek approval as described below. Upon (i) the receipt
by the Trustee of written requests for an election of an Extension Adviser
from the holders of Certificates representing more than 66 2/3% of the
aggregate Certificate Principal Amount of all of the Regular Interest
Certificates (exclusive of the Class X Certificates, the Controlling Class
and any Class or Classes of Regular Interest Certificates subordinate to the
Controlling Class), or (ii) the resignation or removal of the person acting
as Extension Adviser, an election of a successor Extension Adviser will be
held commencing as soon as practicable thereafter. The Extension Adviser may
be removed at any time by the written vote of holders of Certificates
representing more than 66 2/3% of the aggregate Certificate Principal Amount
of all of the Regular Interest Certificates (exclusive of the Class X
Certificates, the Controlling Class and any Class or Classes of Regular
Interest Certificates subordinate to the Controlling Class). The initial
Extension Adviser shall be the Operating Adviser. In the event that after the
Closing Date an Extension Adviser shall have resigned or been removed and a
successor Extension Adviser shall not have been elected, the Operating
Adviser will serve as Extension Adviser (and, if there is no Operating
Adviser to serve in such capacity, there shall be no Extension Adviser); and,
notwithstanding anything to the contrary described herein, the Special
Servicer shall not have any right or obligation to consult with or to seek
and/or obtain approval from an Extension Adviser, and the provisions of the
Transaction Documents relating thereto shall be of no effect, in any event
during any such period that there is no Extension Adviser.
Duties of the Extension Adviser
The Special Servicer will not be permitted to grant any extension of the
maturity of a Specially Serviced Mortgage Loan beyond the third anniversary
of such loan's stated maturity date, unless the Extension Adviser has
approved such action in writing within ten days after receiving from the
Special Servicer written notice thereof and sufficient information to make an
informed decision (provided that if a written objection to such extension
from the Extension Adviser has not been received by the Special Servicer
within said ten day period, then the Extension Adviser's approval will be
deemed to have geen given). In addition, the Extension Adviser will confirm
to its reasonable satisfaction that all conditions precedent to granting any
such extension set forth in the Special Servicing Agreement have been
satisfied. See "--Mortgage Loan Modifications" below.
Limitation on Liability of Extension Adviser
The Extension Adviser will be acting solely as a representative of the
interests of the Class of Certificateholders that have elected the Extension
Adviser, and will have no liability to the Trust or the other
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Trust Agreement, or for errors in
judgement; provided that the Extension Adviser will not
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be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of
duties or by reason of reckless disregard of obligations or duties. By its
acceptance of a Certificate, each Certificateholder confirms its
understanding that the Extension Adviser may take actions that favor the
interest of one or more Classes of the Certificates over other Classes of the
Certificates, and that the Extension Adviser may have special relationships
and interests that conflict with those of holders of some Classes of the
Certificates and, absent willful misfeasance, bad faith or negligence on the
part of the Extension Adviser, agree to take no action against the Extension
Adviser or any of its officers, directors, employees, principals or agents as
a result of such a special relationship or conflict.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Substantially all of the Mortgages contain "due-on-sale" and
"due-on-encumbrance" provisions, that, in general, entitle the holder thereof
to accelerate the maturity of the related Mortgage Loan upon any sale or
other transfer of, or upon the creation of any lien or other encumbrance
upon, a related Mortgaged Property or prohibit the borrower from doing so
without the consent of the lender; provided that, in eleven cases, secondary
financing would be permitted subject, in some cases, to the satisfaction of
certain criteria relating to, among other things, the loan-to-value ratio for
the related Mortgage Loan and the secondary financing. The Special Servicer
(in the case of any Specially Serviced Mortgage Loan) or the Servicer (in the
case of any other Mortgage Loan) will determine whether to exercise any right
the Trustee may have under any such due-on-sale provision or under any such
due-on-encumbrance provision in a manner consistent with the applicable
Accepted Servicing Practices; provided that the Servicer may not waive any
rights under a due-on-sale clause or a due-on-encumbrance clause without the
consent of the Special Servicer; and provided further that the actions of the
Special Servicer in such regard will be subject to the directions of the
Operating Adviser. The Servicer and the Special Servicer will be entitled to
retain as additional servicing compensation any fee collected from the
related borrower in connection with the permitted transfer of a Mortgaged
Property securing a Mortgage Loan that is not a Specially Serviced Mortgage
Loan and the assumption of such Mortgage Loan by the transferee, provided
that any such assumption fee so retained by the Servicer may not exceed the
lesser of $50,000 or 1% of the unpaid principal balance of the related
Mortgage Loan, and such fee to the Special Servicer is $1,000.
MAINTENANCE OF INSURANCE
To the extent consistent with applicable Accepted Servicing Practices, for
each Mortgage Loan that requires the borrower to, or permits the mortgagee to
require the borrower to, maintain such insurance, the Servicer is to use its
best efforts to cause the related borrower to maintain fire and casualty
insurance with extended coverage in an amount which is not less than the
lesser of (i) the full replacement cost of the improvements securing such
Mortgage Loan or (ii) the unpaid principal balance of such Mortgage Loan,
but, in any event, in an amount sufficient to avoid the application of any
co-insurance clause, with a deductible not to exceed a customary amount for
the risk insured, unless otherwise specified by the related Mortgage Loan. If
the borrower fails to maintain the fire and casualty insurance required by
the related Mortgage Loan, the Servicer will be obligated to obtain such
insurance (which may be through a master or single interest blanket insurance
policy). The cost (including any deductible relating to such insurance) of
such insurance (or, in the case of a master or single interest blanket
insurance policy, the incremental cost (including any deductible relating to
such insurance) of such insurance related to the specific Mortgaged
Property), will be a Servicing Advance reimbursable to the Servicer as
described herein. See "DESCRIPTION OF THE CERTIFICATES--Advances" herein. If,
at any time, a Mortgaged Property is located in an area identified in the
Flood Hazard Boundary Map or Flood Insurance Rate Map issued by the Federal
Emergency Management Agency as having special flood hazards or it becomes
located in such an area by virtue of remapping completed by such agency (and
such flood insurance has been made available), the Servicer will be
obligated, to the extent consistent with Accepted Servicing Practices and if
and to the extent the Mortgage Loan requires the borrower or permits the
mortgagee to require the borrower to do so, cause the related borrower to
maintain a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration in the maximum amount of
insurance coverage available under the National Flood Insurance Act of 1968,
the
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Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform
Act of 1994, as amended, unless otherwise specified by the related Mortgage
Loan. If the borrower is required, pursuant to the terms of the Mortgage
Loan, to maintain such insurance but fails to maintain such flood insurance,
the Servicer will be obligated to obtain such insurance, the cost (including
any deductible relating to such insurance) of which shall be a Servicing
Advance reimbursable to the Servicer as described herein. The Servicer,
consistent with Accepted Servicing Practices, is also to cause to be
maintained with respect to each Mortgaged Property all other insurance
coverage required by the related Mortgage Loan documents, and to the extent
that such Mortgage Loan documents provide that the insurance coverage
required with respect to such Mortgaged Property shall be within the
discretion of the mortgagee, the Servicer is to require all such coverage
required by law and consistent with applicable Accepted Servicing Practices,
including insurance relating to vandalism and malicious mischief, business
interruption, loss of rental value, business automobile liability, liquor
liability, personal and advertising liability, false arrest, libel and
slander, as applicable. If the borrower fails to maintain such other
insurance coverage, the Servicer will be obligated, consistent with Accepted
Servicing Practices, to obtain such insurance, the cost (including any
deductible relating to such insurance) of which shall be a Servicing Advance
reimbursable to the Servicer as described herein. All such policies are to
name the Servicer on behalf of the Trust as loss payee and to be endorsed
with a standard mortgagee clause.
For each REO Property, to the extent consistent with applicable Accepted
Servicing Practices, the Special Servicer will be required to maintain fire
and casualty insurance with extended coverage in an amount which is not less
than the lesser of (i) the full replacement cost of the improvements of such
REO Property or (ii) the unpaid principal balance of the related Mortgage
Loan, but, in any event, in an amount sufficient to avoid the application of
any co-insurance clause and with a deductible not to exceed a customary
amount for the risk insured. If, at any time, any REO Property is located in
an area identified in the Flood Hazard Boundary Map or Flood Insurance Rate
Map issued by the Federal Emergency Management Agency as having special flood
hazards or it becomes located in such an area by virtue of remapping
completed by such agency (and such flood insurance has been made available),
the Special Servicer is to cause a flood insurance policy to be maintained
for such REO Property meeting the requirements of the current guidelines of
the Federal Insurance Administration in an amount representing coverage not
less than the maximum amount of insurance coverage required under the
National Flood Insurance Act of 1968, the Flood Disaster Protection Act of
1973 or the National Flood Insurance Reform Act of 1994, as amended. The
Special Servicer will be obligated to cause to be maintained with respect to
each REO Property all other insurance coverage required by law and consistent
with applicable Accepted Servicing Practices, including insurance relating to
vandalism and malicious mischief, business interruption, loss of rental
value, business automobile liability, liquor liability, personal and
advertising liability, false arrest, libel and slander, as applicable;
provided that with respect to any REO Property located in the State of
California, the Special Servicer shall consult with, and comply with the
direction of, the Operating Adviser regarding the maintenance of earthquake
insurance coverage. All such policies are to name the Special Servicer on
behalf of the Trust as loss payee. The cost (including any deductible
relating to such insurance) of maintaining all such insurance coverage
(whether through direct payment or reimbursement to the Special Servicer)
shall constitute a Servicing Advance reimbursable to the Servicer as
described herein.
In the event that the Servicer or Special Servicer shall obtain and
maintain a blanket policy insuring against hazard losses on all of the
related Mortgaged Properties (in the case of the Servicer) or the REO
Properties (in the case of the Special Servicer), it will conclusively be
deemed to have satisfied its obligation to maintain fire and casualty
insurance as set forth above. However, such policy may contain a deductible
clause, in which case the Servicer or the Special Servicer, as the case may
be, will, in the event that there shall not have been maintained on the
related Mortgaged Property or REO Property a fire and casualty insurance
policy complying with the requirements described above and there shall have
been a loss which would have been covered by such a policy had it been
maintained, be required to cover out of its own funds the amount not
otherwise payable under the blanket policy because of such deductible clause.
The cost of any such blanket policy shall be an expense of the Servicer or
the Special Servicer, as the case may be, and not of the Trust, except that
any incremental cost attributable to a particular Mortgage Loan or REO
Property shall be paid, or reimbursed to the Special Servicer, as the case
may be, by a Servicing Advance reimbursable to the Servicer as described
herein.
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The Servicer and the Special Servicer will each be required to prepare
and present, or cause to be prepared and presented, on behalf of the Trustee,
all claims under the Insurance Policies with respect to, as applicable, each
Mortgage Loan (in the case of the Servicer) and REO Property (in the case of
the Special Servicer), and take such actions (including the negotiation,
settlement, compromise or enforcement of the insured's claim) as shall be
necessary to realize recovery under such policies. Any extraordinary costs
(but not ordinary, routine costs) of taking the actions required by the
preceding sentence shall be paid, or reimbursed to the Special Servicer, as
the case may be, by a Servicing Advance reimbursable to the Servicer as
described herein.
MORTGAGE LOAN MODIFICATIONS
The Servicer will, at the direction of the Special Servicer, agree to
extend the maturity date of a Balloon Loan for six months or less from or
after the maturity date of such Balloon Loan if: (i) the Servicer determines
that such extension is in the best interests of the Trust; (ii) a payment
default has occurred at maturity of such Balloon Loan or, in the judgment of
the Servicer, is imminent at maturity of the Mortgage Loan and will not be
cured within sixty days from the maturity date; (iii) based on the most
recent annual and year to date operating statements for the related Mortgaged
Property, the debt service coverage ratio of such Mortgage Loan has been and,
in the reasonable judgment of the Servicer, will continue to be during the
ensuing twelve months greater than or equal to 1.25x; (iv) except as
contemplated in clause (ii) above, no payment due from the related borrower
on such Mortgage Loan has been 30 or more days delinquent within the past
twelve months; (v) the Servicer has performed an inspection of the related
Mortgaged Property within the last three months or performs a new inspection
of the related Mortgaged Property prior to the contemplated extension; (vi)
the Servicer has received from the related borrower operating statements for
the related Mortgaged Property for the most recent full year for which
operating statements are available and operating statements for the current
year to date; (vii) the Servicer has received from the related borrower the
last annual rent roll for the related Mortgaged Property and a current rent
roll for the related Mortgaged Property, both certified by the related
borrower as being true and correct; (viii) the Servicer expressly notifies
the related borrower in writing that such extension is a one time option and
diligently discusses exit strategies with the related borrower; and (ix) the
Special Servicer consents to such extension, which consent the Special
Servicer is required to use its best efforts to provide or withhold within
ten days after the Special Servicer is notified in writing by the Servicer of
such request for extension and has received sufficient information from the
Servicer to make an informed decision. However, no extension entered into by
the Servicer may be for a period of more than six months from the maturity
date of such Mortgage Loan or shall extend the maturity date beyond the
earlier of (i) two years prior to the Rated Final Distribution Date and (ii)
in the case of a Mortgage Loan secured by a leasehold estate, the date ten
years prior to the termination of such leasehold estate. No more than one
such extension may be granted by the Servicer with respect to any particular
Mortgage Loan. The Servicer may not otherwise agree to any modification,
waiver or amendment of a Mortgage Loan, except as described under
"--Due-on-Sale and Due-on-Encumbrance Provisions" above.
If, but (except as otherwise described under "--Due-on-Sale and
Due-on-Encumbrance Provisions" above) only if, the Special Servicer
determines, after consultation with the Operating Adviser, that a
modification, waiver or amendment (including the substitution or release of
collateral or the pledge of additional collateral) of the terms of a
Specially Serviced Mortgage Loan with respect to which a payment default or
other material default has occurred or a payment default is, in the Special
Servicer's judgment, reasonably foreseeable, is reasonably likely to produce
a greater recovery of Net Collections on a present value basis (the relevant
discounting to be performed at the related Net Mortgage Rate) than
liquidation of such Specially Serviced Mortgage Loan, then the Special
Servicer, may, but is not required to, with the approval or deemed approval
of the Operating Adviser and, in the case of an extension of the maturity of
a Specially Serviced Mortgage Loan beyond the fourth anniversary of such
loan's stated maturity date, the Extension Adviser, agree to a modification,
waiver or amendment of such Specially Serviced Mortgage Loan, subject to the
restrictions and limitations described below.
The Special Servicer may not agree to a modification, waiver or amendment
of any term of any Specially Serviced Mortgage Loan if such modification,
waiver or amendment would:
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(i) extend the maturity date of any such Specially Serviced Mortgage
Loan to a date occurring later than the earlier of (A) two years prior to
the Rated Final Distribution Date and (B) if such Specially Serviced
Mortgage Loan is secured by a leasehold estate, the date ten years prior
to the termination of such leasehold;
(ii) provide for the deferral of interest unless (A) interest accrues
thereon at the related Mortgage Rate and (B) the aggregate amount of such
deferred interest does not exceed 5% of the unpaid principal balance of
the Specially Serviced Mortgage Loan;
(iii) reduce the Mortgage Rate on any such Specially Serviced Mortgage
Loan to less than the sum of (A) the lowest rate of interest then payable
on the then outstanding Class A-1, Class A-2, Class B, Class C or Class D
Certificates plus (B) 0.034%; or
(iv) result in a prepayment (other than from Liquidation Proceeds,
Insurance Proceeds or Condemnation Proceeds) other than on the Mortgage
Loan's Due Date.
In addition, the Special Servicer may not, without the prior approval or
deemed approval of the Operating Adviser, agree to a modification, waiver or
amendment of any term of any Specially Serviced Mortgage Loan if such
modification, waiver or amendment would result in the forgiveness of any
portion of the unpaid interest on or principal of such Specially Serviced
Mortgage Loan or permit the satisfaction of the indebtedness under such
Specially Serviced Mortgage Loan at a discount.
Except for consenting to an extension of the maturity of a Balloon Loan
for a period of six months or less, and except as otherwise discussed under
"--Due-on-Sale and Due-on-Encumbrance Provisions" above, the Special Servicer
may not agree to any modification, waiver or amendment of a Mortgage Loan
that is not a Specially Serviced Mortgage Loan.
In addition, the Servicer and the Special Servicer must in certain cases
receive certain opinions of counsel as to certain REMIC matters prior to any
modification, waiver or amendment of any Mortgage Loan.
SALE OF DEFAULTED MORTGAGE LOANS AND REO PROPERTIES
The Special Servicer may, with the approval or deemed approval of the
Operating Adviser, and is required to, at the direction of the Operating
Adviser, sell, in accordance with the terms of the Trust Agreement, any
defaulted Mortgage Loan, without recourse, or any REO Property to any person
(including, subject to certain limitations, the Servicer, the Special
Servicer or any Certificateholder, but excluding the Trustee and its
affiliates) for cash, but in any event shall so offer to sell any REO
Property no later than the time determined by the Special Servicer to be
sufficient to result in the sale of such REO Property on or before the date
specified under "--Foreclosures" below. Subject to the approval or deemed
approval of the Operating Adviser, the Special Servicer will accept the
highest cash bid received from any person (including the holder(s) of the
Controlling Class) in an amount at least equal to the unpaid principal
balance of the defaulted Mortgage Loan or, in the case of an REO Property,
the related Mortgage Loan, as the case may be, together with all unpaid
interest accrued thereon to but not including the Due Date in the Collection
Period during which such sale occurs and all related unreimbursed Servicing
Advances, minus, in the case of REO Property, the total of all Net REO Income
derived from the operation of such REO Property that was deposited in the
Collection Account. In the absence of any such bid, the Special Servicer
will, subject to the approval or deemed approval of the Operating Advisor,
accept the highest cash bid received from any person, so long as such bid is
a fair price and, subject to the objection of the Operating Adviser,
accepting a lower bid would not in the judgment of the Special Servicer be in
the best interests of the Certificateholders.
If the Trustee or the Special Servicer receives any bid or bids to
purchase a Mortgage Loan as to which a default has occurred and is continuing
for a price at least equal to the unpaid principal balance of such Mortgage,
together with all unpaid interest accrued thereon to but not including the
Due Date in the Collection Period during which such sale occurs and all
related unreimbursed Servicing Advances, the
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Trustee is to sell such Mortgage Loan to the highest cash bidder, subject to
certain limitations set forth in the Trust Agreement. The Trustee is under no
obligation to solicit any such bid. The Depositor, its affiliates or any
other person (other than the Trustee and its affiliates) may make any such
bid for a defaulted Mortgage Loan.
FORECLOSURES
The Special Servicer, on behalf of the Trust Fund, is required, subject to
the approval or deemed approval of the Operating Advisor, to use its
reasonable efforts to foreclose upon, repossess or otherwise comparably
convert the ownership of Mortgaged Properties securing such of the Specially
Serviced Mortgage Loans as come into and continue in default and as to which
no satisfactory arrangements can be made for collection of delinquent
payments thereon; provided that the Special Servicer may not, on behalf of
the Trust, obtain title to a Mortgaged Property as a result of or in lieu of
foreclosure or otherwise, and may not otherwise acquire possession of, or
take any other action with respect to, any Mortgaged Property, if, as a
result of any such action, the Trust or the Trustee would be considered to
hold title to, to be a "mortgagee-in-possession" of, or to be an "owner" or
"operator" of such Mortgaged Property within the meaning of CERCLA (as
defined in the Prospectus), or any applicable comparable federal, state or
local law, or a "discharger" or "responsible party" thereunder, unless the
Special Servicer has previously determined in accordance with applicable
Accepted Servicing Practices, based on a report (the cost of which will
generally be an expense of the Trust) prepared by a person (who may be an
employee or affiliate of the Servicer or the Special Servicer) who regularly
conducts environmental site assessments in accordance with the standards of
FNMA, in the case of Specially Serviced Mortgage Loans that are multifamily
mortgage loans, and applicable Accepted Servicing Practices, in the case of
Specially Serviced Mortgage Loans that are commercial mortgage loans, for
environmental assessments, that:
(i) such Mortgaged Property is in compliance with applicable
environmental laws or, if not, that taking such actions as are necessary
to bring the Mortgaged Property in compliance therewith is reasonably
likely to produce a greater recovery of Net Collections on a net present
value basis (the relevant discounting to be performed at the related Net
Mortgage Rate) than not taking such actions and the Special Servicer has
obtained the approval or deemed approval of the Operating Adviser to
taking such actions; and
(ii) there are no circumstances or conditions present or threatened at
such Mortgaged Property relating to the use, management, disposal or
release of any hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials for which investigation, testing,
monitoring, removal, clean-up or remediation could be required under any
federal, state or local law or regulation, or that, if any such
circumstances or conditions are present for which any such actions could
be required, taking such actions with respect to the Mortgaged Property is
reasonably likely to produce a greater recovery of Net Collections on a
present value basis (the relevant discounting to be performed at the
related Net Mortgage Rate) than not taking such actions and the Special
Servicer has obtained the approval or deemed approval of the Operating
Adviser to taking such actions.
The cost of any such compliance or other action contemplated by clauses
(i) and/or (ii) above shall be paid, or reimbursed to the Special Servicer,
by a Servicing Advance reimbursable to the Servicer or other appropriate
person as described herein; provided that such compliance pursuant to clause
(i) above or the taking of such actions pursuant to this clause (ii) above
shall only be permitted if no portion of the Servicing Advance that would be
required to be made to cover the cost thereof is determined to be a
Nonrecoverable Advance.
If the Special Servicer determines that taking such actions as are
necessary to bring any Mortgaged Property into compliance with applicable
environmental laws, or taking such actions with respect to the containment,
removal, cleanup or remediation of hazardous substances, hazardous materials,
hazardous wastes, or petroleum-based materials affecting such Mortgaged
Property, is not reasonably likely to produce a greater recovery of Net
Collections on a net present value basis than not taking such actions, then
the Special Servicer shall take such action as it deems to be in the best
economic interests of the Trust, including, without limitation, releasing the
lien of the related Mortgage(s). If the Special Servicer determines that a
material possibility exists that liquidation expenses with respect to a
Mortgaged
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Property (taking into account the cost of bringing it into compliance with
applicable environmental laws) would exceed the unpaid principal balance of
the related Mortgage Loan, the Special Servicer is not to attempt to bring
such Mortgaged Property into compliance and is not to acquire title to such
Mortgaged Property unless it has received the written consent of the Trustee
and the Operating Adviser to such action.
The Special Servicer may maintain any action with respect to any Specially
Serviced Mortgage Loan, including, without limitation, any action to obtain a
deficiency judgment with respect to any Specially Serviced Mortgage Loan, if
it determines that such action is likely to produce a greater recovery of Net
Collections on a net present value basis (the relevant discounting to be
performed at the related Net Mortgage Rate) than not taking such action.
If any Mortgaged Property is acquired as described in the preceding
paragraph, the Special Servicer will use its reasonable best efforts to sell
the REO Property within two years of acquisition or any applicable extension
period granted by the Internal Revenue Service, unless the Special Servicer
has previously delivered to the Trustee an opinion of counsel to the effect
that the holding of the REO Property by the Trust Fund subsequent to two
years after its acquisition or such extension period will not result in
imposition of taxes on prohibitive transactions of either REMIC I or REMIC II
under the REMIC provisions of the Code at any time that any Certificate is
outstanding. If the Trust acquires a Mortgaged Property, the Special Servicer
has full power and authority, in consultation with the Operating Adviser, and
subject to the specific requirements and prohibitions of the Special
Servicing Agreement and the Trust Agreement, to do any and all things in
connection therewith as are consistent with Accepted Servicing Practices,
subject to the REMIC Provisions, and in such manner as the Special Servicer
deems to be in the best interests of the Trust and the holders of the
Certificates.
In general, the Special Servicer must act in accordance with the Special
Servicing Agreement and the provisions of the Code relating to REMICs in
order to create or maintain the status of both REMIC I and REMIC II as a
REMIC under the Code or, as appropriate, adopt a plan of complete
liquidation. The Special Servicer may not take any action or cause either
REMIC I or REMIC II to take any action that could (i) endanger the status of
either REMIC I or REMIC II as a REMIC under the Code or (ii) result in the
imposition of a tax upon either REMIC I or REMIC II (including, but not
limited to, the tax on prohibited transactions as defined in Section
860F(a)(2) of the Code or on prohibited contributions pursuant to Section
860G(d) of the Code) unless the Special Servicer and the Trustee have
received an Opinion of Counsel (at the expense of the party seeking to take
such action) to the effect that the contemplated action will not endanger
such status or result in the imposition of such tax. The Special Servicer
must comply with the provisions of Article XI of the Trust Agreement.
The Special Servicer may, at the expense of the Trust, employ an
independent contractor to manage and operate any REO Property.
CERTAIN MATTERS REGARDING THE SERVICER AND THE SPECIAL SERVICER
Fidelity Bond and Errors and Omissions Insurance Policy
The Servicer and the Special Servicer will each be required to maintain a
fidelity bond and errors and omissions insurance 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 or omissions,
subject to certain limitations as to amount of coverage, deductible amounts,
conditions, exclusions and exceptions permitted under the Transaction
Documents.
Resignation
Except as otherwise provided in the following paragraph in the case of the
Special Servicer, neither the Servicer nor the Special Servicer may resign
from the obligations and duties imposed on it under the Transaction Documents
unless (as evidenced by an opinion of counsel to such effect) it determines
that its duties under the Transaction Documents are no longer permissible
under applicable law or are in material conflict by reason of applicable law
with other activities carried on by it.
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The Special Servicer may resign from the obligations and duties imposed
on it under the Transaction Documents on or after December 1, 1996 upon
reasonable notice to the Operating Adviser and the Trustee, provided that (i)
a successor special servicer is (A) available, (B) reasonably acceptable to
the Operating Adviser, the Depositor, and the Trustee and (C) willing to
assume the obligations, responsibilities and covenants to be performed under
the Transaction Documents by the Special Servicer on substantially the same
terms and conditions, and for not more than equivalent compensation, as
therein provided, (ii) the Rating Agencies shall have confirmed in writing
that such resignation and designation of a successor special servicer shall
not result in a qualification, downgrade or withdrawal of any rating of any
of the Certificates then rated and (iii) the requirements relating to a
merger under the Special Servicing Agreement are met.
No such resignation by either the Servicer or the Special Servicer will
become effective unless and until a successor thereto assumes the obligations
and responsibilities thereof under the Transaction Documents.
Limitation on Liability
None of the Servicer, the Special Servicer or any of the directors,
officers, employees or agents of the Servicer or the Special Servicer will be
under any liability to the Certificateholders, the Depositor or the Trustee,
and, in the case of the Special Servicer, to the Servicer, the Operating
Adviser or the Extension Adviser, for any action taken or for refraining from
the taking of any action in good faith pursuant to the Transaction Documents,
or for errors in judgment; provided that the Servicer, the Special Servicer
and such other persons will not be protected against any breach of a
representation, warranty or covenant contained in any of the Transaction
Documents or any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in its performance of duties or
by reason of reckless disregard for its obligations and duties under the
Transaction Documents. The Servicer, the Special Servicer and any director,
officer, employee or agent of the Servicer or the Special Servicer may rely
in good faith on any document of any kind prima facie properly executed and
submitted by any person respecting any matters arising under the Transaction
Documents. Neither the Servicer nor the Special Servicer will be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties to service the Mortgage Loans serviced by it in
accordance with the Transaction Documents; provided that the Servicer or the
Special Servicer in its sole discretion may undertake any such action which
it may reasonably deem necessary or desirable in order to protect the
interests of the Certificateholders and the Trustee in the Mortgage Loans
serviced by it, and is required to undertake any such action if instructed to
do so by the Depositor or the Trustee (unless it reasonably believes such
action would result in a material unreimbursed liability of it). All legal
expenses and costs of such action will be expenses and costs of the Trust.
Indemnification of the Servicer and Special Servicer
The Servicer, the Special Servicer and any director, officer, employee or
agent of the Servicer or the Special Servicer shall be indemnified and held
harmless by the Trust against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments and any other costs,
liabilities, fees and expenses incurred in connection with any pending or
threatened legal action relating to (i) the Transaction Documents if such
legal action is incidental to or arises out of the performance of its
obligations and duties under the Transaction Documents, (ii) any action taken
by the Servicer or the Special Servicer, as the case may be, in accordance
with instructions delivered in writing to the Servicer or the Special
Servicer, as the case may be, by the Trustee or, in the case of the Special
Servicer, by the Servicer, the Operating Adviser or the Extension Adviser,
pursuant to any provision of the Transaction Documents, and (iii) in the case
of the Servicer (A) any defect in any Mortgage Loan and related documents as
of the Cut-off Date or (B) any action taken based on information provided by
the Special Servicer, in each case, other than any loss, liability or expense
incurred by reason of the Servicer's or the Special Servicer's, as the case
may be, breach of any representation, warranty or covenant in any of the
Transaction Documents, by reason of the Servicer's or the Special Servicer's,
as the case may be, willful misfeasance, bad faith or negligence in the
performance of duties under the Transaction Documents or by reason of the
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Servicer's or the Special Servicer's, as the case may be, reckless disregard
of obligations and duties under any of the Transaction Documents. The
Servicer or the Special Servicer, as the case may be, is to immediately
notify the Trustee if a claim is made by a third party with respect to the
Transaction Documents or the Mortgage Loans entitling the Servicer or the
Special Servicer, as the case may be, to indemnification, whereupon the
Trustee on behalf of the Trust is to assume the defense of any such claim
and, subject to reimbursement out of the Lower-Tier Distribution Account, to
pay all expenses in connection therewith, including counsel fees, and
promptly pay, discharge and satisfy any judgment or decree that may be
entered against it or them in respect of such claim.
EVENTS OF DEFAULT
The Servicer
An "Event of Default" in respect of the Servicer will include:
(i) any failure by the Servicer to deposit in the Collection Account
when required any amount required to be so deposited under the terms of
the Transaction Documents, which failure continues unremedied for a period
of two Business Days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Servicer by the Depositor or the Trustee;
(ii) any failure by the Servicer to remit to the Trustee on any
Servicer Remittance Date any amount required to be so remitted or
deposited on such date under the terms of the Transaction Documents,
including, without limitation, any Advance, which failure is not cured on
the Business Day following the date on which notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer
by the Trustee, such notice to be communicated both in writing by fax and
by telephone to a person previously designated in writing by the Servicer
to the Trustee for such purpose;
(iii) any failure on the part of the Servicer to duly observe or
perform in any material respect any other of the covenants or agreements
on the part of the Servicer contained in any of the Transaction Documents,
or any breach of the representations and warranties of the Servicer
contained in the Servicing Agreement that could materially and adversely
affect the interest of the holders of any Class of Certificates, which
failure or other breach continues unremedied for a period of 60 days after
the date on which written notice of such failure or other breach,
requiring the same to be remedied, shall have been given to the Servicer
by the Depositor or the Trustee, except that if the Servicer is in good
faith attempting to remedy such failure, the Certificateholders will not
be materially and adversely affected thereby, and the Servicer delivers an
officer's certificate to the Trustee and the Depositor prior to the
expiration of the aforesaid 60-day period outlining the actions to be
taken by the Servicer to remedy such failure or other breach and setting
forth an anticipated date by which such remedy shall be completed, then
such cure period may be extended for an additional period not to exceed 90
days unless otherwise agreed to in writing by the Rating Agencies;
(iv) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings in respect of the
Servicer or its assets, and certain actions on the part of the Servicer to
indicate its insolvency or inability to pay its obligations; and
(v) the Trustee or the Depositor has been notified in writing by
either Rating Agency that a change has occurred in the status of the
Servicer that will result in a qualification, downgrading or withdrawal of
the ratings on the Certificates that are rated by such Rating Agency if
the Servicer is not replaced.
The Special Servicer
An "Event of Default" in respect of the Special Servicer will include:
(i) any failure by the Special Servicer to remit to the Servicer or the
Trustee or to deposit in the Collection Account or any account maintained
with respect to an REO Property when due any amount required to be so
remitted or deposited under the terms of any of the Transaction Documents;
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(ii) any failure on the part of the Special Servicer to duly observe or
perform in any material respect any other of the covenants or agreements on
the part of the Special Servicer contained in the Transaction Documents, or
any breach of the representations and warranties contained in the Special
Servicing Agreement that materially and adversely affects the interest of the
holders of any Class of Certificates, which failure or other breach continues
unremedied for a period of 30 days after the date on which written notice of
such failure or other breach, requiring the same to be remedied, shall have
been given to the Special Servicer by the Operating Adviser, the Trustee or
the Servicer;
(iii) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities, or similar proceedings in respect of or relating to
the Special Servicer or its assets, and certain actions by or on behalf of
the Special Servicer indicating its insolvency or inability to pay its
obligations; and
(iv) a change in the status of the Special Servicer that would result in a
qualification, downgrading or withdrawal of the ratings on the Certificates
that are rated.
TERMINATION OF THE SERVICER OR SPECIAL SERVICER
If an Event of Default in respect of the Servicer or the Special Servicer
occurs and is continuing, then either the Trustee or the Depositor may, and
at the direction of the holders of Certificates entitled to at least 25% of
the Voting Rights, the Trustee is required to terminate all authority, power
and rights of the defaulting party as Servicer or Special Servicer, as the
case may be, under the Transaction Documents.
The Trustee will be required to terminate the services of the Servicer (at
any time after the first anniversary date of the Closing Date) or the Special
Servicer (at any time) under the Transaction Documents, without cause, if (i)
it receives from the Operating Adviser written notice that the Operating
Adviser wishes to appoint a successor Servicer or Special Servicer, and (ii)
such successor will, among other things, be reasonably acceptable to the
Trustee and the Depositor; provided that (as confirmed in writing by the
Rating Agencies) the succession of such proposed successor will not result in
a downgrade, withdrawal or qualification of the then current ratings on the
Certificates.
If the Servicer is terminated without cause, or is terminated solely as
the result of an Event of Default specified in clause (v) under "Events of
Default--The Servicer" above, the Operating Adviser will appoint a successor
servicer meeting the standards for a successor servicer set forth in the
Servicing Agreement. The Operating Adviser will choose the successor servicer
by obtaining competitive bids of qualified prospective successor servicers in
accordance with procedures specified in the Servicing Agreement. Upon the
appointment of the successor servicer, the terminated Servicer will be
entitled to receive a termination fee determined by reference to the bids
received in the competitive bidding process. The obligation to pay such
termination fee will be borne by the holders of the Controlling Class. In
this regard, it should be noted that Fleet Real Estate Capital, Inc. paid a
purchase price to the Seller for the servicing rights to the Mortgage Loans.
APPOINTMENT OF A SUCCESSOR SERVICER OR SPECIAL SERVICER
On or after the time the Servicer or the Special Servicer is terminated or
resigns as such, and provided that, in connection with such resignation or
the termination thereof at the direction of the Operating Adviser, no
acceptable successor has been furnished by the Special Servicer or appointed
by the Operating Adviser, as applicable, as described above, the Trustee will
be the successor to the Servicer or the Special Servicer, as the case may be,
in all respects; provided that if the Trustee is unwilling or unable to so
act, the Trustee will appoint, or petition a court of competent jurisdiction
to appoint, a loan servicing institution meeting the standards for such a
successor as are set forth in the Servicing Agreement in the case of the
Servicer or the Special Servicing Agreement in the case of the Special
Servicer and the appointment of which, as confirmed in writing by the Rating
Agencies, will not result in a downgrade, withdrawal or qualification of the
then current ratings on the Certificates.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The yield to maturity on any Offered Certificate will be affected by the
price paid by the holder thereof, the related Certificate Interest Rate, the
rate and timing of principal payments on the Mortgage
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<PAGE>
Loans (including, for this purpose, principal prepayments, which may include
amounts received by virtue of voluntary prepayments, condemnation, casualty,
defaults and repurchases due to breaches by the Depositor of its
representations and warranties contained in the Trust Agreement) and the
extent to which such principal payments are applied in reduction of the
Certificate Principal Amount of such Offered Certificate.
The rate of principal payments on the Class A-1, Class A-2, Class B, Class
C and Class D Certificates will be affected by the rate of principal payments
(including voluntary prepayments) on the Mortgage Loans. Generally,
prepayments on the Mortgage Loans (including prepayments resulting from
defaults) will tend to shorten the weighted average lives of the Class A-1,
Class A-2, Class B, Class C and/or Class D Certificates whereas delays in
liquidations of defaulted Mortgage Loans and modifications extending the
maturity of Mortgage Loans will tend to lengthen the weighted average lives
of the Offered Certificates. Any changes in such weighted average lives may
adversely affect the yield to holders of the Class A-1, Class A-2, Class B,
Class C and/or Class D Certificates. Prepayments resulting in a shortening of
such weighted average lives may be made at a time of low interest rates when
holders of the Class A-1, Class A-2, Class B, Class C and/or Class D
Certificates may be unable to reinvest such prepayments at interest rates
equal to the Certificate Interest Rates payable on their Offered
Certificates, while delays and extensions resulting in the lengthening of
such weighted average lives may occur at a time of high interest rates when
Certificateholders may have been able to reinvest payments received by them
at higher rates.
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, tax, legal and other factors. In general, if
prevailing interest rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the Mortgage Loans are likely to be subject to higher
prepayments than if prevailing rates remain at or above the Mortgage Rates on
such Mortgage Loans (although it should be noted that substantially all of
the Mortgage Loans provide for Lock-out Periods and/or Prepayment Premiums).
Conversely, if prevailing interest rates rise significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayment would be
expected to decrease. Other factors affecting prepayment of the Mortgage
Loans include the availability of credit for mortgage refinancing, changes in
tax laws (including depreciation benefits), changes in borrowers' net equity
in the Mortgaged Properties, servicing decisions, prevailing general economic
conditions and the relative economic vitality of the areas in which the
Mortgaged Properties are located, the terms of the Mortgage Loans (for
example, the existence of due-on-sale and due-on-encumbrance clauses and, as
stated above, provisions imposing Lock-out Periods and Prepayment Premiums),
the quality of management of the Mortgaged Properties and the availability of
other opportunities for investment. The Depositor makes no representation as
to the particular factors that will affect the rate of prepayment of the
Mortgage Loans, the relative importance of any such factors, the percentage
of the principal balance of the Mortgage Loans that will be paid as of any
date or the overall rate of prepayments on the Mortgage Loans. Because the
Mortgage Loans are subject to prepayment, the aggregate Certificate Principal
Amount of one or more Classes of the Offered Certificates may be reduced to
zero prior to their respective Assumed Final Distribution Dates. In addition,
delinquencies could result in distributions on one or more Classes of Offered
Certificates occurring after their respective Assumed Final Distribution
Dates. As a result, the aggregate Certificate Principal Amount of each Class
of Offered Certificates may be reduced to zero significantly earlier or later
than its Assumed Final Distribution Date.
The effective yield to holders of the Offered Certificates will differ
from the yield otherwise produced by the applicable Certificate Interest
Rates and purchase prices of such Certificates because interest distributions
will not be payable to such holders until at least the 25th day of the month
following the month of accrual (without any additional distribution of
interest or earnings thereon in respect of such delay).
If the purchaser of an Offered Certificate offered at a discount from its
initial Certificate Principal Amount calculates its anticipated yield to
maturity based on an assumed rate of payment that is faster than that
actually experienced on the Mortgage Loans, the actual yield to maturity may
be lower than that so calculated. Conversely, if the purchaser of an Offered
Certificate offered at a premium calculates its anticipated yield to maturity
based on an assumed rate of payment that is slower than that actually
experienced on the Mortgage Loans, the actual yield to maturity may be lower
than that so calculated.
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The timing of changes in the rate of prepayments on the Mortgage Loans
may significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal of the
Mortgage Loans occurs, the greater the effect on an investor's yield to
maturity. The effect on an investor's yield of principal payments occurring
at a rate higher (or lower) than the rate anticipated by the investor during
the period immediately following the issuance of the Offered Certificates may
not be offset by a subsequent like decrease (or increase) in the rate of
principal payments.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement ("CPRCPR") represents an assumed constant rate of prepayment each
month (which is quoted on a per annum basis) relative to the then outstanding
principal balance of a pool of mortgage loans for the life of such mortgage
loans. CPR does not purport to be either an historical description of the
prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Pool. The Depositor does not make any representations about the
appropriateness of the CPR model.
EFFECTS OF LOSSES ON THE MORTGAGE LOANS, ADDITIONAL TRUST FUND EXPENSES AND
OTHER MATTERS
The yield to maturity of any Class of Offered Certificates will be
sensitive to the loss experience on the Mortgage Loans as well as the extent
to which Additional Expense Losses (including shortfalls due to certain
additional compensation being required to be paid to the Special Servicer as
a result of Mortgage Loans becoming Specially Serviced Mortgage Loans and
interest on Advances not being fully compensated by default interest and late
payment charges) may be incurred from time to time. Because of the priority
of payments on the Certificates and the allocation of Realized Losses and
Additional Expense Losses, any shortfalls and losses realized at any time
generally will be borne as described above in "DESCRIPTION OF THE
CERTIFICATES--Subordination; Allocation of Losses and Certain Expenses"
herein and will, through the diminished cash distributions from the Mortgage
Loans to be made in respect of the affected Class of Certificates, negatively
impact the yield to maturity of any Certificateholder of such Class. In
addition, because the aggregate Certificate Notional Amount used to calculate
interest distributions on the Class X Certificates is equal to the aggregate
Certificate Principal Amount of the Classes of Offered Certificates, amounts
otherwise distributable on the Class X Certificates will be affected by
Realized Losses and Additional Expense Losses allocated to reduce the
aggregate Certificate Principal Amount of such other Classes of Offered
Certificates.
In addition, to the extent that the holders of any Class of Offered
Certificates experience a shortfall in the payment of any Distributable
Certificate Interest to which they are entitled, such interest shortfall will
be payable on subsequent Distribution Dates, but will not bear interest and
would therefore adversely affect the yield to maturity of such Class of
Certificates for as long as such interest shortfall is outstanding.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The "weighted average life" of a Class A-1,
Class A-2, Class B, Class C or Class D Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the outstanding
Certificate Principal Amount of such Certificate by the number of years from
the date of issuance of such Certificate to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the original
Certificate Principal Amount of such Certificate. The table set forth below
for each of the Class A-1, Class A-2, Class B, Class C and Class D
Certificates indicates the weighted average life of each such Class of
Offered Certificates that would result, and the percentage of the initial
aggregate Certificate Principal Amount of each such Class of Offered
Certificates that would be outstanding after each of the dates shown, if the
Mortgage Loans were to prepay in accordance with the assumptions set forth in
the following paragraph.
The tables below have been prepared generally on the basis of the
assumptions (collectively, the "Mortgage Loan Assumptions") that (i) the
Class sizes are as shown on the cover of this Pros-
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<PAGE>
pectus Supplement, (ii) the settlement date for the sale of the Certificates
is December 19, 1995, (iii) distributions on the Certificates are made on the
25th day of each month, commencing in January 1996, (iv) except as otherwise
specifically described in these assumptions, the Mortgage Loans have the
characteristics set forth under "DESCRIPTION OF THE MORTGAGE POOL" herein,
(v) there are no delinquencies or defaults with respect to the Mortgage
Loans, and all Monthly Payments, on the Mortgage Loans are timely received on
their respective Due Dates commencing during the initial Collection Period,
except that the maturity dates of all Balloon Loans are extended 36 months,
(vi) each of the Mortgage Loans prepays monthly at the specified percentages
of CPR as set forth in the following tables (without regard to Lock-out
Periods or provisions prohibiting partial Principal Prepayments), (vii) each
Principal Prepayment is received on the related Mortgage Loan's Due Date in
each month (commencing during the initial Collection Period) and is
accompanied by one month's interest thereon, (viii) there are no breaches of
the Sellers' representations and warranties with respect to the Mortgage
Loans, (ix) no Mortgage Loan is modified except as set forth in clause (v)
above, (x) no Additional Trust Fund Expense occurs, (xi) no Prepayment
Premiums are collected, (xii) for certain Mortgage Loans with irregular
payment terms, certain simplifying assumptions have been made and (xiii) no
optional termination of the Trust occurs.
It is not likely that all of the Mortgage Loans will have the
characteristics assumed, even if the Mortgage Loans have the weighted average
characteristics set forth herein. Furthermore, it is unlikely that the
Mortgage Loans will all prepay at any of the levels of CPR indicated in the
tables or at any constant level.
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING
FOR THE CLASS A-1 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
--------------------------------------
Distribution Date 0% 2% 4% 8%
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Initial .......................... 100% 100% 100% 100%
January 25, 1996 .................
January 25, 1997 .................
January 25, 1998 .................
January 25, 1999 .................
January 25, 2000 .................
January 25, 2001 .................
January 25, 2002 .................
January 25, 2003 .................
January 25, 2004 .................
January 25, 2005 .................
Weighted average life (years) ...
</TABLE>
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<PAGE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING
FOR THE CLASS A-2 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
--------------------------------------
Distribution Date 0% 2% 4% 8%
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Initial .......................... 100% 100% 100% 100%
January 25, 1996 .................
January 25, 1997 .................
January 25, 1998 .................
January 25, 1999 .................
January 25, 2000 .................
January 25, 2001 .................
January 25, 2002 .................
January 25, 2003 .................
January 25, 2004 .................
January 25, 2005 .................
Weighted average life (years) ...
</TABLE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING
FOR THE CLASS B CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
--------------------------------------
Distribution Date 0% 2% 4% 8%
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Initial .......................... 100% 100% 100% 100%
January 25, 1996 .................
January 25, 1997 .................
January 25, 1998 .................
January 25, 1999 .................
January 25, 2000 .................
January 25, 2001 .................
January 25, 2002 .................
January 25, 2003 .................
January 25, 2004 .................
January 25, 2005 .................
Weighted average life (years) ...
</TABLE>
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<PAGE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING FOR THE
CLASS C CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
--------------------------------------
Distribution Date 0% 2% 4% 8%
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Initial .......................... 100% 100% 100% 100%
January 25, 1996 .................
January 25, 1997 .................
January 25, 1998 .................
January 25, 1999 .................
January 25, 2000 .................
January 25, 2001 .................
January 25, 2002 .................
January 25, 2003 .................
January 25, 2004 .................
January 25, 2005 .................
Weighted average life (years) ...
</TABLE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING FOR THE
CLASS D CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
--------------------------------------
Distribution Date 0% 2% 4% 8%
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Initial .......................... 100% 100% 100% 100%
January 25, 1996 .................
January 25, 1997 .................
January 25, 1998 .................
January 25, 1999 .................
January 25, 2000 .................
January 25, 2001 .................
January 25, 2002 .................
January 25, 2003 .................
January 25, 2004 .................
January 25, 2005 .................
Weighted average life (years) ...
</TABLE>
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<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984. 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 of any
Class, may be subject to significant interpretative uncertainties. In
addition, institutions whose investment activities are subject to review by
federal or state regulatory authorities may be or may become subject to
restrictions on the investment by such institutions in certain forms of
mortgage related securities.
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. See "LEGAL INVESTMENT" in the
Prospectus.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
LOCATED IN PENNSYLVANIA, CALIFORNIA AND FLORIDA
The following discussion contains summaries of certain legal aspects of
mortgage loans secured by real property in Pennsylvania (approximately 19.5%
of the Initial Pool Balance), California (approximately 18.4% of the Initial
Pool Balance) and Florida (approximately 16.8% of the Initial Pool Balance)
which are general in nature. The summaries do not purport to be complete and
are qualified in their entirety by reference to the applicable federal and
state laws governing the Mortgage Loans.
PENNSYLVANIA
Mortgage Loans in Pennsylvania are generally secured by mortgages on the
related real estate. Foreclosure of a mortgage is accomplished by foreclosure
in judicial proceedings. Such proceedings are regulated by statutes and rules
and subject throughout to the court's equitable powers. Public notice of the
judgment of foreclosure and sale and the amount of the judgment is given for
a statutory period of time after which the mortgaged real estate is sold by a
referee at public auction. The proceeds received by the referee from the sale
are applied first to the cost and expenses of the sale and then in
satisfaction of the indebtedness secured by the mortgage. After satisfaction
of any other claims or liens, the remaining proceeds are generally payable to
the mortgagor. There is no right of redemption after foreclosure sale in
Pennsylvania. In certain circumstances, deficiency judgments may be obtained.
The remedy of appointment of receiver for the mortgaged real estate is
infrequently used.
CALIFORNIA
Mortgage Loans in California are generally secured by deeds of trust on
the related real estate. Foreclosure of a deed of trust in California may be
accomplished by a non-judicial trustee's sale under a specific provision in
the deed of trust or by judicial foreclosure. Public notice of either the
trustee's sale or the judgment of foreclosure is given for a statutory period
of time after which the mortgaged real estate may be sold by the Trustee, if
foreclosed pursuant to the Trustee's power of sale, or by court appointed
sheriff under a judicial foreclosure. Following a judicial foreclosure sale,
the borrower or its successor in interest may, for a period of up to one
year, redeem the property. California's "one action rule" effectively
prohibits a lender from suing the borrower for the loan or taking certain
other actions, such as offsetting funds, prior to a foreclosure of the deed
of trust. Further, under the California law, once a property has been sold
pursuant to a power-of-sale clause contained in a deed of trust, the lender
is precluded from seeking a deficiency judgment from the borrower or, under
certain circumstances, guarantors. In certain circumstances, the lender may
have a receiver appointed.
FLORIDA
Mortgage loans involving real property in Florida are generally secured by
mortgages and foreclosures are accomplished by judicial foreclosure. There is
no power of sale in Florida, except as
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<PAGE>
permitted by federal law. After an action for foreclosure is commenced and
the lender secures a judgment, the final judgment will provide that the
property be sold at public sale at the courthouse if the full amount of the
judgment is not paid prior to the scheduled sale. Generally, the foreclosure
sale must occur no later than 35 days after the judgment is entered. During
this period, a notice of sale must be published twice in the county in which
the property is located. The mortgagor or any junior lienor may redeem the
property at any time before the sale by paying the amount of the judgment.
There is no right of redemption after issuance of the certificate of title to
the buyer of the property. Florida does not have a "one action rule" or
"anti-deficiency legislation". Subsequent to a foreclosure sale, however, a
lender must prove the value of the property sold as of the date of
foreclosure in order to recover a deficiency. In certain circumstances, the
lender may have a receiver appointed.
USE OF PROCEEDS
Certain of the net proceeds from the sale of the Offered Certificates will
be used by the Depositor to purchase the Mortgage Loans from the Seller and
to pay certain expenses in connection with the issuance of the Offered
Certificates.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement (including individual retirement accounts and annuities, and
Keogh plans) and any collective investment fund and insurance company general
or separate accounts in which such plans, accounts or arrangements are
invested, that is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the Code (each, a
"PlanPlan") should carefully 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 U.S. Department of Labor issued to Lehman Brothers an individual
prohibited transaction exemption, Prohibited Transaction Exemption 91-14 (the
"Exemption"), which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed
on such prohibited transactions pursuant to Sections 4975(a) and (b) of the
Code, certain transactions, among others, relating to the servicing and
operation of mortgage pools, such as the Mortgage Pool, and the purchase,
sale and holding of mortgage pass-through certificates, such as the Class A-1
Certificates, underwritten by an "underwriter," provided that certain
conditions set forth in the Exemption are satisfied. For purposes of this
discussion, the term "underwriter" shall include (a) Lehman Brothers,
(b) any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with Lehman Brothers
and (c) any member of the underwriting syndicate or selling group of which a
person described in (a) or (b) is a manager or co-manager with respect to the
Senior Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of Class A-1
Certificates or Class A-2 Certificates to be eligible for exemptive relief
thereunder. First, the acquisition of the Class A-1 Certificates or Class A-2
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 rights and interests evidenced by the Class A-1 Certificates or
Class A-2 Certificates must not be subordinated to the rights and interests
evidenced by the other Certificates of the Trust. Third, the Class A-1
Certificates or Class A-2 Certificates at the time of acquisition by the Plan
must be rated in one of the three highest generic rating categories by S&P,
Duff & Phelps Inc. ("Duff & Phelps"), Moody's Investors Service, Inc.
("Moody's"), or Fitch. Fourth, the Trustee cannot be an affiliate of any
other member of the "Restricted Group", which consists of any underwriter,
the Depositor, the Servicer, the Special Servicer, the Trustee, any
sub-servicer, and any borrower 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 Class A-1 Certificates or
Class A-2 Certificates. Fifth, the sum of all payments made to and retained
by the underwriter must represent not more than reasonable compensation for
underwriting the Class A-1 Certificates or Class
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<PAGE>
A-2 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 Servicer, the Special
Servicer and any sub-servicer must represent not more than reasonable
compensation for such person's services under the relevant servicing
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 Securities and
Exchange Commission under the Securities Act.
Because the Class A-1 Certificates and Class A-2 Certificates are not
subordinated to any other Class of Certificates, the second general condition
set forth above is satisfied with respect to such Certificates. It is a
condition of the issuance of the Class A-1 Certificates and Class A-2
Certificates that they be rated not lower than "AAA" by S&P and Fitch; thus,
the third general condition set forth above is satisfied with respect to
Class A-1 Certificates and Class A-2 Certificates as of the Closing Date. In
addition, the fourth general condition set forth above is also satisfied as
of the Closing Date. A fiduciary of a Plan contemplating purchasing a Class
A-1 Certificate or Class A-2 Certificate in the secondary market must make
its own determination that, at the time of such purchase, the Class A-1
Certificates or Class A-2 Certificates continue to satisfy the third and
fourth general conditions set forth above. A fiduciary of a Plan
contemplating purchasing any Class A-1 Certificate or Class A-2 Certificate
must make its own determination that the first, fifth and sixth general
conditions set forth above will be satisfied with respect to such Class A-1
Certificate or Class A-2 Certificate as of the date of such purchase.
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
categories of S&P, Duff & Phelps, Moody's or Fitch for at least one year
prior to the Plan's acquisition of Class A-1 Certificates or Class A-2
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 Class A-1 Certificates or Class A-2 Certificates.
The Depositor has confirmed to its satisfaction that such requirements have
been satisfied as of the date hereof.
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
Class A-1 Certificates or Class A-2 Certificates in the initial issuance of
Certificates between the Depositor or an underwriter and a Plan when the
Depositor, any underwriter, the Trustee, the Servicer, the Special Servicer,
any sub-servicer or any mortgagor is a "Party in Interest," as defined in the
Prospectus, with respect to the investing Plan, (ii) the direct or indirect
acquisition or disposition in the secondary market of Class A-1 Certificates
or Class A-2 Certificates by a Plan and (iii) the holding of Class A-1
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 Class A-1 Certificate or Class A-2 Certificate on
behalf of an "Excluded Plan" 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.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E)
of the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Class A-1 Certificates or Class A-2 Certificates in the initial
issuance of Class A-1 Certificates or Class A-2 Certificates between the
Depositor or an underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in such Class A-1 Certificates or Class A-2 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, (2) the direct or indirect
acquisition or disposition in the secondary market of Class A-1 Certificates
or Class A-2 Certificates by a Plan and (3) the holding of Class A-1
Certificates or Class A-2 Certificates by a Plan.
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<PAGE>
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by
Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation
of the Mortgage Pool. The Depositor expects that the specific conditions of
the Exemption required for this purpose will be satisfied with respect to the
Class A-1 Certificates and Class A-2 Certificates.
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 Sections
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 Class A-1 Certificates or Class A-2 Certificates. A
purchaser of a Class A-1 Certificate or Class A-2 Certificate 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 that may be considered prohibited transactions.
Before purchasing a Class A-1 Certificate or Class A-2 Certificate, a
fiduciary of a Plan should itself confirm that the specific and general
conditions of the Exemption and the other requirements set forth in the
Exemption would be satisfied. In addition to making its own determination as
to the availability of the exemptive relief provided in the Exemption, the
Plan fiduciary should consider the availability of any other prohibited
transaction exemptions. See "ERISA CONSIDERATIONS" in the Prospectus.
BECAUSE THE CHARACTERISTICS OF THE CLASS B, CLASS C AND CLASS D
CERTIFICATES DO NOT MEET THE REQUIREMENTS OF THE EXEMPTION, THE PURCHASE OR
HOLDING OF SUCH CERTIFICATES BY A PLAN MAY RESULT IN PROHIBITED TRANSACTIONS
OR THE IMPOSITION OF EXCISE TAXES OR CIVIL PENALTIES. IN NO EVENT MAY ANY
TRANSFER CLASS B, CLASS C OR CLASS D CERTIFICATE OR ANY INTEREST THEREIN 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 SECTION
III OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, WHICH PROVIDES EXEMPTIVE
RELIEF FOR CERTAIN TRANSACTIONS INVOLVING AN INSURANCE COMPANY GENERAL
ACCOUNT. ANY PLAN OR PERSON TO WHOM A TRANSFER OF ANY CLASS B, CLASS C OR
CLASS D CERTIFICATE OR INTEREST THEREIN IS MADE SHALL BE DEEMED TO HAVE
REPRESENTED TO THE SELLER, THE DEPOSITOR, THE SERVICER, THE SPECIAL SERVICER,
THE TRUSTEE, ANY SUB-SERVICER AND ANY BORROWER WITH RESPECT TO THE MORTGAGE
LOANS THAT THE PURCHASE AND HOLDING OF SUCH CERTIFICATE OR INTEREST THEREIN
IS SO EXEMPT ON THE BASIS OF SECTION III OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60.
FEDERAL INCOME TAX CONSIDERATIONS
Upon the issuance of the Offered Certificates, Mayer, Brown & Platt,
counsel to the Seller, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Trust Agreement, for federal
income tax purposes, the portions of the Trust Fund designated in the Trust
Agreement as the "Lower-Tier REMIC" and the "Upper-Tier REMIC", respectively,
will each qualify as a REMIC under the Internal Revenue Code of 1986 (the
"Code"). For federal income tax purposes, (a) the separate
non-certificated regular interests in the Lower-Tier REMIC (referred to
herein as "REMIC I") will be the "regular interests" in REMIC I, (b) the
Class R-I Certificates will be the sole class of "residual interests" in
REMIC I, (c) the Senior Certificates and the Subordinate Certificates will
evidence the "regular interests" in the Upper-Tier REMIC (referred to herein
as "REMIC II") and generally will be treated as debt instruments of REMIC II,
and (d) the Class R-II Certificates will be the sole class of "residual
interests" in REMIC II. See "FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus.
Notwithstanding the statement in the Prospectus that interest with respect
to certain REMIC regular interests based on a weighted average of the
interest rates on the underlying mortgage loans should be treated as original
issue discount, the Class A-1, Class A-2, Class B, Class C and Class D
Certificates will be treated as having been issued with original issue
discount only to the extent that the Certificate
S-115
<PAGE>
Principal Amount of any such Offered Certificate exceeds its issue price by
more than a de minimis amount. The Class A-1, Class A-2 and Class B
Certificates will not, and the Class C and Class D Certificates may, be
treated as having been issued with original issue discount for federal income
tax reporting purposes. The prepayment assumption that will be used in
determining the rate of accrual of original issue discount, 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 prepay at a rate equal to a CPR of 0%. No representation is made
that the Mortgage Loans will not prepay or that they will prepay at any
particular rate.
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize original issue discount under a method that differs
from that used by the issuer. Accordingly, it is possible that the holder of
an Offered Certificate may be able to select a method for recognizing
original issue discount that differs from that used by the Trustee in
preparing reports to the Certificateholders and the IRS. Prospective
purchasers of Offered Certificates are advised to consult their tax advisors
concerning the tax treatment of such Certificates.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code and "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code. In addition,
interest (including original issue discount) on the Offered Certificates will
be interest described in Section 856(c)(3)(B) of the Code. However, the
Offered 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, investment in the Offered
Certificates may not be suitable for certain thrift institutions.
Prepayment Premiums actually collected, will be distributed among the
holders of the respective Classes of Certificates as described herein under
"DESCRIPTION OF THE CERTIFICATES-- Distributions--Distributions of Prepayment
Premiums". It is not entirely clear under the Code when the amount of a
Prepayment Premium should be taxed to the holder of an Offered Certificate,
but it is not expected, for federal income tax reporting purposes, that
Prepayment Premiums will be treated as giving rise to any income to the
holders of an Offered Certificate prior to the Servicer's actual receipt of a
Prepayment Premium. It appears that Prepayment Premiums, if any, will be
treated as ordinary income rather than capital gain. However, that is not
entirely clear and Certificateholders should consult their own tax advisors
concerning the treatment of Prepayment Premiums.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "FEDERAL INCOME TAX
CONSIDERATIONS" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement dated the date hereof (the "Underwriting AgreementUnderwriting
Agreement") relating to the Offered Certificates between the Depositor and
Lehman Brothers, the Depositor has agreed to sell to Lehman Brothers, and
Lehman Brothers has agreed to purchase from the Depositor, all of the Offered
Certificates.
The Underwriting Agreement provides that Lehman Brothers' obligations
thereunder are subject to certain conditions precedent, and that Lehman
Brothers will be obligated to purchase all of such Certificates if any are
purchased.
The distribution of such Certificates by Lehman Brothers will be effected
from time to time in one or more negotiated transactions, or otherwise, at
varying prices to be determined, in each case, at the time of sale. Lehman
Brothers may effect such transactions by selling such Certificates to or
through dealers, and such dealers may receive from Lehman Brothers, for whom
they act as agent, compensation in the form of underwriting discounts,
concessions or commissions. Lehman Brothers and any dealers that participate
with Lehman Brothers in the distribution of such Certificates may be deemed
to be underwriters, and any discounts, commissions or concessions received by
them, and any profit on the resale of such Certificates purchased by them,
may be deemed to be underwriting discounts and commissions under the
Securities Act. The Underwriting Agreement provides that the Depositor will
indemnify Lehman Brothers against certain liabilities, including liabilities
under the Securities Act.
S-116
<PAGE>
Lehman Brothers is an affiliate of the Depositor. See "PLAN OF
DISTRIBUTION" in the Prospectus.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor and for Lehman Brothers by Weil, Gotshal & Manges, New
York, New York and by Mayer, Brown and Platt, Chicago, Illinois.
CERTIFICATE RATING
It is a condition of the issuance of the Offered Certificates that they
receive the following credit ratings from Fitch and S&P:
<TABLE>
<CAPTION>
CLASS FITCH S&P
- ------------- --------- -------
<S> <C> <C>
Class A-1 AAA AAA
Class A-2 AAA AAA
Class B AA AA
Class C A A
Class D BBB BBB
</TABLE>
The ratings on the Offered Certificates address the likelihood of the
receipt by holders thereof of distributions to which they are entitled,
including, in the case of the Class A-1, Class A-2, Class B, Class C and
Class D Certificates, distribution of all principal thereof by 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 required under the Offered
Certificates. The ratings on the Offered Certificates do not, however,
represent any assessment of (i) the likelihood or frequency of prepayments on
the Mortgage Loans, (ii) the degree to which the frequency of prepayments
might differ from that originally anticipated, or (iii) whether or to what
extent Prepayment Premiums may be received.
There can be no assurance that any rating agency not requested to rate the
Offered Certificates will not nonetheless issue a rating to any or all
Classes thereof and, if so, what such rating or ratings 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 or both of the Rating Agencies.
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 agency.
S-117
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
<S> <C>
Accepted Servicing Practices ............... 89, 91
Accrued Certificate Interest ............... 45
Additional Expense Loss .................... 16, 51
Additional Trust Fund Expenses ............. 16, 52
Administrative Cost Rate ................... 23, 93
Advance .................................... 23, 54
A&E Reports ................................ 71
Aetna ...................................... 64
Allendale Loans ............................ 31
Annual Debt Service ........................ 75
Anticipated Loss ........................... 54
Assigned Asset Value ....................... 94
Assumed Final Distribution Date ............ 59
Assumed Payment ............................ 53
Available Distribution Amount .............. 11, 41
Balloon Loans .............................. 20
Balloon Payment ............................ 20
Book-Entry Certificates .................... 39
Certificates ............................... 1, 5, 38
Certificate Notional Amount ................ 9, 39
Certificate Owner .......................... 40
Certificate Principal Amount ............... 2, 9, 39
Certificates ............................... 1, 5, 38
Chase-Away Period .......................... 21, 67
Class ...................................... 1, 5
Closing Date ............................... 8
Code ....................................... 114
Collection Account ......................... 63
Collection Period .......................... 41
Company .................................... 63
Component .................................. 9, 39
Component A-1 .............................. 9, 39
Component A-2 .............................. 10, 39
Component B ................................ 10, 39
Component C ................................ 10, 39
Component D ................................ 10, 39
Component Rate ............................. 48
Controlling Class .......................... 94
Corporate Trust Office ..................... 62
Covered Conditions ......................... 71
Covered Properties ......................... 71
CPR ........................................ 107
Cross-Collateralized Mortgage Loans ....... 19, 66
Custodian .................................. 84
Cut-off Date ............................... 1, 8
Cut-off Date Balance ....................... 18, 65
Cut-off Date Debt Service Coverage Ratio .. 76
Cut-off Date DSC Ratio ..................... 76
Definitive Certificate ..................... 40
S-118
<PAGE>
Depositor .................................. 1, 5
Determination Date ......................... 41
Distributable Certificate Interest ........ 13, 45
Distribution Accounts ...................... 63
Distribution Date .......................... 8, 41
Distribution Date Statement ................ 55
DTC ........................................ 39
Due Date ................................... 20
Due Period ................................. 41
Due-on-Encumbrance ......................... 69, 97
Due-on-Sale ................................ 69, 97
Duff & Phelp's ............................. 112
Eligible Account ........................... 63
Environmental Indemnity Agreement .......... 71
ERISA ...................................... 26, 112
Event of Default ........................... 104
Excess Prepayment Interest ................. 16, 52
Exemption .................................. 112
Extension Adviser .......................... 7, 96
FFG ........................................ 89
Fitch ...................................... 1, 25
Form 8K .................................... 87
FREC ....................................... 89
GAAP ....................................... 75
Group ...................................... 19, 66
Initial Pool Balance ....................... 1, 18, 65
Interest Payment Adjustment ................ 47, 48
Junior Participation ....................... 74
Lehman Brothers ............................ 1
LFMLP ...................................... 72
Lock-out Period ............................ 21, 67
Lower-Tier Distribution Account ............ 63
Lower-Tier REMIC ........................... 114
Monthly Payments ........................... 20
Moody's .................................... 112
Mortgage ................................... 65
Mortgage File .............................. 84
Mortgage Loan Purchase Agreement ........... 85
Mortgage Loan Schedule ..................... 84
Mortgage Loans ............................. 1, 18, 65
Mortgage Note .............................. 65
Mortgage Pool .............................. 1
Mortgage Rate .............................. 20
Mortgaged Property ......................... 19
Net Aggregate Excess Prepayment Interest .. 53
Net Aggregate Prepayment Interest Shortfall 16, 52
Net Collections ............................ 92
Net Mortgage Rate .......................... 10, 40
Net REO Income ............................. 41
Non-Offered Certificates ................... 6, 38
Nonrecoverable Advance ..................... 54
S-119
<PAGE>
Normalized NOI ............................. 74
Occupancy .................................. 76
Offered Certificates ....................... 1, 5, 38
Operating Adviser .......................... 7, 93
Participants ............................... 40
P&I Advances ............................... 53
Percentage Interest ........................ 41
Plan ....................................... 26, 112
Prepayment Interest Shortfall .............. 16, 52
Prepayment Period .......................... 41
Prepayment Premium ......................... 21, 67
Primary Mortgaged Property ................. 20
Prime Rate ................................. 55
Principal Payment Amount ................... 14, 45
Purchase Price ............................. 84
PV Yield Loss Amount ....................... 47
Rated Final Distribution Date .............. 2, 60
Rating Agencies ............................ 1, 25
Realized Losses ............................ 15, 51
Record Date ................................ 8, 41
Regular Interest Certificates .............. 5, 38
Rehabilitated Mortgage Loan ................ 89
Reinvestment Yield ......................... 48
REMIC ...................................... 24
REMIC I .................................... 24, 114
REMIC II ................................... 24, 114
REO Property ............................... 17, 38
Repurchase Proceeds ........................ 41
Residual Certificates ...................... 1, 38
S&P ........................................ 1, 25
Scheduled Principal Balance ................ 53
Securities Act ............................. 6, 39
Seller ..................................... 1, 6
Senior Certificates ........................ 1, 38
Senior Participation ....................... 17, 65
Seriously Delinquent Loan .................. 54
Servicer ................................... 1, 7, 89
Servicer Remittance Date ................... 41, 63
Servicing Advances ......................... 54
Servicing Agreement ........................ 88
Servicing Fee .............................. 90
Servicing Transfer Event ................... 88
Special Servicer ........................... 1, 7, 91
Special Servicing Agreement ................ 88
Special Servicing Fee ...................... 92
Specially Serviced Mortgage Loans .......... 7, 88
Stated Principal Balance ................... 40
Subordinate Certificates ................... 1, 5, 38
Termination Price .......................... 60
Transaction Documents ...................... 88
Trust ...................................... 1, 8, 38
S-120
<PAGE>
Trust Agreement ............................ 8, 38
Trust Fund ................................. 1, 38
Trustee .................................... 1, 7
Trustee Fee ................................ 62
Trustee Fee Rate ........................... 62
Uncovered Portion .......................... 94
Underwriter ................................ 1
Underwriting Agreement ..................... 115
Upper-Tier Distribution Account ............ 63
Upper-Tier REMIC ........................... 114
Voting Rights .............................. 60
Weighted Average Net Mortgage Rate ........ 10, 40
Workout Fee ................................ 92
Workout Fee Rate ........................... 93
</TABLE>
S-121
<PAGE>
SUMMARY OF THE MORTGAGE LOANS AND MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
LOAN PROPERTY ZIP
NO. PROPERTY TYPE ADDRESS CITY ST CODE
- ------ ------------------------- -------------- ------------------------- ---------------------- --- --------
<S> <C> <C> <C> <C> <C> <C>
1 Tradewinds Resort Hotel Hotel 5500 Gulf Boulevard St. Petersburg Beach FL 33706
2 Waterworks Shopping Retail Freeport Road Pittsburgh PA 15238
Center II
3 Adam's Mark Hotel Hotel 4000 Monument Road Philadelphia PA 19131
4 Polyclinic Medical 1145 Broadway Seattle WA 98122
5 Covina Town Square Retail 1400 North Azusa Avenue Covina CA 91722
6 Mobil Oil Building Office 11300 Corporate Avenue Lenexa KS 66219
7 Downtown Center Parking Parking Garage 325 Mason Street San Francisco CA 94102
Garage
8 Woodhawk Apartments Multifamily 1000 Johnanna Drive Pittsburgh PA 15237
9 Blue Cross/Blue Shield Office 2221 Edward Holland Drive Richmond VA 23230
Bldg
10 Stanford Park Hotel Hotel 100 El Camino Real Menlo Park CA 94025
11 Sturbridge Inn Hotel 366 Main Street Sturbridge MA 01566
12 Sheraton Hotel Hotel 600 Lake Destiny Maitland FL 32853
Boulevard
13 500 Westchester Avenue Office 500 Westchester Avenue Harrison NY 10604
14 Festival At Woodholme Retail 1809 Reisterstown Road Pikesville MD 21208
15 Wal-Mart Group #1 (1) Retail Multiple Properties -- -- --
16 Oak Park Commons Retail NWC 95th Street & Quivira Lenexa KS 66206
Road
17 Fort Steuben Plaza Retail NEC Mall Drive & Lovers Steubenville OH 43952
Lane
18 Golfview Apartments Multifamily 8290 Lake Drive Miami FL 33166
19 Children's Medical Center Medical 5455 Meridian Mark Road Atlanta GA 30342
20 Shadyside Medical Center Medical 5100 Centre Avenue Pittsburgh PA 15232
21 St. Marks Co-Op Multifamily 115 East 9th Street New York NY 10003
Apartments
22 Doral Manor Apartments Multifamily 8150 Geneva Court Miami FL 33166
23 Buenaventura Plaza Retail 3310-3498 Telegraph Road Ventura CA 93001
24 Tech Data Office Building Office 5350 Tech Data Drive Clearwater FL 34620
25 J.C. Penney Office Office 2000 Oxford Drive Bethel Park PA 15102
Building
26 Hilton Hotel-Stockton Hotel 2323 Grand Canal Stockton CA 95207
Boulevard
27 Global Business Industrial/ 8006 Cameron Road Austin TX 78754
Park-A,B,C Flex
28 Koll Corporate Center Office 4343 Von Karman Avenue Newport Beach CA 92660
29 Holiday Inn-Conf. Hotel 2800 Presidential Drive Fairborn OH 45324
Center/I-675
30 Plaza At The Boca Retail 9070 Kimberly Boulevard West Boca Raton FL 33434
Hamptons
31 Westchester Square Shop Retail 233-277 Central Park Hartsdale NY 10530
Ctr Avenue
32 Collins Business Center Industrial/ SWC Ruffin Road & Calle San Diego CA 92123
Flex Fortunada
33 Giant Eagle/Hechingers Retail 3700 William Penn Highway Monroeville PA 15146
34 Wal-Mart Group #2 (1) Retail Multiple Properties -- -- --
35 Holiday Inn-Fayetteville, Hotel 1944 Cedar Creek Road Fayetteville NC 28301
NC
36 Allendale Corporate Industrial/ 90 Boroline Road Allendale NJ 07401
Center-90 (2) Flex
37 Allendale Corporate Industrial/ 25 Commerce Drive Allendale NJ 07401
Center-25 (2) Flex
38 Wal-Mart Group #3 (1) Retail Multiple Properties -- -- --
39 Allendale Corporate Industrial/ 80 Commerce Drive Allendale NJ 07401
Center-80 (2) Flex
40 Old Country Plaza Retail 4335-4387 Starkey Road Roanoke VA 24014
41 3400 Carlisle Office 3400 Carlisle Street Dallas TX 75204
Total/Weighted Average
</TABLE>
See Pages A-7 and A-8 for explanation of column headings and footnotes.
A-1
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
SUMMARY OF THE MORTGAGE LOANS AND MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
CUT-OFF DATE SIZE (RMS,
UNPD PRINCIPAL SQ. FT. OR CUT-OFF DATE ORIGINAL MOD. DATE IF
BALANCE UNITS) UPB/SIZE NOTE DATE APPLICABLE AMORTIZATION TYPE
------------- --------- ----------- -------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
$ 25,939,913 373 $69,544.00 11/6/88 IO change to Balloon
25,246,317 320,948 78.66 8/17/89 Balloon
22,244,715 515 43,193.62 9/17/90 3/26/93 Balloon
20,280,934 112,610 180.10 12/12/89 IO change to Balloon
18,234,562 421,551 43.26 8/23/89 12/1/93 IO change to Balloon
17,350,000 170,626 101.68 5/15/90 IO change to Balloon
16,911,903 944 17,915.15 12/14/89 IO change to Balloon
14,000,000 436 32,110.09 6/22/89 5/6/94 Interest Only
13,763,859 192,807 71.39 12/13/89 Balloon
13,622,029 162 84,086.60 7/30/86 10/1/93 Balloon
12,839,549 241 53,276.14 12/8/86 10/25/93 Balloon
12,520,000 (3) 394 31,776.65 1/19/84 8/26/94 Balloon
12,500,000 95,040 131.52 5/26/89 Interest Only
11,678,885 81,027 144.14 12/6/89 6/1/95 Balloon
11,648,249 608,921 19.13 12/1/86 Self-Amortizing
10,988,683 116,251 94.53 2/21/90 3/3/92 IO change to Balloon
10,700,000 212,958 50.24 7/17/90 IO change to Self-Am
10,347,651 248 41,724.40 9/14/87 6/15/92 IO change to Balloon
10,257,610 87,413 117.35 3/27/89 IO change to Balloon
10,000,000 148,369 67.40 12/6/89 IO change to Balloon
9,609,021 259 37,100.47 12/2/86 Self-Amortizing
9,478,851 275 34,468.55 9/14/87 6/15/92 IO change to Balloon
9,259,254 326,129 28.39 12/1/83 5/1/88 IO change to Balloon
9,021,589 148,000 60.96 5/31/87 12/15/88 Balloon
8,805,000 (3) 137,836 63.88 10/14/87 IO change to Balloon
8,802,416 198 44,456.65 12/31/81 12/3/92 Interest Only
8,713,633 269,415 32.34 6/19/86 8/31/94 Balloon
8,594,119 52,300 164.32 8/26/86 11/15/94 Balloon
8,155,550 (3) 202 40,374.01 6/15/88 IO change to Balloon
8,030,900 93,216 86.15 6/26/86 11/1/94 Balloon
7,981,271 89,250 89.43 7/26/90 IO change to Balloon
7,200,685 119,442 60.29 8/29/90 IO change to Balloon
6,952,067 149,603 46.47 10/14/87 9/16/91 Balloon
6,762,948 343,338 19.70 12/1/86 Self-Amortizing
6,502,617 201 32,351.33 4/7/82 5/1/92 Balloon
5,765,620 78,000 73.92 1/17/90 IO change to Balloon
5,467,398 68,251 80.11 1/17/90 IO change to Balloon
4,147,102 233,276 17.78 3/11/87 Self-Amortizing
3,678,068 45,370 81.07 1/17/90 IO change to Balloon
2,747,223 83,230 33.01 12/19/83 12/1/93 Balloon
1,815,479 76,043 23.87 3/11/93 IO change to Balloon
- --------------
$448,565,671
==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUT-OFF DATE ORIGINAL OR
UNPD PRINCIPAL MODIFIED IO AMORT AMORT REMAINING MATURITY LOAN
BALANCE TERM PERIOD PERIOD SCHEDULE TERM DATE NO.
- -------------- ----------- ------ ------ -------- --------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 25,939,913 120 11 109 359 36 12/1/98 1
25,246,317 360 0 360 420 285 9/1/19 2
22,244,715 41 0 41 216 9 9/1/96 3
20,280,934 240 24 216 336 169 1/1/10 4
18,234,562 180 60 120 360 105 9/1/04 5
17,350,000 118 60 58 360 72 12/1/01 6
16,911,903 120 59 61 387 49 1/1/00 7
14,000,000 61 61 0 0 43 7/1/99 8
13,763,859 180 0 180 360 109 1/1/05 9
13,622,029 46 0 46 162 20 8/1/97 10
12,839,549 48 0 48 288 13 1/1/97 11
12,520,000 (3) 84 0 84 276 61 1/1/01 12
12,500,000 120 120 0 0 41 5/26/99 13
11,678,885 58 0 58 332 52 4/1/00 14
11,648,249 300 0 300 300 192 12/1/11 15
10,988,683 179 35 144 358 110 2/1/05 16
10,700,000 360 60 300 300 306 6/1/21 17
10,347,651 63 21 42 342 22 10/1/97 18
10,257,610 288 24 264 359 208 4/1/13 19
10,000,000 163 60 103 390 109 1/1/05 20
9,609,021 264 0 264 264 157 1/1/09 21
9,478,851 63 21 42 342 22 10/1/97 22
9,259,254 129 60 69 360 37 1/1/99 23
9,021,589 192 0 192 360 109 1/1/05 24
8,805,000 (3) 143 59 84 360 46 10/1/99 25
8,802,416 55 55 0 0 20 8/1/97 26
8,713,633 84 0 84 262 69 9/1/01 27
8,594,119 60 0 60 215 21 9/1/97 28
8,155,550 (3) 179 35 144 360 90 6/1/03 29
8,030,900 83 0 83 300 70 10/31/01 30
7,981,271 120 59 61 360 56 8/1/00 31
7,200,685 84 36 48 360 21 9/1/97 32
6,952,067 107 59 48 360 10 10/1/96 33
6,762,948 300 0 300 300 192 12/1/11 34
6,502,617 84 0 84 243 41 5/31/99 35
5,765,620 120 59 61 360 50 2/1/00 36
5,467,398 120 59 61 360 50 2/1/00 37
4,147,102 300 0 300 300 196 4/1/12 38
3,678,068 120 59 61 360 50 2/1/00 39
2,747,223 84 0 84 216 60 12/1/00 40
1,815,479 60 37 23 331 28 4/1/98 41
- -------------- ---------
$448,565,671 89
============== =========
</TABLE>
See Pages A-7 and A-8 for explanation of column headings and footnotes.
A-2
<PAGE>
SUMMARY OF THE MORTGAGE LOANS AND MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
MAXIMUM
LOAN 1994 NET NORMALIZED GROSS INTEREST ANNUAL DEBT
NO. PROPERTY CASH FLOW NOI RATE BASIS SERVICE DSCR
- ---- ------------------------------ ------------- ------------- --------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Tradewinds Resort Hotel $ 4,623,389 $ 3,592,530 10.750% 30/360 $3,026,700 1.19x
2 Waterworks Shopping Center II 4,487,208 4,102,930 9.730 30/360 2,617,890 1.57
3 Adam's Mark Hotel 5,291,392 3,694,718 8.125 30/360 2,541,714 1.45
4 Polyclinic 2,182,315 2,426,461 9.480 30/360 2,143,128 1.13
5 Covina Town Square 2,718,225 2,277,533 9.600 30/360 1,870,193 1.22
6 Mobil Oil Building 1,740,708 1,846,700 9.590 30/360 1,764,346 1.05
7 Downtown Center Parking Garage 2,425,302 2,460,545 9.235 Actual/360 1,676,041 1.47
8 Woodhawk Apartments 2,169,740 2,053,832 9.250 30/360 1,295,000 1.59
9 Blue Cross/Blue Shield Bldg 1,793,248 1,717,834 9.800 30/360 1,490,968 1.15
10 Stanford Park Hotel 3,256,483 2,809,896 8.860 30/360 1,912,500 1.47
11 Sturbridge Inn 2,202,111 1,695,531 9.250 30/360 1,387,922 1.22
12 Sheraton Hotel 6,953,092 1,883,058 8.500 30/360 1,467,846 1.28
13 500 Westchester Avenue 1,728,112 1,728,112 10.490 30/360 1,311,250 1.32
14 Festival At Woodholme 1,532,988 1,561,531 9.600 30/360 1,212,099 1.29
15 Wal-Mart Group #1 1,820,154 1,820,154 9.788 30/360 1,443,558 1.26
16 Oak Park Commons 1,566,110 1,409,874 9.540 30/360 1,135,634 1.24
17 Fort Steuben Plaza 1,384,767 1,262,326 10.270 30/360 1,191,300 1.06
18 Golfview Apartments 1,388,669 1,252,883 9.500 30/360 1,067,237 1.17
19 Children's Medical Center 1,539,300 1,483,056 10.375 30/360 1,148,959 1.29
20 Shadyside Medical Center 1,410,176 1,362,023 9.625 Actual/360 1,019,987 1.34
21 St. Marks Co-Op Apartments 1,446,645 1,291,486 9.875 30/360 1,310,954 0.99
22 Doral Manor Apartments 1,356,178 1,189,330 9.500 30/360 977,663 1.22
23 Buenaventura Plaza 2,833,895 3,282,607 12.625 30/360 1,207,994 2.72
24 Tech Data Office Building 1,054,500 1,054,500 10.250 30/360 1,021,555 1.03
25 J.C. Penney Office Building 2,070,170 1,175,007 9.700 30/360 923,178 1.27
26 Hilton Hotel-Stockton 1,257,877 878,889 10.000 30/360 880,242 1.00
27 Global Business Park-A,B,C 1,203,305 1,197,216 8.500 30/360 898,495 1.33
28 Koll Corporate Center 1,230,942 1,105,622 9.500 30/360 1,088,123 1.02
29 Holiday Inn-Conf. Center/I-675 1,343,194 1,163,794 10.500 30/360 920,333 1.26
30 Plaza At The Boca Hamptons 894,161 883,875 9.080 30/360 823,893 1.07
31 Westchester Square Shop Ctr 1,159,101 1,150,129 9.810 30/360 829,021 1.39
32 Collins Business Center 799,365 920,259 9.900 30/360 762,287 1.21
33 Giant Eagle/Hechingers 1,016,378 1,016,433 9.710 30/360 729,498 1.39
34 Wal-Mart Group #2 1,055,107 1,055,107 9.788 30/360 843,139 1.25
35 Holiday Inn-Fayetteville, NC 1,194,762 1,024,375 10.000 30/360 816,408 1.25
36 Allendale Corporate Center-90 759,389 756,180 9.250 30/360 572,582 1.32
37 Allendale Corporate Center-25 564,983 577,542 9.250 30/360 542,966 1.06
38 Wal-Mart Group #3 734,581 734,581 9.788 30/360 509,610 1.44
39 Allendale Corporate Center-80 433,411 441,909 9.250 30/360 365,268 1.21
40 Old Country Plaza 528,724 431,365 8.250 30/360 309,771 1.39
41 3400 Carlisle 255,984 227,781 8.500 30/360 171,574 1.33
------------- ------------- --------- -------
Total/Weighted Average $75,406,141 $63,999,514 9.642% 1.30x
============= ============= ========= =======
</TABLE>
See Pages A-7 and A-8 for explanation of column headings and footnotes.
A-3
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
SUMMARY OF THE MORTGAGE LOANS AND MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
LOCKOUT YIELD CUT-OFF DATE
YEAR OCCUPANCY EXPIRATION MAINT. EXP PREPAYMENT LOAN
BORROWER NAME BUILT OCCUPANCY AS OF DATE DATE DATE STATUS NO.
-------------------- ------ ---------- ----------- ----------- ----------- ----------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Resort Inns Of
America, Inc. 1955 76.4% 7/95 9/1/98 Yield Maintenance 1
Waterworks Phase II 1988 100.0 3/95 9/1/99 3/1/19 Locked Out 2
Seven Seventeen HB
Phil No 1 & 2 1968 64.8 12/94 6/1/96 Yield Maintenance 3
Harvard Union Company,
Inc. 1964 100.0 8/95 1/1/98 10/01/09 Locked Out 4
Alexander Haagen
Properties Operating
Prtnr 1989 96.0 3/95 3/1/04 Yield Maintenance 5
Monaxa Limited
Partnership 1991 100.0 10/95 6/1/96 7/1/01 Locked Out 6
Downtown Center Garage
Partnership 1955 97.0 6/95 10/1/99 Yield Maintenance 7
State of Cal Public
Employees Retirement
Sys 1989 94.0 3/95 4/1/99 Yield Maintenance 8
Holland Park
Associates I L.P. 1989 100.0 8/95 7/1/97 10/1/04 Locked Out 9
Stanford Park Hotel 1984 84.5 6/94 5/1/97 Yield Maintenance 10
Cedar Lake Realty
Trust 1975 64.4 12/94 9/30/96 Yield Maintenance 11
Maitland Hotel Prepayable at Par
Associates Ltd. 1985 71.8 12/94 9/1/00 (ITYM) 12
Nynex Properties
Company 1954 100.0 9/95 3/26/99 Yield Maintenance 13
Woodholme Properties 1989 100.0 6/94 1/1/00 Yield Maintenance 14
---- 1986 73.8 9/95 1/1/99 9/1/11 Locked Out 15
Oak Park Commons, L.P. 1989 98.0 12/94 12/1/04 Yield Maintenance 16
Tri-State Plaza
Partnership, L.P. 1991 100.0 12/94 6/1/01 3/1/21 Locked Out 17
Milton S. Jennings 1986 87.0 10/95 7/1/97 Yield Maintenance 18
Scottish Rite Medical
Arts Ltd 1989 100.0 4/95 4/1/97 1/1/13 Locked Out 19
Shadyside Medical
Center Associates, I 1991 88.0 3/95 10/1/04 Yield Maintenance 20
East 9th Street
Apartments Corp. 1966 100.0 10/95 1/1/09 1/1/09 Locked Out 21
Milton S. Jennings 1984 90.0 12/94 7/1/97 Yield Maintenance 22
MCA Buenaventura Locked Out
Associates, L.P. 1964 67.0 4/95 2/1/96 7/1/98 (Dcl% 7,6,5) 23
Tech Data Corporation 1988 100.0 10/95 10/1/04 Yield Maintenance 24
L & M Associates 1982 99.0 9/95 7/1/99 Yield Maintenance 25
Stockton Hotel, Ltd. 1979 69.0 12/94 N/A Prepayable at Par 26
Crow-Global Partners
Ltd. 1985 93.0 10/95 6/1/01 Yield Maintenance 27
Koll Corporate
Associates 1977 100.0 9/95 9/1/97 Yield Maintenance 28
Wright Executive Htl.
Ltd. Ptn 1987 72.0 12/94 6/15/97 3/1/03 Locked Out 29
Boca Hamptons Plaza Prepayable at Par
Group, Ltd. 1986 90.9 6/95 5/1/01 (ITYM) 30
Hampshire Management
Company 1982 100.0 3/95 6/1/00 Yield Maintenance 31
Collins Business Park
I 1982 100.0 6/95 6/1/97 Yield Maintenance 32
Murray-Bart Associates 1985 100.0 6/94 7/1/96 Yield Maintenance 33
---- 1986 100.0 9/95 1/1/99 9/1/11 Locked Out 34
Fayetteville Motel
Enterprises, Inc. 1983 78.9 12/94 N/A Prepayable at Par 35
Allendale Associates 1989 100.0 12/94 11/1/99 Yield Maintenance 36
Allendale Associates 1989 100.0 7/95 11/1/99 Yield Maintenance 37
---- 1985 77.1 9/95 5/1/99 12/1/11 Locked Out 38
Allendale Associates 1989 100.0 7/95 11/1/99 Yield Maintenance 39
Tanglewood Square
Roanoke General
Partnership 1983 100.0 6/95 9/1/00 Yield Maintenance 40
Dallas Metro Real
Estate Fund I 1985 88.0 5/95 10/1/97 Yield Maintenance 41
</TABLE>
See Pages A-7 and A-8 for explanation of column headings and footnotes.
A-4
<PAGE>
SUMMARY OF MORTGAGE LOAN MODIFICATIONS(1)
<TABLE>
<CAPTION>
MODIFICATIONS
-------------------------
BORROWER'S FAVOR
-------------------------
MODIFICATION LENGTHEN/
LOAN DATE EXTEN- ELIMINATE REDUCE
NO. PROPERTY NAME IF APPLICABLE SION AMORT. RATE
- ---- ------------------------------ ------------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
1 Tradewinds Resort Hotel
2 Waterworks Shopping Center II
3 Adam's Mark Hotel 3/26/93 X X
4 Polyclinic
5 Covina Town Square 12/1/93
6 Mobil Oil Building
7 Downtown Center Parking Garage
8 Woodhawk Apartments 5/6/94 X X
9 Blue Cross/Blue Shield Bldg
10 Stanford Park Hotel 10/1/93 X X
11 Sturbridge Inn 10/25/93 X
12 Sheraton Hotel 8/26/94 X X
13 500 Westchester Avenue
14 Festival At Woodholme 6/1/95 X
15 Wal-Mart Group #1
16 Oak Park Commons 3/3/92
17 Fort Steuben Plaza 4/25/95
18 Golfview Apartments 6/15/92
19 Children's Medical Center
20 Shadyside Medical Center 6/10/93
21 St. Marks Co-Op Apartments
22 Doral Manor Apartments 6/15/92
23 Buenaventura Plaza 5/1/88 X
24 Tech Data Office Building 12/15/88
25 J.C. Penney Office Building
26 Hilton Hotel-Stockton 12/3/92 X X X
27 Global Business Park-A,B,C 8/31/94 X X
28 Koll Corporate Center 11/15/94 X
29 Holiday Inn-Conf. Center/I-675
30 Plaza At The Boca Hamptons 11/1/94 X
31 Westchester Square Shop Ctr
32 Collins Business Center
33 Giant Eagle/Hechingers 9/16/91
34 Wal-Mart Group #2
35 Holiday Inn-Fayetteville, NC 5/1/92 X X
36 Allendale Corporate Center-90
37 Allendale Corporate Center-25
38 Wal-Mart Group #3
39 Allendale Corporate Center-80
40 Old Country Plaza 12/1/93 X X
41 3400 Carlisle
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LENDER'S FAVOR
----------------------------------------------------------
ADD AM./ ADD ADD
LOAN FORGIVE ACCELER- SHORTEN INCREASE PAY DOWN CASH FLOW ESCROWS OR
NO. DEBT ATION SCHEDULE RATE LOAN TRAP RESERVES
- ---- ------- -------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3 X $5.0 mm X
4
5 $7.0 mm
6
7
8 $2.4 mm
9
10 X $1.0 mm
11
12 $1.5 mm X $2.5 mm X X
13
14 X $1.0 mm X
15
16 $0.8 mm
17
18
19
20 $4.4 mm
21 $0.8 mm
22
23
24
25
26 X
27 X $0.4 mm X
28 X X
29
30 X X X
31
32
33 X
34
35 $2.0 mm X X X
36
37
38
39
40 X $0.5 mm X
41
</TABLE>
- ------------
(1) Reflects material modifications made to the Mortgage Loans between their
origination date and the present. In some cases a modification date is shown
but no other columns are marked, indicating that none of the specified
modifications was made.
A-5
<PAGE>
SUMMARY OF THE WAL-MART LOANS
<TABLE>
<CAPTION>
CUT-OFF DATE
LOAN UNPD PRINCIPAL CUT-OFF DATE
NO. PROPERTY ADDRESS CITY ST ZIP BALANCE SIZE (SF) UPB / SIZE
- ---- ----------------- ---------------------------- ------------ ---- ------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15 WAL-MART GROUP #1 MULTIPLE PROPERTIES -- -- -- $11,648,249 608,921 $19.13
Durant, OK 2418 West Main Street Durant OK 74701 1,544,416 73,000 21.14
Franklin, IN 1540 N. Morton Franklin IN 46131 1,150,199 65,904 17.44
Irving, TX 555 Airport Freeway Irving TX 75062 3,052,916 85,000 35.90
McPherson, KS 2210 E. Kansas Avenue McPherson KS 67470 1,123,369 70,388 15.95
Pueblo, CO 4080 West Northern Avenue Pueblo CO 81005 1,741,309 123,041 14.14
Ridgeland, MS 815 South Wheatley Street Ridgeland MS 39157 2,324,630 150,284 15.46
Spencer, IN Highway 46 West Spencer IN 47430 711,410 41,304 17.21
34 WAL-MART GROUP #2 MULTIPLE PROPERTIES -- -- -- $ 6,762,948 343,338 $19.70
Platteville, WI 1535 East Highway 151 Platteville WI 53818 1,078,837 92,280 11.69
Sparta, WI 716 South Black River Street Sparta WI 54656 903,332 50,980 17.72
Tulsa, OK 7777 East 42nd Place Tulsa OK 74145 3,159,942 107,794 29.31
Viroqua, WI 1202 North Main Street Viroqua WI 54665 695,136 41,304 16.83
Waverly, IA 1201 Fourth Street S.W. Waverly IA 50677 925,701 50,980 18.16
38 WAL-MART GROUP #3 MULTIPLE PROPERTIES -- -- -- $ 4,147,102 233,276 $17.78
Clinton, IN 163 State Road Clinton IN 47842 838,131 55,698 15.05
Linton, IN Highway 54 East Linton IN 47441 951,053 50,968 18.66
Plano, IL 15606 West U.S. Route 34 Plano IL 60545 875,336 70,912 12.34
Sterling, IL 3302 East Lincoln Highway Sterling IL 61081 1,482,582 55,698 26.62
-------------- ----------- --------------
Totals: $22,558,299 1,185,535 $19.03
============== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
LOCKOUT YIELD CUT-OFF DATE
LOAN YEAR OCCUPANCY EXPIRATION MAINT. EXP PREPAYMENT
NO. PROPERTY BORROWER NAME BUILT OCCUPANCY AS OF DATE DATE DATE STATUS
- ------ ----------------- ----------------- ------- ----------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15 WAL-MART GROUP #1 73.8% 9/95 1/1/99 9/1/01 LOCKED OUT
Durant, OK DURANT/ROS, Inc. 1986 100.0 9/95
Franklin, IN FRANK/ROS, Inc. 1987 100.0 9/95
Irving, TX IRV/ROS, Inc. 1986 0.0(1) 9/95
McPherson, KS MCPHER/ROS, Inc. 1986 100.0 9/95
Pueblo, CO GULF/ROS, Inc. 1986 100.0 9/95
Ridgeland, MS RIDGE/MISS, Inc. 1985 100.0 9/95
Spencer, IN SPENCER/ROS, Inc. 1986 100.0 9/95
34 WAL-MART GROUP #2 100.0 9/95 1/1/99 9/1/11 LOCKED OUT
Platteville, WI PLAT/KAZ, Inc. 1986 100.0 9/95
Sparta, WI SPARTA/KAZ, Inc. 1986 100.0 9/95
Tulsa, OK TUL/KAZ, Inc. 1986 100.0 9/95
Viroqua, WI VIRQ/KAZ, Inc. 1986 100.0 9/95
Waverly, IA WAV/KAZ, Inc. 1986 100.0 9/95
38 WAL-MART GROUP #3 1985 77.1 9/95 5/1/99 12/1/11 LOCKED OUT
Clinton, IN CLINT/KAZ, Inc. 1987 100.0 9/95
Linton, IN LINT/KAZ, Inc. 1985 0.0(1) 9/95
Plano, IL PLANO/KAZ, Inc. 1987 100.0 9/95
Sterling, IL STERL/KAZ, Inc. 1986 100.0 9/95
<FN>
- ------------
(1) Although the property is vacant, Wal-Mart Stores, Inc. remains liable
under its triple net lease, which terminates after the maturity of the
Mortgage Loan.
</TABLE>
A-6
<PAGE>
EXPLANATION OF COLUMN HEADINGS FOR THE
SUMMARY OF THE MORTGAGE LOANS AND MORTGAGED PROPERTIES
CUT-OFF DATE UNPAID PRINCIPAL BALANCE ("UPB") is the loan's projected UPB as
of December 1, 1995 assuming that the loan amortizes as per its schedule,
that no prepayments are received and that all Monthly Payments are paid when
due.
SIZE is provided in rooms for the hotel properties, square feet for the
office, industrial, retail, and medical properties, and units for the
multifamily properties and the parking garage (spaces).
MODIFICATION DATE provides the date of the modification in cases where a loan
has been modified. If a loan has been modified more than once, the date shown
is the date of the most recent modification.
AMORTIZATION TYPES are as follows:
Interest Only: Loan pays interest only during its term and has a "bullet"
payment due on maturity.
Balloon: Loan amortizes partially over its term and has a "Balloon
Payment" due on maturity.
IO Change to Balloon: Loan pays interest only for a portion of its term
and then switches to a partially amortizing structure.
IO Change to Self-Amortizing: Loan pays interest only for a portion of its
term and then switches to a self-amortizing structure.
Self-Amortizing: Loan amortizes fully over its term.
ORIGINAL OR MODIFIED TERM is the original term of the loan (in months) unless
the loan was modified, in which case it represents the term from the date of
modification to maturity. This term will in all cases equal the total of the
periods described in the following two columns ("IO Period" and "Amortization
Period").
IO PERIOD represents the number of months that a loan pays interest only. For
an interest only loan, this period equals the term of the loan (as shown in
the "Original or Modified Term" column).
AMORTIZATION PERIOD represents the number of months that a loan pays both
principal and interest. For balloon loans or self-amortizing loans, this
period equals the term of the loan (as shown in the "Original or Modified
Term" column).
AMORTIZATION SCHEDULE indicates the term over which a fully amortizing loan
would be reduced to zero. Thus, a loan with a 120 month amortization period
and a 360 month amortization schedule (such as Covina Town Square, #5) will
amortize on a 30 year schedule for 10 years, then will balloon.
1994 NET CASH FLOW is the property's cash flow after capital expenses,
leasing commissions, tenant improvements and other "below the line" items, as
reported by the borrower, except in the case of triple net leased and owner
occupied properties, in which cases the leases in place and market revenues
and expenses were modeled to derive the net cash flow.
NORMALIZED NOI represents the borrower's 1994 Net Cash Flow making certain
adjustments as described in "DESCRIPTION OF THE MORTGAGE POOL -- Additional
Mortgage Loan Information" herein.
GROSS RATE represents the current accrual rate and pay rate on the loans as
of the Cut-off Date.
MAXIMUM ANNUAL DEBT SERVICE represents the maximum monthly debt service
payment that will be payable on the loans, giving effect to any scheduled
increases in the interest rate that occur over the life of the loans.
DSCR is the debt service coverage ratio calculated using the Normalized NOI
as the numerator and the Maximum Annual Debt Service as the denominator.
LOCKOUT EXPIRATION DATE represents, for those loans that are subject to a
prepayment lockout period, the date on which such prepayment lockout ends.
YIELD MAINTENANCE EXPIRATION DATE is the date on which the borrower's
obligation to pay the associated prepayment fee in connection with a
prepayment of principal on the Mortgage Loan terminates.
A-7
<PAGE>
FOOTNOTES TO
SUMMARY OF THE MORTGAGE LOANS AND MORTGAGED PROPERTIES
1. Wal-Mart Group #1 (Loan No. 15), Wal-Mart Group #2 (Loan #34) and
Wal-Mart Group #3 (Loan #38) are secured by mortgages on 7, 5 and 4
Wal-Mart properties, respectively. Taken together, the three loans
aggregate $22,558,299 and would rank as the third largest loan in the
Mortgage Pool. See page A-6 for a detailed breakdown of the
Wal-Mart Loans.
2. The Allendale Corporate Center Loans (Loan #s 36, 37 and 39) are
secured by mortgages on industrial buildings that are located within
the same complex and are owned by the same entity. Taken together,
the three Loans aggregate $14,911,086 and would rank as the ninth
largest loan in the Mortgage Pool (assuming that the Wal-Mart loans
were aggregated as described in footnote (1) above and ranked third).
3. Cut-off Date Unpaid Principal Balances for the Sheraton Hotel, J.C.
Penney Office Building, and Holiday Inn Conference Center Mortgage
Loans (Loan #s 12, 25 and 29, respectively) represent the Senior
Participation interests in their related Mortgage Loans. See
"DESCRIPTION OF THE MORTGAGE POOL -- Senior Participations" herein.
A-8
<PAGE>
APPENDIX B
DESCRIPTION OF THE 15 LARGEST MORTGAGE LOANS
AND MORTGAGED PROPERTIES
Set forth below is a description of the Mortgage Loans and the Mortgaged
Properties for the 15 largest loans based on unpaid principal balances as of
December 1, 1995. Due to the common risks presented by otherwise separate
Mortgage Loans, the three Wal-Mart Groups and the three Allendale Corporate
Center Loans have been aggregated for this purpose, resulting in aggregate
values of $22,558,299 and $14,911,086, respectively, which indicate their
ranking as the third and ninth largest Mortgage Loans, respectively. Had the
Doral Manor Apartments and Golf-View Apartments Mortgage Loans been
aggregated because they have the same recourse borrower, they would have
ranked as the sixth largest loan.
The information set forth below in this section is based primarily on the
most recent information contained in the Seller's loan files for the Mortgage
Loans. In some cases, this information was provided by the respective
borrower, the Seller's environmental consultant or other third parties,
without independent verification by the Depositor or the Seller. While the
Seller believes that the information set forth below is generally reliable,
there can be no assurance that such information is correct in all respects as
of the date hereof.
1. TRADEWINDS RESORT HOTEL LOAN AND PROPERTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1. Cut-off Date UPB: $25,939,913.05 8. Amortization Type: IO changing to Balloon
2. Property Type: Hotel 9. Principal Amortization: Yes
3. Year Built: 1955 10. Negative Amortization: No
4. Room: 373 11. Rate: 10.750
5. UPB/Room: $69,544.00 12. Maturity Date: 12/1/98
6. Occupancy Percent: 76.40 13. Normalized NOI: $3,592,530.00
7. Occupancy as of Date: 1994 Average 14. Debt Service Coverage: 1.19x
</TABLE>
THE LOAN
The Tradewinds Resort Hotel Loan is secured by a first lien on a portion
of a full service resort waterfront hotel known as the Tradewinds Resort
Hotel, located at 5500 Gulf Boulevard, St. Petersburg Beach, Florida (such
portion, the "Tradewinds Property"). The Tradewinds Resort Hotel Loan was
originated by the Seller on November 6, 1988.
The Borrower. The borrower is Resort Inns of America, Inc., a Florida
corporation (the "Tradewinds Borrower") and is wholly owned indirectly by
Jeffrey Fortune. The Tradewinds Borrower is not a special-purpose entity; it
also owns the nearby Radisson Sandpiper Hotel.
Security. The Tradewinds Resort Hotel Loan is secured by a Mortgage and
Security Agreement and an Assignment of Rents and Leases, among other
security documents. The Tradewinds Resort Hotel mortgage is a first lien on a
fee simple interest in the Tradewinds Property. The Tradewinds Resort Hotel
Loan is a non-recourse loan, subject to certain limited exceptions.
Payment Terms. The interest rate is fixed at 10.75%. The Tradewinds Resort
Hotel Loan requires monthly installments of principal and interest of
$252,225 until its maturity on December 1, 1998, at which time all unpaid
principal and accrued but unpaid interest is due. Principal amortizes based
on a 30 year amortization schedule.
A charge applies to late payments equal to 6% of any payment not made when
due. If the lender accelerates the loan due to an event of default, the
security documents require that the Tradewinds Borrower pay a penalty equal
to the amount it would have paid if it had prepaid at that time or, if
prepayment would not have been allowed, an amount equal to the greater of (i)
6% of the outstanding balance, or (ii) the Unpaid Principal Premium as
defined below.
B-1
<PAGE>
Prepayment. The Tradewinds Resort Hotel Loan may be prepaid in whole but
not in part after December 1, 1993, upon 60 days prior written notice and
upon payment of the greater of (i) 1% of the principal outstanding, or (ii)
an amount which, together with the amount prepaid, would be sufficient to
invest in a U.S. Treasury obligation for the remaining term of the note to
produce the same annual effective yield to maturity as the note (the "Unpaid
Principal Premium"). The Unpaid Principal Premium is to be calculated in
accordance with the lender's then prevailing formula on a discounted cash
flow basis incorporating a present value factor which reconciles differences
in timing, yield and amortization between the schedule of payments of the
note and the substitute treasury obligation. No prepayment premium or penalty
is due if the Tradewinds Resort Hotel Loan is prepaid after September 1,
1998.
Transfer of Property or Interest in Borrower. The Tradewinds Resort Hotel
Loan becomes immediately due and payable upon (i) the transfer or lease of
the Tradewinds Property without the prior consent of the lender and (ii) a
change in the composition, organization, structure, ownership or control of
the Tradewinds Borrower (unless all of the outstanding stock is sold to an
entity owned by Jeffrey Fortune) without the prior written consent of the
lender. The lender agreed in advance to consent to one such transfer if it
occurs after December 31, 1991 and upon payment of a transfer fee equal to 1%
of the outstanding balance plus costs, and if the proposed transferee is
acceptable to the lender in terms of creditworthiness and experience.
Escrow/Reserves. Upon the lender's request, the Tradewinds Borrower must
deposit with the lender, on a monthly basis, one-twelfth of the aggregate
insurance premiums required by the mortgage and one-twelfth of the estimated
tax payments for the year. No other reserves or escrows are required.
Subordinate/Other Debt. Additional encumbrances are prohibited without the
prior consent of the lender, except that the Tradewinds Borrower may incur
subordinate debt and encumber all or a portion of the Tradewinds Property
without consent provided, among other requirements, the lender is an
institutional lender acceptable to the lender, there is no interest accrual
feature, the combined indebtedness does not exceed 75% of the total value of
the property, and the net cash flow exceeds 1.2 times the combined annual
debt service. The security documents do not require that the subordinate
lender enter into an intercreditor or similar agreement.
The lender has agreed to subordinate its lien with respect to three small,
unimproved parcels of the Mortgaged Property and consent to a mortgage or
mortgages on the air space above the elevations of the building known as the
Poinciana, under certain circumstances, including (i) there is no default at
the time, (ii) the lender has declined to provide the additional financing,
(iii) the terms are acceptable to the lender, and (iv) that the proceeds must
be used for constructing additional facilities for the Tradewinds Property.
THE PROPERTY
The Tradewinds Property is a 373 room full service resort waterfront
hotel. It is rated 4-Diamond by AAA and 3-Star by Mobil. The Tradewinds
Property is independent with no flag or franchise arrangement and all
marketing and reservations are performed by hotel management.
The Tradewinds Property is comprised of three beach-front parcels situated
on an approximately 12.7 acre rectangular parcel of ground with 662 feet of
waterfront exposure on the Gulf of Mexico in St. Petersburg Beach, southern
Pinellas County, Florida. The property was redeveloped in 1985 which included
the construction of a new six-story building and approximately 17,450 square
feet of meeting space and the renovation of six other existing hotel
buildings. Amenities include two restaurants, a lounge, tennis courts,
racquet ball courts, fitness center, two swimming pools and various retail
shops. In 1992, approximately 6,000 square feet of additional meeting space
was added.
The Tradewinds Property is part of a larger complex operated by the
Tradewinds Borrower and an affiliate as the Tradewinds Resort Hotel. The
portion of the Tradewinds Resort Hotel that does not secure the Tradewinds
Resort Hotel Loan, known as the Tradewinds Annex, includes an additional 204
rooms that share facilities and the reservation desk with the Tradewinds
Property.
B-2
<PAGE>
The average occupancy of the Tradewinds Property for 1991, 1992 and 1993
was 78.5%, 79.2% and 76.4%, respectively, and the average daily rate for such
periods was $106.54, $109.25 and $118.34, respectively. The Normalized NOI
for 1992, 1993 and 1994 was $3,516,586, $3,660,099 and $3,592,530,
respectively.1
Management. According to information provided by the Seller, as of July
31, 1994, the property was managed by Resort Industries, Inc., an affiliate
of the Tradewinds Borrower with an annual management fee of 3% of room
revenues. The Seller has no information with respect to current management.
Environmental Issues. In connection with its environmental assessment,
Dames & Moore, Inc. recommended asbestos abatement with respect to certain
sprayed-on ceiling material (cost estimate $80,000) and recommended a Phase
II assessment on the basis of petroleum found in drains adjacent to a
dumpster. In connection with the Phase II assessment, a PVC pipe adjacent to
a trash compactor motor was observed to be a direct conduit to subsurface
soils; no further investigation was recommended, but sealing of the PVC was
recommended.
2. WATERWORKS SHOPPING CENTER LOAN AND PROPERTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1. Cut-off Date UPB: $25,246,316.79 8. Amortization Type: Balloon
2. Property Type: Retail 9. Principal Amortization: Yes
3. Year Built: 1988 10. Negative Amortization: No
4. Square Feet: 320,948 11. Rate: 9.730
5. UPB/Square Foot: $78.66 12. Maturity Date: 9/1/19
6. Occupancy Percent: 100.00 13. Normalized NOI: $4,102,930.00
7. Occupancy as of Date: March 1995 14. Debt Service Coverage: 1.57x
</TABLE>
THE LOAN
The Waterworks Shopping Center Loan is secured by a first mortgage on an
anchored retail center located in Pittsburgh, Pennsylvania (the "Waterworks
Shopping Center Property"). The Waterworks Shopping Center Loan was
originated by the Seller on August 17, 1989.
The Borrower. The borrower is Waterworks Phase II, L.P., a Pennsylvania
limited partnership (the "Waterworks Shopping Center Borrower") whose general
and limited partners are members of the Gumberg family and which is
affiliated with The J.J. Gumberg Company, a retail developer in Western
Pennsylvania.
Security. The Waterworks Shopping Center Loan is secured by a Mortgage and
Security Agreement and an Assignment of Rents and Leases, among other
security documents. The Waterworks Shopping Center mortgage is a first lien
on a fee simple interest in the Waterworks Shopping Center Property. The
Waterworks Shopping Center Loan is a non-recourse loan, subject to certain
limited exceptions.
Payment Terms. The interest rate is fixed at 9.73%. The Waterworks
Shopping Center Loan requires monthly payments of principal and interest of
$218,157.48 until its maturity on September 1, 2019, at which time all unpaid
principal and accrued but unpaid interest is due. Principal amortizes based
on a 35 year amortization schedule.
There is a late payment charge of 4% of the overdue payment and interest
accrues on late payments at the lesser of 4% above the interest rate of the
note or the maximum interest rate allowed under Pennsylvania law. If the
lender accelerates the loan due to an event of default, the security
documents require the Waterworks Shopping Center Borrower to pay a charge
equal to the greater of (i) 6% of the outstanding principal or (ii) the
prepayment penalty described below.
Prepayment. The Waterworks Shopping Center Loan may be prepaid in whole
but not in part after September 1, 1999 upon 60 days prior written notice and
upon payment of an amount which, together with
- ------------
1 As used herein, "Normalized NOI" refers to net operating income after capital
items making adjustments as described in "DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan Information" herein.
B-3
<PAGE>
the outstanding balance, would produce the same annual effective interest
yield to maturity as the note if such amount were to be invested on such date
in U.S. Treasury obligations with maturities as close to the maturity of the
note as reasonably available. Such prepayment charge is to be calculated on a
discounted cash flow basis incorporating a present value factor which
reconciles differences in timing, yield and amortization between the payment
streams of the note and the substitute treasury obligation investment. There
is no prepayment charge if the loan is prepaid within the last six months
prior to maturity. Provided there is no default, the lender may apply amounts
received from condemnation awards or insurance proceeds to the unpaid balance
as a prepayment, such prepayment incurring no prepayment premium.
Release of Collateral. The Waterworks Shopping Center Borrower may request
in writing that the lender release from the lien of the mortgage certain
portions of unimproved land along the rear perimeter of the improvements as
described in the mortgage. The lender agreed in advance to release such
portions of land provided that the Waterworks Shopping Center Borrower
certifies that the proposed use of the land will not adversely affect the
lender and agrees to provide reasonably adequate access to each of the
tenants' premises for service purposes.
Transfer of Property or Interest in Borrower. The Waterworks Shopping
Center Property may not be transferred without the prior written consent of
the lender except, as long as no event of default has occurred and is
continuing and certain other conditions are met, the property may be
transferred to a new borrower with a net worth of not less than $10 million.
In addition, it may be sold to the J.J. Gumberg Co. as long as the Gumberg
family owns at least 51% of the stock and certain other conditions are met.
The Waterworks Shopping Center Borrower may sell interests in itself not to
exceed 70%. The partnership agreement or articles of the Waterworks Shopping
Center Borrower may not be amended or changed without the prior written
consent of the lender, which consent may not be unreasonably withheld.
Escrow/Reserves. The Waterworks Shopping Center Borrower must deposit with
the lender, on a monthly basis, one-twelfth of the estimated aggregate
insurance premiums on all policies required by the mortgage and one-twelfth
of the estimated tax payments for the year. No other reserves or escrows are
required.
Subordinate/Other Debt. Additional debt and encumbrances are prohibited,
unless, among other conditions, the subordinate lender is an institutional
lender and the projected combined debt service coverage ratio remains not
less than 1.15 for the following 12 months and the combined debt will remain
below 85% of the total value of the Waterworks Shopping Center Property. The
documentation for the subordinate loan must state that it is subordinate to
the lender's loan, but there is no requirement that the subordinate lender
enter into an intercreditor or similar agreement.
THE PROPERTY
The Waterworks Shopping Center Property was built in 1988 and contains
320,948 square feet situated on a 28.288 acre site. Construction is of block
exterior walls over steel frame with a flat, built-up roof. Parking is
provided for 1,497 cars. Major tenants include Giant Eagle (85,000 square
feet (26%) -- expiration June 2007), T.J. Maxx (25,155 square feet (17%)
- --expiration August, 1997), and Service Merchandise (53,500 square feet (16%)
- -- expiration February 2010). Rollover for 1994, 1995 and 1996 is 0%, 2% and
4%, respectively. The average occupancy of the property for 1991, 1992 and
1993 was 97%, 100% and 100%, respectively. The Normalized NOI for 1992, 1993
and 1994 was $4,168,381, $4,104,903 and $4,102,930, respectively.
A 900,000 square foot regional mall is planned for the trade area in which
the Waterworks Shopping Center Property is located, but the project has been
delayed by local authorities due to opposition by residents. If built, it
will be anchored by J.C. Penney, Kaufmann's and Lazarus. The trade area has
an overall occupancy of 95%.
Management. According to information provided by the Seller, as of May 31,
1994, the property was managed by the J.J. Gumberg Company, an affiliate of
the Waterworks Shopping Center Borrower, which owns and/or manages 55 retail
properties in Pennsylvania, Ohio, West Virginia and Florida containing
approximately 15 million square feet. The Seller has no information with
respect to current management.
B-4
<PAGE>
WAL-MART LOANS AND PROPERTY
<TABLE>
<CAPTION>
WAL-MART GROUP #1
<S> <C> <S> <C>
1. Cut-off Date UPB: $11,648,249.00 8. Amortization Type: Self-Amortizing
2. Property Type: Retail 9. Principal Amortization: Yes
3. Year Built: 1986 10. Negative Amortization: No
4. Square Feet: 608,921 11. Rate: 9.788
5. UPB/Square Foot: $19.13 12. Maturity Date: 12/1/11
6. Occupancy Percent: 86.00 13. Normalized NOI: $1,820,154.00
7. Occupancy as of Date: September 1995 14. Debt Service Coverage: 1.26x
</TABLE>
<TABLE>
<CAPTION>
WAL-MART GROUP #2
<S> <C> <S> <C>
1. Cut-off Date UPB: $6,762,947.74 8. Amortization Type: Self-Amortizing
2. Property Type: Retail 9. Principal Amortization: Yes
3. Year Built: 1986 10. Negative Amortization: No
4. Square Feet: 343,338 11. Rate: 9.788
5. UPB/Square Foot: $19.70 12. Maturity Date: 12/1/11
6. Occupancy Percent: 100.00 13. Normalized NOI: $1,055,107.00
7. Occupancy as of Date: September 1995 14. Debt Service Coverage: 1.25x
</TABLE>
<TABLE>
<CAPTION>
WAL-MART GROUP #3
<S> <C> <S> <C>
1. Cut-off Date UPB: $4,147,102.48 8. Amortization Type: Self-Amortizing
2. Property Type: Retail 9. Principal Amortization: Yes
3. Year Built: 1985 10. Negative Amortization: No
4. Square Feet: 233,276 11. Rate: 9.788
5. UPB/Square Foot: $17.78 12. Maturity Date: 4/1/12
6. Occupancy Percent: 78.20 13. Normalized NOI: $734,581.00
7. Occupancy as of Date: September 1995 14. Debt Service Coverage: 1.44x
</TABLE>
Three Mortgage Loans consist of Groups of mortgage loans (the "Wal-Mart
Groups"), each mortgage loan in each such Group being due from affiliated
borrowers and being secured by a first mortgage on a free-standing retail
building leased to Wal-Mart Stores, Inc. ("Wal-Mart"). The Wal-Mart Groups
are generally referred to herein individually as "Wal-Mart Group #1,"
"Wal-Mart Group #2" and "Wal-Mart Group #3." All mortgage loans within any
one of the Wal-Mart Groups are generally treated for purposes of this
Prospectus Supplement and the Trust Agreement as one Mortgage Loan. Wal-Mart
Group #1 consists of seven notes totaling $13,716,000, Wal-Mart Group #2
consists of five notes totaling $7,921,000, Wal-Mart Group #3 consists of
four notes totaling $4,868,000.
THE LOANS
The store locations associated with each of the Wal-Mart Groups are as
follows:
WAL-MART GROUP #1 (COLLECTIVELY, THE "WAL-MART GROUP #1 PROPERTIES").
(1) Durant, Oklahoma (the "Durant Property");
(2) Franklin, Indiana (the "Franklin Property");
(3) Irving, Texas (the "Irving Property");
(4) McPherson, Kansas (the "McPherson Property");
(5) Pueblo, Colorado (the "Pueblo Property");
(6) Ridgeland, Mississippi (the "Ridgeland Property"); and
(7) Spencer, Indiana (the "Spencer Property").
B-5
<PAGE>
WAL-MART GROUP #2 (COLLECTIVELY, THE "WAL-MART GROUP #2 PROPERTIES").
(1) Platteville, Wisconsin (the "Platteville Property");
(2) Sparta, Wisconsin (the "Sparta Property");
(3) Tulsa, Oklahoma (the "Tulsa Property");
(4) Virquoa, Wisconsin (the "Virquoa Property"); and
(5) Waverly, Iowa (the "Waverly Property").
WAL-MART GROUP #3 (COLLECTIVELY, THE "WAL-MART GROUP #3 PROPERTIES").
(1) Clinton, Indiana (the "Clinton Property");
(2) Linton, Indiana (the "Linton Property");
(3) Plano, Illinois (the "Plano Property"); and
(4) Sterling, Illinois (the "Sterling Property").
Each of the mortgage loans within Wal-Mart Group #1 and each of the
mortgage loans within Wal-Mart Group #2 was originated by the Seller on
December 1, 1986. Each of the mortgage loans in Wal-Mart Group #3 was
originated by the Seller on March 11, 1987.
The mortgage loans contained within each Wal-Mart Group are
cross-collateralized and cross- defaulted, with maturities of an even date.
Each mortgage loan in Wal-Mart Group #1 and each mortgage loan in Wal-Mart
Group #2 has a maturity date of December 1, 2011. The maturity date of each
mortgage loan in Wal-Mart Group #3 is April 1, 2012. Each mortgage within
each Wal-Mart Group secures the payment of the indebtedness evidenced by its
corresponding note and all of the other notes included in the same Wal-Mart
Group, and each mortgage secures the obligations arising under the other
mortgages encumbering the other properties included in the same Wal-Mart
Group.
In addition, the notes associated with Wal-Mart Group #3 are
cross-collateralized and cross-defaulted with the notes associated with
Wal-Mart Group #2. However, the cross-default and cross collateralization
apply only in "one direction" and the notes associated with Wal-Mart Group #2
do not contain cross-default provisions with Wal-Mart Group #3. Each mortgage
associated with Wal-Mart Group #3 secures the payment of the indebtedness
evidenced by its corresponding note and all of the other notes included in
both Wal-Mart Group #2 and Wal-Mart Group #3, and each mortgage associated
with Wal-Mart Group #3 secures the obligations arising under the other
mortgages encumbering the Wal-Mart Group #2 Properties and the Wal-Mart Group
#3 Properties.
For each Wal-Mart Group, all of the Wal-Mart leases state that they are
"triple net leases." Under each lease, the tenant is responsible for
liability insurance, fire insurance, taxes, repairs, and utilities. The
tenant is generally permitted to self-insure. The tenant agrees to indemnify
the borrowers for any other claims related to the properties but only to the
extent they arise out of the acts or omissions of the tenant; however, the
landlord/borrowers release certain claims related to fire and casualty. The
leases associated with Wal-Mart Group #1 have expiration dates ranging from
January 31, 2012 to January 31, 2013. The leases associated with Wal-Mart
Group #2 expire on January 31, 2012, and the leases associated with Wal-Mart
Group #3 expire on January 31, 2013.
For each Wal-Mart Group, all of the Wal-Mart leases provide that if a
property is damaged in any amount exceeding 66 2/3% of reconstruction cost
during the last three years of the lease term, then either party may
terminate without further liability. In addition, in the event of a total
condemnation or a partial condemnation rendering the remaining premises
unsuitable for use, the tenant shall make a rejectable offer to purchase the
property for an amount specified in each lease, generally in excess of the
principal amount of the related note and mortgage. Should any tenant sublease
or assign its rights in its lease of the property, such tenant would not be
released from any obligations under its lease. Sublessee attornment is not
required.
B-6
<PAGE>
Rents associated with the Wal-Mart Groups are generally fixed for the
term of each lease. On a consolidated, gross basis, the rents associated with
each Wal-Mart Group cover each such Group's required debt service. Wal-Mart
Group #1 has a debt service coverage ratio of 1.26. Wal-Mart Group #2 has a
debt service coverage ratio of 1.25. Wal-Mart Group #3 has a debt service
coverage ratio of 1.44.
The Borrower. The borrowers for each of the mortgage loans in each
Wal-Mart Group are separate but related entities consisting of trusts
administered by Bank of America.
Security. Each mortgage loan contained within each Wal-Mart Group is
secured by a Mortgage Assignment of Rents and Security Agreement, among other
security documents. Each mortgage loan is secured by a first lien on a fee
simple interest in the corresponding property. The mortgage loans are
non-recourse subject to certain limited exceptions.
Payment Terms. Each mortgage loan in each Wal-Mart Group has a fixed
interest rate of 9.788%. Each mortgage loan in Wal-Mart Group #1 and each
mortgage loan in Wal-Mart Group #2 requires monthly payments of principal and
interest from January 1, 1987 until maturity on December 1, 2011 as follows:
WAL-MART GROUP #1
<TABLE>
<CAPTION>
PROPERTY PAYMENT
- ------------------ ------------
<S> <C>
Durant Property $15,949.85
Franklin Property $11,878.60
Irving Property $31,528.77
McPherson Property $11,601.52
Ridgeland Property $24,007.45
Pueblo Property $17,983.25
Spencer Property $ 7,347.03
</TABLE>
WAL-MART GROUP #2
<TABLE>
<CAPTION>
PROPERTY PAYMENT
- -------------------- ------------
<S> <C>
Platteville Property $11,208.25
Sparta Property $ 9,384.89
Tulsa Property $32,829.25
Virquoa Property $ 7,221.90
Waverly Property $ 9,617.28
</TABLE>
WAL-MART GROUP #3
Each mortgage loan in Wal-Mart Group #3 requires monthly payments of
principal and interest from May 1, 1987 until maturity on April 1, 2012 as
follows:
<TABLE>
<CAPTION>
PROPERTY PAYMENT
- ----------------- ------------
<S> <C>
Clinton Property $ 8,582.71
Linton Property $ 9,739.06
Plano Property $ 8,963.69
Sterling Property $15,182.07
</TABLE>
Each mortgage loan in the Wal-Mart Groups is fully amortizing. Upon
maturity, all unpaid principal and accrued but unpaid interest is due. There
is a 6% late charge for any overdue installment. Upon default and
acceleration, the lender is entitled to a charge equal to the Prepayment
Charge, as described below.
With respect to Wal-Mart Group #1 and Wal-Mart Group #2, from January 1,
1999 through September 1, 2011, and with respect to Wal-Mart Group #3, from
May 1, 1999 through December 1, 2011, the mortgage loans may be prepaid in
full, but not in part, by paying a prepayment charge equal to the
B-7
<PAGE>
figure obtained by (i) multiplying such unpaid principal balance so prepaid
times the excess of (a) the effective annual yield under the note over (b)
the effective annual yield of U.S. Treasury obligations having maturities as
close to December 1, 2011 as are reasonably available, and (ii) multiplying
the result by a fraction, the numerator of which is the number of months
(full or partial) remaining prior to December 1, 2011 and the denominator of
which is 12 (the "Prepayment Charge"). The prepayment of any of the mortgage
loans included in one Wal-Mart Group must be concurrent with the prepayment
of the other mortgage loans included in that same Group. For Wal-Mart Group
#1 and Wal-Mart Group #2, the mortgage loans may be prepaid without penalty
from September 1, 2011 until the maturity date. The mortgage loans in
Wal-Mart Group #3 may be prepaid without penalty from December 1, 2011 until
the maturity date. In addition, for each Group the mortgage loans may be
individually prepaid without penalty at anytime if Wal-Mart terminates its
lease of the property.
Transfer of Property or Interest in Borrowers. Each mortgage loan in the
Wal-Mart Groups becomes immediately due and payable upon the transfer of any
property or a transfer of interest in the borrowers unless prior consent of
the lender is obtained.
Reserves/Escrow. The security documents in each Wal-Mart Group require
that upon the lender's request, the borrowers pay one-twelfth of the yearly
taxes and assessments associated with each property on a monthly basis. The
leases do not require such escrows of Wal-Mart as tenant. No other reserves
or escrow accounts are required.
Subordinate/Other Debt. Each mortgage loan in the Wal-Mart Groups becomes
immediately due and payable upon the encumbrance of any of the properties
within the same Group without the prior consent of the lender.
THE PROPERTIES
WAL-MART GROUP #1 PROPERTIES
DURANT PROPERTY: The Durant Property is a 73,000 square foot building
built in 1986 and is located near a local college and Lake Texoma.
Durant is located 20 miles from Denison, Texas and is 95 miles north
of Dallas. The original principal amount of indebtedness associated
with this property is $1,803,000.
FRANKLIN PROPERTY: The Franklin Property is a 65,904 square foot
building built in 1987 and is located in a commercial area 10 miles
south of Indianapolis. An adjacent mall has been renovated and is
substantially occupied. The original principal amount of indebtedness
associated with this property is $1,329,000.
IRVING PROPERTY: The Irving Property is a 85,000 square foot building
built in 1986 and is located in a suburb of Dallas. The building is
currently vacant and there are signs of structural defects. The
original principal amount of indebtedness is $3,660,000.
MCPHERSON PROPERTY: The McPherson Property is a 70,388 square foot
building built in 1986 and is located in a rural town sixty miles
north of Wichita, Kansas. The original principal amount of
indebtedness associated with this property is $1,318,000.
PUEBLO PROPERTY: The Pueblo Property is a 123,041 square foot building
built in 1986. The original principal amount of indebtedness
associated with the property is $2,076,000.
RIDGELAND PROPERTY: The Ridgeland Property is a 150,284 square foot
building built in 1988 and is located in a suburb of Jackson,
Mississippi. The original principal amount of indebtedness associated
with this property is $2,708,000.
SPENCER PROPERTY: The Spencer Property is a 41,304 square foot
building built in 1986 and is located in a commercial development.
Spencer is situated 50 miles southwest of Indianapolis. The original
principal amount of indebtedness associated with this property is
$822,000.
B-8
<PAGE>
WAL-MART GROUP #2 PROPERTIES
PLATTEVILLE PROPERTY: The Platteville Property consists of a 92,286
square foot building built in 1986 located in a commercial area near
Dubuque. The original principal amount of indebtedness associated with
this property is $1,280,000.
SPARTA PROPERTY: The Sparta Property consists of a 50,980 square foot
building built in 1986 and is located in a small town twenty miles
east of LaCrosse, Wisconsin. There is sufficient vacant land available
adjacent to the subject for expansion. The original principal amount
of indebtedness associated with the property is $1,050,000.
TULSA PROPERTY: The Tulsa Property consists of a 107,794 square foot
building built 1986 located in a commercial area. The original
principal amount of indebtedness associated with the property is
$3,693,000.
VIRQUOA PROPERTY: The Virquoa Property consists of a 41,304 square
foot building built in 1986 and is located 20 miles southeast of
LaCrosse, Wisconsin. The site is on a large lot with room for
expansion. The original principal amount of indebtedness associated
with the property is $822,000.
WAVERLY PROPERTY: The Waverly Property consists of a 50,980 square
foot building built in 1986 and is located adjacent to a retail strip
center approximately 15 miles north of Waterloo, Iowa. The original
principal amount of indebtedness associated with the property is
$1,076,000.
WAL-MART GROUP #3 PROPERTIES
CLINTON PROPERTY: The Clinton Property consists of a 55,698 square
foot building built in 1985 and is located 12 miles north of Terre
Haute. Land is available at the site for expansion. The original
principal amount of indebtedness associated with the property is
$993,000.
LINTON PROPERTY: The Linton Property consists of a 50,968 square foot
building built in 1987 and is located in a town approximately 35 miles
southeast of Terre Haute. Wal-Mart has recently vacated the property.
The original principal amount of indebtedness associated with the
property is $1,108,000.
PLANO PROPERTY: The Plano Property consists of a 70,912 square foot
building built in 1987. The building was remodeled in 1992. The
original principal amount of indebtedness associated with the property
is $1,030,000.
STERLING PROPERTY: The Sterling Property consists of a 55,698 square
foot building built in 1986 and is located in a retail area 35 miles
southwest of Rockford, Illinois. The original principal amount of
indebtedness associated with the property is $1,737,000.
Environmental Issues. See "DESCRIPTION OF THE MORTGAGE POOL--Assessments
of Property Condition--Assessments."
4. ADAMS MARK HOTEL LOAN AND PROPERTY
<TABLE>
<S> <C> <S> <C>
1. Cut-off Date UPB: $22,244,715.07 8. Amortization Type: Balloon
2. Property Type: Hotel 9. Principal Amortization: Yes
3. Year Built: 1968 10. Negative Amortization: No
4. Rooms: 515 11. Rate: 8.125
5. UPB/Room: $43,193.62 12. Maturity Date: 9/1/96
6. Occupancy Percent: 64.80 13. Normalized NOI: $3,694,718.00
7. Occupancy as of Date: 1994 Average 14. Debt Service Coverage: 1.45x
</TABLE>
B-9
<PAGE>
THE LOAN
The Adams Mark Hotel Loan is secured by a first lien on the Adams Mark
Hotel located in Philadelphia, Pennsylvania (the "Adams Mark Hotel
Property"). The Adams Mark Hotel Loan was originated by the Seller on
September 17, 1990 and modified on March 26, 1993 in connection with an
extension of maturity by the borrower. The modification reduced principal by
$5 million (which was paid by the borrower), lowered the interest rate and
extended the term.
The Borrowers. The borrowers are Seven Seventeen HB Philadelphia
Corporation No. 1 ("HB No. 1") and Seven Seventeen HB Philadelphia
Corporation No. 2 ("HB No. 2" and together with HB No. 1, the "Adams Mark
Hotel Borrowers"), both Pennsylvania corporations and wholly owned
subsidiaries of HBE Corporation, a Delaware corporation ("HBE"). HBE designs
and constructs healthcare, bank, retirement and other facilities and owns 12
hotels operated under the Adams Mark name. HBE is based in St. Louis and its
principal shareholder is Fred Kummer.
Security. The Adams Mark Hotel Loan is secured by a Mortgage and Security
Agreement, an Assignment of Rents and Leases, and a Guaranty and Surety
Agreement, among other security documents. The mortgage is a first lien on a
fee simple interest in the Adams Mark Hotel Property, held by HB No. 1, and a
first lien on a leasehold interest in the Adams Mark Hotel Property, held by
HB No. 2. Both HB No. 1 and HB No. 2 have executed the mortgage so as to
encumber both estates.
HB No. 2 entered into a ground lease with HB No. 1. The terms of the
ground lease are as follows: $96,000 per year for the remaining 24 years of
the lease, with 2 automatic 5 year renewals. The ground lease is subordinate
to the Adams Mark Hotel Loan.
Guaranty. The Adams Mark Hotel Loan is fully guarantied by HBE.
Payment Terms. The interest rate is fixed at 8.125%. The Adams Mark Hotel
Borrower is required to make monthly payments of principal and interest of
$211,809.47 until the loan's maturity on September 1, 1996, at which time all
unpaid principal and accrued but unpaid interest is due. Principal amortizes
on an 18 year amortization schedule. The Adams Mark Hotel Loan is
non-recourse subject to certain limited exceptions.
Following an event of default and acceleration of the Loan, the security
documents require that the Adams Mark Hotel Borrower pay a premium equal to
the greater of (i) 1% of the unpaid principal or (ii) the Yield Maintenance
formula described below. There is a 6% late fee on any overdue installments
and overdue payments accrue interest at the lesser of 6% over the interest
rate of the note or the maximum rate of interest permitted under Pennsylvania
law.
Prepayment. The Adams Mark Hotel Loan may be prepaid in whole, but not in
part, upon 60 days prior written notice, provided there is no default, and
upon payment of the greater of (i) 1% of the outstanding balance or (ii) a
payment computed (the "Yield Maintenance formula") by determining the present
value of all scheduled debt service payments remaining until the maturity of
the note attributable to the amount of principal being prepaid by discounting
all such payments at the rate (divided by 12) which is the mortgage
equivalent of the average yield of U.S. Treasury obligations maturing at
approximately the same time as the note; such amount is the amount required
to invest in U.S. Treasury obligations in order to produce the same yield to
maturity as the amount of the principal being prepaid, and if the amount of
the additional investment is greater than the principal being prepaid, the
difference is the prepayment fee.
Transfer of Property or Interest in Borrowers. The ownership of HB No. 1
and HB No. 2 may not be changed without the prior written consent of the
lender. The Adams Mark Hotel Property may not be transferred without the
prior consent of the lender, except that HB No. 1 and HB No. 2 may each
transfer their interests in the Adams Mark Hotel Property, on a one time
basis, to an entity wholly owned by HBE subject to certain conditions.
Escrow/Reserves. At the request of the lender under certain limited
circumstances, the Adams Mark Hotel Borrower must deposit with the lender an
amount equal to one-twelfth of the estimated
B-10
<PAGE>
aggregate annual insurance premiums on all policies required by the
mortgage. The Adams Mark Hotel Borrower pays $66,719 per month (one-twelfth
of the estimated tax liability) into a non-interest bearing tax escrow
account, which had a balance of $636,266 as of October 2, 1995. No other
reserves or escrows are required.
Subordinate/Other Debt. The Adams Mark Hotel Loan becomes immediately due
and payable if the property is encumbered or the borrower incurs indebtedness
secured by a lien without the prior consent of the lender.
THE PROPERTY
The 23 story, 515 room hotel contains 47,000 square feet of meeting,
restaurant and exhibit space and parking for 752 cars, including 220 spaces
in a 2 1/2 story attached garage, and is rated 3-Diamond by AAA and 3-Star by
Mobil. Other amenities include a health club and exercise facility. The Hotel
is located on a 13.5 acre site on City Line Avenue (Rt. 1) and is
approximately 1/2 mile from the Schuylkill Expressway (Rt. 76) in the
Northwest section of the central business district of Philadelphia. The
improvements are constructed on land owned by HB No. 1 and leased to HB No.
2. In December, 1994, a Marriott 1200 room convention center was opened in
the downtown area.
Due to a backlog in local recording office volume, a title update
regarding the Adams Mark Property subsequent to November 12, 1994 was not
available.
For 1992, 1993 and 1994, the average daily rate was $85.64, $88.08 and
$91.89, respectively, the occupancy rate was 55.9%, 58.6% and 64.8%,
respectively, and the Normalized NOI was $1,993,642, $2,736,525 and
$3,694,718, respectively.
Environmental Issues. In connection with its environmental assessment,
Dames & Moore, Inc. recommended a Phase II assessment on the basis of the
presence of sediment in sump in an elevator shaft and underground storage
tanks. Following the Phase II assessment, no further action was proposed.
5. POLYCLINIC LOAN AND PROPERTY
<TABLE>
<S> <C> <S> <C>
1. Cut-off Date UPB: $20,280,933.89 8. Amortization Type: IO changing to Balloon
2. Property Type: Medical 9. Principal Amortization: Yes
3. Year Built: 1964 10. Negative Amortization: No
4. Square Feet: 112,610 11. Rate: 9.480
5. UPB/Square Foot: $180.10 12. Maturity Date: 1/1/10
6. Occupancy Percent: 100.00 13. Normalized NOI: $2,426,461.00
7. Occupancy as of Date: August 1995 14. Debt Service Coverage: 1.13x
</TABLE>
THE LOAN
The Polyclinic Loan is secured by a first lien on 2.2 acres of land
improved by a 112,610 medical office building in Seattle, Washington (the
"Polyclinic Property"). The Polyclinic Loan was originated by the Seller on
December 12, 1989.
The Borrower. The borrower is Harvard Union Company, Inc., a Washington
corporation (the "Polyclinic Borrower"). The Polyclinic Borrower was set up
to hold the real estate assets of the main tenant of the Polyclinic Property,
The Polyclinic, a Washington corporation and a medical clinic. All of the
shareholders of the Polyclinic Borrower are physicians employed by The
Polyclinic, who are required to purchase 30 shares after practicing with The
Polyclinic for one year, at a purchase price calculated based on a formula
and payable over 10 to 15 years at 6% to 8%. Physicians withdrawing from The
Polyclinic must sell their shares to the Polyclinic Borrower at current
value, paid out over a 5-10 year period at the same interest rate at which it
was paid in.
Security. The Polyclinic Loan is secured by a first Deed of Trust,
Assignment of Rents and Security Agreement and Fixture Filing, among other
security documents. The Polyclinic deed of trust is a first lien on a fee
simple interest in the mortgaged property. The Polyclinic Loan is
non-recourse, subject to certain limited exceptions.
B-11
<PAGE>
Payment Terms. The interest rate is fixed at 9.48% The Polyclinic Loan
provides for interest-only payments through January 1, 1992 (requiring
monthly payments of $165,900.00 from February 1, 1990 through January 1,
1992), followed by monthly payments of principal and interest of $178,594.00
until its maturity on January 1, 2010, at which time all unpaid principal and
accrued but unpaid interest is due. Principal amortizes on a 28 year
amortization schedule.
If there is an event of default and the lender accelerates the loan (i)
prior to January 1, 1998, the security documents require that the Polyclinic
Borrower pay a premium equal to the greater of (A) 6% of the unpaid principal
balance or (B) the lender's make-whole formula as described below, or (ii) on
or after January 1, 1998, the Polyclinic Borrower must pay the lender's
make-whole formula as described below. There is a 6% late fee on overdue
installments, and overdue payments accrue interest at the lesser of 15.48% or
the maximum interest rate allowed under law.
Prepayment. The Polyclinic Loan may be prepaid in whole but not in part at
any time after January 1, 1998, upon 60 days prior written notice and upon
payment (unless within the last three months prior to maturity) of a the
greater of (i) 1% of the outstanding principal balance, or (ii) a make-whole
formula which computes a premium by multiplying the outstanding principal
balance of the note by a percentage equal to the excess of 11.019% over the
Current Available Yield (the effective annual percentage yield which the
lender would be able to obtain if, on the prepayment date, it invested the
outstanding principal balance being prepaid in U.S. Treasury obligations with
maturities as close to the maturity date as are reasonably available),
resulting in the Annual Payment Differential (the annual deficiency in
payments that would result from an investment of the outstanding principal
balance at the Current Available Yield rather than at an effective annual
yield of 11.019%), and such amount is discounted based on the Current
Available Yield. Transfer of Property or Interest in Borrower. The Polyclinic
Loan becomes immediately due and payable upon the transfer of the Polyclinic
Property or the Polyclinic Borrower (excluding stock issuances to physicians
of The Polyclinic) without the prior consent of the lender.
Release of Collateral. The lender agreed to consider the possibility of
releasing or subordinating its lien on a portion of the Polyclinic Property
one half block from the property used for parking (the "surface parking
parcel") upon the fulfillment of certain conditions.
Subordinate/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender, except that subordinate
indebtedness is permitted as long as, among other conditions, the subordinate
lender is an institutional lender satisfactory to the lender, the net cash
flow (after all operating expenses) being generated by the Polyclinic
Property remains above 1.15 times the total combined debt service and the
combined debt remains below 80% of the total value of the Polyclinic
Property. No intercreditor or similar agreement is required.
Escrow/Reserves. At the request of the lender, the Polyclinic Borrower
must deposit with the lender, on a monthly basis, an amount equal to
one-twelfth of the aggregate annual insurance premiums on all policies
required by the deed of trust and one-twelfth of the estimated tax and other
impositions for the year. No other reserves or escrows are required.
THE PROPERTY
The Polyclinic Property is a medical clinic with a parking garage. The
original four-story building of the Polyclinic Property was constructed in
1964 and was remodeled and/or expanded in 1974, 1979 and 1983-84. In 1989,
the original building was integrated into a new clinic with the addition of a
two-story office addition over a four-level parking garage. In addition,
there is a parcel of land one half block from the property, also securing the
loan, that is used as staff parking.
The Polyclinic Property is in the First Hill area, east of I-5 in the
Seattle area. This area is home to four major hospitals.
The Polyclinic master leases 98% of the building from the Polyclinic
Borrower, with the balance leased to a pharmacy and a delicatessen. The
required monthly payments of the master lease were reduced on December 18,
1989 to $143,000. The master lease is subordinate to the lender's mortgage
and, in the event of default by the Polyclinic Borrower, the master lease
provides that the Polyclinic must pay
B-12
<PAGE>
to the lender the original monthly rent payments of $214,313. The
Polyclinic, as tenant, must pay all license fees, excise fees, occupation and
personal property ad valorem taxes, and real property and personal property
taxes for the Polyclinic Property. The term of the master lease expires on
December 1, 2009.
Rollover at the property for 1994, 1995 and 1996 is 0%, 0%, and 2%,
respectively. The Normalized NOI for 1992, 1993 and 1994 was $2,427,466,
$2,424,467 and $2,426,461, respectively.
6. COVINA TOWN SQUARE LOAN AND PROPERTY
<TABLE>
<S> <C> <S> <C>
1. Cut-off Date UPB: $18,234,561.64 8. Amortization Type: IO changing to Balloon
2. Property Type: Retail 9. Principal Amortization: Yes
3. Year Built: 1989 10. Negative Amortization: No
4. Square Feet: 421,551 11. Rate: 9.600
5. UPB/Square Foot: $43.26 12. Maturity Date: 9/1/04
6. Occupancy Percent: 96.00 13. Normalized NOI: $2,277,533.00
7. Occupancy as of Date: March 1995 14. Debt Service Coverage: 1.22x
</TABLE>
THE LOAN
The Covina Town Square Loan is secured by a first lien on a 421,551 square
foot retail center in Covina, California (the "Covina Town Square Property").
The Covina Town Square Loan was originated by the Seller on August 23, 1989.
The Borrower. Alexander Haagen Properties Operating Partnership, L.P., a
California limited partnership (the "Covina Town Square Borrower"), is the
current owner of the property as a result of a pre-approved, one-time
transfer of the property by the original borrower (not involving a
contractual assumption of the loan), Lake Forest Shopping Center. The general
partner is Alexander Haagen Properties, Inc., a REIT, which as of December
31, 1993 had assets valued at $618 million and owned and managed, as of
December 1993, forty retail shopping centers totaling 6.5 million square
feet.
Security. The Covina Town Square Loan is secured by a first Deed of Trust,
an Assignment of Rents and a Security Agreement, among other security
documents. The Covina Town Square Deed of Trust is a first lien on a fee
simple interest in the mortgaged property. The Covina Town Square Loan is a
non-recourse loan, subject to certain limited exceptions.
Guaranty. The Covina Town Square Loan is guarantied by the personal
guaranties of Alexander Haagen, Charlotte Haagen, Charals Haagen, Seymour
Kreshek and Fred Bruning which guarantees payment to the lender, in the event
that Sears terminates its lease, of an amount equal to the lease payments of
Sears until such time as a replacement tenant acceptable to the lender is
found.
Payment Terms. The interest rate is fixed at 9.6%. The Covina Town Square
Loan requires monthly payments of interest and principal of $155,849.39 until
its maturity on September 1, 2004, at which time all unpaid principal and
accrued but unpaid interest is due and payable. Principal amortizes based on
a 30 year amortization schedule.
Upon an event of default and acceleration of the loan, the security
documents require the Covina Town Square Borrower to pay the premium
otherwise applicable to prepayments. The security documents provide for a 6%
late fee on overdue installments, and overdue payments accrue interest at
15.60%.
Prepayment. The Covina Town Square Loan may be prepaid in whole, but not
in part, upon 60 days prior written notice and upon payment of the greater of
(i) 1% of the outstanding principal balance or (ii) a sum which together with
the amount prepaid, is sufficient to invest in a United States Treasury
obligation (with a maturity date as close to the Loan's maturity date as is
reasonably available), for the remaining term to produce the same annual
effective yield to the Loan's maturity date, the sum of which is calculated
in accordance with the Borrower's then prevailing formula on a discounted
cash flow basis incorporating a present value factor (based on the annual
effective yield to maturity of the substitute United States Treasury
Obligation), that reconciles differences in timing, yield, and amortization
between
B-13
<PAGE>
the payment streams provided for and by the substitute United States
Treasury obligation investment (the "Yield Maintenance formula"). It is
assumed in the case of a prepayment prior to September 1, 2001 only that the
United States Treasury obligation used as a basis for such computation is
producing an annual yield of one-quarter percent more than the actual annual
yield of such United States Treasury obligation. No prepayment penalty or
premium is due if prepaid within six months prior to maturity.
Transfer of Properties or Interest in Borrower. The Covina Town Square
Loan becomes immediately due and payable upon transfer of the Property unless
the prior consent of the lender is granted. The security documents permitted
a one-time transfer of the borrower's entire interest in the property subject
to certain conditions; such transfer has been made and therefore is no longer
available.
Escrow/Reserves. At the request of the lender, the Covina Town Square
Borrower must deposit with the lender, on a monthly basis, one-twelfth of the
estimated tax payments for the year. No other reserves or escrows are
required.
Subordinate/Other Debt. The Covina Town Square Loan becomes immediately
due and payable if the property is encumbered without the prior consent of
the lender.
THE PROPERTY
The Covina Town Square Property consists of eight buildings on a 36.24
acre parcel of land. Most of the buildings are for single tenant use and are
located along the perimeters of the site, with Sears occupying the center.
Construction is primarily wood frame with stucco exterior and red Spanish
tile roofs. The property offers parking of 5.2 spaces per 1,000 square feet
of net rentable area.
The largest tenant is Sears (165,638 square feet (37%) - expiring December
2021). Its lease is a ground lease; the improvements are owned by Sears and
will not revert to the landlord until the termination of the lease. Sears may
terminate its lease at any time. In addition to Sears, other major tenants
include Home Depot (102,485 square feet (24%) - expiring January 2004),
Staples (25,632 square feet (6%) - expiring September 2000) and PetsMart
(25,608 square feet (6%) -expiring October 2008). The average occupancy of
the property for 1992, 1993 and 1994 was 90%, 90% and 93%, respectively and
the Normalized NOI for such periods was $1,728,888, $1,874,519 and
$2,277,533, respectively.
Rollover at the property is 1% for 1994, 0% for 1995, and 1% for 1996.
A Wal-Mart retail outlet recently opened in the immediate area, and most
of the "big box" retailers are also represented in the area. A re-configured
power center is scheduled to open in the area in early 1996.
Environmental Issues. See "DESCRIPTION OF THE MORTGAGE POOL -- Assessments
of Property Condition -- Environmental Assessments."
7. THE MOBIL OIL LOAN AND PROPERTY
<TABLE>
<S> <C> <S> <C>
1. Cut-off Date UPB: $17,350,000.00 8. Amortization Type: IO changing to Balloon
2. Property Type: Office 9. Principal Amortization: Yes
3. Year Built: 1991 10. Negative Amortization: No
4. Square Feet: 170,626 11. Rate: 9.590
5. UPB/Square Foot: $101.68 12. Maturity Date: 12/1/01
6. Occupancy Percent: 100.00 13. Normalized NOI: $1,846,700.00
7. Occupancy as of Date: October 1995 14. Debt Service Coverage: 1.05x
</TABLE>
THE LOAN
The Mobil Oil Loan is secured by a first mortgage lien on the fee simple
estate in a four story Class A office building situated in the 300 acre
Southlake Office Industrial Park, Lenexa, Johnson County, Missouri (the
"Mobil Oil Property"). The loan was originated on May 15, 1990 by an
affiliate of the Seller. The Borrower. The Borrower is Monaxa Limited
Partnership, a Kansas Limited Partnership (the "Mobil Oil Borrower"). The
general partner of the Mobil Oil Borrower is Lenexa Industrial Park, Inc.
B-14
<PAGE>
("Lenexa"), owning a 50% interest, and the limited partner of the Mobil Oil
Borrower is Mobil Corporation, a New York corporation, owning a 50% limited
partnership interest. Lenexa is owned by five entities, including Six Plus,
Inc., holding a 52% interest, and the A.W. Zimmer Co., holding a 16%
interest. A.W. Zimmer Co. manages the Mobil Oil Property as well as over six
million square feet of office and industrial space.
Security. The Mobil Oil Loan is secured by a Mortgage and Security
Agreement, Assignments of Rents and Leases, Loan Agreement and Disbursement
Agreement, among other security documents. The Mobil Oil Mortgage is a first
lien on the fee simple interest in the Mobil Oil Property. After December 24,
1991, the Mobil Oil Loan is non-recourse, subject to certain limited
exceptions.
The Mobil Oil Property is 100% leased to Mobil Oil Corporation, which
lease has been assigned to Mobil Oil Credit Corporation ("Tenant"). Under the
Lease, Tenant is responsible for taxes, maintenance and insurance. However,
Tenant may self-insure, provided that if the lease is assigned to an
affiliate such as Mobil Oil Credit Corporation, self insurance will be
maintained by Mobil Oil Corporation. Mobil's lease expires in July 2001, four
months prior to the Loan's maturity. Mobil Oil Credit Corporation has
subleased the property to First Data Resources ("FDR") a wholly owned
subsidiary of First Data Corporation. This lease also expires in July of
2001. However, FDR has given notice that it is terminating its sublease and
therefore the building will be vacant beginning January 6, 1996.
Payment Terms. The interest rate is fixed at 9.59%. The Mobil Oil Loan was
initially a construction loan, but was converted into a long-term mortgage
loan on December 24, 1991. The Mobil Oil Loan provides for interest-only
payments through February 1, 1997. Thereafter through November 1, 2001, the
monthly payments of interest and principal are $147,028.85. The Loan is
amortized over 30 years. Any unpaid principal and accrued but unpaid interest
is due on the maturity date, December 1, 2001. Interest is calculated on a
30/360 day basis.
Upon default and acceleration of the loan, the security documents require
that the Borrower pay an amount (to the extent permitted by law) equal to the
greater of (i) 1% of the unpaid principal sum on the acceleration date; or
(ii) the Prepayment Charge, described below. Upon default, the security
documents require that the interest rate on the entire unpaid principal
balance increase to 15.59%. If the lender elects to have a receiver
appointed, and the amounts collected by the receiver are insufficient to pay
all costs and expenses of the receiver, the security documents provide that
the lender may pay such costs and those costs plus 15.59% on such costs will
be immediately due and payable by the Borrower. The security documents
provide that the interest rate on late payments is 15.59%.
Prepayment. The Mobil Oil Loan may be prepaid in whole if Tenant exercises
its option to purchase the property pursuant to the lease or if the loan is
prepaid between June 1, 1996 and July 1, 2001 and upon payment of a yield
maintenance premium which is the greater of (i) 1% of the unpaid principal or
(ii) a sum which together with the unpaid principal sum would be sufficient
to permit the lender to invest in a U.S. Treasury obligation for the
remaining term of the loan which shall produce the same annual effective
yield to the maturity date as the loan (the "Prepayment Charge"). There is no
Prepayment Charge if the loan is prepaid after July 1, 2001. The Prepayment
Charge is to be calculated by the lender in accordance with the lender's then
prevailing formula on a discounted cash flow basis incorporating a present
value factor which reconciles differences in timing, yield and amortization
between the payment streams of the loan and the substitute U.S. Treasury
obligation; during the period of time commencing June 1, 1996, and ending May
31, 1999, such annual effective yield is to be calculated by using the
applicable U.S. Treasury obligation rate plus .25%. Partial prepayments of
principal are permissible without penalty throughout the term of the loan if
such partial prepayments occur by reason of the application by the lender of
insurance proceeds or condemnation awards to the unpaid principal.
Transfer of Property. The Mobil Oil Loan becomes immediately due and
payable upon (i) the sale or transfer of the Mobil Oil Property, except for:
(A) a sale or transfer by the Borrower pursuant to the lease, (B) a sale or
transfer pursuant to the Agreement of Limited Partnership for Borrower
between Lenexa and Mobil (the "Limited Partnership Agreement"), (C) a one
time sale or transfer by the Borrower carried out in compliance with the
lender's requirements for such transfer including the payment of a fee in the
amount of 1% of the unpaid balance of the Note; (ii) a change in the Limited
B-15
<PAGE>
Partnership Agreement or the ownership interests of the Borrower except as
provided in the Limited Partnership Agreement; or (iii) a change in the use
of the Mobil Oil Property without prior consent of the lender, except as
provided in the Limited Partnership Agreement.
Reserves. The Borrower must deposit with the lender on a monthly basis an
amount estimated by the lender to be sufficient to enable the lender to pay
30 days before they come due all taxes, assessments and utilities. If Mobil
Oil Corporation or its assigns do not give notice to exercise its first
option to renew its lease, Borrower must make six quarterly deposits in
escrow in an amount equal to excess cash flow from the mortgaged property
after debt service and certain other payments paid by or to Lenexa under the
Limited Partnership Agreement which quarterly deposits shall not be less than
$16,666.67 each or more than $100,000 in the aggregate. There are no other
escrow or reserve provisions.
Subordinate/Other Debt. The Mobil Oil Loan becomes immediately due and
payable upon the encumbrance of the property without the prior consent of the
lender except as provided in the lease or the Limited Partnership Agreement.
THE PROPERTY
The building, which was built in 1991, is 170,626 square feet and is
situated on approximately 10.7 acres. The building is of steel frame
construction with pre-cast granite aggregate panels with horizontal bands of
lightly tinted glass. The main entrance to the building is via the second
floor with an atrium lobby on the second, third and fourth floor elevator
lobbies. Approximately 30% of the ground floor is either unfinished or
contains low level finish since this floor houses the mailroom and receiving
area. The unfinished areas are used for supply storage. The property has 506
on-site parking spaces on three sides of the building, and has irrigated
landscaping.
The Normalized NOI for 1992, 1993 and 1994 was $1,846,700, $1,846,385 and
$1,846,700, respectively.
Management. The Mobil Oil Property is managed by the A.W. Zimmer Co.
8. DOWNTOWN CENTER PARKING GARAGE LOAN AND PROPERTY
<TABLE>
<S> <C> <S> <C>
1. Cut-off Date UPB: $16,911,903.00 8. Amortization Type: IO changing to Balloon
2. Property Type: Parking Garage 9. Principal Amortization: Yes
3. Year Built: 1955 10. Negative Amortization: No
4. Parking Spaces: 944 11. Rate: 9.235
5. UPB/Parking Space: $17,915.15 12. Maturity Date: 1/1/00
6. Occupancy Percent: 97.00 13. Normalized NOI: $2,460,545.00
7. Occupancy as of Date: June 1995 14. Debt Service Coverage: 1.47x
</TABLE>
THE LOAN
The Downtown Center Parking Garage Loan is secured by a deed of trust on a
nine story building located in downtown San Francisco (the "Downtown Center
Parking Garage Property"). The Loan was originated by the Seller on December
14, 1989.
The Borrower. The borrower is The Downtown Center Garage Partnership, an
Oregon general partnership (the "Downtown Center Parking Garage Borrower").
The Downtown Center Parking Garage Borrower has three general partners, the
Harsch Investment Corporation, with 27.5% ownership, and Harold and Arlene
Schnitzer, collectively with 72.5% ownership. Harsch Investment Corporation
owns and manages over 32 properties in five western states. Harold and Arlene
Schnitzer are the principal stockholders of Harsch Investment Corporation.
Security. The Downtown Center Parking Garage Loan is secured by a first
Deed of Trust, an Assignment of Rents, and a Security Agreement and Fixture
Filing. The Deed of Trust is a first lien on a fee simple interest in the
Downtown Center Parking Garage Property. The Downtown Center Parking Garage
Loan is non-recourse, subject to certain limited exceptions.
B-16
<PAGE>
Payment Terms. The interest rate is fixed at 9.235%. The Downtown Center
Parking Garage Loan requires monthly payments of principal and interest of
$139,670.07 until its maturity on January 1, 2000, at which time all unpaid
principal and accrued but unpaid interest is due. Principal amortizes based
on an approximately 32 year amortization schedule. The Downtown Center
Parking Garage Loan accrues interest based on actual days per month, rather
than on an assumed 30 days per month basis.
If there is an event of default and the lender accelerates the Downtown
Center Parking Garage Loan, the security documents require the Downtown
Center Parking Garage Borrower to pay a premium equal to the greater of (i)
1% of the unpaid principal balance or (ii) the Unpaid Principal Premium
described below. There is a 6% late fee on overdue installments, and overdue
payments accrue interest at 15.235%.
Prepayment. The Downtown Center Parking Garage Loan may be prepaid in
whole, but not in part, upon 60 days written notice and upon payment of the
greater of (i) 1% of the outstanding principal balance or (ii) an amount
calculated by (a) multiplying the then outstanding balance of the Loan by the
difference between (1) the effective annual yield on the mortgage (9.64%),
and (2) the effective annual yield of a United States Treasury obligation
with a maturity as close as possible to that of the mortgage; (b) dividing
the result by 12 to determine the monthly differential; and (c) discounting
the monthly differential over the remaining term of the mortgage (expressed
in months and fractions) using as the discount rate the monthly equivalent of
the effective annual yield of the Treasury obligation (the "Unpaid Principal
Premium"). No prepayment penalty or premium is due if the loan is prepaid
within the three months prior to maturity.
Transfer of Properties or Interest in Borrowers. The Downtown Center
Parking Garage Loan becomes immediately due and payable upon the transfer of
the Downtown Center Parking Garage Property or the transfer of the interest
of the Downtown Center Parking Garage Borrower without the prior consent of
the lender. However, the Downtown Center Parking Garage Borrower does not
need the consent of the lender if, after the transfer of partnership
interests by any member of the partnership, (i) Harold Schnitzer and/or
Arlene Schnitzer own and control no less than 51% in the aggregate of the
Downtown Center Parking Garage Borrower, and (ii) the manager of the Downtown
Center Parking Garage Property is the Downtown Center Parking Garage Borrower
or is owned by the Borrower.
Escrow/Reserves. At the request of the lender, the Downtown Center Parking
Garage Borrower must deposit with the lender, on a monthly basis, an amount
equal to one-twelfth of the estimated aggregate annual insurance premiums on
all policies required by the deed of trust and one-twelfth of the estimated
tax and other impositions for the year. No other reserves or escrows are
required.
Subordinate/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender, except that subordinate
indebtedness is permitted as long as, among other conditions, the lender
reviews and approves all documents related to the subordinate financing, the
subordinate lender is an institutional lender satisfactory to the lender, the
net cash flow (after all operating expenses) being generated by the Downtown
Center Parking Garage Property remains equal to or greater than 1.25 times
the total combined debt service and the combined debt remains below 85% of
the total value of the Property. The documentation for the subordinate loan
must state that it is subordinate to the lender's loan, but there is no
requirement that the subordinate lender enter into an intercreditor or
similar agreement.
THE PROPERTY
The Downtown Center Parking Garage Property has 11 levels, including a
basement, a ground floor, a mezzanine, floors 2-8 and a roof top. The
Downtown Center Parking Garage Property was constructed in 1955 of reinforced
concrete and is approximately 397,000 square feet. The Downtown Center
Parking Garage Property contains 944 parking spaces and 14,078 square feet of
retail and office space situated on the northwest corner of Mason and
O'Farrell Streets in the Union Square area of downtown San Francisco. The
Downtown Center Parking Garage Property was remodelled in 1979.
The Normalized NOI for 1992, 1993 and 1994 was $2,188,947, $2,068,663 and
$2,460,548, respectively.
B-17
<PAGE>
9. ALLENDALE CORPORATE CENTER LOAN AND PROPERTIES
<TABLE>
<CAPTION>
ALLENDALE CORPORATE CENTER-25
<S> <C> <S> <C>
1. Cut-off Date UPB: $5,467,398.28 8. Amortization Type: IO changing to Balloon
2. Property Type: Industrial/Flex 9. Principal Amortization: Yes
3. Year Built: 1989 10. Negative Amortization: No
4. Square Feet: 68,251 11. Rate: 9.250
5. UPB/Square Foot: $80.11 12. Maturity Date: 2/1/00
6. Occupancy Percent: 100.00 13. Normalized NOI: $577,542.00
7. Occupancy as of Date: July 1995 14. Debt Service Coverage: 1.06x
</TABLE>
<TABLE>
<CAPTION>
ALLENDALE CORPORATE CENTER -80
<S> <C> <S> <C>
1. Cut-off Date UPB: $3,678,067.96 8. Amortization Type: IO changing to Balloon
2. Property Type: Industrial/Flex 9. Principal Amortization: Yes
3. Year Built: 1989 10. Negative Amortization: No
4. Square Feet: 45,370 11. Rate: 9.250
5. UPB/Square Foot: $81.07 12. Maturity Date: 2/1/00
6. Occupancy Percent: 100.00 13. Normalized NOI: $441,909.00
7. Occupancy as of Date: July 1995 14. Debt Service Coverage: 1.21x
</TABLE>
<TABLE>
<CAPTION>
ALLENDALE CORPORATE CENTER-90
<S> <C> <S> <C>
1. Cut-off Date UPB: $5,765,619.96 8. Amortization Type: IO changing to Balloon
2. Property Type: Industrial/Flex 9. Principal Amortization: Yes
3. Year Built: 1989 10. Negative Amortization: No
4. Square Feet: 78,000 11. Rate: 9.250
5. UPB/Square Foot: $73.92 12. Maturity Date: 2/1/00
6. Occupancy Percent: 100.00(1) 13. Normalized NOI: $756,180.00
7. Occupancy as of Date: December 1994 14. Debt Service Coverage: 1.32x
</TABLE>
THE LOANS
The Allendale Corporate Center Loans consist of the Allendale Corporate
Center 90 Loan, the Allendale Corporate Center 80 Loan and the Allendale
Corporate Center 25 Loan (collectively "the Allendale Loans"). The terms for
each of the loans included in the Allendale Loans are identical, except for
the property descriptions, tenant lists, rent rolls, and the amounts of the
loan payments as set forth below.
Each of the Allendale Loans is secured by a first mortgage on a research
and development building located in Allendale, New Jersey. The three
buildings are: the Allendale Corporate Center 90, the Allendale Corporate
Center 25 and the Allendale Corporate Center 80 (collectively, the "Allendale
Properties"). The Allendale Loans were originated by affiliates of the Seller
on January 17, 1990. Each loan is cross-defaulted and cross-collateralized
with the other two loans. The cross-default and cross-collateral provisions
terminate upon the satisfaction of certain financial conditions; the lender
believes that these conditions have been met but the Borrower has not
requested a release of such provisions.
The Borrower. The borrower for all of the Allendale Properties is
Allendale Associates, a New Jersey general partnership (the "Allendale
Borrower"), whose general partners are Anthony, Michael and Paul Laino.
- ------------
1. Current occupancy is significantly less. See text with respect to the
September 1995 lease termination with respect to Bionaire Corporation
in "The Properties, Allendale Corporate 90."
B-18
<PAGE>
Security. Each of the Allendale Loans are secured by an Indenture of
Mortgage and Security Agreement and an Assignment of Rents and Leases among
other security documents. Each mortgage is a first lien on the fee simple
interest in the corresponding Allendale Property. The Allendale Loans are
non-recourse, subject to certain limited exceptions.
Payment Terms. The interest rate is fixed at 9.25%. Principal amortizes on
a 30 year schedule. The balance of the principal and any accrued but unpaid
interest is due on the maturity date, February 1, 2000.
The Allendale Loans provide for monthly principal and interest payments
for each loan as follows:
Allendale Corporate Center 90: $47,715.18
Allendale Corporate Center 25: $45,247.15
Allendale Corporate Center 80: $30,438.99
If the Borrower defaults, the security documents provide that the lender
is entitled to any prepayment charge to which it would have been entitled had
the Note been open to prepayment and prepaid at the time of default. The
security documents require a late charge of 6% on any unpaid installment. The
security documents require a default rate of interest which is the lesser of
(i) the maximum allowable rate under applicable laws, or (ii) 6% over the
Loan's effective rate on the outstanding balance of the Loan.
Prepayment. From February 1, 1995 until maturity, each of the Allendale
Corporate Center Loans may be prepaid in whole, but not in part, upon payment
of the greater of: (i) 1% of the principal amount prepaid, or (ii) an amount
to be calculated by: (A) multiplying the then outstanding balance of the loan
by the difference between (1) the effective annual yield on the mortgage
(9.652%), and (2) the effective annual yield of a U.S. Treasury obligation
with a maturity as close as possible to that of the mortgage; (B) dividing
the result by 12 to determine the monthly differential; and (C) discounting
the monthly differential over the remaining term of the mortgage (expressed
in months and fractions thereof) using as the discount rate the monthly
equivalent of the effective annual yield of the above-mentioned U.S. Treasury
obligation. The Borrower may prepay any of the Loans in full without a
prepayment penalty from November 1, 1999 through the maturity date. Any
reduction in the principal balance of the note resulting from the application
of funds from insurance proceeds, condemnation awards or escrows are not
subject to prepayment penalty.
Release of Collateral. The lender may at its option release parts of the
Mortgaged Property.
Transfer of Property or Interest in Borrower. The Allendale Corporate
Center Loans become immediately due and payable upon the transfer of the
Allendale Corporate Center Properties without the prior consent of the
lender, and such consent shall not be withheld for certain transfers of
partnership interests to family members of certain existing partners,
provided that the principals continue to manage the Property.
Escrow/Reserves. Upon the lender's request, Borrower must deposit with the
lender on a monthly basis one-twelfth of the annual taxes and assessments
associated with the property.
Subordinate/Other Debt. The Allendale Corporate Center Loans becomes
immediately due and payable if the properties are encumbered without the
prior consent of the lender.
THE PROPERTIES
The Allendale Corporate Center Properties are located in the Allendale
Corporate Center, a business park developed by the Allendale Borrower,
containing five buildings totaling 280,000 square feet with approvals in
place to build three additional buildings totaling 260,000 square feet. The
Allendale Properties are all R&D buildings built in 1989 of steel frame with
brick exterior, spandrel and clear insulating glass in aluminum frames.
B-19
<PAGE>
The square footage, tenant, parking and rollover information for each of
the Allendale Properties are as follows:
ALLENDALE CORPORATE CENTER 80
The property is 45,370 square feet of which 22,716 square feet
((50%) - expiring February 1998) are leased to Sanyo Semi-Conduct.
The leases for the other two tenants, Implex Corporation (11,388
square feet (24%)) and Plus Corporation (11,266 square feet (24%))
expire in April 1997. For all three leases, the lessee is
responsible for liability insurance, taxes, interior repairs,
maintenance, and the lessor pays for fire and extended
responsibility insurance. The property has parking for 129 vehicles.
Rollover at the property is 0% for 1995, and is expected to be 0%
for 1996 and 50% for 1997. For the years 1992, 1993 and 1994 the
Normalized NOI was $350,518, $418,663 and $441,909, respectively,
and average occupancy was 100%, 100% and 100%, respectively.
ALLENDALE CORPORATE CENTER 25
The property is 68,251 square feet of which 29,905 square feet
((43%) - expiring in January 1999) is leased to Clarion Corporation.
The other two tenants are Witel Data Network (21,250 square feet
(31%) - expiring in July 1998) and Fuji Hunt Photographic (17,096
square feet (25%) - expiring in January 2000. For all three leases
the lessee is responsible for liability insurance, taxes, repairs
and maintenance, and the lessor pays for fire and extended
responsibility insurance.The property has parking for 196 vehicles.
Rollover at the property is 0% for 1995, and is expected to be 0%
for 1996 and 50% for 1997. For the years 1992, 1993 and 1994 the
Normalized NOI was $680,386, $842,766 and $577,542, respectively,
and average occupancy was 100%, 100% and 100%, respectively.
ALLENDALE CORPORATE CENTER 90
The property is 78,000 square feet of which 34,523 square feet is
leased to Beckman Instruments ((44%) - expiring July 1999). Bionaire
Corporation's lease of 31,318 square feet (40%) expired in September
1995. The Borrower is currently negotiating a lease for the former
Bionaire space with the U.S. Postal Service. Marubeni
Citizen-Concom, Inc. leases 12,166 square feet (15%) and its lease
expires in September 1999. For all three leases, Lessee is
responsible for liability insurance, taxes, interior repairs, and al
maintenance, and Lessor pays for fire and extended responsibility
insurance. The property has parking for 196 vehicles. Rollover at
this property is 40% for 1995, and is expected to be 0% for 1996 and
0% for 1997. For the years 1992, 1993 and 1994 the Normalized NOI
was $731,038, $749,201 and $756,180, respectively, and average
occupancy was 100%, 100% and 100%, respectively.
Management. According to information provided by the Seller, as of July
31, 1995, the Allendale Properties were managed by the Borrower and leased by
a third-party firm, Edward S. Gordon. The Seller has no current information
regarding management.
10. WOODHAWK CLUB APARTMENTS LOAN AND PROPERTY
<TABLE>
<S> <C> <S> <C>
1. Cut-off Date UPB: $14,000,000.00 8. Amortization Type: Interest Only
2. Property Type: Multifamily 9. Principal Amortization: Yes
3. Year Built: 1989 10. Negative Amortization: No
4. Units: 436 11. Rate: 9.250
5. UPB/Unit: $32,110.09 12. Maturity Date: 7/1/99
6. Occupancy Percent: 94.00 13. Normalized NOI: $2,053,832.00
7. Occupancy as of Date: March 1995 14. Debt Service Coverage: 1.59x
</TABLE>
THE LOAN
The Woodhawk Club Apartments Loan is secured by a first mortgage on an
apartment project located in Pittsburgh, Pennsylvania (the "Woodhawk Club
Apartments Property"). The Woodhawk Club
B-20
<PAGE>
Apartments Loan was originated by an affiliate of the Seller on June 22,
1989, assumed by the current borrower on March 28, 1994, and modified on May
6, 1994 in connection with the assumption of the loan by the borrower. The
modification also involved a $2.4 million paydown of Principal and a decrease
in the interest rate.
The Borrower. The borrower is the State of California Public Employees
Retirement Systems (Calpers), an agency of the State of California and the
nation's largest public pension fund with a net worth of $81 billion (the
"Woodhawk Club Apartments Borrower").
Security. The Woodhawk Club Apartments Loan is secured by a Mortgage and
Security Agreement and an Assignment of Rents and Leases, among other
security documents. The Woodhawk Club Apartments mortgage is a first lien on
a fee simple interest in the Woodhawk Club Apartments Property. The Woodhawk
Club Apartments Loan is a non-recourse loan, subject to certain limited
exceptions.
Payment Terms. The interest rate is fixed at 9.25%. The Woodhawk Club
Apartments Loan requires payments of monthly installments of interest only of
$107,916.67, until its maturity on July 1, 1999, at which time all principal
and accrued but unpaid interest is due. Principal amortizes based on a 30
year amortization schedule.
A charge applies to late payments equal to 6% of any payment not made when
due. Upon an event of default, interest on the entire unpaid principal
increases to the lesser of (a) 4% above the interest rate on the loan or (b)
the maximum rate of interest permitted by Pennsylvania law. If the lender
accelerates the loan due to an event of default, the security documents
require that the Woodhawk Club Apartments Borrower pay a charge equal to the
greater of (i) 6% of the outstanding principal or (ii) the Prepayment Charge
described below.
Prepayment. The Woodhawk Club Apartments Loan may be prepaid in whole but
not in part after August 1, 1989 upon 60 days prior written notice and upon
payment of the greater of (i) 1% of the principal outstanding or (ii) an
amount which, together with the amount prepaid, would produce the same annual
effective interest yield to maturity as the loan if such amount were to be
invested on such date in U.S. Treasury obligations with maturities as close
to the maturity date of the loan as are reasonably available (the "Prepayment
Charge"). The Prepayment Charge is calculated in accordance with the lender's
then prevailing formula on a discounted cash flow basis incorporating a
present value factor which reconciles differences in timing, yield and
amortization between the payment streams of the note and the substitute
Treasury obligations investment. No prepayment premium or penalty is due if
the Woodhawk Club Apartments Loan is prepaid after April 1, 1999.
Transfer of Property or Interest in Borrower. The Woodhawk Club Apartments
Property or any interest in the Borrower may not be transferred without the
prior consent of the lender.
Escrow/Reserves. Upon the lender's request, the Woodhawk Club Apartments
Borrower must deposit with the lender, on a monthly basis, one-twelfth of the
aggregate insurance premiums required by the mortgage and one-twelfth of the
estimated tax payments for the year. No other reserves or escrows are
required.
Subordinate/Other Debt. Additional encumbrances are prohibited without the
prior consent of the lender, except that the Woodhawk Club Apartments
Borrower may incur subordinate debt and encumber all or a portion of the
Woodhawk Club Apartments Property upon 30 days prior written notice and
provided, among other requirements, the lender is an institutional lender
acceptable to the lender, there is no interest accrual feature, and the net
cash flow is equal to or exceeds 1.15 times the combined annual debt service.
No intercreditor or similar agreement is required in connection with such
subordinated debt.
THE PROPERTY
The Woodhawk Club Apartments Property was built in 1989 on 27.5 acres, is
located in Pittsburgh, Pennsylvania, and is comprised of sixteen two- and
three-story apartment buildings containing 367,636 square feet and 436
apartment units. The Woodhawk Club Apartments Borrower has 520 surface
parking spaces and rents an additional 134 carports for a fee. The Woodhawk
Club Apartments Property is constructed of brick and wood siding exterior
walls over wood frames with pitched, asphalt shingle roofs.
B-21
<PAGE>
Common amenities include a clubhouse with sauna, pool, two tennis courts,
racquetball and volleyball courts, and an exercise room. The Woodhawk Club
Apartments Property is located in the North Hills sub-market of Pittsburgh,
located 20 minutes north of downtown Pittsburgh, the nearest employment
center to the Property.
For 1992, 1993 and 1994, the Normalized NOI was $1,990,947, $1,990,352,
and $2,053,832, respectively; the average rental rate was $644.25, $659.60,
and $682.40 per month, respectively. For 1992 and 1993, the occupancy rate
was 92.8% and 93.2%, respectively.
11. BLUE CROSS/BLUE SHIELD BUILDING LOAN AND PROPERTY
<TABLE>
<S> <C> <S> <C>
1. Cut-off Date UPB: $13,763,859.13 8. Amortization Type: Balloon
2. Property Type: Office 9. Principal Amortization: Yes
3. Year Built: 1989 10. Negative Amortization: No
4. Square Feet: 192,807 11. Rate: 9.800
5. UPB/Square Foot: $71.39 12. Maturity Date: 1/1/05
6. Occupancy Percent: 100.00 13. Normalized NOI: $1,717,834.00
7. Occupancy as of Date: August 1995 14. Debt Service Coverage: 1.15x
</TABLE>
THE LOAN
The Blue Cross/Blue Shield Building Loan is secured by a first deed of
trust on a 192,807 square foot building in Richmond, Virginia (the "Blue
Cross/Blue Shield Property"). The Blue Cross/Blue Shield Building Loan was
originated by the Seller on December 13, 1989.
The Borrower. The borrower is Holland Park Associates I, L.P., a Virginia
limited partnership (the "Blue Cross/Blue Shield Building Borrower"), whose
general partner is Glen Forest Associates.
Security. The Blue Cross/Blue Shield Building Loan is secured by a first
Deed of Trust and an Assignment of Rents and Security Agreement. The Deed of
Trust is a first lien on a fee simple interest on two parcels comprising
approximately 5.47 acres of the Blue Cross/Blue Shield Property and a first
lien on a leasehold interest on a parcel comprising approximately 7.6 acres
of the Property.
The Blue Cross/Blue Shield Building Borrower has a ground lease with
Myrtle and Russell Holland as trustees under a trust agreement dated January
14, 1987. The improvements lie on both the fee interests and leasehold
interest. The ground lease is not subordinate to the Blue Cross/Blue Shield
Building Loan and runs until December 31, 2046; the ground lease has three
additional 10-year extensions at Lessee's option. Current annual rent for the
ground lease is $51,038.38, increasing annually by 25% of the CPI and
periodically increasing based on appraised value.
The Blue Cross/Blue Shield Property is leased to Trigon Blue Cross Blue
Shield ("Trigon"), formerly known as Blue Cross/Blue Shield of Virginia; the
lease expires on April 9, 2004, prior to loan maturity. Pursuant to the
lease, Trigon is required to pay all taxes, insurance and maintenance (other
than landscaping). Monthly rent equals $151,996.18.
Payment Terms. The interest rate is fixed at 9.8%. The Blue Cross/Blue
Shield Building Loan requires monthly payments of principal and interest of
$124,247.32 until its maturity on January 1, 2005, at which time all unpaid
principal and accrued but unpaid interest is due. Interest is computed on the
basis of a 360-day year of 12 30-day months. Principal amortizes based on a
30 year amortization schedule. The Blue Cross/Blue Shield Building Loan is
non-recourse, subject to certain limited exceptions.
If there is an event of default and the lender accelerates the Loan, the
security documents require that the Blue Cross/Blue Shield Building Borrower
pay a premium equal to the prepayment charge which the lender would have been
entitled to had the note been open to prepayment and had the Borrower
exercised its prepayment rights. The security documents require the payment
of a 6% late fee and that overdue payments accrue interest at the lesser of
15.80% or the maximum rate of interest permitted by Virginia usury law.
B-22
<PAGE>
Prepayment. The Blue Cross/Blue Shield Building Loan may be prepaid in
whole at any time after June 30, 1997 upon 60 days prior written notice,
provided there is no default, and upon payment of the greater of (i) 1% of
the outstanding balance or (ii) an amount which, together with the amount
prepaid, sufficient to invest in a United States Treasury obligation for the
remaining term of the note to produce the same annual effective yield to
maturity as the note (the "Yield Maintenance Premium"). The Yield maintenance
premium is to be calculated in accordance with the lender's then prevailing
formula on a discounted cash flow basis incorporating a present value factor
which reconciles differences in timing, yield and amortization between the
payment streams of the note and the substitute treasury obligation
investment. If Trigon exercises its expansion option in accordance with the
terms of its lease and the lender declines to advance funds for the
construction of the expansion space, then Borrower may prepay the loan with
the applicable prepayment premium. No prepayment penalty or premium is due if
the loan is prepaid within three months prior to maturity. Provided there is
no default, the lender may apply the insurance or condemnation proceeds of
any damage producing $600,000 or more in insurance and condemnation proceeds
to the loan as prepayment, such prepayment incurring no prepayment penalty.
Transfer of Properties or Interest in Borrowers. The Blue Cross/Blue
Shield Building Loan becomes immediately due and payable upon transfer of the
Blue Cross/Blue Shield Building Property unless the prior consent of the
lender is granted, subject to certain exceptions, including: (i) the transfer
of a 50% interest in the Blue Cross/Blue Shield Building Borrower to Blue
Cross and Blue Shield of Virginia, as a limited partner; (ii) Glen Forest
Associates, the general partner of Blue Cross/Blue Shield Building Borrower,
may transfer a portion of its interest to any entity affiliated with the Blue
Cross/Blue Shield Borrower or Thomas E. Robinson, and may also transfer
limited partnership interests so long as Thomas E. Robinson owns at least 25%
of the general partnership interest in the Blue Cross/Blue Shield Building
Borrower and so long as Thomas E. Robinson is the managing general partner of
Blue Cross/Blue Shield Building Borrower.
Subordinate/Other Debt. Subordinate financing secured by all or any
portion of the Blue Cross/Blue Shield Building Property is prohibited without
the prior consent of the lender.
Escrow/Reserves. Upon the occurrence of an event of default and at the
request of the lender, the Blue Cross/Blue Shield Building Borrower must
deposit with the lender an amount equal to one-twelfth of the estimated
aggregate annual insurance premiums on all policies required by the deed of
trust. Upon written request of the lender, the Blue Cross/Blue Shield
Building Borrower must deposit with the lender one-twelfth of the estimated
tax payments and other impositions for the year. No other reserves or escrows
are required.
THE PROPERTY
The six story structure was built in 1989 as a single tenant building for
Blue Cross/Blue Shield of Virginia, which is now known as Trigon.
Construction is of steel and concrete with brick and glass exterior. The
property is located in the near west end of Richmond with access to I-64.
The lease to Trigon expires on April 9, 2004 and Trigon has an extension
option. Trigon has exercised an option to purchase a 50% limited partnership
interest in the Blue Cross/Blue Shield Borrower and has an option to purchase
the property.
For 1992, 1993 and 1994, Normalized NOI was $1,682,192, $1,707,433 and
$1,717,834, respectively. Rollover at the Property is 0% for 1994, 1995, and
1996.
Environmental Issues. In connection with their environmental assessment,
Dames & Moore, Inc. noted that the site was previously used as a saw mill and
truck maintenance facility, and in 1986, two tanks were removed. A Phase II
assessment was recommended, but as of the date hereof, access to the site has
not been arranged.
B-23
<PAGE>
12. STANFORD PARK HOTEL LOAN AND PROPERTY
<TABLE>
<CAPTION>
<S> <C> <S> <C>
1. Cut-off Date UPB: $13,622,029.18 8. Amortization Type: Balloon
2. Property Type: Hotel 9. Principal Amortization: Yes
3. Year Built: 1984 10. Negative Amortization: No
4. Room: 162 11. Rate: 8.860
5. UPB/Room: $84,086.60 12. Maturity Date: 8/1/97
6. Occupancy Percent: 84.50 13. Normalized NOI: $2,809,896.00
7. Occupancy as of Date: 1994 Average 14. Debt Service Coverage: 1.47x
</TABLE>
THE LOAN
The Stanford Park Hotel Loan is secured by a first leasehold deed of trust
on the Stanford Park Hotel, located in Menlo Park, California (the "Stanford
Park Hotel Property"). The Stanford Park Hotel Loan was originated by the
Seller on July 30, 1986 and modified on August 1, 1991 and October 1, 1993,
both in connection with extensions by the borrower. The modification involved
a paydown in principal of $1 million, the extension of the maturity and a
decrease in the interest rate of the loan.
The Borrower. The borrower is Stanford Park Hotel, a California general
partnership (the "Stanford Park Hotel Borrower"). The general partners are
Stanford Rooms Corporation (50%) (formerly known as Western Lodging
Corporation) and Inwood Properties (50%) (formerly known as Flume
Corporation). Stanford Rooms Corporation operates five other hotels in
Lafayette Park, Napa Valley, Bodega Bay, Half Moon Bay and Monterey. Inwood
Properties is a partner in the Stanford Park Hotel Property only.
Security. The Stanford Park Hotel Loan is secured by a Deed of Trust and
Assignment of Rents, a Security Agreement, and an Assignment of Leases,
Service Agreements and Concession Agreements, among other security documents.
The Stanford Park Hotel Borrower is lessee under a ground lease with The
Board of Trustees of the Leland Stanford Junior University, the fee holder of
the Stanford Park Hotel Property, and Stanford Park Hotel Borrower's
leasehold interest in the Stanford Park Hotel Property is the security for
the Stanford Park Hotel Loan. The Stanford Park Hotel Loan is subordinate to
the ground lease.
The term of the ground lease is 51 years, expiring on November 30, 2032.
The base rent is currently $434,000 and is adjusted every 5 years to the
product derived by multiplying the prevailing percentage rate of return used
in comparable areas to calculate rental value, but not less than 10% per
annum payable monthly by the fair market value of the Property as fixed in
the ground lease, but in no event shall the base rental be less than $168,970
per year. The next adjustment date is July 1, 1997. In addition, a percentage
rent based on a percentage of gross hotel receipts and a percentage of gross
restaurant receipts less $168,970 (the minimum rental paid during July 1987
through June 1992), is paid quarterly. A second ground rent payment (with an
initial annual rent of $3,600, adjusted every 3 years by 1/2 of the increase
in the Consumer Price Index) is required for a driveway easement.
The Stanford Park Hotel Loan is a non-recourse loan with certain limited
exceptions, including if a default occurs under the environmental indemnity
made in favor of the lender.
Payment Terms. The interest rate is fixed at 8.86%. The Stanford Park
Hotel Loan requires monthly payments of interest and principal of $159,375.00
until its maturity on August 1, 1997, at which time all unpaid principal and
accrued but unpaid interest is due and payable. Principal amortizes based on
a 13 year and 6 month amortization schedule from the date of modification.
Upon default and acceleration of the loan, the security documents require the
Borrower to pay a premium equal to the prepayment fee to which the lender
would have been entitled had the Borrower elected to exercise its prepayment
right as of that date. The security documents provide for a 6% late charge on
overdue installments, and interest accrues on overdue installments, at the
lesser of (i) 6% above the interest rate of the loan, or (ii) the maximum
rate allowable under applicable law.
Prepayment. The Stanford Park Hotel Loan may be prepaid in whole but not
in part upon payment of a premium equal to the greater of (i) 1% of the
outstanding principal balance or (ii) an amount equal
B-24
<PAGE>
to the product of the outstanding principal balance and the amount by which,
if any, (A) the effective annualized yield under the note exceeds (B) the
yield reported for a U.S. Treasury Bill or Note with the same or similar
maturity date of the note, multiplied by the number of years remaining until
the maturity of the note. There is no prepayment premium if the Stanford Park
Hotel Loan is prepaid during the final 90 days prior to maturity.
Transfer of Property or Interest in Borrowers. The Stanford Park Hotel
Loan becomes immediately due and payable upon the transfer of the Stanford
Park Hotel Property, or any interest therein, or the transfer of any general
partnership interest in or addition of any general partner, or the sale of
50% or more of the voting stock of any partner or entity that controls such
partner of the Stanford Park Hotel Borrower, without the prior consent of the
lender.
Escrow/Reserves. At the request of the lender, the Stanford Park Hotel
Borrower must deposit with the lender, on a monthly basis, an amount equal to
one-twelfth of the aggregate annual insurance premiums on all policies
required by the deed of trust and one-twelfth of the estimated tax and other
impositions for the year. An escrow is maintained for real property taxes.
Pursuant to a Special Reserve Fund Agreement dated as of October 1, 1993, The
Stanford Park Hotel Borrower must annually deposit an amount equal to 3% of
gross income into an account for capital improvements.
Subordinate/Other Debt. Additional encumbrances are prohibited without the
prior consent of the lender.
THE PROPERTY
The Stanford Park Hotel Property, built in 1984, consists of a three and
four-story hotel building containing 162 rooms and 199,400 square feet
situated on a 4.109 acre site, which includes a .1356 acre easement for the
north entrance to the property. Construction is cedar shingle siding exterior
walls over wood frame with a copper-clad gable roof. The building is laid out
in a U-shape around a central landscaped courtyard. The lobby area is
three-stories high with skylights and an oversized fireplace. Second and
third floor balconies overlook the lobby. All guest rooms are sprinklered.
The hotel has a 120 seat restaurant and a 30 seat lounge with full length
bar comprising 3,670 square feet. The gross square footage of the hotel and
restaurant/lounge is 123,070. There are four meeting rooms that can
accommodate 10-150 guests. Parking is provided for 207 cars.
For 1992, 1993 and 1994, the average daily room rate was $129.50, $136.03
and $137.00, respectively; the occupancy was 76.7%, 80.5% and 85.9%,
respectively; and the Normalized NOI was $2,169,708, $2,462,817 and
$2,809,896, respectively.
Management. According to information provided by the lender, the Stanford
Park Hotel Property was managed by Ellis J. Alden, president of Stanford
Rooms Corporation, (an affiliate of the Stanford Park Hotel Borrower),
pursuant to a Management Agreement dated as of March 20, 1981, providing for
an annual fee of 5% of gross room revenues. The lender has no current
information with respect to management. Franchise Agreement. Pursuant to a
Best Western Membership Application and Agreement dated October 21, 1985, the
Stanford Park Hotel uses the Best Western Reservations System.
13. STURBRIDGE INN LOAN AND PROPERTY
<TABLE>
<S> <C> <S> <C>
1. Cut-off Date UPB: $12,839,548.74 8. Amortization Type: Balloon
2. Property Type: Hotel 9. Principal Amortization: Yes
3. Year Built: 1975 10. Negative Amortization: No
4. Rooms: 241 11. Rate: 9.250
5. UPB/Room: $53,276.14 12. Maturity Date: 1/1/97
6. Occupancy Percent: 64.40 13. Normalized NOI: $1,695,531.00
7. Occupancy as of Date: 1994 Average 14. Debt Service Coverage: 1.22x
</TABLE>
B-25
<PAGE>
THE LOAN
The Sturbridge Inn Loan is secured by a first mortgage on a hotel located
in Sturbridge, Massachusetts (the "Sturbridge Inn Property"). The Sturbridge
Inn Loan was originated by the Seller on December 8, 1986 and modified on
October 25, 1993, effective February 1993, due to the borrower's inability to
refinance the loan. A $1,000,000 participation was sold to Westinghouse
Credit Corporation on December 30, 1992. The October 25, 1993 modification
extinguished this participation by adding its outstanding principal amount to
the principal balance of Westinghouse's second mortgage and reducing the
principal amount of the lender's first mortgage by the same amount; it also
lowered the interest rate, extended the term and shortened the principal
amortization schedule.
The Borrower. The borrower, Cedar Lake Realty Trust, transferred two of
the three parcels of the property on July 10, 1995 to Gladen Corp., Trustee
of Sturbridge Realty Trust, pursuant to a pre-approved transfer of the
property, subject to the mortgage (Ceder Lake Realty Trust and Gladen Corp.,
collectively the "Sturbridge Inn Borrower").
Security. The Sturbridge Inn Loan is secured by a Mortgage and Security
Agreement, among other security documents. The Sturbridge Inn mortgage is a
first lien on a fee simple interest in the Sturbridge Inn Property. The
Sturbridge Inn Loan is a non-recourse loan except in certain limited
circumstances.
Payment Terms. The interest rate is fixed at 9.25%. The Sturbridge Inn
Loan provides for monthly payments of principal and interest of $124,224.00,
which was reduced in connection with the satisfaction of the participated
amount, as described above, to $115,660.17 until its maturity on January 1,
1997, at which time all unpaid principal and accrued but unpaid interest is
due. Principal amortizes on a 30 year amortization schedule.
The security documents provide that if the loan becomes due and payable
prior to maturity following default, it shall be considered a prepayment and
the appropriate premium, described below, is generally due. There is a late
payment charge not to exceed an amount equal to 6% of any monthly installment
of principal or interest which is not paid on or before the due date.
Prepayment. The Sturbridge Inn Loan may be prepaid in whole but not in
part upon 60 days prior written notice and upon payment of the greater of (i)
1% of the outstanding principal balance or (ii) the present value of all
scheduled principal and interest payments remaining to the maturity of the
note attributable to the principal balance prepaid, to be determined by
discounting all such payments at the rate (divided by 12) which is the
mortgage equivalent of the average yield of U.S. Treasury obligations with
maturities as close to the maturity date of the note as are reasonably
available. If such amount is greater than the amount of the principal balance
prepaid, the difference is the prepayment charge. There is no prepayment
charge if the loan is prepaid after September 30, 1996. Transfer of Property
or Interest in Borrower. The Sturbridge Inn Property may not be transferred
without the prior consent of the lender. Transfers in the beneficial
ownership of the Sturbridge Inn Borrower in excess of a 25% interest are
prohibited without the prior consent of the lender.
Subordinate/Other Debt. The Sturbridge Inn Property is encumbered by a
second mortgage in the original face amount of $7,500,000 that was purchased
at a discount by Loan Funding and Management Limited Partnership ("LFMLP"), a
Massachusetts limited partnership; pursuant to an Absolute Assignment of
Mortgages dated as of August 31, 1993 between LFMLP and LW-SP2, L.P.
(successor in interest to Westinghouse Electric Corporation). The second
mortgage loan accrues interest at the prime rate plus 2%, with a maturity
that is coterminous with the Sturbridge Inn Loan. Westinghouse Credit
Corporation (predecessor to LW-SP2, L.P.) and the lender entered into a
subordination agreement dated December 5, 1986 that provides that the second
mortgage is at all times subordinate to the Sturbridge Inn Loan and mortgage.
The second mortgage may be replaced subject to certain conditions, including
that the new financing must be subject to the same subordination provisions
as the existing second mortgage. If the second mortgage is satisfied in full,
additional subordinate financing is allowed subject to certain conditions,
including that such financing must included subordination provisions
acceptable to the lender. However, no intercreditor agreement is required.
B-26
<PAGE>
The Sturbridge Inn Borrower entered into a Mortgage and Security
Agreement dated July 24, 1990 with Boston Trade Bank, securing a note for
$900,000 with the Sturbridge Inn Property. Pursuant to an Intercreditor
Agreement dated July 24, 1990 between Westinghouse and Boston Trade Bank,
Boston Trade Bank's security interest in the Sturbridge Inn Property is
subordinate to LFMLP's security interest in the property.
Additional subordinate debt and encumbrances are prohibited without the
prior consent of the lender.
Escrow/Reserves. Upon the lender's request, the Sturbridge Inn Borrower
must deposit with the lender, on a monthly basis one-twelfth of the estimated
tax payments and one-twelfth of the aggregate insurance premiums for the
year. The Sturbridge Inn Borrower must deposit (i) monthly, 2.5% of gross
revenues of the preceding month into an escrow account to be used for the
replacement of furniture, fixtures and equipment and for capital
improvements; (ii) quarterly, an amount equal to the net cash flow from the
preceding quarter up to a maximum of $400,000 into a separate escrow account
to be used for certain expenses for which there is insufficient net cash flow
to pay currently or expenditures permitted in (i) above; and (iii) funds for
the payment of taxes. No other reserves or escrows are required.
THE PROPERTY
The Sturbridge Inn Property is a 241 room hotel, constructed in two phases
with 146 rooms in 1975 and an additional 98 rooms in 1982 and is rated
4-Diamond by AAA and 4-Star by Mobil. Construction of the two and three-story
hotel is of reinforced concrete with a brick and cedar siding exterior. The
hotel is marketed as a convention center/resort. Amenities include an
interior, skylit courtyard, dining facilities and indoor swimming pool. As
part of the convention center, the Sturbridge Inn Property contains a
ballroom, exhibition hall, seventeen meeting rooms, two boardrooms and a
theater-style seminar room. Recreational amenities include a two-story health
club with four racquetball courts, tennis courts, miniature golf course,
swimming, boating, fishing and ice skating facilities.
The property was acquired by the Sturbridge Inn Borrower in 1990 and since
that time has been undergoing frequent upgrading. The lobby, conference
rooms, corridors and fitness center have been renovated and the exterior
balconies have been replaced. Major roof repairs have been completed and the
rooms have received new case goods.
For 1992, 1993 and 1994, the average occupancy was 59.9%, 64.4% and 65.0%,
respectively, the average daily rate was $80.52, $77.80 and 82.15,
respectively, and the Normalized NOI was $1,224,024, $1,505,369 and
$1,695,531, respectively. A new convention center, which is likely to compete
with the Sturbridge Inn Property, is scheduled to open in Worcester,
Massachusetts in 1996.
Management. According to information provided by the Seller, as of January
31, 1994, the property was managed pursuant to a management agreement dated
September 27, 1993 by Fine Hotels, an affiliate of the Sturbridge Inn
Borrower, which manages eleven hotels throughout New England and the Middle
Atlantic area. The agreement terminates on September 30, 1998. The manager
receives 3.5% of gross revenues as a base fee, plus an incentive fee.
14. SHERATON MAITLAND CENTER LOAN AND PROPERTY
<TABLE>
<S> <C> <S> <C>
1. Cut-off Date UPB: $12,520,000.00(1) 8. Amortization Type: Balloon
2. Property Type: Hotel 9. Principal Amortization: Yes
3. Year Built: 1985 10. Negative Amortization: No
4. Rooms: 394 11. Rate: 8.500
5. UPB/Room: $31,776.65 12. Maturity Date: 1/1/01
6. Occupancy Percent: 71.80 13. Normalized NOI: $1,883,058.00
7. Occupancy as of Date: 1994 Average 14. Debt Service Coverage: 1.28x
</TABLE>
- ------------
(1) Represents the Senior Participation in a loan that has a balance as of
the Cut-off Date of $15,091,761.68. See "DESCRIPTION OF THE MORTGAGE
POOL--Senior Participations" herein.
B-27
<PAGE>
THE LOAN
The Sheraton Maitland Center Loan is secured by a first lien on the
Sheraton Orlando North Hotel situated in the Maitland Center Office Park in
Maitland, Orange County, Florida (the "Sheraton Maitland Center Property").
The Sheraton Maitland Center Loan was originated by the Seller on January 19,
1984 and modified on February 1, 1992, extending the term of the loan and
reducing the interest rate. The loan was modified again on January 1, 1994
following a default by borrower. Pursuant to this modification, approximately
$1.5 million of principal was forgiven, $2.5 million was paid down, the
interest rate was lowered and the maturity was extended.
The Borrower. The borrower is Maitland Hotel Associates Ltd., a Florida
limited partnership (the "Sheraton Maitland Center Borrower"). The general
partner of the Sheraton Maitland Center Borrower is Charles Wilson.
Security. The Sheraton Maitland Center Loan is secured by a Mortgage and
an Assignment of Rents and Leases, among other security documents. The
Sheraton Maitland Center mortgage is a first lien on a fee simple interest in
the Sheraton Maitland Center Property. The Sheraton Maitland Center Loan is
non-recourse, except for certain limited indemnities made by the Borrower
pursuant to an Indemnity Agreement effective January 1, 1994 in connection
with the loan modification of the same date.
Guaranty. The Sheraton Maitland Center Loan is guarantied by joint and
several personal guaranties of John Lowndes, Lester Mandell, William O'Brien
and James Russell, Jr. up to $1,509,176 in the aggregate, and such limitation
decreases as the principal of the Sheraton Maitland Center Loan is reduced
through amortization. In addition, Charles Wilson deposited $1,500,000 into
the FF&E Account (defined below) in order to guaranty a capital improvement
plan for the property. Payment Terms. The interest rate is currently 8.5%
(requiring monthly payment of interest only of $122,320.46) and increases to
9.5% after January 1, 1996 (requiring monthly principal and interest payments
based upon a 21-year amortization schedule) and increases to 10.5% after
January 1, 1999 (requiring a monthly principal and interest payment based on
an 18-year amortization schedule). All unpaid principal and accrued but
unpaid interest is due on maturity January 1, 2001.
The security documents require a late charge not to exceed an amount equal
to the lesser of 6% of the payment due or the maximum amount permitted by
law. Upon default, the security documents require (i) that, if the loan is
accelerated, the borrower pay an amount equal to the prepayment charge (as
described below), and (ii) that interest accrue on the outstanding
indebtedness at the lesser of 6% above the interest rate then applicable
under the loan or the highest interest rate permitted under the laws of
Florida, until cured.
Prepayment. The Sheraton Maitland Center Loan may be prepaid in whole, but
not in part, upon 60 days prior written notice (i) at par prior to January 1,
1998, and (ii) commencing January 1, 1998, upon payment of the greater of (A)
1% of the principal balance of the note or (B) an amount which together with
the amount due under the note would be sufficient to invest in a U.S.
Treasury obligation which for the remainder of the term of the note would
produce the same annual effective yield as the note. No prepayment penalty is
required by the security documents if prepayment occurs during the 90 days
prior to maturity. Partial prepayments without penalty are permitted
throughout the term of the loan so long as they are paid out of the Escrow
Account or out of the FF&E Account as described below.
Transfer of Property. The Sheraton Maitland Center Loan becomes
immediately due and payable upon the transfer of the Sheraton Maitland Center
Property without the prior consent of the lender, except upon a transfer to
Charles Wilson.
Escrow/Reserves. Commencing May 20, 1995 until the maturity of the loan,
the Sheraton Maitland Center Borrower must deposit on a monthly basis, 3% of
the preceding month's total gross sales of the Sheraton Maitland Center
Property into the furniture, fixture and equipment escrow account (the "FF&E
Account"). The FF&E Account funds are applied to capital improvement
expenses, emergency repairs, and, after all improvements have been completed,
the retirement of debt.
The Borrower must remit on a monthly basis an amount equal to 50% of net
cash flow over $1,500,000 generated from the Sheraton Maitland Center
Property into an escrow account (the "Escrow
B-28
<PAGE>
Account"). The Escrow Account funds are to be used to fund shortfalls in
meeting the property's expenses or be applied against the outstanding
principal amount of the loan.
Subordinate/Other Debt. Subordinate debt is generally prohibited. In
connection with the second modification of the mortgage of January 1, 1994,
the lender agreed to allow a subordinate second lien on the Sheraton Maitland
Center Property in the amount of approximately $2.5 million in favor of
Charles Wilson (the "Junior Loan"). The Junior Loan matures in August, 2001
(seven months before the maturity of the Sheraton Maitland Center Loan), with
interest payable at 8.5%. In connection with the Junior Loan, Wilson entered
into a Subordination Agreement which provides that Wilson receives current
payments on the Junior Loan as long as there is no default on the Sheraton
Maitland Center Loan. Pursuant to the Subordination Agreement, Wilson waives
any right to marshal property pursuant to a foreclosure and agrees not to
exercise remedies without the consent of the senior lienholder. In addition,
the lender may modify the Sheraton Maitland Center Loan without Wilson's
consent.
THE PROPERTY
The Sheraton Maitland Center Property is a 394 room, 6-story full service
Sheraton Orlando North Hotel situated in the Maitland Center Office Park in
Maitland, Orange County, Florida and was built in 1984. The Sheraton Maitland
Center Property is near I-4 and is approximately seven miles north of
downtown Orlando. The Sheraton Maitland Center Property is a full service
hotel rated 3-Diamond by AAA and 3-stars by Mobil. For the years 1992, 1993
and 1994 the Normalized NOI was $1,740,335, $1,849,903 and $1,883,058,
respectively. For the years 1992, 1993 and 1994 the average daily rate was
$62.36, $60.78 and $64.78 respectively.
Franchise Agreement. The Sheraton Maitland Center Borrower entered into a
seven year License Agreement with the Sheraton Franchise Corporation on
August 24, 1994 (the "License Agreement"). The monthly license fee is 5% of
gross room sales for a one month period. The monthly marketing fee is 1% of
gross room sales for a one month period. The license agreement is terminable
by the Borrower on six months prior written notice and upon payment of a
penalty equal to half of the amount of total payments that would have accrued
between the date of termination stipulated in the notice and August 24, 2001.
The license is not assignable or transferable without the prior written
consent of Sheraton. No transfer or assignment of the general partnership
interest or ten percent of the limited partnership interest is permitted
without Sheraton's consent. Pursuant to the License Agreement, Borrower has
agreed to complete substantial capital improvements to the Sheraton Maitland
Center Property.
Management. The Property is managed by an affiliate of the Borrower.
15. 500 WESTCHESTER AVENUE LOAN AND PROPERTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1. Cut-off Date UPB: $12,500,000.00 8. Amortization Type: Interest Only
2. Property Type: Office 9. Principal Amortization: No
3. Year Built: 1954 10. Negative Amortization: No
4. Square Feet: 95,040 11. Rate: 10.490
5. UPB/Square Foot: $131.52 12. Maturity Date: 5/26/99
6. Occupancy Percent: 100.00 13. Normalized NOI: $1,728,112.00
7. Occupancy as of Date: September 1995 14. Debt Service Coverage: 1.32x
</TABLE>
THE LOAN
The 500 Westchester Avenue Loan is secured by a first lien on single tenant
office building located in Westchester County, New York (the "500
Westchester Avenue Property"). The 500 Westchester Avenue Loan was originated
on May 26, 1989 and acquired by the Seller on June 8, 1989.
The Borrower. DEZ Corporation, a Delaware corporation (the "500
Westchester Avenue Borrower"), a subsidiary of NYNEX Science and Technology
Corporation ("NYNEX Science and Technology"), a subsidiary of NYNEX
Corporation, is the current owner as a result of a pre-approved transfer of
the property by the original borrower, NYNEX Properties Company.
B-29
<PAGE>
Security. The 500 Westchester Avenue Loan is secured by a Mortgage,
Security Agreement and Assignment of Leases and Rents, among other security
documents. The 500 Westchester Avenue mortgage is a first lien on a fee
simple interest in the 500 Westchester Avenue Property. The 500 Westchester
Avenue Loan is a non-recourse loan, subject to certain limited exceptions.
Payment Terms. The interest rate is fixed at 10.49%, calculated on a 360
day year of twelve 30 day months, requiring interest only payments monthly
until maturity on May 26, 1999.
Upon default and acceleration of the loan, the security documents provide
that the Borrower shall pay an amount equal to the Prepayment Premium as
described below. Prepayment. The 500 Westchester Avenue Loan may be prepaid
in whole but not in part at any time upon 60 days prior written notice and
upon payment of a make-whole formula which computes a premium by multiplying
the outstanding principal balance of the note by a percentage equal to the
excess of 10.49% over the Current Available Yield (the effective annual
percentage yield which the lender would be able to obtain if, on the
prepayment date, it invested the outstanding principal balance being prepaid
in U.S. Treasury obligations with maturities as close to the maturity date as
are reasonably available), resulting in the Annual Payment Differential (the
annual deficiency in payments that would result from an investment of the
outstanding principal balance at the Current Available Yield rather than at
an effective annual yield of 10.49%), and such amount is discounted based on
the Current Available Yield (the "Prepayment Premium"). No prepayment premium
or penalty is due if The 500 Westchester Avenue Loan is prepaid during the
final two months prior to maturity.
In the event of a casualty or condemnation resulting in proceeds in excess
of $500,000, the lender has the right and option to accelerate the maturity
date of the Loan and to apply insurance proceeds to the unpaid balance
without payment of a prepayment premium provided the following conditions are
met: (i) neither the casualty, condemnation nor the restoration of the 500
Westchester Avenue Property following such casualty or condemnation gives the
tenant the right to terminate its obligations under the lease or to
permanently cease operations, and the lease continues with full force and
effect; (ii) no event of default exists at the time of the casualty or
condemnation; and (iii) restoration can be completed within 18 months of the
date of the casualty or condemnation. Further, in the event of a
condemnation, such condemnation must be of an insubstantial portion of the
500 Westchester Avenue Property so that, in the lender's judgment, the
remaining portion remains suitable for the Borrower's continued use. Should
the lender elect not to exercise the right to accelerate the maturity date
and apply the insurance proceeds to the Loan, the 500 Westchester Avenue
Borrower may direct the lender to apply the insurance proceeds to prepayment
of the Loan without the imposition of a prepayment premium provided that the
entire outstanding balance is paid.
Transfer of Property or Interest in Borrower. The 500 Westchester Avenue
Loan becomes immediately due and payable upon (i) the transfer or encumbrance
of the 500 Westchester Avenue Property (other than to an affiliate) without
the prior consent of the lender (which consent may not be unreasonably
withheld) and (ii) the transfer of any of the shares in the 500 Westchester
Avenue Borrower without the prior written consent of the lender.
Subordinate/Other Debt. Additional encumbrances are prohibited without the
prior consent of the lender. However, the 500 Westchester Avenue Borrower may
incur a mortgage subordinate to the lender's mortgage provided that certain
conditions are met, including (i) the proceeds must only be used to renovate
or expand the 500 Westchester Avenue Property, (ii) a subordination agreement
shall be signed satisfactory to the lender, (iii) the lender must have a
right of notice of default and right to cure defaults, (iv) the fair market
value of the 500 Westchester Avenue Property must be sufficient to create a
combined loan-to-value ratio of not greater than 75%, (v) the combined debt
service coverage is at least 1.05 times the proposed new aggregate debt
service, and (vi) the holder of the junior mortgage is either an
institutional lender or an affiliate of the 500 Westchester Avenue Borrower.
Escrow/Reserves. There are no escrow or reserve requirements.
THE PROPERTY
The 500 Westchester Avenue Property is a 95,040 square foot, single tenant
office building located in Westchester County, New York. The property was
built in 1954 and completely reconstructed by the 500
B-30
<PAGE>
Westchester Avenue Borrower in 1988. The sole tenant is NYNEX Science and
Technology (95,040 square feet (100%)). The term of the lease is through
December 31, 1998, approximately five months prior to the Loan's maturity,
and NYNEX Science and Technology has the option to renew the lease for two
additional terms of five years each upon 12 months prior written notice. The
rent is $149,688 per month, plus payment of all taxes, charges and
assessments with respect to the property. The Normalized NOI for 1992, 1993
and 1994 was $1,350,138, $1,728,112 and $1,728,112, respectively.
The Westchester County office market had an overall office vacancy factor
in 1994 of approximately 25% and has showed negative absorption for the years
1993 and 1994. The downsizing of major tenants such as IBM, TWA and NYNEX
Corporation have contributed to these negative numbers. NYNEX Corporation has
been going through a corporate re-engineering which will result in a
reduction by year-end 1996 of 17,000 employees.
Environmental Issues. See "DESCRIPTION OF THE MORTGAGE POOL -- Assessments
of Property Condition -- Environmental Assessments."
B-31
<PAGE>
[COMPARATIVE FINANCIAL STATUS REPORT]
C-1
<PAGE>
[DELINQUENT LOAN STATUS REPORT]
C-2
<PAGE>
[HISTORICAL LOAN MODIFICATION REPORT]
C-3
<PAGE>
[HISTORICAL LOSS ESTIMATE (REO-SOLD OR DISCOUNTED PAYOFF)]
C-4
<PAGE>
[REO STATUS REPORT]
C-5
<PAGE>
[OPERATING STATEMENT ANALYSIS]
C-6
<PAGE>
[NOI ADJUSTMENT WORKSHEET FOR "YEAR"]
C-7
<PAGE>
[WATCH LIST]
C-8
<PAGE>
PROSPECTUS
STRUCTURED ASSET SECURITIES CORPORATION
MORTGAGE-BACKED SECURITIES, ISSUABLE IN SERIES
This Prospectus relates to Collateralized Mortgage Obligations (the
"Bonds") and Mortgage-Backed Certificates (the "Certificates," together with
the Bonds, the "Securities") which may be issued from time to time in one or
more series ("Series") under this Prospectus and the related Prospectus
Supplement ("Prospectus Supplement"). As specified in the related Prospectus
Supplement, the Securities of each Series will be either Bonds issued
pursuant to an Indenture and representing indebtedness of Structured Asset
Securities Corporation (the "Company") or an owner trust (the "Owner Trust")
established by it, or Certificates which will evidence a beneficial ownership
interest in assets deposited into a trust (a "Trust Fund") by the Company as
depositor pursuant to a Trust Agreement, as described herein. The issuer (the
"Issuer") with respect to a Series of Bonds will be the Company or the Owner
Trust established to issue such Bonds, and, with respect to a Series of
Certificates, will be the Trust Fund established in respect of such
Certificates. Capitalized terms not otherwise defined herein or the related
Prospectus Supplement have the meanings specified in the Glossary attached
hereto.
The Securities will be sold from time to time under this Prospectus on
terms determined for each Series at the time of the sale and as described in
the related Prospectus Supplement. Each Series will consist of one or more
Classes, one or more of which may be Compound Interest Securities, Variable
Interest Securities, Individual Investor Securities, Planned Amortization
Class ("PAC") Securities, Zero Coupon Securities, Principal Only Securities,
Interest Only Securities, Participating Securities or another particular
Class of Securities, if any, included in such Series of Securities. Zero
Coupon Securities and Principal Only Securities will not accrue and will not
be entitled to receive any interest. Payments or distributions of interest on
each Class of Securities, other than Zero Coupon Securities, Principal Only
Securities and Compound Interest Securities will be made on each Payment Date
or Distribution Date as specified in the related Prospectus Supplement.
Interest will not be paid or distributed on Compound Interest Securities on a
current basis until all Securities of the related Series having a Stated
Maturity or Final Scheduled Distribution Date prior to the Stated Maturity or
Final Scheduled Distribution Date of such Class of Compound Interest
Securities have been paid in full or until such other date or period as may
be specified in the related Prospectus Supplement. Prior to such time,
interest on such Class of Compound Interest Securities will accrue and the
amount of interest so accrued will be added to the principal thereof on each
Payment Date or Distribution Date. The amount of principal and interest
available and payable on each Series on each Payment Date or Distribution
Date will be applied to the Classes of such Series in the order and as
otherwise specified in the related Prospectus Supplement. Principal payments
or distributions on each Class of a Series will be made on either a pro rata
or a random lot basis among Securities of such Class, as specified in the
related Prospectus Supplement. Any Series may include one or more Classes of
"Subordinate Securities," which are subordinated in right and priority to the
extent described in the related Prospectus Supplement to payment of principal
and interest, and may be allocated losses and shortfalls prior to the
allocation thereof to all other Classes of Securities of such Series (the
"Senior Securities"). Securities of a Series will be subject to redemption or
repurchase only under the circumstances and according to the priorities
described herein and in the related Prospectus Supplement.
Each Series will be secured by or offer a beneficial interest in one or
more types of mortgage assets ("Mortgage Assets") and other assets, including
any reserve funds established with respect to such Series, insurance policies
or other enhancement described in the related Prospectus Supplement. The
Mortgage Assets may consist of a pool of multifamily or commercial mortgage
loans or participation interests therein (collectively, "Mortgage Loans") and
may include FHA Loans. Mortgage Assets may also consist of mortgage
participations or pass-through certificates or collateralized mortgage
obligations ("Private Mortgage-Backed Securities") issued with respect to or
secured by a pool of Mortgage Loans. The Private Mortgage-Backed Securities
and Mortgage Loans securing a Series will not be guaranteed or insured by any
agency or instrumentality of the United States Government unless otherwise
stated in the related Prospectus Supplement. Some Mortgage Loans comprising
or underlying the Mortgage Assets may be delinquent or non-performing as
specified in the related Prospectus Supplement. The Mortgage Assets securing
a Series or comprising the Trust Fund may consist of a single Mortgage Loan
or obligations of a single obligor or related obligors as specified in the
related Prospectus Supplement. The Mortgage Loans underlying or comprising
the Mortgage Assets may be originated by or acquired from an affiliate of the
Issuer and an affiliate of the Issuer may be an obligor with respect to any
such Mortgage Loans. See "SECURITY FOR THE BONDS OR CERTIFICATES."
Bonds of a Series constitute non-recourse obligations of the Issuer, and
Certificates of a Series evidence an interest in the related Trust Fund only.
Neither the Bonds or Certificates of a Series are insured or guaranteed by
any governmental agency or instrumentality, by any person or entity
affiliated with the Company or Issuer, or, unless otherwise specified in the
related Prospectus Supplement, by any other person or entity. The Issuer has
no significant assets other than the Mortgage Assets and certain other assets
pledged to secure the Bonds or in which the Certificates represent a
beneficial interest. See "RISK FACTORS."
An election may be made, with respect to any Series of Securities, to
treat all or a specified portion of the assets securing such Series or
comprising the Trust Fund as a "real estate mortgage investment conduit" (a
"REMIC"), or an election may be made to treat the arrangement by which a
Series of Securities is issued as a REMIC. If such an election is made, each
Class of Securities of a Series will be either Regular Interest or Residual
Interest, as specified in the related Prospectus Supplement. See "FEDERAL
INCOME TAX CONSIDERATIONS."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS 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 Securities offered by this Prospectus and by the related Prospectus
Supplement are offered by Lehman Brothers and the other underwriters, if any,
subject to prior sale, to withdrawal, cancellation or modification of the
offer without notice, to delivery to and acceptance by Lehman Brothers and
the other underwriters, if any, and certain further conditions. Retain this
Prospectus for future reference. This Prospectus may not be used to
consummate sales of the securities offered hereby unless accompanied by a
Prospectus Supplement.
LEHMAN BROTHERS
November 10, 1995
CAPITAL PRINTING SYSTEMS]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Supplement ...................................................... 5
Additional Information ..................................................... 5
Incorporation of Certain Documents by Reference ............................ 5
Summary of Terms ........................................................... 7
Risk Factors ............................................................... 26
Description of the Securities .............................................. 32
General ................................................................... 32
The Bonds--General ........................................................ 32
The Certificates--General ................................................. 33
Bearer Securities and Registered Securities ............................... 33
Book-Entry Registration ................................................... 35
Valuation of Mortgage Assets .............................................. 36
Payments and Distributions of Interest .................................... 36
Payments and Distributions of Principal ................................... 38
Special Redemption ........................................................ 38
Optional Redemption ....................................................... 39
Mandatory Redemption ...................................................... 39
Optional Termination ...................................................... 40
Optional Repurchase of Certificates ....................................... 40
Other Repurchases ......................................................... 40
Yield and Prepayment Considerations ........................................ 41
Timing of Payment of Distribution of Interest and Principal .............. 41
Principal Prepayments ..................................................... 41
Prepayments and Weighted Average Life ..................................... 41
Other Factors Affecting Weighted Average Life ............................. 43
Security for the Bonds and Certificates .................................... 44
General ................................................................... 44
Mortgage Loans ............................................................ 45
Private Mortgage-Backed Securities ........................................ 48
Substitution of Mortgage Assets ........................................... 50
Collection Account ........................................................ 50
Other Funds or Accounts ................................................... 51
Investment of Funds ....................................................... 51
Guaranteed Investment Contract ............................................ 51
Enhancement ............................................................... 51
Servicing of Mortgage Loans ................................................ 52
General ................................................................... 52
Collection Procedures ..................................................... 52
Payments on Mortgage Loans; Deposits to Custodial Accounts ............... 53
Advances .................................................................. 53
Maintenance of Insurance Policies and Other Servicing Procedures ......... 54
Enforcement of Due-On-Sale Clauses ........................................ 55
Modification; Waivers ..................................................... 55
Servicing Compensation and Payment of Expenses ............................ 55
Evidence as to Compliance ................................................. 55
Certain Matters Regarding the Master Servicer and Special Servicer ....... 56
Enhancement ................................................................ 56
General ................................................................... 56
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Subordinate Securities .................................................... 57
Cross-Support Features .................................................... 57
Insurance on the Mortgage Loans ........................................... 58
Letter of Credit .......................................................... 58
Bond Guarantee Insurance .................................................. 58
Reserve Funds ............................................................. 58
Description of Insurance on the Mortgage Loans ............................. 59
Mortgage Insurance on the Mortgage Loans .................................. 59
Hazard Insurance on the Mortgage Loans .................................... 59
Certain Legal Aspects of Mortgage Loans .................................... 61
Mortgages ................................................................. 61
Foreclosure of Mortgage ................................................... 61
Rights of Redemption ...................................................... 62
Environmental Matters ..................................................... 63
Certain Laws and Regulations .............................................. 63
Leases and Rents .......................................................... 64
Anti-Deficiency Legislation and Other Limitations on Lenders ............. 64
Due on Sale Clauses in Mortgage Loans ..................................... 66
Enforceability of Prepayment and Late Payment Fees ........................ 66
Equitable Limitations on Remedies ......................................... 67
Applicability of Usury Laws ............................................... 67
Alternative Mortgage Instruments .......................................... 68
Secondary Financing; Due-on-Encumbrance Provisions ........................ 68
The Indenture .............................................................. 69
Certain Covenants ......................................................... 69
Modification of Indenture ................................................. 69
Events of Default ......................................................... 70
Authentication and Delivery of Bonds ...................................... 72
Satisfaction and Discharge of the Indenture ............................... 72
Issuer's Annual Compliance Statement ...................................... 72
List of Bondholders ....................................................... 72
Meetings of Bondholders ................................................... 72
Fiscal Year ............................................................... 73
Trustee's Annual Report ................................................... 73
The Trustee ............................................................... 73
The Trust Agreement ........................................................ 73
Assignment of Mortgage Assets ............................................. 73
Repurchase of Non-Conforming Loans ........................................ 74
Reports to Certificateholders ............................................. 75
Event of Default .......................................................... 76
Rights Upon Event of Default .............................................. 76
The Trustee ............................................................... 77
Duties of the Trustee ..................................................... 77
Resignation of Trustee .................................................... 78
Amendment of Trust Agreement .............................................. 78
Voting Rights ............................................................. 78
List of Certificateholders ................................................ 78
REMIC Administrator ....................................................... 79
Termination ............................................................... 79
The Issuer ................................................................. 80
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
The Company ............................................................... 80
Owner Trust ............................................................... 80
Administrator ............................................................. 80
Use of Proceeds ............................................................ 81
Limitations on Issuance of Bearer Securities ............................... 81
Federal Income Tax Considerations .......................................... 82
General ................................................................... 82
Characterization of Securities ............................................ 82
Taxation of Regular Interest Securities ................................... 83
Sale or Exchange of Regular Interest Securities ........................... 87
REMIC Expenses ............................................................ 87
Taxation of the REMIC ..................................................... 87
Taxation of Holders of Residual Interest Securities ....................... 88
Excess Inclusion Income ................................................... 90
Restrictions on Ownership and Transfer of Residual Interest Securities ... 90
Administrative Matters .................................................... 91
Tax Status as a Grantor Trust ............................................. 91
Miscellaneous Tax Aspects ................................................. 95
Tax Treatment of Foreign Investors ........................................ 95
State and Local Tax Considerations ......................................... 96
ERISA Considerations ....................................................... 97
Legal Investment ........................................................... 99
Plan of Distribution ....................................................... 99
Legal Matters .............................................................. 100
Experts ....................................................................
Glossary ................................................................... 101
</TABLE>
4
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series to be offered thereby and
hereby will, among other things, set forth with respect to such Series: (a)
whether such Securities are Bonds or Certificates, (b) the initial aggregate
principal amount, the Bond Interest Rate or Certificate Interest Rate (or
method for determining it) and authorized denominations of each Class of such
Series; (c) certain information concerning the Primary Assets securing such
Series or assets comprising the Trust Fund, including the principal amount,
type and characteristics of the Primary Assets securing such Bonds or assets
comprising the Trust Fund on the date of issue, and, if applicable, the
amount of any Reserve Funds for such Series; (d) in the case of Mortgage
Assets consisting in whole or in part of Private Mortgage-Backed Securities,
information concerning the issuer thereof or sponsor thereof, the PMBS
Trustee, the Master Servicer, if any, and the Underlying Collateral; (d) the
circumstances, if any, under which the Securities of such Series are subject
to redemption prior to maturity or repurchase prior to the Final Scheduled
Distribution Date; (e) the Stated Maturity of each Class of Bonds or Final
Scheduled Distribution Date of the Certificates; (f) the method used to
calculate the aggregate amount of principal available and required to be
applied to the Securities of such Series on each Payment Date or Distribution
Date, as applicable, the timing of the application of principal and the order
of priority of the application of such principal to the respective classes
and the allocation of the principal to be so applied; (g) the extent of
subordination of any Subordinate Securities; (h) the identity of each Class
of Compound Interest Securities, Variable Interest Securities, Planned
Amortization Class Securities, Subordinate Securities, Individual Investor
Securities, Zero Coupon Securities, Principal Only Securities, Interest Only
Securities and Participating Securities included in such Series, if any, or
such other type of Class of Securities; (i) the principal amount of each
Class of such Series that would be outstanding on specified Payment Dates or
Distribution Dates, if the Mortgage Loans underlying or comprising the
Mortgage Assets pledged as security for such Series or comprising the Trust
Fund were prepaid at various assumed rates; (j) the Payment Dates or
Distribution Dates, as applicable for the respective Classes; (k) the Assumed
Reinvestment Rate, if any, and (if applicable) the percentage of Excess Cash
Flow to be applied to payments of principal of the Series; (l) relevant
financial information with respect to the Mortgagor(s) and the Mortgaged
Property underlying the Mortgage Assets, if applicable; (m) information with
respect to any required Insurance Policies relating to any Mortgage Loans
comprising Mortgage Assets or Underlying Collateral; (n) additional
information with respect to any Enhancement, Guaranteed Investment Contract
or other agreement relating to the Series; (o) the plan of distribution of
such Series; and (p) whether the Securities are to be issuable in registered
form or bearer form or both, and if bearer securities are issued, whether
bearer securities may be exchanged for registered securities and the
circumstances and places for such exchange, if permitted.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part
of the Registration Statement, omits certain information contained in such
Registration Statement pursuant to the Rules and Regulations of the
Commission. The Registration Statement and the exhibits thereto can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain
of its Regional Offices located as follows: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and New York Regional Office, 75 Park Place, 14th Floor,
New York, New York 10007. 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. The Issuer and Company do not
intend to send any financial reports to holders of Securities.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
5
<PAGE>
hereof from the date of filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such
person, a copy of any and all of the documents incorporated herein by
reference (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Requests for
such copies should be directed to the office of the Secretary, Structured
Asset Securities Corporation, 200 Vesey Street, New York, New York 10285,
telephone number (212) 526-5594.
6
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the Prospectus
Supplement with respect to the Series offered thereby and to the Trust
Indenture (the "Trust Indenture") or Trust Agreement (the "Trust Agreement"),
as applicable and the supplemental or terms indenture or agreement with
respect to such Series (the "Series Supplement") between the Company and
Bankers Trust Company of California, N.A., a national banking association, or
Marine Midland Bank, N.A., a national banking association (or another bank or
trust company qualified under the TIA and named in the Prospectus Supplement
for the related Series), as trustee (the "Trustee") or a Trust and the
Trustee (collectively, the Trust Indenture and any Series Supplement relating
to Bonds are sometimes referred to as the "Indenture," and the Trust
Agreement and any Series Supplement relating to Certificates are sometimes
referred to as the "Trust Agreement").
SECURITIES OFFERED
A. THE BONDS .......... Collateralized Mortgage Obligations (the
"Bonds"). The Bonds may be issued from
time to time in separately secured Series
pursuant to the Indenture and a related
Series Supplement. Each Series will
consist of one or more Classes, one or
more of which may be Classes of Compound
Interest Securities, Planned Amortization
Class ("PAC") Securities, Variable
Interest Securities, Zero Coupon
Securities, Principal Only Securities,
Interest Only Securities, Participating
Securities, Senior Securities or
Subordinate Securities. Each Class may
differ in, among other things, the amounts
allocated to and the priority of principal
and interest payments, maturity date,
Payment Dates and Bond Interest Rate.
Additionally, one or more Classes may
consist of Subordinate Securities which
are subordinated to other Classes of Bonds
with respect to the right to receive
payments of principal, interest, or both,
and may be allocated losses and shortfalls
prior to the allocation thereof to other
Classes of Bonds under the circumstances
and in such amounts as described herein
and in the related Prospectus Supplement.
Unless otherwise specified in the related
Prospectus Supplement, the Bonds of each
Class will be issued in fully registered
form in the minimum denominations
specified in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Bonds or
certain Classes of such Bonds offered
thereby may be available in book-entry
form only. The Bonds may be issued in
registered form or bearer form with
coupons attached. Bonds in bearer form
will be offered only outside the United
States to non-United States persons and to
offices located outside the United States
of certain United States financial
institutions. See "DESCRIPTION OF THE
SECURITIES-- The Bonds--General" and
"ENHANCEMENT--Subordinated Securities."
B. THE CERTIFICATES ... Mortgage-Backed Certificates (the
"Certificates"). The Certificates are
issuable from time to time in separate
Series pursuant to separate Trust
Agreements and a related Series
Supplement. Each Certificate of a Series
will evidence a beneficial ownership
interest in the Trust Fund for such
7
<PAGE>
Series. Each Series of Certificates will
consist of one or more Classes of
Certificates, one or more of which may be
Classes of Compound Interest Securities,
PAC Securities, Variable Interest
Securities, Zero Coupon Securities,
Principal Only Securities, Interest Only
Securities, Participating Securities,
Subordinate Securities or Senior
Securities. If a Series consists of
multiple Classes, the respective Classes
may differ with respect to the amount,
percentage and timing of distributions or
principal, interest or both. Additionally,
one or more Classes may consist of
Subordinate Securities which are
subordinated to other Classes of
Certificates with respect to the right to
receive distributions of principal,
interest, or both under the circumstances
and in such amounts as described herein
and in the related Prospectus Supplement.
The Certificates will be issuable in fully
registered form in the authorized minimum
denominations and multiples thereof
specified in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Certificates or
certain Classes of such Certificates
offered thereby may be available in
book-entry form only.
ISSUER ................. The Issuer with respect to a Series of Bonds
will be Structured Asset Securities
Corporation (the "Company") or an owner
trust established by it ("Owner Trust")
for the purpose of issuing one or more
Series of Bonds. 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 non- recourse
obligations of the Issuer. The Series
Supplement for a particular Series of
Bonds may permit the assets pledged to
secure the related Bonds to be transferred
by the Issuer to a trust or other 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.
The Issuer with respect to a Series of
Certificates will be a trust fund (the
"Trust Fund") established by the Company
for the purpose of issuing one or more
Series of Certificates. Such Trust Fund
will be created by an agreement (the
"Trust Agreement") between the Company,
acting as depositor, and a bank, trust
company or other fiduciary, acting as
trustee (the "Trustee").
The Issuer will not have, nor be expected in
the future to have, any significant assets
available for payments on a Series of
Bonds or distributions on a Series of
Certificates, other than the assets
pledged as security for a specific Series
of Bonds issued by it, or assets deposited
into a Trust Fund, the Certificates issued
by such Trust Fund as Issuer representing
a beneficial ownership interest in such
assets. Unless otherwise specified in the
related Prospectus Supplement, (i) each
8
<PAGE>
Series of Bonds will be separately secured
and no Series of Bonds will have any claim
against or security interest in the assets
pledged to secure any other Series, and
(ii) no Series of Certificates will have a
beneficial ownership interest in any other
Series.
The Company, a Delaware corporation, is a
limited-purpose finance subsidiary
organized for the purpose of issuing one
or more Series and other similar
obligations directly or through one or
more Trust Funds established by it.
Although all of the outstanding capital
stock of the Company is owned by Lehman
Commercial Paper Inc. ("LCPI"), a wholly
owned subsidiary of Lehman Brothers Inc.
("Lehman Brothers"), neither LCPI nor
Lehman Brothers nor any of their
affiliates has guaranteed or is otherwise
obligated with respect to any Series,
except with respect to any representations
and warranties given by any such affiliate
as originator, seller or servicer of
Mortgage Assets relating to a Series.
The Company's principal office is located at
200 Vesey Street, New York, New York 10285
and its telephone number is (212)
526-5594. See "RISK FACTORS" and "THE
ISSUER."
INTEREST PAYMENTS ON THE
BONDS ................. Each Class of a Series of Bonds (other than
a Class of Zero Coupon Securities or
Principal Only Securities) will accrue
interest at the rate set forth in (or, in
the case of Variable Interest Securities,
as determined by the method described in)
the related Prospectus Supplement (the
"Bond Interest Rate"). Interest on all
Bonds which bear interest, other than
Compound Interest Securities, will be due
and payable on the Payment Dates specified
in the related Prospectus Supplement.
However, failure to pay interest on a
current basis may not necessarily be an
Event of Default with respect to a
particular Series of Bonds. Payments of
interest on a Class of Variable Interest
Securities will be made on the dates set
forth in the related Prospectus Supplement
(the "Variable Interest Payment Dates").
Interest on any Class of Compound Interest
Securities will not be paid currently, but
will accrue and the amount of interest so
accrued will be added to the principal
thereof on each Payment Date through the
Accrual Termination Date specified in the
related Prospectus Supplement. Following
the applicable Accrual Termination Date,
interest payments on such Bonds will be
made on the Compound Value thereof.
Interest Only Bonds may be assigned a
"Notional Amount" which is used solely for
convenience in expressing the calculation
of interest and for certain other
purposes. Unless otherwise specified in
the related Prospectus Supplement, the
Notional Amount will be determined at the
time of issuance of such Bonds based on
the principal balances or Bond Value of
the Mortgage Loans attributable to the
Bonds of a Series entitled to receive
principal, and will be adjusted monthly
over the life of the Bonds based upon
adjustments to the Bond Value of such
9
<PAGE>
Mortgage Loans. Reference to the Notional
Amount is solely for convenience in
certain calculations and does not
represent the right to receive any
distributions allocable to principal. Zero
Coupon Securities and Principal Only
Securities will not accrue, and will not
be entitled to receive, any interest.
Each payment of interest on each Class of
Bonds (or addition to principal of a Class
of Compound Interest Securities) on a
Payment Date will include all interest
accrued during the Interest Accrual Period
specified in the related Prospectus
Supplement preceding such Payment Date. If
the Interest Accrual Period for a Series
ends on a date other than a Payment Date
for such Series, the yield realized by the
Holders of such Bonds may be lower than
the yield that would result if the
Interest Accrual Period ended on such
Payment Date. Additionally, if so
specified in the related Prospectus
Supplement, interest accrued for an
Interest Accrual Period for one or more
Classes may be calculated on the
assumption that principal payments (and
additions to principal of the Bonds), and
allocations of losses on the Mortgage
Assets (if so specified in the related
Prospectus Supplement), are made on the
first day of the preceding Interest
Accrual Period and not on the Payment Date
for such preceding Interest Accrual Period
when actually made or added. Such method
would produce a lower effective yield than
if interest were calculated on the basis
of the actual principal amount
outstanding. See "YIELD AND PREPAYMENT
CONSIDERATIONS."
With respect to any Class of Variable
Interest Securities, the related
Prospectus Supplement will set forth: (a)
the initial Bond Interest Rate (or the
manner of determining the initial Bond
Interest Rate); (b) the formula, index or
other method by which the Bond Interest
Rate will be determined from time to time;
(c) the periodic intervals at which such
determination will be made; (d) the
interest rate cap (the "Maximum Variable
Interest Rate") or the interest rate floor
(the "Minimum Variable Interest Rate") on
the Bond Interest Rate, if any, for such
Variable Interest Securities; and (e) the
Variable Interest Period and any other
terms relevant to such Class of Bonds. See
"DESCRIPTION OF THE SECURITIES--Payments
and Distributions of Interest."
INTEREST DISTRIBUTIONS
ON THE CERTIFICATES ... Interest distributions on the Certificates
of a Series (other than Certificates that
are Zero Coupon Securities or Principal
Only Securities) will be made from amounts
available therefor on each Distribution
Date at the applicable rate specified in
(or determined in the manner set forth in)
the related Prospectus Supplement. The
interest rate on Certificates of a Series
may be variable or change with changes in
the mortgage rates or annual percentage
rates of the Mortgage
10
<PAGE>
Assets included in the related Trust Fund
and/or as prepayments occur with respect
to such Mortgage Assets. Zero Coupon
Securities and Principal Only Securities
may not be entitled to receive any
interest distributions or may be entitled
to receive only nominal interest
distributions. Compound Interest
Securities will not receive distributions
of interest but accrued interest will be
added to the principal balance thereof on
each Distribution Date until the Accrual
Termination Date. Following the Accrual
Termination Date, interest distributions
with respect to such Compound Interest
Securities will be made on the basis of
their Compound Value.
PRINCIPAL PAYMENTS ON
THE BONDS ............. All payments of principal of a Series will
be allocated among the Classes of such
Series in the order and amounts, and will
be applied either on a pro rata or a
random lot basis among all Bonds of any
such Class, as specified in the related
Prospectus Supplement.
Except with respect to Zero Coupon
Securities, Compound Interest Securities
and Interest Only Securities, unless
specified otherwise in the related
Prospectus Supplement, on each Payment
Date principal payments will be made on
the Bonds of each Series in an amount (the
"Principal Payment Amount") as determined
by a formula specified in the related
Prospectus Supplement. Unless otherwise
specified in the related Prospectus
Supplement, if the Series of Bonds has a
Class of Compound Interest Securities,
additional principal payments on the Bonds
will be made on each Payment Date in an
amount equal to the interest accrued, but
not then payable, on such Bonds for the
related Interest Accrual Period. If the
Series of Bonds has a Class of PAC
Securities, such PAC Securities will have
certain priorities of payment with respect
to principal to the extent of certain
targeted amounts with respect to each
Payment Date, as set forth in the related
Prospectus Supplement.
PRINCIPAL DISTRIBUTIONS
ON THE CERTIFICATES ... Principal distributions on the Certificates
of a Series will be made from amounts
available therefor on each Distribution
Date, unless otherwise specified in the
related Prospectus Supplement, in an
aggregate amount determined as set forth
in the related Prospectus Supplement and
will be allocated among the respective
Classes of a Series of Certificates at the
times, in the manner and in the priority
(which may, in certain cases, include
allocation by random lot) set forth in the
related Prospectus Supplement.
Except with respect to Zero Coupon
Securities, Compound Interest Securities
and Interest Only Securities, unless
specified otherwise in the related
Prospectus Supplement, on each
Distribution Date principal payments will
be made on the Certificates of each Series
in the Principal Payment Amount as
determined by a formula specified in the
related Prospec-
11
<PAGE>
tus Supplement. Unless otherwise specified
in the related Prospectus Supplement, if
the Series of Certificates has a Class of
Compound Interest Securities, additional
principal payments on the Certificates
will be made on each Distribution Date in
an amount equal to the interest accrued,
but not then payable, on such Certificates
for the related Interest Accrual Period.
If the Series of Certificates has a Class
of PAC Securities, such PAC Securities
will have certain priorities of
distribution with respect to principal to
the extent of certain targeted amounts
with respect to each Distribution Date, as
set forth in the related Prospectus
Supplement.
ALLOCATION OF LOSSES ... If so specified in the related Prospectus
Supplement, on any Payment Date or
Distribution Date, as applicable, on which
the principal balance of the Mortgage
Assets is reduced due to losses on the
Mortgage Assets, (i) the amount of such
losses will be allocated first, to reduce
the Aggregate Outstanding Principal of the
Subordinate Securities or other
subordination, if any, and, thereafter, to
reduce the Aggregate Outstanding Principal
of the remaining Securities in the
priority and manner specified in such
Prospectus Supplement until the Aggregate
Outstanding Principal of each Class of
Securities so specified has been reduced
to zero or paid in full, thus reducing the
amount of principal payable or
distributable on each such Class of
Securities or (ii) such losses may be
allocated in any other manner set forth in
the related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement, such reductions of
principal of a Class or Classes of
Securities shall be allocated to the
Holders of the Securities of such Class or
Classes pro rata in the proportion which
the outstanding principal of each Bond or
Certificate of such Class or Classes bears
to the Aggregate Outstanding Principal of
all Securities of such Class. See
"DESCRIPTION OF THE SECURITIES-- Payments
and Distributions of Principal."
STATED MATURITY OF THE
BONDS .................. The "Stated Maturity" for each Class of a
Series is the date specified in the
related Prospectus Supplement no later
than which all the Bonds of such Class
will be fully paid, calculated on the
basis of the assumptions set forth in the
related Prospectus Supplement. However,
the actual maturity of the Bonds is likely
to occur earlier and may occur
significantly earlier than their Stated
Maturity. The rate of prepayments on the
Mortgage Assets pledged as security for
any Series will depend on a variety of
factors, including the characteristics of
the Mortgage Loans underlying or
comprising the 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
experi- ence of such Mortgage Assets. See
"YIELD AND PREPAYMENT CONSIDERATIONS."
12
<PAGE>
FINAL SCHEDULED
DISTRIBUTION DATE
OF THE CERTIFICATES ... The Final Scheduled Distribution Date for
each Class of Certificates of a Series is
the date after which no Certificates of
such Class will remain outstanding,
assuming timely payments or distributions
are made on the Mortgage Assets in the
related Trust Fund in accordance with
their terms. The Final Scheduled
Distribution Date of a Class may equal the
maturity date of the Mortgage Asset in the
related Trust Fund which has the latest
stated maturity or will be determined as
described herein and in the related
Prospectus Supplement.
The actual maturity date of the Certificates
of a Series will depend primarily upon the
level of prepayments with respect to the
Mortgage Loans comprising the Mortgage
Assets in the related Trust Fund. The
actual maturity of any Certificate is
likely to occur earlier and may occur
substantially earlier than its Final
Scheduled Distribution Date as a result of
the application of prepayments to the
reduction of the principal balances of the
Certificates. The rate of prepayments on
the Mortgage Loans comprising Mortgage
Assets in the Trust Fund for a Series will
depend on a variety of factors, including
certain characteristics of such Mortgage
Loans and the prevailing level of interest
rates from time to time, as well as on a
variety of economic, demographic, tax,
legal, social and other factors. No
assurance can be given as to the actual
prepayment experience with respect to a
Series. See "RISK FACTORS" and
"DESCRIPTION OF THE SECURITIES--Weighted
Average Life of the Securities" herein.
REDEMPTION OF BONDS .... The Bonds will be redeemable only as
follows:
A. SPECIAL REDEMPTION . If specified in the related Prospectus
Supplement, Bonds of a Series will be
subject to special redemption, in whole or
in part, if, as a result of principal
payments on the Mortgage Assets securing
such Series or low reinvestment yields or
both, the Trustee determines (based on
assumptions, if any, specified in the
Indenture and after giving effect to the
amounts, if any, available to be withdrawn
from any Reserve Fund for such Series)
that the amount anticipated to be
available in the Collection Account for
such Series on the date specified in the
related Prospectus Supplement will be
insufficient to meet debt service
requirements on any portion of the Bonds.
Any such redemption would be limited to
the aggregate amount of all scheduled
principal payments and prepayments on the
Mortgage Assets received 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. Unless otherwise specified
in the related Prospectus Supplement,
special redemptions of Bonds of a Series
will be made in the same
13
<PAGE>
priority and manner as principal payments
are made on a Payment Date. Bonds subject
to special redemption shall be redeemed on
the applicable Special Redemption Date at
100% of their unpaid principal amount plus
accrued interest on such principal to the
date specified in the related Prospectus
Supplement. To the extent described in the
related Prospectus Supplement, Bonds of a
Series may be subject to special
redemption in whole or in part following
certain defaults under an Enhancement
Agreement or other agreement, and in
certain other events at the Redemption
Price. See "DESCRIPTION OF THE
SECURITIES--Special Redemption."
B. OPTIONAL
REDEMPTION ........ To the extent specified in the related
Prospectus Supplement, one or more Classes
of any Series may be redeemed in whole, or
in part, at, unless otherwise specified in
the related Prospectus Supplement, the
Issuer's option on any Payment Date on or
after the date specified in the related
Prospectus Supplement and at the
Redemption Price. See "DESCRIPTION OF THE
SECURITIES--Optional Redemption."
C. MANDATORY
REDEMPTION ........ If specified in the related Prospectus
Supplement for a Series, the Bonds of one
or more Classes ("Individual Investor
Bonds") may be subject to mandatory
redemptions by lot or by such other method
set forth in the Prospectus Supplement.
The related Prospectus Supplement relating
to a Series of Bonds with Individual
Investor Securities will set forth Class
priorities, if any, and conditions with
respect to redemptions. Individual
Investor Securities to be redeemed shall
be selected by random lot in $1,000 units,
after making all permitted redemptions
requested by holders of Individual
Investor Securities or by such other
method set forth in the Prospectus
Supplement. See "DESCRIPTION OF THE
SECURITIES--Mandatory Redemption."
OPTIONAL TERMINATION OF
TRUST FUND ............ If so specified in the related Prospectus
Supplement, the Company, as depositor of
the Primary Assets into the Trust Fund
(acting in such capacity, and in such
capacity in respect of an Owner Trust the
"Depositor"), the Servicer, or such other
entity that is specified in the related
Prospectus Supplement, may, at its option,
cause an early termination of the related
Trust Fund by repurchasing all of the
Primary Assets remaining in the Trust Fund
on or after a specified date, or on or
after such time as the aggregate principal
balance of the Certificates of any Class
of the Series is less than the amount or
percentage specified in the related
Prospectus Supplement. See "DESCRIPTION OF
THE SECURITIES-- Optional Termination."
REPURCHASES OF
CERTIFICATES .......... If so specified in the related Prospectus
Supplement, one or more classes of the
Certificates of such Series may be
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<PAGE>
repurchased, in whole or in part, at the
option of the Depositor, at such times and
under the circumstances specified in such
Prospectus Supplement and at the
repurchase price set forth therein. See
"DESCRIPTION OF THE SECURITIES--Optional
Repurchase of Certificates" herein.
If so specified in the related Prospectus
Supplement, any Class of the Certificates
may be subject to repurchase at the
request of the holders of such Class or to
mandatory repurchase by the Depositor
(including by random lot). See
"DESCRIPTION OF THE SECURITIES--Other
Repurchases" herein.
SECURITY FOR THE BONDS,
OR THE TRUST FUND
FOR THE CERTIFICATES .. Each Series of Bonds will be separately
secured by Primary Assets consisting of
one or more of the assets described below,
as specified in the Prospectus Supplement.
The Trust Fund for a Series of
Certificates will consist of one or more
of the assets described below, as
specified in the related Prospectus
Supplement.
A. MORTGAGE ASSETS .... The Primary Assets for a Series may consist
of any combination of the following, to
the extent and as specified in the related
Prospectus Supplement:
(1) MORTGAGE LOANS ... Mortgage Assets for a Series may consist, in
whole or in part, of Mortgage Loans,
including participation interests therein
owned by the Issuer. Some Mortgage Loans
or Mortgage Loans underlying such
participation interests may be delinquent
or non-performing as specified in the
related Prospectus Supplement. The
Mortgage Assets may consist of a single
Mortgage Loan or obligations of a single
obligor or related obligors as specified
in the related Prospectus Supplement.
Mortgage Loans comprising or underlying
the Mortgage Assets may be originated by
or acquired from an affiliate of the
Issuer and an affiliate of the Issuer may
be an obligor with respect to any such
Mortgage Loan. Payments on such Mortgage
Loans will be collected by the Trustee or
by the Servicer or Master Servicer with
respect to a Series and remitted to the
Trustee as described in the related
Prospectus Supplement and will be
available in the priority described in the
related Prospectus Supplement to make
payments on the Bonds of that Series. To
the extent specified in the related
Prospectus Supplement, Mortgage Loans
owned by the Issuer will be serviced by
Servicers, and, if applicable, a Master
Servicer, either of which may be
affiliates or shareholders of the Issuer.
Mortgaged Properties securing Mortgage Loans
may consist of multifamily residential
rental property or cooperatively owned
multifamily property consisting of five or
more dwelling units, mixed
multifamily/commercial property or
commercial property. Mortgage Loans
secured by Multifamily Property
15
<PAGE>
may consist of FHA Loans. Mortgage Loans
may, as specified in the related
Prospectus Supplement, have various
payment characteristics and may consist of
fixed rate loans or ARMs or Mortgage Loans
having balloon or other irregular payment
features. Unless otherwise specified in
the related Prospectus Supplement, the
Mortgage Loans will be secured by first
mortgages or deeds of trust or other
similar security instruments creating a
first lien on Mortgaged Property. If so
specified in the related Prospectus
Supplement, Mortgage Loans relating to
real estate projects under construction
may be included in the Mortgage Assets for
a Series. The related Prospectus
Supplement will describe certain
characteristics of the Mortgage Loans
comprising the Mortgage Assets for a
Series, including, without limitation, (a)
the aggregate unpaid principal balance of
the Mortgage Loans comprising the Mortgage
Assets; (b) the weighted average Mortgage
Rate on the Mortgage Loans, and, in the
case of adjustable Mortgage Rates, the
weighted average of the current adjustable
Mortgage Rates, the minimum and maximum
permitted adjustable Mortgage Rates, if
any, and the weighted average thereof; (c)
the average outstanding principal balance
of the Mortgage Loans; (d) the weighted
average remaining scheduled term to
maturity of the Mortgage Loans and the
range of remaining scheduled terms to
maturity; (e) the range of Loan-to-Value
Ratios of the Mortgage Loans; (f) the
relative percentage (by principal balance
as of the Cut-off Date) of Mortgage Loans
that are ARMs, fixed interest rate, FHA
Loans or other types of Mortgage Loans;
(g) any enhancement relating to the
Mortgage Assets; (h) the relative
percentage (by principal balance as of the
Cut-Off Date) of Mortgage Loans that are
secured by Multifamily Property or
Commercial Property; (i) the geographic
dispersion of Mortgaged Properties
securing the Mortgage Loans; and (j) the
use or type of each Mortgaged Property
securing a Mortgage Loan.
If permitted by applicable law, the Mortgage
Pool may also include Mortgaged Properties
acquired by foreclosure or by deed-in-lieu
of foreclosure ("REO Property"). To the
extent specified in the related Prospectus
Supplement, the Servicer or the Master
Servicer or the Special Servicer, if any,
may establish and maintain a trust account
or accounts to be used in connection with
REO Properties and other Mortgaged
Properties being operated by it or on its
behalf on behalf of the Trust Estate, by
the mortgagor as debtor-in-possession or
otherwise. See "SECURITY FOR THE BONDS AND
CERTIFICATES--Mortgage Loans" and
"--Maintenance of Insurance Policies and
Other Servicing Procedures; Presentation
of Claims; Realization Upon Defaulted
Mortgage Loans."
(2) PRIVATE
MORTGAGE-BACKED
SECURITIES ...... Private Mortgage-Backed Securities may
include (a) mortgage participations or
pass-through certificates representing
ben-
16
<PAGE>
eficial interests in certain Mortgage
Loans, (b) debt obligations interest
payments on which may be tax-exempt in
whole or in part secured by mortgages or
(c) participations or other interests in
any of the foregoing. Although individual
Mortgage Loans underlying a Private
Mortgage-Backed Security may be insured or
guaranteed by the United States or an
agency or instrumentality thereof, they
need not be, and the Private
Mortgage-Backed Securities themselves will
not be, so insured or guaranteed. Unless
otherwise specified in the Prospectus
Supplement relating to a Series, payments
on the Private Mortgage-Backed Securities
will be distributed directly to the
Trustee (on behalf of the Trust Estate) as
registered owner of such Private
Mortgage-Backed Securities. Unless
otherwise specified in the Prospectus
Supplement relating to a Series, if
payments with respect to interest on the
underlying obligations are tax-exempt,
such Prospectus Supplement will disclose
the relevant federal income tax
characteristics relating to the tax-exempt
status of such obligations.
The related Prospectus Supplement for a
Series will specify, to the extent
applicable, (i) the aggregate approximate
principal amount and type of any Private
Mortgage-Backed Securities to be included
in the Trust Estate or Trust Fund for such
Series; (ii) certain characteristics of
the Mortgage Loans, participations or
other interests which comprise the
underlying assets for the Private
Mortgage-Backed Securities including (A)
the payment features of such Mortgage
Loans, participations or other interests
(i.e., whether they are fixed interest
rate or adjustable rate and whether they
provide for fixed level payments, negative
amortization, or other payment features),
(B) the approximate aggregate principal
amount, if known, of the underlying
Mortgage Loans, participations or other
interests which are insured or guaranteed
by a governmental entity, (C) the
servicing fee or range of servicing fees
with respect to the Mortgage Loans, and
(D) the stated maturities of the Mortgage
Loans, participations or other interests
at origination; (iii) the maximum original
term-to-stated maturity of the Private
Mortgage-Backed Securities; (iv) the
weighted average term-to-stated maturity
of the Private Mortgage-Backed Securities;
(v) the pass- through or bond rate or
ranges thereof for the Private
Mortgage-Backed Securities or formula
therefor; (vi) the weighted average
pass-through or certificate rate of the
Private Mortgage-Backed Securities or
formula therefor; (vii) the issuer of the
Private Mortgage-Backed Securities (the
"PMBS Issuer"), the Servicer or Master
Servicer of the Private Mortgage-Backed
Securities and the trustee of the Private
Mortgage-Backed Securities (the "PMBS
Trustee"); (viii) certain characteristics
of credit support, if any, such as reserve
funds, insurance policies, letters of
credit, guarantees or
overcollateralization, relating to the
Mortgage Loans
17
<PAGE>
underlying the Private Mortgage-Backed
Securities, or to such Private
Mortgage-Backed Securities themselves;
(ix) the terms on which underlying
Mortgage Loans, participations or other
interests for such Private Mortgage-Backed
Securities or the Private Mortgage-Backed
Securities may, or are required to, be
repurchased prior to maturity; and (x) the
terms on which substitute Mortgage Loans,
participations or other interests may be
delivered to replace those initially
deposited with the PMBS Trustee.
(3) DETERMINATION OF
ASSET VALUE ..... If provided in the applicable Prospectus
Supplement, each item of Mortgage Assets
for a Series will be assigned an Asset
Value. Unless otherwise specified in the
related Prospectus Supplement, the
aggregate of the Asset Values of the
Primary Assets securing a Series of Bonds
or comprising a Trust Fund will equal not
less than the original Aggregate
Outstanding Principal of such Series. The
Asset Value of an item of Primary Assets
securing any Series of Bonds or comprising
a Trust Fund is intended to represent the
principal amount of Securities of such
Series that, based on certain assumptions
stated in the related Series Supplement,
can be supported by payments on such item
of Primary Assets, irrespective of
prepayments thereon, together with,
depending on the type of Primary Assets
and method used to determine its Asset
Value, reinvestment earnings at the
related Assumed Reinvestment Rate, if any,
and amounts in any Reserve Fund
established for that Series. In such a
case, the related Prospectus Supplement
will set forth the method or methods and
related assumptions used to determine
Asset Value, if such method is used, for
the Primary Assets securing the related
Series. See "DESCRIPTION OF THE
SECURITIES--Valuation of Mortgage
Collateral."
B. COLLECTION ACCOUNT . Unless otherwise provided in the related
Prospectus Supplement, all payments on the
Primary Assets pledged as security for a
Series or comprising the assets of a Trust
Fund will be remitted to a Collection
Account to be established with the
Trustee, or if the Trustee is not also the
Paying Agent, with the Paying Agent, for
such Series. Unless otherwise provided in
the related Prospectus Supplement, such
payments, together with the Reinvestment
Income thereon, if any, the amount of
cash, if any, initially deposited in the
Collection Account by the Issuer together
with Reinvestment Income thereon, if any,
and any amounts withdrawn from any Reserve
Fund established for such Series, will be
available to make payments or
distributions of principal of and interest
on such Series on the next Payment Date or
Distribution Date, as applicable. Any
funds remaining in the Collection Account
for a Series immediately following a
Payment Date or Distribution Date, as
applicable (unless required to be
deposited into one or more Reserve Funds,
as described below, or applied to pay
certain expenses or other payments
18
<PAGE>
provided for in the Indenture or Trust
Agreement, as applicable) will be promptly
paid as provided in the Indenture or Trust
Agreement to the Issuer or, in certain
circumstances, to owners of residual
interests and, upon such payment, will be
released from the lien of the Indenture or
Trust Agreement, as applicable. See
"SECURITY FOR THE BONDS AND
CERTIFICATES--Collection Account."
C. GUARANTEED
INVESTMENT CONTRACTS
AND OTHER AGREEMENTS . The Issuer may obtain and deliver to the
Trustee Guaranteed Investment Contracts
pursuant to which moneys held in the funds
and accounts established for such Series
will be invested at a specified rate for
the Series. The Issuer may also obtain and
deliver to the Trustee certain other
agreements such as interest rate swap
agreements, interest rate cap or floor
agreements or similar agreements issued by
a bank, insurance company, savings bank,
savings and loan association or other
entity which reduce the effects of
interest rate fluctuations on the Mortgage
Assets or the Securities. The principal
terms of any such Guaranteed Investment
Contract or other agreement, including,
without limitation, provisions relating to
the timing, manner and amount of payments
thereunder and provisions relating to the
termination thereof, will be described in
the Prospectus Supplement for the related
Series. Additionally, the related
Prospectus Supplement will provide certain
information with respect to the issuer of
such Guaranteed Investment Contract or
other agreement.
ENHANCEMENT ............ Enhancement in the form of reserve funds,
subordination, overcollateralization,
insurance policies, letters of credit or
other types of credit support may be
provided with respect to the Mortgage
Assets or with respect to one or more
Classes of Securities of a Series. If the
Mortgage Assets are divided into separate
Mortgage Groups, each securing or
supporting a separate Class or Classes of
a Series, credit support may be provided
by a cross-support feature which requires
that distributions be made with respect to
Securities secured by one Mortgage Group
prior to distributions to Subordinate
Securities secured by another Mortgage
Group within the Trust Estate or Trust
Fund.
The type, characteristics and amount of
enhancement will be determined based on
the characteristics of the Mortgage Loans
underlying or comprising the Mortgage
Assets and other factors and will be
established on the basis of requirements
of each Rating Agency rating the
Securities of such Series. If so specified
in the related Prospectus Supplement, any
such enhancement may apply only in the
event of certain types of losses or
delinquencies and the protection against
losses or delinquencies provided by such
enhancement will
19
<PAGE>
be limited. See "ENHANCEMENT" and "RISK
FACTORS" herein.
A. SUBORDINATE
SECURITIES ........ A Series of Securities may include one or
more Classes of Subordinate Securities.
The rights of holders of such Subordinate
Securities to receive distributions on any
Payment Date or Distribution Date, as
applicable, will be subordinate in right
and priority to the rights of holders of
Senior Securities of the Series, but only
to the extent described in the related
Prospectus Supplement. If so specified in
the related Prospectus Supplement,
subordination may apply only in the event
of certain types of losses not covered by
other enhancement. Unless otherwise
specified in the related Prospectus
Supplement, such subordination will be in
lieu of providing insurance policies or
other credit support with respect to
losses arising from such events. Unless
otherwise specified in the related
Prospectus Supplement, the related Series
Supplement may require a trustee that is
not the Trustee to be appointed to act on
behalf of holders of Subordinate
Securities.
The related Prospectus Supplement will set
forth information concerning the amount of
subordination of a Class or Classes of
Subordinate Securities in a Series, the
circumstances in which such subordination
will be applicable, the manner, if any, in
which the amount of subordination will
decrease over time, the manner of funding
any related Reserve Fund and the
conditions under which amounts in any
related Reserve Fund will be used to make
distributions to holders of Senior
Securities and/or to holders of
Subordinate Securities or be released from
the related Trust Estate or Trust Fund. If
cash flows otherwise distributable to
holders of Subordinate Securities secured
by a Mortgage Group will be used as credit
support for Senior Securities secured by
another Mortgage Group within the Trust
Estate or Trust Fund, the related
Prospectus Supplement will specify the
manner and conditions for applying such a
cross-support feature. See
"ENHANCEMENT--Subordinate Securities."
B. INSURANCE .......... If so specified in the related Prospectus
Supplement, certain insurance policies
will be required to be maintained with
respect to the Mortgage Loans included in
the Trust Estate or Trust Fund for a
Series. Such insurance policies may
include, but are not limited to, a
standard hazard insurance policy or with
respect to FHA Loans, FHA Insurance. See
"ENHANCEMENT" and "DESCRIPTION OF
INSURANCE ON THE MORTGAGE LOANS" herein.
The Prospectus Supplement for a Series
will provide information concerning any
such insurance policies, including (a) the
types of coverage provided by each, (b)
the amount of such coverage and (c)
conditions to payment under each. To the
extent described in the related Prospectus
Supplement, certain insur-
20
<PAGE>
ance policies to be maintained with
respect to the Mortgage Loans may be
terminated, reduced or replaced following
the occurrence of certain events affecting
the authority or creditworthiness of the
insurer. Additionally, such insurance
policies may be terminated, reduced or
replaced by the Servicer or Master
Servicer, if any, provided that no rating
assigned to Securities of the related
Series offered hereby and by the related
Prospectus Supplement is adversely
affected and such insurance policies may
apply only in the event of certain types
of losses, all as set forth in the related
Prospectus Supplement.
C. LETTER OF CREDIT ... If so specified in the related Prospectus
Supplement, credit support may be provided
by one or more letters of credit. A letter
of credit may provide limited protection
against certain losses in addition to or
in lieu of other credit support. The
issuer of the letter of credit (the "L/C
Bank") will be obligated to honor demands
with respect to such letter of credit, to
the extent of the amount available
thereunder, to provide funds under the
circumstances and subject to such
conditions as are specified in the related
Prospectus Supplement. The liability of
the L/C Bank under its letter of credit
may be reduced by the amount of
unreimbursed payments thereunder.
The maximum liability of an L/C Bank under
its letter of credit will be an amount
equal to a percentage specified in the
related Prospectus Supplement of the
initial aggregate outstanding principal
balance of the Mortgage Loans in the Trust
Estate or Trust Fund or one or more
Classes of Securities of the related
Series (the "L/C Percentage"). The maximum
amount available at any time to be paid
under a letter of credit will be
determined in the manner specified therein
and in the related Prospectus Supplement.
See "ENHANCEMENT--Letter of Credit."
D. BOND GUARANTEE
INSURANCE ......... If so specified in the related Prospectus
Supplement, credit support for a Series
may be provided by an insurance policy
(the "Bond Guarantee Insurance") issued by
one or more insurance companies. Such Bond
Guarantee Insurance may guarantee timely
distributions of interest and full
distributions of principal on the basis of
a schedule of principal distributions set
forth in or determined in the manner
specified in the related Prospectus
Supplement. See "ENHANCEMENT--Bond
Guarantee Insurance."
E. RESERVE FUNDS ...... The Issuer may deposit in one or more
reserve funds (collectively, the "Reserve
Funds") for any Series cash, Eligible
Investments, demand notes or a combination
thereof in the aggregate amount, if any,
specified in the related Prospectus
Supplement. Any Reserve Funds for a Series
may also be funded over time through
application of a specified amount
21
<PAGE>
of cash flow, to the extent described in
the related Prospectus Supplement. Such a
Reserve Fund may be established to
increase the likelihood of the timely
distributions on the Securities of such
Series or to reduce the likelihood of a
special redemption with respect to any
Series. Reserve Funds may be established
to provide protection against certain
losses or delinquencies in addition to or
in lieu of other credit support. Amounts
on deposit in the Reserve Funds for a
Series, together with (unless otherwise
specified in the related Prospectus
Supplement) the reinvestment income
thereon, if any, will be applied for the
purposes, in the manner and to the extent
provided by the related Prospectus
Supplement.
On each Payment Date or Distribution Date,
as applicable, for a Series, all amounts
on deposit in any Reserve Funds for the
Series in excess of the amounts required
to be maintained therein by the related
Indenture or Trust Agreement, as
applicable, and specified in the related
Prospectus Supplement may be released from
the Reserve Funds and will not be
available for future payments or
distributions on the Securities of such
Series.
Additional information concerning any
Reserve Funds, including whether any such
Reserve Fund is a part of the Trust Estate
or Trust Fund, the circumstances under
which moneys therein will be applied to
make distributions to Bondholders or
Certificateholders, the balance required
to be maintained in such Reserve Funds,
the manner in which such required balance
will decrease over time and the manner of
funding any such Reserve Fund, will be set
forth in the related Prospectus
Supplement. See "ENHANCEMENT--Reserve
Funds."
F. OVERCOLLATERALIZATION To the extent applicable and as specified in
the related Prospectus Supplement, a
Series may be structured such that the
outstanding principal balances or
Aggregate Asset Value of the Mortgage
Assets securing a Series may exceed the
Aggregate Outstanding Principal of such
Series, thereby resulting in
overcollateralization. See "DESCRIPTION OF
THE SECURITIES--Valuation of Mortgage
Assets."
SERVICING AGREEMENTS ... Various Servicers will perform certain
servicing functions with respect to any
Mortgage Loans comprising Mortgage Assets
or Underlying Collateral for a Series. In
addition, if so specified in the related
Prospectus Supplement, a Master Servicer
identified in the related Prospectus
Supplement may service Mortgage Loans
directly or administer and supervise the
performance by the Servicers of their
duties and responsibilities under separate
servicing agreements. Each Servicer must
meet the requirements of the Master
Servicer, if any, and be approved by the
Issuer, and, if specified in the related
Prospectus Supplement, the Master Servicer
and each Ser-
22
<PAGE>
vicer must be approved by either FNMA or
FHLMC as a seller-servicer of mortgage
loans and, in the case of FHA Loans, by
HUD as an FHA mortgagee. Each Servicer
will be obligated under a servicing
agreement to perform customary servicing
functions and may be obligated to advance
funds to cover certain payments not made
by the Mortgagors to the extent described
herein and in the related Prospectus
Supplement. The Master Servicer, if any,
may, if so specified in the related
Prospectus Supplement, be obligated to
advance funds to cover any required
Advances not made by the Servicers to the
extent that, in the judgment of the Master
Servicer, such Advances are recoverable
under the Insurance Policies, any
Enhancement or from the proceeds of
liquidation of the Mortgage Loans or as
provided in the related Prospectus
Supplement. The related Prospectus
Supplement will specify the conditions to
and any limitations on such Advances and
the conditions under which such Advances
will be recoverable. With respect to any
such Series, the Issuer may (i) enter into
a standby agreement with an independent
standby Servicer acceptable to each Rating
Agency rating such Securities providing
that such standby Servicer will assume the
Servicer's or Master Servicer's
obligations in the event of a default by
the Master Servicer or Servicer or (ii)
obtain a servicer performance bond
acceptable to each Rating Agency rating
such Securities that will guarantee
certain of the Servicer's or Master
Servicer's obligations. The Issuer will
assign to the Trustee its rights under any
Master Servicing Agreement and any
servicing agreements so provided with
respect to a Series as security for the
Series. See "SERVICING OF MORTGAGE LOANS"
and "SECURITY FOR THE BONDS AND
CERTIFICATES--Mortgage Loans" herein.
SPECIAL SERVICER ....... If so specified in the related Prospectus
Supplement, to the extent a Mortgage Loan
on or after the Closing Date meets certain
criteria set forth in the related
Prospectus Supplement, (i) all or a
portion of the servicing responsibilities
with respect to such Mortgage Loan may be
transferred to a Special Servicer or (ii)
the Special Servicer will provide advisory
services with respect to the servicing of
such Mortgage Loan. See "SERVICING OF
MORTGAGE LOANS" herein.
FEDERAL INCOME TAX
CONSIDERATIONS ........ Unless otherwise stated in the applicable
Prospectus Supplement, a real estate
mortgage investment conduit (a "REMIC")
election will be made with respect to each
Series of Securities. Securities of such
Series will be designated as "regular
interests" in a REMIC ("Regular Interest
Securities") or as "residual interests" in
a REMIC ("Residual Interest Securities").
If the applicable Prospectus Supplement so
specifies with respect to a Series of
Securities, the Securities of such Series
23
<PAGE>
will not be treated as regular or residual
interests in a REMIC for federal income
tax purposes but instead will be treated
as (i) indebtedness of the Issuer, (ii) an
undivided beneficial ownership interest in
the Mortgage Loans (and the arrangement
pursuant to which the Mortgage Loans will
be held and the Securities will be issued
will be treated as a grantor trust under
Subpart E, part I of subchapter J of the
Code and not as an association taxable as
a corporation for federal income tax
purposes); (iii) equity interests in an
association that will satisfy the
requirements for qualification as a real
estate investment trust; or (iv) interests
in an entity that will satisfy the
requirements for qualification as a
partnership for federal income tax
purposes. The federal income tax
consequences to Bondholders or
Certificateholders of any such Series will
be described in the applicable Prospectus
Supplement.
Compound Interest Securities and Zero Coupon
Securities will, and certain other Classes
of Securities may, be issued with original
issue discount that is not de minimis. In
such cases, the Bondholder or
Certificateholder will be required to
include the original issue discount in
gross income as it accrues, which may be
prior to the receipt of cash attributable
to such income. If a Security is issued at
a premium, the holder will be entitled to
make an election to amortize such premium
on a constant yield method. Securities
constituting regular or residual interests
in a REMIC will generally represent
"qualifying real property loans" for
mutual savings banks and domestic building
and loan associations, "loans secured by
an interest in real property" for domestic
building and loan associations and "real
estate assets" for real estate investment
trusts to the extent that the underlying
mortgage loans and interest thereon
qualify for such treatment. Non- REMIC
Securities (other than interests in
grantor trusts) will not qualify for such
treatment.
A holder of a Residual Interest Security
will be required to include in its income
its pro rata share of the taxable income
of the REMIC. In certain circumstances,
the holder of a Residual Interest Security
may have REMIC taxable income or tax
liability attributable to REMIC taxable
income for a particular period in excess
of cash distributions for such period or
have an after-tax return that is less than
the after-tax return on comparable debt
instruments. In addition, a portion (or,
in some cases, all) of the income from a
Residual Interest Security (i) except in
certain circumstances with respect to a
holder classified as a thrift institution
under the Code, may not be subject to
offset by losses from other activities,
(ii) for a holder that is subject to tax
under the Code on unrelated business
taxable income, may be treated as
unrelated business taxable income and
(iii) for a foreign holder, may not
qualify for exemption from or reduction of
withholding. Further, individual holders
are subject to limi-
24
<PAGE>
tations on the deductibility of expenses
of the REMIC. See "FEDERAL INCOME TAX
CONSIDERATIONS."
LEGAL INVESTMENT ....... Unless otherwise specified in the related
Prospectus Supplement, Securities of each
Series offered by this Prospectus and the
related Prospectus Supplement will not
constitute "mortgage related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and to what extent the
Securities constitute legal investments
for them. See "LEGAL INVESTMENT."
USE OF PROCEEDS ........ The Issuer will use the net proceeds from
the sale of each Series to (i) purchase
Mortgage Loans and/or Private Mortgage-
Backed Securities comprising the Mortgage
Assets securing such Securities, (ii)
repay indebtedness which has been incurred
to acquire Mortgage Assets to be pledged
by the Issuer as security for the Bonds or
to be deposited into a Trust Fund, (iii)
establish any Reserve Funds described in
the related Prospectus Supplement, or (iv)
pay costs of structuring, guaranteeing and
issuing such Securities. If so specified
in the related Prospectus Supplement, the
purchase of the Mortgage Assets for a
Series may be effected by an exchange of
Securities with the seller of such
Mortgage Assets. See "USE OF PROCEEDS."
RATINGS ................ It will be a condition to the issuance of
any Securities offered by this Prospectus
and the related Prospectus Supplement that
they be rated in one of the four highest
applicable rating categories by at least
one Rating Agency. The rating or ratings
applicable to Securities of each Series
will be as set forth in the related
Prospectus Supplement.
A security rating should be evaluated
independently of similar ratings of
different types of securities. A security
rating does not address the effect that
the rate of prepayment on Mortgage Loans
comprising or underlying the Mortgage
Assets or the effect that reinvestment
rates may have on the yield to investors
in the Securities. A 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 rating should be
evaluated independently of any other
rating. See "RISK FACTORS."
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities.
Limited Liquidity. There can be no assurance that a secondary market for
the Securities of any Series will develop or, if it does develop, that it
will provide holders with liquidity of investment or will continue while
Securities of such Series remain outstanding. The market value of Securities
will fluctuate with changes in prevailing rates of interest. Consequently,
sale of the Securities by a holder in any secondary market which may develop
may be at a discount from par value or from their purchase price.
Furthermore, secondary purchasers may look only to the Prospectus Supplement
attached hereto and to the reports to Bondholders or Certificateholders, as
applicable, delivered pursuant to the Indenture or Trust Agreement, as
applicable and as described herein under the heading "DESCRIPTION OF THE
SECURITIES--General," "--The Bonds-General," and "--The Certificates-General"
for information concerning the Securities. Except to the extent described in
the related Prospectus Supplement, Bondholders or Certificateholders, as
applicable, will have no optional redemption or early termination rights,
respectively. The Bonds are subject to redemption, and the Certificates are
subject to early termination or repurchase, by the Issuer only under certain
specified circumstances described herein and in the related Prospectus
Supplement." See "DESCRIPTION OF THE SECURITIES--Special Redemption,"
"--Optional Redemption," "--Optional Termination," "--Optional Repurchase of
Certificates," and "--Other Repurchases." Shearson Lehman Brothers Inc.
("Lehman Brothers"), through one or more of its affiliates, and the other
underwriters, if any, presently expect to make a secondary market in the
Securities, but have no obligation to do so.
Limited Assets. The Issuer will not have, nor be expected in the future to
have, any significant assets available for payments on a Series of Securities
other than the assets pledged as security or deposited into a Trust Fund for
a specific Series. The Bonds will be non-recourse obligations of the Issuer
and each Series of Bonds will be separately secured. Unless otherwise
specified in the related Prospectus Supplement, no Series will have any claim
against or security interest in the Primary Assets pledged to secure any
other Series. If the Primary Assets securing a Series of Bonds is
insufficient to make payments on such Bonds, no other assets of the Issuer
will be available for payment of the deficiency.
Unless otherwise set forth in the Prospectus Supplement for a Series of
Certificates, the Trust Fund for such Series will be the only available
source of funds to make distributions on the Certificates of such Series. The
only obligations, if any, of the Depositor with respect to the Certificates
of any Series will be pursuant to certain representation and warranties. The
Depositor does not have, and is not expected in the future to have, any
significant assets with which to meet any obligation to repurchase Mortgage
Assets with respect to which there has been a breach of any representation or
warranty. If, for example, the Depositor were required to repurchase a
Mortgage Loan which constitutes a Mortgage Asset, its only sources of funds
to make such repurchase would be from funds obtained from the enforcement of
a corresponding obligation, if any, on the part of the originator of the
Mortgage Loans or the Servicer, as the case may be, or from a reserve fund
established to provide funds for such repurchases.
Additionally, certain amounts remaining in certain funds or accounts,
including the Collection Account and any Reserve Funds, may be withdrawn
under certain conditions and circumstances described in the related
Prospectus Supplement. In the event of such withdrawal, such amounts will not
be pledged to, or available for, future payment or distribution of principal
of or interest on the Securities. If so specified in the related Prospectus
Supplement, on any Payment Date or Distribution Date on which the principal
balance of the Mortgage Assets is reduced due to losses on the Mortgage
Assets, (i) the amount of such losses will be allocated first, to reduce the
Aggregate Outstanding Principal of the Subordinate Securities or other
subordination, if any, and, thereafter, to reduce the Aggregate Outstanding
Principal of the remaining Securities in the priority and manner specified in
such Prospectus Supplement until the Aggregate Outstanding Principal of each
Class of Securities so specified has been reduced to zero or paid in full,
thus, reducing the amount of principal payable on each such Class of
Securities or (ii) such losses may be allocated in any other manner set forth
in the related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, such reductions of
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principal of a Class or Classes of Securities shall be allocated to the
Holders of the Securities of such Class or Classes pro rata in the proportion
which the outstanding principal of each Security of such Class or Classes
bears to the Aggregate Outstanding Principal of all Securities of such Class.
Yield and Prepayment Considerations. Prepayments on the Mortgage Loans
comprising or underlying the Mortgage Assets securing a Series or deposited
into a Trust Fund, as the case may be, generally will result in a faster rate
of principal payments on such Securities than if payments on such Mortgage
Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Loans comprising or underlying the Mortgage Assets will affect the
average life of each Class secured thereby and the extent to which each such
Class is paid prior to its Stated Maturity or Final Scheduled Distribution
Date. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be
no assurance as to the rate of prepayment on the Mortgage Assets securing any
Series of Bonds or deposited into a Trust Fund, as the case may be, or that
the rate of payments will conform to any model described herein or in any
Prospectus Supplement. If prevailing interest rates fall significantly below
the applicable mortgage rates, principal prepayments are likely to be higher
than if prevailing rates remain at or above the rates borne by the Mortgage
Loans comprising or underlying the Primary Assets securing a Series of Bonds
or deposited into a Trust Fund, as the case may be. As a result, the actual
maturity of or final distribution on any Class could occur significantly
earlier than its Stated Maturity or Final Scheduled Distribution Date. The
actual maturity of the Bonds or final distribution on the Certificates will
also be affected by the extent to which Excess Cash Flow is applied to
payments or distributions of principal on the Securities. A Series of
Securities may include Classes of PAC Securities or other Securities with
priorities of payment and, as a result, yields on other Classes of Securities
of such Series may be more sensitive to prepayments on Mortgage Loans. A
Series may include a Class offered at a significant premium or discount.
Yields on such Class of Securities will be sensitive, and in some cases
extremely sensitive, to prepayments on Mortgage Loans and, in the case of a
premium Class, where the amount of interest payable with respect to such
Class is extremely disproportionate to principal, a holder might, in some
prepayment scenarios, fail to recoup its original investment. See "YIELD AND
PREPAYMENT CONSIDERATIONS."
Limited Nature of Rating. Any rating assigned to the Securities by a
Rating Agency will reflect such Rating Agency's assessment solely of the
likelihood that holders of such Securities will receive payments required to
be made under the Indenture or Trust Agreement, as the case may be. Such
rating will not constitute an assessment of the likelihood that principal
prepayments on the Mortgage Loans underlying or comprising the Mortgage
Assets will be made by Mortgagors or of the degree to which the rate of such
prepayments might differ from that originally anticipated. Such rating will
not address the possibility that prepayment at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that investors purchasing a Security at a significant
premium might fail to recoup their initial investment under certain
prepayment scenarios.
The amount of Primary Assets, including any applicable Enhancement,
required to support a Series of Securities will be determined on the basis of
criteria established by each Rating Agency rating such Series. Such criteria
are sometimes based upon actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of Enhancement required with respect to each
Series of Securities. There can be no assurance that the historical data
supporting such actuarial analysis will accurately reflect future experience
generally nor any assurance that the data derived from a large pool of
mortgages will accurately predict the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. In other cases, such
analysis may be based upon the value of the property underlying the Mortgage
Assets. There can be no assurance that such value will accurately reflect the
future value of the property and, therefore, whether or not the Securities
will be paid in full.
Certain legal aspects of the Mortgage Loans comprising or underlying
Mortgage Assets for a Series will be described in the related Prospectus
Supplement.
Certain Mortgage Loans and Mortgaged Property; Obligor Default. Mortgage
Loans made with respect to Multifamily or Commercial Property may entail
risks of loss in the event of delinquency and
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foreclosure that are greater than similar risks associated with traditional
single-family property. Many of the Mortgage Loans may be nonrecourse loans
as to which, in the event of an obligor default, recourse may be had only
against the specific Commercial or Multifamily Property and such limited
other assets as have been pledged to secure such Mortgage Loan, and not
against the obligor's other assets. Furthermore, the repayment of loans
secured by income producing properties is typically dependent upon the
successful operation of the related real estate project rather than upon the
liquidation value of the underlying real estate. If the net operating income
from the project is reduced (for example, if rental or occupancy rates
decline or real estate and personal property tax rates or other operating
expenses increase), the obligor's ability to repay the loan may be impaired.
A number of the Mortgage Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the obligor or single tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the liquidation
value of any Mortgaged Property may be adversely affected by risks 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 and personal property tax rates and other operating
expenses including energy costs; changes in governmental rules, regulations
and fiscal policies, including environmental legislation; acts of God; and
other factors which are beyond the Master Servicer's or the Special
Servicer's, if any, control. Although the Servicer or the Master Servicer is
obligated to cause standard hazard insurance to be maintained with respect to
each Mortgage Loan, insurance with respect to extraordinary hazards such as
earthquakes and floods is generally not required to be maintained, and
insurance is not available with respect to many of the other risks listed
above.
Certain of the Mortgage Loans as of the Cut-Off Date may not be fully
amortizing over their terms to maturity, and, thus, will have substantial
principal balances due at their stated maturity. Mortgage Loans with balloon
payments involve a greater degree of risk because the ability of an obligor
to make a balloon payment typically will depend upon its ability either to
refinance the loan or to sell the related Mortgaged Property. The ability of
an obligor to accomplish either of these goals will be affected by a number
of factors, including the level of available mortgage rates at the time of
sale or refinancing, the obligor's equity in the related Mortgaged Property,
the financial condition and operating history of the obligor and the related
Mortgaged Property, tax laws, prevailing general economic conditions and the
availability of credit for commercial or multifamily, as the case may be,
real estate projects generally.
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Mortgage Loans, the Special Servicer, if any, will
have considerable flexibility under the Special Servicing Agreement to extend
and modify Mortgage Loans which are in default or as to which a payment
default is reasonably foreseeable, including in particular with respect to
balloon payments. In addition, the Special Servicer may receive a workout fee
based on receipts from or proceeds of such Mortgage Loans. While the Special
Servicer generally will be required to determine that any such extension or
modification is likely to produce a greater recovery on a present value basis
than liquidation, there can be no assurance that such flexibility with
respect to extensions or modifications or payment of a workout fee to the
Special Servicer will increase the present value of receipts from or proceeds
of Mortgage Loans which are in default or as to which a default is reasonably
foreseeable. To the extent losses on such Mortgage Loans exceed levels of
available enhancement, the Holders of the Bonds of a Series may experience a
loss. See "SERVICING OF MORTGAGE LOANS--Maintenance of Insurance Policies and
Other Servicing Procedures" and "ENHANCEMENT."
Enhancement Limitations. The amount, type and nature of Insurance
Policies, subordination, Bond Guarantee Insurance, letters of credit,
overcollateralization, Reserve Funds and other enhancement, if any, required
with respect to a Series will be determined on the basis of criteria
established by each Rating Agency rating such Series. Such criteria are
sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of Enhancement required with respect to each
Series of Securities. There can be
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no assurance that the historical data supporting any such actuarial analysis
will accurately reflect future experience nor any assurance that the data
derived from a large pool of mortgage loans accurately predicts the
delinquency, foreclosure or loss experience of any particular pool of
Mortgage Loans.
In addition, if principal payments on Securities of a Series are made in a
specified order of priority, any limits with respect to the aggregate amount
of claims under any related insurance policy, letters of credit or other
enhancement may be exhausted before the principal of the lower priority
Classes has been repaid. As a result, the impact of significant losses on the
Mortgage Loans may bear primarily upon the Securities of the later maturing
Classes.
The Prospectus Supplement for a Series will describe any Reserve Funds,
Insurance Policies, letter of credit, subordination, Bond Guarantee
Insurance, over collateralization or other credit support relating to the
Mortgage Assets or to the Securities of such Series. Use of such Reserve
Funds and payments under such Insurance Policies, Bond Guarantee Insurance,
letter of credit or other third-party credit support will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Reserve Funds, Insurance Policies, letter of
credit or other credit support may not cover all potential losses or risks;
for example, Enhancement may or may not cover fraud or negligence by the
Issuer, the Master Servicer or other parties. Moreover, if a form of
enhancement covers more than one Series of Securities (each, a "Covered
Trust"), holders of Securities issued by any of such Covered Trusts will be
subject to the risk that such credit support will be exhausted by the claims
of other Covered Trusts prior to such Covered Trust receiving any of its
intended share of such coverage. The obligations of the issuers of any credit
support will not be guaranteed or insured by the United States, or by any
agency or instrumentality thereof. A Series of Bonds may include a Class or
multiple Classes of Subordinate Securities to the extent described in the
related Prospectus Supplement. Although such subordination is intended to
reduce the risk of delinquent distributions or ultimate losses to Holders of
Senior Securities, the amount of subordination will be limited and will
decline under certain circumstances and any related Reserve Fund could be
depleted in certain circumstances. See "DESCRIPTION OF THE SECURITIES,"
"SECURITY FOR THE BONDS AND CERTIFICATES" and "ENHANCEMENT."
Overcollateralization and Subordination. To provide Bondholders and
Certificateholders with a degree of protection against loss, Mortgage Assets
having an Asset Value in excess of the principal amount of the Securities may
be pledged to secure a Series or deposited into the related Trust Fund, as
the case may be, or Excess Cash Flow may be applied to create
overcollateralization. Alternatively, a Series of Securities may include one
or more Classes of Subordinate Securities to the extent described in the
related Prospectus Supplement. Such overcollateralization or subordination
will be at amounts established by the Rating Agency rating the Series based
on an assumed level of defaults, delinquencies, other losses, application of
Excess Cash Flow or other factors. There can, however, be no assurance that
the loss experience on the Mortgage Assets securing the Securities will not
exceed such assumed levels, adversely affecting the ability of the Issuer to
meet debt service or distribution requirements on the Securities.
Although overcollateralization and subordination are intended to reduce
the risk of delinquent payments or losses to holders of Senior Securities,
the amount of overcollateralization or subordination, as the case may be,
will be limited and will decline under certain circumstances and any related
Reserve Fund could be depleted in certain circumstances.
Delinquent and Non-Performing Mortgage Loans. As set forth in the related
Prospectus Supplement, the Mortgage Pool for a particular Series may include,
as of the Cut-Off Date, REO Properties or Mortgage Loans that are past due or
are non-performing. If so specified in the related Prospectus Supplement,
management of such REO Properties or servicing with respect to such Mortgage
Loans will be transferred to the Special Servicer as of the Closing Date.
Enhancement provided with respect to a particular Series may not cover all
losses related to such delinquent or non-performing Mortgage Loans or to such
REO Properties. Investors should consider the risk that the inclusion of such
Mortgage Loans or such REO Properties in the Mortgage Pool may affect the
rate of defaults and prepayments on such Mortgage Pool and the yield on the
Securities of such Series. See "SECURITY FOR THE BONDS AND
CERTIFICATES--Mortgage Loans."
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Remedies Following Default. The market value of the Mortgage Assets
securing a Series will fluctuate as general interest rates fluctuate.
Following an Event of Default with respect to a Series of Bonds, there is no
assurance that the market value of the Mortgage Assets securing the 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 expenses or
liabilities payable thereon. If the Mortgage Assets securing a Series are
sold by the Trustee following an Event of Default, the proceeds of such sale
may be insufficient to pay in full the principal of and interest on such
Bonds. However, in certain events the Trustee may be restricted from selling
the Mortgage Assets securing a Series. See "THE INDENTURE--Events of
Default."
In addition, upon an Event of Default with respect to a Series and a
resulting sale of the Mortgage Assets securing such Bonds, unless otherwise
specified in the related Prospectus Supplement, the proceeds of such sale
will be applied, first, to the payment of certain amounts due to the Trustee,
second, to the payment of accrued interest on, and then to the payment of the
then Aggregate Outstanding Principal of, such Bonds (including interest on
and the Aggregate Outstanding Principal of any Residual Interest Bond) (as
specified in the related Prospectus Supplement), third, to the payment of the
remaining Administration Fee, if any, and, fourth, to the payment of any
additional amounts due the Issuer or to the holders of the Residual Interest
Bonds as applicable. Consequently, in the event of any such Event of Default
and sale of Mortgage Assets, any Classes on which principal payments have
previously been made may have, in the aggregate, a greater proportion of
their principal repaid than will Classes on which principal payments have not
previously been made.
In the event the principal of the Securities of a Series is declared due
and payable, the holders of any such Securities issued at a discount from par
("original issue discount") may be entitled, under applicable provisions of
the federal Bankruptcy Code, to receive no more than an amount equal to the
unpaid principal amount thereof less unamortized original issue discount
("accreted value"). There is no assurance as to how such accreted value would
be determined if such event occurred.
Enforceability. As specified in the related Prospectus Supplement, the
Mortgages may contain due-on-sale clauses, which permit the lender to
accelerate the maturity of the Mortgage Loan if the borrower sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Such clauses are generally enforceable subject to certain
exceptions.
As specified in the related Prospectus Supplement, the Mortgage Loans may
include a debt- acceleration clause, which permits the lender to accelerate
the debt upon a monetary or non-monetary default of the borrower. The courts
of all states will enforce clauses providing for acceleration in the event of
a material payment default. The equity courts of any state, however, may
refuse to foreclose a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust or the circumstances would render
the acceleration unconscionable.
To the extent specified in the related Prospectus Supplement, the Mortgage
Loans will be secured by an assignment of leases and rents pursuant to which
the obligor typically assigns its right, title and interest as landlord under
the leases on the related Mortgaged Property and the income derived therefrom
to the lender as further security for the related Mortgage Loan, while
retaining a license to collect rents for so long as there is no default. In
the event the obligor defaults, the license terminates and the lender is
entitled to collect rents. Such assignments must usually be recorded to be
perfected as security interests. In addition, some state laws require that
the lender take possession of the Mortgaged Property and/or obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. See
also "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Anti-Deficiency
Legislation and Other Limitations on Lenders."
Environmental Risks. Real property pledged as security to a lender may be
subject to certain environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to assure
the costs of clean-up. In several states, such a lien has priority over the
lien of an existing mortgage against such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), a lender may be
liable, as an "owner" or "operator," for costs of addressing releases or
threatened
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releases of hazardous substances that require remedy at a property, if agents
or employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the environmental
damage or threat was actually caused or exacerbated by the lender's agents or
employees. A lender also risks such liability on and following foreclosure of
the Mortgaged Property. Unless otherwise specified in the related Prospectus
Supplement, the Servicing Agreement, Master Servicing Agreement or Special
Servicing Agreement, as applicable, provides that the Servicer, the Master
Servicer or the Special Servicer, as applicable, acting on behalf of the
Trust Estate, may not acquire title to a Mortgaged Property underlying a
Mortgage Loan or take over its operation unless the Servicer, the Master
Servicer or the Special Servicer, as applicable, has previously determined,
based upon a report prepared by a person who regularly conducts environmental
audits, that (i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such actions as
are necessary to bring the Mortgaged Property in compliance therewith is
reasonably likely to produce a greater recovery on a present value basis than
not taking such actions and (ii) there are no circumstances or conditions
present that have resulted in any contamination or if such circumstances or
conditions are present for which such action could be required, taking such
actions with respect to the affected Mortgaged Property is reasonably likely
to produce a greater recovery on a present value basis than not taking such
actions. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Environmental
Matters."
ERISA Considerations. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans.
Due to the complexity of regulations which govern such plans, prospective
investors that are subject to ERISA are urged to consult their own counsel
regarding consequences under ERISA of acquisition, ownership and disposition
of the Securities of any Series. See "ERISA CONSIDERATIONS."
Certain Federal Tax Considerations Regarding Residual Interest Bonds and
Residual Interest Certificates. Holders of Residual Interest Bonds and
Residual Interest Certificates will be required to report on their federal
income tax returns as ordinary income their pro rata share of the taxable
income of the REMIC regardless of the amount or timing of their receipt of
cash payments as described in "FEDERAL INCOME TAX CONSIDERATIONS--Residual
Interests in a REMIC." Accordingly, under certain circumstances, holders of
Securities which constitute Residual Interest Bonds and Residual Interest
Certificates may have taxable income and tax liabilities arising from such
investment during a taxable year in excess of the cash received during such
period. The requirement that holders of Residual Interest Bonds and Residual
Interest Certificates report their pro rata share of the taxable income and
net loss of the REMIC will continue until the principal balances of all
Classes of Bonds or Certificates of the related Series have been reduced to
zero, even though holders of Residual Interest Bonds and Residual Interest
Certificates have received full payment of their stated interest and
principal. A portion (or, in certain circumstances, all) of a holder of a
Residual Interest Bond's or Residual Interest Certificate's share of the
REMIC taxable income may be treated as "excess inclusion" income to such
holder which (i) 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 Securities constituting
Residual Interest Bonds and Residual Interest Certificates may be limited in
their ability to deduct servicing fees and other expenses of the REMIC. In
addition, Residual Interest Bonds and Residual Interest Certificates are
subject to certain restrictions on transfer. Because of the special tax
treatment of Residual Bonds, the taxable income arising in a given year on a
Residual Interest Bond and Residual Interest Certificates will not be equal
to the taxable income associated with investment in a corporate bond or
stripped instrument having similar cash flow characteristics and pre-tax
yield. Therefore, the after-tax yield on the Residual Interest Bond and
Residual Interest Certificates may be significantly less than that of a
corporate bond or stripped instrument having similar cash flow
characteristics, or may be negative.
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DESCRIPTION OF THE SECURITIES
GENERAL
The following summaries describe certain provisions common to each Series.
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 Trust Agreement and the Prospectus Supplement relating to each Series.
When particular provisions or terms used in the Indenture or Trust Agreement
are referred to, such provisions or terms shall be as specified in the
Indenture or Trust Agreement.
THE BONDS--GENERAL
The Bonds will be issued in Series pursuant to a Trust Indenture between
the Company and Bankers Trust or Marine Midland (or another bank or trust
company qualified under the TIA and named in the related Prospectus
Supplement for a Series), as Trustee, or a Trust and the Trustee, each as
supplemented by or as incorporated by reference by a Series Supplement with
respect to each Series. A copy of the form of Trust Indenture has been filed
with the Commission as an exhibit to the Registration Statement of which the
Prospectus forms a part. A copy of the Series Supplement for a Series, if
any, will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of issuance of the
Bonds of the related Series.
The Indenture does not limit the amount of Bonds that can be issued
thereunder and provides that any Series may be issued thereunder up to the
aggregate principal amount specified in the related Series Supplement that
may be authorized from time to time by the Issuer. Each Series will consist
of one or more Classes, one or more of which may be Compound Interest
Securities, Variable Interest Securities, Individual Investor Securities,
Planned Amortization Class Securities, Zero Coupon Securities, Principal Only
Securities, Interest Only Securities or Participating Securities. A Series
may also include one or more Classes of Subordinate Securities. If so
specified in related Prospectus Supplement, such Subordinate Securities may
be offered hereby and by the related Prospectus Supplement. Each Class of a
Series will be issued in registered or bearer form, as designated in the
related Prospectus Supplement for a Series, in the minimum denominations
specified in the related Prospectus Supplement. See "--Bearer Securities and
Registered Securities." Bonds of a Series may be issued in whole or part in
book-entry form. The transfer of the Bonds may be registered and the Bonds
may be exchanged without the payment of any service charge payable in
connection with such registration of transfer or exchange.
Payments of principal of and interest on the Bonds which are registered
securities will be made by the Trustee, or if the Trustee is not the paying
agent, the Paying Agent. Payments of principal of and interest on a Series
will be made on the Payment Dates specified in the related Prospectus
Supplement, to Bondholders of such Series registered as such on the close of
business on the record date specified in the related Prospectus Supplement at
their addresses appearing on the Bond Register. All payments will be made by
check mailed to the Bondholder or by wire transfer to accounts maintained by
such Bondholder as specified in the related Prospectus Supplement, except
that final payments of principal in retirement of each Bond will be made only
upon presentation and surrender of such Bond at the office of the New York
Presenting Agent. Notice will be mailed to the holder of such Bond before the
Payment Date on which the final principal payment in retirement of the Bond
is expected to be made.
The Trustee will include with each payment on a Bond a statement showing
among other things, the allocation of such payment to interest, if any, and
principal, if any, and the remaining unpaid principal amount of a Bond of
each Class having the minimum denomination for Bonds of such Class of that
Series, the amount of Advances made by the Primary Servicer, the amount of
servicing compensation paid with respect to the Mortgage Assets, the
aggregate principal balance of delinquent, foreclosed Mortgage Loans and REO
Property, the realized losses for the Mortgage Assets, if applicable, the
number and aggregate principal balance of Deleted and Substitute Mortgage
Loans, and on each Payment Date prior to the commencement of principal
payments on a Class of Compound Interest Bonds, the aggregate unpaid
principal amount of each Class of Bonds, the interest accrued since the prior
Payment Date and added to the principal of a Compound Interest Bond having
the minimum denomination for Bonds of such Class and the new principal
balance of such Bond.
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THE CERTIFICATES--GENERAL
The Certificates will be issued in Series pursuant to separate Trust
Agreements between the Depositor and Bankers Trust or Marine Midland (or
another bank or trust company qualified under the TIA and named in the
Prospectus Supplement for a Series). A form of Trust Agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part. The Trust Agreement relating to each Series of Certificates will be
filed as an exhibit to a report on Form 8-K to be filed with the Commission
within 15 days following the issuance of such Series of Certificates. The
following summaries describe certain provisions common to each Series of
Certificates. 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
Trust Agreement and the Prospectus Supplement relating to each Series of
Certificates. When particular provisions or terms used in the Trust Agreement
are referred to, such provisions or terms shall be as specified in the Trust
Agreement.
Each Series of Certificates will consist of one or more Classes, one or
more of which may consist of Compound Interest Securities, Variable Interest
Securities, Interest Only Certificates, Principal Only Certificates, Zero
Coupon Securities or Planned Amortization Class Securities ("PACs"). A Series
of Certificates may also include one or more Classes of Subordinate
Securities.
Each Series will be issued in fully registered form or bearer form, in the
minimum original amount or notional amount for Certificates of each Class
specified in the related Prospectus Supplement. The transfer of the
Certificates may be registered, and the Certificates may be exchanged,
without the payment of any service charge payable in connection with such
registration of transfer or exchange. If specified in the related Prospectus
Supplement, one or more Classes of a Series may be available in book-entry
form only. See "--Bearer Securities and Registered Securities."
Commencing on the date specified in the related Prospectus Supplement,
distributions of principal and interest on the Certificates will be made on
each Distribution Date as set forth in the related Prospectus Supplement.
Distribution of principal of and interest on Certificates of a Series in
registered form will be made by check mailed to Certificateholders of such
Series registered as such on the close of business on the record date
specified in the related Prospectus Supplement at their addresses appearing
on the Certificate Register, except that (a) distributions may be made by
wire transfer (at the expense of the Certificateholder requesting payment by
wire transfer) in certain circumstances described in the related Prospectus
Supplement and (b) the final distribution in retirement of a Certificate will
be made only upon presentation and surrender of such Certificate at the
corporate trust office of the Trustee for such Series or such other office of
the Trustee as specified in the Prospectus Supplement. Notice of the final
distribution on a Certificate will be mailed to the Holder of such
Certificate before the Distribution Date on which such final distribution in
retirement of the Certificate is expected to be made.
The Trustee will include with each distribution on a Certificate a
statement showing among other things, the allocation of such payment to
interest, if any, and principal, if any, and the remaining unpaid principal
amount of a Certificate of each Class having the minimum denomination for
Certificates of such Class of that Series, the amount of Advances made by the
Primary Servicer, the amount of servicing compensation paid with respect to
the Mortgage Assets, the aggregate principal balance of delinquent,
foreclosed Mortgage Loans and REO Property, the realized losses for the
Mortgage Assets, if applicable, the number and aggregate principal balance of
Deleted and Substitute Mortgage Loans, and on each Distribution Date prior to
the commencement of principal payments on a Class of Compound Interest
Securities, the aggregate unpaid principal amount of each Class of
Certificates, the interest accrued since the prior Distribution Date and
added to the principal of a Compound Interest Certificate having the minimum
denomination for Certificates of such Class and the new principal balance of
such Certificate. See "THE TRUST AGREEMENT--Reports to Certificateholders."
BEARER SECURITY AND REGISTERED SECURITIES
Unless otherwise provided with respect to a Series of Securities, the
Securities will be issuable as registered securities without coupons. If so
provided with respect to a Series of Securities, Securities of
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such Series will be issuable solely as bearer securities with coupons
attached or as both registered securities and bearer securities. Any such
bearer securities will be issued in accordance with U.S. tax and securities
laws then applicable to the sale of such securities.
Unless applicable law at the time of issuance of any bearer securities
provides otherwise, in connection with the sale during the "restricted
period" as defined in Section 1.163-5(c)(2)(i)(D)(7) of the United States
Treasury Regulations (generally, the first 40 days after the Closing Date
and, with respect to unsold allotments, until sold) no bearer security shall
be mailed or otherwise delivered to any location in the United States (as
defined under "LIMITATIONS ON ISSUANCE OF BEARER SECURITIES"). A bearer
security in definitive form may be delivered only if the Person entitled to
receive such bearer security furnishes written certification, in the form
required by the Indenture, to the effect that such bearer security is not
owned by or on behalf of a United States person (as defined under
"LIMITATIONS ON ISSUANCE OF BEARER SECURITIES"), or, if a beneficial interest
in such bearer security is owned by or on behalf of a United States person,
that such United States person (i) acquired and holds the bearer security
through a foreign branch of a United States financial institution, (ii) is a
foreign branch of a United States financial institution purchasing for its
own account or resale (and in either case (i) or (ii), such financial
institution agreed to comply with the requirements of Section 165(j)(3)(A),
(B), or (C) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder) or (iii) is a financial institution purchasing for
resale during the restricted period only to non-United States persons outside
the United States. See "LIMITATION ON ISSUANCE OF BEARER SECURITIES."
Registered securities of any Series (other than in book-entry form) will
be exchangeable for other registered securities of the same Series and of a
like aggregate principal amount and tenor but of different authorized
denominations. In addition, if specified in the related Prospectus
Supplement, if Securities of any Series are issuable as both registered
securities and as bearer securities, at the option of the Holder, upon
request confirmed in writing, and subject to the terms of the Indenture or
Trust Agreement, as the case may be, bearer securities (with all unmatured
coupons, except as provided below, and all matured coupons in default) of
such Series will be exchangeable into registered securities of the same
Series of any authorized denominations and of a like aggregate principal
amount and tenor. Unless otherwise indicated in an applicable Prospectus
Supplement, any bearer security surrendered in exchange for a registered
security between the relevant record date and the relevant date for payment
of interest shall be surrendered without the coupon relating to such date for
payment of interest and interest will not be payable in respect of the
registered security issued in exchange for such bearer security, but will be
payable only to the holder of such coupon when due in accordance with the
terms of the Indenture or Trust Agreement, as the case may be. Except as
provided in an applicable Prospectus Supplement, bearer securities will not
be issued in exchange for registered securities. If Securities of a Series
are issuable as bearer securities, the Issuer will be required to maintain a
transfer agent for such Series outside the United States.
Unless otherwise indicated in an applicable Prospectus Supplement, payment
or distribution of principal of and interest on bearer securities will be
payable or distributable, subject to any applicable laws and regulations, at
the offices of such Paying Agents outside the United States as the Issuer may
designate from time to time by check or by wire transfer, at the option of
the holder, to an account maintained by the payee with a bank located outside
the United States. Unless otherwise indicated in an applicable Prospectus
Supplement, payment or distribution of interest on bearer securities on any
Payment Date or Distribution Date, as applicable, will be made only against
surrender of the coupon relating to such Payment Date or Distribution Date,
as applicable. No payment or distribution of interest on a bearer security
will be made unless on the earlier of the date of the first such payment by
the Paying Agent or the delivery by the Issuer of the bearer security in
definitive form (the "Certification Date"), a written certificate in the form
and to the effect described above is provided to the Issuer. No payment or
distribution with respect to any bearer security will be made at any office
or agency in the United States or by check mailed to any address in the
United States or by transfer to an account maintained with a bank located in
the United States. Notwithstanding the foregoing, payment or distribution of
principal of and interest on bearer securities denominated and payable in
U.S. dollars will be made at the office of the
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Issuer's Paying Agent in the Borough of Manhattan, The City of New York if,
and only if, payment of the full amount thereof in U.S. dollars at all
offices or agencies outside the United States is illegal or effectively
precluded by exchange controls or other similar restrictions.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Securities will
be issued in book-entry form in the minimum denominations specified in such
Prospectus Supplement and integral multiples thereof, and each Class will be
represented by one or more single Securities registered in the name of the
nominee of the depository, The Depository Trust Company ("DTC"), a
limited-purpose trust company organized under the laws of the State of New
York. Unless otherwise specified in the related Prospectus Supplement, no
person acquiring an interest in book-entry Securities (a "Securities Owner")
will be entitled to receive Securities representing such person's interest in
the Securities except in the event that Definitive Securities (as defined
herein) are issued under the limited circumstances set forth below. Unless
and until Definitive Securities are issued, it is anticipated that the only
holder of book-entry Securities will be Cede & Co., as nominee of DTC.
Securities Owners will not be "Holders," "Bondholders" or
"Certificateholders" under the Indenture or Trust Agreement, as applicable,
and Securities Owners will only be permitted to exercise the rights of
Bondholders or Certificateholders, as applicable, indirectly through DTC and
its Participants.
DTC was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic book- entry changes in
accounts of its Participants. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is
available to entities that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly ("Indirect Participants").
Securities Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of book-entry
Securities may do so only through Participants and Indirect Participants.
Because DTC can only act on behalf of Participants and Indirect Participants,
the ability of a Securities Owner to pledge such owner's interest in a
book-entry Security to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interest in a book-entry
Security, may be limited. In addition, under a book-entry format, Securities
Owners may experience some delay in their receipt of principal and interest
distributions with respect to the book-entry Securities since such
distributions will be forwarded to DTC and DTC will then forward such
distributions to its Participants which in turn will forward them to Indirect
Participants or Securities Owners.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the book-entry
Securities and is required to receive and transmit principal and interest
distributions and other distributions with respect to the book-entry
Securities. Participants and Indirect Participants with which Securities
Owners have accounts with respect to book-entry Securities similarly are
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Securities Owners. Accordingly,
although Securities Owners will not possess book-entry Securities, the Rules
provide a mechanism by which Securities Owners will receive distributions and
will be able to transfer their interests.
The Issuer understands that DTC will take any action permitted to be taken
by a Bondholder or Certificateholder under the Indenture or Trust Agreement,
as applicable, only at the direction of one or more Participants to whose
account with DTC ownership of the book-entry Securities is credited.
Additionally, the Issuer understands that DTC will take such actions with
respect to Securities Owners who are holders of a certain specified interest
in book-entry Securities or holders having a certain specified voting
interest only at the direction of and on behalf of Participants whose
holdings represent that specified interest or voting interest. DTC may take
conflicting actions with respect to other Securities Owners to the extent
that such actions are taken on behalf of Participants whose holdings
represent that specified interest or voting interest.
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Unless otherwise specified in the related Prospectus Supplement,
Securities of a Series issued initially in book-entry form only will be
issued in fully registered, certificated form ("Definitive Securities") to
Securities Owners, rather than to DTC, only if (i) DTC advises the Trustee in
writing that DTC is no longer willing or able properly to discharge its
responsibilities as depository with respect to the Securities, and the Issuer
is unable to locate a qualified successor, (ii) the Issuer, at its sole
option, elects to terminate the book-entry system through DTC or (iii) after
the occurrence of an Event of Default under the Indenture or Trust Agreement,
as applicable, Bond owners representing a majority of the aggregate
outstanding principal amount of the Securities advise DTC through
Participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interests of Securities
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Securities. Upon surrender by DTC of
the Securities registered in the name of its nominee and instructions for
registration, the Trustee will issue all, but not less than all, of the
principal amount of the formerly DTC-held Securities then outstanding in the
form of Definitive Securities, and thereafter the Trustee will recognize the
holders of such Definitive Securities as Bondholders under the Indenture, or
Certificateholders under the Trust Agreement, as applicable.
VALUATION OF MORTGAGE ASSETS
If stated in the applicable Prospectus Supplement, each item of Mortgage
Assets securing a Series, or comprising the Trust Fund, as the case may be,
will be assigned an initial Asset Value determined in the manner and subject
to the assumptions specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, the aggregate of the Asset
Values of the Mortgage Assets pledged to secure a Series or comprising the
Trust Fund, as the case may be, will not be less than the initial Aggregate
Outstanding Principal of the related Series at the date of issuance thereof.
With respect to the Mortgage Assets pledged to collateralize the Bonds of
a Series, or comprising the Trust Fund, as the case may be, as of any date,
the Aggregate Asset Value, unless otherwise specified in the related
Prospectus Supplement, shall be equal to the aggregate of the Asset Values
for each Mortgage Loan or Private Mortgage-Backed Security or other Mortgage
Assets in the Trust Estate or Trust Fund, as applicable, for a Series of
Securities plus the amount, if any, remaining in the Collection Account and
any other Pledged Fund or Account subsequent to an initial deposit therein on
the Delivery Date, together with Reinvestment Income thereon, if any, at the
Assumed Reinvestment Rate, if any.
There are a number of alternative means of determining Asset Value of the
Mortgage Assets, including determinations based on the discounted present
value of the remaining scheduled payments on such Mortgage Assets,
determinations based on the relationship between the interest rate borne by
such Mortgage Assets and the Bond Interest Rate or Rates or Certificate
Interest Rate or Rates for the related Classes of Securities, or based upon
the aggregate outstanding principal balances of the Mortgage Assets. If
applicable, the Prospectus Supplement for a Series will specify the method or
methods and summarize the related assumptions used to determine the Asset
Values of the Mortgage Assets for such Series of Securities.
The Assumed Reinvestment Rate, if any, for a Series will be the rate on
which amounts deposited in the Collection Account will be assumed to accrue
interest or a rate insured or guaranteed by means of a surety bond,
Guaranteed Investment Contract, or similar arrangement. If the Assumed
Reinvestment Rate is insured or guaranteed, the related Prospectus Supplement
will set forth the terms of such arrangement.
PAYMENTS OR DISTRIBUTIONS OF INTEREST
Each Class of a Series (other than a Class of Zero Coupon Securities or
Principal Only Securities) will accrue interest at the rate per annum
specified, or in the manner determined and set forth, in the related
Prospectus Supplement (calculated on the basis of a 360-day year of twelve
30-day months, unless otherwise specified in the related Prospectus
Supplement). Interest on all Securities which accrue interest,
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other than Compound Interest Securities, will be due and payable on the
Payment Dates or Distribution Dates specified in the related Prospectus
Supplement. However, failure to pay interest on a current basis may not
necessarily be an Event of Default with respect to a particular Series of
Securities. Unless otherwise specified in the related Prospectus Supplement,
payment of interest on a Class of Compound Interest Securities will commence
only following the Accrual Termination Date. Prior to such time, interest on
such Class of Compound Interest Securities will accrue and the amount of
interest so accrued will be added to the principal thereof on each Payment
Date or Distribution Date. Following the applicable Accrual Termination Date,
interest payments will be made on such Class on the Compound Value of such
Class. The Compound Value of a Class of Compound Interest Securities equals
the original principal amount of the Class, plus accrued and unpaid interest
added to such Class through the immediately preceding Payment Date or
Distribution Date, less any principal payments previously made on that Class,
and if specified in the related Prospectus Supplement, losses allocable
thereto. Each payment of interest on each Class of Securities (or addition to
principal of a Class of Compound Interest Securities) on a Payment Date or
Distribution Date will include all interest accrued during the related
Interest Accrual Period preceding such Payment Date or Distribution Date,
which Interest Accrual Period will end on the day preceding each Payment Date
or Distribution Date or such earlier date as may be specified in the related
Prospectus Supplement. If the Interest Accrual Period for a Series ends on a
date other than a Payment Date or Distribution Date for such Series, the
yield realized by the holders of such Securities may be lower than the yield
that would result if the Interest Accrual Period ended on such Payment Date
or Distribution Date. Additionally, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
Classes may be calculated on the assumption that principal payments (and
additions to principal of the Securities), and allocations of losses on the
Primary Assets (if so specified in the related Prospectus Supplement), are
made on the first day of the preceding Interest Accrual Period and not on the
Payment Date or Distribution Date for such preceding Interest Accrual Period
when actually made or added. Such method would produce a lower effective
yield than if interest were calculated on the basis of the actual principal
amount outstanding.
To the extent provided in the related Prospectus Supplement, a Series may
include one or more Classes of Variable Interest Securities. The Variable
Interest Rate of Variable Interest Securities will be a variable or
adjustable rate, subject to a Maximum Variable Interest Rate and a Minimum
Variable Interest Rate. It is the Issuer's present intention, subject to
changing market conditions, that the Variable Interest Rate formula or index
be based on an established financial index in the national or international
financial markets. The Variable Interest Payment Dates or Variable Interest
Distribution Dates, as applicable, for Variable Interest Securities will be
set forth in the related Prospectus Supplement and need not be the same as
the Payment Dates or Distribution Dates for other Securities in such Series,
but may be either more or less frequent. Unless otherwise specified in the
related Prospectus Supplement or herein, references to Payment Date or
Distribution Dates include Variable Interest Payment Dates or Variable
Interest Distribution Dates, as applicable. For each Class of Variable
Interest Securities, the related Prospectus Supplement will set forth the
initial Bond Interest Rate or Certificate Interest Rate, as applicable, (or
the method of determining it), the Variable Interest Period and the formula,
index or other method by which the Bond Interest Rate or Certificate Interest
Rate, as applicable, for each Variable Interest Period will be determined.
Interest Only Securities or Interest Weighted Securities, among others,
may be assigned a "Notional Amount" which is used solely for convenience in
expressing the calculation of interest and for certain other purposes. Unless
otherwise specified in the related Prospectus Supplement, the Notional Amount
will be determined at the time of issuance of such Securities based on the
principal balances or Bond Value of the Mortgage Loans attributable to the
Securities of a Series entitled to receive principal, and will be adjusted
monthly over the life of the Securities based upon adjustments to the Asset
Value or principal amounts of such Mortgage Loans. Reference to the Notional
Amount is solely for convenience in certain calculations and does not
represent the right to receive any distributions allocable to principal.
If so specified in the related Prospectus Supplement, if funds in the
Collection Account are insufficient to make required payments of interest to
Bondholders or Certificateholders on any Payment Date or Distribution Date,
as applicable, amounts available for payment to the Bondholders or
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Certificateholders of each Class will be allocated pro rata in the proportion
in which the outstanding principal balance of each Bond or Certificate bears
to the aggregate outstanding principal balance of all Bonds or Certificates
of such Class, except that Subordinate Bondholders or Subordinate
Certificateholders, if any, will not, unless otherwise specified in the
related Prospectus Supplement, receive any payments of interest on the
Subordinate Bonds or Subordinate Certificates until Senior Bondholders or
Senior Certificateholders receive payments of interest due them (in each case
as described in the related Prospectus Supplement).
PAYMENTS OR DISTRIBUTIONS OF PRINCIPAL
On each Payment Date or Distribution Date for a Series, the Issuer will
make principal payments to the holders of the Securities of such Series on
which principal is then due and payable. Payments of principal on a Series
will be allocated among Classes of such Series in the order of priority and
amounts specified in the related Prospectus Supplement. All payments or
distributions of principal of Securities of a Class will be applied either on
a pro rata or random lot basis, as specified in the related Prospectus
Supplement.
Except as specified otherwise in the related Prospectus Supplement, the
total amount of principal payments or distributions required to be made on
the Securities of any Series on a Payment Date or Distribution Date (the
"Principal Payment Amount") will be determined as specified in the related
Prospectus Supplement. If the Series of Bonds has a Class of PAC Securities,
such PAC Securities will have certain priorities of payment with respect to
principal to the extent of certain targeted amounts with respect to each
Payment Date or Distribution Date, as set forth in the related Prospectus
Supplement. There can be no assurance that the Principal Payment Amount on
any Payment Date or Distribution Date will be sufficient to pay in full the
PAC Amount payable on such Payment Date or Distribution Date. The failure to
pay in full the PAC Amount payable on a Payment Date or Distribution Date
shall not constitute an Event of Default under the Indenture or Trust
Agreement.
If so specified in the related Prospectus Supplement, on any Payment Date
or Distribution Date on which the principal balance of the Mortgage Assets is
reduced due to losses on the Mortgage Assets, (i) the amount of such losses
will be allocated first, to reduce the Aggregate Outstanding Principal of the
Subordinate Bonds or Subordinate Certificates or other subordination, if any,
and, thereafter, to reduce the Aggregate Outstanding Principal of the
remaining Securities in the priority and manner specified in such Prospectus
Supplement until the Aggregate Outstanding Principal of each Class of
Securities so specified has been reduced to zero or paid in full, thus,
reducing the amount of principal payable on each such Class of Securities or
(ii) such losses may be allocated in any other manner set forth in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, such reductions of principal of a Class or Classes of
Securities shall be allocated to the holders of the Securities of such Class
or Classes pro rata in the proportion which the outstanding principal of each
Security of such Class or Classes bears to the Aggregate Outstanding
Principal of all Securities of such Class.
One or more Classes of a Series may consist of Subordinate Bonds or
Subordinate Certificates. Subordinate Bonds or Subordinate Certificates may
be included in a Series to provide credit support as described herein under
"ENHANCEMENT" in lieu of or in addition to other forms of credit support. The
extent of subordination of a Class of Subordinate Bonds or Subordinate
Certificates may be limited as described in the related Prospectus
Supplement. See "ENHANCEMENT." If the Mortgage Assets are divided into
separate Mortgage Groups securing separate Classes of a Series, credit
support may be provided by a cross-support feature which requires that
distributions be made to Senior Bonds or Senior Certificates secured by one
Mortgage Group prior to making distributions on Subordinate Bonds or Senior
Certificates secured by another Mortgage Group within the Trust Estate or
Trust Fund. Subordinate Bonds or Subordinate Certificates will be offered
hereby and by the related Prospectus Supplement so long as such Bonds or
Certificates are rated in one of the four highest rating categories by at
least one Rating Agency.
SPECIAL REDEMPTION
If specified in the related Prospectus Supplement, the Bonds of a 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
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Mortgage Assets securing such Bonds or the low yield available for
reinvestment or both, the Trustee determines (based on assumptions specified
in the Indenture and after giving effect to the amounts, if any, available to
be withdrawn from any Reserve Fund for such Series) that the amount
anticipated to be available in the Collection Account on the date specified
in the related Prospectus Supplement for such Series, 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 a
Series may be subject to special redemption in whole or in part following
certain defaults under an Enhancement Agreement and, in certain other events,
at the Redemption Price.
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. Unless otherwise
specified in the related Prospectus Supplement, the Redemption Price for any
Bonds so redeemed will be equal to 100% of the principal amount of such Bonds
(or 100% of the Compound Value of any Compound Interest Securities) or
portions thereof so redeemed, together with interest accrued thereon to the
date specified in the related Prospectus Supplement.
In the event that Mortgage Assets having an Aggregate Bond Value at least
equal to the original Aggregate Outstanding Principal of a Series is not
pledged and delivered to the Trustee on the related Closing Date, the Issuer
will deposit cash or Eligible Investments on an interim basis with the
Trustee on such Closing Date in lieu of such Undelivered Mortgage Assets. If
Mortgage Assets are not subsequently delivered within 90 days of issuance of
the Bonds, the amount of such deposit corresponding to principal may be used
to pay a corresponding amount of principal of the Bonds to the extent set
forth, and on the Payment Dates specified, in the Prospectus Supplement.
OPTIONAL REDEMPTION
The Issuer, or such other Person specified in the related Prospectus
Supplement, may, at its option and if so specified in the related Prospectus
Supplement, redeem, in whole or in part, one or more Classes of any Series on
any Payment Date for such Series 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 Redemption Date. In the case of a REMIC, the
Issuer may effect an optional redemption only if it obtains an opinion of
counsel that such redemption, or any contribution made to the REMIC in
connection with such redemption, will not cause the REMIC to fail to qualify
as such or cause the REMIC to be subject to tax. The Redemption Price for any
Bond so redeemed will be equal to 100% of the outstanding principal amount of
such Bond, together with interest accrued thereon to the date specified in
the related Prospectus Supplement.
MANDATORY REDEMPTION
If specified in the related Prospectus Supplement, Bonds of one or more
Classes of a Series ("Individual Investor Bonds") may be subject to mandatory
redemption by lot or by such other method set forth in the Prospectus
Supplement. Except as otherwise specified in the related Prospectus
Supplement, no Bonds of a particular Class will be redeemed until all Bonds
in each Class having a higher priority of redemption have been paid in full.
Residual Interest Bonds will not be redeemed except in connection with the
liquidation of the applicable REMIC, in which event the Residual Interest
Bonds of the applicable Series will be redeemed in full.
Individual Investor Bonds within a Class will be selected for redemption
by random lot in $1,000 units after all redemptions requested by holders of
Individual Investor Bonds in the Class have been made or by such other method
set forth in the Prospectus Supplement. Procedures relating to optional
redemptions requested by holders of Individual Investor Bonds and to
mandatory redemptions by the
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Issuer of Individual Investor Bonds, and the Class priorities, if any, and
conditions with respect to such redemptions, will be described in the related
Prospectus Supplement.
OPTIONAL TERMINATION
If so specified in the related Prospectus Supplement for a Series, the
Depositor, the Servicer, or another entity designated in the related
Prospectus Supplement may, at its option, cause an early termination of a
Trust Fund by repurchasing all of the Mortgage Assets from such Trust Fund on
or after a date specified in the related Prospectus Supplement, or on or
after such time as the aggregate outstanding principal amount of the
Certificates is less than a specified percentage of their initial aggregate
principal amount. In the case of a Trust Fund for which a REMIC election has
been made, the Trustee shall receive a satisfactory opinion of counsel that
the repurchase price will not jeopardize the status of the REMIC and that the
optional termination will be conducted so as to constitute a "qualified
liquidation" under Section 860F of the Code. See "THE TRUST
AGREEMENT--Termination."
OPTIONAL REPURCHASE OF CERTIFICATES
If so specified in the related Prospectus Supplement for a Series, one or
more Classes of the Certificates of such Series may be repurchased, in whole
or in part, at the option of the Depositor, at such times and under the
circumstances specified in such Prospectus Supplement. Notice of any such
repurchase must be given by the Trustee prior to the optional repurchase
date, as specified in the related Prospectus Supplement. The repurchase price
for any Certificate so repurchased will be set forth in the related
Prospectus Supplement.
OTHER REPURCHASES
If so specified in the related Prospectus Supplement for a Series, any
Class of the Certificates of such Series may be subject to repurchase at the
request of the holders of such Class or to mandatory repurchase by the
Depositor. Any such redemption at the request of holders or mandatory
repurchase with respect to a Class of a Series of the Certificates will be
described in the related Prospectus Supplement and will be on such terms and
conditions as described therein.
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YIELD AND PREPAYMENT CONSIDERATIONS
TIMING OF PAYMENT OR DISTRIBUTION OF INTEREST AND PRINCIPAL
Each payment or distribution of interest on the Securities (or addition to
principal of a Class of Compound Interest Securities) on a Payment Date or
Distribution Date will include all interest accrued during the Interest
Accrual Period specified in the related Prospectus Supplement preceding such
Payment Date or Distribution Date. If the Interest Accrual Period for a
Series ends on a date other than a Payment Date or Distribution Date for such
Series, the yield realized by the holders of such Securities may be lower
than the yield that would result if the Interest Accrual Period ended on such
Payment Date or Distribution Date. Additionally, if so specified in the
related Prospectus Supplement, interest accrued for an Interest Accrual
Period for one or more Classes may be calculated on the assumption that
principal payments or distributions (and additions to principal of the
Securities) and allocations of losses on the Mortgage Assets are made on the
first day of the preceding Interest Accrual Period and not on the Payment
Date or Distribution Date with respect to such preceding Interest Accrual
Period. Such method would produce a lower effective yield than if interest
were calculated on the basis of the actual principal amount outstanding
during such Interest Accrual Period.
PRINCIPAL PREPAYMENTS
The yield to maturity or final distribution on the Securities will be
affected by the rate of principal payments on the Mortgage Loans (including
principal prepayments resulting from both voluntary prepayments by the
Mortgagors and involuntary liquidations). The rate at which principal
prepayments occur on the Mortgage Loans will be affected by a variety of
factors, including, without limitation, the terms of the Mortgage Loans, the
level of prevailing interest rates, the availability of mortgage credit and
economic, tax, legal and other factors. The rate of principal payments or
distributions on the Securities will correspond to the rate of principal
payments on the Mortgage Assets. Principal prepayments on the Mortgage Assets
are likely to be affected by the existence of provisions prohibiting
prepayment of a Mortgage Loan underlying or comprising the Mortgage Assets
for a defined period of time (a "Lock-Out Period") or provisions requiring
the payment of a prepayment premium in the event of a prepayment (a "Yield
Maintenance Payment"), and by the extent to which the Primary Servicer is
able to enforce such provisions. Mortgage Loans with a Lock-Out Period or a
Yield Maintenance Payment, to the extent enforceable, generally would be
expected to experience a lower rate of principal prepayments than otherwise
identical Mortgage Loans without such provisions, with shorter Lock-Out
Periods or with lower Yield Maintenance Payments.
If the purchaser of a Security offered at a discount calculates its
anticipated yield to maturity or final distribution based on an assumed rate
of distributions of principal that is faster than that actually experienced
on the Mortgage Loans, the actual yield to maturity or final distribution
will be lower than that so calculated. Conversely, if the purchaser of a
Security offered at a premium calculates its anticipated yield to maturity or
final distribution based on an assumed rate of distributions of principal
that is slower than that actually experienced on the Mortgage Loans, the
actual yield to maturity or final distribution will be lower than that so
calculated.
The timing of changes in the rate of principal prepayments on the Mortgage
Loans may significantly affect an investor's actual yield to maturity, even
if the average rate of distributions of principal is consistent with an
investor's expectation. In general, the earlier a principal prepayment is
received on the Mortgage Loans and paid on an investor's Securities, the
greater the effect on such investor's yield to maturity or final
distribution. The effect on an investor's yield of principal payments or
distributions occurring at a rate higher (or lower) than the rate anticipated
by the investor during a given period may not be offset by a subsequent like
decrease (or increase) in the rate of principal payments or distributions.
PREPAYMENTS AND WEIGHTED AVERAGE LIFE
The Stated Maturity for a Class is the date specified in the related
Prospectus Supplement, calculated on the basis of the assumptions applicable
to such Series set forth therein, no later than which the entire Aggregate
Outstanding Principal thereof will be fully paid.
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The rate of return on reinvestment of distributions of principal and
interest on the Mortgage Assets securing a Series, the rates at which
principal payments are received on such Mortgage Assets and the rate at which
payments are made from any Reserve Fund or other Enhancement for such Series
may affect the ultimate maturity of each Class of such Series. Prepayments on
the Mortgage Assets will accelerate the rate at which principal is paid or
distributed on the Securities. High reinvestment rates tend to increase the
amount of Excess Cash Flow, which, to the extent applied to principal
payments or distributions on the Securities, will accelerate principal
payments or distributions on such Securities.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of
the Securities of a Series will be influenced by the rate at which principal
on the Mortgage Loans comprising or underlying the Mortgage Assets pledged as
security for such Bonds, or deposited in the Trust Fund, as the case may be,
is paid, which may be in the form of scheduled amortization or prepayments
(for this purpose, the term "prepayment" includes prepayments, in whole or in
part, and liquidations due to default).
The rate of principal prepayments on pools of mortgages is influenced by a
variety of economic, demographic, geographic, tax, legal and other factors.
The rate of prepayments of housing loans has fluctuated significantly in
recent years. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans comprising or
underlying the Mortgage Assets pledged as security for a Series, such
Mortgage Loans are likely to be the subject of higher principal prepayments
than if prevailing rates remain at or above the rates borne by such
mortgages. In this regard, it should be noted that certain Mortgage Assets
pledged as security for a Series may be backed by Mortgage Loans with
different interest rates and the stated pass-through or pay-through interest
rate of certain Mortgage Assets may be a number of percentage points less
than the underlying Mortgage Loans. In addition, the weighted average life of
the Securities may be affected by the varying maturities of the Mortgage
Loans comprising or underlying the Mortgage Assets. If any Mortgage Loans
comprising or underlying the Mortgage Assets for a Series have actual terms
to maturity of less than those assumed in calculating Stated Maturity or the
Final Scheduled Distribution Date, one or more Classes of the Series may be
fully paid prior to their respective Stated Maturities or the Final Scheduled
Distribution Dates, even in the absence of prepayments and a reinvestment
return higher than the Assumed Reinvestment Rate, if any. Accordingly, the
prepayment experience of the Mortgage Assets will, to some extent, be a
function of the mix of interest rates and maturities of the Mortgage Loans
comprising or underlying such Mortgage Assets. See "SECURITY FOR THE BONDS
AND CERTIFICATES."
Prepayments on loans are also 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, each as
described below. CPR represents a constant assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans
for the life of such loans. SPA represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans.
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 pool of loans, including the
Mortgage Loans underlying or comprising the Mortgage Assets. Thus, it is
likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any Series will not conform to any particular level of
CPR or SPA.
The Issuer is not aware of any publicly available statistics that set
forth prepayment experience or prepayment forecasts of commercial or
multifamily mortgage loans over an extended period of time.
Except with respect to Interest Only Securities, the Prospectus Supplement
will contain tables setting forth the projected weighted average life of each
Class of such Series and the percentage of the original
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principal amount of each Class of such Series that would be outstanding on
specified Payment Dates or Distribution Dates for such Series based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Mortgage Loans comprising or underlying the related
Mortgage Assets are made at rates corresponding to various percentages of
CPR, SPA or at such other rates specified in such Prospectus Supplement. Such
tables and assumptions are intended to illustrate the sensitivity of weighted
average life of the Securities to various prepayment rates and will not be
intended to predict or to provide information which will enable investors to
predict the actual weighted average life of the Securities or prepayment
rates of the Mortgage Loans comprising or underlying the related Mortgage
Assets. It is unlikely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any Series will conform to any particular
level of CPR, SPA or any other rate specified in the related Prospectus
Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Loan. Mortgage Loans comprising or underlying the
Mortgage Assets may consist of ARMs. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. ARMs may be subject to a
greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly
below the then current mortgage interest rates on the Mortgage Loans, the
rate of prepayment on the Mortgage Loans would be expected to increase.
Conversely, if prevailing interest rates rise significantly above the then
current mortgage interest rates on the Mortgage Loans, the rate of prepayment
on the Mortgage Loans would be expected to decrease. No assurances can be
given as to the rate of prepayments on the Mortgage Loans in stable or
changing interest rate environments.
A number of Mortgage Loans may have balloon payments due at maturity, and
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 risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the Servicer, the Master
Servicer or the Special Servicer, if any, may extend the maturity of such a
Mortgage Loan in connection with a workout. In the case of defaults, recovery
of proceeds may be delayed by, among other things, bankruptcy of the borrower
or adverse conditions in the market where the property is located. In order
to minimize losses on defaulted Mortgage Loans, the Servicer, the Master
Servicer or the Special Servicer, if any, may, to the extent and under the
circumstances set forth in the related Prospectus Supplement, be given
considerable flexibility to modify Mortgage Loans which are in default or as
to which a default is reasonably foreseeable. Any defaulted balloon payment
or modification which extends the maturity of a Mortgage Loan will tend to
extend the weighted average life of the Securities thereby lengthening the
period of time elapsed from the date of issuance of a Security until each
dollar of principal will be repaid to the investor.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans comprising or underlying the Mortgage
Assets which are foreclosed in relation to the number of Mortgage Loans which
are repaid in accordance with their terms will affect the weighted average
life of the Mortgage Loans comprising or underlying the Mortgage Assets and
that of the related Series of Securities. Servicing decisions made with
respect to the Mortgage Loans, including the use of payment plans prior to a
demand for acceleration and the restructuring of Mortgage Loans in bankruptcy
proceedings, may also have an impact upon the payment patterns of particular
Mortgage Loans. The return to Holders of Securities may be adversely affected
by servicing policies and decisions relating to foreclosures.
Due on Sale Clauses. Acceleration of mortgage payments as a result of
certain transfers of underlying Mortgaged Property is another factor
affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of
the Mortgage Loans underlying Private Mortgage-Backed Securities and Mortgage
Loans in a Mortgage Pool may include "due-on-sale" clauses which allow the
holder of the Mortgage Loans to demand payment in full of the remaining
principal balance of the Mortgage Loans upon sale or certain other transfers
of the underlying Mortgaged Property. Except as otherwise described in the
Prospectus Supplement for a Series, the Primary Servicer of Mortgage Loans
comprising or underlying Mortgage Assets securing such Series
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will not exercise its right to enforce any "due-on-sale" clause applicable to
the related Mortgage Loan so long as the new mortgagor satisfies the
applicable underwriting criteria for similar loans serviced by the Primary
Servicer. The Primary Servicer will not enforce such clause to the extent
enforcement would be unlawful or would prejudice recovery under any
applicable Insurance Policy. If the Primary Servicer determines not to
enforce such "due-on-sale" clause, it will enter into an assumption and
modification agreement with the person to whom the Mortgaged Property is to
be conveyed. FHA Loans are not permitted to contain "due-on-sale" clauses and
are freely assumable by qualified persons.
Single Mortgage Loan or Single Obligor. The Mortgage Assets securing a
Series may consist of a single Mortgage Loan or obligations of a single
obligor or related obligors as specified in the related Prospectus
Supplement. Assumptions used with respect to the prepayment standards or
models based upon analysis of the behavior of mortgage loans in a larger
group will not necessarily be relevant in determining prepayment experience
on a single Mortgage Loan or with respect to a single obligor.
SECURITY FOR THE BONDS AND CERTIFICATES
GENERAL
Each Series of Bonds will be secured by a pledge by the Issuer to the
Trustee of all right, title and interest of the Issuer in the Primary Assets
for such Series, and each Series of Certificates will represent a beneficial
interest in a Trust Fund comprised of Primary Assets transferred to the
Trustee by the Depositor. The Primary Assets may include (a) Mortgage Assets
directly owned by the Issuer, (b) amounts payable under the Mortgage Assets,
(c) funds, instruments or securities deposited or held from time to time in
any Reserve Fund, (d) funds, instruments or securities initially deposited in
the Collection Account for such Series, (e) an assignment of leases and
rents, if any, (f) reinvestment income, if any, on moneys deposited in any
Pledged Fund or Account, (g) Enhancement Agreements, if any, (h) Servicing
Agreements, if any, related to the Mortgage Loans of such Series, and (i)
other funds, instruments or securities specified as Primary Assets in the
related Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, certain
amounts received by the Trustee or a Servicer with respect to a Private
Mortgage-Backed Security or Mortgage Loan securing a Series may not be
pledged as Mortgage Assets for such Series or deposited into the Trust Fund
for such Series, as the case may be, but will be payable to the seller of
such Private Mortgage-Backed Security or Mortgage Loan or to a Servicer free
and clear of the lien of the Indenture, or interest granted under the Trust
Agreement.
Mortgage Assets for a Series may consist of any combination of the
following to the extent and as specified in the related Prospectus
Supplement: (a) Mortgage Loans or participation interests therein and (b)
Private Mortgage-Backed Securities. Mortgage Loans for a Series will be
purchased by the Issuer directly or through an affiliate in the open market
or in privately negotiated transactions. Private Mortgage-Backed Securities
will in turn be secured by Underlying Collateral which will consist of
Mortgage Loans. Participation interests pledged as Mortgage Assets for a
Series may be acquired by the Issuer pursuant to a Participation Agreement or
may be purchased in the open market.
The Trustee or its agents or nominees will have possession of any Mortgage
Loans constituting Mortgage Assets and will be the registered owner of any
Private Mortgage-Backed Security which constitutes Mortgage Assets. The
Trustee will not, unless otherwise specified in the related Prospectus
Supplement, be in possession of or be the registered owner of any Underlying
Collateral for any Private Mortgage-Backed Security. See "Private
Mortgage-Backed Securities" below.
Unless otherwise specified in the related Prospectus Supplement for a
Series, scheduled distributions of principal of and interest on the Mortgage
Assets pledged to secure a Series or deposited into the Trust Fund for such
Series, as the case may be, the amounts available to be withdrawn from any
related Reserve Fund, the amount of cash, if any, initially deposited in the
related Collection Account and any other Mortgage Assets pledged to secure
such Series or deposited into the Trust Fund for such Series, as the case may
be, together with the Reinvestment Income thereon at the Assumed Reinvestment
Rate, if any, will be sufficient irrespective of the rate of prepayments on
the Mortgage Assets to make required
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payments of interest on the Securities of such Series and to retire each
Class of such Series not later than its Stated Maturity or Final Scheduled
Distribution Date, as applicable. See "YIELD AND PREPAYMENT CONSIDERATIONS."
The Mortgage Assets for a Series will equally and ratably secure each Class
of such Series, or will represent beneficial interest in the Trust Fund, as
the case may be, without priority of one Class over the other (subject to any
subordination of Subordinate Securities of a Series as set forth in the
related Prospectus Supplement), and the Mortgage Assets securing each Series,
or comprising the Trust Fund, will serve as Mortgage Assets only for that
Series.
MORTGAGE LOANS
General. Mortgage Loans for a Series may consist of Mortgage Loans or
participation interests therein. Mortgage Loans comprising the Mortgage
Assets, Mortgage Loans in which participation interests are conveyed to the
Trustee, and Mortgage Loans underlying Private Mortgage-Backed Securities are
referred to herein as the "Mortgage Loans." Some of the Mortgage Loans may
have been originated by or acquired from an affiliate of the Issuer and an
affiliate of the Issuer may be an obligor with respect to a Mortgage Loan.
Mortgage Loans may, as specified in the related Prospectus Supplement,
consist of fixed rate, level payment, fully amortizing Mortgage Loans, ARMs
or Mortgage Loans having balloon or other payment characteristics as
described in the related Prospectus Supplement. ARMs may have a feature which
permits the borrower to convert the rate thereon to a fixed rate. Unless
otherwise specified in the applicable Prospectus Supplement, the Mortgage
Loans will be secured by first mortgages or deeds of trust or other similar
security instruments creating a first lien on Mortgaged Property.
The Mortgaged Properties may include Multifamily Property (i.e.,
multifamily residential rental properties or cooperatively owned properties
consisting of five or more dwelling units) or Commercial Property.
Multifamily Property may include mixed commercial and residential structures
and may consist of property securing FHA-insured Mortgage Loans made by
private lending institutions to help finance construction or substantial
rehabilitation of the related multifamily rental or cooperative housing for
moderate-income or displaced families. See "DESCRIPTION OF INSURANCE ON THE
MORTGAGE LOANS--FHA Insurance."
Each Mortgaged Property will be located on land owned in fee simple by the
Mortgagor or on land leased by the Mortgagor for a term at least two years
greater than the term of the related Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, the fee interest in leased
land will be subject to the lien securing the related Mortgage Loan. Mortgage
Loans secured by Multifamily Property or Commercial Property will generally
also be secured by an assignment of leases and rents and/or operating or
other cash flow guarantees relating to the Mortgage Loan.
If so specified in the related Prospectus Supplement, Mortgage Loans
relating to real estate projects under construction may be included in the
Mortgage Assets for a Series. The related Prospectus Supplement will set
forth the procedures and timing for making disbursements from construction
reserve funds as portions of the related real estate project are completed.
If permitted by applicable law, the Mortgage Pool may also include Mortgaged
Properties acquired by foreclosure or by deed-in-lieu of foreclosure ("REO
Property"). To the extent specified in the related Prospectus Supplement, the
Servicer, the Master Servicer or the Special Servicer, if any, may establish
and maintain a trust account or accounts to be used in connection with REO
Properties and other Mortgaged Properties being operated by it or on its
behalf on behalf of the Trust Estate or the Trust Fund, as the case may be,
by the mortgagor as debtor-in-possession or otherwise. See "SECURITY FOR THE
BONDS AND CERTIFICATES-- Maintenance of Insurance Policies and Other
Servicing Procedures; Presentation of Claims; Realization Upon Defaulted
Mortgage Loans." In addition, the Mortgage Pool for a particular Series may
include Mortgage Loans which consist of cash flow mortgages, installment
contracts, mortgage loans with equity features or other mortgage loans
described in the related Prospectus Supplement.
The related Prospectus Supplement for each Series will provide information
with respect to the Mortgage Pool as of the Cut-Off Date, including, among
other things, (a) the aggregate unpaid principal balance of the Mortgage
Loans comprising the Mortgage Pool; (b) the weighted average Mortgage Rate on
the Mortgage Loans, and, in the case of adjustable Mortgage Rates, the
weighted average of the current adjustable Mortgage Rates, the minimum and
maximum permitted adjustable Mortgage Rates, if
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any, and the weighted average thereof; (c) the average outstanding principal
balance of the Mortgage Loans; (d) the weighted average remaining scheduled
term to maturity of the Mortgage Loans and the range of remaining scheduled
terms to maturity; (e) the range of Loan-to-Value Ratios of the Mortgage
Loans; (f) the relative percentage (by principal balance as of the Cut-Off
Date) of Mortgage Loans that are ARMs, fixed interest rate, FHA Loans or
other types of Mortgage Loans; (g) any Enhancement relating to the Mortgage
Pool; (h) the relative percentage (by principal balance as of the Cut-Off
Date) of Mortgage Loans that are secured by Multifamily Property or
Commercial Property; (i) the geographic dispersion of Mortgaged Properties
securing the Mortgage Loans; and (j) the use or type of each Mortgaged
Property securing a Mortgage Loan. The related Prospectus Supplement will
also specify other characteristics of Mortgage Loans which may be included in
the Mortgage Pool for a Series. If Private Mortgage-Backed Securities
representing ownership interests in multiple mortgage pools constitute
Mortgage Assets for a Series, the Prospectus Supplement will set forth, to
the extent available, the above-specified information on an aggregate basis
for the respective mortgage pools. If specific information respecting the
Mortgage Loans is not known to the Issuer at the time the related Series is
initially offered, more general information of the nature described above
will be provided in the Prospectus Supplement, and final specific information
will be set forth in a Current Report on Form 8-K to be available to
investors on the date of issuance of the Series and to be filed with the
Commission within 15 days after the initial issuance of such Series.
If so specified in the related Prospectus Supplement, the terms of a
Mortgage Loan may provide that upon the sale of the Mortgaged Property, the
obligor may, in lieu of the payment in full of the amount of principal and
interest then outstanding or accrued on the related Mortgage Loan,
irrevocably deposit cash or other specified obligations into an account with
the Trustee in an amount which, together with interest thereon, will be
sufficient to make timely payments or distributions of principal and interest
on the Mortgage Loan and, therefore, on the Securities according to their
terms.
The characteristics of the Mortgage Loans comprising or underlying the
Mortgage Assets may affect the rate of prepayment of Securities and the risk
of delinquencies, foreclosures and losses. See "RISK FACTORS" and "YIELD AND
PREPAYMENT CONSIDERATIONS."
Mortgage Underwriting Standards and Procedures. The underwriting
procedures and standards for Mortgage Loans included in a Mortgage Pool will
be specified in the related Prospectus Supplement to the extent such
procedures and standards are known or available. Such Mortgage Loans may be
originated in contemplation of the transactions contemplated by this
Prospectus and the related Prospectus Supplement. If stated in the related
Prospectus Supplement, the originator of the Mortgage Loans (or another
entity specified in the related Prospectus Supplement) will make
representations and warranties concerning compliance with such underwriting
procedures and standards.
Except as otherwise set forth in the related Prospectus Supplement for a
Series, the originator of a Mortgage Loan will have applied underwriting
procedures intended to evaluate, among other things, the income derived from
the Mortgaged Property, the capabilities of the management of the project,
including a review of management's past performance record, its management
reporting and control procedures (to determine its ability to recognize and
respond to problems) and its accounting procedures to determine cash
management ability, the obligor's credit standing and repayment ability and
the value and adequacy of the Mortgaged Property as collateral. FHA Loans
will have been originated by mortgage lenders which are approved by HUD as an
FHA mortgagee in the ordinary course of their real estate lending activities
and will comply with the underwriting policies of FHA. Except as described
below or in the related Prospectus Supplement, the Issuer believes that
underwriting procedures used were consistent with those utilized by mortgage
lenders generally during the period of origination.
Unless otherwise specified in the related Prospectus Supplement, the
adequacy of a Mortgaged Property as security for repayment will generally
have been determined by appraisal by appraisers selected in accordance with
preestablished guidelines established by or acceptable to the loan originator
for appraisers. Unless otherwise specified in the related Prospectus
Supplement, the appraiser must personally inspect the property and verify
that it was in good condition and that construction, if new, has
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been completed. Unless otherwise stated in the applicable Prospectus
Supplement, the appraisal will have been based upon a cash flow analysis or a
market data analysis of recent sales of comparable properties and, when
deemed applicable, a replacement cost analysis based on the current cost of
constructing or purchasing a similar property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. Further, there is no assurance that appreciation of
real estate values generally will limit loss experiences on Commercial
Property or on non-traditional housing such as Multifamily Property. If the
residential real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans and
any additional financing on the Mortgaged Properties in a particular Mortgage
Pool become equal to or greater than the value of the Mortgaged Properties,
the actual rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. To the
extent that such losses are not covered by the methods of Enhancement or the
insurance policies described herein, the ability of the Issuer to pay
principal of and interest on the Securities may be adversely affected. Even
where credit support covers all losses resulting from defaults and
foreclosure, the effect of defaults and foreclosures may be to increase
prepayment experience on the Mortgage Assets, thus shortening weighted
average life and affecting yield to maturity. See "YIELD AND PREPAYMENT
CONSIDERATIONS."
Determination of Compliance With Pool Requirements and Underwriting
Procedures. As more specifically set forth in the related Prospectus
Supplement, the Issuer will represent and warrant, upon pledge of the
Mortgage Loans to the Trustee under the Indenture or deposit of such Mortgage
Loans into the Trust Fund, as applicable, among other things, as to the
accuracy of the information in the related Mortgage Loan Schedule. If
specified in the related Prospectus Supplement, the originator of a Mortgage
Loan may make representations and warranties with respect to such Mortgage
Loan. If so specified in the related Prospectus Supplement, the Issuer will
assign its rights and the seller's obligations under the agreement pursuant
to which the Issuer acquired the Mortgage Assets for the related Series to
the Trustee.
If so specified in the related Prospectus Supplement, upon the discovery
of the breach of certain representations or warranties made by the Issuer in
respect of a Mortgage Loan that materially and adversely affects the
interests of the Bondholders or Certificateholders of the related Series, the
Issuer will be obligated to cause the seller of such Mortgage Loans to
repurchase such Mortgage Loan or deliver a substitute conforming Mortgage
Loan as described below under "Repurchase and Substitution of Non-Conforming
Mortgage Loans." The Trustee will be required to enforce this obligation for
the benefit of the Bondholders or Certificateholders, following the practices
it would employ in its good faith business judgment were it the owner of such
Mortgage Loan. If so specified in the related Prospectus Supplement, the
Master Servicer, if any, may be obligated to enforce such obligations rather
than the Trustee.
Repurchase and Substitution of Non-Conforming Mortgage Loans. The Trustee,
or if so specified in the related Prospectus Supplement, a custodian, will
review Mortgage Loan documents after receipt thereof. Unless otherwise
provided in the related Prospectus Supplement, if any such document is found
to be defective in any material respect, or if it is determined that the
Issuer has breached any representation or warranty, the Trustee or the
custodian shall immediately notify the Issuer and the Master Servicer, if
any, and the Trustee, if the custodian. Unless otherwise specified in the
related Prospectus Supplement, if the Issuer cannot cure such defect
thereafter, the Issuer will be obligated to cause the seller of such Mortgage
Loan to repurchase within 90 days of the execution of the related Series
Supplement, or within such other period specified in the related Prospectus
Supplement, the related Mortgage Loan or any property acquired in respect
thereof from the Trustee at a purchase price equal to the unpaid principal
balance of the Mortgage Loan (or, in the case of a foreclosed Mortgage Loan,
the unpaid principal balance of such Mortgage Loan immediately prior to
foreclosure) plus accrued interest.
Unless otherwise provided in the related Prospectus Supplement, the Issuer
may, rather than cause the repurchase of the Mortgage Loan as described
above, remove such Mortgage Loan from the Trust Estate ("Deleted Mortgage
Loan") or Trust Fund, as applicable, and substitute in its place one or more
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other Mortgage Loans (each, a "Substitute Mortgage Loan"); provided, however
with respect to a Series for which no REMIC election is made, such
substitution must be effected within the period specified in the related
Prospectus Supplement. Any Substitute Mortgage Loan will, on the date of
substitution, have the characteristics specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation constitutes the sole remedy
available to the Bondholders, Certificateholders or the Trustee for a
material defect in a Mortgage Loan document or for breach of representations
and warranties with respect to any Mortgage Loan. With respect to Mortgage
Loans underlying Private Mortgage-Backed Securities, the PMBS Agreement may
have terms relating to the repurchase or substitution obligations which
differ from those set forth above.
The Master Servicer, if any, may also make certain warranties with respect
to the Mortgage Loans comprising the Mortgage Pool for a Series. See
"SERVICING OF MORTGAGE LOANS--Certain Matters Regarding the Master Servicer."
Upon a breach of any such warranty that materially and adversely affects the
interests of Bondholders or Certificateholders of the related Series, the
related Mortgage Loan will be required to be repurchased, subject to the
conditions described in the preceding paragraph and in the related Prospectus
Supplement. If the Master Servicer fails to repurchase such a Mortgage Loan,
payment to Bondholders or Certificateholders could be reduced to the extent
payments are not made on the Mortgage Loan.
Various Servicers will provide certain customary servicing functions with
respect to any Mortgage Loans pursuant to servicing agreements. Such
Servicers may include affiliates of the Issuer. If so specified in the
related Prospectus Supplement, a Master Servicing Agreement may be entered
into between the Issuer and a Master Servicer. The Master Servicer will
supervise the performance by the Servicers of their duties and
responsibilities under the servicing agreements with respect to Mortgage
Loans for the related Series. Alternatively, if so specified in the related
Prospectus Supplement, the Master Servicer may be obligated to service
Mortgage Loans directly or through one or more Servicers. In such a case, the
Master Servicer will be primarily responsible for servicing of the Mortgage
Loans. The specific duties to be performed by any Servicers and Master
Servicer, if any, with respect to the Mortgage Loans of a particular Series
will be set forth in the Prospectus Supplement to the extent they differ from
the servicing obligations described herein under "SERVICING OF THE MORTGAGE
LOANS." Servicers and the Master Servicer, if any, may be required to advance
funds to cover delinquent payments on Mortgage Loans, to the extent specified
in the related Prospectus Supplement. The Prospectus Supplement also will
specify criteria to be met by each Servicer and the Master Servicer. Such
criteria will be determined by the Issuer consistent with the requirements of
each Rating Agency rating such Series. See "SERVICING OF MORTGAGE LOANS."
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
participations and pass-through certificates, evidencing an undivided
interest in a pool of Mortgage Loans, (b) debt obligations (interest payments
on which may be tax-exempt in whole or in part), secured by mortgages or (c)
participations or other interests in any of the foregoing. Private
Mortgage-Backed Securities will have been issued pursuant to a pooling and
servicing agreement, an indenture or similar agreement, or a participation
agreement or similar agreement (a "PMBS Agreement"). The seller or servicer
of the underlying Mortgage Loans will have entered into the PMBS Agreement
with the trustee under such PMBS Agreement (the "PMBS Trustee"). The PMBS
Trustee or its agent, or a custodian, will possess the Mortgage Loans,
participations or other interest, underlying such Private Mortgage-Backed
Security. Mortgage Loans underlying a Private Mortgage-Backed Security will
be serviced by the Master Servicer directly or by one or more Servicers who
may be subject to the supervision of the Master Servicer. Unless otherwise
specified in the Prospectus Supplement relating to a Series, if payments with
respect to interest on the underlying obligations are tax-exempt, such
Prospectus Supplement will disclose the relevant federal tax characteristics
relating to the tax-exempt status of such obligations.
The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer")
may be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or federal government or a limited purpose corporation organized for
the
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purpose of, among other things, establishing trusts and acquiring and selling
housing loans to such trusts, and selling beneficial interests in such
trusts. If so specified in the Prospectus Supplement, the PMBS Issuer may be
an affiliate of the Issuer. The obligations of the PMBS Issuer will generally
be limited to certain representations and warranties with respect to the
assets conveyed by it to the related trust. Unless otherwise specified in the
related Prospectus Supplement, the PMBS Issuer will not have guaranteed any
of the assets conveyed to the related trust or any of the Private
Mortgage-Backed Securities issued under the PMBS Agreement. Additionally,
although the Mortgage Loans, participations or other interest, underlying the
Private Mortgage-Backed Securities may be guaranteed by an agency or
instrumentality of the United States, the Private Mortgage-Backed Securities
themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest
distributions. Principal and interest distributions will be made on the
Private Mortgage-Backed Securities by the PMBS Trustee or the Servicer. The
PMBS Issuer or the Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the Private Mortgage-Backed Securities after a
certain date or under other circumstances specified in the related Prospectus
Supplement.
Underlying Mortgage Loans. The Mortgage Loans underlying the Private
Mortgage-Backed Securities may consist of fixed rate, level payment, fully
amortizing Mortgage Loans, ARMs, or Mortgage Loans having balloon or other
special payment features. Mortgage Loans underlying the Private
Mortgage-Backed Securities will be secured primarily by Multifamily Property
or Commercial Property. Unless otherwise stated in the related Prospectus
Supplement, the underwriting procedures set forth above will also apply to
Underlying Mortgage Loans.
Enhancement Relating to Private Mortgage-Backed Securities. Enhancement in
the form of reserve funds, subordination of other private mortgage
certificates issued under the PMBS Agreement, letters of credit, insurance
policies or other types of credit support may be provided with respect to the
Mortgage Loans, participations or other interest, underlying the Private
Mortgage-Backed Securities or with respect to the Private Mortgage-Backed
Securities themselves. The type, characteristics and amount of enhancement,
if any, will be a function of certain characteristics of the Mortgage Loans,
participations or other interest, and other factors and will have been
established for the Private Mortgage-Backed Securities on the basis of
requirements of the Rating Agency which assigned a rating to the Private
Mortgage-Backed Securities.
Additional Information. The Prospectus Supplement for a Series which
includes Private Mortgage- Backed Securities will specify, to the extent
available, (i) the aggregate approximate principal amount and type of the
Private Mortgage-Backed Securities to be included in the Trust Estate or
Trust Fund, as applicable, (ii) certain characteristics of the Mortgage
Loans, participations or other interests which comprise the underlying assets
for the Private Mortgage-Backed Securities including (A) the payment features
of such Mortgage Loans, participations or other interests (i.e., whether they
are fixed rate or adjustable rate and whether they provide for fixed level
payments, adjustable payments or other payment features), (B) the approximate
aggregate principal balance, if known, of Underlying Mortgage Loans,
participations or other interests insured or guaranteed by a governmental
entity, (C) the servicing fee or range of servicing fees with respect to the
Mortgage Loans, and (D) the minimum and maximum stated maturities of the
underlying Mortgage Loans, participations or other interests at origination,
(iii) the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities, (iv) the weighted average pass-through or bond
rate of the Private Mortgage-Backed Securities or formula therefor, (v) the
pass-through or bond rate or ranges thereof for the Private Mortgage-Backed
Securities or formula therefor, (vi) the PMBS Issuer, Master Servicer and the
PMBS Trustee for such Private Mortgage-Backed Securities, (vii) certain
characteristics of enhancement, if any, such as subordination, reserve funds,
insurance policies, letters of credit or guarantees relating to the Mortgage
Loans, participations or other interests underlying the Private
Mortgage-Backed Securities or to such Private Mortgage-Backed Securities
themselves, (viii) the terms on which the Underlying Mortgage Loans,
participations or other interests for such Private Mortgage-Backed Securities
or the Private Mortgage-Backed Securities may, or
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are required to, be purchased prior to their maturity or the maturity of the
Private Mortgage-Backed Securities and (ix) the terms on which Mortgage
Loans, participations or other interests may be substituted for those
originally underlying the Private Mortgage-Backed Securities.
SUBSTITUTION OF MORTGAGE ASSETS
Unless otherwise provided in the related Prospectus Supplement, subject to
the limitations set forth in the Indenture or Trust Agreement for a Series,
the Issuer or Depositor may deliver to the Trustee other Mortgage Assets in
substitution for any Mortgage Assets originally pledged as security for a
Series, or deposited in the Trust Fund for a Series, as the case may be. Any
such Substitute Mortgage Assets will have an outstanding principal balance or
Asset Value (determined in a manner consistent with the Mortgage Assets for
which it is substituted) that is less than or equal to the outstanding
principal balance or Aggregate Asset Value of the Mortgage Assets for which
it is substituted, unless otherwise specified in the related Prospectus
Supplement, and will otherwise have such characteristics as shall be
necessary to cause the Mortgage Assets, upon such substitution, to conform
more fully to the description thereof set forth in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
(1) no substitution will be permitted which would delay the Stated Maturity
or Final Scheduled Distribution Date, of any Class of Securities of the
related Series, (2) no more than 40% of the Mortgage Assets (including any
cash deposited on the Closing Date) securing a Series may be substituted for,
(3) only like kind Mortgage Assets may be substituted for Mortgage Assets
(or, with respect to a substitution for cash deposited in any Pledged Fund or
Account on the Closing Date, the Substitute Mortgage Assets must be of like
kind as the Mortgage Assets securing the related Series) and (4) there can be
no substitutions for Substitute Mortgage Assets. No substitution may be made
(1) if such substitution would result in the Issuer becoming required to
register as an "Investment Company" for purposes of the Investment Company
Act of 1940, (2) if the Rating Agencies will, as a result of such
substitution, downgrade the rating on the related Series of Securities or any
Class thereof or (3) in the event that the Issuer has elected to be treated
as a REMIC and such substitution would cause the REMIC to lose its status as
a REMIC or result in a tax on "prohibited contributions" to or "prohibited
transactions" of the REMIC.
If the Issuer elects to treat the Mortgage Assets securing a Series of
Bonds, or deposited into the Trust Fund, as a REMIC or an election is made to
treat the arrangement by which a Series of Securities is issued as a REMIC,
no Substitute Mortgage Assets may be pledged by the Issuer (a) in the case of
the substitution for a "defective obligation" (within the meaning of Section
860G(a)(4)(B) of the Code), more than two years after the "Start Up Day" (as
defined in Section 860G(a)(9) of the Code) of the REMIC, or (b) in the case
of any other Mortgage Assets, more than three months after the Start Up Day.
COLLECTION ACCOUNT
Unless otherwise provided in the related Series Supplement, a separate
Collection Account for each Series will be established by the Trustee, or if
the Trustee is not also the Paying Agent, by the Paying Agent, for receipt of
all monthly principal and interest payments on the Primary Assets securing
such Series and the amount of cash, if any, to be initially deposited therein
by the Issuer, Reinvestment Income, if any, thereon and any amounts withdrawn
from any Reserve Funds for such Series. If specified in the related
Prospectus Supplement, Reinvestment Income, if any, or other gain from
investments of moneys in the Collection Account will be credited to the
Collection Account for such Series and any loss resulting from such
investments will be charged to such Collection Account. Funds on deposit in
the Collection Account will be available for application to the payment of
principal of and interest on the Securities of the related Series and for
certain other payments provided for in the Indenture or Trust Agreement and
described in the related Prospectus Supplement. To the extent that amounts
remaining on deposit in the Collection Account on each Payment Date or
Distribution Date represent Excess Cash Flow not required to be applied to
such payments or distributions, unless otherwise specified in the related
Prospectus Supplement, such amounts may be paid as provided in the Indenture
or Trust Agreement to the Issuer (or, in the case of a REMIC, to the holder
of the residual interest therein).
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OTHER FUNDS OR ACCOUNTS
A Series may also be secured by certain other funds and accounts for the
purpose of, among other things, (i) paying certain administrative fees and
operating expenses and (ii) accumulating funds that are credited to the
Issuer's account pending their distribution to the Issuer. See "Enhancement."
INVESTMENT OF FUNDS
The Collection Account, Servicing Accounts and certain other funds and
accounts for a Series are to be invested by the Trustee or the Paying Agent,
as directed by the Issuer, in certain Eligible Investments acceptable to each
Rating Agency rating such Series, which may include, without limitation, (a)
direct obligations of, and obligations fully guaranteed by, the United States
of America, FHLMC, FNMA or any agency or instrumentality of the United States
of America, the obligations of which are backed by the full faith and credit
of the United States of America, (b) demand and time deposits, certificates
of deposit or bankers' acceptances, (c) repurchase obligations pursuant to a
written agreement with respect to (1) any security described in clause (a)
above or (2) any other security issued or guaranteed by an agency or
instrumentality of the United States of America, (d) securities bearing
interest or sold at a discount issued by any corporation incorporated under
the laws of the United States of America or any state, (e) commercial paper
(including both non-interest-bearing discount obligations and
interest-bearing obligations payable on demand or on a specified date not
more than one year after the date of issuance thereof), (f) a Guaranteed
Investment Contract, (g) certificates or receipts representing ownership
interests in future interest or principal payments on obligations described
in clause (a) above, and (h) any other demand, money market or time deposit
obligation, security or investment acceptable to the Rating Agencies.
Eligible Investments with respect to a Series will include only
obligations or securities that mature on or before the date on which the
Collection Account or any other Pledged Fund or Account for such Series are
required or may be anticipated to be required to be applied for the benefit
of the holders of such Series. Any gain or loss from such investments for a
Series will be credited or charged to the appropriate fund or account for
such Series unless otherwise specified in the related Prospectus Supplement.
GUARANTEED INVESTMENT CONTRACT
If specified in the related Prospectus Supplement, on or prior to the
Delivery Date the Issuer and the Trustee will enter into a Guaranteed
Investment Contract with a guarantor acceptable to the Rating Agencies rating
the Securities (the "Guarantor"), pursuant to which all distributions on the
Mortgage Assets will be invested by the Trustee with the Guarantor, and the
Guarantor will pay to the Trustee interest at the rate per annum set forth in
such Guaranteed Investment Contract on all amounts invested. Whenever funds
are required under the Indenture to be paid to Bondholders or under the Trust
Agreement to be paid to the Certificateholders, the Guarantor, upon the
request of the Trustee, will remit such funds to the Trustee.
ENHANCEMENT
Enhancement may be provided with respect to a Series, or with respect to
any Mortgage Loans or Private Mortgage-Backed Securities securing a Series.
See "ENHANCEMENT."
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SERVICING OF MORTGAGE LOANS
GENERAL
The servicing obligations with respect to a particular Series may be
performed by various Servicers or by the Trustee. If so specified in the
related Prospectus Supplement, a Master Servicer or a Special Servicer may be
appointed. The related Prospectus Supplement for each Series will describe
the extent, if any, such rights, duties and obligations vary or differ with
respect to such Series from those described herein.
If so specified in the related Prospectus Supplement, pursuant to a Master
Servicing Agreement or Trust Agreement, customary servicing functions with
respect to Mortgage Loans which comprise Mortgage Assets for a Series, or
which constitute Underlying Collateral for a Private Mortgage-Backed Security
will be provided by the Master Servicer directly or by one or more Servicers
subject to supervision by the Master Servicer. To the extent specified in the
related Prospectus Supplement, a special servicer (the "Special Servicer")
may be appointed. The related Prospectus Supplement will describe the duties
and obligations of such Special Servicer. To the extent specified in the
related Prospectus Supplement, the Master Servicer or Special Servicer, if
any, may have the authority to sell or otherwise dispose of Mortgage Loans or
the related REO Property in order to maximize the value of such Mortgage
Loans or property. The entity which has primary liability for servicing
Mortgage Loans directly is sometimes referred to herein as the "Primary
Servicer." If the Master Servicer is not required under the Master Servicing
Agreement, Trust Agreement or PMBS Agreement, as applicable, to act as
Primary Servicer, then the Master Servicer, if any, will (i) administer and
supervise the performance by the Servicers (who will act as Primary
Servicers) of their servicing responsibilities under the Servicing
Agreements, (ii) to the extent not maintained by a Primary Servicer, maintain
any insurance policy required for the related Mortgage Pool and (iii) advance
funds as described below under "Advances" and in the related Prospectus
Supplement. If a Master Servicer undertakes to service Mortgage Loans
directly it may do so through Servicers as its agents. In such case, the
Master Servicer will be responsible for all aspects of the servicing of the
related Mortgage Loans notwithstanding such use of Servicers. The Master
Servicer or a Servicer may be an affiliate of the Issuer. Unless otherwise
specified in the related Prospectus Supplement, in the case of FHA Loans, the
Master Servicer and each Servicer will be required to be approved by HUD as
an FHA mortgagee. The Master Servicer will only be responsible for the duties
and obligations of the Special Servicer to the extent set forth in the
related Prospectus Supplement.
To the extent applicable, Master Servicing Agreements (direct or
supervisory), Servicing Agreements and Special Servicing Agreements, if any,
with respect to a Series will be filed as exhibits to a Current Report on
Form 8-K within 15 days following the issuance of the Securities of a Series.
The Master Servicer will be paid a servicing fee for the performance of
its services and duties under each Master Servicing Agreement, as specified
in the related Prospectus Supplement. Each Servicer, if any, will be entitled
to receive a servicing fee. The Special Servicer, if any, will also be
entitled to a servicing fee. In addition, the Master Servicer, Special
Servicer or Servicer may be entitled to retain late charges, assumption fees
and similar charges to the extent collected from Mortgagors. If a Servicer or
the Special Servicer is terminated by the Master Servicer, the servicing
function of the Servicer or the Special Servicer will be either transferred
to a substitute Servicer or Special Servicer, as the case may be, or
performed by the Master Servicer. The Master Servicer will be entitled to
retain the portion of the Servicing Fee paid to a Servicer, under a
terminated Servicing Agreement, or the Special Servicer, under the Special
Servicing Agreement, if the Master Servicer elects to perform such servicing
functions itself. See "Servicing Compensation and Payment of Expenses" below.
COLLECTION PROCEDURES
The Primary Servicer or, if so specified in the related Prospectus
Supplement, the Trustee, will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will follow such collection
procedures as it follows with respect to mortgage loans serviced by it that
are comparable to the Mortgage Loans.
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Unless otherwise specified in the related Prospectus Supplement, the
Primary Servicer, to the extent permitted by law and the terms of the related
Mortgage Loans, will establish and maintain an escrow account (the "Escrow
Account") in which payments by Mortgagors to pay taxes, assessments, mortgage
and hazard insurance premiums, and other comparable items will be deposited.
Withdrawals from the Escrow Account are to be made to effect timely payment
of taxes, assessments and hazard insurance premiums, to refund to Mortgagors
amounts determined to be overages, to pay interest to Mortgagors on balances
in the Escrow Account to the extent required by law, to repair or otherwise
protect the Mortgaged Property and to clear and terminate such account.
Alternatively, the terms of the related Mortgage Loan may require, upon the
occurrence of a delinquency or default by the obligor, an impound account
("Impound Account") to be established and maintained and into which payments
by Mortgagors to pay taxes, assessments, mortgage and hazard insurance
premiums and other comparable items will be deposited pending distribution of
such items. The Primary Servicer will be responsible for the administration
of the Escrow Account or the Impound Account and may be obligated to make
escrow or impound advances to the relevant account when a deficiency exists
therein if so specified in the related Prospectus Supplement.
PAYMENTS ON MORTGAGE LOANS;
DEPOSITS TO CUSTODIAL ACCOUNTS
With respect to any Series, the Master Servicer, if any, will establish an
account (the "Custodial Account") in the name of the Trustee, unless
otherwise specified in the related Prospectus Supplement. The Custodial
Account will be established so as to comply with the standards of each Rating
Agency rating the Securities of a Series. Amounts to be remitted to the
Trustee shall be remitted by the Master Servicer to the Trustee from the
Custodial Account for deposit in the Collection Account for the related
Series.
In those cases where a Servicer is servicing Mortgage Loans pursuant to a
Servicing Agreement, the Servicer will establish and maintain an account (the
"Servicing Account") that will comply with the standards set forth below for
the Custodial Account and that is otherwise acceptable to the Master
Servicer, if any. The Servicer will be required to deposit into the Servicing
Account on a daily basis (or upon identification) all mortgage related
receipts received by it with respect to Mortgage Loans serviced by such
Servicer subsequent to the Cut-Off Date less its servicing fee and certain
other amounts specified in the Servicing Agreement. On each Servicer
Remittance Date, the Servicer shall remit all funds held in the Servicing
Account (other than payments due on or before the Cut-Off Date and other
amounts permitted to be withdrawn from or held in the Servicing Account
pursuant to the Servicing Agreement) with respect to each Mortgage Loan
together with any Advances made by such Servicer for deposit to the Custodial
Account, or if a Custodial Account has not been established, directly to the
Collection Account. See "Advances" below.
If so specified in the related Prospectus Supplement, the Custodial
Account and each Servicing Account may be maintained as an interest-bearing
account, or the funds held therein may be invested pending remittance to the
Trustee in Eligible Investments. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer or the Servicer will be entitled
to receive any such interest or other income earned on funds in the Custodial
Account or Servicing Account as additional compensation.
The Master Servicer will deposit in the Custodial Account on a daily basis
all mortgage related receipts (including amounts remitted by the Servicer)
received by it subsequent to the Cut-off Date (other than payments of
principal and interest due on or before the Cut-off Date).
With respect to any other type of Mortgage Loan which provides for
payments other than on the basis of level payments, an account may be
established as described in the related Prospectus Supplement.
ADVANCES
General. To the extent provided in the related Prospectus Supplement, the
Primary Servicer may make periodic advances of cash ("Advances") from its own
funds or, if so specified in the related
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Prospectus Supplement, from excess funds in the Custodial Account or
Servicing Account, but only to the extent such Advances are, in the good
faith business judgment of the Servicer or the Master Servicer, as the case
may be, ultimately recoverable from future payments and collections on the
Mortgage Loans or otherwise. Neither the Master Servicer nor the Servicers
will be required to make such Advances, unless otherwise specified in the
related Prospectus Supplement. The Master Servicer's obligation to make
Advances, if any, may, as specified in the related Prospectus Supplement, be
limited in amount or may be limited to Advances received from Servicers. If
so specified in the related Prospectus Supplement, the Master Servicer will
not be obligated to make Advances until all or a specified portion of a
Reserve Fund is depleted. Advances are intended to enable the Issuer to make
timely payment of the scheduled principal and interest payments or
distributions on the Securities of such Series, not to guarantee or insure
against losses. Accordingly, any funds so advanced are recoverable by the
Servicer or the Master Servicer, as the case may be, out of amounts received
on particular Mortgage Loans which represent late recoveries of principal or
interest respecting which any such Advance was made. If an Advance is made
and subsequently determined to be nonrecoverable from late collections,
Insurance Proceeds or Liquidation Proceeds from the related Mortgage Loans,
or any other source described in the related Prospectus Supplement, the
Servicer or Master Servicer will be entitled to reimbursements from other
funds in the Custodial Account or Servicing Account, as applicable.
Adjustments to Servicing Fee or Advances in Connection with Prepaid
Mortgage Loans. With respect to each Mortgage Pool, if an obligor makes a
principal prepayment between scheduled payment dates, the obligor may be
required to pay interest on the principal balance only to the date of
prepayment in full. If and to the extent provided in the related Prospectus
Supplement, the amount of the servicing fee may be reduced, or the Primary
Servicer may be otherwise obligated to advance moneys from its own funds or
any reserve maintained for such purpose, to the extent necessary to include
an amount equal to a full month's interest payment at the applicable Mortgage
Rate. Partial principal prepayments may be treated as having been received on
the next Due Date, and, if so, no reduction in interest remitted for deposit
to the Collection Account will occur. See "YIELD AND PREPAYMENT
CONSIDERATIONS."
MAINTENANCE OF INSURANCE POLICIES
AND OTHER SERVICING PROCEDURES
General. To the extent specified in the related Prospectus Supplement and
the Servicing Agreement, the Primary Servicer will be required to cause to be
maintained a standard hazard insurance policy with respect to each Mortgaged
Property. In addition, all or a portion of the Mortgage Loans comprising a
Mortgage Pool or constituting Underlying Collateral may be insured by the
FHA. The Primary Servicer will be required to take such steps as are
reasonably necessary to keep such insurance in full force and effect. See
"DESCRIPTION OF INSURANCE."
Presentation of Claims; Realization Upon Defaulted Mortgage Loans. The
market value of any property obtained in foreclosure or by deed in lieu of
foreclosure may be based substantially on the operating income obtained by
renting the applicable property. As a default on a Mortgage Loan secured by
Multifamily Property or Commercial Property is likely to have occurred
because operating income, net of expenses, is insufficient to make debt
service payments on the related Mortgage Loan, it can be anticipated that the
market value of such property generally will be less than anticipated when
such Mortgage Loan was originated. To the extent that equity does not cushion
the loss in market value upon any liquidation and such loss is not covered by
other credit support, a loss may be experienced by the related Bondholders or
Certificateholders, as applicable.
The Primary Servicer, on behalf of itself, the Trustee, the Bondholders or
Certificateholders, as applicable and the Issuer, will be required to
present, or cause to be presented, claims with respect to any insurance
policy. The Primary Servicer will be required to present claims and take such
reasonable steps as are necessary to permit recovery under any FHA insurance
respecting defaulted Mortgage Loans.
The Primary Servicer may foreclose upon or otherwise comparably convert
the ownership of properties securing such of the related Mortgage Loans as
come into and continue in default and as to
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which no satisfactory arrangements can be made for collection of delinquent
payments. In connection with such foreclosure or other conversion, the
Primary Servicer will follow such practices and procedures as it shall deem
necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, when any
Mortgaged Property is about to be conveyed by the Mortgagor, the Primary
Servicer will not exercise its rights to accelerate the maturity of such
Mortgage Loan under the applicable "due-on-sale" clause, if any, so long as
the new mortgagor satisfies the applicable underwriting criteria for similar
loans serviced by the Primary Servicer. If such conditions are met or the
Primary Servicer reasonably believes enforcement of a due-on-sale clause will
not be enforceable, the Primary Servicer is authorized to take or enter into
an assumption agreement from or with the person to whom such Mortgaged
Property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Mortgage Note and pursuant to which the original
Mortgagor is released from liability and such person is substituted as
Mortgagor and becomes liable under the Mortgage Note. Unless otherwise
specified in the related Prospectus Supplement, any fee collected in
connection with an assumption will be retained as additional servicing
compensation.
MODIFICATION; WAIVERS
As set forth in the related Prospectus Supplement, the Master Servicer or
Special Servicer, if any, may have the discretion, subject to certain
conditions set forth therein, to modify, waive or amend the terms of any
Mortgage Loan without the consent of the Trustee, or any Bondholder or
Certificateholders, as applicable.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer or the Special Servicer, if any, will not agree to any
modification, waiver or amendment of the payment terms of a Mortgage Loan
unless the Master Servicer or the Special Servicer, if any, has determined
that such modification, waiver or amendment is reasonably likely to produce a
greater recovery on a present value basis than liquidation of the Mortgage
Loan.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer, the Special Servicer, if any, and each Servicer will
be entitled to a servicing fee in an amount specified or to be calculated in
a manner described in the related Prospectus Supplement. The servicing fee
may be fixed or variable, as specified in the related Prospectus Supplement.
In addition, unless otherwise specified in the related Prospectus Supplement,
the Master Servicer, the Special Servicer, if any, or a Servicer will be
entitled to additional servicing compensation in the form of assumption fees,
late payment charges and modification fees.
The Primary Servicer will be entitled to reimbursement for certain
expenses incurred by it in connection with the liquidation of defaulted
Mortgage Loans. The ability of the Issuer of the related Series to pay
principal of and interest on the Securities will not be affected to the
extent claims are paid under the related insurance policies. If claims are
either not made or paid under such insurance policies or if coverage
thereunder has ceased or is insufficient, the ability of the Issuer to meet
debt service requirements on the related Series may be adversely affected. In
addition, the Primary Servicer will be entitled to reimbursement of
expenditures incurred by it in connection with the restoration of Mortgaged
Property, such right of reimbursement being prior to the rights of the
Bondholders to receive any related Insurance Proceeds or Liquidation
Proceeds.
EVIDENCE AS TO COMPLIANCE
The Master Servicer and the Special Servicer, if any, will deliver to the
Trustee, on or before 120 days after the end of each fiscal year of the
Master Servicer and the Special Servicer, if applicable, an officer's
certificate stating that (i) a review of the activities of the Master
Servicer, the Special Servicer and the Servicers during the preceding
calendar year and of performance under the Master Servicing Agreement,
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Special Servicing Agreement, if applicable, and the Servicing Agreements has
been made under the supervision of such officer and (ii) the Master Servicer
and the Special Servicer, if applicable, has fulfilled all its obligations
under the Master Servicing Agreement and Special Servicing Agreement, if
applicable, throughout such year, and, to the best of such officer's
knowledge, based on such review, each Servicer has fulfilled its obligations
under the related Servicing Agreement throughout such year, or, if there has
been a default in the fulfillment of any such obligation, specifying each
such default known to such officer and the nature and status thereof. Such
officer's certificate shall be accompanied by a statement of a firm of
independent public accountants to the effect that, on the basis of an
examination of certain documents and records relating to servicing of the
Mortgage Loans, conducted in accordance with generally accepted accounting
principles in the mortgage banking industry, the Master Servicer's and the
Special Servicer's, if applicable, duties and duties of the Servicers have
been conducted in compliance with the provisions of the applicable agreement,
except for (i) such exceptions as such firm believes to be immaterial and
(ii) such other exceptions as are set forth in such statement. Copies of the
annual officer's certificate and accountants' statement may be obtained
without charge upon written request to the Trustee.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND SPECIAL SERVICER
The Master Servicer and any Special Servicer for each Series will be
specified in the related Prospectus Supplement. The Master Servicer and any
Special Servicer may be an affiliate of the Issuer and may have other
business relationships with the Issuer and its affiliates.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer may not resign from its obligations and duties except with the
consent of the Trustee or upon a determination that its duties thereunder are
no longer permissible under applicable law. No such resignation will become
effective until the Trustee or a successor servicer has assumed the Master
Servicer's obligations and duties under such Master Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Master Servicing Agreement will also provide that neither the Master
Servicer, nor any director, officer, employee or agent of the Master
Servicer, will be under any liability to the Bondholders or
Certificateholders for any action taken or for refraining from the taking of
any action in good faith pursuant to the Master Servicing Agreement, or for
errors in judgment; provided, however, that neither the Master Servicer nor
any such person will be protected against any liability which would otherwise
be imposed by reason of failure to perform its obligations in compliance with
the standards of care set forth in the Master Servicing Agreement. The Master
Servicer may, in its discretion, undertake any such action which it may deem
necessary or desirable with respect to the rights and duties of the parties
to the Master Servicing Agreement and the interests of the Bondholders, or
Certificateholders thereunder. In such event, the Master Servicer will be
entitled to be reimbursed for legal expenses and costs of such action out of
the related Custodial Account.
ENHANCEMENT
GENERAL
For any Series, Enhancement may be provided with respect to one or more
Classes thereof or the related Mortgage Assets. Enhancement may be in the
form of a letter of credit, the subordination of one or more Classes of the
Securities of such Series, the establishment of one or more reserve funds,
overcollateralization, guarantee insurance, the use of cross-support features
or another method of Enhancement described in the related Prospectus
Supplement, or any combination of the foregoing. If so specified in the
related Prospectus Supplement, any form of Enhancement (including but not
limited to insurance, letters of credit or guarantee insurance) may be
structured so as to be drawn upon by more than one Series to the extent
described therein.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Securities and interest thereon. If losses occur which exceed the amount
covered by Enhancement or which are not covered by the Enhancement,
Bondholders or Certificateholders, as
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applicable will bear their allocable share of deficiencies. Moreover, if a
form of Enhancement covers more than one Series of Securities (each, a
"Covered Trust"), holders of Securities issued by any of such Covered Trusts
will be subject to the risk that such Enhancement will be exhausted by the
claims of other Covered Trusts prior to such Covered Trust receiving any of
its intended share of such coverage.
If Enhancement is provided with respect to a Series, or the related
Mortgage Assets, the related Prospectus Supplement will include a description
of (a) the amount payable under such Enhancement, (b) any conditions to
payment thereunder not otherwise described herein, (c) the conditions (if
any) under which the amount payable under such Enhancement may be reduced and
under which such Enhancement may be terminated or replaced and (d) the
material provisions of any agreement relating to such Enhancement.
Additionally, the related Prospectus Supplement will set forth certain
information with respect to the issuer of any third-party Enhancement,
including (i) a brief description of its principal business activities, (ii)
its principal place of business, place of incorporation and the jurisdiction
under which it is chartered or licensed to do business, (iii) if applicable,
the identity of regulatory agencies which exercise primary jurisdiction over
the conduct of its business and (iv) its total assets, and its stockholders'
or policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement.
SUBORDINATE SECURITIES
If so specified in the related Prospectus Supplement, one or more Classes
of a Series may be Subordinate Securities. If so specified in the related
Prospectus Supplement, the rights of the Holders of Subordinate Securities to
receive distributions of principal and interest from the Collection Account
on any Payment Date or Distribution Date will be subordinated to such rights
of the Holders of Senior Securities to the extent specified in the related
Prospectus Supplement. Unless otherwise provided in the Prospectus
Supplement, the amount of subordination will decrease whenever amounts
otherwise payable to the Holder of Subordinate Securities are paid to the
Holders of Senior Securities (including amounts withdrawn from any related
Reserve Fund and paid to the Holders of Senior Securities), and will (unless
otherwise specified in the related Prospectus Supplement) increase whenever
there is distributed to the Holders of Subordinate Securities amounts in
respect of which subordination payments have previously been paid to the
Holders of Senior Securities. Unless otherwise specified in the related
Prospectus Supplement, the related Series Supplement may require a trustee
that is not the Trustee to be appointed to act on behalf of Holders of
Subordinate Securities.
A Series may include one or more Classes of Subordinate Securities
entitled to receive cash flows remaining after distributions are made to all
other Classes designated as being senior thereto. Such right will effectively
be subordinate to the rights of other Holders of Senior Securities, but will
be not be limited to a specified dollar amount of subordination. If so
specified in the related Prospectus Supplement, the subordination of a Class
may apply only in the event of (or may be limited to) certain types of losses
not covered by Insurance Policies or other credit support, such as losses
arising from damage to property securing a Mortgage Loan not covered by
standard hazard insurance policies.
The related Prospectus Supplement will set forth information concerning
the amount of subordination of a Class or Classes of Subordinate Securities
in a Series, the circumstances in which such subordination will be
applicable, the manner, if any, in which the amount of subordination will
decrease over time, the manner of funding any related Reserve Fund and the
conditions under which amounts in any related Reserve Fund will be used to
make distributions to Holders of Senior Securities and/or to Holders of
Subordinate Securities or be released from the related Trust Estate or Trust
Fund. If cash flows otherwise distributable to holders of Subordinate
Securities secured by a Mortgage Group will be used as credit support for
Senior Securities secured by another Mortgage Group within the Trust Estate
or Trust Fund, the related Prospectus Supplement will specify the manner and
conditions for applying such a cross-support feature.
CROSS-SUPPORT FEATURES
If the Mortgage Assets for a Series are divided into separate Mortgage
Groups, each securing a separate Class or Classes of a Series, credit support
may be provided by a cross-support feature which
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requires that distributions be made on Senior Securities secured by one
Mortgage Group prior to distributions on Subordinate Securities secured by
another Mortgage Group within the Trust Estate or Trust Fund. The related
Prospectus Supplement for a Series which includes a cross-support feature
will describe the manner and conditions for applying such cross-support
feature.
INSURANCE ON THE MORTGAGE LOANS
Credit support with respect to a Series may be provided by insurance
policies that include standard hazard insurance and may, if specified in the
related Prospectus Supplement, include FHA Insurance. See "DESCRIPTION OF
INSURANCE ON THE MORTGAGE LOANS."
LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Securities will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). Under the letter of credit, the L/C
Bank will be obligated to honor drawings thereunder in an aggregate fixed
dollar amount, net of unreimbursed payments thereunder, equal to the
percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the related Cut-Off Date or of one
or more Classes of Securities (the "L/C Percentage"). If so specified in the
related Prospectus Supplement, the letter of credit may permit drawings in
the event of losses not covered by insurance policies or other credit
support, such as losses arising from damage not covered by standard hazard
insurance policies. The amount available under the letter of credit will, in
all cases, be reduced to the extent of the unreimbursed payments thereunder.
The obligations of the L/C Bank under the letter of credit for each Series of
Securities will expire at the earlier of the date specified in the related
Prospectus Supplement or the termination of the Trust Estate or Trust Fund,
as applicable. A copy of the letter of credit for a Series, if any, will be
filed with the Commission as an exhibit to a Current Report on Form 8-K to be
filed within 15 days of issuance of the Securities of the related Series.
BOND GUARANTEE INSURANCE
Bond guarantee insurance, if any, with respect to a Series of Bonds will
be provided by one or more insurance companies. Such bond guarantee insurance
will guarantee, with respect to one or more Classes of Bonds of the related
Series, timely distributions of interest and full distributions of principal
on the basis of a schedule of principal distributions set forth in or
determined in the manner specified in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement, the bond guarantee
insurance will also guarantee against any payment made to a Bondholder which
is subsequently recovered as a "voidable preference" payment under the
Bankruptcy Code. A copy of the bond guarantee insurance for a Series, if any,
will be filed with the Commission as an exhibit to a Current Report on Form
8-K to be filed with the Commission within 15 days of issuance of the Bonds
of the related Series.
RESERVE FUNDS
One or more Reserve Funds may be established with respect to a Series, in
which cash, a letter of credit, Eligible Investments, a demand note or a
combination thereof, in the amounts, if any, so specified in the related
Prospectus Supplement will be deposited. The Reserve Funds for a Series may
also be funded over time by depositing therein a specified amount of the
distributions received on the related Mortgage Assets as specified in the
related Prospectus Supplement.
Amounts on deposit in any Reserve Fund for a Series, together with the
reinvestment income thereon, if any, will be applied by the Trustee for the
purposes, in the manner, and to the extent specified in the related
Prospectus Supplement. A Reserve Fund may be provided to increase the
likelihood of timely payments or distributions of principal of and interest
on the Securities, if required as a condition to the rating of such Series by
each Rating Agency, or to reduce the likelihood of special redemptions with
respect to any Series. If so specified in the related Prospectus Supplement,
Reserve Funds may be established to provide limited protection, in an amount
satisfactory to each Rating Agency, against certain types of losses not
covered by Insurance Policies or other credit support, such as losses arising
from
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damage not covered by standard hazard insurance policies. Following each
Payment Date or Distribution Date amounts in such Reserve Fund in excess of
any amount required to be maintained therein may be released from the Reserve
Fund under the conditions and to the extent specified in the related
Prospectus Supplement and will not be available for further application by
the Trustee.
Moneys deposited in any Reserve Funds will be invested in Eligible
Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
any reinvestment income or other gain from such investments will be credited
to the related Reserve Fund for such Series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to the Master Servicer or a Servicer as additional servicing
compensation. See "SERVICING OF MORTGAGE LOANS". The Reserve Fund, if any,
for a Series will not be a part of the Trust Estate or Trust Fund, as
applicable, unless otherwise specified in the related Prospectus Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund
may be applied to make payments or distributions to Bondholders or
Certificateholders and use of investment earnings from the Reserve Fund, if
any.
DESCRIPTION OF INSURANCE ON THE MORTGAGE LOANS
The following descriptions of standard hazard insurance policies and FHA
insurance and the respective coverages thereunder are general descriptions
only and do not purport to be complete.
MORTGAGE INSURANCE ON THE MORTGAGE LOANS
General. Each Mortgaged Property will be covered by a standard hazard
insurance policy, as described in the related Prospectus Supplement. The
coverage under standard hazard insurance policies will be subject to
conditions and limitations described in the Prospectus Supplement and under
"Hazard Insurance on the Mortgage Loans" below. Certain hazard risks will,
therefore, not be insured and the occurrence of such hazards could adversely
affect payments or distributions to Holders. Additionally, to the extent that
losses on a defaulted or foreclosed Mortgage Loan are not covered by other
credit support for such Series, such losses, if any, would affect payments or
distributions to Holders.
HAZARD INSURANCE ON THE MORTGAGE LOANS
Standard Hazard Insurance Policies. The standard hazard insurance policies
will provide for coverage at least equal to the applicable state standard
form of fire insurance policy with extended coverage. In general, the
standard form of fire and extended coverage policy will cover physical damage
to or destruction of, the improvements on the Mortgaged Property caused by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the standard hazard insurance policies relating to the
Mortgage Loans will be underwritten by different insurers and will cover
Mortgaged Properties located in various states, such policies will not
contain identical terms and conditions. The basic terms, however, generally
will be determined by state law and generally will be similar. Most such
policies typically will not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquake, landslides, and mudflows), nuclear
reaction, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive.
Uninsured risks not covered by a special hazard insurance policy or other
form of credit support may adversely affect the ability of the Issuer to make
payments of principal or interest on the Bonds. When a Mortgaged Property is
located in a flood area identified by FEMA pursuant to the Flood Disaster
Protection Act of 1973, the Master Servicer or the Servicer will be required
to cause flood insurance to be maintained with respect to such Mortgaged
Property.
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The standard hazard insurance policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which
will require the insured at all times to carry hazard insurance of a
specified percentage (generally 80% to 90%) of the actual cash value of the
improvements on the Mortgaged Property in order to recover the full amount of
any partial loss. If the insured's coverage falls below this specified
percentage, such clause will provide that the hazard insurer's liability in
the event of partial loss will not exceed the greater of (i) the actual cash
value (the replacement cost less physical depreciation) of the improvements
damaged or destroyed or (ii) such proportion of the loss as the amount of
insurance carried bears to the specified percentage of the actual cash value
of such improvements.
In the event of partial loss, hazard insurance proceeds may be
insufficient to restore fully the damaged property. Under the terms of the
Mortgage Loans, Mortgagors are required to present claims to insurers under
hazard insurance policies maintained on the Mortgaged Properties. The Primary
Servicer, on behalf of the Trustee, Bondholders, and Certificateholders, is
obligated to present or cause to be presented claims under any blanket
insurance policy insuring against hazard losses on Mortgaged Properties;
however, the ability of the Primary Servicer to present or cause to be
presented such claims is dependent upon the extent to which information in
this regard is furnished to the Primary Servicer by Mortgagors.
FHA Insurance. The FHA is responsible for administering various federal
programs, including mortgage insurance, authorized under the Housing Act, as
amended, and the United States Housing Act of 1937, as amended. To the extent
specified in the related Prospectus Supplement, all or a portion of the
Mortgage Loans may be insured by the FHA. The Primary Servicer will be
required to take such steps as are reasonably necessary to keep such
insurance in full force and effect.
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CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the
Mortgaged Properties are situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Mortgage Loans.
MORTGAGES
Each Mortgage Loan will be secured by a mortgage, a 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. The filing of a
mortgage, deed of trust or deed to secure debt creates a lien on title
interest upon the real property covered by such instrument and represents the
security for the repayment of an obligation that is customarily evidenced by
a promissory note. It is generally not prior to the lien for real estate
taxes and assessments or other charges imposed under governmental police
powers. Priority with respect to such instruments depends on their terms, the
knowledge of the parties to the mortgage and generally on the order of
recording with the applicable state, county or municipal office. There are
two parties to a mortgage: the mortgagor, who is the owner of the property
and usually the borrower, and the mortgagee, who is the lender. Under the
mortgage instruments, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage to secure the indebtedness. In the case
of a land trust, there are three parties because title to the property is
held by a land trustee under a land trust agreement of which the borrower is
the beneficiary at origination of a mortgage loan involving a land trust, the
borrower executes a separate undertaking to make payments on the mortgage
note. A deed of trust has three parties: the owner of the property and
usually the borrower, called the trustor (similar to a mortgagor), a lender,
called the beneficiary (similar to the mortgagee), and a third-party grantee,
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure payment of the mortgage loan. The trustee's
authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by the express provisions of the deed of trust or
mortgage, the law of the state in which the real property is located and, in
some cases, in deed of trust transactions, the directions of the beneficiary.
Some states use a security deed or deed to secure debt which is similar to a
deed of trust except it has only two parties: a grantor (similar to a
mortgagor) and a grantee (similar to a mortgagee).
FORECLOSURE OF MORTGAGE
Foreclosure of a deed of trust or deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in
the deed of trust which authorizes the trustee to sell the property upon any
default by the borrower under the terms of the note or deed of trust or deed
to secure debt. In some states, prior to such sale, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person
who has recorded a request for a copy of a notice of default and notice of
sale. In addition, the trustee in some states must provide notice of any
other individual having an interest in the real property, including any
junior lienholders. In some states there is a reinstatement period. The
trustor, borrower, or any person having a junior encumbrance on the real
estate may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. In other states, after acceleration of the debt, the borrower
is not provided with 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 controls the amount of foreclosure expenses and costs, including
attorneys' fees, which may be recovered by a lender. If the deed of trust is
not reinstated, 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. In addition, some state laws require that a copy of the notice of
sale be posted on the property, recorded and sent to all parties having an
interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated
by statutes and rules and subject throughout to the
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court's equitable powers. Generally, a borrower is bound by the terms of the
mortgage note and the mortgage and cannot be relieved from his default if the
mortgagee has exercised his rights in a commercially reasonable manner.
However, since a foreclosure action historically was equitable in nature, the
court may exercise equitable powers to relieve a mortgagor of a default and
deny the mortgagee foreclosure on proof that either the mortgagor's default
was neither willful nor in bad faith or the mortgagee's action established a
waiver, fraud, bad faith, or oppressive or unconscionable conduct such as to
warrant a court of equity refusing affirmative relief to the mortgagee. Under
certain circumstances, a court of equity may relieve the borrower from an
entirely technical default where such default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes
requiring up to several years to complete. Moreover, a non-collusive,
regularly conducted foreclosure sale may be challenged as a fraudulent
conveyance, regardless of the parties' intent, if a court determines that the
sale was for less than fair consideration and such sale occurred while the
mortgagor was insolvent and within the state statute of limitations (which is
tolled by the filing of a bankruptcy case). Similarly, in some states, a suit
against the debtor on the mortgage note may take several years and,
generally, is a remedy alternative to foreclosure, the mortgagee being
precluded from pursuing both at the same time.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty potential third-party purchasers at
the sale have in determining the exact status of title and because the
physical condition of the property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
property at a foreclosure sale. Rather, it is common for the lender to
purchase the property from the trustee or referee for an amount which may be
equal to the principal amount of the mortgage or deed of trust plus accrued
and unpaid interest and the expenses of foreclosure, in which event the
borrower's debt will be extinguished or the lender may purchase for a lesser
amount in order to preserve its right against a borrower to seek a deficiency
judgment in states where such a judgment is available. Thereafter, and
subject in some states to the right of the borrower to stay in possession
during a redemption period, the lender will assume the burdens of ownership,
including obtaining casualty insurance, paying taxes and making such repairs
at its own expense as are necessary to render the property suitable for sale.
The lender will commonly obtain the services of a real estate broker and pay
the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Moreover, a
lender typically incurs substantial legal fees and court costs in acquiring a
mortgaged property through contested foreclosure. Furthermore, certain states
require that any environmental hazards be eliminated before a property may be
resold. In addition, a lender may be responsible under federal or state law
for the cost of cleaning up a mortgaged property that is environmentally
contaminated. As a result, a lender could realize an overall loss on a
mortgage loan even if the related 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 mortgage loan, plus accrued
interest. Any loss may be reduced by the receipt of any mortgage guaranty
insurance proceeds.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the trustor or borrower and foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale.
The right of redemption should be distinguished from the equity of
redemption, which is a nonstatutory right that must be exercised prior to the
foreclosure sale. In some states, redemption may occur only upon payment of
the foreclosure sales price and expenses of foreclosure. In other states,
redemption may be authorized 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. The right of
redemption would defeat the title of any purchaser from the lender subsequent
to foreclosure or sale under a deed of trust. Consequently, the practical
effect of a right of redemption is to force the lender to retain the property
and pay expenses of ownership until the redemption period has run. In some
states, there is no right to redeem property after a trustee's sale under a
deed of trust.
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ENVIRONMENTAL MATTERS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of
clean-up. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA"), a lender may be liable,
as an "owner" or "operator," for costs of addressing releases or threatened
releases of hazardous substances that require remedy at a property, if agents
or employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the environmental
damage or threat was actually caused or exacerbated by the lender's agents or
employees. A lender also risks such liability on and following foreclosure of
the Mortgaged Property. 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." On April 29, 1992, the United States Environmental Protection
Agency ("EPA") issued a final rule intended to protect lenders from liability
under CERCLA. This rule was in response to a 1990 decision of the United
States Court of Appeals for the Eleventh Circuit, United States v. Fleet
Factors Corp., which narrowly construed the security interest exemption under
CERCLA to hold lenders liable if they had the capacity to influence their
borrower's management of hazardous waste. On February 4, 1994, the United
States Court of Appeal for the District of Columbia Circuit in Kelley v. EPA
invalidated this EPA rule. As a result of the Kelley case, the state of the
law with respect to the secured creditor exemption and the scope of
permissible activities in which a lender may engage to protect its security
interest remain uncertain. In addition, even if a new version of the EPA rule
were to be adopted formally by EPA, followed informally by EPA, enacted by
statute, or otherwise reinstated, the rule would not necessarily affect the
potential for lender liability in actions by parties other than EPA or under
laws or legal theories other than CERCLA. If a lender is or becomes liable,
it can bring an action for contribution against the owner or operator who
created the environmental hazard, but that person or entity may be bankrupt
or otherwise judgment proof. Such clean-up costs may be substantial. It is
possible that such costs could become a liability of the Trust Estate and
occasion a loss to Bondholders in certain circumstances described above if
such remedial costs were incurred.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Properties was conducted.
Unless otherwise specified in the related Prospectus Supplement, the
Servicing Agreement, Master Servicing Agreement or Special Servicing
Agreement, as applicable, provides that the Servicer, the Master Servicer or
the Special Servicer, as applicable, acting on behalf of the Trust Estate or
Trust Fund, as applicable, may not acquire title to a Mortgaged Property
underlying a Mortgage Loan or take over its operation unless the Servicer,
the Master Servicer or the Special Servicer, as applicable, has previously
determined, based upon a report prepared by a person who regularly conducts
environmental audits, that (i) the Mortgaged Property is in compliance with
applicable environmental laws and regulations or, if not, that taking such
actions as are necessary to bring the Mortgaged Property in compliance
therewith is reasonably likely to produce a greater recovery on a present
value basis than not taking such actions and (ii) there are no circumstances
or conditions present that have resulted in any contamination or if such
circumstances or conditions are present for which such action could be
required, taking such actions with respect to the affected Mortgaged Property
is reasonably likely to produce a greater recovery on a present value basis
than not taking such actions.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties are 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 limited
alternative uses for such Mortgaged Property, result in a failure to realize
the full principal amount of the Mortgage Loans.
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For instance, Mortgaged Properties which are hospitals, nursing homes or
convalescent homes may present special risks in large part due to significant
governmental regulation of the operation, maintenance, control and financing
of health care institutions. Mortgaged Properties which are hotels or motels
may present additional risk in that: (i) hotels and motels are typically
operated pursuant to franchise, management and operating agreements which may
be terminable by the operator, and (ii) the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchase or foreclosure is subject to the vagaries of local law
requirements.
LEASES AND RENTS
Multifamily and commercial mortgage loan transactions often provide for an
assignment of the leases and rents pursuant to which the borrower typically
assigns its right, title and interest, as landlord under each lease and the
income derived therefrom, to the lender while either obtaining a license to
collect rents for so long as there is no default or providing for the direct
payment to the lender. In some instances, local law, however, may require
that the lender take possession of the property and appoint a receiver before
becoming entitled to collect the rents under the lease.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
some states, statutes limit the right of the beneficiary or mortgagee to
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 in most cases to the difference between the
amount due to the lender and the net amount realized upon the foreclosure
sale. Other statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt 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 these states, the lender, following
judgment on such personal action, may be deemed to have elected a remedy and
may be precluded from exercising remedies with respect to the security.
Consequently, the practical effect of the election requirement, when
applicable, is that lenders will usually proceed first against the security
rather than bringing personal action against the borrower. Finally, other
statutory provisions may limit any deficiency judgment against the former
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the judicial sale. In some states, exceptions to the
anti-deficiency statutes are provided for in certain instances where the
value of the lender's security has been impaired by acts or omissions of the
borrower, for example, in the event of waste of the property.
In addition, substantive requirements are imposed upon lenders in
connection with the origination and the servicing of mortgage loans by
numerous federal and some state consumer protection laws. The laws include
the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting
Act and related statutes and regulations. These federal laws impose specific
statutory liabilities upon lenders who originate loans and who fail to comply
with the provisions of the law. In some cases, this liability may affect
assignees of the loans.
Federal Bankruptcy and Other Laws Affecting Creditors' Rights. In addition
to laws limiting or prohibiting deficiency judgments, numerous other
statutory provisions, including the federal bankruptcy laws (the "Bankruptcy
Code") and state laws affording relief to debtors, may interfere with or
affect the ability of the secured lender to realize upon collateral and/or
enforce a deficiency judgment. For example, with respect to federal
bankruptcy law, the filing of a petition acts as a stay against the
enforcement of remedies (including the right of foreclosure) for collection
of a debt. Also, the filing of a petition in bankruptcy by or on behalf of a
junior lienor may stay a senior lender from taking action to foreclose out
the junior lien.
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In a Chapter 11 case under the Bankruptcy Code, the lender's lien may be
transferred to other collateral and/or be limited in amount to the value of
the lender's interest in the collateral as of the date of the bankruptcy. The
loan term may be extended, the interest rate may be adjusted to market rates
and the priority of the loan may be subordinated to bankruptcy court-approved
financing. The bankruptcy court can reinstate accelerated indebtedness and
also, in effect, invalidate due-on-sale clauses through confirmed Chapter 11
plans of reorganization. Under Section 363(b) and (f) of the Bankruptcy Code,
a trustee for a lessor, or a lessor as debtor-in-possession, may, despite the
provisions of the related Mortgage Loan to the contrary, sell the Mortgaged
Property free and clear of all liens, which liens would then attach to the
proceeds of such sale.
The Bankruptcy Code has recently been amended to provide that a lender's
perfected pre-petition security interest in leases, rents and hotel revenues
continues in the post-petition leases, rents and hotel revenues, unless a
bankruptcy court orders to the contrary "based on the equities of the case."
Thus, unless a court orders otherwise, revenues from a Mortgaged Property
generated after the date the bankruptcy petition is filed will constitute
"cash collateral" under the Bankruptcy Code. Debtors may only use cash
collateral upon obtaining the lender's consent or a prior court order finding
that the lender's interest in the Mortgaged Properties and the cash
collateral is "adequately protected" and such term is defined and interpreted
under the Bankruptcy Code. It should be noted, however, that the court may
find that the lender has no security interest in either pre-petition or
post-petition revenues if the court finds that the loan documents do not
contain language covering accounts, room rents, or other forms of personalty
necessary for a security interest to attach to hotel revenues.
Lessee bankruptcies at the Mortgaged Properties could have an adverse
impact on the Mortgagors' ability to meet their obligations. For example,
Section 365(e) of the Bankruptcy Code provides generally that rights and
obligations under an unexpired lease may not be terminated or modified at any
time after the commencement of a case under the Bankruptcy Code solely
because of a provision in the lease conditioned upon the commencement of a
case under the Bankruptcy Code or certain other similar events. In addition,
Section 362 of the Bankruptcy Code operates as an automatic stay of, among
other things, any act to obtain possession of property of or from a debtor's
estate, which may delay the Trustee's exercise of such remedies in the event
that the lessee becomes the subject of a proceeding under the Bankruptcy
Code.
Section 365(a) of the Bankruptcy Code generally provides that a trustee or
a debtor-in-possession in a case under the Bankruptcy Code has the power to
assume or to reject an executory contract or an unexpired lease of the
debtor, in each case subject to the approval of the bankruptcy court
administering such case. If the trustee or debtor-in-possession rejects an
executory contract or an unexpired lease, such rejection generally
constitutes a breach of the executory contract or unexpired lease immediately
before the date of the filing of the petition. As a consequence, the other
party or parties to such executory contract or unexpired lease, such as the
Mortgagor, as lessor under a lease, would have only an unsecured claim
against the debtor for damages resulting from such breach, which could
adversely affect the security for the related Mortgage Loan. Moreover, under
Section 502(b)(6) of the Bankruptcy Code, the claim of a lessor for such
damages from the termination of a lease of real property will be limited to
the sum of (i) the rent reserved by such lease, without acceleration, for the
greater of one year or 15 percent, not to exceed three years, of the
remaining term of such lease, following the earlier of the date of the filing
of the petition and the date on which such lender repossessed, or the lessee
surrendered, the leased property, and (ii) any unpaid rent due under such
lease, without acceleration, on the earlier of such dates.
Under Section 365(f) of the Bankruptcy Code, if a trustee or
debtor-in-possession assumes an executory contract or an unexpired lease of
the debtor, the trustee or debtor-in-possession generally may assign such
executory contract or unexpired lease, notwithstanding any provision therein
or in applicable law that prohibits, restricts or conditions such assignment,
provided that the trustee or debtor-in- possession provides "adequate
assurance of future performance" by the assignee. The Bankruptcy Code
specifically provides, however, that adequate assurance of future performance
for purposes of a lease of real property in a shopping center includes
adequate assurance of the source of rent and other consideration due under
such lease, and in the case of an assignment, that the financial condition
and operating performance of the proposed assignee and its guarantors, if
any, shall be similar to the financial
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condition and operating performance of the debtor and its guarantors, if any,
as of the time the debtor became the lessee under the lease, that any
percentage rent due under such lease will not decline substantially, that the
assumption and assignment of the lease is subject to all the provisions
thereof, including (but not limited to) provisions such as a radius location,
use or exclusivity provision, and will not breach any such provision
contained in any other lease, financing agreement, or master agreement
relating to such shopping center, and that the assumption or assignment of
such lease will not disrupt the tenant mix or balance in such shopping
center. Thus, an undetermined third party may assume the obligations of the
lessee under a lease in the event of commencement of a proceeding under the
Bankruptcy Code with respect to the lessee.
Under Section 365(h) of the Bankruptcy Code, if a trustee for a lessor, or
a lessor as a debtor-in-possession, rejects an unexpired lease of real
property, the lessee may treat such lease as terminated by such rejection or,
in the alternative, may remain in possession of the leasehold for the balance
of such term and for any renewal or extension of such term that is
enforceable by the lessee under applicable nonbankruptcy law. The Bankruptcy
Code provides that if a lessee elects to remain in possession after such a
rejection of a lease, the lessee may offset against rents reserved under the
lease for the balance of the term after the date of rejection of the lease,
and any such renewal or extension thereof, any damages occurring after such
date caused by the nonperformance of any obligation of the lessor under the
lease after such date.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise
accept. Moreover, the laws of certain states also give priority to certain
tax liens over the lien of a mortgage or deed of trust. Under the Bankruptcy
Code, if the court finds that actions of the mortgagee have been
unreasonable, the lien of the related mortgage may be subordinated to the
claims of unsecured creditors.
DUE-ON-SALE CLAUSES IN MORTGAGE LOANS
A note, mortgage or deed of trust relating to the Mortgage Loans generally
contains a "due-on-sale" clause permitting acceleration of the maturity of a
loan if the borrower transfers its interest in the property. In recent years,
court decisions and legislative actions placed substantial restrictions on
the right of lenders to enforce such clauses in many states. By virtue,
however, of the Garn St. Germain Depository Institutions Act of 1982 (the
"Garn Act") effective October 15, 1982 (which purports to preempt state laws
which prohibit the enforcement of due-on-sale clauses by providing among
other matters, that "due-on-sale" clauses in certain loans made after the
effective date of the Garn Act are enforceable, within certain limitations as
set forth in the Garn Act and the regulations promulgated thereunder) the
Servicer or the Master Servicer may nevertheless be able to accelerate many
of the Mortgage Loans that contain a "due-on-sale" provision upon transfer of
an interest in the property subject to the Mortgage Loans, regardless of the
Servicer's or the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or
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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. The enforceability, under the laws of a number of states
of provisions providing for prepayment fees or penalties upon an involuntary
prepayment is unclear, and no assurance can be given that, at the time a
prepayment fee or penalty is required to be made on a Mortgage Loan in
connection with an involuntary prepayment, the obligation to make such
payment will be enforceable under applicable state law. Late charges and
prepayment fees are typically retained by servicers as additional servicing
compensation. The absence of a restraint on prepayment, particularly with
respect to Mortgage Loans having higher mortgage rates, may increase the
likelihood of refinancing or other early retirements of the Mortgage Loans.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles
are generally designed to relieve the borrower from the legal effect of his
defaults under the loan documents. Examples of judicial remedies that have
been fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for 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
judgment and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from temporary
financial disability. In other cases, courts have limited the right of a
lender to realize upon his security if the default under the security
agreement is not monetary, such as the borrower's failure to adequately
maintain the property or the borrower's execution of secondary financing
affecting the property. Finally, some courts have been faced with the issue
of whether or not federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under security
agreements receive notices in addition to the statutorily prescribed
minimums. For the most part, these cases have upheld the notice provisions as
being reasonable or have found that, in cases involving the sale by a trustee
under a deed of trust or by a mortgagee under a mortgage having a power of
sale, there is insufficient state action to afford constitutional protections
to the borrower.
The Mortgage Loans may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary default of the borrower,
after the applicable cure period. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment
default. However, courts of any state, exercising equity jurisdiction, may
refuse to allow a lender to foreclose a mortgage or deed of trust when an
acceleration of the indebtedness would be inequitable or unjust and the
circumstances would render the acceleration unconscionable.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. Similar federal
statutes were in effect with respect to mortgage loans made during the first
three months of 1980. The OTS, as successor to the Federal Home Loan Bank
Board, is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. Title V authorizes any
state to reimpose interest rate limits by adopting, before April 1, 1983, a
state law, or by certifying that the voters of such state have voted in favor
of any provision, constitutional or otherwise, which expressly rejects an
application of the federal law. Fifteen states adopted such a law prior to
the April 1, 1983 deadline. 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.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
Mortgage Loan originated after the date of such state action will be eligible
as Mortgage Assets unless (i) such Mortgage Loan provides for such interest
rate, discount points and charges as are permitted in such state or (ii) such
Mortgage Loan provides that the
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terms thereof shall be construed in accordance with the laws of another state
under which such interest rate, discount points and charges would not be
usurious and the Mortgagor's counsel has rendered an opinion that such choice
of law provision would be given effect. No Mortgage Loan originated prior to
January 1, 1980 will bear interest or provide for discount points or charges
in excess of permitted levels.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including ARMs originated by
non-federally chartered lenders, have historically been subject to a variety
of restrictions. Such restrictions differed from state to state, resulting in
difficulties in determining whether a particular alternative mortgage
instrument originated by a state-chartered lender complied with applicable
law. These difficulties were alleviated substantially as a result of the
enactment of Title VIII of the Garn St. Germain Act ("Title VIII"). Title
VIII provides that, notwithstanding any state law to the contrary,
state-chartered banks may originate "alternative mortgage instruments"
(including ARMs) in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks; state chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration with respect to
origination of alternative mortgage instruments by federal credit unions and
all other non-federally chartered housing creditors, including
state-chartered savings and loan associations; and state-chartered savings
banks and mortgage banking companies may originate alternative mortgage
instruments in accordance with the regulations promulgated by the Federal
Home Loan Bank Board, as succeeded by the OTS, with respect to origination of
alternative mortgage instruments by federal savings and loan associations.
Title VIII provides that any state may reject applicability of the provisions
of Title VIII by adopting, prior to October 15, 1985, a law or constitutional
provision expressly rejecting the applicability of such provisions. Certain
states have taken such action.
SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may not restrict secondary financing,
thereby permitting the borrower to use the Mortgaged Property as security for
one or more additional loans. Certain of the Mortgage Loans may preclude
secondary financing (by permitting the first lender to accelerate the
maturity of its loan if the borrower further encumbers the Mortgaged Property
or in some other fashion) or may require the consent of the senior lender to
any junior or substitute financing; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances.
Where the borrower encumbers the Mortgaged Property with one or more
junior liens, the senior lender is subjected to additional risk. For example,
the borrower may have difficulty servicing and repaying multiple loans or
acts of the senior lender which 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. In
addition, 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, delay and in certain circumstances even prevent the taking of action by
the senior lender. In addition, the bankruptcy of a junior lender may operate
to stay foreclosure or similar proceedings by the senior lender.
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THE INDENTURE
The following summaries describe certain provisions of the Indenture. The
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Indenture. Where
particular provisions or terms used in the Indenture are referred to, such
provisions or terms are as specified in the Indenture.
CERTAIN COVENANTS
The Issuer may not liquidate or dissolve, without the consent of the
holders of not less than 66 2/3 % of the Aggregate Outstanding Principal of
each Series. The Issuer also may not consolidate or merge with or into any
other Person or convey or transfer its properties and assets substantially as
an entirety without the consent of holders of not less than 66 2/3 % of the
Aggregate Outstanding Principal of each Series, and unless (a) the Person (if
other than the Issuer) formed or surviving such merger or consolidation or
acquiring such assets is a Person organized under the laws of the United
States of America or any State and shall have expressly assumed, by
supplemental indenture in form satisfactory to the Trustee, the due and
punctual payment of principal of and interest on all Bonds and the
performance of every applicable covenant of the Indenture to be performed, by
the Issuer, (b) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred, and be continuing, (c) the
Trustee shall have received a letter from each Rating Agency rating any
outstanding Bonds to the effect that the rating issued with respect to such
Bonds is confirmed notwithstanding the consummation of such transaction and
(d) the Trustee 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.
The Issuer may incur, assume, have outstanding or guarantee any
indebtedness other than pursuant to the Indenture only subject to certain
conditions and limitations.
MODIFICATION OF INDENTURE
Except as set forth below, with the consent of the holders of not less
than a majority of the then Aggregate Outstanding Principal of each Series or
Class of such Series to be affected, the Trustee and the Issuer may amend the
Indenture or execute a supplemental indenture, to add provisions to or change
or eliminate any provisions of the Indenture or Trust Agreement, as
applicable, relating to such Series, 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 Stated Maturity of the principal of or any
installment of principal of or interest on any Bond or reduce the principal
amount thereof, the Bond Interest Rate for any Bond or the Redemption Price
with respect thereto, or change the provisions of the Trust Indenture or the
related Series Supplement relating to the application of the Trust Estate to
payment principal of or interest on the affected Bonds, or change any place
of payment where, or the coin or currency in which, any affected Bond or any
interest thereon is payable, or impair the right to institute suit for the
enforcement of the provisions of the Indenture regarding payment, (ii) reduce
the percentage of Aggregate Outstanding Principal of the Bonds of the
affected 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
Indenture or certain defaults thereunder and their consequences, (iii) modify
or alter the provisions of the Indenture defining the term "Outstanding,"
(iv) permit the creation of any lien ranking prior to or on a parity with the
lien of the Indenture with respect to any part of the property subject to the
lien of the Indenture or terminate the lien of the 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 Indenture, (v) reduce the percentage of the
Aggregate Outstanding Principal of any 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 Indenture if such modification affects the calculation of
the amount of any payment of interest or principal due and payable on any
Bond on any Payment Date or to affect the rights of the holders of Bonds of
any Series (or Class of such Series) to the benefit of any provisions for the
mandatory redemption of Bonds
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of such Series (or Class of such Series) contained therein or in the related
Series Supplement 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 or number of holders required to
consent to such modification of such Indenture or Trust Agreement, as
applicable, 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 may also amend the Indenture or enter into
supplemental indentures, without obtaining the consent of holders of any
Series, to cure any ambiguity or to correct or supplement any provision of
the Indenture or any supplemental indenture which may be defective or
inconsistent with any other provision, or to make or to amend any other
provisions with respect to matters or questions arising under the Indenture
or any supplemental indenture, provided that such action shall not materially
adversely affect the interests of the holders of the Bonds. Such amendments
may also be made and such supplemental indentures may also be entered into
without the consent of Bondholders or Certificateholders to set forth the
terms of and security for additional Series, to evidence the succession of
another person to the Issuer, to add to the conditions, limitations and
restrictions on certain terms of any Series and to the covenants of the
Issuer, to surrender any right or power conferred upon the Issuer, to convey,
transfer, assign, mortgage or pledge any property to the Trustee, to correct
or amplify the description of any property subject to the lien of the
Indenture to modify the Indenture to the extent necessary to effect the
Trustee's qualification under the TIA or comply with the requirements of the
TIA, to provide for the issuance of Bonds of any Series, to make any
amendment necessary or desirable to maintain the status of a REMIC as a REMIC
and to amend the provisions of the Indenture relating to authentication and
delivery of a Series with respect to which a supplemental indenture has not
theretofore been authorized or to evidence and provide for the acceptance of
appointment by a successor trustee.
EVENTS OF DEFAULT
Unless otherwise stated in the related Prospectus Supplement, an "Event of
Default" with respect to any Series is defined in the Indenture as being: (i)
a continuing default for 5 days in the payment of interest on any Bond of
such Series; (ii) a continuing default for five days in the payment of
principal, when due, of any Bond of such Series; (iii) the impairment of the
validity or effectiveness of the Indenture or any grant thereunder, or the
subordination, termination or discharge of the lien of the Indenture with
respect to such Series, or the release of any Person from any covenants or
obligations under the Indenture with respect to such Series, unless otherwise
expressly permitted, or the creation of any lien, charge, security interest,
mortgage or other encumbrance with respect to any part of the property
subject to the lien of the Indenture, or any interest in or proceeds of such
property, or the failure of the lien of the Indenture to constitute a valid
first priority security interest in the property subject to the lien of the
Indenture and the continuation of any of such defaults for a period of 30
days after notice to the Issuer by the Trustee or to the Issuer and the
Trustee by the Holders of at least 25% of the then Aggregate Outstanding
Principal of such Series; (iv) a default in the observance of, or breach of,
any covenant or negative covenant of the Issuer made in the Indenture, or a
material breach of any representation or warranty of the Issuer made in the
Indenture or in any certificate or other document delivered pursuant thereto
or in connection therewith as of the time when the same shall have been made,
and the continuation of any such default or breach for a period of 60 days
after notice to the Issuer by the Trustee or to the Issuer and the Trustee by
the holders of at least 25% of the then Aggregate Outstanding Principal of
such Series (unless the default or breach is with respect to certain
covenants specified in the Indenture not requiring such continuation or
notice); and (v) certain events of bankruptcy, insolvency, receivership or
reorganization of the Issuer. Notwithstanding the foregoing, if a Series
includes a Class of Subordinate Bonds, the Series Supplement for such a
Series may provide that certain defaults which relate only to such
Subordinate Securities shall not constitute an Event of Default with respect
to the Bonds, under certain circumstances, and may limit the rights of
holders of Subordinate Securities to direct the Trustee to pursue remedies
with respect to such defaults, or other Events of Default. Such limitations,
if any, will be specified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, in case an
Event of Default with respect to any Series should occur and be continuing,
the Trustee may and, upon the written request of
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the holders of at least 25% of the then Aggregate Outstanding Principal of
such Series shall, declare all Bonds of such Series to be due and payable,
together with accrued and unpaid interest thereon. Such declaration may under
certain circumstances be rescinded by the holders of a majority of the then
Aggregate Outstanding Principal of such Series.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of an Event of Default with respect to a Series, mail to the
holders of such Series notice of all uncured or unwaived defaults known to
it; provided that, except in the case of an 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, and provided, further, that, in the case of a default specified
in clause (iv) of the first paragraph of this "Events of Default" subsection
the Trustee is not required to give such notice until at least 30 days after
the occurrence of such default or breach and that, in the case of any default
or breach specified in clause (v) of the first paragraph of this "Events of
Default" subsection, the Trustee is not required to give such notice until at
least 60 days after the occurrence of such default or breach.
An Event of Default with respect to one Series will not necessarily be an
Event of Default with respect to any other Series.
Unless otherwise provided in the related Prospectus Supplement, if
following an Event of Default with respect to any Series, the Bonds of such
Series have been declared to be due and payable, the Trustee may, but shall
not be obligated to, in its sole discretion, refrain from liquidating the
related Mortgage Assets if (i) the Trustee determines that the amounts
receivable with respect to such Mortgage Assets and any Enhancement will be
sufficient to pay (a) all principal of and interest on the Bonds in
accordance with their terms without regard to the declaration of acceleration
and (b) all sums due the Trustee and any other administrative amounts
required to be paid under the Indenture and (ii) Holders of the requisite
percentage of the Securities of such Series have not directed the Trustee to
sell the related Mortgage Assets as so specified in the Indenture. In
addition, unless otherwise specified in the related Prospectus Supplement,
the Trustee is prohibited from selling the Trust Estate following certain
Events of Default unless (a) the amounts receivable with respect to the
Mortgage Assets and any Enhancement are not sufficient to pay in full the
principal of and accrued interest on the Bonds of such Series and to pay sums
due the Trustee and other administrative expenses specified in the Indenture
and the Trustee obtains the consent of holders of 66 2/3% of the Aggregate
Outstanding Principal of such Series or (b) the Trustee obtains the consent
of 100% of the Aggregate Outstanding Principal of such Series, and subject to
the provisions of the related Prospectus Supplement, the obligor under the
Enhancement. Unless otherwise provided in the related Prospectus Supplement,
the proceeds of a sale of Mortgage Assets will be applied to the payment of
amounts due the Trustee and other administrative expenses specified in the
Indenture and then distributed pro rata among the Bondholders of such Series
(without regard to Class, provided that Subordinate Securities will be
subordinate to Senior Securities of the 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.
The Trustee shall not be deemed to have knowledge of any Event of Default
or Default described in clauses (iv) through (vi) of the first paragraph of
this "Events of Default" subsection unless an officer in the Trustee's
corporate trust department has actual knowledge thereof. Subject to the
provisions of the Indenture relating to the duties of the Trustee, in case an
Event of Default shall occur and be continuing, the Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the Bondholders of a Series, unless such
Bondholders shall have offered to the Trustee reasonable security or
indemnity. Subject to such provisions for indemnification and certain
limitations contained in the Indenture the holders of a majority of the then
Aggregate Outstanding Principal of a Series (or of such Classes specified in
the related Prospectus Supplement) will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee with
respect to the Series. In addition, the Holders of a majority of the then
Aggregate Outstanding Principal of a Series (or of such Classes specified in
the related Prospectus Supplement) may, in certain cases, waive any default
with respect to such Series, except a default in payment of principal or
interest or in respect of a covenant or provision which cannot be modified
without the consent of all Bondholders affected.
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Unless otherwise specified in the related Prospectus Supplement, no holder
of Bonds of a Series will have the right to institute any Proceeding with
respect to the Indenture, unless (i) such Holder previously has given to the
Trustee written notice of a continuing Event of Default with respect to such
Series and has offered the Trustee satisfactory indemnity, (ii) the Holders
of not less than 25% of the then Aggregate Outstanding Principal of such
Series have made written request upon the Trustee to institute such
Proceeding as Trustee and have offered satisfactory indemnity, (iii) the
Trustee has, for 60 days after receipt of such notice, request and offer of
indemnity, failed to institute any such Proceeding and (iv) no direction
inconsistent with such written request has been given to the Trustee during
such 60-day period by the Holders of a majority of the then Aggregate
Outstanding Principal of such Series; provided, however, that in the event
that the Trustee receives conflicting requests and indemnities from two or
more groups of Bondholders, each representing less than a majority of the
Aggregate Outstanding Principal of such Series, the Trustee may in its sole
discretion determine what action with respect to the Proceeding, if any,
shall be taken.
AUTHENTICATION AND DELIVERY OF BONDS
The Issuer may from time to time deliver Bonds executed by it to the
Trustee and order that the 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 Indenture the Trustee will authenticate
and deliver such Bonds as the Issuer may direct. Unless otherwise specified
in the related Prospectus Supplement, the Trustee will be authorized to
appoint an agent for purposes of authenticating and delivering any Series of
Bonds (the "Authenticating Agent").
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will be discharged as to a Series (except with respect to
certain continuing rights specified in the Indenture or Trust Agreement, as
applicable), (a)(1) upon the delivery to the Trustee for cancellation of all
of 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 and discharged from such trust) as provided in of the Indenture, or
(2) at such time as all Bonds of such Series not previously cancelled by the
Trustee have become, or, within one year, will become, due and payable or
called for redemption and the Issuer shall have deposited with the Trustee an
amount sufficient to repay all of the Bonds and (b) the Issuer shall have
paid all other amounts payable under the Indenture or Trust Agreement, as
applicable, with respect to such Series.
ISSUER'S ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Trustee a written
statement as to fulfillment of its obligations under the Indenture.
LIST OF BONDHOLDERS
Three or more Holders of a Series which have each owned the Bonds for at
least six months may, by written application to the Trustee, request access
to the list maintained by the Trustee of all holders of the same Series or of
all Bonds, as specified in the request, for the purpose of communicating with
other Bondholders with respect to their rights under the Indenture.
MEETINGS OF BONDHOLDERS
Meetings of Bondholders or Certificateholders may be called at any time
and from time to time to (i) give any notice to the Issuer or to the Trustee,
give directions to the Trustee, consent to the waiver of any Default or Event
of Default under the Indenture, or to take any other action authorized to be
taken by Bondholders in connection therewith, (ii) remove the Trustee and to
appoint a successor Trustee, (iii) consent to the execution of supplemental
indentures or (iv) take any other action authorized to be taken
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by or on behalf of the Bondholders of any specified percentage of the
Aggregate Outstanding Principal of the Bonds. Such meetings may be called by
the Trustee, the Issuer or by the holders of 10% in Aggregate Outstanding
Principal of any such Series.
FISCAL YEAR
The fiscal year of each Issuer ends on December 31.
TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Bondholders a brief
report relating to its eligibility and qualification to continue as the
Trustee under the Indenture any amounts advanced by it under the 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 the Trustee in its individual capacity, the
property and funds physically held by the Trustee as such, any release or
release and substitution of property subject to the lien of the Indenture
which has not been previously reported, any additional issuance of Bonds not
previously reported and any action taken by it which materially affects the
Bonds and which has not been previously reported.
THE TRUSTEE
Bankers Trust or Marine Midland (or another bank or trust company
qualified under the TIA and named in the Prospectus Supplement related to a
Series) will be the Trustee under the Indenture for the Bond. The Issuer may
maintain other banking relationships in the ordinary course of business with
the Trustee. If Bankers Trust Company of California, N.A. serves as Trustee,
the Trustee's "Corporate Trust Office" is 3 Park Plaza, 16th Floor, Irvine,
California 92714, and if Marine Midland Bank, N.A. serves as Trustee, the
Trustee's "Corporate Trust Office" is 140 Broadway, New York, New York 10015,
or at such other addresses as the Trustee may designate from time to time by
notice to the Bondholders and the Issuer. With respect to the presentment and
surrender of Bonds for final payment of principal in retirement thereof on
any Payment Date, Redemption Date, Special Payment Date or Special Redemption
Date and, with respect to any other presentment and surrender of such Bonds
and for all other purposes, unless otherwise specified in the related
Prospectus Supplement, such Bonds may be presented at the Corporate Trust
Office of the Trustee or at the office of the Issuer's agent in the State of
New York (the "New York Presenting Agent"), which (if Bankers Trust Company
of California, N.A. is the Trustee) will be Bankers Trust Company, Four
Albany Street, New York, New York 10006. If another bank or trust company
serves as Trustee or as the New York Presenting Agent, the address of its
Corporate Trust Office or such office of the New York Presenting Agent will
be specified in the related Prospectus Supplement.
THE TRUST AGREEMENT
The following summaries describe certain provisions of the Trust
Agreement. The summaries do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the provisions of the Trust
Agreement. Where particular provisions or terms used in the Trust Agreement
are referred to, such provisions or terms are as specified in the Trust
Agreement.
ASSIGNMENT OF MORTGAGE ASSETS
General. The Depositor will transfer, convey and assign to the Trustee all
right, title and interest of the Depositor in the Mortgage Assets and other
property to be included in the Trust Fund for a Series. Such assignment will
include all principal and interest due on or with respect to the Mortgage
Assets after the Cut-off Date specified in the related Prospectus Supplement.
The Trustee will, concurrently with such assignment, execute and deliver the
Certificates.
Assignment of Mortgage Loans. The Depositor will, as to each Mortgage
Loan, deliver or cause to be delivered to the Trustee, or, as specified in
the related Prospectus Supplement, the Custodian, the Mortgage Note endorsed
without recourse to the order of the Trustee or in blank, the original
Mortgage
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with evidence of recording indicated thereon (except for any Mortgage not
returned from the public recording office, in which case a copy of such
Mortgage will be delivered, together with a certificate that the original of
such Mortgage was delivered to such recording office) and an assignment of
the Mortgage in recordable form. The Trustee, or, if so specified in the
related Prospectus Supplement, the Custodian, will hold such documents in
trust for the benefit of the Certificateholders.
If so specified in the related Prospectus Supplement, the Depositor will,
at the time of delivery of the Certificates, cause assignments to the Trustee
of the Mortgage Loans to be recorded in the appropriate public office for
real property records, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the Mortgage Loan. If specified in the related
Prospectus Supplement, the Depositor will cause such assignments to be so
recorded within the time after delivery of the Certificates as is specified
in the related Prospectus Supplement, in which event, the Trust Agreement
may, as specified in the related Prospectus Supplement, require the Depositor
to repurchase from the Trustee any Mortgage Loan required to be recorded but
not recorded within such time, at the price described below with respect to
repurchase by reason of defective documentation. Unless otherwise provided in
the related Prospectus Supplement, the enforcement of the repurchase
obligation would constitute the sole remedy available to the
Certificateholders or the Trustee for the failure of a Mortgage Loan to be
recorded.
Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the Trust Agreement (the "Mortgage Loan Schedule"). Such Mortgage
Loan Schedule will specify with respect to each mortgage loan: the original
principal amount and unpaid principal balance as of the Cut-off Date; the
current interest rate; the current Scheduled Payment of principal and
interest; the maturity date of the related mortgage note; if the Mortgage
Loan is an adjustable rate mortgage, the lifetime mortgage rate cap, if any,
and the current index; and, if the Mortgage Loan is a loan with other than
fixed Scheduled Payments and level amortization, the terms thereof.
REPURCHASE OF NON-CONFORMING LOANS
Unless otherwise provided in the related Prospectus Supplement, if any
document in the Mortgage Loan file delivered by the Depositor to the Trustee
is found by the Trustee within 45 days of the execution of the related Trust
Agreement (or promptly after the Trustee's receipt of any document permitted
to be delivered after the Closing Date) to be defective in any material
respect and the Depositor does not cure such defect within 90 days, or within
such other period specified in the related Prospectus Supplement, the
Depositor will, not later than 90 days or within such other period specified
in the related Prospectus Supplement, after the Trustee's notice to the
Depositor or the Master Servicer, as the case may be, of the defect,
repurchase the related Mortgage Loan or any property acquired in respect
thereof from the Trustee at a price equal to (a) the outstanding principal
balance of such Mortgage Loan (or, in the case of a foreclosed Mortgage Loan,
the outstanding principal balance of such Mortgage Loan immediately prior to
foreclosure) and (b), accrued and unpaid interest to the date of the next
scheduled payment on such Mortgage Loan at the related Certificate Interest
Rate (less any unreimbursed Advances respecting such Mortgage Loan).
Unless otherwise provided in the related Prospectus Supplement, the
above-described repurchase obligation constitute the sole remedies available
to the Certificateholders or the Trustee for a material defect in a Mortgage
Loan document.
The Depositor or another entity will make representations and warranties
with respect to Mortgage Loans which comprise the Mortgage Assets for a
Series. If the Depositor or such entity cannot cure a breach of any such
representations and warranties in all material respects within 90 days after
notification by the Trustee of such breach, and if such breach is of a nature
that materially and adversely affects the value of such Mortgage Loan, the
Depositor or such entity is obligated to repurchase the affected Mortgaged
Loan or, if provided in the related Prospectus Supplement, provide a
Substitute Mortgage Loan therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
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The Depositor's only source of funds to effect any cure, repurchase or
substitution will be through the enforcement of the corresponding obligations
of the responsible originator or seller of such Mortgage Loans. See "RISK
FACTORS".
REPORTS TO CERTIFICATEHOLDERS
The Trustee will prepare and forward to each Certificateholder on each
Distribution Date, or as soon thereafter as is practicable, a statement
setting forth, to the extent applicable to any Series, among other things:
(i) with respect to a Series the amount of such distribution allocable to
principal on the Mortgage Assets, separately identifying the aggregate amount
of any principal prepayments included therein and the amount, if any,
advanced by the Servicer or by a Servicer;
(ii) with respect to a Series, the amount of such distribution allocable
to interest on the Mortgage Assets and the amount, if any, advanced by a
Servicer;
(iii) the amount of servicing compensation with respect to the Mortgage
Assets and paid during the Due Period commencing on the Due Date to which
such distribution relates and the amount of servicing compensation during
such period attributable to penalties and fees;
(iv) the aggregate outstanding principal balance of the Mortgage Assets as
of the opening of business on the Due Date, after giving effect to
distributions allocated to principal and reported under (i) above;
(v) the aggregate outstanding principal amount of the Certificates of such
series as of the Due Date, after giving effect to distributions allocated to
principal reported under (i) above;
(vi) with respect to Compound Interest Securities, prior to the Accrual
Termination Date in addition to the information specified in (i)(B) above,
the amount of interest accrued on such Securities during the related Interest
Accrual Period and added to the Compound Value thereof;
(vii) in the case of Variable Rate Securities, the Variable Interest Rate
applicable to the distribution being made;
(viii) if applicable, the amount of any shortfall (i.e., the difference
between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds to distribute and the amounts actually distributed);
(ix) if applicable, the number and aggregate principal balances of
Mortgage Loans delinquent for (A) two consecutive payments and (B) three or
more consecutive payments, as of the close of the business on the
Determination Date to which such distribution relates;
(x) if applicable, the book value of any REO Property acquired on behalf
of Certificateholders through foreclosure, grant of a deed in lieu of
foreclosure or repossession as of the close of the business on the Business
Day preceding the Distribution Date to which such distribution relates;
(xi) if applicable, the amount of coverage under any pool insurance policy
as of the close of business on the applicable Distribution Date;
(xii) if applicable, the amount of coverage under any special hazard
insurance policy as of the close of business on the applicable Distribution
Date;
(xiii) if applicable, the amount of coverage under any bankruptcy bond as
of the close of business on the applicable Distribution Date;
(xiv) in the case of any other Enhancement described in the related
Prospectus Supplement, the amount of coverage of such credit support as of
the close of business on the applicable Distribution Date;
(xv) in the case of any Series which includes a Subordinate Securities,
the subordinated amount, if any, determined as of the related Determination
Date and if the distribution to the Holders Senior Securities is less than
their required distribution, the amount of the shortfall;
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(xvi) the amount of any withdrawal from any applicable reserve fund
included in amounts actually distributed to Certificateholders and the
remaining balance of each reserve fund, if any, on such Distribution Date,
after giving effect to distributions made on such date; and
(xvii) such other information as specified in the related Trust Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, unless otherwise specified in the related
Prospectus Supplement, will furnish to each Certificateholder of record at
any time during such calendar year: (a) the aggregate of amounts reported
pursuant to (i) through (iv), (vi), (viii) and (xvi) above for such calendar
year and (b) such information specified in the Trust Agreement to enable
Certificateholders to prepare their tax returns including, without
limitation, the amount of original issue discount accrued on the
Certificates, if applicable. Information in the Distribution Date and annual
reports provided to the Certificateholders will not have been examined and
reported upon by an independent public accountant. However, the Master
Servicer will provide to the Trustee a report by independent public
accountants with respect to the Master Servicer's servicing of the Mortgage
Loans. See "SERVICING OF MORTGAGE LOANS--Evidence as to Compliance" herein.
EVENT OF DEFAULT
Events of Default under the Trust Agreement for each Series include (i)
any failure by the Master Servicer to distribute to Certificateholders of
such Series any required payment which continues unremedied for five days
after the giving of written notice of such failure to the Master Servicer by
the Trustee for such Series, or to the Master Servicer and the Trustee by the
Holders of Certificates of such Series evidencing not less than 25% of the
aggregate outstanding principal amount of the Certificates for such Series,
(ii) any failure by the Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Trust Agreement which
continues unremedied for 30 days (or 15 days in the case of a failure to
maintain any insurance policy required to be maintained pursuant to the Trust
Agreement) after the giving of written notice of such failure to the Master
Servicer by the Trustee, or to the Master Servicer and the Trustee by the
Holders of Certificates of such Series evidencing not less than 25% of the
aggregate outstanding principal amount of the Certificates and (iii) certain
events in insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by the Master Servicer
indicating its insolvency, reorganization or inability to pay its
obligations.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Trust
Agreement for a Series, the Trustee for such Series or Holders of
Certificates of such Series evidencing not less than 25% of the aggregate
outstanding principal amount of the Certificates for such Series may
terminate all of the rights and obligations of the Master Servicer as
servicer under the Trust Agreement and in and to the Mortgage Loans (other
than its right to recovery of other expenses and amounts advanced pursuant to
the terms of the Trust Agreement which rights the Master Servicer will retain
under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under the
Trust Agreement and will be entitled to reasonable servicing compensation not
to exceed the applicable servicing fee, together with other servicing
compensation in the form of assumption fees, late payment charges or
otherwise as provided in the Trust Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a housing
and home finance institution, bank or mortgage servicing institution with a
net worth of at least $15,000,000 to act as successor Master Servicer under
the provisions of such Trust Agreement relating to the servicing of the
Mortgage Loans. The successor Servicer would be entitled to reasonable
servicing compensation in an amount not to exceed the servicing fee as set
forth in the related Prospectus Supplement, together with the other servicing
compensation in the form of assumption fees, late payment charges or
otherwise, as provided in the Trust Agreement.
During the continuance of any Event of Default under the Trust Agreement
for a Series, the Trustee for such Series will have the right to take action
to enforce its rights and remedies and to protect and enforce the rights and
remedies of the Certificateholders of such Series, and Holders of
Certificates
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evidencing not less than 25% of the aggregate outstanding principal amount of
the Certificates for such Series may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred upon that Trustee. However, the
Trustee will not be under any obligation to pursue any such remedy or to
exercise any of such trusts or powers unless such Certificateholders have
offered the Trustee reasonable security or indemnity against the cost,
expenses and liabilities which may be incurred by the Trustee therein or
thereby. Also, the Trustee may decline to follow any such direction if the
Trustee determines that the action or proceeding so directed may not lawfully
be taken or would involve it in personal liability or be unjustly prejudicial
to the nonassenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such Holder's status
as a Certificateholder, will have any right under the Trust Agreement for
such Series to institute any proceeding with respect to the Trust Agreement,
unless such Holder previously has given to the Trustee for such Series
written notice of default and unless the Holders of Certificates evidencing
not less than 25% of the aggregate outstanding principal amount of the
Certificates 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 has
neglected or refused to institute any such proceeding.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or trust
company named as the Trustee for each Series of Certificates will be set
forth in the related Prospectus Supplement, and such Trustee may be Bankers
Trust or Marine Midland. The entity serving as Trustee may have normal
banking relationships with the Depositor or the Master Servicer. In addition,
for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust Fund relating to a Series
of Certificates. In the event of such appointment, all rights, powers, duties
and obligations conferred or imposed upon the Trustee by the Trust Agreement
relating to such Series will be conferred or imposed upon the Trustee and
each 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. The Trustee may also appoint agents to perform any of the
responsibilities of the Trustee, which agents shall have any or all of the
rights, powers, duties and obligations of the Trustee conferred on them by
such appointment; provided that the Trustee shall continue to be responsible
for its duties and obligations under the Trust Agreement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Trust Agreement, the Certificates or of any Mortgage Asset or related
documents. If no Event of Default (as defined in the related Trust Agreement)
has occurred, the Trustee is required to perform only those duties
specifically required of it under the Trust Agreement. Upon receipt of the
various certificates, statements, reports or other instruments required to be
furnished to it, the Trustee is required to examine them to determine whether
they are in the form required by the related Trust Agreement, however, the
Trustee will not be responsible for the accuracy or content of any such
documents furnished by it or the Certificateholders to the Master Servicer
under the Trust Agreement.
The Trustee may be held liable for its own grossly negligent action or
failure to act, or for its own willful misconduct; provided, however, that
the Trustee will not be personally liable with respect to any action taken,
suffered or omitted to be taken by it in good faith in accordance with the
direction of the Certificateholders in an Event of Default, see "Rights Upon
Event of Default" above. The Trustee is not required to expend or risk its
own funds or otherwise incur any financial liability in the performance of
any of its duties under a Trust Agreement, or in the exercise of any of its
rights or powers, if it has reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
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RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Depositor, resign at any time,
in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and
has accepted the appointment within 30 days after giving such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee. The Trustee may also be
removed at any time (i) by the Depositor, if the Trustee ceases to be
eligible to continue as such under the Trust Agreement, (ii) if the Trustee
becomes insolvent, (iii) if a tax is imposed or threatened with respect to
the Trust Fund by any state in which the Trustee or the Trust Fund held by
the Trustee pursuant to the Trust Agreement is located, or (iv) by the
Holders of Certificates evidencing over 50% of the aggregate outstanding
principal amount of the Certificates in the Trust Fund upon 30 days' advance
written notice to the Trustee and to the Depositor. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
AMENDMENT OF TRUST AGREEMENT
Unless otherwise specified in the Prospectus Supplement, the Trust
Agreement for each Series of Certificates may be amended by the Depositor,
the Master Servicer, and the Trustee with respect to such Series, without
notice to or consent of the Certificateholders (i) to cure any ambiguity,
(ii) to correct or supplement any provision therein which may be inconsistent
with any other provision therein or in the Prospectus Supplement, (iii) to
make any other provisions with respect to matters or questions arising under
such Trust Agreement or (iv) to comply with any requirements imposed by the
Code; provided that any such amendment pursuant to clause (iii) above will
not adversely affect in any material respect the interests of any
Certificateholders of such Series not consenting thereto. Any such amendment
pursuant to clause (iii) of the preceding sentence shall be deemed not to
adversely affect in any material respect the interests of any
Certificateholder if the Trustee receives written confirmation from each
Rating Agency rating such Certificates that such amendment will not cause
such Rating Agency to reduce the then current rating thereof. The Trust
Agreement for each Series may also be amended by the Trustee, the Master
Servicer and the Depositor with respect to such Series with the consent of
the Holders possessing not less than 66 2/3 % of the aggregate outstanding
principal amount of the Certificates of each Class of such Series affected
thereby, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Trust Agreement or
modifying in any manner the rights of Certificateholders of such Series;
provided, however, that no such amendment may (a) reduce the amount or delay
the timing of payments on any Certificate without the consent of the Holder
of such Certificate; or (b) reduce the aforesaid percentage of aggregate
outstanding principal amount of Certificates of each Class, the Holders of
which are required to consent to any such amendment without the consent of
the Holders of 100% of the aggregate outstanding principal amount of each
Class of Certificates affected thereby.
VOTING RIGHTS
The related Prospectus Supplement will set forth the method of determining
allocation of voting rights with respect to a Series, if other than set forth
herein.
LIST OF CERTIFICATEHOLDERS
Upon written request of three or more Certificateholders of record of a
Series for purposes of communicating with other Certificateholders with
respect to their rights under the Trust Agreement or under the Certificates
for such Series, which request is accompanied by a copy of the communication
which such Certificateholders propose to transmit, the Trustee will afford
such Certificateholders access during business hours to the most recent list
of Certificateholders of that Series held by the Trustee.
No Trust Agreement will provide for the holding of any annual or other
meeting of Certificateholders.
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REMIC ADMINISTRATOR
With respect to any Series, preparation of certain reports and certain
other administrative duties with respect to the Trust Fund may be performed
by a REMIC administrator, who may be an affiliate of the Depositor.
TERMINATION
The obligations created by the Trust Agreement for a Series will terminate
upon the distribution to Certificateholders of all amounts distributable to
them pursuant to such Trust Agreement after (i) the later of the final
payment or other liquidation of the last Mortgage Loan remaining in the Trust
Fund for such Series or the disposition of all REO Property or (ii) the
repurchase, as described below, by the Servicer from the Trustee for such
Series of all Loans at that time subject to the Trust Agreement and all REO
Property. The Trust Agreement for each Series permits, but does not require,
the Servicer to repurchase from the Trust Fund for such Series all remaining
Mortgage Loans at a price equal to 100% of the Aggregate Asset Value of such
Mortgage Loans plus, with respect to REO Property, if any, the outstanding
principal balance of the related Mortgage Loan, less, in either case, related
unreimbursed Advances (in the case of the Mortgage Loans, only to the extent
not already reflected in the computation of the Aggregate Asset Value of such
Mortgage Loans) and unreimbursed expenses (that are reimburseable pursuant to
the terms of the Trust Agreement) plus, in either case, accrued interest
thereon at the weighted average Mortgage Rate through the last day of the Due
Period in which such repurchase occurs; provided, however, that if an
election is made for treatment as a REMIC under the Code, the repurchase
price may equal the greater of (a) 100% of the Aggregate Asset Value of such
Loans, plus accrued interest thereon at the applicable net Mortgage Rates
through the last day of the month of such repurchase and (b) the aggregate
fair market value of such Mortgage Loans; plus the fair market value of any
property acquired in respect of a Mortgage Loan and remaining in the Trust
Fund. The exercise of such right will effect early retirement of the
Certificates of such Series, but the Servicer's right to so purchase is
subject to the Aggregate Value of the Mortgage Loans at the time of
repurchase being less than a fixed percentage, to be set forth in the related
Prospectus Supplement, of the Cut-off Date Aggregate Asset Value. In no
event, however, will the trust created by the Trust Agreement continue beyond
the expiration of 21 years from the death of the last survivor of certain
persons identified therein. For each Series, the Servicer or the Trustee, as
applicable, will give written notice of termination of the Trust Agreement to
each Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency
specified in the notice of termination. If so provided in the related
Prospectus Supplement for a Series, the Depositor or another entity may
effect an optional termination of the Trust Fund or repurchase all or certain
Classes of Certificates of a Series under the circumstances described in such
Prospectus Supplement. See "DESCRIPTION OF THE SECURITIES--Optional
Termination," "--Optional Repurchase of Certificates," and "--Other
Repurchases" herein.
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THE ISSUER
THE COMPANY
The Company was incorporated in the State of Delaware on January 2, 1987.
The principal office of the Company is located at 200 Vesey Street, New York,
New York 10285. Its telephone number is (212) 526-5594.
The Certificate of Incorporation of the Company provides that the Company
may not conduct any activities other than those related to the issue and sale
of one or more Series and to serve as depositor of one or more trusts that
may issue and sell Bonds or Certificates. The Certificate of Incorporation of
the Company provides that any Securities, except for subordinated Securities,
issued by the Company must be rated in one of the three highest categories
available by any Rating Agency rating the Series. Pursuant to the terms of
the Indenture or Trust Agreement, as applicable, the Company may not issue
any Securities which would result in the lowering of the then current ratings
of the outstanding Securities of any Series.
The Series Supplement for a particular Series may permit the Primary
Assets pledged to secure the related Series of Bonds to be transferred by the
Issuer to a trust, subject to the obligations of the Bonds of such Series,
thereby relieving the Issuer of its obligations with respect to such Bonds.
OWNER TRUST
Each owner trust established to act as Issuer of a Series of bonds (each,
an "Owner Trust") will be created pursuant to a deposit trust agreement (the
"Deposit Trust Agreement") between the Company which will act as Depositor
and the 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 Trustee Mortgage Assets and other Primary Assets to
secure one or more Series in return for certificates or other instruments
evidencing beneficial ownership of the Owner Trust and the net proceeds of
the sale of the Bonds. The Company may in turn sell or assign the
certificates of beneficial interest to another entity or entities, including
affiliates of the Company.
The Owner Trust will pledge the Mortgage Assets and other Primary Assets
to the Trustee under the related Indenture as security for a Series. The
Trustee will hold such Mortgage Assets as security only for that 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, as if the same had been granted by a corporate
issuer.
Each Deposit Trust Agreement will provide that the related Trust may not
conduct any activities other than those related to the issuance and sale of
the particular Series. No Deposit Trust Agreement will be subject to
amendment without the prior written consent of the Owner Trustee, the holders
representing a majority of the beneficial interest of the Owner Trust and the
Trustee, except that the holders of not less than 66 2/3 % of the Aggregate
Outstanding Principal of each Series must consent to any amendment of, among
other provisions, the limitation on activities of the Owner Trust and the
provision regarding amendments to the Deposit Trust Agreement. The holders of
the beneficial interests in an Owner Trust which issues a Series will not be
liable for payment of principal of or interest on the Bonds and each holder
of Bonds of such Series will be deemed to have released such beneficial
owners from any such liability.
ADMINISTRATOR
Unless otherwise specified in the related Prospectus Supplement, it is
expected that the Issuer will enter into an administration agreement with an
administrator acceptable to the Rating Agencies rating the applicable Series
of Securities (the "Administrator") pursuant to which advisory,
administrative, accounting and clerical services will be provided to the
Issuer with respect to the Securities. The Trustee or the Master Servicer may
serve as the Securities Administrator. In addition, under the Indenture or
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Trust Agreement, as applicable, the Issuer is responsible for certain
administrative and accounting matters relating to the Securities. It is
intended that the Administrator will perform these services on behalf of the
Issuer, and amounts payable with respect to such services, unless otherwise
provided in the related Prospectus Supplement, will be subordinate to the
Issuer's obligations to pay principal and interest to the Bondholders or
Certificateholders (including any Residual Interest Bondholders or Residual
Interest Certificateholders) but, unless otherwise specified in the related
Prospectus Supplement, will be senior to the Issuer's obligation to pay any
Excess Cash Flow to the Residual Interest Bondholders or Residual Interest
Certificateholders.
USE OF PROCEEDS
The Issuer will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus
Supplement to purchase the Mortgage Assets securing each Series
simultaneously with the issuance and sale of such Securities. The proceeds
may also be used to repay indebtedness which has been incurred to acquire
Mortgage Assets, to establish the Reserve Funds, if any, for the Series and
to pay costs of structuring, guaranteeing and issuing the Securities. If so
specified in the related Prospectus Supplement, the purchase of the Mortgage
Assets for a Series may be effected by an exchange of Securities with the
Seller of such Mortgage Assets.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
Any bearer securities will be issued in compliance with United States
federal tax laws and regulations applicable at the time of issuance. Under
current law, bearer securities may not be offered or sold during the
restricted period, or delivered in definitive form in connection with a sale
during the restricted period (as defined under "DESCRIPTION OF THE
SECURITIES--Bearer Securities and Registered Securities"), in the United
States or to United States persons other than to (a) the United States office
of (i) an international organization (as defined in Section 7701(a)(18) of
the Code), (ii) a foreign central bank (as defined in Section 895 of the
Code), or (iii) any underwriter, agent, or dealer offering or selling bearer
securities during the restricted period (a "Distributor") pursuant to a
written contract with the Issuer or with another Distributor, that purchases
bearer securities for resale or for its own account and agrees to comply with
the requirements of Section 165(j)(3)(A), (B), or (C) of the Code, or (b) the
foreign branch of a United States financial institution purchasing for its
own account or for resale, which institution agrees to comply with the
requirements of Section 165(j)(3)(A), (B), or (C) of the Code. In addition, a
sale of a bearer security may be made during the restricted period to a
United States person who acquired and holds the bearer security on the
certification date through a foreign branch of a United States financial
institution that agrees to comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Code. Any Distributor (including an affiliate
of a Distributor) offering or selling bearer securities during the restricted
period must agree not to offer or sell bearer securities in the United States
or to United States persons (except as discussed above) and must employ
procedures reasonably designed to ensure that its employees or agents
directly engaged in selling bearer securities are aware of these
restrictions.
Bearer securities and their interest coupons will bear a legend
substantially to the following effect: "Any United States person who holds
this obligation will be subject to limitations under the United States income
tax laws, including the limitations provided in Section 165(j) and 1287(a) of
the Internal Revenue Code."
Purchasers of bearer securities may be affected by certain limitations
under United States tax laws. See "FEDERAL INCOME TAX
CONSIDERATIONS--Miscellaneous Tax Aspects."
As used herein, "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 and an estate or trust
the income of which is subject to United States federal income taxation
regardless of its source, and "United States" means the United States of
America (including the States and the District of Columbia) and its
possessions including Puerto Rico, the U.S. Virgin Islands, Guam, American
Samoa, Wake Island and the Northern Mariana Islands.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain anticipated federal income tax
consequences of the purchase, ownership, and disposition of the Securities.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations,
and the judicial and administrative rulings and decisions now in effect, all
of which are subject to change or possible differing interpretations. The
statutory provisions, regulations, and interpretations on which this
interpretation is based are subject to change, and such a change could apply
retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily
upon investors who will hold Securities as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
but much of the discussion is applicable to other investors as well.
Potential purchasers of Securities are advised to consult their own tax
advisers concerning the federal, state or local tax consequences to them of
the purchase, holding and disposition of the Securities.
CHARACTERIZATION OF SECURITIES
Unless otherwise stated in the applicable Prospectus Supplement, a REMIC
election will be made with respect to each Series of Securities. In such a
case, special counsel to the Issuer will deliver its opinion to the effect
that the arrangement by which the Securities of that Series are issued will
be treated as a REMIC as long as all of the provisions of the applicable
Indenture or Trust Agreement, as applicable, are complied with and the
statutory and regulatory requirements are satisfied. Securities of such
Series will be designated as "regular interests" or "residual interests" in a
REMIC, as specified in the related Prospectus Supplement.
If the applicable Prospectus Supplement so specifies with respect to a
Series of Securities, the Securities of such Series will not be treated as
regular or residual interests in a REMIC for federal income tax purposes but
instead will be treated as (i) indebtedness of the Issuer; (ii) an undivided
beneficial ownership interest in the Mortgage Loans (and the arrangement
pursuant to which the Mortgage Loans will be held and the Securities will be
issued will be treated as a grantor trust under Subpart E, part I of
subchapter J of the Code and not as an association taxable as a corporation
for federal income tax purposes); (iii) equity interests in an association
that will satisfy the requirements for qualification as a real estate
investment trust; or (iv) interests in an entity that will satisfy the
requirements for qualification as a partnership for federal income tax
purposes. The federal income tax consequences to Bondholders or
Certificateholders of any such Series will be described in the applicable
Prospectus Supplement.
Except to the extent the related Prospectus Supplement specifies
otherwise, if a REMIC election is made with respect to a Series of
Securities, (i) Securities held by a mutual savings bank or domestic building
and loan association will represent interests in "qualifying real property
loans" within the meaning of Code Section 593(d) (assuming that at least 95%
of the REMIC's assets are "qualifying real property loans"); (ii) Securities
held by a domestic building and loan association will constitute "a regular
or a residual interest in a REMIC" within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist
of cash, government securities, "loans . . . secured by an interest in real
property," and other types of assets described in Code Section
7701(a)(19)(C)); and (iii) Securities held by a real estate investment trust
will constitute "real estate assets" within the meaning of Code Section
856(c)(6)(B), and income with respect to the Securities will be considered
"interest on obligations secured by mortgages on real property or on interest
in real property" within the meaning of Code Section 856(c)(3)(B) (assuming,
for both purposes, that at least 95% of the REMIC's assets are qualifying
assets). If less than 95% of the REMIC's assets consist of assets described
in (i), (ii) or (iii) above, then Securities will qualify for the tax
treatment described in (i), (ii), or (iii) in the proportion that such REMIC
assets are qualifying assets. In general, Mortgage Loans secured by
non-residential real property will not constitute "loans . . . secured by an
interest in real property" within the meaning of Section 7701(a)(19)(C).
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It is possible that various reserves or funds will reduce the proportion
of REMIC assets which qualify under the standards described above.
TAXATION OF REGULAR INTEREST SECURITIES
Interest and Acquisition Discount. Securities that qualify as regular
interests in a REMIC ("Regular Interest Securities") are generally treated as
indebtedness for federal income tax purposes. Stated interest on a Regular
Interest Security will be taxable as ordinary income using the accrual method
of accounting, regardless of the Bondholder's or Certificateholder's normal
accounting method. Reports will be made annually to the IRS and to holders of
Regular Interest Securities that are not excepted from the reporting
requirements regarding amounts treated as interest (including accrual of
original issue discount) on Regular Interest Securities.
Compound Interest Securities, Interest Weighted Securities, and Zero
Coupon Securities will, and other Securities constituting Regular Interest
Securities may, be issued with "original issue discount" ("OID") within the
meaning of Code Section 1273. Rules governing original issue discount are set
forth in sections 1271-1275 of the Code and the Treasury regulations
thereunder (the "OID Regulations"). The OID Regulations do not address the
treatment of instruments having contingent payments. However, Treasury
regulations (the "Proposed Contingent Regulations") governing the treatment
of contingent payment obligations have recently been proposed. As described
more fully below, Code Section 1272(a)(6) requires the use of an income tax
accounting methodology that utilizes (i) a single constant yield to maturity
and (ii) the Prepayment Assumptions. Under Section 1272(a)(6) of the Code,
special rules apply to the computation of OID on instruments, such as the
Regular Interest Securities, on which principal is prepaid based on
prepayments of the underlying assets. Neither the OID Regulations nor the
Proposed Contingent Regulations contain rules applicable to instruments
governed by Section 1272(a)(6). Although technically not applicable to
prepayable securities and not yet finalized, the Proposed Contingent
Regulations may represent the likely method to be applied in calculating OID
on certain Classes of Certificates. Until the Treasury issues guidance to the
contrary, the Servicer or other person responsible for computing the amount
of original issue discount to be reported to a Regular Interest
Securityholder each taxable year (the "Tax Administrator") intends to base
its computations on Code Section 1272(a)(6), the OID Regulations and the
Proposed Contingent Regulations as described below. However, because no
regulatory guidance currently exists under Code Section 1272(a)(6), there can
be no assurance that the methodology described below represents the correct
manner of calculating original issue discount on the Regular Interest
Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Regular Interest Security and its issue
price. A holder of a Regular Interest Security must include such OID in gross
income as ordinary interest income as it accrues under a method taking into
account an economic accrual of the discount. In general, OID must be included
in income in advance of the receipt of the cash representing that income. The
amount of OID on a Regular Interest Security will be considered to be zero if
it is less than a de minimis amount determined under the Code. However, the
amount of any de minimis OID must be included in income as principal payments
are received on an Offered Certificate, in the proportion that each such
payment bears to the original principal balance of the Certificate.
The issue price of a Regular Interest Security of a Class will generally
be the initial offering price at which a substantial amount of the Securities
in the Class are sold, and will be treated by the Issuer as including, in
addition, the amount paid by the Bondholder or Certificateholder for accrued
interest that relates to a period prior to the Closing Date of such Regular
Interest Security. Under the OID Regulations, the stated redemption price at
maturity is the sum of all payments on the Security other than any "qualified
stated interest" payments. Qualified stated interest is defined as any one of
a series of payments equal to the product of the outstanding principal
balance of the Security and a single fixed rate, or certain variable rates of
interest that is unconditionally payable at least annually. See "Variable
Rate Securities" below. In the case of the Compound Interest Securities, and
certain of the other Regular Interest Securities, none of the payments under
the instrument will be considered "qualified stated interest," and thus the
aggregate amount of all payments will be included in the stated redemption
price.
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For example, any securities upon which interest can be deferred and added to
principal ("Deferred Interest Securities"), and certain securities the
interest rate on which is based on a weighted average of the rates on certain
of the underlying mortgage loans, will not be "qualified stated interest." In
addition, because Securities Owners are entitled to receive interest only to
the extent that payments are made on the Mortgage Loans, interest on all
Regular Interest Securities may not be "unconditionally payable." In that
case, all of the yield on a Regular Interest Security will be taxed as OID,
but Interest would not then be includable in income again when received.
Unless otherwise specified in the related Prospectus Supplement, the Issuer
intends to take the position that interest on the Regular Interest Securities
is "unconditionally payable."
The holder of a Regular Interest Security issued with OID must include in
gross income, for all days during its taxable year on which it holds such
Regular Interest Security, the sum of the "daily portions" of such OID. Such
daily portions are computed by allocating to each day during a taxable year a
pro rata portion of the OID that accrued during the relevant accrual period.
In the case of a debt instrument, subject to Section 1272(a)(6) of the Code,
such as a Regular Interest Security, that is subject to acceleration due to
prepayments on other debt obligations securing such instrument, OID is
computed by taking into account the anticipated rate of prepayments assumed
in pricing the debt instrument (the "Prepayment Assumption"). The amount of
OID that will accrue during an accrual period (generally the period between
interest payments or compounding dates) is the excess (if any) of (i) the sum
of (a) the present value of all payments remaining to be made on the Regular
Interest Security as of the close of the accrual period and (b) the payments
during the accrual period of amounts included in the stated redemption price
of the Regular Interest Security, over (ii) an "adjusted issue price" of the
Regular Interest Security at the beginning of the accrual period. The
adjusted issue price of a Regular Interest Security is the sum of its issue
price plus prior accruals of OID, reduced by the total payments made with
respect to such Regular Interest Security in all prior periods, other than
qualified stated interest payments. The present value of the remaining
payments is determined on the basis of three factors: (i) the original yield
to maturity of the Regular Interest Security (determined on the basis of
compounding at the end of each accrual period and properly adjusted for the
length of the accrual period), (ii) events which have occurred before the end
of the accrual period and (iii) the assumption that the remaining payments
will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to
be included in income by a Bondholder or Certificateholder to take into
account prepayments with respect to the Mortgage Loans at a rate that exceeds
the Prepayment Assumption, and to decrease (but not below zero for any
period) the portions of OID required to be included in income by a Bondholder
or Certificateholder to take into account prepayments with respect to the
Mortgage Loans at a rate that is slower than the Prepayment Assumption.
Although original issue discount will be reported to Bondholders or
Certificateholders based on the Prepayment Assumption, no representation is
made to Bondholders or Certificateholders that Mortgage Loans will be prepaid
at that rate or at any other rate.
The Issuer may adjust the accrual of OID on a Class of Regular Interest
Securities (or other regular interests in a REMIC) in a manner that it
believes to be appropriate, to take account of realized losses on the
Mortgage Assets, although the OID Regulations do not provide for such
adjustments. If the Service challenges the method adopted by the Issuer, the
rate of accrual of OID for a Class of Regular Interest Securities could
increase.
Certain classes of Regular Interest Securities may represent more than one
class of REMIC regular interests. Unless the applicable Prospectus Supplement
specifies otherwise, the Trustee intends, based on the OID Regulations, to
calculate OID on such Regular Interest Securities as if, solely for the
purposes of computing OID, the separate regular interests were a single debt
instrument.
Certain Series of Securities may be structured to include two or more
REMICs, one or more of which (each, an "Upper Tier REMIC") hold regular
interests ("Lower Tier Interests") in other REMICs (each, a "Lower Tier
REMIC"). Under the OID Regulations, OID on all of the Lower Tier Interests
issued by a single Lower Tier REMIC that are held by a second REMIC will be
calculated by treating all of such Lower Tier Interests as a single debt
instrument.
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A holder of a Regular Interest Security, which acquires the Regular
Interest Security for an amount that exceeds its stated redemption price,
will not include any original issue discount in gross income. A subsequent
holder of a Regular Interest Security which acquires the Regular Interest
Security for an amount that is less than its stated redemption price, will be
required to include original issue discount in gross income, but such a
holder who purchases such Regular Interest Security for an amount that
exceeds its adjusted issue price will be entitled (as will an initial holder
who pays more than a Regular Interest Security's issue price) to offset such
original issue discount by comparable economic accruals of portions of such
excess.
Interest Weighted Securities. It is not clear how income should be accrued
with respect to Regular Interest Securities the payments on which consist
solely or primarily of a specified portion of the interest payments on
qualified mortgages held by a REMIC ("Interest Weighted Securities"). Absent
guidance to the contrary, the Issuer intends to take the position that all of
the income derived from Interest Weighted Securities should be treated as OID
and that the amount and rate of accrual of such OID should be calculated in
the same manner as for a Compound Interest Security. However, the Internal
Revenue Service could assert that income derived from an Interest Weighted
Security should be calculated as if the Interest Weighted Security were a
bond purchased at a premium equal to the excess of the price paid by such
holder for the Interest Weighted Security over its stated principal amount,
if any. Under this approach, a holder would be entitled to amortize such
premium only if it has in effect an election under Section 171 of the Code
with respect to all taxable debt instruments held by such holder, as
described below. Alternatively, the Internal Revenue Service could assert
that the Interest Weighted Security should be taxable under the rules
governing bonds issued with contingent principal payments or otherwise
treated as contingent payment instruments. The OID Regulations do not, at the
present time, include regulations governing instruments that provide for
contingent payments. Under the Proposed Contingent Regulations, if they were
finalized, and were applicable to Interest Weighted Securities (which, as
1272(a)(6) instruments, are specifically excluded from the scope of the
Proposed Contingent Regulations) income on certain Certificates would be
computed under the "noncontingent bond method." The noncontingent bond method
would generally apply in a manner similar to the method prescribed by the
Code under Section 1272(a)(6). See "--Variable Rate Regular Securities."
Under the noncontingent bond method, however, if the interest payable for any
period is greater or less than the amount projected, the amount of income
included for that period would be either increased or decreased accordingly.
Any reduction in the income accrual for a period below zero (a "Negative
Adjustment") would be treated by a Certificateholder as ordinary loss to the
extent of prior income accruals and may be carried forward to offset future
interest accruals. At maturity, any remaining Negative Adjustment would be
treated as a loss on retirement of the Certificate. The legislative history
or relevant Code provisions indicates, however, that negative amount of OID
on an instrument such as a REMIC regular interest may not give rise to
taxable losses in any accrual period prior to the instrument's disposition or
retirement. Thus, it is not clear whether any losses resulting from a
Negative Adjustment may be recognized currently or must be carried forward
until disposition or retirement of the debt obligation.
Variable Rate Regular Securities. The REMIC regulations (the "REMIC
Regulations") permit REMICs to issue regular interests bearing a variety of
variable rates including rates based on (i) "qualified floating rates" or
(ii) a weighted average of the interest rates on some or all of the qualified
mortgages held by the REMIC (a "Variable Rate Security"). Under the OID
Regulations, the amount and accrual of OID on a Variable Rate Security that
qualifies for treatment under the rules applicable to variable rate debt
instruments ( a "VRDI Security") is determined, in general, by converting the
VRDI Security into a hypothetical fixed rate security and applying the rules
applicable to fixed rate securities described above to the hypothetical fixed
rate security. A VRDI Security providing for a qualified floating rate or
rates or a qualified inverse floating rate is converted to a hypothetical
fixed rate security by assuming that each qualified floating rate or the
qualified inverse floating rate will remain at its value as of the issue
date. A VRDI Security providing for an objective rate or rates is converted
to a hypothetical fixed rate security by assuming that each objective rate
will equal a fixed rate that reflects the yield that reasonably is expected
for the instrument. Such hypothetical fixed rate securities are assumed to
have terms identical to those provided under the related VRDI Securities,
except for the substitution of fixed rates for the qualified floating rates,
objective rates, or qualified inverse floating rate as described above. In
the case
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of a VRDI Security that does not provide for the payment of interest at least
annually, appropriate adjustments to the OID accruals and the qualified
stated interest payments are made in each accrual period to the extent that
the interest actually accrued or paid during the accrual period is greater or
less than the interest assumed to be accrued or paid under the hypothetical
fixed rate security.
Regular Interest Securities of certain Series may provide for interest
based on a weighted average of the interest rates on some or all of the
Mortgage Loans of the related Trust ("Weighted Average Securities"). Under
the OID Regulations, it appears that Weighted Average Securities relating to
a Trust whose Mortgage Loans are exclusively ARM Loans bear interest at an
"objective rate," since the ARM Loans themselves bear interest at qualified
floating rates. Under the existing OID Regulations, Weighted Average
Securities relating to a Trust whose Mortgage Loans are not exclusively ARM
Loans ("Non-Objective Weighted Average Securities") do not bear interest at
an objective or a qualified floating rate and, consequently, are not governed
by the rules applicable to VRDI Securities described above. Accordingly,
absent additional regulatory guidance, it appears that Non-Objective Weighted
Average Securities would be taxed under the rules applicable to contingent
payment instruments. As noted above, there currently are no effective
regulations governing such instruments. Under the Proposed Contingent
Regulations, however, which will not be effective until 60 days after
published in final form, it appears that a weighted average of fixed rates
would qualify as an objective rate.
Effect of Defaults and Delinquencies. Each holder of a Regular Interest
Security will be required to accrue interest and original issue discount on
such Security without giving effect to any reductions in distributions
attributable to defaults or delinquencies on the Mortgage Loans, 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 Regular Interest Security could exceed the amount of economic income
actually realized by the holder in such period. Although the holder of a
Regular Interest Security eventually will recognize a loss or reduction in
income attributable to previously accrued and included income that, as a
result of such loss, ultimately will not be paid, the law is unclear with
respect to the timing and character of such losses or reduction in income.
Under Section 166 of the Code, both corporate and noncorporate holders of
Regular Interest Securities that hold such Securities in connection with a
trade of business should be allowed to deduct, as ordinary losses, any losses
sustained during a taxable year in which their Regular Interest 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 Regular Interest 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 Regular Interest Security becomes wholly worthless
(that is, until its outstanding principal balance has been reduced to zero)
and that the loss will be characterized as a short-term capital loss.
Market Discount and Premium. A purchaser of a Regular Interest Security
may also be subject to the market discount rules of the Code. Such purchaser
generally will be required to recognize accrued market discount as ordinary
income as payments of principal are received on such Regular Interest
Security, or upon sale or exchange of the Regular Interest Security. In
general terms, until regulations are promulgated, market discount may be
treated as accruing, at the election of the holder, either (i) under a
constant yield method, taking into account the Prepayment Assumption, or (ii)
in proportion to accruals of original issue discount (or, if there is no
original issue discount, in proportion to accruals of stated interest). A
holder of a Regular Interest Security having market discount may also be
required to defer a portion of the interest deductions attributable to any
indebtedness incurred or continued to purchase or carry the Regular Interest
Security. As an alternative to the inclusion of market discount in income on
the foregoing basis, the holder may elect to include such market discount in
income currently as it accrues on all market discount instruments acquired by
such holder in that taxable year or thereafter, in which case the interest
deferral rule will not apply.
A holder who purchases a Regular Interest Security (other than an Interest
Weighted Security, to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an
offset to
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interest income on such Security (and not as a separate deduction item) on a
constant yield method. Although no regulations addressing the computation of
premium accrual on collateralized mortgage obligations or REMIC regular
interests have been issued, applicable legislative history indicates that
premium is to be accrued in the same manner as market discount. Accordingly,
it appears that the accrual of premium on a Regular Interest Security will be
calculated using the prepayment assumption used in pricing such Regular
Interest Security. If a holder makes an election to amortize premium on a
Security, such election will apply to all taxable debt instruments (including
all REMIC regular interests) held by the holder at the beginning of the
taxable year in which the election is made, and to all taxable debt
instruments acquired thereafter by such holder, and will be irrevocable
without the consent of the Internal Revenue Service. Purchasers who pay a
premium for the Regular Interest Security should consult their tax advisers
regarding the election to amortize premium and the method to be employed.
SALE OR EXCHANGE OF REGULAR INTEREST SECURITIES
A Regular Bondholder's or Regular Certificateholder's tax basis in its
Regular Interest Securities is the price such holder pays for a Security,
plus amounts of original issue discount included in income and reduced by any
payments received (other than qualified periodic interest payments) and any
amortized premium. Gain or loss recognized on a sale, exchange, or redemption
of a Regular Interest Securities, measured by the difference between the
amount realized and the Regular Interest Security's basis as so adjusted,
will generally be capital gain or loss, assuming that the Regular Interest
Security is held as a capital asset. If, however, a Regular Bondholder or
Regular Certificateholder is a bank, thrift, or similar institution described
in Section 582 of the Code, gain or loss realized on the sale or exchange of
a Regular Interest Security will be taxable as ordinary income or loss. In
addition, gain from the disposition of a Regular Interest Security that might
otherwise be capital gain will be treated as ordinary income to the extent of
the excess, if any, of (i) the amount that would have been includable in the
holder's income if the yield on such Regular Interest Security had equaled
110% of the applicable federal rate as of the beginning of such holder's
holding period, over (ii) the amount of ordinary income actually recognized
by the holder with respect to such Regular Interest Security.
REMIC EXPENSES
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Securities or the REMIC residual
interest. In the case of a "single class REMIC," however, the expenses will
be allocated, under temporary Treasury regulations, among the holders of the
Regular Interest Securities and the holders of the Residual Interest
Securities on a daily basis in proportion to the relative amounts of income
accruing to each Bondholder or Certificateholder on that day. In the case of
a holder of a Regular Interest Security who is an individual or a
"pass-through interest holder" (including certain pass-through entities but
not including real estate investment trusts), such expenses will be
deductible only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the Bondholder or Certificateholder exceed 2% of such
Bondholder's or Certificateholder's adjusted gross income and will not be
deductible in computing alternative minimum taxable income. In addition, Code
Section 68 provides that the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount (for 1991, $100,000, or $50,000 in the case of
a separate return by a married individual within the meaning of Code Section
7703, which amount will be adjusted annually for inflation) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. The disallowance of this deduction may have
a significant impact on the yield of the Regular Interest Security to such a
holder. In general terms, a single class REMIC is one that either (i) would
qualify, under existing Treasury regulations, as a grantor trust if it were
not a REMIC (treating all interests as ownership interests, even if they
would be classified as debt for federal income tax purposes) or (ii) is
similar to such a trust and which is structured with the principal purpose of
avoiding the single class REMIC rules.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. The regular interests are generally taxable as debt of
the REMIC.
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Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income
produced by the REMIC's assets, including stated interest and any original
issue discount or market discount on loans and other assets, and (ii)
deductions, including stated interest and original issue discount accrued on
a Regular Interest Security, amortization of any premium with respect to
loans, and servicing fees and other expenses of the REMIC. A holder of a
Residual Interest Security that is an individual or a "pass-through interest
holder" (including certain pass-through entities, but not including real
estate investment trusts) will be unable to deduct servicing fees payable on
the loans or other administrative expenses of the REMIC for a given taxable
year, to the extent that such expenses, when aggregated with the Residual
Interest Securityholder's other miscellaneous itemized deductions for that
year, do not exceed two percent of such holder's adjusted gross income. In
addition, Code Section 68 provides that the amount of itemized deductions
otherwise allowable for the taxable year for an individual whose adjusted
gross income exceeds the applicable amount (for 1995, $114,700, or $57,350 in
the case of a separate return by a married individual within the meaning of
Code Section 7703, which amounts will be adjusted annually for inflation)
will be reduced by the lesser of (i) 3% of the excess of adjusted gross
income over the applicable amount, or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. See "REMIC Expenses"
above.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the Start
Up Day (generally, the day that the interests are issued). That aggregate
basis will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The original issue discount provisions of the Code apply to loans of
individuals originated on or after March 2, 1984, and the market discount
provisions apply to all loans. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of original issue discount
on such loans will be equivalent to the method under which holders of Regular
Interest Securities accrue original issue discount (i.e., under the constant
yield method taking into account the Prepayment Assumption). The REMIC will
deduct original issue discount on the Regular Interest Securities in the same
manner that the holders of the Securities include such discount in income,
but without regard to the de minimis rules. See "Taxation of Regular Interest
Securities" above. However, a REMIC that acquires loans at a market discount
must include such market discount in income currently, as it accrues, on a
constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the
life of the loans (taking into account the Prepayment Assumption) on a
constant yield method. Although the law is somewhat unclear regarding
recovery of premium attributable to loans originated on or before such date,
it is possible that such premium may be recovered in proportion to payments
of loan principal.
Income from Foreclosure Property. To the extent that the Lower Tier REMIC
derives income from Foreclosed Properties that is treated as "net income from
foreclosure property", that income will be subject to taxation at the highest
corporate tax rate. Net income from foreclosure property generally includes
gain from the sale of a foreclosure property that is inventory property and
net income from the property that would not be treated as "rents from real
property" or other certain other qualifying income. In addition, if the
operation of the Foreclosed Property is treated as a trade or business
carried on by the REMIC, then unless the property is operated through an
independent contractor, the income from the foreclosed property will be
subject to tax on "income from nonpermitted assets" at a rate of 100%. A
trust agreement or indenture may permit the Servicer to operate a Foreclosed
Property in a manner that produces income subject to the foregoing taxes if
certain conditions are satisfied.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The Holder of a Security representing a REMIC residual interest (a
"Residual Interest Security") will take into account the "daily portion" of
the taxable income or net loss of the REMIC for each day during the taxable
year on which such holder held the Residual Interest Security. The daily
portion is
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determined by allocating to each day in any calendar quarter its ratable
portion of the taxable income or net loss of the REMIC for such quarter, and
by allocating that amount among the holders (on such day) of the Residual
Interest Securities in proportion to their respective holdings on such day.
Prohibited Transactions and Contributions Tax. The REMIC will be subject
to a 100% tax on any net income derived from a "prohibited transaction." For
this purpose, net income will be calculated without taking into account any
losses from other prohibited transactions or any deductions attributable to
any prohibited transaction that resulted in a loss. In general, prohibited
transactions include (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject
to a limited exception, the sale or other disposition of a cash flow
investment; (iii) the receipt of any income from assets not permitted to be
held by the REMIC pursuant to the Code; or (iv) the receipt of any fees or
other compensation for services rendered by the REMIC. It is anticipated that
a REMIC will not engage in any prohibited transactions in which it would
recognize a material amount of net income. In addition, subject to a number
of exceptions, a tax is imposed at the rate of 100% on amounts contributed to
a REMIC after the close of the three-month period beginning on the Start Up
Day. The holders of Residual Interest Securities will generally be
responsible for the payment of any such taxes imposed on the REMIC. To the
extent not paid by such Holders or otherwise, however, such taxes will be
paid out of the assets of the REMIC and, unless otherwise specified in the
related Prospectus Supplement, will be allocated pro rata to all outstanding
Classes of Securities of such REMIC.
The holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The
reporting of taxable income without corresponding distributions could occur,
for example, in certain REMIC issues in which the loans held by the REMIC
were issued or acquired at a discount, since mortgage prepayments cause
recognition of discount income, while the corresponding portion of the
prepayment could be used in whole or in part to make principal payments on
Regular Interest Securities issued without any discount or at an
insubstantial discount. (If this occurs, it is likely that cash distributions
will exceed taxable income in later years.) Taxable income may also be
greater in earlier years of certain REMIC issues as a result of the fact that
interest expense deductions, as a percentage of outstanding principal on
Regular Interest Securities, will typically increase over time as lower
yielding Securities are paid, whereas interest income with respect to loans
will generally remain constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond
or instrument, or may be negative.
Limitation on Losses. The amount of the REMIC's net loss that a holder may
take into account currently is limited to the holder's adjusted basis at the
end of the calendar quarter in which such loss arises. A holder's basis in a
Residual Interest Security will initially equal such holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable
income allocated to the holder, and decreased (but not below zero) by the
amount of distributions made and the amount of the REMIC's net loss allocated
to the holder. Any disallowed loss may be carried forward indefinitely, but
may be used only to offset income generated by the same REMIC. The ability of
Residual Bondholders or Residual Certificateholders to deduct net losses may
be subject to additional limitations under the Code, as to which such holders
should consult their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not
result in any additional taxable income or loss to a holder of a Residual
Interest Security. If the amount of such payment exceeds a holder's adjusted
basis in the Residual Interest Security, however, the holder will recognize
gain (treated as gain from the sale of the Residual Interest Security) to the
extent of such excess.
Mark-to-Market Rules. A Residual Interest Security is not treated as a
security and thus may not be marked to market under proposed Treasury
regulations that generally require a securities dealer to mark to market
securities held for sale to customers.
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Sale or Exchange. A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Bond equal to the
difference, if any, between the amount realized and such Bondholder's or
Certificateholder's adjusted basis in the Residual Interest Security at the
time of such sale or exchange. Except to the extent provided in regulations,
which have not yet been issued, any loss upon disposition of a Residual
Interest Security will be disallowed if the selling Bondholder or
Certificateholder acquires any residual interest in a REMIC or similar
mortgage pool within six months before or after such disposition.
EXCESS INCLUSION INCOME
The portion of a Residual Bondholder's or Residual Certificateholder's
REMIC taxable income consisting of "excess exclusion" income may not be
offset by other deductions or losses, including net operating losses, on such
Bondholder's or Certificateholder's federal income tax return. An exception
applies to organizations to which Code Section 593 applies (generally,
certain thrift institutions); however, such exception will not apply if the
aggregate value of the Residual Interest Securities is not considered to be
"significant," as described below. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such Residual Bondholder's or Residual
Certificateholder's excess inclusion income will be treated as unrelated
business taxable income of such Bondholder or Certificateholder's. In
addition, under Treasury regulations yet to be issued, if a real estate
investment trust, a regulated investment company, a common trust fund, or
certain cooperatives were to own a Residual Interest Security, a portion of
dividends (or other distributions) paid by the real estate investment trust
(or other entity) would be treated as excess inclusion income. If a Residual
Interest Security is owned by a foreign person excess inclusion income is
subject to tax at a rate of 30% which may not be reduced by treaty and is not
eligible for treatment as "portfolio interest." The REMIC Regulations provide
that a Residual Interest Security has significant value only if (i) the
aggregate issue price of the Residual Bonds is at least 2% of the aggregate
of the issue prices of all Regular Interest Securities and Residual Interest
Securities in the REMIC and (ii) the anticipated weighted average life
(determined as specified in the REMIC Regulations) of the Residual Interest
Securities is at least 20% of the anticipated weighted average life of the
REMIC.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to
a Residual Interest Security, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Start Up
Day multiplied by (ii) the adjusted issue price of such Residual Interest
Security at the beginning of such quarterly period. The adjusted issue price
of a Residual Interest Security at the beginning of each calendar quarter
will equal its issue price (calculated in a manner analogous to the
determination of the issue price of a Regular Interest Security), increased
by the aggregate of the daily accruals for prior calendar quarters, and
decreased (but not below zero) by the amount of loss allocated to a holder
and the amount of distributions made on the Residual Interest Security before
the beginning of the quarter. The long-term federal rate, which is announced
monthly by the Treasury Department, is an interest rate that is based on the
average market yield of outstanding marketable obligations of the United
States government having remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Interest Securities may be disregarded. See "Restrictions on
Ownership and Transfer of Residual Interest Securities" and "Tax Treatment of
Foreign Investors" below.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL INTEREST SECURITIES
As a condition to qualification as a REMIC, reasonable arrangements must
be made to prevent the ownership of a REMIC residual interest by any
"Disqualified Organization." Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of any of
the foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the Indenture or Trust Agreement, as
applicable, will prohibit Disqualified
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Organizations from owning a Residual Interest Security. In addition, no
transfer of a Residual Interest Security will be permitted unless the
proposed transferee shall have furnished to the Issuer an affidavit
representing and warranting that it is neither a Disqualified Organization
nor an agent or nominee acting on behalf of a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a
substantial tax will be imposed on the transferor of such Residual Interest
Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity (including, among
others, a partnership, trust, real estate investment trust, regulated
investment company, or any person holding as nominee), that owns a Residual
Interest Security, the pass-through entity will be required to pay an annual
tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all
Federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Security is a
"noneconomic residual interest" unless, at the time of the transfer (i) the
present value of the expected future distributions on the Residual Interest
Security at least equals the product of the present value of the anticipated
excess inclusions and the highest rate of tax for the year in which the
transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The present value is calculated
based on the Prepayment Assumption, using a discount rate equal to the
"applicable federal rate" at the time of transfer. If a transfer of a
residual interest is disregarded, the transferor would be liable for any
Federal income tax imposed upon taxable income derived by the transferee from
the REMIC. A significant purpose to impede the assessment or collection of
tax exists if the transferor, at the time of transfer, knew or should have
known that the transferee would be unwilling or unable to pay taxes on its
share of the taxable income of the REMIC. A similar limitation exists with
respect to certain transfers of residual interests by foreign persons to
United States persons. See "Tax Treatment of Foreign Investors" below.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the
Internal Revenue Service in a unified administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. If the applicable Prospectus Supplement so specifies with respect
to a Series of Securities, the Securities of such Series will not be treated
as regular or residual interests in a REMIC for federal income tax purposes
but instead, special tax counsel to the Issuer will deliver its opinion to
the effect that the arrangement by which the Securities of that Series are
issued will be treated as a "grantor" or "fixed investment" trust as long as
all of the provisions of the applicable Trust Agreement are complied with and
the statutory and regulatory requirements are satisfied. In some Series
("Pass-Through Certificates"), there will be no separation of the principal
and interest payments on the Mortgage Loans. In such circumstances, a
Certificateholder will be considered to have purchased an undivided interest
in each of the Mortgage Loans. In other cases ("Stripped Certificates"), sale
of the Certificates will produce a separation in the ownership of the
principal payments and interest payments on the Mortgage Loans.
Each Certificateholder must report on its federal income tax return its
pro rata share of the gross income derived from the Mortgage Loans (not
reduced by the amount payable as fees to the Trustee and the Master Servicer
and similar fees (collectively, the "Servicing Fee")), at the same time and
in the same manner as such items would have been reported under the
Certificateholder's tax accounting method had it held its interest in the
Mortgage Loans directly, received directly its share of the amounts received
with
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respect to the Mortgage Loans, and paid directly its share of the Servicing
Fees. In the case of Pass-Through Certificates, such gross income will
consist of a pro rata share of all of the income derived from all of the
Mortgage Loans and, in the case of Stripped Certificates, such income will
consist of a pro rata share of the income derived from each stripped bond or
stripped coupon in which the Certificateholder owns an interest. The holder
of a Certificate will generally be entitled to deduct such Servicing Fees
under Section 162 or Section 212 of the Code to the extent that such
Servicing Fees represent "reasonable" compensation for the services rendered
by the Trustee, the Master Servicer, and any other service providers. In the
case of a noncorporate holder, however, Servicing Fees (to the extent not
otherwise disallowed, e.g., because they exceed reasonable compensation) will
be deductible in computing such holder's regular tax liability only to the
extent that such fees, when added to other miscellaneous itemized deductions,
exceed 2% of adjusted gross income and may not be deductible to any extent in
computing such holder's alternative minimum tax liability. In addition, Code
Section 68 provides that the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount (for 1995, $114,700, or $57,350 in the case of
a separate return by a married individual, which amounts will be adjusted
annually for inflation) will be reduced by the lesser of (i) 3% of the excess
of adjusted gross income over the applicable amount, or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Certificates. The holder's purchase
price of a Pass-Through Certificate is to be allocated among the Mortgage
Loans in proportion to their fair market values, determined as of the time of
purchase of the Certificates. In the typical case, the Trustee believes it is
reasonable for this purpose to treat each Mortgage Loan as having a fair
market value proportional to the share of the aggregate principal balances of
all of the Mortgage Loans that it represents, to the extent that the Mortgage
Loans underlying a series have a relatively uniform interest rate and other
common characteristics. To the extent that the portion of the purchase price
of a Certificate allocated to a Mortgage Loan (other than to a right to
receive any accrued interest thereon and any undistributed principal
payments) is less than or greater than the portion of the principal balance
of the Mortgage Loan allocable to the Certificate, the interest in the
Mortgage Loan allocable to the Certificate will be deemed to have been
acquired at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount
represents original issue discount or market discount. In the case of a
Mortgage Loan with original issue discount in excess of a prescribed de
minimis amount, a holder of a Certificate will be required to report as
interest income in each taxable year its share of the amount of original
issue discount that accrues during that year, determined under a constant
yield method by reference to the initial yield to maturity of the Mortgage
Loan, in advance of receipt of the cash attributable to such income and
regardless of the method of federal income tax accounting employed by that
holder. Original issue discount with respect to a Mortgage Loan could arise
for example by virtue of the financing of points by the originator of the
Mortgage Loan, or by virtue of the charging of points by the originator of
the Mortgage Loan in an amount greater than a statutory de minimis exception,
in circumstances under which the points are not currently deductible pursuant
to applicable Code provisions. However, the OID Regulations provide that if a
holder acquires an obligation at a price that exceeds its stated redemption
price, the holder will not include any original issue discount in gross
income. In addition, if a subsequent holder acquires an obligation for an
amount that exceeds its adjusted issue price, the subsequent holder will be
entitled to offset the original issue discount with economic accruals of
portions of such excess. Accordingly, if the Mortgage Loans acquired by a
Certificateholder are purchased at a price that exceeds the adjusted issue
price of such Mortgage Loans, any original issue discount will be reduced or
eliminated.
Certificateholders also may be subject to the market discount rules of
Sections 1276-1278 of the Code. A Certificateholder that acquires an interest
in Mortgage Loans with more than a prescribed de minimis amount of "market
discount" (generally, the excess of the principal amount of the Mortgage
Loans over the purchaser's purchase price) will be required under Section
1276 of the Code to include accrued market discount in income as ordinary
income in each month, but limited to an amount not exceeding the principal
payments on the Mortgage Loans received in that month and, if the
Certificates are sold, the gain realized. Such market discount would accrue
in a manner to be provided in Treasury regulations. The
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relevant legislative history of the 1986 Act indicates that, until such
regulations are issued, such market discount would in general accrue either
(i) on the basis of a constant interest rate or (ii) in the ratio of (a) in
the case of Mortgage Loans not originally issued with original issue
discount, stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period or (b) in the
case of Mortgage Loans originally issued at a discount, original issue
discount in the relevant period to total original issue discount remaining to
be paid.
Section 1277 of the Code provides that the excess of interest paid or
accrued to purchase or carry a loan with market discount over interest
received on such loan is allowed as a current deduction only to the extent
such excess is greater than the market discount that accrued during the
taxable year in which such interest expense was incurred. In general, the
deferred portion of any interest expense will be deductible when such market
discount is included in income, including upon the sale, disposition, or
repayment of the loan. A holder may elect to include market discount in
income currently as it accrues, on all market discount obligations acquired
by such holder during the taxable year such election is made and thereafter,
in which case the interest deferral rule discussed above will not apply.
A Certificateholder who purchases a Certificate at a premium generally
will be deemed to have purchased its interest in the underlying Mortgage
Loans at a premium. A Certificateholder who holds a Certificate as a capital
asset may generally elect under Section 171 of the Code to amortize such
premium as an offset to interest income on the Mortgage Loans (and not as a
separate deduction item) on a constant yield method. The legislative history
of the 1986 Act suggests that the same rules that will apply to the accrual
of market discount (described above) will generally also apply in amortizing
premium with respect to Mortgage Loans originated after September 27, 1985.
If a holder makes an election to amortize premium, such election will apply
to all taxable debt instruments held by such holder at the beginning of the
taxable year in which the election is made, and to all taxable debt
instruments acquired thereafter by such holder, and will be irrevocable
without the consent of the Internal Revenue Service. Purchasers who pay a
premium for the Certificates should consult their tax advisers regarding the
election to amortize premium and the method to be employed. Although the law
is somewhat unclear regarding recovery of premium allocable to Mortgage Loans
originated before September 28, 1985, it is possible that such premium may be
recovered in proportion to payments of Mortgage Loan principal.
Discount or Premium on Stripped Certificates. A Stripped Certificate may
represent a right to receive only a portion of the interest payments on the
Mortgage Loans, a right to receive only principal payments on the Mortgage
Loans, or a right to receive certain payments of both interest and principal.
Certain Stripped Certificated ("Ratio Strip Certificates") may represent a
right to receive differing percentages of both the interest and principal on
each Mortgage Loan. Pursuant to Section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the
principal payments results in the creation of "stripped bonds" with respect
to principal payments and "stripped coupons" with respect to interest
payments. Section 1286 of the Code applies the original issue discount rules
to stripped bonds and stripped coupons. For purposes of computing original
issue discount, a stripped bond or a stripped coupon is treated as a debt
instrument issued on the date that such stripped interest is purchased with
an issue price equal to its purchase price or, if more than one stripped
interest is purchased, the ratable share of the purchase price allocable to
such stripped interest. The Code, the OID Regulations, and judicial decisions
provide no direct guidance as to how the interest and original issue discount
rules are to apply to Stripped Certificates. Under the method described above
for REMIC Regular Interest Certificates (the "Cash Flow Bond Method"), a
prepayment assumption is used and periodic recalculations are made which take
into account with respect to each accrual period the effect of prepayments
during such period. The 1986 Act prescribed the same method for debt
instruments "secured by" other debt instruments, the maturity of which may be
affected by prepayments on the underlying debt instruments. However, the 1986
Act does not, absent Treasury regulations, appear specifically to cover
instruments such as the Stripped Certificates which technically represent
ownership interests in the underlying Mortgage Loans, rather than being debt
instruments "secured by" those loans. Nevertheless, it is believed that the
Cash Flow Bond Method is a reasonable method of reporting income for such
Certificates, and it is expected that original issue discount will be
reported on that basis except in the case of Certificates which it determines
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should more appropriately be treated as contingent payment instruments. In
applying the calculation to a class of Certificates, the Trustee will treat
all payments to be received with respect to the Certificates, whether
attributable to principal or interest on the loans, as payments on a single
installment obligation, in the case of a Class of Certificates that has no
right, or a nominal right, to receive principal, and as includable in the
stated redemption price at maturity. In the case of a "stripped bond" which
is entitled to a significant amount of principal, the Trustee intends to take
the position that interest payments are "qualified stated interest." The
Internal Revenue Service could, however, assert that original issue discount
must be calculated separately for each Mortgage Loan underlying a
Certificate. In addition, in the case of Ratio Strip or similar Certificates,
the Internal Revenue Service could assert that original issue discount must
be calculated separately for each stripped coupon or stripped bond underlying
a Certificate.
Under certain circumstances, if the Mortgage Loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Certificateholder's recognition of income. If, however, the
Mortgage Loans prepay at a rate slower than the prepayment assumption, in
some circumstances the use of this method may decelerate a
Certificateholder's recognition of income.
A Stripped Certificate which either embodies only interest payments on the
underlying loans or (if it embodies some principal payments on the Mortgage
Loans) is issued at a price that exceeds the principal payments (an "Interest
Weighted Certificate"), may be taxed as a contingent payment instrument.
Under proposed Treasury Regulations applicable to contingent payment
instruments (the "Proposed Contingent Regulations"), income on Stripped
Certificates would be calculated by determining a projected payment schedule
and a projected yield, and reporting income accruals on that basis. If the
amount payable for a period were, however, greater or less than the amount
projected, the income included for that period would be increased or
decreased accordingly. Any reduction in the income accrual for a period below
zero (a "Negative Adjustment") would be treated by a Certificateholder as an
ordinary loss to the extent of prior income accruals and may be carried
forward to offset future interest accruals. At maturity, any remaining
Negative Adjustment would be treated as a loss on retirement of the
Certificate.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates described above are not the only possible
interpretations of the applicable Code provisions. Among other possibilities,
the Internal Revenue Service could contend that (i) in certain Series, each
non-Interest Weighted Certificate is composed of an unstripped undivided
ownership interest in Loans and an installment obligation consisting of
stripped principal payments; (ii) the non-Interest Weighted Certificates are
subject to the OID Regulations; (iii) each Interest Weighted Certificate is
composed of an unstripped undivided ownership interest in the Mortgage Loans
and an installment obligation consisting of stripped interest payments; or
(iv) there are as many stripped bonds or stripped coupons as there are
scheduled payments of principal and/or interest on each Mortgage Loan.
Given the variety of alternatives for treatment of the Certificates and
the different federal income tax consequences that result from each
alternative, potential purchasers are urged to consult their own tax advisers
regarding the proper treatment of the Certificates for federal income tax
purposes.
Character as Qualifying Mortgage Loans. In the case of Stripped
Certificates there is no specific legal authority existing regarding whether
the character of the Certificates, for federal income tax purposes, will be
the same as the Mortgage Loans. The IRS could take the position that the
Mortgage Loans' character is not carried over to the Certificates in such
circumstances. Pass-Through Certificates will be, and, although the matter is
not free from doubt, Stripped Certificates should be considered to represent
"qualifying real property loans" within the meaning of Section 593(d) of the
Code, "real estate assets" within the meaning of Section 856(c)(6)(B) of the
Code, and "loans(Trademark) secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; and interest income
attributable to the Certificates should be considered to represent "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,
Mortgage Loans secured by non-residential real property will not constitute
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"loans(Trademark) secured by an interest in real property" within the meaning
of Section 7701(a)(19)(C) of the Code. In addition, it is possible that
various reserves or funds underlying the Certificates may cause a
proportionate reduction in the above-described qualifying status categories
of Certificates.
Sale of Certificates. As a general rule, if a Certificate is sold, gain or
loss will be recognized by the holder thereof in an amount equal to the
difference between the amount realized on the sale and the
Certificateholder's adjusted tax basis in the Certificate. Such gain or loss
will generally be capital gain or loss if the Certificate is held as a
capital asset. In the case of Pass-Through Certificates, such tax basis will
generally equal the holder's cost of the Certificate increased by any
discount income with respect to the loans represented by such Certificate
previously included in income, and decreased by the amount of any
distributions of principal previously received with respect to the
Certificate. Such gain, to the extent not otherwise treated as ordinary
income, will be treated as ordinary income to the extent of any accrued
market discount not previously reported as income. In the case of Stripped
Certificates, the tax basis will generally equal the Certificateholder's cost
for the Certificate, increased by any discount income with respect to the
Certificate previously included in income, and decreased by the amount of all
payments previously received with respect to such Certificate.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. A Bondholder or Certificateholder, other than a
Residual Bondholder or Residual Certificateholder, may, under certain
circumstances, be subject to "backup withholding" at the rate of 31% with
respect to distributions or the proceeds of a sale of certificates to or
through brokers that represent interest or original issue discount on the
Securities. This withholding generally applies if the holder of a Security
(i) fails to furnish the Issuer with its taxpayer identification number
("TIN"); (ii) furnishes the Issuer an incorrect TIN; (iii) fails to report
properly interest, dividends or other "reportable payments" as defined in the
Code; or (iv) under certain circumstances, fails to provide the Issuer or
such holder's securities broker with a certified statement, signed under
penalty of perjury, that the TIN provided is its correct number and that the
holder is not subject to backup withholding. Backup withholding will not
apply, however, with respect to certain payments made to Bondholders or
Certificateholders, including payments to certain exempt recipients (such as
exempt organizations) and to certain Nonresidents (as defined below). Holders
of the Securities should consult their tax advisers as to their qualification
for exemption from backup withholding and the procedure for obtaining the
exemption.
The Issuer will report to the Securityholders and to the Internal Revenue
Service 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 Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Under the Code, unless interest (including OID) paid on a Security (other
than a Residual Interest Security) is considered to be "effectively
connected" with a trade or business conducted in the United States by a
nonresident alien individual, foreign partnership or foreign corporation
("Nonresidents"), such interest 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 the Issuer or (ii) the
recipient is a controlled foreign corporation to which the Issuer is a
related person) and will be exempt from federal income tax. Upon receipt of
appropriate ownership statements, the Issuer normally will be relieved of the
obligation to withhold federal income 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.
Interest and original issue discount of Bondholders or Certificateholders
who are foreign persons are not subject to withholding if they are
effectively connected with a United States business conducted by the
Bondholder or Certificateholders. They will, however, generally be subject to
the regular United States income tax.
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Payments to holders of Residual Interest Securities who are foreign
persons will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax
as "portfolio interest." To the extent that a payment represents a portion of
REMIC taxable income that constitutes excess inclusion income, a holder of a
Residual Interest Security will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would require
such amounts to be taken into account at an earlier time in order to prevent
the avoidance of tax. Such regulations could, for example, require
withholding prior to the distribution of cash in the case of Residual
Interest Securities that do not have significant value. Under the REMIC
Regulations, if a Residual Interest Security has tax avoidance potential, a
transfer of a Residual Interest Security to a Nonresident will be disregarded
for all Federal tax purposes. A Residual Interest Security has tax avoidance
potential unless, at the time of the transfer the transferor reasonably
expects that the REMIC will distribute to the transferee residual holder
amounts that will equal at least 30% of each excess inclusion, and that such
amounts will be distributed at or after the time at which the excess
inclusion accrues and not later than the close of the calendar year following
the calendar year of accrual. If a Nonresident transfers a Residual Interest
Security to a United States person, and if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions, then the
transfer is disregarded and the transferor continues to be treated as the
owner of the Residual Interest Security for purposes of the withholding tax
provisions of the Code. See "Excess Inclusion Income."
STATE AND LOCAL TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "FEDERAL
INCOME TAX CONSIDERATIONS," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state or locality. Therefore,
potential investors should consult their own tax advisors with respect to the
various state and local tax consequences of investment in the Bonds or
Certificates. In particular, potential investors in Residual Interest
Securities should consult their tax advisers regarding the taxation of the
Residual Interest Securities in general and the effect of foreclosure on the
Mortgaged Properties on such taxation.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans ("Plans") subject to
ERISA and persons who have certain specified relationships to such Plans
("Parties in Interest"). ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain transactions
between a Plan and Parties in Interest with respect to such Plans
("Prohibited Transactions"). Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets
of a Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant). Similar restrictions also apply to Plans that
are subject to the Code.
The Issuer, the Master Servicer, if any, the Servicer, the Trustee or the
provider of Enhancement, if any, because of their activities or the
activities of their respective affiliates, may be considered to be Parties in
Interest with respect to certain Plans. If the Securities are acquired by a
Plan with respect to which the Issuer, the Master Servicer, if any, the
Servicer, the Trustee or the provider of Enhancement, if any, is a Party in
Interest, such transaction would violate the Prohibited Transaction rules of
ERISA and the Code unless such transaction were subject to one or more
statutory or administrative exemptions such as Prohibited Transaction Class
Exemption ("PTCE") 75-1, which exempts certain transactions involving
employee benefit plans and certain broker-dealers, reporting dealers and
banks; PTCE 90-1, which exempts certain transactions between insurance
company pooled 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 plan asset manager;" or any other
available exemption. Accordingly, prior to making an investment in the
Securities, investing Plans should determine whether the Issuer is a Party in
Interest with respect to such Plan and, if so, whether such transaction is
subject to one or more of statutory or administrative exemptions.
The Certificates of a Series will, and the Bonds of a Series could, be
treated as "equity" for purposes of ERISA. Under regulations issued by the
Department of Labor ("DOL") (the "Plan Asset Regulations"), if a Plan makes
an "equity" investment in a corporation, partnership, trust or certain other
entities, the underlying assets and properties of such entity will be deemed
for purposes of ERISA to be assets of the investing Plan unless certain
exceptions set forth in the regulation apply. If a particular Series is
treated as "equity" for purposes of the Plan Asset Regulations such that the
underlying assets of the Issuer could be treated as assets of a Plan
purchasing Securities of such Series and the Mortgage Assets securing such
Series consists of a single Mortgage Loan or obligations of a single obligor
or related obligors as specified in the related Prospectus Supplement (e.g.,
affiliates of the Issuer), and Securities of such Series are acquired by a
Plan with respect to which the obligor or related obligors are Parties in
Interest, such transaction would violate the Prohibited Transaction rules of
ERISA and the Code unless such transaction were subject to one or more
statutory or administrative exemptions such as those described above or any
other available exemption. Accordingly, prior to making an investment in
Securities of such Series, a Plan investor should determine whether such
obligor or related obligors are Parties in Interest with respect to such Plan
and, if so, whether such transaction is subject to one or more of the
statutory or administrative exemptions.
If a particular Series is treated as "equity" for purposes of the Plan
Asset Regulations such that the underlying assets of the Issuer could be
treated as assets of a Plan purchasing Securities of such Series and the
Mortgage Assets securing such Series consists of multiple Mortgage Loans or
obligations of multiple unrelated obligors as specified in the related
Prospectus Supplement, an investing Plan may not be able to determine whether
any of the obligors is a Party in Interest with respect to such Plan. In that
event, prior to making an investment in Securities of such Series, such Plan
investor should determine whether (i) one or more statutory or administrative
exemptions is applicable or (ii) one or more exceptions to the Plan Asset
Regulations is applicable such that the underlying assets of the Issuer will
not be treated as assets of such investing Plan.
One such exception applies if the class of "equity" interests in question
is (i) held by 100 or more investors who are independent of the Issuer and
each other, (ii) freely transferable, and (iii) sold as part
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of an offering pursuant to (a) an effective registration statement under the
Securities Act of 1933, and then subsequently registered under the Securities
Exchange Act of 1934 or (b) an effective registration statement under Section
12(b) or 12(g) of the Securities Exchange Act of 1934 ("Publicly Offered
Securities"). In addition, the regulation provides that if at all times more
than 75% of the value of all classes of equity interests in the Issuer are
held by investors other than benefit plan investors (which is defined as
including plans subject to ERISA, government plans and individual retirement
accounts), the investing Plan's assets will not include any of the underlying
assets of the Issuer.
Furthermore, if the Issuer were deemed to hold plan assets by reason of a
Plan's investment in a Security, the persons providing services with respect
to the assets of the Issuer, including the Mortgage Loans, may be subject to
the fiduciary responsibility provisions of Title I of ERISA and be subject to
the prohibited transactions provisions of ERISA and Section 4975 of the Code
with respect to transactions involving such assets unless such transactions
are subject to a statutory or administrative exemption, such as those
described above.
An additional exemption may also be available if the Issuer is a trust.
The DOL granted to Shearson Lehman Hutton, Inc. an administrative exemption
(the "Exemption") from certain of the prohibited transaction rules of ERISA
with respect to the initial purchase, the holding and the subsequent resale
by Plans of certificates representing interests in asset-backed pass through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements of the Exemption. The obligations
covered by the Exemption include obligations such as the Mortgage Assets. The
Exemption will apply to the acquisition, holding and resale of the Securities
by a Plan, provided that certain conditions (certain of which are described
below) are met.
Among the conditions which must be satisfied for the Exemption to apply
are the following:
1. The acquisition of the Securities by a Plan is on terms (including the
price for the Securities) that are at least as favorable to the Plan as they
would be in an arm's-length transaction with an unrelated party;
2. The rights and interests evidenced by the Securities acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust;
3. The Securities acquired by the Plan have received a rating at the time
of such acquisition that is in one of the three highest generic rating
categories from either Standard & Poor's Ratings Group ("Standard & Poor's"),
Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co.
("DCR") or Fitch Investors Service, L.P. ("Fitch");
4. The sum of all payments made to the underwriter in connection with the
distribution of the Securities represents not more than reasonable
compensation for underwriting the Securities. The sum of all payments made to
and retained by the seller pursuant to the sale of the obligations to the
trust represents not more than the fair market value of such obligations. The
sum of all payments made to and retained by the servicer represents not more
than reasonable compensation for the servicer's services under the related
servicing agreement and reimbursement of the servicer's reasonable expenses
in connection therewith;
5. The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below); and
6. The Plan investing in the Securities is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust also must meet the following requirements:
(i) the corpus of the trust must consist solely of assets of the type
which have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of Standard & Poor's,
Moody's, DCR or Fitch for at least one year prior to the Plan's
acquisition of certificates; and
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(iii) certificates evidencing interests 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 Securities.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust in which the fiduciary (or
its affiliate) is an obligor on the receivables held in the trust provided
that, among other requirements: (i) in the case of an acquisition in
connection with the initial issuance of Securities, at least fifty (50)
percent of each class of Securities in which Plans have invested is acquired
by persons independent of the Restricted Group and at least fifty (50)
percent of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group; (ii) such fiduciary (or its affiliate)
is an obligor with respect to five (5) percent or less of the fair market
value of the obligations contained in the trust; (iii) the Plan's investment
in Securities does not exceed twenty-five (25) percent of all of the
Securities outstanding after the acquisition; and (iv) no more than
twenty-five (25) percent of the assets of the Plan are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Issuer, the Underwriter, the Trustee, the Servicer, the
Master Servicer, if any, the Special Servicer, if any, any obligor with
respect to obligations included in a Trust constituting more than five (5)
percent of the aggregate unamortized principal balance of the assets in a
Trust, or any affiliate of such parties (the "Restricted Group").
There can be no assurance that the Securities will not be treated as
equity interests in the Issuer for purposes of the Plan Asset Regulations.
Moreover, if the Securities are treated as equity interests for purposes of
ERISA, there can be no assurance that any of the exceptions set forth in the
Plan Asset Regulations will apply to the purchase of Securities offered
hereby.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code and the potential consequences to
their specific circumstances, prior to making an investment in the
Securities. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment procedure and diversification an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the
Securities will not constitute "mortgage-related securities" within the
meaning of the Secondary Mortgage Market Enhancement Act of 1984
("Enhancement Act"). Accordingly, investors whose investment authority is
subject to legal restrictions should consult their own legal advisors to
determine whether and to what extent the Securities constitute legal
investments for them.
PLAN OF DISTRIBUTION
The Issuer may sell the Securities offered hereby through Lehman Brothers,
as agent or as underwriter, or through underwriting syndicates represented by
Lehman Brothers (collectively, the "Underwriters") or by one or more other
underwriters, in each case, to be specified in the related Prospectus
Supplement. The Prospectus Supplement relating to a Series will set forth the
terms of the offering of such Series and each Class within such Series,
including the name or names of the Underwriters, the proceeds to and their
intended use by the Issuer, and either the initial public offering price, the
discounts and commissions to the Underwriters and any discounts or
concessions allowed or reallowed to certain dealers, or the method by which
the price at which the Underwriters will sell the Securities will be
determined.
The Underwriters will be obligated, subject to certain conditions, to
purchase all of the Securities described in the Prospectus Supplement
relating to a Series if any such Securities are purchased. The Securities may
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 a fixed public offering price or at varying prices determined at the time
of sale. If specified in the related Prospectus Supplement, a Series
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may be offered in whole or in part in exchange for the Mortgage Assets that
would be pledged to secure such Series. In such event, the Prospectus
Supplement will specify the amount of compensation to be paid to the
Underwriters and expenses, if any, in connection with such distribution. If
so indicated in the Prospectus Supplement, the Issuer will authorize
Underwriters or other persons acting as the Issuer's agents to solicit offers
by certain institutions to purchase the Securities on such terms and subject
to such conditions as so specified.
The Issuer may also sell the Securities offered hereby and by means of the
related Prospectus Supplements from time to time in negotiated transactions
or otherwise, at prices determined at the time of sale. The Issuer may effect
such transactions by selling Securities to or through dealers and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Issuer and any purchasers of Securities
for whom they may act as agents.
If any Certificates are offered other than through underwriters pursuant
to such underwriting agreements, the related Prospectus Supplement or
Prospectus Supplements will contain information regarding the terms of such
offering and any agreements to be entered into in connection with such
offering.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
in connection with reoffers and sales by them of Certificates.
Certificateholders should consult with their legal advisors in this regard
prior to any such reoffer and sale.
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor, any affiliate thereof or any other person or
persons specified therein may purchase some or all of one or more Classes of
Certificates of such Series from the underwriter or underwriters of such
other person or persons specified in such Prospectus Supplement. The
consideration for such purchase may be cash or Mortgage Assets. Such
purchaser may thereafter from time to time offer and sell, pursuant to this
Prospectus and the related Prospectus Supplement, some or all of such
Certificates so purchased, directly, through one or more underwriters to be
designated at the time of the offering of such Certificates, through dealers
acting as agent and/or principal as in such other manner as may be specified
in the related Prospectus Supplement. Such offering may be restricted in the
manner specified in such Prospectus Supplement. Such transactions may be
effected at market prices prevailing at the time of sale, at negotiated
prices or at fixed prices. Any underwriters and dealers participating in such
purchaser's offering of such Certificates may receive compensation in the
form of underwriting discounts or commissions from such purchaser and such
dealers may receive commissions from the investors purchasing such
Certificates for whom they may act as agent (which discounts or commissions
will not exceed those customary in those types of transactions involved). Any
dealer that participates in the distribution of such Certificates may be
deemed to be an "underwriter" within the meaning of the Securities Act and
any commissions and discounts received by such dealer and any profit on the
resale of such Certificates by such dealer might be deemed to be underwriting
discounts and commissions under the Securities Act.
The place and time of delivery for the Series in respect of which this
Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Certain legal matters in connection with the Securities offered hereby
will be passed upon for the Issuer and for the Underwriters by Skadden, Arps,
Slate, Meagher & Flom, New York, New York, Weil, Gotshal and Manges, New
York, New York or Cadwalader, Wickersham & Taft, New York, New York.
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GLOSSARY
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. Unless otherwise provided in the Prospectus
Supplement for a Series, such definitions shall apply to capitalized terms
used in such Prospectus Supplement. The definitions may vary from those in
the Indenture or Trust Agreement, as applicable, and the Indenture or Trust
Agreement, as applicable, generally provides a more complete definition of
certain of the terms. Reference should be made to the Indenture or Trust
Agreement, as applicable, for a more complete definition of such terms.
"Accrual Date" means, with respect to any Series, the date upon which
interest begins accruing on the Securities of the Series, as specified in the
related Prospectus Supplement.
"Accrual Payment Amount" means, with respect to any Payment Date or
Distribution Date for a Series that occurs prior to or on the Accrual
Termination Date, the aggregate amount of interest which has accrued on the
Compound Interest Securities of such Series during the Interest Accrual
Period relating to such Payment Date or Distribution Date and which is not
then required to be paid.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Securities, the Payment Date or Distribution Date on which all
Securities of the related Series with Stated Maturities or Final Scheduled
Termination Dates earlier than that of such Class of Compound Interest
Securities have been fully paid, or such other date or period as may be
specified in the related Prospectus Supplement.
"Administration Agreement" means, with respect to a Series, an agreement
pursuant to which the Administrator agrees to perform certain ministerial,
administrative, accounting and clerical duties on behalf of the Issuer with
respect to such Series.
"Administration Fee" means the fee specified as such in the Administration
Agreement.
"Advances" means, unless otherwise specified in a Prospectus Supplement,
cash advances with respect to delinquent payments of principal and interest
on any Mortgage Loan made by the Primary Servicer from its own funds or, if
so specified in the related Prospectus Supplement, from excess funds in the
Custodial Account or Servicing Account, but only to the extent that such
advances are, in the good faith business judgment of the Servicer or the
Master Servicer, as the case may be, ultimately recoverable from future
payments and collections on the Mortgage Loans or otherwise.
"Aggregate Asset Value" means, with respect to any Series, the aggregate
amount obtained by adding the Asset Value of each Mortgage Loan or Private
Mortgage-Backed Security or other Mortgage Assets in the Trust Estate for
such Series, plus the Asset Value, as determined in the related Series
Supplement, of any cash remaining in the Collection Account or any other
Pledged Fund or Account subsequent to an initial deposit therein by the
Issuer.
"Aggregate Outstanding Principal" means, with respect to any Series or
Class thereof, the principal amount of all Securities of such Series or Class
outstanding at the date of determination, including, in respect of any Class
of Compound Interest Securities of such Series (or other Class of Securities
on which interest accrues and is added to the outstanding principal amount
thereof), the Compound Value (or accreted value) of such Securities through
the Payment Date or Distribution Date immediately preceding the date of
determination.
"Appraised Value" means, unless otherwise specified in a Prospectus
Supplement, the lesser of the appraised value determined in an appraisal
obtained at origination or the sales price of a Mortgaged Property.
"ARM," "ARM Loan," or "Adjustable Rate Mortgage Loan" means a Mortgage
which provides for adjustment from time to time to the Mortgage Rate in
accordance with an approved index.
"Asset Value" means, unless specified otherwise in the related Prospectus
Supplement, with respect to each Private Mortgage-Backed Security or Mortgage
Loan or other Mortgage Assets included in the Trust Estate or Trust Fund for
a Series, its Scheduled Principal Balance. In addition, the related Series
Supplement shall set forth, for purposes of calculating the Asset Value of
Mortgage Assets, the dates on
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which the scheduled principal and interest payments with respect to such
Mortgage Assets are assumed to be deposited in the Collection Account. The
Asset Value of any cash deposited in any Pledged Fund or Account shall be as
set forth in the related Series Supplement.
"Assumed Deposit Date" means the date specified therefor in the Series
Supplement for a Series, upon which distributions on the Primary Assets are
assumed to be deposited in the Collection Account for purposes of calculating
Reinvestment Income thereon.
"Assumed Reinvestment Rate" means, with respect to a Series, the per annum
rate or rates specified in the related Prospectus Supplement or the related
Guaranteed Investment Contract for a particular period or periods as the
"Assumed Reinvestment Rate" for funds held in Pledged Funds and Accounts for
the Series.
"Bankers Trust" means Bankers Trust Company of California, N.A., a
national banking association.
"BIF" means Bank Insurance Fund.
"Bondholder" means the Person in whose name a Bond is registered in the
Bond Register.
"Bond Interest Rate" means the interest rate on the outstanding principal
amount of a Bond payable on the applicable Payment Date for such Bond, as
specified in the related Prospectus Supplement.
"Bond Register" means the register maintained pursuant to the Trust
Indenture for a Series, providing for the registration of the Bonds of a
Series and the transfers and exchanges thereof.
"Bonds" means Collateralized Mortgage Obligations sold by the Issuer
pursuant to this Prospectus and a related Prospectus Supplement.
"Business Day" means, with respect to any Series that does not include any
Class of Variable Interest Securities, any day that is not a Saturday, Sunday
or other day on which commercial banking institutions in New York, New York,
or in the city in which the Corporate Trust Office is then located, are
authorized or obligated by law or executive order to be closed, and with
respect to any Series that includes any Class of Variable Interest
Securities, a day that is not a Saturday or Sunday, and that is not a legal
holiday nor a day on which banking institutions are authorized or obligated
by law, regulation or executive order to close in either London or New York
City or in the city in which the Corporate Trust Office is then located.
"Cash Liquidation" means as to any defaulted Mortgage Loan other than a
Mortgage Loan with respect to which the related Mortgaged Property became REO
Property, the recovery of all Insurance Proceeds, Liquidation Proceeds and
other payments or recoveries that the Master Servicer or Servicer, as
applicable, expects to be finally recoverable.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980.
"Certificateholder" means the Person in whose name a Certificate is
registered in the Certificate Register.
"Certificate Interest Rate" means the interest rate on the outstanding
principal amount of a Certificate payable on the applicable Distribution Date
for such Certificate, as specified in the related Prospectus Supplement.
"Certificate Register" means the register maintained pursuant to the Trust
Agreement for a Series, providing for the registration of the Certificates of
a Series and the transfers and exchanges thereof.
"Certificates" means the Mortgage-Backed Certificates sold by the Issuer
pursuant to this Prospectus and a related Prospectus Supplement.
"Class" means a class of Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in the
related Series Supplement as the date on which Securities of such Series are
first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
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"Collection Account" means, with respect to a Series, the account
designated as such and created pursuant to the Trust Indenture or Trust
Agreement, as applicable.
"Commercial Property" means any property securing a Mortgage Loan that
used for commercial purposes.
"Commission" means the Securities and Exchange Commission.
"Company" means Structured Asset Securities Corporation.
"Compound Interest Security" means any Security of a Series on which
interest accrues and is added to the principal of such Security periodically,
but with respect to which no interest or principal shall be payable except
during the period or periods specified in the related Prospectus Supplement.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, as of any determination date, the original principal amount of
such Class, plus all accrued and unpaid interest, if any, previously added to
the principal thereof and reduced by any payments of principal previously
made on such Class of Compound Interest Securities and by any losses
allocated to such Class.
"Condemnation Proceeds" means any awards resulting from the full or
partial condemnation or any eminent domain proceeding or any conveyance in
lieu or in anticipation thereof with respect to a Mortgaged Property by or to
any governmental or quasi-governmental authority other than amounts to be
applied to the restoration, preservation or repair of such Mortgaged Property
or released to the related Mortgagor in accordance with the terms of the
Mortgage Loan.
"Corporate Trust Office" means the corporate trust office of the Trustee,
which, unless otherwise specified in the related Prospectus Supplement, shall
be the office of Bankers Trust Company of California, N.A., 3 Park Plaza,
16th Floor, Irvine, California 92714, if Bankers Trust Company of California,
N.A. is the Trustee, or Marine Midland Bank, N.A., 140 Broadway, New York,
New York 10015, if Marine Midland Bank, N.A. is the Trustee.
"Covered Trust" means a Trust Estate or Trust Fund covered by a form of
credit support.
"CPR" means the Constant Prepayment Rate prepayment model.
"Custodial Account" means an account established by a Master Servicer, a
Servicer, or a Special Servicer in the name of the Trustee for the deposit on
a daily basis of all Mortgage Loan related receipts received by it subsequent
to the Cut-Off Date.
"Custodian" means any bank, savings and loan association, trust company or
other entity appointed to hold documentation with respect to any Mortgage
Loans.
"Cut-Off Date" means, with respect to a Series, the date specified in the
related Series Supplement on which, as of the close of business on such date,
the Mortgage Loans securing or included in such Series are sold to a Trust or
subject to the lien of the Indenture.
"Deferred Interest" means the excess resulting when the amount of interest
required to be paid by a Mortgagor on a Mortgage Loan on any Due Date for
such Mortgage Loan is less than the amount of interest accrued on the
Scheduled Principal Balance thereof, to the extent such excess is added to
the Scheduled Principal Balance of such Mortgage Loan.
"Deferred Interest Securities" means Bonds or Certificates on which
interest accrued during an Interest Accrual Period may be added to the
principal amount of such Bonds or Certificates rather than being paid in cash
on the related Distribution Date.
Definitive Securities" means the Bonds or the Certificates for a Series
when and if issued in definitive form to the Securities Owners of such Series
or their nominees.
"Deleted Mortgage Loan" means a Mortgage Loan removed from the Trust
Estate or Trust Fund in order to substitute a Substitute Mortgage Loan.
"Delivery Date" means with respect to a Series, the date specified in the
related Prospectus Supplement as the date on which the Securities of such
Series are to be delivered to the original purchasers thereof.
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"Depositor" means the Company (i) when acting in such capacity under a
Deposit Trust Agreement to deposit Primary Assets into an Owner Trust
relating to a Series of Bonds, or (ii) when acting in such capacity under a
Trust Agreement to deposit Primary Assets into a Trust Fund relating to a
Series of Certificates.
"Deposit Trust Agreement" means a deposit trust agreement between the
Company and an Owner Trustee pursuant to which an Owner Trust is created and
Primary Assets are deposited therein.
"Designated Interest Accrual Date" means, as specified in the related
Prospectus Supplement, (a) the day preceding a Redemption Date or Special
Redemption Date as the date through which accrued interest is paid upon
redemption or special redemption, or (b) the date through which accrued
interest is paid upon the occurrence of an Event of Default.
"Determination Date" means the date specified in the related Prospectus
Supplement.
"Disqualified Organization" means the United States, any State or
political subdivision thereof, any possession of the United States, any
foreign government, any international organization, or any agency or
instrumentality of any of the foregoing, a rural electric or telephone
cooperative described in section 1381(a)(2)(C) of the Code, or any entity
exempt from the tax imposed by sections 1-1399 of the Code, if such entity is
not subject to tax on its unrelated business income.
"Distribution Date" means the date on which distributions of principal of
and interest on Certificates of a Series will be made.
"DOL" means Department of Labor.
"Due Date" means each date on which a payment is due and payable on any
Mortgage Assets.
"Due Period" means, unless other specified in the related Prospectus
Supplement, for each Payment Date or Distribution Date, as applicable, the
period beginning on the second day of the month preceding the month in which
such Payment Date or Distribution Date, as applicable, occurs and ending on
the first day of the month in which such Payment Date or Distribution Date,
as applicable, occurs.
"Eligible Investments" means any one or more of the obligations or
securities described herein under "SECURITY FOR THE BONDS AND
CERTIFICATES--Investment of Funds."
"Enhancement" means the Enhancement for a Series, if any, specified in the
related Prospectus Supplement.
"Enhancement Agreement" means the agreement or instrument pursuant to
which any Enhancement is issued or the terms of any Enhancement are set
forth.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means qualified employee benefit plans established under
ERISA or the Code.
"Escrow Account" means an escrow account established and maintained by the
Primary Servicer in which payments by Mortgagors to pay taxes, assessments,
mortgage and hazard insurance premiums and other comparable items will be
deposited.
"Event of Default" unless otherwise specified in the Prospectus Supplement
shall have the meaning set forth herein under "THE INDENTURE AND TRUST
AGREEMENT--Events of Default."
"Excess Cash Flow" shall have the meaning set forth in the related
Prospectus Supplement.
"Exchange Act" means the Securities Exchange Act of 1934.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration, a division of HUD. "FHA
Loan" means a fixed-rate mortgage loan insured by the FHA. "FHLMC" means the
Federal Home Loan Mortgage Corporation.
FNMA" means the Federal National Mortgage Association.
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Final Scheduled Distribution Date" means the Distribution Date on which
principal of and interest on a Series of Certificates is scheduled to be paid
in full.
"First Mandatory Principal Distribution Date" means the date specified in
the related Prospectus Supplement as the Distribution Date on which the
Issuer must begin paying installments of principal of the Certificates of the
related Series or Class if the Issuer has not already begun making such
distributions.
"First Mandatory Principal Payment Date" means the date specified in the
related Prospectus Supplement as the Payment Date on which the Issuer must
begin paying installments of principal of the Bonds of the related Series or
Class if the Issuer has not already begun making such payments.
"First PAC Paydown Date" means the date on which the initial PAC Principal
Payment is applied to the PAC Bonds, as set forth in the related Prospectus
Supplement.
"Garn-St. Germain Act" means the Garn-St. Germain Depository Institutions
Act of 1982.
"Guarantor" means a guarantor acceptable to the Rating Agencies rating the
Securities.
"Grant" means to mortgage, pledge, bargain, sell, warrant, alienate,
remise, convey, assign, transfer, create and grant a lien upon and a security
interest in and right of setoff against, deposit, set over and confirm.
"Guaranteed Investment Contract" means a guaranteed investment contract
providing for the investment of all distributions on the Mortgage Assets
guaranteeing a minimum or a fixed rate of return on the investment of moneys
deposited therein.
"Highest Bond Interest Rate" means, unless specified otherwise in the
related Prospectus Supplement, with respect to any Series of Bonds, the
highest Bond Interest Rate borne by outstanding Bonds of the Series.
"Highest Certificate Interest Rate" means, unless otherwise specified in
the related Prospectus Supplement, with respect to any Series of
Certificates, the highest Certificate Interest Rate borne by outstanding
Certificates of a Series.
"Holder" means a Bondholder or Certificateholder, as applicable.
"Housing Act" means the National Housing Act of 1934, as amended.
"HUD" means the United States Department of Housing and Urban Development.
"Indenture" means, with respect to any Series of Bonds, collectively the
Trust Indenture and any related Series Supplement.
"Individual Investor Bonds" means each of the Bonds of a Class identified
as such in the related Prospectus Supplement.
"Individual Investor Certificates" means each of the Certificates of a
Class identified as such in the related Prospectus Supplement.
"Insurance Proceeds" means amounts received by the Trustee from the Master
Servicer or a Servicer in connection with sums paid or payable under any
insurance policies, to the extent not applied to the restoration or repair of
the Mortgaged Property.
"Insurance Policies" means hazard insurance and other insurance policies
required to be maintained with respect to Mortgage Loans.
"Interest Accrual Period" means the period specified in the related
Prospectus Supplement for a Series, during which interest accrues on
Securities of the related Series or Class with respect to any Payment Date,
Distribution Date, Redemption Date, or Special Redemption Date.
"Interest Only Securities" means a Security entitled to receive payments
of interest only based upon the Notional Amount of the Security.
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Interest Weighted Securities" means, with respect to Certificates issued
by a grantor Trust, Certificates that embody only interest payments on the
underlying Mortgage Loans or which consist in whole or in part of stripped
coupons or, in the case of a regular interest in a REMIC, which qualify as
such pursuant to Section 860G(a)(1)(B)(ii) of the Code.
"IRS" means the Internal Revenue Service.
"Issuer" means the Company Owner Trust, or a separate trust established by
the Company as issuer of a Series of Securities.
"L/C Bank" means the issuer of the letter of credit.
"LCPI" means Lehman Commercial Paper Inc.
"Lehman Brothers" means Lehman Brothers Inc.
"Liquidation Proceeds" means amounts (other than Insurance Proceeds)
received and retained in connection with liquidation of defaulted Mortgage
Loans whether through foreclosure or otherwise, net of related liquidation
expenses and certain other expenses.
"Loan-to-Value Ratio" means, as of any date of determination, the ratio of
the then outstanding principal amount to the lesser of the appraised value
and the purchase price of the Mortgaged Property at the time of origination.
"Marine Midland" means Marine Midland Bank, N.A., a national banking
association.
"Master Servicer" means, with respect to a Series secured by Mortgage
Loans or Private Mortgage-Backed Securities, the Person, if any, designated
in the related Prospectus Supplement to manage and supervise the
administration and servicing by the Servicers of the Mortgage Loans
comprising Mortgage Assets or Underlying Collateral for that Series, or the
successors or assigns of such Person.
"Master Servicing Agreement" means the Master Servicing Agreement between
the Issuer and the Master Servicer, if any, specified in the related
Prospectus Supplement.
"Maximum Variable Interest Rate" means the interest rate cap on the Bond
Interest Rate or Certificate Interest Rate for Variable Interest Securities.
"Minimum Variable Interest Rate" means the interest rate floor on the Bond
Interest Rate or Certificate Interest Rate for Variable Interest Securities.
"Mortgage" means a mortgage, deed of trust or other security instrument
evidencing the lien on the Mortgaged Property.
"Mortgage Assets" means the Mortgage Loans, including participation
interests therein, REO Property and Private Mortgage-Backed Securities which
are Granted to the Trustee as security for a Series of Bonds or deposited
into the Trust Fund in respect of a Series of Certificates; an item of
Mortgage Assets refers to a specific Mortgage Loan, REO Property or Private
Mortgage-Backed Security.
"Mortgaged Properties" means the real properties on which liens are
created pursuant to Mortgages for purposes of securing the Mortgage Loans.
"Mortgage Loan Group" means groups of Mortgage Assets.
"Mortgage Loan" means a mortgage loan or participation interest therein
that is owned by the Issuer and constitutes a part of the Mortgage Assets for
a Series, or that is Underlying Collateral for a Private Mortgage-Backed
Security that constitutes a part of the Mortgage Assets for a Series.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor with respect to a Mortgage Loan.
"Mortgage Pool" means, with respect to a Series, the pool of Mortgage
Loans.
"Mortgage Rate" means, with respect to each Mortgage Loan, the annual
interest rate required to be paid by the Mortgagor under the terms of the
related Mortgage Note.
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"Mortgagor" means the Person indebted under the Mortgage Note relating to
a Mortgage Loan.
"Multifamily Property" means any property securing a Mortgage Loan
consisting of multifamily residential rental property or cooperatively owned
multifamily property consisting of five or more dwelling units.
"New York Presenting Agent" means the Issuer's agent in the State of New
York, which, unless otherwise specified in the Prospectus Supplement for a
Series, will be Bankers Trust Company, Four Albany Street, New York, New York
10006.
"Nonresidents" means a nonresident alien individual, foreign partnership
or foreign corporation.
"OID" means "original issue discount" within the meaning of section 1273
of the Code.
"OTS" means the Office of the Thrift Supervision.
"Owner Trust" means the trust fund established by the Company pursuant to
a Deposit Trust Agreement to hold Primary Assets and issue a Series of Bonds.
"Owner Trustee" means the bank or trust company named in the Prospectus
Supplement related to a Series of Bonds, not in its individual capacity but
solely as trustee pursuant to a Deposit Trust Agreement, and its successors
and assigns.
"PAC" means Planned Amortization Class Securities.
"PAC Amount" means the scheduled amounts of principal payments to be
applied on each Payment Date or Distribution Date to the PAC Securities, as
set forth in the related Prospectus Supplement.
"PAC Security" or "Planned Amortization Class Security" means a Security
on which the Principal Amortization Amount in an amount equal to the PAC
Principal Payment or PAC Principal Distribution will be applied to such
Securities commencing on the First PAC Paydown Date, and each Payment Date or
Distribution Dates thereafter.
"PAC Paydown Date" means the date on which each PAC Amount is applied to
the PAC Securities as set forth in the related Prospectus Supplement.
"PAC Principal Payment" means, with respect to a particular Payment Date,
the scheduled PAC Amount, if any, for such Payment Date less any principal
payments made on the PAC Securities due to a special redemption subsequent to
the preceding Payment Date.
"Participating Securities" means a Security entitled to receive payments
of principal and interest and an additional return on investment as described
in the related Prospectus Supplement.
"Participation Agreement" means the agreement through which participation
interests in a Series will be acquired.
"Pass-Through Certificates" means, in respect of Certificates issued by a
grantor trust, Certificates in which there is no separation of the principal
and interest payments on the underlying Mortgage Loans.
"Paying Agent" means the Trustee or any other Person that meets the
eligibility standards for the Paying Agent specified in the Indenture or
Trust Agreement, as applicable and is authorized and appointed pursuant to
the Indenture or Trust Agreement, as applicable by the Issuer to pay the
principal of or interest on any Securities on behalf of the Issuer.
"Payment Date" means the date on which payments of principal of and
interest on the Bonds will be made.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
"Pledged Fund or Account" means any fund or account, including, without
limitation, the Collection Account or any Reserve Fund established with
respect to, and Granted as security for, a Series.
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"PMBS Agreement" means the pooling and servicing agreement, indenture or
similar agreement pursuant to which Private Mortgage-Backed Securities have
been issued.
"PMBS Issuer" means the issuer of the Private Mortgage-Backed Securities.
"PMBS Trustee" means the trustee of the Private Mortgage-Backed
Securities.
"Policy Statement" means the supervisory policy statement adopted by the
Federal Financial Institution Examination Council.
"Prepayment Assumption" means the anticipated rate of prepayments assumed
in pricing the Securities.
"Prepayment Period" means, if specified in any Prospectus Supplement with
respect to any Series, the calendar month preceding the month in which the
related Payment Date occurs.
"Primary Assets" means that portion of the Trust Estate pledged to secure
a Series of Bonds, or comprising the Trust Fund relating to a Series of
Certificates.
"Primary Servicer" means the entity which has primary liability for
servicing Mortgage Loans directly.
"Principal Balance" means, unless otherwise specified in a Prospectus
Supplement, with respect to any Mortgage Loan or related REO Property, for
any Due Date and the Due Period with respect thereto, the principal balance
of such Mortgage Loan (or, in the case of REO Property, of the related
Mortgage Loan on the last date on which a payment was made thereon)
outstanding as of the Cut-Off Date, after application of principal payments
due on or before the Cut-Off Date, whether or not received, plus all amounts
of Deferred Interest accrued on such Mortgage Loan to the Due Date in the Due
Period immediately preceding the date of determination minus the sum of (a)
the principal portion of the Scheduled Payment due on or prior to such Due
Date, but only if received from or on behalf of the Mortgagor, (b) all
Principal Prepayments, and all Insurance Proceeds, Condemnation Proceeds,
Liquidation Proceeds and other amounts applied as recoveries of principal to
the extent identified and applied by the Master Servicer, Special Servicer or
Servicer, as applicable, as recoveries of principal through the close of the
related Prepayment Period for the Master Servicer or Servicer, as applicable,
and (c) any Realized Loss on such Mortgage Loan to the extent treated as a
principal loss and which is realized during such Prepayment Period.
"Principal Determination Date" means the day specified in the related
Prospectus Supplement.
"Principal Payment Amount" means, with respect to any Payment Date or
Distribution Date related to a particular Series, the amount that is
specified in the related Prospectus Supplement.
"Principal Payment Dates" means, with respect to a Class, the dates
specified in the related Prospectus Supplement on which principal of the
Securities of such Class is to be paid.
"Principal Prepayment" means, with respect to any Private Mortgage-Backed
Security or Mortgage Loan, any payment of principal on such Private
Mortgage-Backed Security or Mortgage Loan in excess of the Scheduled Payment,
resulting from prepayment, partial prepayment, (other than Liquidation
Proceeds, Condemnation Proceeds or Insurance Proceeds) with respect to the
Mortgage Loan or Mortgage Loans underlying such Private Mortgage-Backed
Security but not including any Scheduled Payment received prior to the Due
Period in which it was scheduled to be paid.
"Principal Only Securities" means a Security entitled to receive payments
of principal only.
"Private Mortgage-Backed Security" means a mortgage participation or other
interest, pass-through certificate or collateralized mortgage obligation.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
"PTE" means Prohibited Transactions Exemption.
"Rating Agency" means a nationally recognized statistical rating agency.
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"Realized Losses" means, unless otherwise specified in a Prospectus
Supplement, with respect to each Mortgage Loan or REO Property, as the case
may be, as to which a Cash Liquidation or REO Disposition has occurred, an
amount equal to (i) the Principal Balance of the Mortgage Loan as of the date
of Cash Liquidation or REO Disposition, plus (ii) interest at the applicable
Mortgage Rate, from the date as to which interest was last paid up to the Due
Date in the period in which such Cash Liquidation or REO Disposition has
occurred on the Principal Balance of such Mortgage Loan outstanding during
each Due Period that accrued interest was not paid, minus (iii) Liquidation
Proceeds received during the month in which such Cash Liquidation or REO
Disposition occurred, net of related expenses, including but not limited to,
amounts that are payable to a Master Servicer, Servicer, or Special Servicer,
as applicable, with respect to such Mortgage Loan and (iv) any other amounts
applied as a recovery of principal or interest on the Mortgage Loan.
"Redemption Date" means, with respect to any Series, the Payment Date
specified by the Issuer for the redemption of Bonds of such Series pursuant
to the Indenture.
"Redemption Price" means, with respect to any Bond of a Series or Class to
be redeemed, an amount equal to the percentage specified in the related
Prospectus Supplement of the principal amount (or of the Compound Value of
any Compound Interest Security) of such Security so redeemed, together with
accrued and unpaid interest thereon at the applicable Bond Interest Rate to
the Designated Interest Accrual Date for such Series.
"Regular Bondholder" means a Holder of a Regular Interest Bond.
"Regular Certificateholder" means a Holder of a Regular Interest
Certificate.
"Regular Interest Bonds" means Classes of Bonds constituting regular
interests in a REMIC.
"Regular Interest Certificates" means Classes of Certificates constituting
regular interests in a REMIC.
"Regular Interest Securities" means Regular Interest Bonds, Regular
Interest Certificates or Uncertificated Regular Interests, as applicable.
"Reinvestment Income" means any interest or other earnings on Pledged
Funds or Accounts that are part of the Primary Assets for a Series.
"REMIC Provisions" means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Section
860A through 860G of the Code, and related provisions, and regulations and
rulings promulgated thereunder.
"REMIC Regulations" means final Treasury regulations under Sections 860A
through 860G of the Code or related provisions.
"REO Disposition" means the receipt by the Master Servicer, Servicer, or
Special Servicer, as applicable, of Liquidation Proceeds, Insurance Proceeds
and other payments and recoveries (including proceeds of a final sale) from
the sale or other disposition of the REO Property.
"REO Property" means Mortgaged Properties the beneficial interest in which
has been acquired by a Trust Fund or by a Trustee on behalf of Bondholders by
foreclosure, by deed-in-lieu of foreclosure or otherwise.
"Reserve Fund" means, with respect to a Series, any reserve fund described
in the applicable Prospectus Supplement, including a Subordination Reserve
Fund.
"Reserve Funds" means, collectively, more than one reserve fund.
"Residual Bondholder" means the Holder of a Residual Interest Bond.
"Residual Certificateholder" means the Holder of a Residual Interest
Certificate.
"Residual Interest Bonds" means Classes of Bonds constituting the residual
interest in a REMIC.
"Residual Interest Certificates" means Classes of Certificates
constituting residual interests in a REMIC.
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"Residual Interest Securities" means Residual Interest Bonds or Residual
Interest Certificates, as applicable.
"SAIF" means Savings Association Insurance Fund.
"Scheduled Payments" means the scheduled payments of principal and
interest to be made by the Mortgagor on a Mortgage Loan in accordance with
the terms of the related Mortgage Note, as modified by any permitted
modification of a Mortgage Note.
"Scheduled Principal Balance" means the principal balance of a Mortgage
Loan outstanding as of the Cut-Off Date, after application of principal
payments due on or before the Cut-Off Date, whether or not received, plus all
amounts of Deferred Interest accrued on such Mortgage Loan to the Due Date in
the Due Period immediately preceding the date of determination, minus the sum
of (a) the principal portion of all Scheduled Payments due on or prior to
such Due Date, irrespective of any delinquency in payment by the Mortgagor,
(b) all Principal Prepayments and all Insurance Proceeds, Condemnation
Proceeds, Liquidation Proceeds and other amounts applied as recoveries of
principal to the extent identified and applied by the Master Servicer,
Special Servicer, or Servicer, as applicable, as recoveries of principal
through the close of the related Prepayment Period, and (c) any Realized Loss
on such Mortgage Loan to the extent treated as a principal loss and that is
realized during such Prepayment Period.
"Securities" means Bonds of Certificates.
"Securities Owners" means the owners of the beneficial interests in a
Series of Bonds or Certificates.
"Senior Securities" means a Class of Securities which are senior in right
and priority to the extent described in the related Prospectus Supplement to
payment of principal and interest to certain other Classes of Securities of
such Series.
"Series" means a separate series of Bonds sold pursuant to this Prospectus
and the related Prospectus Supplement.
"Series Supplement" means the supplemental indenture to or terms indenture
incorporating by reference the Trust Indenture or Trust Agreement, as
applicable, between the Issuer of a Series of Securities and the Trustee
relating to such Series of Securities.
"Servicer" means, for any Mortgage Loan, the Person approved by the Issuer
and by the Master Servicer, if any, as servicer of such Mortgage Loan, which
Person shall also be a FNMA or FHLMC- approved seller and servicer.
"Servicer Remittance Date" means with respect to each Mortgage Loan, the
date on which the Servicer shall remit all funds held in the Servicing
Account together with any Advances made by such Servicer for deposit to the
Collection Account.
"Servicing Account" means an account established by a Servicer which
complies with the standards set forth herein for a Custodial Account.
"Servicing Agreements" means the Master Servicing Agreement, Servicing
Agreement and Special Servicing Agreement, if any.
"Servicing Fee" means for any Series, the aggregate fees paid to the
Trustee, Master Servicer or other similar fees.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984.
"SPA" means the Standard Prepayment Assumption prepayment model.
"Special Redemption Date" means, with respect to a Series, the date each
month (other than any month in which a Payment Date occurs) on which Bonds of
that Series may be redeemed pursuant to the Trust Indenture or the related
Series Supplement; such date shall be the same day of the month as the day on
which the Payment Date for the Bonds of that Series occurs.
"Special Servicer" means a special servicer identified in the related
Prospectus Supplement appointed to perform the activities set forth in the
related Prospectus Supplement.
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"Start Up Day" means the "startup day" of the REMIC as defined in section
860G(a)(9) of the Code.
"Stated Maturity" means the date specified in the related Prospectus
Supplement no later than which all the Bonds of such Class will be fully
paid, calculated on the basis of the assumptions set forth in the related
Prospectus Supplement.
"Stripped Certificates" means, in respect of Certificates issued by a
grantor trust, Certificates in which there is considered to be a separate
ownership of the payments of principal and interest on the underlying
Mortgage Loans.
"Subordinate Securities" means a Class of Securities which are subordinate
in right and priority to the extent described in the related Prospectus
Supplement to payment of principal and interest to Senior Classes of
Securities of such Series.
"Substitute Mortgage Asset" means any Mortgage Asset that is Granted to
the Trustee as security for a Series of Bonds or deposited into the Trust
Fund in respect of a Series of Certificates in lieu of any Mortgage Assets
then pledged as security.
"Substitute Mortgage Loan" means a Mortgage Loan substituted for one or
more Deleted Mortgage Loans in the Trust Estate or Trust Fund.
"TIN" means Taxpayer Identification Number.
"Trust Agreement" means the trust agreement between the Company and a
Trustee pursuant to which a Series of Certificates is issued.
"Trust Estate" means, with respect to any Series of Bonds, all money,
instruments, securities and other property, including all proceeds thereof,
which are subject or intended to be subject to the lien of the Indenture for
the benefit of the Series as of any particular time (including, without
limitation, all property and interests Granted to the Trustee pursuant to the
Series Supplement for such Series).
"Trust Fund" means the trust fund established pursuant to a Trust
Agreement into which Primary Assets are deposited for the purpose of issuing
a Series of Certificates.
"Trust Indenture" means the trust indenture between the Company and the
Trustee or a Trust and the Trustee pursuant to which a Series of Bonds are
issued.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 and
rules and regulations promulgated by the Commission with respect thereto.
"Trustee" means Bankers Trust or Marine Midland or another bank or trust
company qualified under the TIA and named in the Prospectus Supplement for a
Series as trustee or the Trustee for any series of Certificates named in the
Prospectus Supplement.
"Uncertificated Regular Interest" means a regular interest in a REMIC that
is not represented by a physical Certificate.
"Unavailable Amount" means, with respect to a Series, the amount, if any,
remaining in the related Collection Account on a related Payment Date that
represents (1) payments of scheduled payments of principal of and interest on
the Mortgage Assets due subsequent to the Principal Determination Date
immediately preceding the related Payment Date or Distribution Date, (2) the
amount of all related prepayments received or deemed received subsequent to
the Principal Determination Date immediately preceding such Payment Date or
Distribution Date, or (3) any investment income that has accrued subsequent
to the Principal Determination Date immediately preceding such Payment Date
or Distribution Date.
"Undelivered Mortgage Assets" means Mortgage Assets that are not pledged
and delivered to the Trustee on the related Closing Date.
"Underwriters" means, collectively, Lehman Brothers, as agent or as
underwriter, or underwriting syndicates represented by Lehman Brothers.
111
<PAGE>
"Underlying Collateral" means, with respect to a Private Mortgage-Backed
Security, the underlying Mortgage Loans.
"VRDI Security" means a Regular Interest Security that qualifies as a
"variable rate debt instrument" under Section 1.7275-5 of the Treasury
Regulations.
"Variable Interest Distribution Date" means, with respect to a Class of
Variable Interest Securities issued as part of a Series of Certificates, the
date specified in the related Prospectus Supplement, it being expressly
provided herein that Variable Interest Distribution Dates may be monthly,
quarterly, semi- annual or annual.
"Variable Interest Payment Date" means, with respect to any Class of
Variable Interest Securities issued as part of a Series of Bonds, the date
specified in the related Prospectus Supplement, it being expressly provided
herein that Variable Interest Payment Dates may be monthly, quarterly,
semi-annual or annual.
"Variable Interest Period" means, with respect to any Class of Variable
Interest Securities, the period commencing immediately subsequent to the
preceding Variable Interest Period (or, in the case of the Variable Interest
Period appliable to the first Variable Interest Payment Date with respect to
such [Class of Variable Interest Securities, commencing on the Accrual Date
for such Class) and ending on the] date specified in the related Prospectus
Supplement, during which such Class of Variable Interest Securities shall
accrue interest, payable on the immediately succeeding Variable Interest
Payment Date or Variable Interest Distribution Date, at the Bond Interest
Rate or Certificate Interest Rate determined on the immediately preceding
Determination Date.
"Variable Interest Rate" means the interest rate in respect of a Variable
Interest Security.
"Variable Interest Security" means a Security on which interest accrues at
a Bond Interest Rate or Certificate Interest Rate that is adjusted, based
upon a predetermined index, at fixed periodic intervals, all as set forth in
the related Prospectus Supplement.
"Weighted Average Securities" means Regular Interest Securities that bear
interest at a rate based on a weighted average of the interest rates on some
or all of the Mortgage Loans of the related trust.
"Zero Coupon Bonds" means a Security entitled to receive payments or
distributions of Principal only.
"1986 Act" means the Tax Reform Act of 1986, as amended.
112
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR LEHMAN BROTHERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH THEY
RELATE OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THEIR RESPECTIVE DATES.
TABLE OF CONTENTS
Prospectus Supplement
PAGE
---------
Table of Contents ..................................... S-3
Summary of Terms ...................................... S-5
Risk Factors .......................................... S-28
Description of the Certificates ....................... S-38
The Seller ............................................ S-63
Underwriting Practices ................................ S-64
Description of the Mortgage Pool ...................... S-65
Servicing of Mortgage Loans ........................... S-88
Yield, Prepayment and Maturity Considerations ........ S-105
Legal Investment Considerations ....................... S-108
Certain Legal Aspects of Mortgage Loans Located in
Pennsylvania, California, and Florida ................ S-108
Use of Proceeds ....................................... S-112
ERISA Considerations .................................. S-112
Federal Income Tax Considerations ..................... S-114
Underwriting .......................................... S-115
Legal Matters ......................................... S-116
Certificate Rating .................................... S-116
Index of Principal Terms .............................. S-117
Appendix A ............................................ A-1
Appendix B ............................................ B-1
Appendix C ............................................ C-1
Prospectus
PAGE
---------
Table of Contents ..................................... 2
Prospectus Supplement ................................. 5
Additional Information ................................ 5
Incorporation of Certain Documents by Reference ...... 5
Summary of Terms ...................................... 7
Special Considerations ................................ 26
Description of the Securities ......................... 32
Yield and Prepayment Considerations ................... 41
Security for the Bonds and Certificates ............... 44
Servicing of Mortgage Loans ........................... 52
Enhancement ........................................... 56
Description of Insurance on the Mortgage Loans ....... 59
Certain Legal Aspects of Mortgage Loan ................ 61
The Indenture ......................................... 68
The Trust Agreement ................................... 73
The Issuer ............................................ 79
Use of Proceeds ....................................... 80
Limitations on Issuance of Bearer Securities ......... 80
Federal Income Tax Considerations ..................... 81
State and Local Tax Considerations .................... 96
ERISA Considerations .................................. 96
Legal Investment ...................................... 98
Plan of Distribution .................................. 98
Legal Matters ......................................... 99
Experts ............................................... 99
Glossary .............................................. 100
[LOGO]
$
(APPROXIMATE)
Aetna 1995 Commercial
Mortgage Trust
Multiclass Pass-Through Certificates,
Series 1995-C5
----------
PROSPECTUS SUPPLEMENT
December , 1995
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LEHMAN BROTHERS
