<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
PRIOR TO THE TIME A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-49129
SUBJECT TO COMPLETION, DATED MARCH 14, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 26, 1999)
$1,280,395,000 (APPROXIMATE)
LB-UBS COMMERCIAL MORTGAGE TRUST 2000-C1
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 2000-C1
We, Structured Asset Securities Corporation, have prepared this prospectus
supplement in order to offer the Classes of commercial mortgage pass-through
certificates identified in the table below. These certificates are the only
certificates offered pursuant to this prospectus supplement. This prospectus
supplement supplements our prospectus dated May 26, 1999, which accompanies this
prospectus supplement. We will not list the offered certificates on any national
securities exchange or any automated quotation system of any registered
securities association, such as NASDAQ.
The offered certificates will represent interests only in the trust
identified above. They will not represent interests in or obligations of any
other party. The assets of the trust will include a pool of multifamily and
commercial mortgage loans that have an "initial mortgage pool balance" of
approximately $1,370,873,184 and that otherwise have the characteristics
described in this prospectus supplement and the accompanying prospectus. No
governmental agency or instrumentality or private insurer has insured or
guaranteed the offered certificates or any of those mortgage loans.
---------------------
YOU SHOULD FULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE S-27 IN THIS
PROSPECTUS SUPPLEMENT AND PAGE 28 IN THE ACCOMPANYING PROSPECTUS PRIOR TO
INVESTING IN THE OFFERED CERTIFICATES.
-------------------
<TABLE>
<CAPTION>
INITIAL AGGREGATE % OF
PRINCIPAL BALANCE INITIAL INITIAL
OFFERED OR NOTIONAL MORTGAGE PASS-THROUGH ASSUMED FINAL
CERTIFICATES AMOUNT(1) POOL BALANCE RATE(3) DISTRIBUTION DATE(4) CUSIP NO.
<S> <C> <C> <C> <C> <C>
CLASS A-1............. $ 395,000,000 28.8% MAY 2009
CLASS A-2............. $ 698,271,000 50.9% JANUARY 2010
CLASS B............... $ 75,398,000 5.5% JANUARY 2010
CLASS C............... $ 51,408,000 3.8% FEBRUARY 2010
CLASS D............... $ 20,563,000 1.5% FEBRUARY 2010
CLASS E............... $ 13,708,000 1.0% FEBRUARY 2010
CLASS F............... $ 13,709,000 1.0% FEBRUARY 2010
CLASS G............... $ 12,338,000 0.9% FEBRUARY 2010
CLASS X............... $ 1,370,873,183(2) N/A MARCH 2020
<CAPTION>
EXPECTED RATINGS
OFFERED (MOODY'S/FITCH)
CERTIFICATES (5)
<S> <C>
CLASS A-1............. AAA/AAA
CLASS A-2............. AAA/AAA
CLASS B............... AA2/AA
CLASS C............... A2/A
CLASS D............... A3/A-
CLASS E............... BAA1/BBB+
CLASS F............... BAA2/BBB
CLASS G............... BAA3/BBB-
CLASS X............... AAA/AAA
</TABLE>
(FOOTNOTES TO TABLE ON NEXT PAGE)
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Lehman Brothers Inc., Warburg Dillon Read LLC, Morgan Stanley & Co.
Incorporated and Deutsche Bank Securities Inc., the "underwriters", will
purchase the offered certificates from us, subject to the satisfaction of
certain conditions. The underwriters are offering the offered certificates when,
as and if delivered to and accepted by them, subject to prior sale and subject
to their right to reject orders in whole or in part. The underwriters currently
intend to sell the offered certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. See "Method of Distribution" in this prospectus supplement. Our proceeds
from the sale of the offered certificates will equal approximately % of
the initial aggregate principal balance of the offered certificates, plus
accrued interest, before deducting expenses payable by us. We expect to deliver
the offered certificates in book-entry form through the Same-Day Funds
Settlement System of The Depository Trust Company on or about April 6, 2000,
against payment for those certificates in immediately available funds.
Lehman Brothers Inc. is acting as sole bookrunner with respect to this
offering. Lehman Brothers Inc. and Warburg Dillon Read LLC are acting as co-lead
managers in connection with all activities relating to this offering. Morgan
Stanley & Co. Incorporated and Deutsche Bank Securities Inc. are each acting as
a co-manager in connection with this offering.
WARBURG DILLON READ LLC LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER DEUTSCHE BANC ALEX. BROWN
The date of this Prospectus Supplement is , 2000.
<PAGE>
FOOTNOTES TO THE TABLE ON THE COVER OF THIS PROSPECTUS SUPPLEMENT:
(1) The actual initial aggregate principal balance or notional amount of any
class of offered certificates may be larger or smaller than the aggregate
principal balance or notional amount, as the case may be, shown in the table
on the cover of this prospectus supplement, depending on the actual size of
the initial mortgage pool balance. The initial mortgage pool balance may be
as much as 5% larger or smaller than the amount set forth on the cover of
this prospectus supplement.
(2) The class X certificates will not have a principal balance and will not
entitle their holders to any distributions of principal. The class X
certificates will accrue interest on a notional amount that, in total,
equals the aggregate principal balances outstanding from time to time of
those classes of series 2000-C1 certificates that do have principal
balances.
(3) The pass-through rate shown in the table on the cover page for each
class of offered certificates is the rate applicable for distributions to be
made in April 2000. The pass-through rate for each class of offered
certificates is variable or otherwise subject to change as described under
"Description of the Offered Certificates--Distributions--Calculations of
Pass-Through Rates" in this prospectus supplement.
(4) The table on the cover shows the month and year in which the assumed final
distribution date for each class of offered certificates occurs. The
"assumed final distribution date" is discussed under "Summary of Prospectus
Supplement--Relevant Dates and Periods" in this prospectus supplement. The
"rated final distribution date", which is also discussed under "Summary of
Prospectus Supplement--Relevant Dates and Periods" in this prospectus
supplement, occurs in .
(5) By Moody's Investors Service, Inc. and Fitch IBCA, Inc. See "Ratings" in
this prospectus supplement.
- ------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUPPLEMENT
Important Notice about the Information
Contained in this Prospectus
Supplement, the Accompanying
Prospectus and the Related
Registration Statement............... 3
Forward-Looking Statements............. 3
Summary of Prospectus Supplement....... 4
Risk Factors........................... 27
Description of the Mortgage Pool....... 43
Servicing of the Mortgage Loans........ 84
Description of the Offered
Certificates......................... 109
Yield and Maturity Considerations...... 135
Use of Proceeds........................ 142
Federal Income Tax Consequences........ 142
Certain ERISA Considerations........... 146
Legal Investment....................... 150
Method of Distribution................. 150
Legal Matters.......................... 151
Ratings................................ 152
Annexes to Prospectus Supplement.......
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS
Prospectus Supplement.................. 6
Additional Information................. 6
Incorporation of Certain Documents by
Reference............................ 7
Summary of Terms....................... 8
Risk Factors........................... 28
Description of the Securities.......... 35
Yield and Prepayment Considerations.... 44
Security for the Bonds and
Certificates......................... 48
Servicing of Mortgage Loans............ 56
Enhancement............................ 61
Description of Insurance on the
Mortgage Loans....................... 63
Certain Legal Aspects of Mortgage
Loans................................ 65
The Indenture.......................... 79
The Trust Agreement.................... 84
The Issuer............................. 90
Use of Proceeds........................ 91
Limitations on Issuance of Bearer
Securities........................... 92
Federal Income Tax Considerations...... 92
State and Local Tax Considerations..... 108
ERISA Considerations................... 109
Legal Investment....................... 113
Plan of Distribution................... 115
Legal Matters.......................... 116
Glossary............................... 117
</TABLE>
S-2
<PAGE>
IMPORTANT NOTICE ABOUT THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND THE RELATED REGISTRATION
STATEMENT
Information about the offered certificates is contained in two separate
documents, each of which provides summary information in the front part thereof
and more detailed information in the text that follows: (a) this prospectus
supplement, which describes the specific terms of the offered certificates; and
(b) the accompanying prospectus, which provides general information, some of
which may not apply to the offered certificates. You should read both this
prospectus supplement and the accompanying prospectus in full to obtain material
information concerning the offered certificates.
In addition, we have filed with the SEC a registration statement under the
Securities Act of 1933, as amended, with respect to the offered certificates.
This prospectus supplement and the accompanying prospectus form a part of that
registration statement. However, this prospectus supplement and the accompanying
prospectus do not contain all of the information contained in our registration
statement. For further information regarding the documents referred to in this
prospectus supplement and the accompanying prospectus, you should refer to our
registration statement and the exhibits to it. Our registration statement and
the exhibits to it can be inspected and copied at prescribed rates at the public
reference facilities maintained by the SEC at its public reference section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices located
at: Chicago regional office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661; and New York regional office, Seven World Trade Center, New
York, New York 10048. Copies of these materials can also be obtained
electronically through the SEC's internet web site (http:\\www.sec.gov).
You should only rely on the information contained in this prospectus
supplement, the accompanying prospectus and our registration statement. We have
not authorized any person to give any other information or to make any
representation that is different from the information contained in this
prospectus supplement, the accompanying prospectus or our registration
statement.
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus includes the
words "expects", "intends", "anticipates", "estimates" and similar words and
expressions. Such words and expressions are intended to identify forward-looking
statements. Any forward-looking statements are made subject to risks and
uncertainties which could cause actual results to differ materially from those
stated. Such risks and uncertainties include, among other things, declines in
general economic and business conditions, increased competition, changes in
demographics, changes in political and social conditions, regulatory initiatives
and changes in customer preferences, many of which are beyond our control and
the control of any other person or entity related to this offering. The
forward-looking statements made in this prospectus supplement are accurate as of
the date stated on the cover of this prospectus supplement. We have no
obligation to update or revise any forward-looking statement.
S-3
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
This summary contains selected information regarding the offering being made
by this prospectus supplement. It does not contain all of the information you
need to consider in making your investment decision. To understand all of the
terms of the offering of the offered certificates, you should read carefully
this prospectus supplement and the accompanying prospectus in full.
OVERVIEW OF THE TRANSACTION
The offered certificates will be part of a series of commercial mortgage
pass-through certificates designated as the Series 2000-C1 Commercial Mortgage
Pass-Through Certificates and consisting of multiple classes. The table below
identifies the respective classes of that series, specifies various
characteristics of each of those classes and indicates which of those classes
are offered by this prospectus supplement and which are not.
<TABLE>
<CAPTION>
SERIES 2000-C1 COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
- --------------------------------------------------------------------------------
INITIAL APPROX.
AGGREGATE % OF
PRINCIPAL INITIAL APPROX.
BALANCE OR MORTGAGE INITIAL
NOTIONAL POOL CREDIT
CLASS(1) RATINGS(2) AMOUNT(3) BALANCE SUPPORT(4)
- -------- --------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Offered Certificates
A-1 Aaa/AAA $ 395,000,000 28.8% 20.25%
A-2 Aaa/AAA $ 698,271,000 50.9% 20.25%
B Aa2/AA $ 75,398,000 5.5% 14.75%
C A2/A $ 51,408,000 3.8% 11.00%
D A3/A- $ 20,563,000 1.5% 9.50%
E Baa1/BBB+ $ 13,708,000 1.0% 8.50%
F Baa2/BBB $ 13,709,000 1.0% 7.50%
G Baa3/BBB- $ 12,338,000 0.9% 6.60%
X Aaa/AAA $1,370,873,183(8) N/A N/A
Non-Offered Certificates(10)
H (11) $ 21,934,000 (11) (11)
J (11) $ 17,136,000 (11) (11)
K (11) $ 10,281,000 (11) (11)
L (11) $ 10,967,000 (11) (11)
M (11) $ 12,338,000 (11) (11)
N (11) $ 4,113,000 (11) (11)
P (11) $ 13,709,183 (11) (11)
<CAPTION>
SERIES 2000 SERIES 2000-C1 COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
- --------------------- -----------------------------------------------------------
INITIAL WEIGHTED
PASS-THROUGH PASS- AVERAGE
RATE THROUGH LIFE PRINCIPAL
CLASS(1) DESCRIPTION(5) RATE (YEARS)(6) WINDOW(6)
- -------- ----------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Offered Certificates
A-1 Capped WAC(7) 5.7 04/00-05/09
A-2 Capped WAC(7) 9.6 05/09-01/10
B Capped WAC(7) 9.8 01/10-01/10
C Capped WAC(7) 9.8 01/10-02/10
D Capped WAC(7) 9.9 02/10-02/10
E Capped WAC(7) 9.9 02/10-02/10
F Capped WAC(7) 9.9 02/10-02/10
G Capped WAC(7) 9.9 02/10-02/10
X Variable IO(9) N/A N/A
Non-Offered Certifica
H Capped WAC(7) (11) (11)
J Capped WAC(7) (11) (11)
K Capped WAC(7) (11) (11)
L Capped WAC(7) (11) (11)
M Capped WAC(7) (11) (11)
N Capped WAC(7) (11) (11)
P Capped WAC(7) (11) (11)
</TABLE>
- ------------------------------
(1) The respective classes of certificates identified in the table above entitle
their holders to varying degrees of seniority for purposes of--
- receiving distributions of interest and, if and when applicable, payments
of principal; and
- bearing the effects of losses and other shortfalls on the pooled mortgage
loans, as well as default-related and other unanticipated expenses of the
related commercial mortgage trust.
The class A-1, A-2 and X certificates are the most senior. The
remaining classes of certificates identified in the table above are listed
from top to bottom in descending order of seniority.
(2) Ratings shown are those of Moody's Investors Service, Inc. and Fitch
IBCA, Inc., respectively.
(3) The actual initial aggregate principal balance or notional amount of any
class of certificates identified in the table above may be larger or smaller
than the amount shown above, depending on the actual size of the initial
mortgage pool balance. The actual size of the initial mortgage pool balance
may be as much as 5% larger or smaller than the amount presented on the
cover of this prospectus supplement.
(4) Represents the initial aggregate principal balance, expressed as a
percentage of the initial mortgage pool balance, of all classes of the
series 2000-C1 certificates that are subordinate to the indicated class.
(5) The "pass-through rate" for any class of certificates identified in the
table above is the annual rate at which that class of certificates will
accrue interest from time to time.
S-4
<PAGE>
(6) Calculated based on the assumptions that each borrower timely makes all
payments on its pooled mortgage loan, that each pooled mortgage loan with an
anticipated repayment date (as described under "--The Pooled Mortgage Loans
and the Underlying Real Properties" below) is paid in full on that date, and
that no pooled mortgage loan is otherwise prepaid prior to its stated
maturity. Further based on the other "Modeling Assumptions" described under
"Yield and Maturity Considerations" in this prospectus supplement.
(7) "Capped WAC" refers to a pass-through rate equal to the lesser of (i) the
initial pass-through rate for the subject class and (ii) the weighted
average mortgage pass-through rate for the related distribution date.
(8) Initial aggregate notional amount. The aggregate notional amount of the
class X certificates will equal the aggregate principal balance of the other
classes of certificates identified in the table above outstanding from time
to time. The aggregate notional amount of the class X certificates will be
used solely to calculate the accrual of interest with respect to those
certificates. The class X certificates will not have principal balances and
will not entitle their holders to distributions of principal.
(9) The pass-through rate for the class X certificates will equal the weighted
average of the class X strip rates for each of the other classes of
certificates identified in the table above. With respect to each of those
other classes identified in the table above, the class X strip rate will
equal the excess, if any, of (i) a weighted average coupon derived from net
interest rates on the pooled mortgage loans, over (ii) the pass-through rate
on that other class of certificates identified in the table above.
(10) The non-offered certificates of the 2000-C1 series will also include the
following classes of certificates which are not shown above: "R-I", "R-II"
and "R-III". These other non-offered certificates do not have principal
balances, notional amounts or pass-through rates. They do not provide any
credit support for the offered certificates.
(11) Not presented.
------------------------------
The series 2000-C1 certificates will evidence the entire beneficial
ownership of a common law trust designated as the LB-UBS Commercial Mortgage
Trust 2000-C1. The assets of the trust will consist primarily of a pool of
multifamily and commercial mortgage loans having the characteristics described
in this prospectus supplement and the accompanying prospectus. Whenever we refer
in this prospectus supplement to the "trust" and the "mortgage pool", we mean
the LB-UBS Commercial Mortgage Trust 2000-C1 and the pool of mortgage loans
included therein.
The governing document for purposes of establishing the trust and issuing
the series 2000-C1 certificates will be a pooling and servicing agreement to be
dated as of March , 2000. Whenever we refer in this prospectus supplement to
the "pooling and servicing agreement", we mean that pooling and servicing
agreement. The pooling and servicing agreement will also govern the servicing
and administration of the pooled mortgage loans and the other assets of the
trust. A copy of the pooling and servicing agreement will be filed with the SEC
as an exhibit to a current report on Form 8-K, within 15 days after the initial
issuance of the series 2000-C1 certificates. The SEC will make that current
report on Form 8-K and its exhibits available to the public for inspection. The
parties to the pooling and servicing agreement will include us, a trustee, a
fiscal agent, a master servicer and a special servicer. Whenever we refer in
this prospectus supplement to the "trustee", the "fiscal agent", the "master
servicer" or the "special servicer", we mean the person or entity acting in that
capacity under the pooling and servicing agreement.
We are not the originator of the mortgage loans that are to be included in
the trust. We will acquire those mortgage loans from two separate parties, which
we refer to in this prospectus supplement as the "mortgage loan sellers". One of
the mortgage loan sellers is affiliated with us and Lehman Brothers Inc. and the
other is affiliated with Warburg Dillon Read LLC. Each of the mortgage loans to
be included in the trust was originated by--
- the related mortgage loan seller,
- an affiliate of the related mortgage loan seller, or
- a correspondent in the related mortgage loan seller's conduit lending
program.
The balance of this summary provides additional summary information
regarding the offered certificates, the mortgage loans that will back them and
the transactions contemplated by this "--Overview of the Transaction" section.
S-5
<PAGE>
RELEVANT PARTIES
<TABLE>
<S> <C>
"WE" AND "US"........................ Our name is Structured Asset Securities Corporation. We are
a special purpose Delaware corporation. Our principal office
is located at 200 Vesey Street, New York, New York 10285.
Our telephone number is (212) 526-7000. See "--The Issuer"
in the accompanying prospectus.
TRUSTEE.............................. LaSalle Bank National Association, a nationally chartered
bank. See "Description of the Offered Certificates--The
Trustee" in this prospectus supplement.
FISCAL AGENT......................... ABN AMRO Bank N.V., a Netherlands banking corporation. See
"Description of the Offered Certificates--The Fiscal Agent"
in this prospectus supplement.
MASTER SERVICER...................... First Union National Bank, a national banking association.
See "Servicing of the Mortgage Loans--The Master Servicer
and the Special Servicer--The Master Servicer" in this
prospectus supplement.
SPECIAL SERVICER..................... Lennar Partners, Inc., a Florida corporation. See "Servicing
of the Mortgage Loans--The Master Servicer and the Special
Servicer--The Special Servicer" in this prospectus
supplement.
CONTROLLING CLASS OF
CERTIFICATEHOLDERS................. The holders of certificates representing a majority interest
in a designated "controlling class" of the series 2000-C1
certificates will have the right, subject to certain
conditions described in this prospectus supplement, to
replace the special servicer and, further, to select a
representative that has certain approval rights with respect
to certain actions of the special servicer and that may
advise the special servicer on various servicing matters.
Unless there are significant losses on the mortgage pool,
that controlling class of series 2000-C1 certificates will
be a class of non-offered certificates. See "Servicing of
the Mortgage Loans--Replacement of the Special Servicer" and
"--The Controlling Class Representative" in this prospectus
supplement.
COMPANION LOAN NOTEHOLDERS........... The four largest mortgage loans in the trust are, in each
case, secured by underlying real property that also
constitutes security for another loan that is not included
in the trust but will be serviced and administered pursuant
to the pooling and servicing agreement. Each of these other
loans, which we often refer to as "companion loans", has an
investment grade shadow rating from Fitch IBCA Inc. The
holder of each of the "companion loans" will have the right,
subject to certain conditions described in this prospectus
supplement, to advise and direct the special servicer with
respect to certain servicing matters with respect to that
companion loan and the related mortgage loan that is in the
trust. See "Description of the Mortgage Pool--Significant
Mortgage Loans" and "Servicing of the Mortgage Loans--The
Controlling Class Representative" in this prospectus
supplement.
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
UNDERWRITERS......................... Lehman Brothers Inc., Warburg Dillon Read LLC, Morgan
Stanley & Co. Incorporated and Deutsche Bank Securities Inc.
Lehman Brothers Inc. is our affiliate and an affiliate of
one of the mortgage loan sellers. Warburg Dillon Read LLC is
an affiliate of the other mortgage loan seller. See "Method
of Distribution" in this prospectus supplement.
RELEVANT DATES AND PERIODS
CUT-OFF DATE......................... March 11, 2000. All payments of interest and/or principal
due after the cut-off date belong to the trust.
ISSUE DATE........................... On or about April 6, 2000. The issue date is the date on
which the offered certificates will initially be issued.
DISTRIBUTION DATE.................... Commencing in April 2000, the fourth business day following
the 11th calendar day of each month or, if that 11th
calendar day is not a business day, the fifth business day
following that 11th calendar day. The distribution date is
the date each month on which distributions are to be made on
the series 2000-C1 certificates.
RECORD DATE.......................... With respect to any distribution date, the last business day
of the calendar month immediately preceding the month in
which that distribution date occurs except that the record
date for the first distribution date will be the issue date.
The record date is relevant for establishing which series
2000-C1 certificateholders are entitled to receive
distributions on the related distribution date.
COLLECTION PERIOD.................... Amounts available for distribution on any distribution date
will depend on the payments and other collections received,
and any advances of payments due, on the pooled mortgage
loans during the related collection period. Each collection
period--
- will relate to a particular distribution date,
- will be approximately one month long,
- will begin when the prior collection period ends or, in
the case of the first collection period, will begin on March
12, 2000, and
- will end on the 11th day of the same calendar month as the
related distribution date or, if that 11th day is not a
business day, on the following business day.
INTEREST ACCRUAL PERIOD.............. The interest accrual period for any distribution date will
be the period commencing on the 11th day of the month
preceding the month in which that distribution date occurs
and ending on the 10th day of the month in which that
distribution date occurs. The interest accrual period for
the first distribution date will begin on March 11, 2000 and
end on April 10, 2000. The amount of interest payable with
respect to the interest-bearing certificates of the 2000-C1
series on any distribution date will depend on the amount of
unpaid interest accrued through the end of the related
interest accrual period.
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
RATED FINAL DISTRIBUTION DATE........ The distribution date in . As discussed in this
prospectus supplement, the ratings assigned to the offered
certificates will represent the likelihood of timely receipt
by the holders of all interest to which they are entitled on
each distribution date and, except in the case of the class
X certificates, the ultimate receipt by the holders of all
principal to which they are entitled by the rated final
distribution date.
ASSUMED FINAL DISTRIBUTION
DATE............................... With respect to any class of offered certificates, the
distribution date on which the holders of those certificates
would be expected to receive their last distribution based
upon--
- the assumption that each borrower timely makes all
payments on its pooled mortgage loan;
- the assumption that each pooled mortgage loan with an
anticipated repayment date is paid in full on that date;
- the assumption that no borrower otherwise prepays its
pooled mortgage loan prior to stated maturity; and
- the other "Modeling Assumptions" set forth under "Yield
and Maturity Considerations" in this prospectus supplement.
The assumed final distribution date for each class of
offered certificates is the distribution date in the
calendar month and year set forth below for that class.
</TABLE>
<TABLE>
<CAPTION>
MONTH AND YEAR OF
ASSUMED FINAL
CLASS DISTRIBUTION DATE
----- -----------------
<S> <C>
A-1........................................ May 2009
A-2........................................ January 2010
B.......................................... January 2010
C.......................................... February 2010
D.......................................... February 2010
E.......................................... February 2010
F.......................................... February 2010
G.......................................... February 2010
X.......................................... March 2020
</TABLE>
S-8
<PAGE>
DESCRIPTION OF THE CERTIFICATES
<TABLE>
<S> <C>
REGISTRATION AND DENOMINATIONS....... We expect to deliver the offered certificates in book-entry
form in original denominations of:
- in the case of the class X certificates, $250,000 initial
notional amount and in any whole dollar denomination in
excess thereof; and
- in the case of the other offered certificates, $10,000
initial principal amount and in any whole dollar
denomination in excess thereof.
Each class of offered certificates will be represented by
one or more certificates registered in the name of Cede &
Co., as nominee of The Depository Trust Company. As a
result, you will not receive a fully registered physical
certificate representing your interest in any offered
certificate, except under the limited circumstances
described in this prospectus supplement and in the
accompanying prospectus. See "Description of the Offered
Certificates--Registration and Denominations" in this
prospectus supplement and "Description of the
Securities--Book-Entry Registration" in the accompanying
prospectus.
SENIORITY............................ The following chart sets forth the relative seniority of the
respective classes of the series 2000-C1 certificates for
purposes of--
- receiving distributions of interest and, if and when
applicable, distributions of principal, and
- bearing the effects of losses and other shortfalls on the
pooled mortgage loans, as well as default-related and
otherwise unanticipated expenses of the trust.
In general, each identified class of series 2000-C1
certificates will, for the above-specified purposes, be
subordinate to each other class of series 2000-C1
certificates, if any, listed above it in the following
chart. Accordingly, the class A-1, A-2 and X certificates
are the most senior classes of series 2000-C1 certificates.
</TABLE>
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<TABLE>
<S> <C>
SUMMARY SENIORITY CHART
MOST SENIOR
[LOGO]
MOST SUBORDINATE
The only form of credit support for any class of offered
certificates will be the above-referenced subordination of
the other classes of certificates to which it is senior,
including all of the non-offered certificates of the 2000-C1
series. See "Description of the Offered
Certificates--General", "--Seniority", "--Distributions" and
"--Allocation of Realized Losses and Certain Other
Shortfalls and Expenses" in this prospectus supplement.
</TABLE>
S-10
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<TABLE>
<S> <C>
DISTRIBUTIONS
A. GENERAL........................... Distributions of interest and principal will generally be
made to the holders of the various classes of the
series 2000-C1 certificates entitled thereto, sequentially
based upon their relative seniority as depicted in the
Summary Seniority Chart above. See "Description of the
Offered Certificates--Seniority" and
"--Distributions--Priority of Payments" in this prospectus
supplement.
B. DISTRIBUTIONS OF INTEREST......... Each class of the series 2000-C1 certificates (other than
the class R-I, R-II and R-III certificates) will bear
interest. In the case of each of these interest-bearing
classes, that interest will accrue during each interest
accrual period based upon--
- the pass-through rate for the particular class for the
related distribution date,
- the aggregate principal balance or notional amount, as the
case may be, of the particular class outstanding immediately
prior to the related distribution date, and
- the assumption that each year consists of twelve 30-day
months.
The timing of a prepayment on a pooled mortgage loan may
result in the collection of less than a full month's
interest on that mortgage loan during the collection period
of prepayment. As and to the extent described in this
prospectus supplement, those shortfalls may be allocated to
reduce the amount of accrued interest otherwise payable to
the holders of the respective classes of interest-bearing
certificates of the 2000-C1 series, in reverse order of
their seniority as depicted in the Summary Seniority Chart
above. Any allocations of those shortfalls among the holders
of the class A-1, A-2 and X certificates will be made on a
pro rata basis in accordance with their respective interest
entitlements.
On each distribution date, subject to available funds and
the payment priorities described in this prospectus
supplement, you will be entitled to receive your
proportionate share of all unpaid distributable interest
accrued in respect of your class of offered certificates
through the end of the related interest accrual period.
See "Description of the Offered
Certificates--Distributions--Calculations of Interest",
"--Distributions--Priority of Payments" and "--Allocation of
Realized Losses and Certain Other Shortfalls and Expenses"
in this prospectus supplement.
C. DISTRIBUTIONS OF PRINCIPAL........ The holders of the respective classes of the series 2000-C1
certificates with principal balances will, subject to
available funds and the payment priorities described above,
be entitled to receive an aggregate amount of principal over
time equal to those principal balances. However, the trustee
will make the distributions of principal in a specified
sequential order such that--
- No distributions of principal will be made to the holders
of any class of non-offered certificates of the 2000-C1
series until the aggregate principal balance of each class
of offered certificates is reduced to zero.
- No distributions of principal will be made to the holders
of the class B, C, D, E, F or G certificates until, in the
case of each of
</TABLE>
S-11
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<TABLE>
<S> <C>
those classes, the aggregate principal balance of each
more senior class of offered certificates is reduced to
zero.
- No distributions of principal will be made to the holders
of the class A-2 certificates until either:
(i) the aggregate principal balance of the class A-1
certificates is reduced to zero; or
(ii) because of losses on the pooled mortgage loans and/or
default-related or other unanticipated expenses of the
trust, the aggregate principal balance of the
class B, C, D, E, F, G, H, J, K, L, M, N and P
certificates has been reduced to zero.
Under the circumstances described in clause (ii) above, any
distributions of principal on the class A-1 and A-2
certificates will be made on a pro rata basis in accordance
with their respective principal balances.
With respect to each distribution date, the aggregate
distributions of principal to be made on the respective
classes of the series 2000-C1 certificates with principal
balances will be a function of--
- the amount of all scheduled payments of principal due or
deemed due on the pooled mortgage loans during the related
collection period that are either received as of the end
of that collection period or advanced by the master
servicer, the trustee or the fiscal agent, as applicable,
and
- the amount of any prepayments and other unscheduled
collections of previously unadvanced principal in respect of
the pooled mortgage loans that are received during the
related collection period.
The class X certificates will not have a principal balance
and will not entitle their holders to distributions of
principal.
See "Description of the Offered Certificates--Calculation of
the Principal Distribution Amount" and
"--Distributions--Priority of Payments" in this prospectus
supplement.
D. DISTRIBUTIONS OF PREPAYMENT
PREMIUMS AND YIELD MAINTENANCE
CHARGES............................ Any prepayment premium and/or yield maintenance charge
collected in respect of a pooled mortgage loan will be
distributed, in the proportions described in this prospectus
supplement, to the holders of the class X certificates
and/or to the holders of any other class or classes of
series 2000-C1 certificates senior to the class J
certificates that may be entitled to receive a portion of
the related prepayment of principal. See "Description of the
Offered Certificates--Distributions of Prepayment Premiums
and Yield Maintenance Charges" in this prospectus
supplement.
REDUCTION OF CERTIFICATE PRINCIPAL
BALANCES IN CONNECTION WITH LOSSES
AND CERTAIN OTHER SHORTFALLS AND
EXPENSES........................... Losses on the pooled mortgage loans, together with
default-related and other unanticipated expenses of the
trust, may cause the aggregate principal balance of the
mortgage pool, net of advances of
</TABLE>
S-12
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<TABLE>
<S> <C>
principal, to be less than the aggregate principal balance
of the series 2000-C1 certificates. If and to the extent
that those losses and expenses cause such a deficit to exist
following the distributions made on the series 2000-C1
certificates on any distribution date, then the aggregate
principal balances of those classes of certificates of that
series with principal balances will be successively reduced,
in the reverse order of their seniority as depicted in the
Summary Seniority Chart above, until the subject deficit is
eliminated. If and to the extent necessary, any such
reductions to the principal balances of the class A-1 and
class A-2 certificates will be on a pro rata basis in
accordance with their respective principal balances. See
"Description of the Offered Certificates--Allocation of
Realized Losses and Certain Other Shortfalls and Expenses"
and "Servicing of the Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses" in this prospectus
supplement.
ADVANCES OF DELINQUENT MONTHLY DEBT
SERVICE PAYMENTS................... Except as described below, the master servicer will be
required to make advances, for distribution to the
series 2000-C1 certificateholders, in the amount of any
delinquent monthly payments, other than balloon payments, of
principal and interest due on the pooled mortgage loans, in
each case net of related master servicing fees and workout
fees. If the master servicer fails to make any such advance
that it is required to make, the trustee will, to the extent
it is aware of the failure, be required to make that
advance. The fiscal agent will be required to make any such
advance that the trustee fails to make. None of the master
servicer, the trustee or the fiscal agent, however, will be
required to make any advance that it determines, in its good
faith and reasonable judgment, will not be recoverable from
proceeds of the related pooled mortgage loan. As and to the
extent described in this prospectus supplement, any party
that makes an advance will be entitled to recover that
advance with interest thereon.
If certain adverse events or circumstances, which we
describe in greater detail later in this prospectus
supplement, occur or exist with respect to a pooled mortgage
loan or the underlying real property, the special servicer
will be obligated to obtain a new appraisal of that
property, unless one has been obtained in the prior
12 months. The special servicer will then compare (i) 90% of
the new appraised value to (ii) the principal balance of,
and certain other amounts due under, that mortgage loan. If
the amount described in clause (i) of the preceding sentence
is less than the amount described in clause (ii) of the
preceding sentence, then the amount of any delinquent
monthly debt service payment otherwise required to be
advanced on the subject mortgage loan will be reduced
generally in the same proportion that--
- the difference between the amounts described in clauses
(i) and (ii) of the preceding sentence, bears to
- the principal balance of the subject mortgage loan, net of
related advances of principal.
</TABLE>
S-13
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<S> <C>
Due to the payment priorities, this will generally reduce
the funds available to pay interest on the most subordinate
class of series 2000-C1 certificates then outstanding.
See "Description of the Offered Certificates--P&I Advances"
and "--Appraisal Reductions" in this prospectus supplement.
REPORTS TO CERTIFICATEHOLDERS........ On each Distribution Date, the following reports will be
available to you and will contain the information described
under "Description of the Offered Certificates--Reports to
Certificateholders; Certain Available Information" in this
prospectus supplement:
- Delinquent Loan Status Report;
- Historical Loan Modification Report;
- Historical Loss Estimate Report;
- REO Status Report;
- Servicer Watch List Report;
- Loan Payoff Notification Report;
- Comparative Financial Status Report; and
- Operating Statement Analysis Report.
Upon reasonable prior notice, you will be permitted to
review at the trustee's offices during normal business hours
a variety of information and documents that pertain to the
pooled mortgage loans and the underlying real properties,
including loan documents, borrower operating statements,
rent rolls and property inspection reports. See "Description
of the Offered Certificates--Reports to Certificateholders;
Certain Available Information" in this prospectus
supplement.
OPTIONAL TERMINATION................. A limited number of specified parties to the transaction may
terminate the trust when the aggregate principal balance of
the mortgage pool, net of advances of principal, is less
than approximately 1.0% of the initial mortgage pool
balance. See "Description of the Offered
Certificates--Termination" in this prospectus supplement.
</TABLE>
THE POOLED MORTGAGE LOANS AND THE UNDERLYING REAL PROPERTIES
<TABLE>
<S> <C>
THE MORTGAGE POOL.................... The assets of the trust will primarily consist of the pooled
mortgage loans. The repayment of each mortgage loan to be
included in the trust constitutes the obligation of a
borrower to repay a specified sum with interest. Each
mortgage loan to be included in the trust will be secured by
a first priority lien, subject to a limited number of
permitted encumbrances which we will describe later in this
prospectus supplement, on the fee and/or leasehold interest
of the related borrower or a related party in one or more
commercial or multifamily residential properties.
For more detailed information on the mortgage loans to be
included in the trust, see the following sections in this
prospectus supplement:
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
- "Description of the Mortgage Pool";
- "Risk Factors--Risks Related to the Pooled Mortgage
Loans";
- Annex A-1--Certain Characteristics of the Mortgage Loans;
- Annex A-2--Certain Monetary Terms of the Mortgage Loans;
and
- Annex A-3--Certain Information Regarding Reserves.
Set forth below is certain statistical information regarding
the mortgage loans to be included in the trust and the
underlying real properties. In reviewing this information,
as well as the statistical information regarding those
mortgage loans and properties contained elsewhere in this
prospectus supplement, you should be aware that--
- All numerical information provided with respect to the
mortgage loans to be included in the trust is provided on an
approximate basis.
- All weighted average information provided with respect to
the mortgage loans to be included in the trust reflects the
weighting of those mortgage loans by their cut-off date
principal balances. With respect to any mortgage loan to
be included in the trust, the "cut-off date principal
balance" for that mortgage loan will equal its unpaid
principal balance as of the cut-off date, after
application of all payments of principal due in respect of
that mortgage loan on or before that date, whether or not
those payments have been received.
- When information with respect to the underlying real
properties is expressed as a percentage of the initial
mortgage pool balance, those percentages are based upon
the cut-off date principal balances of the related
mortgage loans to be included in the trust.
- In certain cases involving a mortgage loan to be included
in the trust that is secured by multiple real properties, a
portion of that mortgage loan has been allocated to each
of those properties.
- Statistical information regarding the mortgage pool may
change prior to the date of issuance of the offered
certificates due to changes in the composition of the
mortgage pool prior to that date.
A. GENERAL CHARACTERISTICS........... The mortgage pool will have the following general
characteristics as of the cut-off date:
</TABLE>
<TABLE>
<S> <C> <C>
Initial Mortgage Pool Balance(1).............. $1,370,873,184
Number of Mortgage Loans...................... 190
Number of Underlying Real Properties.......... 198
Maximum Cut-off Date Principal Balance........ $ 148,497,918
Minimum Cut-off Date Principal Balance........ $ 298,955
Average Cut-off Date Principal Balance........ $ 7,215,122
Maximum Mortgage Interest Rate................ 9.750%
Minimum Mortgage Interest Rate................ 7.430%
Weighted Average Mortgage Interest Rate....... 8.336%
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C> <C>
Maximum Original Term to Maturity or
Anticipated Repayment Date.................. 241
Minimum Original Term to Maturity or
Anticipated Repayment Date.................. 60
Weighted Average Original Term to Maturity or
Anticipated Repayment Date.................. 114
Maximum Remaining Term to Maturity or
Anticipated Repayment Date.................. 240
Minimum Remaining Term to Maturity or
Anticipated Repayment Date.................. 50
Weighted Average Remaining Term to Maturity or
Anticipated Repayment Date.................. 110
Maximum Cut-off Date Debt Service Coverage x
Ratio(2).................................... 2.43
Minimum Cut-off Date Debt Service Coverage x
Ratio(2).................................... 1.20
Weighted Average Cut-off Date Debt Service x
Coverage Ratio(2)........................... 1.44
Maximum Cut-off Date Loan-to-Value Ratio(3)... 79.9%
Minimum Cut-off Date Loan-to-Value Ratio(3)... 33.4%
Weighted Average Cut-off Date Loan-to-Value
Ratio(3).................................... 63.4%
</TABLE>
<TABLE>
<S> <C>
------------------------
(1) The "initial mortgage pool balance" is equal to the
aggregate cut-off date principal balance of the mortgage
pool and is subject to a permitted variance of plus or
minus 5%.
(2) The "cut-off date debt service coverage ratio" for any
mortgage loan that is to be included in the trust is equal
to the underwritten net cash flow for the related
underlying real property (see discussion of "Net Cash
Flow" in this prospectus supplement under "Description
of the Mortgage Pool--Mortgage Pool Characteristics"),
divided by the product of 12 times the monthly debt
service payment due in respect of that mortgage loan on
the cut-off date or, if it is currently in an
interest-only period, on the first due date after the
commencement of amortization. CUT-OFF DATE DEBT SERVICE
COVERAGE RATIOS HAVE NOT BEEN CALCULATED AND ARE NOT
PRESENTED FOR MORTGAGE LOANS SECURED BY PROPERTIES THAT
ARE SUBJECT TO CREDIT TENANT LEASES.
(3) The "cut-off date loan-to-value ratio" for any mortgage
loan to be included in the trust is equal to its cut-off
date principal balance, divided by the estimated value
of the related underlying real property as set forth in
the most recent third-party appraisal available to us.
CUT-OFF DATE LOAN-TO-VALUE RATIOS HAVE NOT BEEN
CALCULATED AND ARE NOT PRESENTED FOR MORTGAGE LOANS
SECURED BY PROPERTIES THAT ARE SUBJECT TO CREDIT TENANT
LEASES.
</TABLE>
S-16
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<S> <C>
B. STATE CONCENTRATION............... The table below shows the number of, and the percentage of
the initial mortgage pool balance secured by, underlying
real properties located in the indicated states:
</TABLE>
<TABLE>
<CAPTION>
% OF
NUMBER OF INITIAL MORTGAGE
STATE LOANS POOL BALANCE
----- --------- ----------------
<S> <C> <C>
California 18 15.0%
New York 26 14.1%
Maryland 9 13.8%
Colorado 4 12.4%
Texas 30 8.1%
New Jersey 13 5.5%
Georgia 6 4.8%
The Mortgage Loans Secured by the remaining underlying real
properties are located throughout 24 other states. No more than
3.0% of the initial mortgage pool balance is secured by Mortgaged
Properties located in any such other jurisdiction.
</TABLE>
<TABLE>
<S> <C>
C. PROPERTY TYPES.................... The table below shows the number of, and the percentage of
the initial mortgage pool balance secured by, underlying
real properties operated for each indicated purpose:
</TABLE>
<TABLE>
<CAPTION>
% OF
NUMBER OF INITIAL MORTGAGE
PROPERTY TYPE LOANS POOL BALANCE
------------- --------- ----------------
<S> <C> <C>
Retail............................... 48 50.9%
Regional Malls..................... 4 31.6%
Other Anchored Retail.............. 29 15.4%
Unanchored Retail.................. 15 3.9%
Office............................... 31 20.9%
Multifamily.......................... 58 14.5%
Industrial/Warehouse................. 14 4.1%
Mobile Home Parks.................... 18 2.9%
Hospitality.......................... 8 2.6%
Full Service....................... 2 1.1%
Limited Service.................... 6 1.4%
Credit Tenant Leases(1).............. 7 2.3%
Self Storage......................... 2 1.0%
Mixed-Use............................ 4 0.7%
</TABLE>
-----------------------------------------------------
(1) Properties subject to credit tenant leases,
regardless of property type.
<TABLE>
<S> <C>
SIGNIFICANT MORTGAGE LOANS........... The mortgage pool will include four mortgage loans with
cut-off date principal balances that are, in each case, in
excess of $50,000,000.
</TABLE>
S-17
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<TABLE>
<S> <C>
A. CHERRY CREEK MORTGAGE
LOAN............................. Set forth below is certain loan and property information in
respect of the mortgage loan identified in this prospectus
supplement as the "Cherry Creek Mortgage Loan". See
"Description of the Mortgage Pool--Significant Mortgage
Loans--The Cherry Creek Mortgage Loan" in this prospectus
supplement.
</TABLE>
<TABLE>
<S> <C> <C>
Cut-off Date Principal Balance..... $148,497,918
Current Mortgage Interest Rate..... 7.68%
Maturity Date...................... August 11, 2029
Anticipated Repayment Date......... August 11, 2006
Lockout Expiration Date............ March 2002
Original Amortization Term......... 25 years (1)
Cut-off Date LTV Ratio............. 47.6%
Cut-off Date DSCR.................. 1.71x
Lockbox............................ (2)
Sponsor............................ Taubman Centers Inc.
Anchor Tenants..................... Foley's, Lord & Taylor,
Saks Fifth Avenue(3)
and Neiman-Marcus
Property Type...................... Regional Mall
Property Size (gross leasable
area).............................. 1,316,435 sq. ft.
Property Location.................. Denver, Colorado
Property Valuation................. $311,800,000
------------------------
(1) Commences following a five-year interest only period.
(2) In place lockbox with lender control upon certain triggers.
(3) Tenant ground leases pad and owns improvements.
</TABLE>
<TABLE>
<S> <C>
The underlying real property for the Cherry Creek Mortgage
Loan also secures a mortgage loan in the amount of
$28,502,082 that is not included in the trust. This other
loan will be serviced and administered by the master
servicer and the special servicer under the pooling and
servicing agreement. Pursuant to a co-lender and servicing
agreement and the related loan documents, no payments of
principal may be made on this other loan until the principal
balance of the Cherry Creek Mortgage Loan is paid in full.
As and to the extent described in this prospectus
supplement, this other loan is subordinate to the Cherry
Creek Mortgage Loan in the event of foreclosure. The holder
of this other loan would experience losses of interest and
principal before the trust does in the event of a default
and liquidation of the Cherry Creek Mortgage Loan and this
other loan. Except for a right to advise and direct the
special servicer, which we describe in this prospectus
supplement, the holder of the other loan may not
independently exercise remedies following a default. The
holder of this other loan may purchase the Cherry Creek
Mortgage Loan out of the trust in certain default
circumstances.
B. ANNAPOLIS MALL
MORTGAGE LOAN.................... Set forth below is certain loan and property information in
respect of the mortgage loan identified in this prospectus
supplement as the "Annapolis Mall Mortgage Loan". See
"Description of the Mortgage Pool--Significant Mortgage
Loans--The Annapolis Mall Mortgage Loan" in this prospectus
supplement.
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C> <C>
Cut-off Date Principal
Balance(1)......................... $123,031,572
Current Mortgage Interest
Rate(2)............................ 8.177%
Maturity Date...................... December 11, 2029
Anticipated Repayment Date......... December 11, 2009
Lockout Expiration Date............ December , 2002
Original Amortization Term......... 30 years
Cut-off Date LTV Ratio............. 58.3%
Cut-off Date DSCR.................. 1.51x
Lockbox............................ Hard
Sponsor............................ Westfield America, Inc.
Anchor Tenants..................... Hecht's, Nordstrom, Montgomery)
Ward, Lord & Taylor and JC
Penney(3
Property Type...................... Regional Mall
Property Size (gross leaseable
area).............................. 1,116,630 sq. ft.
Property Location.................. Annapolis, MD
Property Valuation................. $211,200,000
------------------------
(1) The Annapolis Mall Mortgage Loan consists of two components:
(i) one that has a current principal amount of $ and
accrues interest at 8.177% per annum; and (ii) one that has a
current principal amount of $ and accrues interest at no
less than 8.177% per annum.
(2) Intended to be the weighted average of the rates for the two
components referred to in the prior footnote. For purposes of
this prospectus supplement, the rate referred to in clause (ii)
of the prior footnote, which rate has not been established yet,
is assumed to be 8.177% per annum.
(3) Hecht's and JC Penney own their pads and improvements; Nordstrom,
Montgomery Ward and Lord & Taylor ground lease their pads and own
their improvements.
</TABLE>
<TABLE>
<S> <C>
The underlying real property for the Annapolis Mall Mortgage
Loan also secures a mortgage loan in the amount of
$21,099,647.14 that is not included in the trust. This other
loan will be serviced and administered by the master
servicer and the special servicer under the pooling and
servicing agreement. Pursuant to a co-lender and servicing
agreement and the related loan documents, no payments of
principal may be made on this other loan until the principal
balance of the Annapolis Mall Mortgage Loan is paid in full.
As and to the extent described in this prospectus
supplement, this other loan is subordinate to the Annapolis
Mall Mortgage Loan in the event of foreclosure. The holder
of this other loan would experience losses of interest and
principal before the trust does in the event of a default
and liquidation of the Annapolis Mall Mortgage Loan and this
other loan. Except for a right to advise and direct the
special servicer, which we describe in this prospectus
supplement, the holder of this other loan may not
independently exercise remedies following a default. The
holder of this other loan may purchase the Annapolis Mall
Mortgage Loan out of the trust in certain default
circumstances.
</TABLE>
S-19
<PAGE>
<TABLE>
<S> <C>
C. WESTFIELD PORTFOLIO
MORTGAGE LOAN.................... Set forth below is certain loan and property information in
respect of the mortgage loan identified in this prospectus
supplement as the "Westfield Portfolio Mortgage Loan" and
the two properties that secure it. See "Description of the
Mortgage Pool--Significant Mortgage Loans--Westfield
Portfolio Mortgage Loan" in this prospectus supplement.
</TABLE>
<TABLE>
<S> <C> <C>
Cut-off Date Principal $99,000,000
Balance(1).........................
Current Mortgage Interest 8.177%
Rate(2)............................
Maturity Date...................... December 11, 2029
Anticipated Repayment Date......... December 11, 2009
Lockout Expiration Date............ December , 2002
Original Amortization Term......... 30 years
Cut-off Date LTV Ratio............. 43.0%
Cut-off Date DSCR.................. 1.87x
Lockbox............................ Hard
------------------------
(1) The Westfield Portfolio Mortgage Loan consists of two components:
(i) one that has a current principal amount of $ and
accrues interest at 8.177% per annum; and (ii) one that has a
current principal amount of $ and accrues interest at
8.177% per annum.
(2) Intended to be the weighted average of the rates for the two
components referred to in the prior footnote. For purposes of
this prospectus supplement, the rate referred to in clause (ii)
of the prior footnote, which rate has not been established yet,
is assumed to be 8.177% per annum.
DOWNTOWN PLAZA
Sponsor............................ Westfield America, Inc.
Anchor Tenants..................... Macy's, Macy's Men
& Furniture(1)
Property Type...................... Regional Mall (includes 282,805)
square feet of office space
Property Size (gross leasable 1,191,347 sq. feet
area)..............................
Property Location.................. Sacramento, CA
Property Valuation................. $163,200,000
EASTLAND SHOPPING CENTER
Sponsor............................ Westfield America, Inc.
Anchor Tenants..................... Target, Burlington Coat Factory
and Mervyns
Property Type...................... Power Center
Property Size (gross leasable 846,781 sq. feet
area)..............................
Property Location.................. West Covina, CA
Property Valuation................. $67,000,000
------------------------
(1) Tenant owns pad and improvements.
</TABLE>
S-20
<PAGE>
<TABLE>
<S> <C>
The underlying real properties for the Westfield Portfolio
Mortgage Loan also secure a mortgage loan in the amount of
$28,128,566.94 that is not included in the trust. This other
loan will be serviced and administered by the master
servicer and the special servicer under the pooling and
servicing agreement. Pursuant to a co-lender and servicing
agreement and the related loan documents, no payments of
principal may be made on this other loan until the principal
balance of the Westfield Portfolio Mortgage Loan is paid in
full. As and to the extent described in this prospectus
supplement, this other loan is subordinate to the Westfield
Portfolio Mortgage Loan in the event of foreclosure. The
holder of this other loan would experience losses of
interest and principal before the trust does in the event of
a default and liquidation of the Westfield Portfolio
Mortgage Loan and this other loan. Except for a right to
advise and direct the special servicer, which we describe in
this prospectus supplement, the holder of this other loan
may not independently exercise remedies following a default.
The holder of this other loan may purchase the Westfield
Portfolio Mortgage Loan out of the trust in certain default
circumstances.
D. SANGERTOWN SQUARE
MORTGAGE LOAN.................... Set forth below is certain loan and property information in
respect of the mortgage loan identified in this prospectus
supplement as the "Sangertown Square Mortgage Loan". See
"Description of the Mortgage Pool--Significant Mortgage
Loans--The Sangertown Square Mortgage Loan" in this
prospectus supplement.
</TABLE>
<TABLE>
<S> <C> <C>
Cut-off Date Principal
Balance(1)......................... $62,145,749
Current Mortgage Interest
Rate(2)............................ 8.82%
Maturity Date...................... December 1, 2029
Anticipated Repayment Date......... December 1, 2009
Lockout Expiration Date............ March 2002
Original Amortization Term......... 30 years
Cut-off Date LTV Ratio............. 40.9%
Cut-off Date DSCR.................. 1.76x
Lockbox............................ Hard
Sponsor............................ The Pyramid Companies...........
Anchor Tenants..................... Sears, JC Penney, Kaufmann's and
Bradlees
Property Type...................... Regional Mall
Property Size (gross leasable
area).............................. 855,360 sq. ft.
Property Location.................. New Hartford, NY
Property Valuation................. $152,000,000
------------------------
(1) The Sangertown Square Mortgage Loan consists of two components:
(i) one that has a current principal amount of $ and
accrues interest at 8.82% per annum; and (ii) one that has a
current principal amount of $ and accrues interest at
8.82% per annum.
(2) Intended to be the weighted average of the rates for the two
components referred to in the prior footnote. For purposes of
this prospectus supplement, the rate referred to in clause (ii)
of the prior footnote, which rate has not been established yet,
is assumed to be 8.82% per annum.
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The underlying real property for the Sangertown Square
Mortgage Loan also secures a mortgage loan in the amount of
$14,204,279.92 that is not included in the trust. This other
loan will be serviced and administered by the master
servicer and the special servicer under the pooling and
servicing agreement. Pursuant to a co-lender and servicing
agreement and the related loan documents, no payments of
principal may be made on this other loan until the principal
balance of the Sangertown Square Mortgage Loan is paid in
full. As and to the extent described in this prospectus
supplement, this other loan is subordinate to the Sangertown
Square Mortgage Loan in the event of foreclosure. The holder
of this other loan would experience losses of interest and
principal before the trust does in the event of a default
and liquidation of the Sangertown Square Mortgage Loan and
this other loan. Except for a right to advise and direct the
special servicer, which we describe in this prospectus
supplement, the holder of this other loan may not
independently exercise remedies following a default. The
holder of this other loan may purchase the Sangertown Square
Mortgage Loan out of the trust in certain default
circumstances.
CREDIT TENANT LEASES................. Seven of the mortgage loans to be included in the trust are
secured by underlying real properties that are subject to a
net lease obligation of a tenant having the characteristics
described below that occupies substantially all of the
property. We refer to that type of lease as a "credit tenant
lease". The tenant under a credit tenant lease, its direct
or indirect parent or a guarantor of that tenant's
obligations under the lease has a public senior unsecured
long-term debt or similar rating of at least "A-" (or the
equivalent) from at least one nationally recognized
statistical rating organization. Such ratings range from
"A-" to "AAA" (or the equivalents). See "Risk Factors--Risks
Related to the Pooled Mortgage Loans--Dependence on Credit
Tenant Leases Has Special Risks" and "Description of the
Mortgage Pool--Credit Lease Loans" in this prospectus
supplement.
PAYMENT TERMS........................ Each mortgage loan to be included in the trust currently
accrues interest at the annual rate set forth with respect
to that loan on Annex A-1 to this prospectus supplement.
Except as described below with respect to mortgage loans
that have anticipated repayment dates and mortgage loans
that consist of two components, that annual rate is, in the
absence of default, fixed for the entire term of that
mortgage loan.
The Annapolis Mall Mortgage Loan, the Westfieled Portfolio
Mortgage Loan and the Sangertown Square Mortgage Loan each
consist of two (2) components, and the "mortgage rates" for
each of those loans is a weighted average of the component
rates.
Each mortgage loan to be included in the trust provides for
scheduled payments of principal and/or interest to be due on
a particular day each month. The due date for 88 of the
mortgage loans to be included in the trust, representing
38.2% of the initial mortgage pool balance, is the first day
of each month, the due date for 21 of the mortgage loans, to
be included in the trust representing 10.1% of the initial
mortgage pool balance, is the 6th day of each month and the
due date
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for 80 of the mortgage loans to be included in the trust,
representing 50.5% of the initial mortgage pool balance, is
the eleventh day of each month. The remaining mortgage loan
has a due date of the 10th day of each month. We refer to
those scheduled payments of principal and/or interest in
this prospectus supplement as "monthly debt service
payments".
One hundred fifty-four of the mortgage loans to be included
in the trust, representing 46.9% of the initial mortgage
pool balance, are "balloon loans" that, in each case,
provide for an amortization schedule that is generally
significantly longer than its remaining term to stated
maturity. A balloon loan will require a substantial payment
of principal on its maturity date, if it is not prepaid
prior to maturity.
Thirty-one of the mortgage loans to be included in the
trust, representing 51.4% of the initial mortgage pool
balance, are "ARD loans" that, in each case, provide
material incentives to the related borrower to repay its
mortgage loan in full by a specified date, which we refer to
as the "anticipated repayment date". These incentives, which
in each case begin effective as of the related anticipated
repayment date, include:
- The accrual of interest in excess of that accrued at the
initial mortgage interest rate. That additional interest
will be deferred until payment in full of all other
amounts due under the ARD loan, including the entire
principal balance thereof. In general, that additional
interest will be compounded.
- The application of certain excess cash flow from the
related underlying real property to pay principal. That
payment of principal will be in addition to the principal
portion of the monthly debt service payment.
The remaining five mortgage loans to be included in the
trust, representing 1.8% of the initial mortgage pool
balance, are "fully amortizing loans", that, in each case,
have an amortization schedule that amortizes the mortgage
loan in full or substantially in full by its stated maturity
date.
DELINQUENCY STATUS................... None of the mortgage loans that will be included in the
trust was more than 30 days delinquent in respect of any
monthly debt service payment as of the cut-off date or at
any time during the 12-month period preceding that date.
PREPAYMENT RESTRICTIONS.............. The prepayment restrictions for each of the mortgage loans
to be included in the trust are more fully described on
Annex A-1 to this prospectus supplement. Set forth below is
information regarding the remaining voluntary prepayment
lockout periods and combined defeasance/voluntary prepayment
lockout periods for those mortgage loans:
</TABLE>
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<S> <C> <C>
Maximum Remaining Defeasance/Lockout Period:...... 240 mos.
Minimum Remaining Defeasance/Lockout Period:...... 24 mos.
Weighted Average Remaining
Defeasance/Lockout Period:........................ 87 mos.
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One hundred fifty-five of the mortgage loans to be included
in the trust, representing 70.2% of the initial mortgage
pool balance, permit the related borrower, no earlier than
the second anniversary of the issue date of the
certificates, to obtain a release of the related underlying
real property (or, where applicable, one or more of the
related underlying real properties) from the lien of the
related mortgage by delivering U.S. Treasury obligations as
substitute collateral.
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LEGAL AND INVESTMENT CONSIDERATIONS
<TABLE>
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FEDERAL INCOME TAX CONSEQUENCES...... The pooling and servicing agreement will require the trustee
or an agent appointed by the trustee to make elections to
treat designated portions of the trust assets as three
separate "real estate mortgage investment conduits",
commonly referred to as "REMICs". The lowest-tier REMIC will
hold, among other things, the pooled mortgage loans, as well
as any underlying real properties that may have been
acquired by the trust following a borrower default, but will
exclude collections of certain additional interest accrued,
and deferred as to payment, in respect of each pooled
mortgage loan with an anticipated repayment date that
remains outstanding after that date. Those collections of
additional interest will collectively constitute a grantor
trust for federal income tax purposes. The offered
certificates will evidence "regular interests" in a REMIC.
As a result of the foregoing, the offered certificates will
be treated as newly issued debt instruments for federal
income tax purposes. You will have to report income on your
certificates in accordance with the accrual method of
accounting even if you are otherwise a cash method taxpayer.
The class certificates will, and the other classes of
offered certificates will not, be issued with more than a DE
MINIMIS amount of original issue discount. If you own a
certificate issued with original issue discount, you may be
required to report original issue discount income before
receiving a corresponding amount of cash. For tax
information reporting purposes, the trustee or an agent
appointed by the trustee will compute the accrual of
discount and premium on the offered certificates based on
the assumption that each pooled mortgage loan with an
anticipated repayment date will be paid in full on that date
and on the further assumption that no borrower will
otherwise prepay its pooled mortgage loan prior to stated
maturity.
It is anticipated that any prepayment premium or yield
maintenance charge allocable to a class of offered
certificates will be ordinary income to the holders of that
class as those amounts become due to the trust. See
"Description of the Offered Certificates--
Distributions--Distributions of Prepayment Premiums and
Yield Maintenance Charges" in this prospectus supplement.
For a more detailed discussion of the federal income tax
aspects of investing in the offered certificates, see
"Federal Income Tax
</TABLE>
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<TABLE>
<S> <C>
Consequences" in this prospectus supplement and "Federal
Income Tax Considerations" in the accompanying prospectus.
ERISA CONSIDERATIONS................. It is anticipated that certain employee benefit plans and
other retirement arrangements subject to Title I of the
Employee Retirement Income Security Act, commonly referred
to as "ERISA", or section 4975 of the Internal Revenue Code
of 1986 will be able to invest in the class A-1, A-2 and X
certificates, without giving rise to a prohibited
transaction. This is based upon individual prohibited
transaction exemptions granted to the underwriters by the
U.S. Department of Labor. However, investments in the other
offered certificates by, on behalf of or with assets of
those entities, will be restricted as described under
"Certain ERISA Considerations" in this prospectus
supplement.
If you are a fiduciary of any employee benefit plan or other
retirement arrangement subject to Title I of ERISA or
section 4975 of the Internal Revenue Code of 1986, you
should review carefully with your legal advisors whether the
purchase or holding of the offered certificates could give
rise to a transaction that is prohibited under ERISA or
section 4975 of the Internal Revenue Code of 1986. If you
are using funds of an insurance company general account to
purchase any offered certificates, you should consider the
availability of Prohibited Transaction Class Exemption
95-60. See "Certain ERISA Considerations" in this prospectus
supplement and "ERISA Considerations" in the accompanying
prospectus.
LEGAL INVESTMENT..................... The offered certificates will not constitute "mortgage
related securities" within the meaning of the Secondary
Mortgage Market Enhancement Act of 1984, as amended,
commonly referred to as "SMMEA". You should consult your own
legal advisors to determine whether and to what extent the
offered certificates constitute legal investments for you.
See "Legal Investment" in this prospectus supplement and in
the accompanying prospectus.
CERTAIN YIELD CONSIDERATIONS......... The yield to maturity on any offered certificate will be
affected by the rate and timing of prepayments and other
collections of principal on or in respect of the pooled
mortgage loans. In the case of offered certificates
purchased at a discount, a slower than anticipated rate of
prepayments could result in a lower than anticipated yield.
In the case of the class X certificates or any other offered
certificates purchased at a premium, a faster than
anticipated rate of prepayments could result in a lower than
anticipated yield. If you are contemplating the purchase of
a class X certificate, you should be aware that the yield to
maturity on the class X certificates will be highly
sensitive to the rate and timing of principal prepayments
and other liquidations of pooled mortgage loans and that an
extremely rapid rate of prepayments and/or other
liquidations in respect of the pooled mortgage loans could
result in a complete or partial loss of your initial
investment. See "Yield and Maturity Considerations" in this
prospectus supplement and "Yield and Prepayment
Considerations" in the accompanying prospectus.
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RATINGS.............................. It is a condition to the issuance of the respective classes
of the offered certificates that they receive the credit
ratings indicated in the table on the cover of this
prospectus supplement.
The ratings of the offered certificates address the timely
payment of interest and, except in the case of the class X
certificates, the ultimate payment of principal on or before
the rated final distribution date. Those ratings do not,
however, address--
- the tax attributes of the offered certificates or of the
trust,
- the likelihood or frequency of voluntary or involuntary
principal prepayments on the pooled mortgage loans,
- the degree to which prepayments on the pooled mortgage
loans might differ from those originally anticipated,
- the likelihood that prepayment premiums or yield
maintenance charges will be received with respect to the
pooled mortgage loans, or
- the likelihood that any pooled mortgage loan with an
anticipated repayment date will remain outstanding past such
date and will thereafter accrue any interest at a rate in
excess of its current mortgage interest rate.
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.
For a description of the limitations of the ratings of the
offered certificates, see "Ratings" in this prospectus
supplement and "Risk Factors--Limited Nature of Rating" in
the accompanying prospectus.
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S-26
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RISK FACTORS
You should consider the following factors (as well as the factors set forth
under "Risk Factors" in the accompanying prospectus) in deciding whether to
purchase the offered certificates of any class.
RISKS RELATED TO THE OFFERED CERTIFICATES
THE OFFERED CERTIFICATES ARE SUPPORTED BY LIMITED ASSETS. If the assets of
the trust are insufficient to make payments on your certificates, no other
assets will be available to you for payment of the deficiency. See "Risk
Factors--Limited Assets" in the accompanying prospectus.
RISKS ASSOCIATED WITH LIQUIDITY AND MARKET VALUE. There is currently no
secondary market for the offered certificates. Each underwriter has informed us
that it currently intends to make a secondary market in the offered
certificates. However, none of the underwriters is under any obligation to do
so, and there can be no assurance that a secondary market for the offered
certificates will develop. Even if a secondary market does develop for the
offered certificates, there is no assurance that it will provide you with
liquidity of investment or that the market will continue for the life of the
offered certificates. We do not intend to list the offered certificates on any
securities exchange. Lack of liquidity could result in a significant reduction
in the market value of your certificates. In addition, the market value of your
certificates at any time may be affected by many factors, including then
prevailing interest rates and the then perceived riskiness of commercial
mortgage-backed securities relative to other investments. See "Risk Factors--
Limited Liquidity" in the accompanying prospectus.
UNCERTAIN YIELDS TO MATURITY. The yield on your certificates will depend on
(a) the price you paid for those certificates and (b) the rate, timing and
amount of distributions on those certificates. The rate, timing and amount of
distributions on your certificates will, in turn, depend on:
- the pass-through rate(s) for your certificates;
- the rate and timing of payments and other collections of principal on the
pooled mortgage loans;
- the rate and timing of defaults, and the severity of losses, if any, on
the pooled mortgage loans;
- the rate, timing, severity and allocation of other shortfalls and expenses
that reduce amounts available for distribution on the series 2000-C1
certificates; and
- the collection and distribution of prepayment premiums and yield
maintenance charges with respect to the pooled mortgage loans.
These factors cannot be predicted with any certainty. Accordingly, you may
find it difficult to analyze the effect that these factors might have on the
yield to maturity of your certificates. See "Description of the Mortgage Pool",
"Description of the Offered Certificates--Distributions" and "--Allocation of
Realized Losses and Certain Other Shortfalls and Expenses" and "Yield and
Maturity Considerations" in this prospectus supplement. See also "Yield and
Prepayment Considerations" in the accompanying prospectus.
RISKS RELATED TO THE RATE OF PREPAYMENT. If you purchase your certificates
at a premium, and if payments and other collections of principal on the pooled
mortgage loans occur at a rate faster than you anticipated at the time of your
purchase, then your actual yield to maturity may be lower than you had assumed
at the time of your purchase. Conversely, if you purchase your certificates at a
discount, and if payments and other collections of principal on the pooled
mortgage loans occur at a rate slower than you anticipated at the time of your
purchase, then your actual yield to maturity may be lower than you had assumed
at the time of your purchase. You should consider that prepayment premiums and
yield maintenance charges, even if available and distributable in respect of
your certificates, may not be sufficient to offset fully any loss in yield on
your certificates.
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The investment performance of your certificates may vary materially and
adversely from your expectations due to the rate of prepayments and other
unscheduled collections of principal on the pooled mortgage loans being faster
or slower than you anticipated. Accordingly, the actual yield to you may not be
equal to the yield you anticipated at the time of your purchase, and the total
return on investment that you expected may not be realized. In deciding whether
to purchase any offered certificates, you should make an independent decision as
to the appropriate prepayment assumptions to be used. See "Yield and Maturity
Considerations" in this prospectus supplement.
If you purchase class X certificates, your yield to maturity will be highly
sensitive to the rate and timing of principal payments and losses on the pooled
mortgage loans. Prior to investing in the class X certificates, you should fully
consider the associated risks, including the risk that an extremely rapid rate
of amortization, prepayment or other liquidation of the pooled mortgage loans
could result in your failure to recoup fully your initial investment.
RISKS ASSOCIATED WITH BORROWER DEFAULTS; DELINQUENCIES AND DEFAULTS BY
BORROWERS MAY DELAY PAYMENTS TO YOU. The rate and timing of delinquencies and
defaults on the pooled mortgage loans will affect the amount of distributions on
your certificates, the yield to maturity of your certificates, the rate of
principal payments on your certificates and the weighted average life of your
certificates. Delinquencies on the pooled mortgage loans, unless covered by
advances, may result in shortfalls in distributions of interest and/or principal
on your certificates for the current month. Although any of these shortfalls may
be made up on future distribution dates, no interest would accrue on them. Thus,
any of these shortfalls would adversely affect the yield to maturity of your
certificates.
If you calculate the anticipated yield to maturity for your certificates
based on an assumed rate of default and amount of losses on the pooled mortgage
loans that is lower than the default rate and amount of losses actually
experienced, and if the additional losses result in a reduction of the
distributions on or the aggregate principal balance or notional amount of your
certificates, your actual yield to maturity will be lower than you calculated
and could, under certain scenarios, be negative. The timing of any loss on a
liquidated mortgage loan in the trust that results in a reduction of the
distributions on or the aggregate principal balance or notional amount of your
certificates will also affect the actual yield to maturity of your certificates,
even if the rate of defaults and severity of losses are consistent with your
expectations. In general, the earlier your loss occurs, the greater the negative
effect on your yield to maturity.
Even if losses on the pooled mortgage loans do not result in a reduction of
the distributions on or the aggregate principal balance or notional amount of
your certificates, those losses may still affect the timing of distributions on
and, accordingly, the weighted average life and yield to maturity of, your
certificates. See "Yield and Maturity Considerations" in this prospectus
supplement.
POTENTIAL CONFLICTS OF INTEREST. The special servicer will have
considerable latitude in determining whether to liquidate or modify defaulted
mortgage loans in the trust. See "Servicing of the Mortgage
Loans--Modifications, Waivers, Amendments and Consents" in this prospectus
supplement. In certain circumstances, the existing special servicer may be
replaced by the holder or holders of certificates representing a majority
interest in the controlling class of the series 2000-C1 certificates. Subject to
significant losses on the mortgage pool, that controlling class will be a class
of non-offered certificates of the 2000-C1 series. Accordingly, the interests of
the holders of that controlling class may be in conflict with your interests.
The master servicer, the special servicer or any of their respective affiliates
may acquire series 2000-C1 certificates. Each of the master servicer and the
special servicer is obligated to perform its respective servicing duties in
accordance with the terms of the pooling and servicing agreement, including the
servicing standard described in this prospectus supplement. As, or when acting
in accordance with the instructions of, a holder of non-offered certificates of
the 2000-C1 series, however, each of the master servicer and special servicer
could have interests when dealing with defaulted mortgage loans or otherwise
performing its duties under the pooling and servicing agreement that may be in
conflict with your interests.
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In addition, each of the master servicer and the special servicer services
and will, in the future, service existing and new loans for third parties,
including portfolios of loans similar to the pooled mortgage loans, in the
ordinary course of its business. The properties securing these other mortgage
loans may be in the same markets as, and compete with, certain of the underlying
real properties securing the pooled mortgage loans. Despite the obligation of
each of the master servicer and special servicer to perform its respective
servicing obligations with respect to the pooled mortgage loans in accordance
with the terms of the pooling and servicing agreement, including the servicing
standard described in this prospectus supplement, those other servicing and
property management obligations may pose inherent conflicts for the master
servicer or the special servicer.
The four largest mortgage loans in the trust are, in each case, secured by
an underlying real property that also constitutes security for a mortgage loan
that is not included in the trust but will be serviced and administered pursuant
to the pooling and servicing agreement. The holder of each of these outside the
trust "companion loans" will have the right, subject to certain conditions
described in this prospectus supplement, to advise and direct the special
servicer with respect to certain servicing matters with respect to that
companion loan and the related mortgage loan that is in the trust. The holder of
any of these outside the trust companion loans may have interests that conflict
with your interests. See "Description of the Mortgage Pool--Significant Mortgage
Loans" and "Servicing of the Mortgage Loans--The Controlling Class
Representative" in this prospectus supplement.
CERTAIN RIGHTS TO PAYMENT THAT ARE SENIOR TO DISTRIBUTIONS ON THE
CERTIFICATES. The master servicer, the special servicer, the trustee and the
fiscal agent are each entitled to receive out of payments on or proceeds of
specific mortgage loans in the trust or, in some cases, out of general
collections on the mortgage pool, certain payments or reimbursements for or in
respect of compensation, advances with interest thereon and indemnities, prior
to distributions on the series 2000-C1 certificates. In particular, advances are
intended to provide liquidity not credit support, and the advancing party is
entitled to receive interest on its advances to offset its cost of funds.
RISKS ASSOCIATED WITH ERISA. The regulations that govern pension and other
employee benefit plans subject to ERISA and plans and other retirement
arrangements subject to section 4975(c) of the Internal Revenue Code of 1986 are
complex. Accordingly, if you are using the assets of such plans or arrangements
to acquire offered certificates, you are urged to consult legal counsel
regarding consequences under ERISA and the Internal Revenue Code of 1986 of the
acquisition, ownership and disposition of offered certificates. In particular,
the purchase or holding of the class B, C, D, E, F and G certificates by any
such plan or arrangement may result in a prohibited transaction or the
imposition of excise taxes or civil penalties. As a result, those certificates
are not appropriate investments for any such plan or arrangement, unless the
purchase and continued holding of the particular certificate or interest therein
is exempt from the prohibited transaction provisions of Section 406 of ERISA and
section 4975 of the Internal Revenue Code of 1986 under Sections I and III of
Prohibited Transaction Class Exemption 95-60. Sections I and III of Prohibited
Transaction Class Exemption 95-60 provide an exemption from the prohibited
transaction rules for certain transactions involving an insurance company
general account. See "Certain ERISA Considerations" in this prospectus
supplement and "ERISA Considerations" in the accompanying prospectus.
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RISKS RELATED TO THE POOLED MORTGAGE LOANS
REPAYMENT OF THE POOLED MORTGAGE LOANS DEPENDS ON THE SUCCESSFUL OPERATION
OF THE UNDERLYING REAL PROPERTIES. The mortgage loans to be included in the
trust are secured by liens on interests in the following types of real property:
- Regional Malls
- Other Anchored Retail
- Unanchored Retail
- Office
- Multifamily Rental
- Hospitality
- Mobile Home Parks
- Industrial/Warehouse
- Properties Subject to Credit Tenant Leases
- Self Storage
- Manufactured Housing Community
- Mixed-Use
Lending on multifamily and commercial properties is generally perceived as
involving greater risk than lending on the security of single-family residential
properties. This is because multifamily and commercial real estate lending
involves larger loans, and repayment is dependent upon the operation of the
related real estate project.
The ability of an underlying real property to generate net operating income
may be adversely affected by a number of factors, including:
- the age, design and construction quality of the property;
- perceptions regarding the safety, convenience and attractiveness of the
property;
- the proximity and attractiveness of competing properties;
- new construction of competing properties;
- the adequacy of the property's management and maintenance;
- an increase in operating expenses;
- an increase in the capital expenditures needed to maintain the property or
make improvements;
- a decline in the financial condition of a major tenant;
- an increase in vacancy rates; and
- a decline in rental rates as leases are renewed or replaced.
Other factors that may adversely affect the ability of an underlying real
property to generate net operating income are more general in nature, such as:
- adverse national, regional or local economic conditions, including plant
closings, industry slowdowns and higher unemployment rates;
- adverse local real estate conditions, such as an oversupply of retail
space, office space or multifamily housing;
- demographic factors;
- customer tastes and preferences; and
- retroactive changes in building codes.
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The volatility of net operating income generated by an underlying real
property over time will be influenced by many of the foregoing factors, as well
as by:
- the length of tenant leases;
- the creditworthiness of tenants;
- the rate at which new rentals occur;
- the percentage of total property expenses in relation to revenue;
- the ratio of fixed operating expenses to those that vary with revenues;
and
- the level of capital expenditures required to maintain the property and to
maintain or replace tenants.
Therefore, those underlying real properties with short-term or less
creditworthy sources of revenue and/or relatively high operating costs, such as
those operated as hospitality properties and self-storage facilities, can be
expected to have more volatile cash flows than underlying real properties with
medium to long-term leases from creditworthy tenants and/or relatively low
operating costs. A decline in the real estate market will tend to have a more
immediate effect on the net operating income of the underlying real properties
with short-term revenue sources and may lead to higher rates of delinquency or
defaults.
TENANT CONCENTRATION ENTAILS RISK. In those cases where an underlying real
property is leased to a single tenant or is primarily leased to one or a small
number of major tenants, a deterioration in the financial condition or a change
in the plan of operation of any of those tenants can have particularly
significant effects on the net cash flow generated by that property. If any of
those tenants defaults under or fails to renew its lease, the resulting adverse
financial effect on the operation of that property will be substantially more
severe than would be the case with respect to a property occupied by a large
number of less significant tenants.
Any underlying real property operated for retail, office or industrial
purposes also may be adversely affected if there is a concentration of tenants
in a particular business or industry at that property and that particular
business or industry declines.
TENANT BANKRUPTCY ENTAILS SPECIAL RISKS. The bankruptcy or insolvency of a
major tenant, or a number of smaller tenants, at any particular underlying real
property may adversely affect the income produced by that property. Under the
federal Bankruptcy Code, a tenant has the option of assuming or rejecting any
unexpired lease. If the tenant rejects the lease, the landlord's claim for
breach of the lease would be a general unsecured claim against the tenant,
unless there is a security deposit or other collateral securing that claim. The
claim would be limited to--
(i) the unpaid rent reserved under the lease for the periods prior to the
bankruptcy petition, or earlier surrender of the leased premises, which
are unrelated to the rejection, plus
(ii) the greater of one year's rent or 15% of the remaining reserved rent,
but not more than three years' rent.
CERTAIN ADDITIONAL RISKS RELATING TO TENANTS. The underlying real
properties will be affected by the expiration of leases and the ability of the
respective borrowers under the pooled mortgage loans to renew the leases or
relet the space on comparable terms. Even if vacated space is successfully
relet, the costs associated with reletting, including tenant improvements and
leasing commissions in the case of underlying real properties operated for
retail or office purposes, can be substantial and could reduce cash flow from
those properties. Moreover, if a tenant at any of the underlying real properties
defaults on its lease obligations, the borrower may incur substantial costs and
experience significant delays associated with enforcing its rights and
protecting its investment, including costs incurred in renovating and reletting
the property.
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PROPERTY VALUE MAY BE ADVERSELY AFFECTED EVEN WHEN CURRENT OPERATING INCOME
IS NOT. Various factors may adversely affect the value of the underlying real
properties without affecting their current net operating income, including:
- changes in interest rates;
- a decline in the availability of refinancing sources;
- changes in governmental regulations or fiscal policy;
- changes in zoning or tax laws; and
- potential environmental or other legal liabilities.
PROPERTY MANAGEMENT MAY AFFECT PROPERTY VALUE. The operation of an
underlying real property will depend upon the property manager's performance and
viability. The property manager generally is responsible for the following:
- responding to changes in the local market;
- planning and implementing the rental structure;
- operating the property and providing building services;
- managing operating expenses; and
- ensuring that maintenance and capital improvements are carried out in a
timely fashion.
Underlying real properties that derive revenues primarily from short-term
rental commitments, such as hotels and self-storage facilities, are generally
more management intensive than properties leased to tenants under long-term
leases.
FACTORS AFFECTING THE OPERATION OF RETAIL PROPERTIES. Forty-eight of the
mortgage loans to be included in the trust, representing 50.9% of the initial
mortgage pool balance, are secured by retail properties at which customers may
purchase various consumer goods and other products or may obtain various
entertainment, recreational or personal services.
These retail properties consist of--
- regional malls;
- community and strip shopping centers;
- power centers; and
- individual stores and businesses.
The value and operation of a retail property depend on the qualities and
success of its tenants. The success of tenants at a retail property will be
affected by--
- competition from other retail properties;
- perceptions regarding the safety, convenience and attractiveness of the
property;
- demographics of the surrounding area;
- traffic patterns and access to major thoroughfares;
- availability of parking;
- customer tastes and preferences; and
- the drawing power of other tenants.
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Some tenants may have clauses in their leases that permit them to cease
operations at the property if certain other stores are not operated at the
property.
A retail property must compete with comparable properties for tenants. That
competition is generally based on--
- rent, including the granting of "free rent" periods;
- tenant improvements; and
- the age and location of the property.
Issues Involving Anchor Tenants. The presence or absence of an "anchor
tenant" in a mall or shopping center also can be important, because anchors play
a key role in generating customer traffic and making the mall or center
desirable for other tenants. An "anchor tenant" is a retail tenant whose space
is substantially larger in size than that of other tenants at the same retail
mall or shopping center and whose operation is vital in attracting customers to
the property. Thirty-three of the mortgage loans to be included in the trust,
representing 46.9% of the initial mortgage pool balance, are secured by retail
properties that we consider to be "anchored". Four of these "anchored" retail
properties are regional malls that secure mortgage loans representing 31.6% of
the initial mortgage pool balance.
Some of the "anchor tenants" at the underlying real properties own their
space and the improvements thereon. In those cases, that space and those
improvements do not secure repayment of the related mortgage loan in the trust.
The economic performance of an "anchored" retail property will be adversely
affected by various factors, including:
- an anchor tenant's failure to renew its lease;
- termination of an anchor tenant's lease;
- the bankruptcy or economic decline of an anchor tenant or a self-owned
anchor; or
- a loss of an anchor tenant's or self-owned anchor's ability to attract
shoppers.
Retail properties that have anchors often are subject to operating covenants
requiring the anchor to operate at the retail property for a certain period of
time, often under a particular name. Anchors that do not have operating
covenants or whose operating covenants have expired may not be contractually
obligated to continue to operate a retail store at such retail property. As
discussed above, an "anchored" retail property would be adversely affected by
the departure of an anchor even if it still owns or pays rent on the vacated
space. Investors should be aware that not all of the anchors at the underlying
retail properties are currently subject to operating covenants, and investors
should assume that operating covenants for various anchors at the underlying
real properties will expire during the related loan term. This is true even as
to the four largest mortgage loans in the trust.
New Forms of Competition. The underlying retail properties may also face
competition from sources outside a given real estate market or with lower
operating costs. For example, all of the following compete with more traditional
department stores and specialty shops for consumer dollars:
- factory outlet centers;
- discount shopping centers and clubs;
- catalogue retailers;
- home shopping networks;
- internet retailers; and
- telemarketing.
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FACTORS AFFECTING THE OPERATION OF OFFICE PROPERTIES. Thirty-one of the
mortgage loans to be included in the trust, representing 20.9% of the initial
mortgage pool balance, are secured by office properties. A number of factors
will affect the value and operation of an office property, including:
- the number and quality of tenants in the building;
- the physical attributes of the building in relation to competing
buildings;
- access to transportation;
- the strength and stability of the local economy;
- the availability of tax benefits;
- the desirability of the location of the business;
- the cost of refitting office space for a new tenant, which is often
significantly higher than the cost of refitting other types of properties
for new tenants; and
- the prevalence of telecommuting.
FACTORS AFFECTING THE OPERATION OF MULTIFAMILY RENTAL
PROPERTIES. Fifty-eight of the mortgage loans to be included in the trust,
representing 14.5% the initial mortgage pool balance, are secured by underlying
real properties improved by multifamily apartment buildings and two (2) senior
housing facilities.
Factors that will affect the value and operation of a conventional
multifamily rental property include:
- the physical attributes of the apartment building, such as its age,
appearance, amenities and construction quality;
- the location of the property;
- the characteristics of the surrounding neighborhood;
- the ability of management to provide adequate maintenance and insurance;
- the property's reputation;
- the level of mortgage interest rates, which may encourage tenants to
purchase rather than lease housing;
- the presence of competing properties;
- the tenant mix, such as a tenant population that may be predominantly
students or may be heavily dependent on workers from a particular business
or personnel from a local military base;
- adverse local, regional or national economic conditions, which may limit
the amount that may be charged and may result in a reduction in timely
rent payments or a reduction in occupancy levels; and
- state and local regulations, which may affect the building owner's ability
to increase rent to the market rent for an equivalent apartment.
Effects of State and Local Regulations. Certain states where the underlying
multifamily rental properties are located regulate the relationship between
owner and tenants and require--
- a written lease,
- good cause for eviction,
- disclosure of fees, and
- notification to residents of changed land use.
Certain states where the underlying multifamily rental properties are
located also--
- prohibit retaliatory evictions,
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- limit the reasons for which a landlord may terminate a tenancy or increase
rent, and
- prohibit a landlord from terminating a tenancy solely because the building
has been sold.
In addition, numerous counties and municipalities impose rent control
regulations on apartment buildings. These regulations may limit rent increases
to--
- fixed percentages,
- percentages of increases in the consumer price index,
- increases set or approved by a governmental agency, or
- increases determined through mediation or binding arbitration.
In many cases, the rent control laws do not permit vacancy decontrol. Any
limitations on a borrower's ability to raise property rents may impair that
borrower's ability to repay its pooled mortgage loan from its net operating
income or the proceeds of a sale or refinancing of the related multifamily
rental property.
RISKS ASSOCIATED WITH RELATED PARTIES. Certain groups of borrowers under
the mortgage loans to be included in the trust are under common control. The
largest of these groups of affiliated borrowers are obligors under mortgage
loans representing 17.4% of the initial mortgage pool balance. Further, certain
tenants lease space at more than one of the underlying real properties. See
Annex A-1 to this prospectus supplement. The bankruptcy or insolvency of, or
other financial problems with respect to, any such borrower or tenant could have
an adverse effect on the operation of all of the related underlying real
properties and on the ability of those properties to produce sufficient cash
flow to make required payments on the related mortgage loans in the trust. See
"Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws" in the accompanying
prospectus.
DEPENDENCE ON CREDIT TENANT LEASES HAS SPECIAL RISKS. Seven of the mortgage
loans to be included in the trust, representing 2.3% of the initial mortgage
pool balance, are secured by an underlying real property that is subject to a
credit tenant lease. Based on the foregoing, these mortgage loans were generally
underwritten to lower debt service coverage ratios and higher loan-to-value
ratios than would have been acceptable had the underlying real properties been
leased to less creditworthy tenants. In the event that the tenant defaults in
its obligations under a credit tenant lease, the underlying real property may
not be relet for sufficiently high rent to support debt service on the related
mortgage loan in the trust or funds received in liquidation of that property may
not be sufficient to satisfy the borrower's obligations under that mortgage
loan.
Any rating assigned to the tenant under a credit tenant lease, an affiliate
of that tenant or another guarantor of that tenant's obligations under that
lease, as applicable, by a rating agency will reflect only the rating agency's
current assessment of the relevant obligations of that entity. The rating is not
an assessment of the likelihood that the particular credit tenant lease will not
be terminated, pursuant to its terms or otherwise, or that the related mortgage
loan in the trust will be timely repaid in full. In addition, the assigning
rating agency may reduce or withdraw that rating at any time, and there is no
assurance that the assigning rating agency is not currently contemplating the
taking of that action. A downgrade in that rating may have a related adverse
effect on the rating of your certificates even if there is no default under the
related mortgage loan in the trust.
See "Description of the Mortgage Pool--Credit Lease Loans" in this
prospectus supplement.
LOAN CONCENTRATION ENTAILS RISK. In general, the inclusion in a mortgage
pool of one or more loans that have outstanding principal balances that are
substantially larger than the other mortgage loans in the pool can result in
losses that are more severe, relative to the size of the pool, than would be the
case if the aggregate balance of the pool were distributed more evenly. Several
of the mortgage loans that we are pooling have cut-off date principal balances
that are substantially higher than the average cut-off date principal balance,
which is $7,215,122. The following table sets forth cut-off date principal
balances and
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certain other information for the four largest individual mortgage loans to be
included in the trust. See "Description of the Mortgage Pool--Significant
Mortgage Loans" in this prospectus supplement for a description of each of the
mortgage loans listed on the following table.
CUT-OFF DATE PRINCIPAL BALANCES AND CONCENTRATION OF SIGNIFICANT MORTGAGE LOANS
<TABLE>
<CAPTION>
CUT-OFF DATE
% OF INITIAL CUT-OFF DEBT SERVICE
CUT-OFF DATE MORTGAGE DATE COVERAGE
MORTGAGE LOAN(1) PRINCIPAL BALANCE POOL BALANCE LTV RATIO RATIO(2)
- ---------------- ----------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Cherry Creek Mortgage Loan...................... $148,497,918 10.8% 47.6% 1.71x
Annapolis Mall Mortgage Loan.................... $123,031,572 9.0% 58.3% 1.51x(3)
Westfield Portfolio Mortgage Loan............... $ 99,000,000 7.2% 43.0% 1.87x
Sangertown Square Mortgage Loan................. $ 62,145,749 4.5% 40.9% 1.76x
</TABLE>
- ------------------------
(1) Each of the Mortgage Loans listed above is shadow rated investment grade by
Fitch IBCA, Inc. and Moody's Investor Services Inc.
(2) Based on underwritten net cash flow.
(3) Has $15 million letter of credit as additional collateral, which letter of
credit is subject to reduction or release upon the satisfaction of certain
conditions.
GEOGRAPHIC CONCENTRATION ENTAILS RISKS. A concentration of underlying real
properties in a particular locale, state or region increases the exposure of the
mortgage pool to various factors, including:
- any adverse economic developments that occur in the locale, state or
region where the properties are located;
- changes in the real estate market where the properties are located;
- changes in governmental rules and fiscal policies in the governmental
jurisdiction where the properties are located; and
- acts of nature, including floods, tornadoes and earthquakes, in the areas
where the properties are located.
The underlying real properties are located in thirty-one states. The
underlying real properties located in each of the following states secure
mortgage loans that represent more than 3.0% of the initial mortgage pool
balance:
<TABLE>
<CAPTION>
TOTAL CUT-OFF DATE % OF
PRINCIPAL BALANCE OF INITIAL
MORTGAGE LOANS SECURED BY MORTGAGE
STATE PROPERTIES IN THE PARTICULAR STATE POOL BALANCE
- ----- ---------------------------------- ------------
<S> <C> <C>
California............................ $206,314,914 15.0%
New York.............................. $192,983,682 14.1%
Maryland.............................. $188,926,836 13.8%
Colorado.............................. $169,992,147 12.4%
Texas................................. $111,400,054 8.1%
New Jersey............................ $ 75,102,411 5.5%
Georgia............................... $ 65,331,181 4.8%
</TABLE>
RISK OF CHANGES IN MORTGAGE POOL COMPOSITION. The pooled mortgage loans
will amortize at different rates and mature during the period from 2004 to 2030.
In addition, certain pooled mortgage loans may be prepaid or liquidated. As a
result of the foregoing, the relative composition of the mortgage pool will
change over time.
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If you purchase offered certificates with a pass-through rate that is equal
to, limited by or calculated based upon a weighted average of certain net
interest rates on the pooled mortgage loans, your pass-through rate will be
affected, and may decline, as the relative composition of the mortgage pool
changes.
In addition, as payments and other collections of principal are received
with respect to the pooled mortgage loans, the remaining mortgage pool may
exhibit an increased concentration with respect to property type, number and
affiliation of borrowers and geographic location. The later the assumed final
distribution date for your certificates, the more likely you are to be exposed
to any risks associated with changes in concentrations of borrower, loan or
property characteristics.
EXTENSION AND DEFAULT RISKS ASSOCIATED WITH BALLOON LOANS AND ARD
LOANS. One hundred fifty-four of the pooled mortgage loans, representing 46.9%
of the initial mortgage pool balance, are balloon loans, and 31 of the pooled
mortgage loans, representing 51.4% of the initial mortgage pool balance, are ARD
loans. The ability of a borrower under a balloon loan to make the required
balloon payment at maturity, and the ability of a borrower under an ARD loan to
repay that mortgage loan on or before the related anticipated repayment date, in
each case depends upon its ability to refinance the loan or to sell the
underlying real property and, further, on the financial strength and business
plans of the borrower's sponsor. The ability of a borrower to refinance its
mortgage loan or sell its underlying real property will be affected by a number
of factors occurring at the time of attempted refinancing or sale, including:
- the level of available mortgage rates;
- the fair market value of the property;
- the borrower's equity in the property;
- the financial condition of the borrower;
- operating history of the property;
- tax laws;
- prevailing general and regional economic conditions; and
- the availability of credit for multifamily or commercial properties
generally.
See "Description of the Mortgage Pool--Certain Terms and Conditions of the
Mortgage Loans" and "--Additional Mortgage Loan Information" in this prospectus
supplement and "Risk Factors--Balloon Payments; Borrower Default" in the
accompanying prospectus.
Any failure of a borrower under a balloon loan to timely pay its balloon
payment will be a default thereunder. Subject to certain limitations, which we
describe later, the special servicer may extend, modify or otherwise deal with
pooled mortgage loans that are in material default or as to which a payment
default is reasonably foreseeable. See "Servicing of the Mortgage
Loans--Modifications, Waivers, Amendments and Consents" in this prospectus
supplement. There can be no assurance that any extension or modification will
increase the recoveries in any given case.
The failure of a borrower under an ARD loan to repay that mortgage loan by
the related anticipated repayment date will not constitute a default thereunder.
Although an ARD loan includes several provisions that give the borrower an
incentive to repay the mortgage loan by the related anticipated repayment date,
there can be no assurance that the borrower will be sufficiently motivated or
able to do so.
If any balloon loan in the trust remains outstanding past its stated
maturity, or if any ARD loan in the trust remains outstanding past its
anticipated repayment date, the weighted average lives of one or more classes of
the offered certificates may be extended. See "Yield and Maturity
Considerations" in this prospectus supplement and "Yield and Prepayment
Considerations" in the accompanying prospectus.
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RISKS OF SUBORDINATE AND OTHER ADDITIONAL FINANCING. While each of the
mortgage loans to be included in the trust either (i) prohibits the related
borrower from encumbering the underlying real property with additional secured
debt or (ii) requires the consent of the mortgagee under the related mortgage
loan prior to so encumbering such property, a violation of that prohibition may
not become evident until the mortgage loan otherwise defaults. The existence of
any subordinated indebtedness increases the difficulty of refinancing the
mortgage loan at maturity, and the related borrower may have difficulty repaying
multiple loans. See "Certain Legal Aspects of Mortgage Loans--Secondary
Financing; Due-On-Encumbrance Provisions" in the accompanying prospectus. Four
of the mortgage loans, described in "Description of the Mortgage
Pool--Significant Mortgage Loans" in this prospectus supplement and representing
31.6% of the initial mortgage pool balance, are each secured by real property
that secures another mortgage loan that is not an asset of the trust, which
other loan was originated at the same time as the related mortgage loan that is
an asset of the trust. Furthermore, certain of the mortgage loans to be included
in the trust permit, and certain of the borrowers under those mortgage loans
have incurred, additional unsecured indebtedness for operating costs or similar
purposes. Additional debt, in any form, may cause a diversion of funds from
property maintenance and increase the likelihood that the borrower will become
the subject of a bankruptcy proceeding.
Owners of certain borrowers may incur indebtedness that is secured by their
ownership interests in those borrowers. This type of financing effectively
reduces the indirect equity interest of any such owner in the underlying real
property. With respect to two of the mortgage loans to be included in the trust,
representing 1.3% of the initial mortgage pool balance, the owners of the
related borrower were known to us to have incurred such indebtedness, so-called
"mezzanine debt", as of the origination date of the mortgage loan.
We have not been able to confirm the existence of any other debt of the
respective borrowers under the mortgage loans that we are pooling.
LIMITED RECOURSE. You should consider all of the mortgage loans that we are
pooling to be nonrecourse loans. Accordingly, in the event of a default,
recourse will be limited to the underlying real property or properties securing
the defaulted mortgage loan. In those cases where recourse to a borrower or
guarantor is permitted by the loan documents, we have not undertaken any
evaluation of the financial condition of that borrower or guarantor.
Consequently, payment on each pooled mortgage loan prior to maturity is
dependent on one or more of the following:
- the sufficiency of the net operating income;
- the market value of the property at maturity; or
- the ability of the borrower to refinance the underlying real property.
None of the mortgage loans to be included in the trust is insured or
guaranteed by any governmental entity or private insurer.
ENVIRONMENTAL RISKS. A third-party environmental consultant conducted an
environmental site assessment (or updated a previously conducted assessment)
with respect to each of the underlying real properties no more than 12 months
(or, in 11 cases, representing security for 1.9% of the initial mortgage pool
balance, no more than 18 months) preceding the cut-off date. Each of those
environmental site assessments or updates generally complied with ASTM
standards. In the case of certain of the underlying real properties, a "Phase
II" environmental assessment was also performed. If any of those assessments or
updates revealed a material adverse environmental condition or circumstance at
any underlying real property, then, depending on the nature of the condition or
circumstance, one of the following actions has been or is expected to be taken--
- implementation of an operations and maintenance plan, including, in
several cases, in respect of asbestos-containing materials, lead-based
paint and/or radon, or periodic monitoring of nearby properties, in the
manner and within the time frames specified in the related loan documents;
or
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- establishment of an escrow reserve to cover the estimated cost of
remediation.
There can be no assurance, however, that the environmental assessments
identified all environmental conditions and risks or that the related borrowers
will implement all recommended operations and maintenance plans. In addition,
the current environmental condition of the underlying real properties could be
adversely affected by tenants, which include gas stations and dry cleaners, or
by the condition of land or operations in the vicinity of those properties, such
as underground storage tanks.
Liability of the Trust Under Environmental Laws. Various environmental laws
may make a current or previous owner or operator of real property liable for the
costs of removal or remediation of hazardous or toxic substances on, under or
adjacent to that property. Those laws often impose liability whether or not the
owner or operator knew of, or was responsible for, the presence of those
hazardous or toxic substances. For example, certain laws impose liability for
release of asbestos-containing materials into the air or require the removal or
containment of asbestos-containing materials. The owner's liability for any
required remediation generally is not limited by law and accordingly could
exceed the value of the property and/or the aggregate assets of the owner. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate the adverse environmental condition, may adversely affect the owner's
or operator's ability to use the property. In certain states, contamination of a
property may give rise to a lien on the property to ensure the costs of cleanup.
In some states, this lien has priority over the lien of an existing mortgage. In
addition, third parties may seek recovery from owners or operators of real
property for personal injury associated with exposure to hazardous substances.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may be liable for the costs of removal or remediation of these
substances at the disposal or treatment facility.
The federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, commonly referred to as "CERCLA", as well as certain
other federal and state laws, provide that a secured lender such as the trust
may be liable, as an "owner" or "operator" of the real property, regardless of
whether the borrower or a previous owner caused the environmental damage, if--
- agents or employees of the lender are deemed to have participated in the
management of the borrower, or
- under certain conditions the lender actually takes possession of a
borrower's property or control of its day-to-day operations, such as
through the appointment of a receiver or foreclosure.
Although recently enacted legislation clarifies the activities in which a
lender may engage without becoming subject to liability under CERCLA and similar
federal laws, that legislation has no applicability to state environmental laws.
Moreover, future laws, ordinances or regulations could impose material
environmental liability.
See "Certain Legal Aspects of the Mortgage Loans--Environmental Matters" in
the accompanying prospectus.
Risks Related to Lead-Based Paint at Multifamily Rental Properties. Federal
law requires owners of residential housing constructed prior to 1978 to disclose
to potential residents or purchasers any condition on the property that causes
exposure to lead-based paint and the potential hazards to pregnant women and
young children, including that the ingestion of lead-based paint chips and/or
the inhalation of dust particles from lead-based paint by children can cause
permanent injury, even at low levels of exposure. Property owners can be held
liable for injuries to their tenants resulting from exposure under various laws
that impose affirmative obligations on property owners of residential housing
containing lead-based paint. The environmental assessments revealed the
existence of lead-based paint at certain of the underlying multifamily rental
properties. In these cases, the related borrowers have either implemented
operations and maintenance programs or are in the process of removing the
lead-based paint.
Risks Related to Off-Site LUSTs. Certain of the underlying real properties
are in the vicinity of sites containing leaking underground storage tanks or
other potential sources of groundwater contamination.
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Although the owners of those properties and the trust may not have legal
liability for contamination of the properties from the off-site sources, the
enforcement of rights against third parties may result in additional transaction
costs. Furthermore, those third parties may not be financially able to cover the
clean-up costs.
Risks Related to Asbestos-Containing Materials. At several of the
underlying real properties, asbestos-containing materials have been detected
through sampling by environmental consultants. The asbestos-containing materials
found at these properties are not expected to present a significant risk as long
as each of the properties continues to be properly managed. In connection
therewith, the related borrowers have agreed to establish and maintain
operations and maintenance or abatement programs and/or have funded
environmental reserves. Nonetheless, there can be no assurance that the value of
an underlying real property as collateral for a mortgage loan in the trust will
not be adversely affected by the presence of asbestos-containing materials.
RISKS RELATED TO PROPERTY CONDITION. Except for certain of the underlying
real properties that are subject to credit tenant leases, licensed engineers
inspected each of the underlying real properties during the twelve-month period
preceding the cut-off date to assess the structure, exterior walls, roofing,
interior construction, mechanical and electrical systems and general condition
of the site, buildings and other improvements located at the property. In some
cases, the inspections identified conditions at a particular property requiring
repairs or replacements estimated to cost in excess of $100,000. In those cases,
the related originator generally required the related borrower to fund reserves,
or deliver letters of credit or other instruments, to cover those costs. There
is no assurance, however, that all conditions requiring repair or replacement
were identified or that such reserves, letters of credit or other instruments
will be adequate to cover the corresponding costs.
LIMITATIONS ON ENFORCEABILITY OF CROSS-COLLATERALIZATION. The mortgage pool
will include 24 mortgage loans that are, either individually or through
cross-collateralization with other pooled mortgage loans, secured by more than
one real property. Certain of these mortgage loans or particular groups thereof
provide for a full or partial termination of any applicable
cross-collateralization and/or a release of one or more of the related
underlying real properties from the related mortgage lien(s), upon the
satisfaction of the conditions described under "Description of the Mortgage
Pool--Certain Terms and Conditions of the Mortgage Loans" in this prospectus
supplement. Twenty of the mortgage loans referred to in the first sentence of
this paragraph or particular groups thereof have, in each case, more than one
borrower. Such "multi-borrower" mortgage loans collectively represent 14.5% of
the initial mortgage pool balance. If a borrower under any of the
"multi-borrower" mortgage loans were to become a debtor in a bankruptcy case,
the creditors of that borrower or the representative of that borrower's
bankruptcy estate could challenge the pledging of that borrower's underlying
real property as a fraudulent conveyance. A lien granted by a bankrupt borrower
under any of the "multi-borrower" mortgage loans to secure repayment of another
borrower's mortgage loan or share of the related loan proceeds, as the case may
be, could be avoided if a court were to determine that--
- the bankrupt borrower was:
(i) insolvent at the time of granting the lien,
(ii) rendered insolvent by the granting of the lien,
(iii) left with inadequate capital, or
(iv) not able to pay its debts as they matured; and
- the bankrupt borrower did not receive fair consideration or reasonably
equivalent value for pledging its underlying real property for the equal
benefit of that other borrower.
Among other things, a legal challenge to the granting of the lien may focus
on the benefits realized by the bankrupt borrower from the respective mortgage
loan proceeds, as well as the benefit to it from the related
cross-collateralization arrangement. If a court were to conclude that the
granting of the lien was an
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avoidable fraudulent conveyance, that court could nullify the lien or mortgage
effecting the cross-collateralization and nullify or subordinate all or part of
the related mortgage loan(s) to existing or future indebtedness of that bankrupt
borrower. The court could also allow the bankrupt borrower to recover payments
it made pursuant to the avoided cross-collateralization.
LIMITATIONS ON ENFORCEABILITY AND COLLECTABILITY OF PREPAYMENT PREMIUMS AND
YIELD MAINTENANCE CHARGES. All the pooled mortgage loans require that, during
some period of the related loan term, any voluntary principal prepayment be
accompanied by an additional amount of prepayment consideration, generally
calculated as a percentage of the amount prepaid and/or based on a yield
maintenance formula. See "Description of the Mortgage Pool--Certain Terms and
Conditions of the Mortgage Loans--Prepayment Provisions" in this prospectus
supplement. Any prepayment consideration collected on the pooled mortgage loans,
including as a result of involuntary prepayments of principal, will be
distributed to the persons and in the amounts and priorities described in this
prospectus supplement under "Description of the Offered
Certificates--Distributions--Distributions of Prepayment Premiums and Yield
Maintenance Charges". We make no representation or warranty, however, as to the
collectability of any prepayment consideration.
The enforceability, under the laws of a number of states, of provisions
providing for the payment of prepayment consideration upon an involuntary
prepayment is unclear. Accordingly, the obligation of any borrower under its
pooled mortgage loan to pay prepayment consideration in connection with an
involuntary prepayment may not be enforceable under applicable law. In addition,
even if the obligation is enforceable, any related liquidation proceeds may not
be sufficient to make that payment. Liquidation proceeds will be applied to
cover outstanding servicing expenses and unpaid principal and interest prior to
being applied to cover any prepayment consideration due in connection with the
liquidation of a pooled mortgage loan. Furthermore, the special servicer has
authority to waive the payment of prepayment consideration in connection with
obtaining a pay-off of a defaulted mortgage loan. See "Servicing of the Mortgage
Loans--Modifications, Waivers, Amendments and Consents" in this prospectus
supplement and "Certain Legal Aspects of Mortgage Loans--Enforceability of
Prepayment and Late Payment Fees" in the accompanying prospectus.
A prepayment of any of the pooled mortgage loans due to a casualty or
condemnation at the related underlying real property could occur at any time and
generally would not be accompanied by any prepayment consideration.
In circumstances involving the sale of mortgage loans by the trust, no
prepayment consideration will be payable. See "Description of the Mortgage
Pool--Cures and Repurchases", "Servicing of the Mortgage Loans--Realization Upon
Defaulted Mortgage Loans; Sale of Defaulted Mortgage Loans and REO Properties"
and "Description of the Offered Certificates--Termination" in this prospectus
supplement.
LIMITATIONS ON ENFORCEABILITY OF OTHER PROVISIONS. Each of the mortgage
loans to be included in the trust contains a due-on-sale clause that permits the
lender to accelerate the maturity of the mortgage loan upon the sale, transfer
or conveyance of the related underlying real property or certain interests in
the related borrower in violation of the related loan documents. Each of the
mortgage loans that we are pooling also includes debt-acceleration clauses, each
of which permits the lender to accelerate the debt upon specified monetary or
non-monetary defaults by the borrower. The courts of all states will enforce
acceleration clauses in the event of a material payment default. The equity
courts of any state, however, may refuse to allow the foreclosure of a mortgage
lien or to permit the acceleration of the indebtedness if--
- the default is deemed to be immaterial,
- the exercise of those remedies would be inequitable or unjust, or
- the circumstances would render the acceleration unconscionable.
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All of the mortgage loans that we are pooling are, in each case, secured by
an assignment of leases and rents pursuant to which the related borrower
assigned its right, title and interest as landlord under the leases on the
related underlying real property and the income derived therefrom to the lender
as further security for the mortgage loan, while retaining a license to collect
rents for so long as there is no default. In the event the borrower defaults,
the license terminates and the lender is entitled to collect rents. In some
cases, those assignments may not be perfected as security interests prior to
actual possession of the cash flow. In some cases, state law may require that
the lender take possession of the underlying real property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the mortgagor, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of Mortgage Loans--Leases and Rents" in the
accompanying prospectus.
TAX CONSIDERATIONS RELATED TO FORECLOSURE. If the trust were to acquire an
underlying real property pursuant to a foreclosure or deed in lieu of
foreclosure, the special servicer would be required to retain an independent
contractor to operate and manage the property. Any net income from that
operation and management, other than qualifying "rents from real property"
within the meaning of section 856(d) of the Internal Revenue Code of 1986, or
any rental income based on the net profits of a tenant or sub-tenant or
allocable to a service that is non-customary in the area and for the type of
building involved, will subject the trust to federal, and possibly state or
local, tax as described under "Federal Income Tax Consequences--Possible Taxes
on Income from Foreclosure Property and Other Taxes" in this prospectus
supplement, thereby reducing net proceeds available for distribution with
respect to the series 2000-C1 certificates.
UNINSURED LOSS; SUFFICIENCY OF INSURANCE. The related borrowers are
generally required to maintain comprehensive liability insurance, "all-risk"
fire, casualty and hazard insurance, flood insurance (if required by applicable
law) and rental income insurance with respect to the underlying real properties,
with policy specifications, limits and deductibles customarily carried for
similar properties. Certain types of losses, however, may be either uninsurable
or not economically insurable, such as losses due to riots or acts of war or
earthquakes. Should an uninsured loss occur, the borrower could lose both its
investment in and its anticipated profits and cash flow from its underlying real
property. This would adversely affect the borrower's ability to make payments
under its pooled mortgage loan. Although, in general, the borrowers have
covenanted to insure their respective underlying real properties as described
under "Description of the Mortgage Pool--Additional Mortgage Loan
Information--Hazard, Liability and Other Insurance" in this prospectus
supplement, there is a possibility of casualty losses with respect to a property
for which insurance proceeds may not be adequate. Consequently, there can be no
assurance that any loss incurred will not exceed the limits of policies
obtained.
In addition, earthquake insurance is not required to be maintained by a
borrower, except in the case of underlying real properties located in the state
of California or in "Seismic Zones 3 or 4" where a seismic assessment revealed a
probable or bounded maximum loss in excess of 20% of the amount of the estimated
cost of the improvements. In certain cases where earthquake insurance was
obtained with respect to an underlying real property, that property may be
covered under a blanket policy which also covers other underlying real
properties and/or other properties not securing the pooled mortgage loans. As a
result of aggregate and per occurrence limits under any such blanket policy,
losses at other properties covered thereby may reduce the amount of insurance
coverage with respect to an underlying real property covered thereby.
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RISKS PARTICULAR TO GROUND LEASES. Five of the mortgage loans to be
included in the trust, representing 14.1% of the initial mortgage pool balance,
are secured by mortgage liens on the related borrower's leasehold interest in
all or a portion of the underlying real property. Upon the bankruptcy of a
lessor or a lessee under a ground lease, the bankrupt entity has the right to
assume or reject the ground lease. If a bankrupt lessor rejects the lease, the
lessee has the right to remain in possession of its leased premises under the
rent reserved in the lease for the term, including renewals. If a bankrupt
lessee/borrower rejects any or all of its leases, the borrower's lender may not
be able to succeed to the lessee/borrower's position under the lease unless the
lessor has specifically granted the lender that right. The ground leases related
to some of those pooled mortgage loans do not grant the lender this right. If
both the lessor and the lessee/ borrower are involved in bankruptcy proceedings,
the trustee may be unable to enforce the bankrupt lessee/borrower's obligation
to refuse to treat as terminated a ground lease rejected by a bankrupt lessor.
In those circumstances, it is possible that the trustee could be deprived of its
security interest in the leasehold estate, notwithstanding lender protection
provisions contained in the lease or mortgage. See "Certain Legal Aspects of
Mortgage Loans--Leasehold Risks" in the accompanying prospectus.
RISKS ASSOCIATED WITH ZONING COMPLIANCE. Due to changes in zoning
requirements since the construction thereof, certain of the underlying real
properties may not comply with current zoning laws, including density, use,
parking and set back requirements. In general, each of these properties is
considered to be a permitted non-conforming use or structure. This means that
the borrower is not required to alter its structure to comply with the new law.
However, the borrower may be limited in its ability to rebuild the premises "as
is" in the event of a substantial casualty loss. This may adversely affect the
cash flow available following the casualty. If a substantial casualty were to
occur, insurance proceeds may not be sufficient to pay the related pooled
mortgage loan in full. In addition, if the property were repaired or restored in
conformity with the current law, the value of the property or the
revenue-producing potential of the property may be less than that which existed
before the casualty.
COSTS ASSOCIATED WITH COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT OF
1990. Under the Americans with Disabilities Act of 1990, all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. If an underlying real property does not
currently comply with the Americans with Disabilities Act of 1990, the related
borrower may be required to incur significant costs in order bring the property
into compliance. In addition, noncompliance could result in the imposition of
fines by the federal government or an award of damages to private litigants.
LITIGATION. You should be aware that there may be legal proceedings pending
and, from time to time, threatened against the borrowers under the pooled
mortgage loans. We cannot provide any assurance that this litigation will not
have a material adverse effect on the distributions to you.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
We are establishing a trust, to be designated as "LB-UBS Commercial Mortgage
Trust 2000-C1". The assets of the trust will primarily consist of a pool of
certain multifamily and commercial mortgage loans (each, a "Mortgage Loan")
having the characteristics described in this prospectus supplement. The mortgage
pool has an "Initial Pool Balance" of $1,370,873,184, subject to a variance of
plus or minus 5%. The Initial Pool Balance is equal to the aggregate Cut-off
Date Balance of the Mortgage Loans. The "Cut-off Date Balance" of each Mortgage
Loan is equal to its unpaid principal balance as of March 11, 2000 (the "Cut-off
Date") after application of all payments due in respect of such Mortgage Loan on
or before that date, whether or not received. The Cut-off Date Balances of the
Mortgage Loans range from $298,955 to $148,497,918, and the average Cut-off Date
Balance of the Mortgage Loans is $7,215,122.
This "Description of the Mortgage Pool" section contains certain statistical
information regarding the Mortgage Loans and the underlying real properties. In
reviewing this information, as well as the statistical
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information regarding the Mortgage Loans and the underlying real properties
contained elsewhere in this prospectus supplement, you should be aware that--
- All numerical information provided with respect to the Mortgage Loans is
provided on an approximate basis.
- All weighted average information provided with respect to the Mortgage
Loans reflects weighting of the Mortgage Loans by their Cut-off Date
Balances.
- When information with respect to the underlying real properties is
expressed as a percentage of the Initial Pool Balance, such percentage is
based upon the Cut-off Date Balances of the related Mortgage Loans.
- In certain cases involving a Mortgage Loan that is secured by multiple
underlying real properties, a portion of the Mortgage Loan has been
allocated to each of those underlying real properties.
- Statistical information regarding the Mortgage Loans may change prior to
the date of initial issuance of the offered certificates due to changes in
the composition of the mortgage pool prior to that date.
Each Mortgage Loan constitutes the obligation of one or more persons
(individually and collectively, as to that Mortgage Loan, the "Borrower") to
repay a specified sum with interest. Each Mortgage Loan is evidenced by a
promissory note (a "Mortgage Note"). The repayment of each Mortgage Loan is
secured by a mortgage, deed of trust, deed to secure debt or other similar
security instrument (a "Mortgage") that creates a first mortgage lien on the fee
simple and/or leasehold interest of the related Borrower or a related party in
one or more commercial or multifamily real properties (each, a "Mortgaged
Property"), subject only to the following encumbrances (collectively, the
"Permitted Encumbrances")--
- liens for real estate taxes and special assessments not yet due and
payable,
- covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of the related
Mortgage, such exceptions appearing of record being customarily acceptable
to mortgage lending institutions generally or specifically reflected in
the appraisal of the related Mortgaged Property made in connection with
the origination of the Mortgage Loan, and
- other matters to which like properties are commonly subject which do not,
individually or in the aggregate, materially and adversely affect the
value or marketability of the related Mortgaged Property.
In general, the Mortgage Loans are secured by the Borrower's or a related
party's fee simple interest in the related Mortgaged Property or Properties, by
the Borrower's or a related party's leasehold interest and the ground lessor's
fee interest in the related Mortgaged Property or Properties or by the
Borrower's or a related party's fee interest in most of the related Mortgaged
Property or Properties and its leasehold interest in the rest of the Mortgaged
Property or Properties. However, three Mortgage Loans, representing 12.0% of the
Initial Pool Balance, are secured solely by the Borrower's or a related party's
leasehold interest in most or all the related Mortgaged Property. In the case of
those three Mortgage Loans, the ground lessor has agreed to give the holder of
the Mortgage Loan notice of, and the right to cure, any default by the lessee,
and the term of the ground lease (taking into account extension options) extends
at least ten (10) years beyond the maturity date of the Mortgage Loan. The
related Borrower's interest in a Mortgaged Property securing a Mortgage Loan
that represents 2.65% of the Initial Pool Balance, is subject to the right of
the previous owner of that Mortgaged Property to receive a percentage of the net
proceeds of any sale of that Mortgaged Property prior to June 10, 2000.
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The table below shows the number of, and the percentage of the Initial Pool
Balance represented by, Mortgage Loans secured by Mortgaged Properties operated
for each indicated purpose:
<TABLE>
<CAPTION>
% OF
NUMBER OF INITIAL MORTGAGE
PROPERTY TYPE LOANS POOL BALANCE
- ------------- --------- ----------------
<S> <C> <C>
Retail...................................................... 48 50.9%
Regional Malls............................................ 4 31.6%
Other Anchored Retail..................................... 29 15.4%
Unanchored Retail......................................... 15 3.9%
Office...................................................... 31 20.9%
Multifamily................................................. 58 14.5%
Industrial/Warehouse........................................ 14 4.1%
Mobile Home Parks........................................... 18 2.9%
Hospitality................................................. 8 2.6%
Full Service.............................................. 2 1.1%
Limited Service........................................... 6 1.4%
Credit Tenant Leases(1)..................................... 7 2.3%
Self Storage................................................ 2 1.0%
Mixed-use................................................... 4 0.7%
</TABLE>
- ------------------------
(1) Properties subject to credit tenant leases, regardless of property type.
The table below shows the number of, and the percentage of the Initial Pool
Balance represented by, Mortgage Loans secured by Mortgaged Properties located
in the indicated states:
<TABLE>
<CAPTION>
% OF
NUMBER OF INITIAL MORTGAGE
STATE LOANS POOL BALANCE
- ----- --------- ----------------
<S> <C> <C>
California.................................................. 18 15.0%
New York.................................................... 26 14.1%
Maryland.................................................... 9 13.8%
Colorado.................................................... 4 12.4%
Texas....................................................... 30 8.1%
New Jersey.................................................. 13 5.5%
Georgia..................................................... 6 4.8%
</TABLE>
The remaining Mortgage Loans are secured by Mortgaged Properties located
throughout 24 other states. No more than 3.0% of the Initial Pool Balance is
secured by Mortgaged Properties located in any of those other jurisdictions.
All of the Mortgage Loans were originated by--
- Lehman Brothers Bank FSB and various of our other affiliates, directly or
through conduit originators (the Mortgage Loans originated thereby, the
"Lehman Loans"), and
- UBS Principal Finance LLC and various of its affiliates, directly or
through conduit originators (the Mortgage Loans originated thereby, the
"UBS Loans").
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
DUE DATES. Each Mortgage Loan provides for scheduled payments of principal
and/or interest ("Scheduled P&I Payments") to be due on a particular day each
month (its monthly "Due Date"). Eighty-eight of the Mortgage Loans, representing
38.2% of the Initial Pool Balance, provide for Scheduled P&I Payments to be due
on the first day of each month, 21 of the Mortgage Loans, representing 10.1% of
the Initial Pool Balance, provide for Scheduled P&I Payments to be due on the
6th day of each month and the
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due date for 80 of the Mortgage Loans, representing 50.5% of the Initial Pool
Balance, provide for Scheduled P&I Payments to be due on the eleventh day of
each month. The remaining Mortgage Loan provides for Scheduled P&I Payments to
be due on the 10th day of each month.
MORTGAGE RATES; CALCULATIONS OF INTEREST. Each Mortgage Loan currently
bears interest at the annual rate (the "Mortgage Rate") set forth with respect
to that Mortgage Loan on Annex A-1 to this prospectus supplement. The Mortgage
Rate for each Mortgage Loan is fixed until maturity, except in the case of the
Annapolis Mall Mortgage Loan, the Westfield Portfolio Mortgage Loan and the
Sangertown Square Mortgage Loan as to which, in each such case, the related
Mortgage Rate equals the weighted average from time to time of certain fixed
rates on the two components of the particular Mortgage Loan. As described below,
however, each ARD Loan (as defined below under "--Certain Terms and Conditions
of the Mortgage Loans--ARD Loans") will accrue interest after its Anticipated
Repayment Date at a rate that is in excess of the Mortgage Rate otherwise in
effect. As used in this prospectus supplement, the term "Mortgage Rate" does not
include the incremental increase in the rate at which interest may accrue on any
Mortgage Loan due to a default or on any ARD Loan after its Anticipated
Repayment Date (as defined below under "--Certain Terms and Conditions of the
Mortgage Loans--ARD Loans"). As of the Cut-off Date, the Mortgage Rates for the
Mortgage Loans ranged from 7.43% per annum to 9.75% per annum, and the weighted
average Mortgage Rate for the Mortgage Loans was 8.336% per annum.
No Mortgage Loan provides for negative amortization or, except as described
below with respect to the ARD Loans, for the deferral of interest.
Each Mortgage Loan will accrue interest on the basis of one of the following
conventions as detailed in Annex A-1 to this prospectus supplement:
- Actual number of days elapsed during each one-month accrual period in a
year assumed to consist of 360 days (an "Actual/360 Basis"). Mortgage
Loans that accrue interest on an Actual/360 Basis are referred to in this
prospectus supplement as "Actual/360 Mortgage Loans".
- A 360-day year consisting of twelve 30-day months (a "30/360 Basis").
Mortgage Loans that accrue interest on a 30/360 Basis are referred to in
this prospectus supplement as "30/360 Mortgage Loans".
BALLOON LOANS. One hundred fifty-four Mortgage Loans, representing 46.9% of
the Initial Pool Balance, are Balloon Loans.
A "Balloon Loan" is characterized by an amortization schedule that is
significantly longer than the actual term of the Mortgage Loan, thereby
resulting in a substantial Scheduled P&I Payment on its maturity date (such
payment, a "Balloon Payment").
ARD LOANS. Thirty-one Mortgage Loans, representing 51.4% of the Initial
Pool Balance, are ARD Loans.
An "ARD Loan" is characterized by the following features:
- A maturity date that is more than 25 years following origination.
- The designation of a date (the "Anticipated Repayment Date") that is
approximately 5-10 years following origination. The Anticipated Repayment
Date for each ARD Loan is listed on Annex A-1 to this prospectus
supplement.
- The ability of the related Borrower to prepay the Mortgage Loan, without
restriction, including without any obligation to pay any prepayment
consideration, at any time on or after a date which is within the 2-3
months prior to the related Anticipated Repayment Date.
- Until its Anticipated Repayment Date, the accrual of interest at its
Mortgage Rate.
- From and after its Anticipated Repayment Date, the accrual of interest at
a fixed annual rate (the "Revised Rate") that is at least two percentage
points (the actual difference being referred to as the "Additional
Interest Rate") in excess of its Mortgage Rate.
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<PAGE>
- The deferral of any interest accrued from and after the Anticipated
Repayment Date that is in excess of interest accrued at the related
Mortgage Rate on its unpaid principal balance outstanding from time to
time (such excess interest being referred to as "Additional Interest").
Any Additional Interest accrued in respect of an ARD Loan following its
Anticipated Repayment Date will not be payable until the entire principal
balance of, and all other sums due under, that Mortgage Loan have been
paid in full. In general, unpaid Additional Interest in respect of any ARD
Loan will compound monthly at the related Revised Rate.
- From and after the Anticipated Repayment Date, the application to
accelerated amortization of principal of certain excess monthly cash flow
from the related Mortgaged Property. Neither those accelerated
amortization payments nor Additional Interest are considered part of the
Scheduled P&I Payments due in respect of any ARD Loan.
By the related Anticipated Repayment Date, the Borrower under each ARD Loan
is required to enter into a lockbox agreement whereby all revenue from the
related Mortgaged Property will be deposited directly into a designated account
(the "Lockbox Account") controlled by the master servicer.
FULLY AMORTIZING LOANS. Five Mortgage Loans, representing 1.8% of the
Initial Pool Balance, are Fully Amortizing Loans.
A "Fully Amortizing Loan" is generally characterized by:
- substantially equal Scheduled P&I Payments throughout the term of the
Mortgage Loan, and
- an amortization schedule that is approximately equal to the actual term of
the Mortgage Loan.
AMORTIZATION OF PRINCIPAL. The table below shows the indicated information
regarding the amortization schedules and terms to maturity (or, in the case of
the ARD Loans, to their respective Anticipated Repayment Dates) for the Mortgage
Loans (or the specified sub-groups thereof) as of the Cut-off Date.
<TABLE>
<CAPTION>
FULLY
ARD AMORTIZING
BALLOON LOANS LOANS LOANS ALL LOANS
------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Original Term to Maturity or
Anticipated Repayment Date (mos.)
Maximum................................ 240 120 241 241
Minimum................................ 60 60 238 60
Weighted Average....................... 113 110 240 114
Remaining Term to Maturity or
Anticipated Repayment Date (mos.)
Maximum................................ 239 119 240 240
Minimum................................ 50 58 238 50
Weighted Average....................... 108 107 239 110
Original Amortization Term (mos.)(1)
Maximum................................ 360 360 241 360
Minimum................................ 154 300 238 154
Weighted Average....................... 344 347 240 344
Remaining Amortization Term (mos.)(1)
Maximum................................ 360 359 240 360
Minimum................................ 152 300 238 152
Weighted Average....................... 340 345 239 341
</TABLE>
1. Original Amortization Term and Remaining Amortization Term are calculated
without reference to full-term interest-only loans.
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<PAGE>
Certain Mortgage Loans provide for a recast of the amortization schedule and
an adjustment of the Scheduled P&I Payments thereon upon application of
specified amounts of condemnation proceeds or insurance proceeds to pay the
unpaid principal balance of the Mortgage Loan.
PREPAYMENT PROVISIONS. As of their respective dates of origination, all of
the Mortgage Loans prohibited voluntary prepayments for some specified period (a
"Lockout Period"). In certain cases, that Lockout Period is followed by one or
both of the following:
- a period (a "Defeasance Period") during which voluntary prepayments are
prohibited but the related Mortgaged Property may be released through
defeasance;
- a period (a "Prepayment Consideration Period") during which any voluntary
principal prepayment must be accompanied by a form of Prepayment
Consideration, and/or
- a period (an "Open Period") during which voluntary principal prepayments
may be made without any Prepayment Consideration.
The prepayment terms of each of the Mortgage Loans are more particularly
described in Annex A-1 to this prospectus supplement.
LOCKOUT PERIODS. As of the Cut-off Date, a Lockout Period was in effect for
all of the Mortgage Loans and--
- the maximum remaining combined Lockout Period and Defeasance Period as of
the Cut-off Date is 240 months;
- the minimum remaining combined Lockout Period and Defeasance Period as of
the Cut-off Date is 24 months; and
- the weighted average remaining combined Lockout Period and Defeasance
Period as of the Cut-off Date is 87 months.
PREPAYMENT CONSIDERATION. All the Mortgage Loans provide for a Prepayment
Consideration Period for some portion of the related loan term. The prepayment
consideration may be in the form of a Prepayment Premium or a Yield Maintenance
Charge. "Prepayment Premiums" are calculated as a percentage (which may decline
over time) of the principal amount prepaid. "Yield Maintenance Charges" are
calculated on the basis of a yield maintenance formula, subject, in some cases,
to a minimum equal to a specified percentage of the principal amount prepaid.
Prepayment Premiums and/or Yield Maintenance Charges actually collected on the
Mortgage Loans will be distributed to the persons and in the amounts and
priorities described under "Description of the Offered
Certificates--Distributions--Distributions of Prepayment Premiums and Yield
Maintenance Charges" in this prospectus supplement. We make no representation or
warranty as to the enforceability of the provision of any Mortgage Loan
requiring the payment of a Prepayment Premium or Yield Maintenance Charge or as
to the collectability of any Prepayment Premium or Yield Maintenance Charge. See
"Risk Factors--Risks Related to the Mortgage Loans--Limitations on
Enforceability and Collectability of Prepayment Premiums and Yield Maintenance
Charges" in this prospectus supplement and "Certain Legal Aspects of Mortgage
Loans--Enforceability of Prepayment and Late Payment Fees" in the accompanying
prospectus.
OPEN PERIODS. Where a Mortgage Loan provides for an Open Period, the Open
Period generally begins no more than six months prior to stated maturity (or, in
the case of an ARD Loan, prior to the related Anticipated Repayment Date). The
weighted average Open Period is 2.5 months.
DEFEASANCE. One hundred fifty-five Mortgage Loans, representing 70.2% of
the Initial Pool Balance, are Defeasance Loans. A "Defeasance Loan" is a
Mortgage Loan that, during specified periods and subject to certain conditions,
permits the related Borrower(s) to pledge to the holder of the Mortgage Loan the
requisite amount of direct, non-callable United States government securities
(the "Defeasance
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<PAGE>
Collateral") and thereby obtain a release of the related Mortgaged Property (or,
in the case of a Mortgage Loan or group of cross-collateralized Mortgage Loans
secured by multiple Mortgaged Properties, one or more of the related Mortgaged
Properties). In general, the Defeasance Collateral to be delivered in connection
with the defeasance of any Defeasance Loan must provide for a series of payments
that--
- will be made prior, but as close as possible, to all successive Due Dates
through and including the scheduled maturity date (or, in the case of an
ARD Loan, the Anticipated Repayment Date) for the Mortgage Loan, and
- will, in the case of each of those Due Dates, be in an aggregate amount
equal to or greater than the Scheduled P&I Payment due on that date (or,
in the case of an ARD Loan for its Anticipated Repayment Date, the then
remaining unpaid principal balance of that Mortgage Loan), with any excess
to be returned to the related Borrower.
If less than all of the Mortgaged Properties securing any Mortgage Loan or
group of cross-collateralized Mortgage Loans are to be released in connection
with a partial defeasance, the amount of the Defeasance Collateral will be
calculated based on the allocated loan amount for the Mortgaged Property or
Properties to be released and the portion of the Scheduled P&I Payments
attributable to that allocated loan amount.
In connection with any defeasance, the related Borrower is required to
deliver a security agreement granting the trust a first priority security
interest in the Defeasance Collateral, together with an opinion of counsel
confirming the first priority status of such security interest.
In no event is defeasance of any Defeasance Loan permitted prior to the
second anniversary of the date of initial issuance of the series 2000-C1
certificates.
"DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" PROVISIONS. All the Mortgage Loans
contain both a "due-on-sale" clause and a "due-on-encumbrance" clause. In
general, these clauses either permit the holder of the related Mortgage to
accelerate the maturity of the 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 related Mortgage. See
"--Additional Mortgage Loan Information--Other Financing" in this prospectus
supplement. Certain of the Mortgage Loans, however, permit one or more of the
following types of transfer:
- a transfer of the related Mortgaged Property if certain specified
conditions are satisfied or if the transfer is to a transferee reasonably
acceptable to the lender or a transferee that satisfies certain criteria;
- a transfer of the related Mortgaged Property to a person that is related
to the Borrower; or
- a transfer of certain beneficial interests in the Borrower.
See "Certain Legal Aspects of Mortgage Loans--Due-on-Sale Clauses in
Mortgage Loans" and "--Secondary Financing; Due-on-Encumbrance Provisions" in
the accompanying prospectus.
CROSS-COLLATERALIZED MORTGAGE LOANS. The mortgage pool includes 24 Mortgage
Loans that are, either individually or through cross- collateralization with
other such Mortgage Loans, secured by more than one Mortgaged Property. For
purposes of this prospectus supplement, all of those Mortgage Loans will
constitute "Cross-Collateralized Mortgage Loans". Certain of the
Cross-Collateralized Mortgage Loans or particular groups of them provide for a
full or partial termination of the applicable cross-collateralization and/or a
release of one or more of the related Mortgaged Properties from the related
mortgage lien(s), upon the satisfaction of one or more of the following
conditions:
- the pay down of the Mortgage Loan in an amount equal to a specified
percentage (generally between 100% and 125%) of the portion of the
aggregate loan amount allocated to the Mortgaged Property or Mortgaged
Properties to be released;
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<PAGE>
- the satisfaction of certain property performance tests (such as an
occupancy test) for the remaining Mortgaged Properties; and/or
- the satisfaction of certain debt service coverage and loan-to-value tests
for the remaining Mortgaged Properties.
The master servicer or the special servicer, as the case may be, will
determine whether to enforce the cross-default and cross-collateralization
rights upon a default with respect to any of the Cross-Collateralized Mortgage
Loans. The series 2000-C1 certificateholders will not have any right to
participate in or control that determination.
RELATED BORROWERS. Certain groups of borrowers under the Mortgage Loans are
under common control. The largest group of affiliated Borrowers are the obligors
under the Westfield Portfolio Mortgage Loan, the Annapolis Mall Mortgage Loan
and one other Mortgage Loan (identified as being secured by the Eagle Rock
property on Annex A-1), which together represent 17.4% of the Initial Pool
Balance.
NONRECOURSE NATURE OF MORTGAGE LOANS. You should consider each Mortgage
Loan to be a nonrecourse obligation of the related Borrower. Accordingly, in the
event of a payment default, the recourse of the trust will be limited to the
related Mortgaged Property or Properties for satisfaction of the Borrower's
obligations. In those cases where the related Mortgage Loan documents permit
recourse to a Borrower or guarantor, we have not undertaken an evaluation of the
financial condition of any such person. None of the Mortgage Loans is insured or
guaranteed by any governmental entity or by any private insurer.
CREDIT LEASE LOANS
Seven Mortgage Loans, representing 2.3% of the Initial Pool Balance, are
Credit Lease Loans. A "Credit Lease Loan" is a Mortgage Loan secured by a
Mortgaged Property that is subject to a net lease (a "Credit Lease") with a
tenant (a "Credit Tenant") that has the characteristics described in the next
sentence and occupies substantially all of such property. Each Credit Tenant,
its parent or an affiliate that guarantees its lease obligations possesses a
public senior unsecured long-term debt or similar rating of at least "A-" (or
the equivalent) by a nationally recognized statistical rating organization. Such
ratings range from "A-" to "AAA" (or the equivalents).
Each Credit Lease has a primary lease term that expires on or after the
scheduled final maturity date of the related Credit Lease Loan. The Credit Lease
Loans, exclusive of any Balloon Payment thereunder, are scheduled to be fully
repaid from monthly rental payments made over the primary term of the related
Credit Lease. In connection with each Credit Lease Loan that provides for a
Balloon Payment, the trust will have the benefit of a residual value insurance
policy that insures the payment of the Balloon Payment to the extent that the
related Mortgaged Property cannot be sold for that amount at the stated maturity
date because of changes in market conditions. Certain of the Credit Leases give
the Credit Tenant the right to extend the term of the Credit Lease by one or
more renewal periods after the end of the primary lease term.
The table below shows, for each Credit Tenant or related guarantor of the
tenant's obligations under the related Credit Lease, the number and aggregate
Cut-off Date Balance of the related Credit Lease Loan or Loans, the rating of
the Credit Tenant, its parent or any guarantor of the tenant's obligations under
the related Credit Lease and the Credit Lease type.
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CREDIT TENANT LEASE LOANS
<TABLE>
<CAPTION>
NUMBER CUT-OFF DATE LEASE CREDIT RATING CREDIT RATING
TENANT/GUARANTOR OF LOANS BALANCE TYPE(1) (MOODY'S)(2) (S&P)(2)
- ---------------- -------- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CVS Corporation..................... 4 $ 8,502,000 NN A3 A
BellSouth Telecommunications........ 1 5,962,636 Bond Aa2 AAA
Stop 'n' Shop/Koninklijke Ahold NV
guaranty.......................... 1 14,300,000 NNN A3 A-
Walgreens........................... 1 3,226,473 NN Aa3 A+(3)
Total.........................
</TABLE>
- ------------------------
(1) "Bond" means bond-type lease; "NNN" means triple net lease; and "NN" means
double net lease.
(2) Unless otherwise indicated, the specified ratings are, in each case, the
highest rating assigned to long-term obligations of the applicable tenant or
guarantor, as applicable, by Moody's and Standard & Poor's Ratings Services,
a Division of the McGraw-Hill Companies, Inc., respectively. Any of the
specified ratings may be downgraded or withdrawn at any time, and there can
be no assurance that the assigning rating agency is not contemplating that
action currently.
(3) Issuer long-term rating.
Each Credit Lease generally provides that the related Credit Tenant is
responsible for all real property taxes and assessments levied or assessed
against the related Mortgaged Property and, as discussed below in the case of
Triple Net Leases, for all charges for utility services, insurance and other
operating expenses incurred in connection with the operation of the related
Mortgaged Property.
Generally, each Credit Lease Loan provides that if the Credit Tenant
defaults beyond applicable notice and grace periods in the performance of any
covenant or agreement in such Credit Lease, then the holder of the related
Mortgage may require the related Borrower either (i) to terminate that Credit
Lease or (ii) refrain from the exercise of any of its rights thereunder. A
default of this type will constitute a default under the related Credit Lease
Loan, although in certain cases, the related Borrower may possess certain cure
rights.
In addition, most of the Credit Leases permit the Credit Tenant, at its own
expense, and generally with the consent of the related Borrower, to make
alterations or improvements on the related Mortgaged Property. Those actions, if
undertaken by the tenant, will not affect the tenant's obligation under the
Credit Lease.
Lease termination rights and rent abatement rights, if any, provided to
Credit Tenants in the Credit Leases may be divided into three categories:
(i) termination and abatement rights directly arising from certain casualty
occurrences or condemnations ("Casualty or Condemnation Rights"),
(ii) termination and abatement rights arising from a Borrower's default relating
to its obligations under a Credit Lease to perform required maintenance, repairs
or replacements with respect to the related Mortgaged Property ("Maintenance
Rights") and (iii) termination and abatement rights arising from a Borrower's
default in the performance of various other obligations under the Credit Lease,
including remediating environmental conditions not caused by the Credit Tenant,
enforcement of restrictive covenants affecting other property owned by the
Borrower in the area of the related Mortgaged Property and complying with laws
affecting such Mortgaged Property or common areas related to such Mortgaged
Property ("Additional Rights"). Certain Credit Leases ("Bond-Type Leases") do
not provide for Casualty or Condemnation Rights, Maintenance Rights or
Additional Rights, and the Credit Tenants thereunder are required, at their
expense, to maintain their related Mortgaged Property in good order and repair.
However, Credit Tenants under Bond-Type Leases may have the right to effectively
terminate their Credit Leases by acquiring the related Mortgaged Property. Other
Credit Leases provide for Casualty or Condemnation Rights and may provide for
Additional Rights ("Triple Net Leases"). The Credit Tenants under Triple Net
Leases are required, at their expense, to maintain the related Mortgaged
Properties, including the roof and structure,
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in good order and repair. Other Credit Leases provide for Casualty or
Condemnation Rights and Maintenance Rights and may provide for Additional Rights
("Double Net Leases"). If the Borrower defaults in the performance of certain
obligations under a Triple Net Lease or a Double Net Lease and the Credit Tenant
exercises its Additional Rights or Maintenance Rights, there could be a
disruption in the stream of monthly rental payments available to pay principal
and interest to the Credit Lease Loans. Generally, Additional Rights and
Maintenance Rights are mitigated by repair and maintenance reserves, debt
service coverage ratios in excess of 1.0x and, prior to the disbursement of the
subject Mortgage Loan, receipt of tenant estoppel certificates confirming the
non-existence of landlord default.
At the end of the term of the Credit Leases, Credit Tenants are generally
obligated to surrender the related Mortgaged Properties in good order and in the
original condition received by the Credit Tenant, except for ordinary wear and
tear and repairs required or permitted to be performed by the Borrower.
In general, each Credit Tenant is obligated under its Credit Lease to make
all monthly rental payments directly to the owner of the related Credit Lease
Loan.
In connection with each Credit Lease that provides for Casualty or
Condemnation Rights, the trust will have the benefit of a noncancelable lease
enhancement policy. A "lease enhancement policy" is an insurance policy that
provides, subject to customary exclusions, that in the event of a permitted
termination by a Credit Tenant of its Credit Lease as a result of a casualty or
condemnation, the insurer will pay to the master servicer on behalf of the
trustee the "loss of rents", which is a lump sum payment of all outstanding
principal plus, subject to the limitation below, accrued interest on the Credit
Lease Loan. The insurer is not required to pay interest for a period greater
than 75 days past the date of the exercise of a Casualty or Condemnation Right.
The "Enhancement Insurer" is Chubb Custom Insurance Company which, as of the
Cut-off Date, had a financial strength rating of "AAA" from Standard & Poor's.
If the Credit Lease permits the Credit Tenant to abate all or a portion of the
rent in the event of a partial condemnation, the "loss of rents" will be an
amount equal to the portion of any monthly rental payments not made by that
Credit Tenant for the period from the date the abatement commences until the
earlier of the date the abatement ceases or the expiration date of the initial
term of the Credit Lease. The insurer is not required to pay amounts due under
any Credit Lease Loan other than principal and, subject to the limitation above,
accrued interest. Accordingly, it is not required to pay any Prepayment Premium
or Yield Maintenance Charge due thereunder or any amounts the Borrower is
obligated to pay thereunder to reimburse the master servicer or the trustee for
outstanding servicing advances.
Each lease enhancement policy contains certain exclusions from coverage,
including loss arising from damage or destruction directly or indirectly caused
by war, insurrection, rebellion, revolution, usurped power, pollutants or
radioactive matter, or from a taking, other than by condemnation.
The Mortgage Loans which are Credit Lease Loans are indicated on Annex A-1
to this prospectus supplement by the designation "CTL" in the property type
column.
ASSESSMENTS OF PROPERTY CONDITION
PROPERTY INSPECTIONS. All of the Mortgaged Properties were inspected in
connection with the origination or acquisition of the related Mortgaged Loans to
assess their general condition. No inspection revealed any patent structural
deficiency or any deferred maintenance considered by us to be material and
adverse to the interests of the holders of the offered certificates and for
which adequate reserves have not been established.
APPRAISALS. The Mortgaged Properties securing all the Mortgage Loans were
appraised by a state certified appraiser or an appraiser belonging to the
Appraisal Institute, and such appraisals were conducted in accordance with the
Uniform Standards of Professional Appraisal Practices. In general, the appraisal
for each such Mortgaged Property or a separate letter contains a statement by
the appraiser stating that the guidelines in Title XI of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") were
followed in preparing such appraisal. None of the underwriters, the related
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originator or us has independently verified the accuracy of that statement. The
primary purpose of each of those appraisals was to provide an opinion of the
fair market value of the related Mortgaged Property. There can be no assurance
that another appraiser would have arrived at the same opinion of value. The
resulting "Appraised Values" are shown on Annex A-1 to this prospectus
supplement.
ENVIRONMENTAL ASSESSMENTS. A "Phase I" environmental site assessment was
performed with respect to each of the Mortgaged Properties in connection with
the origination of the related Mortgage Loan. In certain cases, additional
environmental testing, as recommended by that "Phase I" assessment, was
performed. In each case where environmental assessments recommended remediation,
the related originator determined that the necessary remediation had been
undertaken in a satisfactory manner, was being undertaken in a satisfactory
manner or would be adequately addressed post-closing. In some instances, the
originator required that reserves be established to cover the estimated cost of
such remediation.
ENGINEERING ASSESSMENTS. In connection with the origination of each
Mortgage Loan (other than the Credit Lease Loans that are secured by Mortgaged
Properties subject to Triple-Net Leases), a licensed engineer inspected the
related Mortgaged Property to assess the structure, exterior walls, roofing,
interior structure and mechanical and electrical systems. The resulting reports
indicated certain deferred maintenance items and/or recommended capital
improvements with respect to certain of the Mortgaged Properties. In cases where
the cost of repair was deemed material, the related Borrowers were generally
required to deposit with the lender an amount equal to between 100% and 125% of
the licensed engineer's estimated cost of the recommended repairs, corrections
or replacements to assure their completion.
EARTHQUAKE ANALYSES. A seismic consultant performed an analysis on each of
the Mortgaged Properties located in the State of California and "Seismic Zones 3
or 4". This was done in order to evaluate the structural and seismic condition
of the property and to assess, based primarily on statistical information, the
maximum probable or bounded loss for the property in the case of an earthquake.
With respect to the other Mortgaged Properties located in California, the
related seismic analysis reports concluded that in the event of an earthquake,
three of those Mortgaged Properties, representing security for 8.5% of the
Initial Pool Balance, are likely to suffer a maximum probable loss in excess of
20% of the amount of the estimated replacement cost of the improvements.
Earthquake insurance is not required to be maintained by a Borrower, except in
the case of Mortgaged Properties located in the state of California or in
"Seismic Zones 3 or 4" where a seismic assessment revealed a maximum probable or
bounded loss in excess of 20% of the amount of the estimated replacement cost of
the improvements. In certain cases where earthquake insurance was obtained with
respect to a Mortgaged Property, that Mortgaged Property may be covered under a
blanket policy which also covers other Mortgaged Properties and/or other
properties not securing the Mortgage Loans. As a result of aggregate and per
occurrence limits under any such blanket policy, losses at other properties
covered thereby may reduce the amount of insurance coverage with respect to a
Mortgaged Property covered by that policy.
ADDITIONAL MORTGAGE LOAN INFORMATION
DELINQUENCIES. No Mortgage Loan will be as of the Cut-off Date, or has been
at any time during the 12-month period preceding the Cut-off Date, 30 days or
more delinquent in respect of any Scheduled P&I Payment.
TENANTS. All of the Mortgaged Properties securing the Credit Lease Loans
are leased to a single tenant. Nine other Mortgaged Properties, which together
represent security for 3.1% of the Initial Pool Balance, are also leased to a
single tenant. See Annex A-1 to this prospectus supplement.
OTHER FINANCING. While all of the Mortgage Loans either (i) prohibit the
related Borrower from encumbering the Mortgaged Property with additional secured
debt or (ii) require the consent of the holder of the first lien prior to so
encumbering that property, a violation of that prohibition may not become
evident until the related Mortgage Loan otherwise defaults. See "Certain Legal
Aspects of Mortgage
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Loans--Secondary Financing; Due-On-Encumbrance Provisions" in the accompanying
prospectus. As discussed in "--Significant Mortgage Loans" below, four of the
Mortgage Loans, representing 31.6% of the Initial Pool Balance, are each secured
by a real property that secures another mortgage loan that is not an asset of
the trust, which other loan was originated at the same time as the related
mortgage loan that is an asset of the trust. Furthermore, certain of the
Mortgage Loans permit, and certain Borrowers have incurred, additional
indebtedness for operating costs or similar purposes.
We have not been able to confirm the existence of any other debt of the
respective Borrowers.
Owners of Borrowers are generally prohibited from incurring indebtedness
that is secured by their ownership interests in such Borrowers. With respect to
two Mortgage Loans, representing 1.3% of the Initial Pool Balance, the owners of
the related Borrower were known to have incurred indebtedness of that type,
so-called "mezzanine" debt, as of the origination date of the related Mortgage
Loan.
ZONING AND BUILDING CODE COMPLIANCE. The related originator examined
whether the use and operation of the respective Mortgaged Properties were in
material compliance with zoning, land-use, building, fire and health ordinances,
rules, regulations and orders applicable to the Mortgaged Properties at the time
of origination. The originator may have considered legal opinions,
certifications from government officials, representations by the related
Borrower or property condition assessments undertaken by independent licensed
engineers in assessing compliance. We are not aware of any material existing
violations with respect to the Mortgaged Properties.
In some cases, the use, operation or structure of a Mortgaged Property
constitutes a permitted nonconforming use or structure. In those cases, the
improvements on the Mortgaged Property may not be rebuilt to their current state
in the event that those improvements are materially damaged or destroyed. Where
a Mortgaged Property constitutes a permitted nonconforming use or structure and
the improvements thereon may not be rebuilt in the event of a major casualty,
the related originator--
- determined that any major casualty that would prevent rebuilding has a
sufficiently remote likelihood of occurring;
- determined that casualty insurance proceeds would be available in an
amount sufficient to pay off the related Mortgage Loan in full;
- determined that the Mortgaged Property, if permitted to be repaired or
restored in conformity with current law, would constitute adequate
security for the related Mortgage Loan; and/or
- required a corresponding endorsement to the title insurance policy.
There is no assurance, however, that the conclusions of the originator in
this regard are correct.
HAZARD, LIABILITY AND OTHER INSURANCE. The related Mortgage generally
requires the related Borrower or a related party to maintain the following
insurance coverage with respect to each Mortgaged Property--
- Hazard insurance in an amount that generally is, subject to a customary
deductible, at least equal to the lesser of the outstanding principal
balance of the related Mortgaged Loan and 100% of the full insurable
replacement cost of the improvements located on the Mortgaged Property
(except where there is no replacement cost, the insurance will be in an
amount equal to the outstanding principal balance). The standard form of
hazard insurance policy normally covers physical damage to, or destruction
of, the improvements on a Mortgaged Property by fire, lightning,
explosion, smoke, windstorm and hail, riot or strike and civil commotion,
subject to the conditions and exclusions set forth in each policy.
However, certain Credit Lease Loans may permit the related Credit Tenant
to "self-insure".
- If any portion of the Mortgaged Property was in an area identified in the
Federal Register by the Federal Emergency Management Agency as having
special flood hazards, flood insurance meeting the requirements of the
Federal Insurance Administration guidelines, if available, in an amount
that
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is not less than the least of: (i) the outstanding principal balance of
the related Mortgage Loan; (ii) the full insurable value of the Mortgaged
Property; (iii) the maximum amount of insurance available under the
National Flood Insurance Act of 1968, as amended; and (iv) 100% of the
replacement cost of the improvements located on the related Mortgaged
Property.
- Comprehensive general liability insurance against claims for personal and
bodily injury, death or property damage occurring on, in or about such
Mortgaged Property, in an amount customarily required by institutional
lenders.
- Business interruption or loss of rents insurance in an amount not less
than the projected rental income or revenue from such Mortgaged Property
for a period of at least six months.
In general, the Mortgaged Properties, including those located in California
and "Seismic Zones 3 or 4", are not insured against earthquake risks. However,
earthquake insurance was required to be in place at the time of origination for
each Mortgage Loan secured by a Mortgaged Property located in California or in
"Seismic Zones 3 or 4" if a seismic study established a maximum probable or
bounded loss from an earthquake to be greater than 20% of the amount of the
estimated replacement cost of the improvements. In certain such cases where
earthquake insurance was obtained with respect to a Mortgaged Property, that
Mortgaged Property may be covered under a blanket policy which also covers other
Mortgaged Properties and/or other properties not securing the Mortgage Loans. As
a result of aggregate and per occurrence limits under any such blanket policy,
losses at other properties covered by the policy may reduce the amount of
insurance coverage with respect to a Mortgaged Property covered thereby.
MORTGAGE POOL CHARACTERISTICS
Set forth below is certain information regarding the characteristics of the
Mortgage Loans and Mortgaged Properties, presented in a tabular format. In
addition, a detailed presentation of certain characteristics of the Mortgage
Loans and Mortgaged Properties is shown, both on a loan-by-loan/
property-by-property basis and in tabular format, on Annex A-1, Annex A-2 and
Annex A-3 to this prospectus supplement. Unless otherwise indicated, the
information is presented as of the Cut-off Date. The statistics in the tables
and schedules on Annex A-1, Annex A-2 and Annex A-3 to this prospectus
supplement were derived, in many cases, from information and operating
statements furnished by or on behalf of the respective Borrowers. The
information and the operating statements were generally unaudited and have not
been independently verified by us or the underwriters.
For purposes of this prospectus supplement, including the tables and
schedules on Annex A-1, Annex A-2 and Annex A-3 to this prospectus supplement,
the indicated terms have the following meanings:
1. "Cut-off Date Debt Service Coverage Ratio", "Cut-off Date DSC Ratio" or
"U/W NCF DSCR" means, with respect to any Mortgage Loan (other than a Credit
Lease Loan), the ratio of (a) "Net Cash Flow" for the related Mortgaged Property
to (b) the annualized amount of debt service that will be payable under that
Mortgage Loan commencing after the Cut-off Date or, if the Mortgage Loan is in
an initial interest-only period, after the commencement of amortization. Debt
service coverage ratios are not presented in this prospectus supplement for
Credit Lease Loans because those Mortgage Loans were, in large part,
underwritten based upon the Credit Tenant. In connection therewith, those ratios
would be expected to be lower than for the other Mortgage Loans. The following
discussion does not apply to the Credit Lease Loans or the related Mortgaged
Properties.
In general, the "Net Cash Flow" for any Mortgaged Property is:
(x) the revenue derived from the use and operation of that property; less
(y) the following items--
- allowances for vacancies and credit losses,
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- operating expenses, such as utilities, administrative expenses, repairs
and maintenance, management fees and advertising,
- fixed expenses (such as insurance, real estate taxes and ground lease
payments, if applicable) and
- replacement reserves, tenant improvement costs and leasing commissions.
Net Cash Flow does not reflect interest expenses and non-cash items, such as
depreciation and amortization, and generally does not reflect capital
expenditures.
In determining the Net Cash Flow for any Mortgaged Property, the related
originator relied on one or more of the following items supplied by the related
Borrower. In general, except in the case of the Westfield Portfolio Mortgage
Loan, the Cherry Creek Mortgage Loan and the Annapolis Mall Mortgage Loan (where
some of the below-described items were audited) and in the case of the
Sangertown Square Mortgage Loan (where some of the below-described items were
reviewed by an auditor pursuant to agreed-upon procedures), these items were not
audited or otherwise confirmed by an independent party.
- Rolling 12-month operating statements.
- Applicable year-to-date financial statements, if available.
- Except in the case of Mortgaged Properties that are hotels (the
"Hospitality Properties"), rent rolls that were current as of the date not
earlier than six months prior to the respective date of origination. We
refer in this prospectus supplement to those Mortgaged Properties that are
not Hospitality Properties as "Rental Properties".
In determining the "revenue" component of Net Cash Flow for each Rental
Property, the related originator generally relied on the most recent rent roll
(as applicable) supplied by the related Borrower. Where the actual vacancy shown
thereon and the market vacancy was less than 5.0%, the originator generally
assumed a minimum of 5.0% vacancy in determining revenue from rents, except
that, in the case of certain anchored shopping centers and certain single tenant
properties, including all the Mortgaged Properties with Credit Tenants, space
occupied by those anchor or single tenants may have been disregarded in
performing the vacancy adjustment due to the length of the related leases or
creditworthiness of those tenants, in accordance with the originator's
underwriting standards.
In determining rental revenue for Mortgaged Properties that constitute
multifamily, self storage and manufactured housing properties, the related
originator either reviewed rental revenue shown on the certified rolling
12-month operating statements or annualized the rental revenue and reimbursement
of expenses shown on rent rolls or recent partial year operating statements with
respect to the prior one- to twelve-month periods.
For the other Rental Properties, the related originator generally annualized
rental revenue shown on the most recent certified rent roll, after applying the
vacancy factor, without further regard to the terms, including expiration dates,
of the leases shown thereon. In the case of Hospitality Properties, gross
receipts were determined on the basis of historical operating levels shown on
the Borrower-supplied 12-month trailing operating statements.
In general, any non-recurring revenue items and non-property related revenue
were eliminated from the calculation.
In determining the "expense" component of Net Cash Flow for each Mortgaged
Property, the related originator generally relied on full-year or year-to-date
financial statements, rolling 12-month operating statements and/or year-to-date
financial statements supplied by the related Borrower, except that--
- If tax or insurance expense information more current than that reflected
in the financial statements was available, the newer information was used.
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- Property management fees were generally assumed to be 3% to 5% of
effective gross revenue (except with respect to Hospitality Properties,
where a minimum of 4% of gross receipts was assumed).
- In general, assumptions were made with respect to the average amount of
reserves for leasing commissions, tenant improvement expenses and capital
expenditures.
- Expenses were generally assumed to include annual replacement reserves
equal to:
(i) in the case of Mortgaged Properties that constitute retail, office
and industrial/warehouse properties, generally not less than $.15
per square foot and not more than $.53 per square foot of net
rentable commercial area (except in the case of net leases to Credit
Tenants where no reserves may be underwritten);
(ii) in the case of Mortgaged Properties that constitute multifamily
rental apartments, not less than $200.00 or more than $341.62 per
residential unit per year, depending on the condition of the
property;
(iii) in the case of Hospitality Properties, not less than 4.5% of the
gross revenues received by the property owner on an ongoing basis;
(iv) in the case of Mortgaged Properties that constitute mobile home
parks, not less than $40.00 per pad per year and not more than
$70.00 per pad per year.
(v) in the case of Mortgaged Properties that constitute self storage
facilities, not less than $.10 per square foot per year.
In some instances, the related originator recharacterized as capital
expenditures those items reported by Borrowers as operating expenses, thereby
increasing "Net Cash Flow", where the originator determined appropriate.
2. "Cut-off Date Loan-to-Value Ratio", "Cut-off Date LTV Ratio" or "Cut-off
Date LTV" means, with respect to any Mortgage Loan other than a Credit Lease
Loan, the ratio, expressed as a percentage, of (a) the Cut-off Date Balance of a
Mortgage Loan to (b) the Appraised Value of the related Mortgaged Property as
shown on Annex A-1 to this prospectus supplement. Cut-off Date Loan-to-Value
Ratios are not presented in this prospectus supplement for Credit Lease Loans
because those Mortgage Loans were, in large part, underwritten based upon the
Credit Tenant. In connection therewith, those ratios would be expected to be
higher than for other Mortgage Loans.
3. "Maturity Loan-to-Value Ratio", "Maturity Date Loan-to-Value Ratio",
"Maturity LTV Ratio" or "Maturity Date LTV Ratio" means, with respect to any
Mortgage Loan other than a Credit Lease Loan, the ratio, expressed as a
percentage, of (a) the expected balance of that Mortgage Loan immediately prior
to its maturity date or, in the case of an ARD Loan, its Anticipated Repayment
Date, assuming no prepayments of principal or defaults, to (b) the Appraised
Value of the Mortgaged Property as shown on Annex A-1 to this prospectus
supplement. Maturity Loan-to-Value Ratios are not presented in this prospectus
supplement with respect to the Credit Lease Loans.
4. "Loan per Unit", "Loan per Pad" or "Loan per Room" means, with respect to
each Mortgage Loan secured by a lien on a Mortgaged Property that constitutes a
multifamily rental apartment, a mobile home park or a hospitality property, the
Cut-off Date Balance of that Mortgage Loan divided by the number of dwelling
units, pads or guest rooms, respectively, at or on the related Mortgaged
Property.
5. "Loan per Sq. Ft." means, with respect to each Mortgage Loan secured by a
lien on a Mortgaged Property that constitutes a retail, industrial/warehouse,
self storage or office property, the Cut-off Date Balance of that Mortgage Loan
divided by the net rentable square foot area of the related Mortgaged Property.
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6. "Year Built/Renovated" means the year that a Mortgaged Property was
originally constructed or, if applicable, most recently renovated in a
substantial manner. With respect to any Mortgaged Property that was constructed
in phases, "Year Built/Renovated" refers to the year that the first phase was
originally constructed.
7. "Weighted Average" or "wtd. avg." means averages weighted on the basis of
the Cut-off Date Balances of the related Mortgage Loans.
8. "Underwriting Reserves" means estimated annual capital costs, as used by
the related originator in determining Net Cash Flow.
9. "Administrative Cost Rate" means, with respect to each Mortgage Loan, the
sum of the Master Servicing Fee Rate for that Mortgage Loan and the per annum
rate at which the monthly fee of the trustee is calculated.
10. "Original Amortization Term" means, with respect to each Mortgage Loan,
the number of months from origination to the month in which that Mortgage Loan
would fully amortize in accordance with its amortization schedule, without
regard to any Balloon Payment, if any, due on that Mortgage Loan and assuming no
prepayments of principal and no defaults.
11. "Remaining Amortization Term" means, with respect to each Mortgage Loan,
the number of months remaining from the Cut-off Date to the month in which that
Mortgage Loan would fully amortize in accordance with its amortization schedule,
without regard to any Balloon Payment, if any, due on that Mortgage Loan and
assuming no prepayments of principal and no defaults.
12. The following abbreviations relating to prepayment provisions have the
indicated meanings.
- "L(x)" means, with respect to any Mortgage Loan, a period of x months
during which prepayments of principal are prohibited.
- "YM1% or YM(y)" means, with respect to any Mortgage Loan, a period
of y months during which prepayments of principal are permitted, but must
be accompanied by a Yield Maintenance Charge equal to the greater of an
amount calculated pursuant to a yield maintenance formula and/or 1.0% of
the principal amount prepaid.
- "O(z)" means, with respect to any Mortgage Loan, a period of z months
during which prepayments of principal are permitted without the payment of
any Prepayment Premium or Yield Maintenance Charge and no defeasance can
be required.
13. "D" means the related Mortgage Loan permits the related Borrower to
defease that Mortgage Loan in order to obtain a release of one or more Mortgaged
Properties.
14. "Occupancy Percentage" or "Occupancy Rate" means, with respect to any
Mortgaged Property, references to--
- in the case of Mortgaged Properties that constitute multifamily rental
properties, senior housing properties and manufactured housing
communities, the percentage of rental units and pads, respectively, that
are rented as of the date of determination,
- in the case of Mortgaged Properties that constitute office, retail and
industrial/warehouse properties, the percentage of the net rentable square
footage rented as of the date of determination,
- in the case of Hospitality Properties, the percentage of available rooms
occupied for the trailing twelve-month period ending on the date of
determination, and
- in the case of Mortgaged Properties that constitute self-storage
facilities, either the percentage of the net rentable square footage
rented as of the date of determination or the percentage of units rented
as of the date of determination (depending on Borrower reporting).
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<PAGE>
15. "Remaining Term to Maturity" means, with respect to each Mortgage Loan,
the number of months remaining to maturity or, in the case of an ARD Loan, to
the Anticipated Repayment Date.
16. "Original Term to Maturity" means, with respect to each Mortgage Loan,
the number of months from origination to maturity or, in the case of an ARD
Loan, to the Anticipated Repayment Date.
17. "Capital Imp. Reserve" means funded reserves escrowed for repairs,
replacements and corrections of issues outlined in the engineering reports.
18. "Replacement Reserve" means funded reserves escrowed for ongoing items
such as repairs and replacements, including, in the case of Hospitality
Properties, reserves for furniture, fixtures and equipment. In certain cases,
however, the reserve will be subject to a maximum amount, and once that maximum
amount is reached, the reserve will not thereafter be funded, except to the
extent it is drawn upon.
19. "TI/LC Reserve" means funded reserves escrowed for tenant improvement
allowances and leasing commissions. In certain cases, however, the reserve will
be subject to a maximum amount, and once that maximum amount is reached, the
reserve will not thereafter be funded, except to the extent it is drawn upon.
20. "Original Interest-Only Period" means, with respect to any Mortgage
Loan, the period, if any, following the related origination date during which
scheduled payments of interest only are required.
21. "Remaining Interest-Only Period" means, with respect to any Mortgage
Loan, the period, if any, following the Cut-off Date during which scheduled
payments of interest only are required.
22. "Shadow" means, with respect to any Mortgaged Property used for retail
purposes, a store or other business that materially affects the draw of
customers to that property, but which may be located at a nearby property or on
a portion of that property that does not constitute security for the related
Mortgage Loan.
23. "NAP" means that, with respect to a particular category of data, the
data is not applicable.
24. "NAV" means that, with respect to a particular category of data, the
data is not available.
THE CUT-OFF DATE DSC RATIO AND THE CUT-OFF DATE LTV RATIO CALCULATIONS FOR
THE MORTGAGE LOANS ARE EXCLUSIVE OF CREDIT LEASE LOANS BECAUSE THE CREDIT LEASE
LOANS WERE ORIGINATED PRIMARILY ON THE BASIS OF THE CREDITWORTHINESS OF THE
RELATED CREDIT TENANTS OR CREDIT LEASE GUARANTORS.
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<PAGE>
SIGNIFICANT MORTGAGE LOANS
THE CHERRY CREEK MORTGAGE LOAN. The "Cherry Creek Mortgage Loan" has a
Cut-off Date Balance of $148,497,918, representing 10.8% of the Initial Pool
Balance. The Cherry Creek Mortgage Loan, together with another loan (the "Cherry
Creek Companion Loan"), is secured by a first priority mortgage lien on the
leasehold interest of the related Borrower (the "Cherry Creek Borrower") in a
1,316,435 square foot regional mall and a power center known as Cherry Creek
Mall and Cherry Creek West, respectively (collectively, the "Cherry Creek
Property"), and located three miles from Denver, Colorado. The Cherry Creek
Mortgage Loan and the Cherry Creek Companion Loan are cross-defaulted. As of
March 11, 2000, the unpaid principal balance of the Cherry Creek Companion Loan
was $28,502,082. The Cherry Creek Companion Loan is not part of the trust.
The Cherry Creek Borrower is Taubman-Cherry Creek Limited Partnership, a
special purpose Colorado limited partnership which is indirectly controlled by
Taubman Centers, Inc. ("Taubman"). Taubman is a developer, owner and manager of
regional shopping centers in major markets throughout the United States. Taubman
owns interests in several shopping centers including Woodland Center (Grand
Rapids, Michigan), The Mall at Short Hills (Short Hills, New Jersey) and Beverly
Center (Los Angeles, California). Through its affiliate, Taubman Company LP,
Taubman manages over 33.7 million square feet of retail space in 12 states and
Washington, D.C. Taubman is a publicly traded real estate investment trust, and
its shares are listed on the New York Stock Exchange under the symbol "TCO." The
Cherry Creek Companion Loan has received an investment grade shadow rating from
Fitch.
Each of the Cherry Creek Mortgage Loan and the Cherry Creek Companion Loan
is an ARD Loan with an Anticipated Repayment Date of August, 2006 and a maturity
date of August 11, 2029. Each of the Cherry Creek Mortgage Loan and the Cherry
Creek Companion Loan will bear interest based on the actual number of days
elapsed each month in a year assumed to consist of 360 days. Until the related
Anticipated Repayment Date, the Cherry Creek Mortgage Loan will accrue interest
at a Mortgage Rate of 7.68% per annum. From and after the related Anticipated
Repayment Date, the Cherry Creek Mortgage Loan will accrue interest at a Revised
Rate equal to the greater of (x) 9.68% per annum and (y) the sum of a specified
U.S. Treasury rate plus 2%.
On the eleventh day of each month, continuing through and including
August , 2004, the Cherry Creek Borrower is required to pay interest only
accrued on the principal balance of the Cherry Creek Mortgage Loan at 7.68% per
annum and the respective components of the principal balance of the Cherry Creek
Companion Loan at various rates, the weighted average of which is 7.68% per
annum. On the eleventh day of each month, commencing in September, 2004, and
continuing through and including the related maturity date, the Cherry Creek
Borrower will be required to make a constant monthly debt service payment on the
Cherry Creek Mortgage Loan and the Cherry Creek Companion Loan, equal to
$1,328,808. That amount will be applied:
- FIRST, to pay interest on the principal balance of the Cherry Creek
Mortgage Loan at 7.68% per annum;
- SECOND, to pay principal on the Cherry Creek Mortgage Loan in accordance
with the amortization schedule described below;
- THIRD, to pay interest on the respective components of the principal
balance of the Cherry Creek Companion Loan at various rates, the weighted
average of which is 7.68% per annum;
- FOURTH, to pay principal on the Cherry Creek Mortgage Loan, until the
principal balance of the Cherry Creek Mortgage Loan is reduced to zero;
and
- FIFTH, to pay principal on the Cherry Creek Companion Loan, until the
principal balance of the Cherry Creek Companion Loan is reduced to zero.
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<PAGE>
The amounts applied pursuant to clause SECOND above will be applied to pay
principal on the Cherry Creek Mortgage Loan in accordance with an amortization
schedule that would have amortized the Cherry Creek Mortgage Loan and the Cherry
Creek Companion Loan over a period of 25 years following the end of the
interest-only period based on an annual interest rate of 7.68% per annum.
In the event of a partial prepayment of the Cherry Creek Mortgage Loan due
to the receipt of insurance proceeds or a condemnation award in connection with
a casualty or a condemnation, the monthly debt service payment will be recast in
order to fully amortize the Cherry Creek Mortgage Loan and the Cherry Creek
Companion Loan over their remaining amortization term.
From and after the related Anticipated Repayment Date, the Cherry Creek
Borrower will be required to apply certain excess cash flow from the Cherry
Creek Property toward additional amortization of the Cherry Creek Mortgage Loan.
In no event will any payments of principal be made on the Cherry Creek Companion
Loan until the principal of the Cherry Creek Mortgage Loan is paid in full.
During an event of default under the Cherry Creek Mortgage Loan that results in
it being accelerated, all proceeds will be applied to the payment of the entire
principal balance of the Cherry Creek Mortgage Loan, together with interest
thereon at 7.68% per annum, prior to any payments being made on the Cherry Creek
Companion Loan.
The payment of any Additional Interest accrued on the Cherry Creek Mortgage
Loan will be deferred until the principal balances of both the Cherry Creek
Mortgage Loan and the Cherry Creek Companion Loan are repaid in full. To the
extent permitted by law, that Additional Interest will compound at the related
Revised Rate. All Additional Interest on the Cherry Creek Mortgage Loan must be
paid in full before any payments of Additional Interest are made with respect to
the Cherry Creek Companion Loan.
Provided no event of default exists under the Cherry Creek Mortgage Loan or
the Cherry Creek Companion Loan, the Cherry Creek Borrower may voluntarily
prepay the Cherry Creek Mortgage Loan and the Cherry Creek Companion Loan in
whole only at any time after March 2002, provided that the Cherry Creek Borrower
also pays a Yield Maintenance Charge in connection with any such voluntary
prepayment up until three months prior to the related Anticipated Repayment
Date. The Cherry Creek Borrower may not prepay the Cherry Creek Companion Loan
while any portion of the unpaid principal balance of the Cherry Creek Mortgage
Loan is outstanding.
The Co-Lender and Servicing Agreement. The master servicer and special
servicer will service and administer both the Cherry Creek Mortgage Loan and the
Cherry Creek Companion Loan pursuant to the pooling and servicing agreement for
so long as the Cherry Creek Mortgage Loan is part of the trust. However, if the
Cherry Creek Mortgage Loan is ever purchased out of the trust, then both of
those loans will be serviced and administered in accordance with a separate
co-lender and servicing agreement. In the event that the Cherry Creek Mortgage
Loan becomes a specially serviced and, further, a monthly payment on the Cherry
Creek Mortgage Loan or the Cherry Creek Companion Loan is at least 60 days
delinquent, the holder of the Cherry Creek Companion Loan will be entitled to
purchase the Cherry Creek Mortgage Loan from the trust at a price generally
equal to the unpaid principal balance of the Cherry Creek Mortgage Loan,
together with all unpaid interest thereon at 7.68% per annum and any outstanding
servicing expenses for which the Cherry Creek Borrower is responsible. Further,
if the principal amount of the Cherry Creek Companion Loan (less any existing
related Appraisal Reduction Amount) is at least equal to 50% of the original
principal amount of that loan, the holder of the Cherry Creek Companion Loan
will be entitled to advise and direct the special servicer with respect to
certain specified actions generally involving foreclosure or modification of the
Cherry Creek Mortgage Loan and the Cherry Creek Companion Loan. However, no
advice or direction may require or cause the special servicer to violate any
provision of the Pooling Agreement, including the special servicer's obligation
to act in accordance with the servicing standard set forth therein. See
"Servicing of the Mortgage Loans--The Controlling Class Representatives" in this
prospectus supplement.
S-61
<PAGE>
The Cherry Creek Property. The Cherry Creek Property is made up of a
two-level regional mall, as well as a power center and a Safeway supermarket,
and is located within three miles of downtown Denver, Colorado. The mall's
anchors are Foley's, Saks Fifth Avenue, Lord & Taylor and Neiman-Marcus, which
occupy 454,490 square feet or 34.5% of the total gross leasable area ("GLA").
In-line mall space totals 861,995 square feet or 65.5% of the GLA. The tenants
at the Cherry Creek Property include Eddie Bauer, Express and Restoration
Hardware. In-line mall sales for 1999 were reported to be $450 per square foot
(based on same store sales). For 1999, in-line tenant occupancy costs as a
percentage of sales (based on an analysis of reported base rent and
reimbursements at the Cherry Creek Property) were 14.6%. As of December 31,
1999, based on square footage leased, in-line occupancy at the Cherry Creek
Property was 96.1% and overall mall occupancy was 97.5%.
The following tables provide the indicated information regarding tenants and
leases at the Cherry Creek Property.
GLA OVERVIEW OF THE CHERRY CREEK PROPERTY(1)
<TABLE>
<CAPTION>
ANCHOR LEASE
STORE SQUARE FEET AS % OF GLA EXPIRATION
- ----- ----------- ----------- -------------
<S> <C> <C> <C>
Foley's (May).......................................... 177,504 13.5% August-10
Lord & Taylor.......................................... 101,184 7.7 August-10
Saks Fifth Avenue...................................... 88,535 6.7 August-20
Neiman-Marcus.......................................... 87,267 6.6% August-25
--------- -----
TOTAL ANCHOR SPACE..................................... 454,490 34.5%
========= =====
TOTAL IN-LINE MALL SPACE............................... 861,995 65.5%
--------- -----
TOTAL.................................................. 1,316,435 100.0%
========= =====
</TABLE>
- ------------------------
(1) As of December 31, 1999 rent roll.
TEN LARGEST IN-LINE TENANTS AT THE CHERRY CREEK PROPERTY(1)
<TABLE>
<CAPTION>
LEASE
TENANT SQUARE FEET EXPIRATION DATE
- ------ ----------- ---------------
<S> <C> <C>
Safeway..................................................... 140,175 December-00
Bed, Bath & Beyond (2)...................................... 89,000 January-10
Eddie Bauer (Spiegel)....................................... 23,232 January-09
Rainforest Cafe............................................. 23,000 July-08
Express..................................................... 19,906 March-01
Mann Theatres............................................... 14,457 January-10
Abercrombie & Fitch......................................... 13,340 November-06
Restoration Hardware........................................ 12,928 January-11
Warner Brothers Studio...................................... 12,350 October-02
Pottery Barn................................................ 12,000 March-06
-------
TOTAL....................................................... 360,388
=======
</TABLE>
- ------------------------
(1) As of December 31, 1999 rent roll.
(2) Actually located in adjacent power center.
S-62
<PAGE>
LEASE EXPIRATION SCHEDULE FOR IN-LINE TENANTS AT THE CHERRY CREEK
PROPERTY(1)(2)
<TABLE>
<CAPTION>
EXPIRING
IN LINE TOTAL %
YEAR SQ. FT. OF GLA(2) CUMULATIVE %
- ---- -------- --------- ------------
<S> <C> <C> <C>
2000........................................................ 209,259 25.21% 25.21%
2001........................................................ 75,531 9.10 34.31
2002........................................................ 35,620 4.29 38.60
2003........................................................ 31,247 3.76 42.36
2004........................................................ 20,165 2.43 44.79
2005........................................................ 57,944 6.98 51.77
2006........................................................ 55,471 6.68 58.45
2007 and beyond............................................. 344,748 41.54 100.00
------- ------ ------
TOTAL(3).................................................... 829,985 100.00%
======= ======
</TABLE>
- ------------------------
(1) As of December 31, 1999 rent roll.
(2) Excludes anchor tenants and vacant space.
(3) May not sum to total due to rounding.
Property Management. The Cherry Creek Property is managed by The Taubman
Company Limited Partnership.
Appraised Value. The "Appraised Value", based on an appraisal dated
June 30, 1999 performed by a third party appraiser, is $311,800,000.
Cut-off Date Loan-to-Value Ratio. Based upon the related Appraised Value of
the Cherry Creek Property referred to above, the Cherry Creek Mortgage Loan has
a Cut-off Date Loan-to-Value Ratio of 47.6%, and the Cherry Creek Mortgage Loan,
together with the Cherry Creek Companion Loan, has a Cut-off Date Loan-to-Value
Ratio of 56.8%.
Cut-off Date Debt Service Coverage Ratio. The Cherry Creek Mortgage Loan
has a Cut-off Date Debt Service Coverage Ratio of 1.71x. The combined Cut-off
Date Debt Service Coverage Ratio for the Cherry Creek Mortgage Loan and the
Cherry Creek Companion Loan is 1.47x.
Lockbox. The Cherry Creek Borrower has established a segregated account
into which all rents, income, receivables, receipts, revenues, profits and other
consideration received by or paid to the account of the Cherry Creek Borrower
from any and all sources attributable to the Cherry Creek Property are required
to be deposited. Except as discussed below, that account will be controlled by
the Cherry Creek Borrower. After the reduction of the combined debt service
coverage ratio of the Cherry Creek Mortgage Loan and the Cherry Creek Companion
Loan to below 1.30x for a twelve-month period, the occurrence of an event of
default under the Cherry Creek Mortgage Loan or the passage of the related
Anticipated Repayment Date, that account will be controlled by the lender, until
such time, in the event that the change in control of the lockbox account was
the result of a decline in the debt service coverage ratio, as the debt service
coverage ratio for the immediately preceding 12-month period equals or exceeds
1.30x for 2 consecutive calendar quarters, in which event control of such
account will return to the Cherry Creek Borrower. The Cherry Creek Borrower has
a one-time only right to regain control of the lockbox account if the transfer
of control was due to an event of default under the Cherry Creek Mortgage Loan
which has been cured.
Reserves. If the combined debt service coverage ratio for the Cherry Creek
Mortgage Loan and the Cherry Creek Companion Loan falls below 1.30x or if the
Cherry Creek Mortgage Loan has experienced its Anticipated Repayment Date, the
Cherry Creek Borrower will be required to make ongoing reserve and escrow
payments as follows: (i) monthly escrow payments for real estate taxes and
insurance premiums, (ii) monthly payments for deposit into a capital improvement
reserve fund, (iii) monthly deposits for
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<PAGE>
tenant improvements and leasing commissions, and (iv) monthly deposits into a
ground lease escrow fund.
Ground Leases Affecting the Cherry Creek Property. The Cherry Creek
Borrower holds two (2) leasehold interests in portions of the Cherry Creek
Property pursuant to (i) a certain ground lease with respect to the Cherry Creek
Mall portion of the Mortgaged Property (the "Cherry Creek Ground Lease") and
(ii) a certain ground lease with respect to the Cherry Creek West portion of the
Mortgaged Property (the "Cherry Creek West Ground Lease, and together with the
Cherry Creek Ground Lease, collectively, the "Cherry Creek Ground Leases"). The
lease term of each of the Cherry Creek Ground Leases commenced on October 15,
1984 and expires on October 14, 2083. Pursuant to the ground leases, the ground
lessor must be given written notice of a default by the Cherry Creek Borrower
under the Cherry Creek Mortgage Loan prior to a foreclosure, or transfer in lieu
thereof. The ground lessor may within 120 days of that notice elect to take over
the Cherry Creek Borrower's position as ground lessee under the ground leases
subject to the Cherry Creek Mortgage Loan and the Cherry Creek Companion Loan.
This right of the ground lessor is assignable to third parties and is subject to
certain conditions, including rating agency approval. In the event of a default
due to failure of the Cherry Creek Borrower to make monetary payments, the
ground lessor's taking over the Cherry Creek Borrower's position will not be
subject to payments due more than 120 days prior to the ground lessor's receipt
of a notice of default. If the ground lessor has cured any monetary defaults
under the Cherry Creek Mortgage Loan which occurred less than 120 days prior to
the ground lessor's receipt of the notice of default by the end of the 120-day
period in which the ground lessor may elect to take over the Cherry Creek
Borrower's position as ground lessee, and if within a reasonable time after
obtaining possession of the premises, the ground lessor has cured any defaults
under the Cherry Creek Mortgage Loan which cannot be cured except by a party in
possession, the lender must reinstate the mortgage and not accelerate the Cherry
Creek Mortgage Loan or the Cherry Creek Companion Loan. The ground lessor is not
required to cure any default which is personal to the Cherry Creek Borrower and
not capable of being cured by any other party. Any such election by the ground
lessor to take over the Cherry Creek Borrower's position will not result in a
merger of the fee and leasehold estates.
THE ANNAPOLIS MALL MORTGAGE LOAN. The "Annapolis Mall Mortgage Loan" has a
Cut-off Date Balance of $123,031,572, representing 9.0% of the Initial Pool
Balance. The Annapolis Mall Mortgage Loan, together with another loan (the
"Annapolis Mall Companion Loan"), is secured by a first priority mortgage lien
on the fee simple interest of the holders of the membership interests (the
"Annapolis Mall Owners") in the related Borrower (the Annapolis Mall Owners,
together with such Borrower, the "Annapolis Mall Borrower") in some of the
anchored space and in all of the in-line space in a 1,116,630 square foot
regional mall, known as "Westfield Shoppingtown Annapolis" and located in
Annapolis, Maryland (the "Annapolis Mall Property"). The Annapolis Mall Mortgage
Loan and the Annapolis Mall Companion Loan are cross-defaulted. As of March 11,
2000, the unpaid principal balance of the Annapolis Mall Companion Loan was
$21,099,647.14. The Annapolis Mall Companion Loan is not part of the trust. The
Annapolis Mall Companion Loan has received an investment grade shadow rating
from Fitch.
The Annapolis Mall Borrower is Annapolis Shoppingtown, LLC, a special
purpose Delaware limited liability company which is ultimately controlled by
Westfield America, Inc. ("Westfield"). Westfield is an owner and manager of
regional shopping centers in major markets throughout the United States. Through
its affiliate, Westfield America, Inc., Westfield manages over 35.9 million
square feet of retail space in the United States. Westfield is a publicly traded
real estate investment trust, and its shares are listed on the New York Stock
Exchange under the symbol "WEA."
Each of the Annapolis Mall Mortgage Loan and the Annapolis Mall Companion
Loan is an ARD Loan with an Anticipated Repayment Date of December 11, 2009 and
a maturity date of December 11, 2029. Each of the Annapolis Mall Mortgage Loan
and the Annapolis Mall Companion Loan will bear interest based on the actual
number of days elapsed each month in a year assumed to consist of 360 days. The
Annapolis Mall Mortgage Loan consists of a $ component (the "Annapolis
Mall Mortgage Loan Component No. 1") and a $ component (the "Annapolis
Mall Mortgage Loan
Compo-
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<PAGE>
nent No. 2"). Until the related Anticipated Repayment Date, the Annapolis Mall
Mortgage Loan Component No. 1 will accrue interest at 8.177% per annum, and the
Annapolis Mall Mortgage Loan Component No. 2 will accrue interest at no less
than 8.177% per annum. The Mortgage Rate for the Annapolis Mall Mortgage Loan is
equal to the weighted average of those rates from time to time. From and after
the related Anticipated Repayment Date, both components of the Annapolis Mall
Mortgage Loan will accrue interest at a Revised Rate equal to 10.177% per annum.
On the eleventh day of each month, continuing through and including the
related maturity date, the Annapolis Mall Borrower is required to make a
constant monthly debt service payment on the Annapolis Mall Mortgage Loan and
the Annapolis Mall Companion Loan equal to $1,077,278.12, following the making
of deposits into a tax and insurance escrow fund and paying any fees payable to
the related cash management agent. That amount will be applied:
- FIRST, to pay interest on the principal balance of the Annapolis Mall
Mortgage Loan at the related Mortgage Rate;
- SECOND, to pay principal on the Annapolis Mall Mortgage Loan in accordance
with the amortization schedule described below;
- THIRD, to pay interest on the respective components of the principal
balance of the Annapolis Mall Companion Loan at various rates, the
weighted average of which is no more than 8.177% per annum;
- FOURTH, to pay principal on the Annapolis Mall Mortgage Loan, until the
principal balance of the Annapolis Mall Mortgage Loan is reduced to zero;
and
- FIFTH, to pay principal on the Annapolis Mall Companion Loan, until the
principal balance of the Annapolis Mall Companion Loan is reduced to zero.
The amounts applied pursuant to clause SECOND above will be applied to pay
principal on the Annapolis Mall Mortgage Loan in accordance with an amortization
schedule that would have amortized the Annapolis Mall Mortgage Loan and the
Annapolis Mall Companion Loan over a period of 30 years based on an annual
interest rate of 8.177% per annum. Payments of principal on the Annapolis Mall
Mortgage Loan will be applied, first, to Annapolis Mall Mortgage Loan Component
No. 1 until its principal balance is reduced to zero, and then to Annapolis Mall
Mortgage Loan Component No. 2.
In the event of a partial prepayment of the Annapolis Mall Mortgage Loan due
to the receipt of insurance proceeds or a condemnation award in connection with
a casualty or a condemnation or the receipt of proceeds resulting from
application of amounts pursuant to the letter of credit described in
"--Additional Collateral" below, the monthly debt service payment will be recast
in order to fully amortize the Annapolis Mall Mortgage Loan and the Annapolis
Mall Companion Loan over their remaining amortization term.
From and after the related Anticipated Repayment Date, the Annapolis Mall
Borrower must apply excess cash flow from the Annapolis Mall Property toward
additional amortization of the Annapolis Mall Mortgage Loan. In no event will
any payments of principal be made on the Annapolis Mall Companion Loan until the
principal of the Annapolis Mall Mortgage Loan is paid in full. During an event
of default under the Annapolis Mall Mortgage Loan that results in it being
accelerated, all proceeds will be applied to the payment of the entire principal
balance of the Annapolis Mall Mortgage Loan, together with interest thereon at
8.177% per annum, prior to any payments being made on the Annapolis Mall
Companion Loan.
The payment of any Additional Interest accrued on the Annapolis Mall
Mortgage Loan will be deferred until the principal balances of both the
Annapolis Mall Mortgage Loan and the Annapolis Mall Companion Loan are repaid in
full. To the extent permitted by law, that Additional Interest will compound at
the related Revised Rate. All Additional Interest on the Annapolis Mall Mortgage
Loan must be paid in
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<PAGE>
full before any payments of Additional Interest are made with respect to the
Annapolis Mall Companion Loan.
Provided no event of default exists under the Annapolis Mall Mortgage Loan
or the Annapolis Mall Companion Loan, the Annapolis Mall Borrower may
voluntarily prepay the Annapolis Mall Mortgage Loan and the Annapolis Mall
Companion Loan, in whole only, at any time after December 9, 2002, provided that
until the third Due Date prior to the related Anticipated Repayment Date the
Annapolis Mall Borrower must also pay a Yield Maintenance Charge in connection
with that voluntary prepayment. The Annapolis Mall Borrower may not prepay the
Annapolis Mall Companion Loan while any portion of the unpaid principal balance
of the Annapolis Mall Mortgage Loan is outstanding.
The Annapolis Mall Borrower may defease in full only, and not in part, the
Annapolis Mall Mortgage Loan and the Annapolis Mall Companion Loan, on any Due
Date after December 9, 2002 and prior to the related Anticipated Repayment Date,
by pledging substitute collateral that consists solely of direct non-callable
and non-redeemable United States government securities that produce payments
which replicate the payment obligations of the Annapolis Mall Borrower under the
Annapolis Mall Mortgage Loan and the Annapolis Mall Companion Loan and pay each
in full on the related Anticipated Repayment Date.
The Co-Lender and Servicing Agreement. The master servicer and special
servicer will service and administer both the Annapolis Mall Mortgage Loan and
the Annapolis Mall Companion Loan pursuant to the pooling and servicing
agreement for so long as the Annapolis Mall Mortgage Loan is part of the trust.
However, if the Annapolis Mall Mortgage Loan is ever purchased out of the trust,
then both of those loans will be serviced and administered in accordance with a
separate co-lender and servicing agreement. In the event that the Annapolis Mall
Mortgage Loan becomes specially serviced and, further, a monthly payment on the
Annapolis Mall Mortgage Loan or the Annapolis Mall Companion Loan is at least
60 days delinquent, the holder of the Annapolis Mall Companion Loan will be
entitled to purchase the Annapolis Mall Mortgage Loan from the trust at a price
generally equal to the unpaid principal balance of the Annapolis Mall Mortgage
Loan, together with all unpaid interest thereon at 8.177% per annum and any
outstanding servicing expenses for which the Annapolis Mall Borrower is
responsible. Further, if the principal amount of the Annapolis Mall Companion
Loan (less any existing related Appraisal Reduction Amount) is at least equal to
50% of the original principal amount of that loan, the holder of the Annapolis
Mall Companion Loan will be entitled to advise and direct the special servicer
with respect to certain specified actions generally involving foreclosure or
modification of the Annapolis Mall Mortgage Loan and the Annapolis Mall
Companion Loan. However, no advice or direction may require or cause the special
servicer to violate any provision of the Pooling Agreement, including the
special servicer's obligation to act in accordance with the servicing standard
set forth therein. See "Servicing of the Mortgage Loans--The Controlling Class
Representative" in this prospectus supplement.
The Annapolis Mall Property. The Annapolis Mall Property is an enclosed
single-level regional mall containing retail stores, restaurants and
entertainment centers located in Annapolis, Maryland. The mall's anchors are
Hechts, Nordstrom, Montgomery Ward, Lord & Taylor and JC Penney, which occupy
692,148 square feet or 62.0% of the total gross leasable area ("GLA"). A 52,000
square foot multi-screen movie theater is under construction which will replace
the currently existing Crown Theater. In-line mall space totals 424,482 square
feet or 38.0% of the GLA, and includes retailers such as The Limited, Lerner New
York, The Gap, Express and Sam Goody/Musicland. In-line mall sales for 1999 were
reported to be $415 per square foot (based on same store sales). As of
February 1, 2000, in-line tenant occupancy costs as a percentage of sales (based
on an analysis of reported base rent and reimbursements at the Annapolis Mall
Property) were 12.7%. As of February 1, 2000, based on square footage leased,
in-line occupancy at the Annapolis Mall Property was 97.2% and overall mall
occupancy was 98.9%.
The following tables provide the indicated information regarding tenants and
leases at the Annapolis Mall Property.
S-66
<PAGE>
GLA OVERVIEW OF THE ANNAPOLIS MALL PROPERTY(1)
<TABLE>
<CAPTION>
ANCHOR LEASE
STORE SQUARE FEET AS % OF GLA EXPIRATION
- ----- ----------- ----------- ------------
<S> <C> <C> <C>
Anchors
Hecht's (May)(2)..................................... 198,171 17.7% NAP
Nordstrom............................................ 153,000 13.7 March-19
Montgomery Ward...................................... 147,282 13.2 November-02
Lord & Taylor (May)(3)............................... 110,000 9.9 January-49
JC Penney(2)......................................... 83,695 7.5 NAP
--------- -----
SUBTOTAL: ANCHOR TENANTS............................... 692,148 62.0%
MALL STORES............................................ 424,482 38.0%
--------- -----
TOTAL GLA(4)........................................... 1,116,630 100.0%
</TABLE>
- ------------------------
(1) As of February 1, 2000 rent roll.
(2) Not part of collateral, anchor owns pad and improvements.
(3) Anchor on ground lease, but owns its improvements.
(4) May not sum to total due to rounding.
TEN LARGEST IN-LINE TENANTS AT THE ANNAPOLIS MALL PROPERTY(1)
<TABLE>
<CAPTION>
LEASE
TENANT SQUARE FEET EXPIRATION DATE
- ------ ----------- ---------------
<S> <C> <C>
The Limited................................................. 15,765 January-10
Crown Theatres.............................................. 13,352 January-04
Lerner New York............................................. 13,312 January-09
The Gap..................................................... 12,793 January-07
Express..................................................... 11,687 January-07
Sam Goody/Musicland......................................... 10,353 January-03
Lane Bryant................................................. 9,696 January-09
Romano's Macaroni Grill..................................... 7,200 November-05
Victoria's Secret........................................... 7,189 January-07
Lechter's Kitchen Place..................................... 6,816 January-09
------
TOTAL....................................................... 108,163
======
</TABLE>
- ------------------------
(1) As of February 1, 2000 rent roll.
S-67
<PAGE>
LEASE EXPIRATION SCHEDULE FOR
IN-LINE TENANTS AT THE ANNAPOLIS MALL PROPERTY(1)(2)
<TABLE>
<CAPTION>
EXPIRING
IN LINE TOTAL %
YEAR SQ. FT. OF GLA(2) CUMULATIVE %
- ---- -------- --------- ------------
<S> <C> <C> <C>
2000........................................................ 12,860 3.12% 3.12%
2001........................................................ 22,899 5.55 8.66
2002........................................................ 4,296 1.04 9.71
2003........................................................ 29,899 7.24 16.95
2004........................................................ 63,023 15.27 32.22
2005........................................................ 68,529 16.61 48.83
2006........................................................ 49,304 11.95 60.77
2007........................................................ 51,476 12.47 73.25
2008........................................................ 18,864 4.57 77.82
2009........................................................ 56,980 13.81 91.63
2010 and beyond............................................. 34,562 8.37 100.00%
------- ----- ------
TOTAL(3).................................................... 412,692 100.0%
======= =====
</TABLE>
- ------------------------
(1) As of February 1, 2000 rent roll.
(2) Excludes vacant space.
(3) May not sum to total due to rounding.
Property Management. The Annapolis Mall Property is managed by Westfield
Management Company. If certain events relating to a cash management event exists
at any time during the term of the Annapolis Mall Mortgage Loan, the Annapolis
Mall Borrower, at the option of the holder of the Annapolis Mall Mortgage Loan,
is required to hire a property management firm designated by the lender to
thereafter serve as a property management consultant for the Annapolis Mall
Property until each of the events is cured. The management consultant will be
responsible for overseeing, approving and fully participating in all actions and
decisions of the property manager at the Annapolis Mall Property, including the
incurring of any expenses, the retention of any broker, the negotiation and
execution of any leases or lease "term sheets," decisions as to tenants and
"tenant mix" and repairs, alterations and improvements. The Annapolis Mall
Borrower is required to cause the property manager to cooperate with the
management consultant to enable the management consultant to perform its
responsibilities as described above.
Appraised Value. The "Appraised Value" of the Annapolis Mall Property,
based on an appraisal conducted in June, 1999 by a third party appraiser, is
$211,200,000.
Cut-off Date Loan-to-Value Ratio. Based upon the related Appraised Value of
the Annapolis Mall Property referred to above, the Annapolis Mall Mortgage Loan
has a Cut-off Date Loan-to-Value Ratio of 58.3%, and the Annapolis Mall Mortgage
Loan, together with the Annapolis Mall Companion Loan, has a Cut-off Date
Loan-to-Value Ratio of 68.2%.
Cut-off Date Debt Service Coverage Ratio. The Annapolis Mall Mortgage Loan
has a Cut-off Date Debt Service Coverage Ratio of 1.51x. The combined Cut-off
Date Debt Service Coverage Ratio for the Annapolis Mall Mortgage Loan and the
Annapolis Mall Companion Loan is 1.31x.
Lockbox. The Annapolis Mall Borrower has established a segregated account
controlled by the lender into which all rents, income, receivables, receipts,
revenues, profits and other consideration received by or paid to the account of
the Annapolis Mall Borrower from any and all sources attributable to the
Annapolis Mall Property are required to be deposited.
S-68
<PAGE>
Reserves. If the debt service coverage ratio for the Annapolis Mall
Mortgage Loan and the Annapolis Mall Companion Loan falls below 1.25x or an
event of default occurs and is continuing, the Annapolis Mall Borrower will be
required to make ongoing reserve and escrow payments for tenant improvements,
leasing commissions, operating expenses and capital expenditures. If the
Annapolis Mall Borrower is required to make those payments due to a decline in
the debt service coverage ratio, the Annapolis Mall Borrower has a one time
opportunity to terminate the making of those payments by depositing cash or a
letter of credit with the holder of the Annapolis Mall Mortgage Loan in an
amount sufficient to raise the combined debt service coverage ratio of the
Annapolis Mall Mortgage Loan and the Annapolis Mall Companion Loan to at least
1.30x.
Construction Funds Proceeds. While the Annapolis Mall Mortgage Loan was
fully funded on its closing date, $15,000,000 (the "New Construction Proceeds")
was funded into a separate account controlled by the bank that issued the letter
of credit described below. The New Construction Proceeds are to be used to add
an approximately 52,000 square foot theater and approximately 15,000 square feet
of in-line mall space to the Annapolis Mall Property. If certain debt service
coverage tests are not met by June 30, 2001, a certain portion of the letter of
credit will be drawn and used to pay down a corresponding amount of the
Annapolis Mall Mortgage Loan. Such paydown will not be accompanied by any
prepayment consideration. Also, if certain performance criteria are satisfied,
the amount of the letter of credit will be periodically reduced and ultimately
released.
Additional Collateral. The Annapolis Mall Borrower provided a $15,000,000
letter of credit as additional collateral for the obligations of the Annapolis
Mall Borrower discussed in "--Construction Funds Proceeds" above relating to
expansion being undertaken at the Annapolis Mall Property.
THE WESTFIELD PORTFOLIO MORTGAGE LOAN. The "Westfield Portfolio Mortgage
Loan" has a Cut-off Date Balance of $99,000,000, representing 7.2% of the
Initial Pool Balance. The Westfield Portfolio Mortgage Loan, together with
another loan (the "Westfield Portfolio Companion Loan"), is secured by a first
priority mortgage lien on the fee simple interest and leasehold interests of the
related Borrower in: (a) the in-line space in a 1,191,347 square foot regional
mall and office complex known as Downtown Plaza located in the central business
district of Sacramento, California (the "Downtown Plaza Property"); and (b) an
846,781 square foot "power center" known as Eastland Center and located in West
Covina, California (the "Eastland Center Property", and together with the
Downtown Plaza Property, the "Westfield Portfolio Property"). The Westfield
Portfolio Mortgage Loan and the Westfield Portfolio Companion Loan are
cross-defaulted. As of March 11, 2000, the unpaid principal balance of the
Westfield Portfolio Companion Loan was $28,128,566.94. The Westfield Portfolio
Companion Loan is not part of the trust. The Westfield Portfolio Companion Loan
has received an investment grade shadow rating from Fitch.
The Westfield Portfolio Mortgage Loan was made collectively to Downtown
Plaza LLC, a special purpose Delaware limited liability company, and Eastland
Shopping Center LLC, a special purpose Delaware limited liability company
(collectively, the "Westfield Portfolio Borrower"). Both entities are ultimately
controlled by Westfield America, Inc. ("Westfield"). Westfield is an owner and
manager of regional shopping centers in major markets throughout the United
States. Through its affiliate Westfield America, Inc. Westfield manages over
35.9 million square feet of retail space in the United States. Westfield is a
publicly traded real estate investment trust, and its shares are listed on the
New York Stock Exchange under the symbol "WEA."
S-69
<PAGE>
CERTAIN STATISTICAL INFORMATION REGARDING THE WESTFIELD PORTFOLIO MORTGAGE LOAN
<TABLE>
<CAPTION>
ALLOCATED APPRAISED LOAN-TO-
PROPERTY LOAN AMOUNT VALUE VALUE
- -------- ----------- ------------ ---------
<S> <C> <C> <C>
Downtown Plaza......................................... $66,748,504 $163,200,000 40.9%
Eastland Center........................................ 32,251,496 67,000,000 48.1
----------- ------------ ----
TOTAL/WEIGHTED AVERAGE................................. $99,000,000 $230,200,000 43.0%
=========== ============ ====
</TABLE>
- ------------------------
(1) Calculated based on underwritten net cash flow.
Each of the Westfield Portfolio Mortgage Loan and the Westfield Portfolio
Companion Loan is an ARD Loan with an Anticipated Repayment Date of
December 11, 2009 and a stated maturity date of December 11, 2029. Each of the
Westfield Portfolio Mortgage Loan and the Westfield Portfolio Companion Loan
will bear interest based on the actual number of days elapsed each month in a
year assumed to consist of 360 days. The Westfield Portfolio Mortgage Loan
consists of a $ component (the "Westfield Portfolio Mortgage Loan
Component No. 1") and a $ component (the "Westfield Portfolio Mortgage
Loan Component No. 2"). Until the related Anticipated Repayment Date, the
Westfield Portfolio Mortgage Loan Component No. 1 will accrue interest at 8.177%
per annum, and the Westfield Portfolio Mortgage Loan Component No. 2 will accrue
interest at no less than 8.177% per annum. The Mortgage Rate for the Westfield
Portfolio Mortgage Loan is equal to the weighted average of those rates from
time to time. From and after the related Anticipated Repayment Date, both
components of the Westfield Portfolio Mortgage Loan will accrue interest at a
Revised Rate equal to 10.177% per annum.
On the eleventh day of each month, continuing through and including the
related maturity date, the Westfield Portfolio Borrower is required to make a
constant monthly debt service payment on the Westfield Portfolio Mortgage Loan
and the Westfield Portfolio Companion Loan, equal to $950,195.42, following the
making of deposits into a ground rent escrow fund and a tax and insurance escrow
fund and paying any fees payable to the related cash management agent. That
amount will be applied:
- FIRST, to pay interest on the principal balance of the Westfield Portfolio
Mortgage Loan at the related Mortgage Rate;
- SECOND, to pay principal on the Westfield Portfolio Mortgage Loan in
accordance with the amortization schedule described below;
- THIRD, to pay interest on the respective components of the principal
balance of the Westfield Portfolio Companion Loan at various rates, the
weighted average of which is no more than 8.177% per annum;
- FOURTH, to pay principal on the Westfield Portfolio Mortgage Loan, until
the principal balance of the Westfield Portfolio Mortgage Loan is reduced
to zero; and
- FIFTH, to pay principal on the Westfield Portfolio Companion Loan, until
the principal balance of the Westfield Portfolio Companion Loan is reduced
to zero.
The amounts applied pursuant to clause SECOND above will be applied to pay
principal on the Westfield Portfolio Mortgage Loan in accordance with an
amortization schedule that would have amortized the Westfield Portfolio Mortgage
Loan and the Westfield Companion Loan over a period of 30 years based on an
annual interest rate of 8.177% per annum. Payments of principal on the Westfield
Portfolio Mortgage Loan will be applied, FIRST, to Westfield Portfolio Mortgage
Loan Component No. 1 until its principal balance is reduced to zero, and THEN,
to Westfield Portfolio Mortgage Loan Component No. 2.
S-70
<PAGE>
In the event of a partial prepayment of the Westfield Portfolio Mortgage
Loan due to the receipt of insurance proceeds or a condemnation award in
connection with a casualty or condemnation, the monthly debt service payment
will be recast in order to fully amortize the Westfield Portfolio Mortgage Loan
and the Westfield Portfolio Companion Loan over its remaining amortization term.
From and after the related Anticipated Repayment Date, the Westfield
Portfolio Borrower must apply certain excess cash flow from the Westfield
Portfolio Property toward additional amortization of the Westfield Portfolio
Mortgage Loan. In no event will any payments of principal be made on the
Westfield Portfolio Companion Loan until the principal of the Westfield
Portfolio Mortgage Loan is paid in full. During an event of default under the
Westfield Portfolio Mortgage Loan that results in it being accelerated, all
proceeds will be applied to the payment of the entire principal balance of the
Westfield Portfolio Mortgage Loan, together with interest thereon at the related
Mortgage Rate, prior to any payments being made on the Westfield Portfolio
Companion Loan.
The payment of any Additional Interest accrued on the Westfield Portfolio
Mortgage Loan will be deferred until the principal balances of both the
Westfield Portfolio Mortgage Loan and the Westfield Portfolio Companion Loan are
repaid in full. To the extent permitted by law, that Additional Interest will
compound at the related Revised Rate. All Additional Interest on the Westfield
Portfolio Mortgage Loan must be paid in full before any payments of Additional
Interest are made with respect to the Westfield Portfolio Companion Loan.
Provided no event of default exists under the Westfield Portfolio Mortgage
Loan or the Westfield Portfolio Companion Loan, the Westfield Portfolio Borrower
may voluntarily prepay the Westfield Portfolio Mortgage Loan and the Westfield
Portfolio Companion Loan in whole only at any time after December 9, 2002.
However, until the third Due Date prior to the related Anticipated Repayment
Date, the Westfield Portfolio Borrower must also pay a Yield Maintenance Charge
in connection with any voluntary prepayment. The Westfield Portfolio Borrower
may not prepay the Westfield Portfolio Companion Loan while any portion of the
unpaid principal balance of the Westfield Portfolio Mortgage Loan is
outstanding.
The Westfield Portfolio Borrower may defease all or part of the Westfield
Portfolio Mortgage Loan and the Westfield Portfolio Companion Loan, on any Due
Date after December 9, 2002 and prior to the related Anticipated Repayment Date,
by pledging substitute collateral that consists solely of direct non-callable
and non-redeemable United States government securities that produce payments
which replicate the payment obligations of the Westfield Portfolio Borrower
under the defeased portion of the Westfield Portfolio Mortgage Loan and the
Westfield Portfolio Companion Loan and pay such defeased portion in full on the
related Anticipated Repayment Date.
The Co-Lender and Servicing Agreement. The master servicer and special
servicer will service and administer both the Westfield Portfolio Mortgage Loan
and the Westfield Portfolio Companion Loan pursuant to the pooling and servicing
agreement for so long as the Westfield Portfolio Mortgage Loan is part of the
trust. However, if the Westfield Portfolio Mortgage Loan is ever purchased out
of the trust, then both of those loans will be serviced and administered in
accordance with a separate co-lender and servicing agreement. In the event that
the Westfield Portfolio Mortgage Loan becomes specially serviced and, further, a
monthly payment on the Westfield Portfolio Mortgage Loan or the Westfield
Portfolio Companion Loan is at least 60 days delinquent, the holder of the
Westfield Portfolio Companion Loan will be entitled to purchase the Westfield
Portfolio Mortgage Loan from the trust at a price generally equal to the unpaid
principal balance of the Westfield Portfolio Mortgage Loan, together with all
unpaid interest thereon at 8.177% per annum and any outstanding servicing
expenses for which the Westfield Portfolio Borrower is responsible. Further, at
any time the principal amount of the Westfield Portfolio Companion Loan (less
any existing related Appraisal Reduction Amount as described under "Description
of the Certificates--Appraisal Reductions" in this prospectus supplement) is at
least equal to 50% of the original principal amount of that loan, the holder of
the Westfield Portfolio Companion Loan will be entitled to
S-71
<PAGE>
advise and direct the special servicer with respect to certain specified actions
generally involving foreclosure or modification of the Westfield Portfolio
Mortgage Loan and the Westfield Portfolio Companion Loan. However, no advice or
direction may require or cause the special servicer to violate any provision of
the Pooling Agreement, including the special servicer's obligation to act in
accordance with the servicing standard set forth therein. See "Servicing of the
Mortgage Loans--The Controlling Class Representative" in this prospectus
supplement.
The Westfield Portfolio. Downtown Plaza, which is located in Sacramento,
California, contains both an enclosed single-level regional mall containing
retail stores, restaurants and entertainment centers, and three office
buildings. The mall's anchors are Macy's and Macy's Men's and Furniture, which
occupy 503,500 square feet or 42.3% of the total GLA. In-line mall space totals
405,258 square feet or 34.0% of the GLA and includes retailers such as Sam
Goody/Musicland, J. Crew and Express. Office space totals 282,805 square feet.
In-line mall sales for 1999 were estimated to be $314 per square foot (based on
same store sales). As of October 1, 1999, in-line tenant occupancy costs as a
percentage of sales (based on an analysis of reported base rent and
reimbursements at Downtown Plaza) were 12.9%. As of February 1, 2000, based on
square footage leased, retail in-line occupancy at Downtown Plaza was 93.1% and
overall mall occupancy was 96.9%.
Eastland Center is a power center located in West Covina, California. The
center's anchors are Target, Burlington Coat Factory and Mervyn's, which occupy
301,800 square feet or 35.6% of the total GLA. The center also includes a
savings and loan association and a supermarket. In-line mall space totals
544,981 square feet or 64.4% of the GLA and includes retailers such as Bed,
Bath & Beyond, Loehmann's and Babies R' Us. In-line mall sales for 1999 were
estimated to be $217 per square foot (based on same store sales). As of
February 1, 2000, in-line tenant occupancy costs as a percentage of sales (based
on an analysis of reported base rent and reimbursements at Eastland Center) were
4.0%. As of February 1, 2000, based on square footage leased, in-line occupancy
at the Eastland Center was 95.4% and overall mall occupancy was 97.0%.
The following tables provide the indicated information regarding tenants and
leases at Downtown Plaza and Eastland Center.
GLA OVERVIEW OF DOWNTOWN PLAZA(1)
<TABLE>
<CAPTION>
ANCHOR LEASE
STORE SQUARE FEET AS % OF GLA EXPIRATION
- ----- ----------- ----------- ------------
<S> <C> <C> <C>
ANCHORS
Macy's (Federated)(2).................................. 332,500 27.9% NAP
Macy's Men & Furniture (Federated)(2).................. 171,000 14.4 NAP
--------- -----
TOTAL ANCHOR SPACE....................................... 503,500 42.3%
========= =====
TOTAL IN-LINE MALL SPACE................................. 405,258 34.0%
========= =====
Office Space............................................. 282,805 23.7%
--------- -----
TOTAL GLA(3)............................................. 1,191,347 100.0%
========= =====
</TABLE>
- ------------------------
(1) As of February 1, 2000 rent roll.
(2) Not part of the collateral; tenant owns its own pad and improvements.
(3) May not sum to total due to rounding.
S-72
<PAGE>
TEN LARGEST IN-LINE TENANTS AT DOWNTOWN PLAZA(1)
<TABLE>
<CAPTION>
LEASE
TENANT SQUARE FEET EXPIRATION DATE
- ------ ----------- ---------------
<S> <C> <C>
United Artists Theatre...................................... 42,370 September-08
24 Hour Nautilus............................................ 30,072 January-09
Copeland's Sports........................................... 30,000 November-12
Express..................................................... 12,493 January-06
Hard Rock Cafe.............................................. 10,210 June-12
Z Gallerie.................................................. 9,615 October-03
Sam Goody/Musicland......................................... 8,881 January-04
J. Crew..................................................... 7,671 January-06
Warner Brothers Studio...................................... 7,637 October-03
The Gap..................................................... 7,476 January-06
-------
TOTAL....................................................... 166,425
=======
</TABLE>
- ------------------------
(1) As of February 1, 2000 rent roll.
LEASE EXPIRATION SCHEDULE FOR IN-LINE TENANTS AT DOWNTOWN PLAZA(1)
<TABLE>
<CAPTION>
EXPIRING
IN LINE TOTAL %
YEAR SQ. FT. OF GLA(2) CUMULATIVE %
- ---- --------- --------- ------------
<S> <C> <C> <C>
MTM/2000................................................. 39,927 5.91% 5.91%
2001..................................................... 12,373 1.83 7.74
2002..................................................... 16,022 2.37 10.11
2003..................................................... 90,987 13.47 23.58
2004..................................................... 59,277 8.77 32.35
2005..................................................... 21,017 3.11 35.46
2006..................................................... 83,678 12.38 47.84
2007..................................................... 22,593 3.34 51.18
2008..................................................... 60,008 8.88 60.06
2009..................................................... 223,447 33.07 93.13
2010 and beyond.......................................... 46,357 6.86 100.0%
--------- ------ -----
TOTAL(3)................................................. 675,686(4) 100.00%
========= ======
</TABLE>
- ------------------------
(1) As of February 1, 2000.
(2) Excludes vacant space.
(3) May not sum to total due to rounding.
(4) Includes office space.
S-73
<PAGE>
GLA OVERVIEW OF EASTLAND CENTER(1)
<TABLE>
<CAPTION>
ANCHOR LEASE
STORE SQUARE FEET AS % OF GLA EXPIRATION
- ----- ----------- ----------- -------------
<S> <C> <C> <C>
Anchors
Target............................................... 122,000 14.4% January-26
Burlington Coat Factory.............................. 100,000 11.8 September-02
Mervyn's............................................. 79,800 9.4 January-06
------- -----
Total Anchor Space..................................... 301,800 35.6%
======= =====
Total In-Line Mall Space............................... 544,981 64.4%
======= =====
TOTAL GLA(2)........................................... 846,781 100.0%
======= =====
</TABLE>
- ------------------------
(1) As of February 1, 2000 rent roll.
(2) May not sum to total due to rounding.
TEN LARGEST IN-LINE TENANTS AT EASTLAND CENTER(1)
<TABLE>
<CAPTION>
LEASE
TENANT SQUARE FEET EXPIRATION DATE
- ------ ----------- ---------------
<S> <C> <C>
Coast Federal S&L Association(2)............................ 79,789 November-10
Lucky Market................................................ 50,000 February-18
Chick's Sporting Goods...................................... 48,163 July-12
Bed, Bath & Beyond.......................................... 42,500 January-09
Babies R Us................................................. 37,981 January-07
Marshall's.................................................. 34,550 September-03
Longs Drug Store............................................ 26,240 February-05
Office Club................................................. 24,714 January-02
Ross Dress for Less......................................... 24,175 January-01
Old Navy.................................................... 21,000 January-02
-------
TOTAL....................................................... 389,112
=======
</TABLE>
- ------------------------
(1) As of February 1, 2000 rent roll.
(2) Contains an office component.
S-74
<PAGE>
LEASE EXPIRATION SCHEDULE FOR IN-LINE TENANTS AT EASTLAND CENTER (1)(2)
<TABLE>
<CAPTION>
EXPIRING
IN LINE
FT. TOTAL %
YEAR SQ. OF GLA(2) CUMULATIVE %
- ---- -------- --------- ------------
<S> <C> <C> <C>
2000........................................................ 1,398 0.27% 0.27%
2001........................................................ 25,175 4.84 5.11
2002........................................................ 67,114 12.91 18.02
2003........................................................ 51,060 9.82 27.84
2004........................................................ 10,686 2.06 29.89
2005........................................................ 47,482 9.13 39.02
2006........................................................ 0 0 39.02
2007........................................................ 44,637 8.58 47.61
2008........................................................ 31,561 6.07 53.68
2009........................................................ 55,098 10.6 64.27
2010 and beyond............................................. 185,770 35.73 100.00%
------- -------- ------
TOTAL(3).................................................... 519,981 100.00%
======= ========
</TABLE>
- ------------------------
(1) As of February 1, 2000 rent roll.
(2) Excludes vacant space.
(3) May not sum to total due to rounding.
Property Management. The two properties constituting the Westfield
Portfolio Property are managed by Westfield Management Company. If certain
events relating to cash management exist at any time during the term of the
Westfield Portfolio Mortgage Loan, the Westfield Portfolio Borrower, at the
option of the holder of the Westfield Portfolio Mortgage Loan, is required to
hire a property management firm designated by the lender to thereafter serve as
a property management consultant for the Westfield Portfolio Property until each
of the events is cured. The management consultant will be responsible for
overseeing, approving and fully participating in all actions and decisions of
the property manager at the Westfield Portfolio Property, including the
incurring of any expenses, the retention of any broker, the negotiation and
execution of any leases or lease "term sheets," decisions as to tenants and
"tenant mix" and repairs, alterations and improvements. The Westfield Portfolio
Borrower is required to cause the property manager to cooperate with the
management consultant to enable the management consultant to perform its
responsibilities as described above.
Substitution. Subject to certain terms and conditions set forth in the
related loan documents, the Westfield Portfolio Borrower may, at any time until
30 days prior to the related Anticipated Repayment Date, obtain a release of the
lien of the mortgage against one or both of the properties constituting the
Westfield Portfolio Property by substituting one or more other comparable real
estate assets (the replacement property, a "Westfield Portfolio Substitute
Property"). To qualify as a Westfield Portfolio Substitute Property, a property
would be required to have similar characteristics consistent with the mortgage
pool, including quality of title mortgaged, freedom from environmental issues,
good repair and compliance with applicable laws. In addition, (a) the value of
the Westfield Portfolio Substitute Property must be equal to at least 125% of
the allocated loan amount of the property being released, (b) after giving
effect to the substitution, the combined debt service of the Westfield Portfolio
Mortgage Loan and the Westfield Portfolio Companion Loan must not be lower than
it was immediately prior to the substitution, (c) the net operating income of
the Westfield Portfolio Substitute Property must be equal to or greater than the
net operating income of the property it is replacing, and (d) after giving
effect to the substitution, the combined loan-to-value ratio of the Westfield
Portfolio Mortgage Loan and the Westfield Portfolio Companion Loan should not be
greater than it was at origination or immediately prior to the substitution.
Furthermore, the Westfield Portfolio Borrower must, among other things, provide
confirmation from the
S-75
<PAGE>
Rating Agencies that the substitution would not result in a qualification,
downgrade or withdrawal of any rating or ratings then assigned to any Class of
Certificates.
Release of Mervyn's Parcel. Eastland Shopping Center LLC (the "Eastland
Borrower") is the successor-in-interest to the lessor's interest under a lease
originally executed between the May Stores Shopping Center, Inc. and the
retailer Mervyn's (the "Mervyn's Lease"), pursuant to which Mervyn's leases
approximately 80,000 square feet of the Eastland Center Property (the "Mervyn's
Parcel"). Mervyn's has an option to purchase the Mervyn's Parcel exercisable at
any time after January 1, 1990 until the expiration of the term of such lease,
which has an expiration date of January 31, 2011. Mervyn's has the option to
extend the term for eight additional periods of five years each. The Mortgage
encumbering the Eastland Center Property provides that the mortgagee is to
release the Mervyn's Parcel from the lien of such Mortgage in the event that
Mervyn's elects to exercise its option to purchase such parcel and the Eastland
Borrower satisfies the criteria for such release set forth in the related
Mortgage.
Appraised Value. The Appraised Values for the two properties constituting
the Westfield Portfolio Property, based on appraisals conducted in June, 1999 by
third party appraisers, are $163,200,000 for the Downtown Plaza Property and
$67,000,000 for the Eastland Center Property, for an aggregate Appraised Value
of $230,200,000.
Cut-off Date Loan-to-Value Ratio. Based upon the aggregate Appraised Value
of the Westfield Portfolio Property referred to above, the Westfield Portfolio
Mortgage Loan has a Cut-off Date Loan-to-Value Ratio of 43.0%, and the Westfield
Portfolio Mortgage Loan, together with the Westfield Portfolio Companion Loan,
has a Cut-off Date Loan-to-Value Ratio of 55.2%.
Cut-off Date Debt Service Coverage Ratio. The Westfield Portfolio Mortgage
Loan has a Cut-off Date Debt Service Coverage Ratio of 1.87x. The combined
Cut-off Date Debt Service Coverage Ratio for the Westfield Portfolio Mortgage
Loan and the Westfield Portfolio Companion Loan is 1.49x.
Reserves. If the combined debt service coverage ratio for the Westfield
Portfolio Mortgage Loan and the Westfield Portfolio Companion Loan falls below
1.25x or an event of default occurs and is continuing, the Westfield Portfolio
Borrower will be required to make ongoing reserve and escrow payments for tenant
improvements, leasing commissions, operating expenses and capital expenditures.
If the Westfield Portfolio Borrower is required to make those payments due to a
decline in the debt service coverage ratio, the Westfield Portfolio Borrower has
a one time opportunity to terminate the making of the payments by depositing
cash or a letter of credit with the holder of the Westfield Portfolio Mortgage
Loan in an amount sufficient to raise the combined debt service coverage ratio
of the Westfield Portfolio Mortgage Loan and the Westfield Portfolio Companion
Loan to at least 1.30x.
Lockbox. The Westfield Portfolio Borrower has established a segregated
account controlled by the lender into which all rents, income, receivables,
receipts, revenues, profits and other consideration received by or paid to the
account of the Westfield Portfolio Borrower from any and all sources
attributable to the Westfield Portfolio Property are required to be deposited.
Seismic Assessment. Downtown Plaza and Eastland Center each had a seismic
risk assessment that reflected a maximum probable loss of 12.0% and 32.0%,
respectively, of the amount of the estimated replacement cost of the
improvements. Eastland Center is covered by an earthquake insurance policy.
THE SANGERTOWN SQUARE MORTGAGE LOAN. The "Sangertown Square Mortgage Loan"
has a Cut-off Date Balance of $62,145,749, representing 4.5% of the Initial Pool
Balance. The Sangertown Square Mortgage Loan, together with another loan (the
"Sangertown Square Companion Loan"), is secured by a first priority mortgage
lien on the fee simple interest of the related Borrower (the "Sangertown Square
Borrower") in an 855,360 square foot regional mall (the "Sangertown Square
Property") known as the "Sangertown Square Mall" and located in New Hartford,
New York. The Sangertown Square Mortgage Loan and the Sangertown Square
Companion Loan are cross-defaulted. As of March 11, 2000, the unpaid principal
balance of the Sangertown Square Companion Loan was $14,204,279.92. The
Sangertown Square
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Companion Loan is not part of the trust. The Sangertown Square Companion Loan
has received an investment grade shadow rating from Fitch.
The Sangertown Square Borrower is Sangertown Square L.L.C., a special
purpose New York limited liability company. The Sangertown Square Borrower is
affiliated with the Pyramid Companies ("Pyramid"). Pyramid and its affiliate
companies are one of the largest (by gross leasable area) developers, owners and
managers of regional enclosed shopping centers and power centers in the
Northeast, with over 19 million square feet of owned and managed retail space.
Each of the Sangertown Square Mortgage Loan and the Sangertown Square
Companion Loan is an ARD Loan with an Anticipated Repayment Date of December 1,
2009 and a maturity date of December 1, 2029. Each of the Sangertown Square
Mortgage Loan and the Sangertown Square Companion Loan will bear interest based
on the actual number of days elapsed each month in a year assumed to consist of
360 days. The Sangertown Square Mortgage Loan consists of a $ component
(the "Sangertown Square Mortgage Loan Component No. 1") and a $
component (the "Sangertown Square Mortgage Loan Component No. 2"). Until the
related Anticipated Repayment Date, the Sangertown Square Mortgage Loan
Component No. 1 will accrue interest at 8.82% per annum, and the Sangertown
Square Mortgage Loan Component No. 2 will accrue interest at no less than no
more than 8.82% per annum. The Mortgage Rate for the Sangertown Square Mortgage
Loan is equal to the weighted average of those rates from time to time. From and
after the related Anticipated Repayment Date, both components of the Sangertown
Square Mortgage Loan will accrue interest at a Revised Rate equal to the greater
of (x) 13.82% per annum and (y) the sum of a specified U.S. Treasury rate plus
5%.
On the first day of each month through and including the related maturity
date, the Sangertown Square Borrower will be required to make a constant monthly
debt service payment on the Sangertown Square Mortgage Loan and the Sangertown
Square Companion Loan, equal to $605,654. That amount will be applied:
- FIRST, to pay accrued and unpaid interest on the principal balance of the
Sangertown Square Mortgage Loan at the related Mortgage Rate;
- SECOND, to pay principal on the Sangertown Square Mortgage Loan in
accordance with the amortization schedule described below;
- THIRD, to pay interest on the respective components of the principal
balance of the Sangertown Square Companion Loan at various rates, the
weighted average of which is no more than 8.82% per annum;
- FOURTH, to pay principal on the Sangertown Square Mortgage Loan, until the
principal balance of the Sangertown Square Mortgage Loan is reduced to
zero; and
- FIFTH, to pay principal on the Sangertown Square Companion Loan, until the
principal balance of the Sangertown Square Companion Loan is reduced to
zero.
The amounts applied pursuant to clause SECOND above will be applied to pay
principal on the Sangertown Square Mortgage Loan in accordance with an
amortization schedule that would have amortized the Sangertown Square Mortgage
Loan and the Sangertown Square Companion Loan over a period of 30 years based on
an annual interest rate of 8.82% per annum. Payments of principal on the
Sangertown Square Mortgage Loan will be applied, first, to Sangertown Square
Mortgage Loan Component No. 1 until its principal balance is reduced to zero,
and then to Sangertown Square Mortgage Loan Component No. 2.
In the event of a partial prepayment of the Sangertown Square Mortgage Loan
due to the receipt of insurance proceeds or a condemnation award in connection
with a casualty or a condemnation, the monthly debt service payment will be
recast in order to fully amortize the Sangertown Square Mortgage Loan over its
remaining amortization term.
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From and after the related Anticipated Repayment Date, the Sangertown Square
Borrower must apply certain excess cash flow from the Sangertown Square Property
toward additional amortization of the Sangertown Square Mortgage Loan. In no
event will any payments of principal be made on the Sangertown Square Companion
Loan until the principal of the Sangertown Square Mortgage Loan is paid in full.
During an event of default under the Sangertown Square Mortgage Loan that
results in it being accelerated, all proceeds will be applied to the payment of
the entire principal balance of the Sangertown Square Mortgage Loan, together
with interest thereon at the related Mortgage Rate, prior to any payments being
made on the Sangertown Square Companion Loan.
The payment of any Additional Interest accrued on the Sangertown Square
Mortgage Loan will be deferred until the principal balances of both the
Sangertown Square Mortgage Loan and the Sangertown Square Companion Loan are
repaid in full. To the extent permitted by law, that Additional Interest will
compound at the related Revised Rate. All Additional Interest on the Sangertown
Square Mortgage Loan must be paid in full before any payments of Additional
Interest are made with respect to the Sangertown Square Companion Loan.
The Sangertown Square Borrower is prohibited from voluntarily prepaying the
Sangertown Square Mortgage Loan or the Sangertown Square Companion Loan until
the date that is two months prior to the related Anticipated Repayment Date.
From and after the second Due Date prior to the related Anticipated Repayment
Date, the Sangertown Square Borrower may prepay the Sangertown Square Mortgage
Loan and the Sangertown Square Companion Loan in whole or in part, without
payment of any prepayment consideration. The Sangertown Square Borrower may not
prepay the Sangertown Square Companion Loan while any portion of the unpaid
principal balance of the Sangertown Square Mortgage Loan is outstanding.
The Sangertown Square Borrower may defease the entire Sangertown Square
Mortgage Loan and the Sangertown Square Companion Loan, on any Due Date after
March 2002 and prior to the related Anticipated Repayment Date, by pledging
substitute collateral that consists solely of direct non-callable and
non-redeemable United States government securities that produce payments which
replicate the payment obligations of the Sangertown Square Borrower under the
Sangertown Square Mortgage Loan and the Sangertown Square Companion Loan and pay
each in full on the related Anticipated Repayment Date.
The Co-Lender and Servicing Agreement. The master servicer and special
servicer will service and administer both the Sangertown Square Mortgage Loan
and the Sangertown Square Companion Loan pursuant to the pooling and servicing
agreement for so long as the Sangertown Square Mortgage Loan is part of the
trust. However, if the Sangertown Square Mortgage Loan is ever purchased out of
the trust, then both of those loans will be serviced and administered in
accordance with a separate co-lender and servicing agreement. In the event that
the Sangertown Square Mortgage Loan becomes specially serviced and, further, a
monthly payment on the Sangertown Square Mortgage Loan or the Sangertown Square
Companion Loan is at least 60 days delinquent, the holder of the Sangertown
Square Companion Loan will be entitled to purchase the Sangertown Square
Mortgage Loan from the trust at a price generally equal to the unpaid principal
balance of the Sangertown Square Mortgage Loan, together with all unpaid
interest thereon at 8.82% per annum and any outstanding servicing expenses for
which the Sangertown Square Borrower is responsible. Further, if the principal
amount of the Sangertown Square Companion Loan (less any existing related
Appraisal Reduction Amount) is at least equal to 50% of the original principal
amount of that loan, the holder of the Sangertown Square Companion Loan will be
entitled to advise and direct the special servicer with respect to certain
specified actions generally involving foreclosure or modification of the
Sangertown Square Mortgage Loan and the Sangertown Square Companion Loan.
However, no advice or direction may require or cause the special servicer to
violate any provision of the Pooling Agreement, including the special servicer's
obligation to act in accordance with the servicing standard set forth therein
See "Servicing of the Mortgage Loans--The Controlling Class Representative" in
this prospectus supplement.
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The Sangertown Square Property. The Sangertown Square Property is an
855,360 square foot enclosed regional mall located in New Hartford (Utica), New
York. The Sangertown Square Property, which was built in 1980, is a single-level
center anchored by Sears, JC Penney, Kaufmann's and Bradlees, which occupy
526,715 square feet, or 61.6% of the total gross leasable area ("GLA"). In-line
mall space totals 301,431 square feet, or 35.2% of the GLA. Major in-line
tenants include Circuit City, Old Navy and Klein's All-Sports. In addition the
mall offers a 9-screen movie theater. In-line mall sales for 1999 were reported
to be $370 per square foot. For 1999, in-line tenant occupancy costs as a
percentage of sales (based on an analysis of reported base rent and
reimbursements at the Sangertown Square Property) were 11.6%. As of
February 2000, based on square footage leased, in-line occupancy at the
Sangertown Square Property was 82.2% and overall mall occupancy was 93.7%.
The tables below provide the specified tenant and lease information
regarding the Sangertown Square Property.
GLA OVERVIEW OF THE SANGERTOWN SQUARE PROPERTY(1)
<TABLE>
<CAPTION>
ANCHOR
STORE SQUARE FEET AS % OF GLA LEASE EXPIRATION
- ----- ----------- ----------- ----------------
<S> <C> <C> <C>
Sears.................................................. 152,619 17.8% July-10
JC Penney.............................................. 149,662 17.5% November-08
Kaufmann's (3)......................................... 139,634 16.3% January-06
Bradlees............................................... 84,800 9.9% October-06
------- ------
SUBTOTAL ANCHOR TENANTS................................ 526,715 61.6%
IN-LINE MALL SPACE..................................... 301,431 35.2%
CINEMA................................................. 27,214 3.2%
------- ------
TOTAL GLA(2)........................................... 855,360 100.0%
======= ======
</TABLE>
- ------------------------
(1) As of February 2000 rent roll.
(2) May not sum to total due to rounding.
(3) Owned by May Department Stores Company.
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TEN LARGEST IN-LINE TENANTS AT THE SANGERTOWN SQUARE PROPERTY(1)
<TABLE>
<CAPTION>
TENANT SQUARE FEET LEASE EXPIRATION DATE
- ------ ----------- ---------------------
<S> <C> <C>
Circuit City................................................ 21,485 January-19
Klein's All-Sports.......................................... 18,075 November-06
Old Navy.................................................... 15,500 October-02
Lerners..................................................... 9,315 August-07
Limited Express............................................. 8,000 January-06
CVS......................................................... 6,902 June-07
Deb Shops................................................... 6,560 January-09
The Wall.................................................... 6,264 January-05
Champs Sports............................................... 6,250 December-02
Eddie Bauer................................................. 6,044 January-05
-------
TOTAL....................................................... 104,395
</TABLE>
- ------------------------
(1) As of February 2000 rent roll.
LEASE EXPIRATION SCHEDULE FOR IN-LINE TENANTS AT THE SANGERTOWN SQUARE
PROPERTY(1)(2)
<TABLE>
<CAPTION>
EXPIRING IN-LINE SQ.
YEAR FEET TOTAL % OF GLA(2) CUMULATIVE %
- ---- -------------------- ----------------- ------------
<S> <C> <C> <C>
MTM/2000....................................... 21,888 8.8% 8.8%
2001........................................... 10,865 4.4% 13.2%
2002........................................... 38,644 15.6% 28.8%
2003........................................... 13,853 5.6% 34.4%
2004........................................... 10,371 4.2% 38.6%
2005........................................... 21,122 8.5% 47.1%
2006........................................... 34,588 14.0% 61.1%
2007........................................... 27,819 11.2% 72.3%
2008........................................... 22,250 9.0% 81.3%
2009........................................... 20,218 8.2% 89.4%
2010 and beyond................................ 26,140 10.6% 100.0%
------- -----
TOTAL(3)....................................... 247,758 100.0%
</TABLE>
- ------------------------
(1) As of February 2000 rent roll.
(2) Excludes cinema and vacant space.
(3) May not sum to total due to rounding.
Property Management. The Sangertown Square Property is managed by Pyramid
Management Group, Inc., an affiliate of the Sangertown Square Borrower.
Appraised Value. Based on an appraisal conducted in November 1999 by a
third-party appraiser, the Appraised Value of the Sangertown Square Property is
$152,000,000.
Cut-off Date Loan-to-Value Ratio. Based upon the Appraised Value for the
Sangertown Square Property referred to above, the Sangertown Square Mortgage
Loan has a Cut-off Date Loan-to-Value Ratio of 40.9%, and the Sangertown Square
Mortgage Loan, together with the Sangertown Square Companion Loan, has a Cut-off
Date Loan-to-Value Ratio of 50.2%.
Cut-off Date Debt Service Coverage Ratio. The Sangertown Square Mortgage
Loan has a Cut-off Date Debt Service Coverage Ratio of 1.76x. The combined
Cut-off Date Debt Service Coverage Ratio for the Sangertown Square Mortgage Loan
and the Sangertown Square Companion Loan is 1.45x.
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Reserves and Escrows. The Sangertown Square Borrower must make ongoing
reserve and escrow payments as follows: (i) monthly escrow payments for real
estate taxes and insurance premiums, (ii) monthly payments beginning May 1, 2000
equal to one-twelfth of $175,000 for deposit into a replacement reserve account,
(iii) monthly deposits beginning May 1, 2000 equal to one-twelfth of $200,000
for tenant improvements and leasing commissions, (iv) a renovation reserve of
$2,000,000, to be funded monthly beginning December 1, 2008, if certain major
renovation of the Sangertown Square Property is not completed as of that date,
and (v) monthly debt service reserve fund payments, which began January 1, 2000,
through and including April 1, 2000, in an amount equal to one month's debt
service paid in four installments, which funds will be retained by the lender
until net operating income is equal to or greater than $11,300,000 for the
previous twelve months. If net operating income falls below the above-mentioned
threshold, certain amounts of excess cash flow will be used to reinstate debt
service reserve fund amounts.
Lockbox. The Sangertown Square Borrower is required to cause all rents,
income, receivables, receipts, revenues, profits and other consideration
received by or paid to the account of the Sangertown Square Borrower from any
and all sources attributable to the Sangertown Square Property to be deposited
into a segregated account controlled solely by the lender. Those funds are then
disbursed pursuant to the related loan agreement and cash management agreement.
ASSIGNMENT OF THE MORTGAGE LOANS
On the date of initial issuance of the offered certificates, we will acquire
the Lehman Loans from one of our affiliates (the "Lehman Mortgage Loan Seller")
and the UBS Loans from UBS Principal Finance LLC (the "UBS Mortgage Loan
Seller"). We will transfer the Mortgage Loans, without recourse, to the trustee.
In connection with our transfer of the Mortgage Loans to the trustee, we
will deliver or cause to be delivered to the trustee the following documents,
among others, with respect to each Lehman Loan, and the UBS Mortgage Loan Seller
will be required to deliver or cause to be delivered to the trustee the
following documents, among others, with respect to each UBS Loan--
- either (i) the original Mortgage Note, endorsed (without recourse) to the
order of the trustee or (ii) if the original Mortgage Note has been lost,
a copy thereof, together with a lost note affidavit;
- the original or a copy of the related Mortgage(s), together with originals
or copies of any intervening assignments of those document(s), in each
case, unless the particular document has not been returned from the
applicable recording office, with evidence of recording thereon;
- the original or a copy of any related assignment(s) of leases and rents,
together with originals or copies of any intervening assignments of those
document(s), in each case, unless the particular document has not been
returned from the applicable recording office, with evidence of recording
thereon;
- either (i) a completed assignment of each related Mortgage in favor of the
trustee, in recordable form, or (ii) a certified copy of that assignment
as sent for recording;
- either (i) a completed assignment of any related assignment(s) of leases
and rents in favor of the trustee, in recordable form, or (ii) a certified
copy of such assignment as sent for recording;
- an original or copy of all the written modification agreements in those
instances in which the terms or provisions of a Mortgage or Mortgage Note
have been modified;
- either (i) an original or copy of the related lender's title insurance
policy or (ii) if a title insurance policy has not yet been issued, a
commitment for title insurance;
- either (i) an assignment in favor of the trustee of each effective UCC
financing statement in the possession of the transferor or (ii) a
certified copy of such assignment as sent for filing;
- if applicable, the original or a copy of the related ground lease; and
- if applicable, the lease enhancement policy and any residual value
insurance policy.
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The pooling and servicing agreement will require the trustee to hold all of
the documents so delivered to it with respect to the Mortgage Loans in trust for
the benefit of the series 2000-C1 certificateholders and, within a specified
period of time following that delivery, to conduct a review of certain
documents. If any of the above-described documents required to be delivered to
the trustee in respect of each Mortgage Loan is not so delivered or is otherwise
defective, and that omission or defect materially and adversely affects the
value of the related Mortgage Loan or the interests of the series 2000-C1
certificateholders therein, that omission or defect, as the case may be, will
constitute a "Material Document Defect" with respect to the related Mortgage
Loan. The rights of the trust against us or the UBS Mortgage Loan Seller with
respect to any Material Document Defect are described under "Cures and
Repurchases" below. All of the above-described documents actually delivered to
the trustee in respect of any Mortgage Loan will collectively constitute the
"Mortgage File" for that Mortgage Loan.
The pooling and servicing agreement will further require the trustee, within
a specified period following the later of the date of initial issuance of the
offered certificates and receipt of the item, to submit for recording in the
real property records of the appropriate jurisdiction each assignment of
Mortgage and assignment of assignment of leases and rents in its favor delivered
by us or the UBS Mortgage Loan Seller with respect to a Mortgage Loan as
described above.
See "The Trust Agreement--Assignment of Mortgage Assets" in the accompanying
prospectus.
REPRESENTATIONS AND WARRANTIES
We will make, as to each Lehman Loan, and the UBS Mortgage Loan Seller will
make, as to each UBS Mortgage Loan, the following representations and warranties
(subject to certain exceptions), among others, as of the date of initial
issuance of the offered certificates or as of such other date specified in the
particular representation and warranty:
- The information pertaining to the Mortgage Loan set forth in the schedule
of Mortgage Loans (the "Mortgage Loan Schedule") attached to the pooling
and servicing agreement was true and correct in all material respects as
of the Cut-off Date.
- To the best knowledge of the representing party after having performed the
type of due diligence customarily performed by prudent institutional
commercial and multifamily mortgage lenders, as of the date of its
origination, the Mortgage Loan complied in all material respects with, or
was exempt from, all requirements of federal, state or local law relating
to the origination of the Mortgage Loan.
- The proceeds of the Mortgage Loan have been fully disbursed and there is
no requirement for future advances thereunder.
- The related Mortgage Note, each related Mortgage, each related assignment
of leases and rents, if any, and each other agreement executed in
connection therewith is the legal, valid and binding obligation of the
maker thereof (subject to any non-recourse provisions therein and any
state anti-deficiency legislation), enforceable in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally, and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law).
- As of the date of its origination, there was no valid offset, defense,
counterclaim or right to rescission with respect to the related Mortgage
Note or any related Mortgage or other agreement executed in connection
with such Mortgage Loan.
- The assignment of each related Mortgage in favor of the trustee
constitutes the legal, valid and binding assignment of such Mortgage to
the trustee, subject to customary bankruptcy and creditors' rights
limitations.
- Each related Mortgage is a valid and enforceable first lien on the related
Mortgaged Property, which Mortgaged Property is free and clear of all
encumbrances and liens having priority over or on a parity with the first
lien of such Mortgage, except for Permitted Encumbrances.
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<PAGE>
- To the representing party's actual knowledge, all taxes and governmental
assessments that prior to the Cut-off Date became due or owing in respect
of, and affect, the related Mortgaged Property or Properties have been
paid, or an escrow of funds in an amount sufficient to cover those
payments has been established.
- As of the date of its origination, there was no proceeding pending for the
total or partial condemnation of the related Mortgaged Property or
Properties that materially affects the value thereof, and each such
Mortgaged Property was free of material damage.
- As of the Cut-off Date, the representing party has not received any notice
of the commencement of any proceeding for the total or partial
condemnation of the related Mortgaged Property or Properties that
materially affects the value thereof, and each such Mortgaged Property is
free of material damage.
- As of the date of its origination, all insurance required under the
related Mortgage for such Mortgage Loan was in full force and effect with
respect to the related Mortgaged Property or Properties.
- As of the Cut-off Date, the Mortgage Loan is not 30 days or more past due
in respect of any Scheduled P & I Payment.
- One or more environmental site assessments were performed with respect to
the related Mortgaged Property or Properties during the 18-month period
preceding the Cut-off Date, and the representing party, having made no
independent inquiry other than to review the report(s) prepared in
connection with the assessment(s) referenced in this prospectus
supplement, has no knowledge of any material and adverse environmental
condition or circumstance affecting that Mortgaged Property that was not
disclosed in those report(s).
In addition to the foregoing, we will also represent that we own the
Mortgage Loans, have good title thereto, have full right and authority to sell,
assign and transfer the Mortgage Loans and are transferring the Mortgage Loans
free and clear of any and all liens, pledges, charges or security interests. The
UBS Mortgage Loan Seller will make a similar representation with respect to the
UBS Mortgage Loans. With respect to the UBS Loans, our representation described
in the first sentence of this paragraph will be made assuming the accuracy of
the similar representation made by the UBS Mortgage Loan Seller.
If there exists a breach of any of the above-described representations and
warranties made by us or the UBS Mortgage Loan Seller, and if that breach
materially and adversely affects the value of the subject Mortgage Loan or the
interests of the series 2000-C1 certificateholders therein, then that breach
will constitute a "Material Breach" of that representation and warranty. The
rights of the trust against us or the UBS Mortgage Loan Seller with respect to
any such Material Breach are described under "--Cures and Repurchases" below.
CURES AND REPURCHASES
If we discover or receive notice of (i) a Material Document Defect with
respect to any Lehman Loan as described under "--Assignment of the Mortgage
Loans" above or (ii) a Material Breach of any representation and warranty made
by us with respect to any Lehman Loan as described under "--Representations and
Warranties" above, then we will be obligated to--
- remedy that Material Document Defect or Material Breach in all material
respects, or
- repurchase the affected Lehman Loan at a price (the "Purchase Price")
generally equal to the sum of (i) the unpaid principal balance of that
Mortgage Loan at the time of purchase, plus (ii) all unpaid interest
(other than Additional Interest and Default Interest) due in respect of
that Mortgage Loan through the Due Date in the collection period of
purchase, plus (iii) all unreimbursed advances to cover certain costs and
expenses relating to the servicing and administration of that Mortgage
Loan.
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If the UBS Mortgage Loan Seller discovers or receives notice of (i) a
Material Document Defect with respect to any UBS Loan as described under
"--Assignment of the Mortgage Loans" above or (ii) a Material Breach of any
representation and warranty made by the UBS Mortgage Loan Seller with respect to
any UBS Loan as described under "--Representations and Warranties" above, then
the UBS Mortgage Loan Seller will be obligated to--
- remedy that Material Document Defect or Material Breach in all material
respects, or
- repurchase the affected UBS Loan at the applicable Purchase Price.
The time period within which such remedy or repurchase must be completed by
us or the UBS Mortgage Loan Seller, as the case may be, will generally be
limited to 90 days (or, if the curing party is diligently attempting to correct
the problem and certain other conditions are satisfied, 180 days) following the
earlier of discovery or receipt of notice by us or the UBS Mortgage Loan Seller,
as the case may be, of the subject Material Document Defect or Material Breach,
as the case may be. However, if any Material Document Defect arises solely out
of the failure of the applicable recording office to return a recorded Mortgage
Loan document, and if we or the UBS Mortgage Loan Seller, as the case may be,
are diligently attempting to retrieve that document, then the time period may be
extended for up to two years following the date of initial issuance of the
offered certificates.
The cure/repurchase obligations described above will constitute the sole
remedy available to the series 2000-C1 certificateholders in connection with a
Material Document Defect or a Material Breach of representations or warranties
with respect to any Mortgage Loan. No other person will be obligated to
repurchase any affected Mortgage Loan in connection with a Material Document
Defect or a Material Breach of representations and warranties if we or the UBS
Mortgage Loan Seller, as the case may be, default on our obligation to do so.
There can be no assurance that we or the UBS Mortgage Loan Seller will have
sufficient assets to allow us or the UBS Mortgage Loan Seller, as the case may
be, to effect any such purchase.
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 it is expected to be
constituted at the time the offered certificates are issued, with adjustments
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 we deem 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 those mortgage loans would materially alter the characteristics
of the mortgage pool as described in this prospectus supplement. We believe that
the information set forth in this prospectus supplement 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 in this prospectus supplement, may vary.
A Current Report on Form 8-K will be available to purchasers of the offered
certificates on or shortly after the date of initial issuance of the offered
certificates. Such Current Report on Form 8-K will be filed, together with the
pooling and servicing agreement, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the offered certificates. In
the event Mortgage Loans are removed from or added to the mortgage pool, that
removal or addition will be noted in such Current Report on Form 8-K.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The servicing of the Mortgage Loans and any REO Properties (as defined
below) will be governed by a pooling and servicing agreement to be dated as of
the Cut-off Date (the "Pooling Agreement"), among
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us, the master servicer, the special servicer, the trustee and the fiscal agent.
The following summaries describe certain provisions of the Pooling Agreement
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 Pooling
Agreement. Reference is made to the accompanying prospectus for additional
information regarding the terms of the Pooling Agreement relating to the
servicing and administration of the Mortgage Loans and any REO Properties and to
the rights and obligations of the master servicer and the special servicer
thereunder, PROVIDED THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
SUPERSEDES ANY CONTRARY INFORMATION SET FORTH IN THE ACCOMPANYING PROSPECTUS.
See "Servicing of Mortgage Loans" and "The Trust Agreement" in the accompanying
prospectus. For purposes of the accompanying prospectus, the Pooling Agreement
constitutes a Trust Agreement, a Master Servicing Agreement and a Special
Servicing Agreement.
The Pooling Agreement provides that the master servicer and special servicer
must each service and administer the Mortgage Loans for which it is responsible,
directly or through sub-servicers, in accordance with--
- all applicable laws,
- the express terms of the Pooling Agreement, the respective Mortgage Loans
and, in the case of the Credit Lease Loans, the residual value policies
and the lease enhancement policies, and
- to the extent consistent with the foregoing, the Servicing Standard.
The "Servicing Standard" generally requires that the master servicer and
special servicer must each service and administer the Mortgage Loans for which
it is responsible:
- with the same care, skill and diligence as is normal and usual in its
general mortgage servicing and asset management activities with respect to
comparable mortgage loans that either are part of other third party
portfolios (giving due consideration to customary and usual standards of
practice of prudent institutional commercial mortgage lenders) or are held
as part of its own portfolio, whichever is a higher standard;
- with a view to the timely collection of all Scheduled P&I Payments due
under the Mortgage Loans (or, in the case of the special servicer, if a
Mortgage Loan comes into and continues in default and if, in the good
faith and reasonable judgment of the special servicer, no satisfactory
arrangements can be made for the collection of the delinquent payments,
with a view to the maximization of the recovery on that Mortgage Loan to
the series 2000-C1 certificateholders (as a collective whole) on a present
value basis); and
- without regard to:
(a) any known relationship that the master servicer or the special
servicer, as the case may be, or any affiliate thereof may have with
any Borrower;
(b) the ownership of any series 2000-C1 certificate by the master
servicer or the special servicer, as the case may be, or any
affiliate thereof;
(c) the obligation of the master servicer or the special servicer, as the
case may be, to make advances as described in this prospectus
supplement;
(d) the right of the master servicer or the special servicer, as the case
may be, or any affiliate thereof to receive reimbursement of costs,
or the sufficiency of any compensation payable to it under the
Pooling Agreement generally or with respect to any particular
transaction; and
(e) the ownership, servicing or management of other loans or properties
not covered by the Pooling Agreement.
In general, the master servicer will be responsible for the servicing and
administration of--
- all Mortgage Loans as to which no Servicing Transfer Event (as defined
below) has occurred, and
- all Corrected Mortgage Loans (also as defined below).
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The special servicer, on the other hand, will be responsible for the
servicing and administration of--
- each Mortgage Loan (other than a Corrected Mortgage Loan) as to which a
Servicing Transfer Event has occurred (each, a "Specially Serviced
Mortgage Loan"), and
- each Mortgaged Property that has been acquired by the trust in respect of
a defaulted Mortgage Loan through foreclosure, deed-in-lieu of foreclosure
or otherwise (each, upon acquisition, an "REO Property").
Specially Serviced Mortgage Loans and REO Properties collectively constitute
"Specially Serviced Assets".
Despite the foregoing, the Pooling Agreement will require the master
servicer to continue to collect information and prepare all reports to the
trustee required to be collected or prepared by the master servicer thereunder
with respect to any Specially Serviced Mortgage Loans and REO Properties and,
otherwise, to render certain incidental services with respect to any Specially
Serviced Mortgage Loans and REO Properties. Neither the master servicer nor the
special servicer will have any responsibility for the performance by the other
of its respective obligations and duties under the Pooling Agreement.
A Mortgage Loan will become a Specially Serviced Mortgage Loan (if it has
not already done so) upon the occurrence of a Servicing Transfer Event. Each of
the following events will constitute a "Servicing Transfer Event" in respect of
any Mortgage Loan:
1. any Scheduled P&I Payment (including a Balloon Payment) is delinquent 60
or more days;
2. the master servicer has determined that (a) a default in making a
Scheduled P&I Payment is likely to occur within 30 days and (b) such
default is likely to remain unremedied for at least 60 days;
3. there has occurred a default (other than as described in clause (1)
above) that materially impairs the value of the Mortgaged Property as
security for the Mortgage Loan or otherwise materially adversely affects
the interests of series 2000-C1 certificateholders and that continues
unremedied for the applicable grace period under the terms of the
Mortgage Loan (or, if no grace period is specified, for 30 days);
4. certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings in respect of or pertaining
to the related Borrower and certain actions by or on behalf of the
related Borrower indicating its insolvency or inability to pay its
obligations; or
5. the master servicer has received notice of the commencement of
foreclosure or similar proceedings with respect to the related Mortgaged
Property or Properties.
So long as no other Servicing Transfer Event exists, a Mortgage Loan will
cease to be a Specially Serviced Mortgage Loan (and will become a "Corrected
Mortgage Loan" as to which the master servicer will re-assume servicing
responsibilities) if and when:
(a) with respect to the circumstances described in clause (1) of the
preceding paragraph, the related Borrower has made three consecutive full
and timely Scheduled P&I Payments under the terms of such Mortgage Loan
(as such terms may be changed or modified in connection with a bankruptcy
or similar proceeding involving the related Borrower or by reason of a
written modification, waiver or amendment granted or agreed to by the
special servicer);
(b) with respect to any of the circumstances described in clauses (2) and
(4) of the preceding paragraph, such circumstances cease to exist in the
good faith, reasonable judgment of the special servicer, but, with
respect to any bankruptcy or insolvency proceedings contemplated by
clause (4), no later than the entry of an order or decree dismissing that
proceeding;
(c) with respect to the circumstances described in clause (3) of the
preceding paragraph, when the default is cured as determined by the
special servicer; and
(d) with respect to the circumstances described in clause (5) of the
preceding paragraph, when the proceedings are terminated.
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In general, the Westfield Portfolio Companion Loan, the Annapolis Mall
Companion Loan, the Cherry Creek Companion Loan and the Sangertown Square
Companion Loan (collectively, the "Companion Loans") will be serviced and
administered under the Pooling Agreement as if they were Mortgage Loans and the
holders of the related promissory notes were certificateholders. If a Companion
Loan becomes specially serviced, then the related Mortgage Loan will become a
Specially Serviced Mortgage Loan.
THE MASTER SERVICER AND THE SPECIAL SERVICER
THE MASTER SERVICER. First Union National Bank ("FUNB"), a national banking
association, will act as master servicer with respect to the mortgage pool. FUNB
is a wholly owned subsidiary of First Union Corporation. Its principal servicing
offices are located at NC 1075, 8739 Research Drive-URP4, Charlotte North
Carolina 28262-1075.
As of December, 1999, FUNB and its affiliates were responsible for servicing
approximately 5,184 commercial and multifamily loans, totaling approximaely $30
billion in aggregate outstanding principal amounts, including loans securitized
in mortgage-backed securitization transactions.
The information set forth in this prospectus supplement concerning FUNB has
been provided by it. Neither we nor any of the underwriters makes any
representation or warranty as to the accuracy or completeness of such
information. The master servicer (except for the information in the first two
paragraphs under this heading) will make no representations as to the validity
or sufficiency of the Pooling Agreement, the certificates, the Mortgage Loans,
this prospectus supplement or related documents.
THE SPECIAL SERVICER. Lennar Partners, Inc. ("LNR"), a Florida corporation
and a subsidiary of LNR Property Corporation, will act as special servicer with
respect to the mortgage pool. The principal servicing offices of the special
servicer are located at 760 NW 107th Avenue, Miami, Florida, 33172.
As of November 1, 1999, the special servicer and its affiliates were
responsible for servicing a portfolio comprised of 10,000 or more primarily
commercial mortgage loans totalling approximately $50 billion in aggregate
outstanding principal amounts, including loans securitized in
57 mortgage-backed securitization transactions with approximately $44 billion in
aggregate outstanding principal amounts.
The information set forth in this prospectus supplement concerning LNR has
been provided by it. Neither we nor any of the underwriters makes any
representation or warranty as to the accuracy or completeness of such
information. The special servicer (except for the information in the first two
paragraphs under this heading) will make no representations as to the validity
or sufficiency of the Pooling Agreement, the certificates, the Mortgage Loans,
this prospectus supplement or related documents.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
THE MASTER SERVICING FEE. The principal compensation to be paid to the
master servicer in respect of its master servicing activities will be the Master
Servicing Fee.
In general, the "Master Servicing Fee" will--
- be earned in respect of each and every Mortgage Loan (including each
Specially Serviced Mortgage Loan, if any, and each Mortgage Loan, if any,
as to which the related Mortgaged Property has become an REO Property (an
"REO Mortgage Loan")),
- be computed on a 30/360 Basis (except in the case of partial periods, when
it will be computed on the basis of the actual number of days elapsed in
the partial period and a 360-day year) and accrue at the applicable Master
Servicing Fee Rate on the same principal amount as interest periodically
accrues or is deemed to accrue, as the case may be, in respect of each
Mortgage Loan, and
- be payable monthly on a loan-by-loan basis from amounts received in
respect of interest on each Mortgage Loan.
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The "Master Servicing Fee Rate" will be a per annum rate determined on a
loan-by-loan basis. The weighted average Master Servicing Fee Rate for the
Mortgage Loans as of the Cut-off Date was 0.10192% per annum.
ADDITIONAL MASTER SERVICING COMPENSATION. As additional servicing
compensation, the master servicer will be entitled to receive--
- All Prepayment Interest Excesses, if any, collected in respect of the
entire mortgage pool. If a Borrower prepays its Mortgage Loan, in whole or
in part, after the related Due Date during any Collection Period (as
defined below), the amount of interest (less the amount of related Master
Servicing Fees payable therefrom and any Additional Interest included
therein) will, to the extent actually collected, constitute a "Prepayment
Interest Excess".
- All late payment charges and Default Interest, if any, collected in
respect of the Mortgage Loans that, in each such case, (i) accrued in
respect of the related Mortgage Loan during a period when it was not a
Specially Serviced Mortgage Loan or REO Mortgage Loan and (ii) are not
otherwise allocable to pay the master servicer, special servicer, trustee
or fiscal agent, as applicable, interest on Advances made thereby with
respect to the related Mortgage Loan as described in this prospectus
supplement. "Default Interest" is any interest that (i) accrues on a
defaulted Mortgage Loan solely by reason of the subject default and
(ii) is in excess of all interest at the related Mortgage Rate and any
Additional Interest accrued on such Mortgage Loan.
The "Collection Period" for any Distribution Date will be the one-month
period that begins immediately following the end of the prior Collection Period
(or, in the case of the initial Collection Period, immediately following the
Cut-off Date) and continues through the 11th calendar day of the next month or,
if that 11th calendar day is not a business day, then the next succeeding
business day (the "Determination Date"). The "Distribution Date" will be the 4th
business day following the Determination Date in each month, commencing in
April 2000.
Modification fees, assumption fees and certain other fees and charges
collected on the Mortgage Loans will be allocated between the master servicer
and the special servicer as additional servicing compensation.
The master servicer will be authorized to invest or direct the investment of
funds held in the Custodial Account (as defined under "--The Custodial Account"
below), the Collection Account (as defined under "Description of the Offered
Certificates--Collection Account" in this prospectus supplement), the Interest
Reserve Account (as defined under "Description of the Offered
Certificates--Distributions" in this prospectus supplement), any escrow accounts
and reserve accounts with respect to the Mortgage Loans, in certain government
securities and other investment grade obligations specified in the Pooling
Agreement ("Permitted Investments"). The master servicer will be entitled to
retain any interest or other income earned on those funds, subject, however, to
any rights of the Borrowers thereto in the case of interest or other income
earned on funds in escrow accounts and reserve accounts. However, the master
servicer will be required to cover losses of principal on such investments out
of its own funds.
PREPAYMENT INTEREST SHORTFALLS. If a Borrower prepays a Mortgage Loan, in
whole or in part, prior to the related Due Date during any Collection Period and
does not pay interest on the prepayment through such Due Date, then the
shortfall in a full month's interest (less the amount of related Master
Servicing Fees and any Additional Interest) on the prepayment will constitute a
"Prepayment Interest Shortfall".
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The Pooling Agreement will provide that, if any Prepayment Interest
Shortfalls are incurred during any Collection Period with respect to Mortgage
Loans that are neither Specially Serviced Mortgage Loans nor REO Mortgage Loans,
the master servicer must make a non-reimbursable payment (a "Compensating
Interest Payment") with respect to the related Distribution Date in an amount
equal to the lesser of:
(a) the aggregate of all such Prepayment Interest Shortfalls incurred during
that Collection Period with respect to those Mortgage Loans that are
neither Specially Serviced Mortgage Loans nor REO Mortgage Loans, and
(b) the sum of the following components of the master servicer's aggregate
servicing compensation for that Collection Period--
(i) the aggregate of all Prepayment Interest Excesses, if any, collected
with respect to the entire mortgage pool during that Collection
Period, and
(ii) with respect to each and every Mortgage Loan for which the master
servicer receives Master Servicing Fees during that Collection
Period, the portion of those fees calculated at an annual rate of
% per annum.
To the extent that the Compensating Interest Payment made by the master
servicer for the related Distribution Date is less than the amount described in
clause (a) of the preceding sentence, that difference, together with the
aggregate of all Prepayment Interest Shortfalls, if any, incurred during the
subject Collection Period in respect of any Specially Serviced Mortgage Loans,
will constitute the "Net Aggregate Prepayment Interest Shortfall" for the
related Distribution Date.
Any Compensating Interest Payment made by the master servicer with respect
to any Distribution Date will be included among the amounts distributable as
principal and interest on the 2000-C1 series certificates on that Distribution
Date as described under "Description of the Offered Certificates--
Distributions" in this prospectus supplement. Any Net Aggregate Prepayment
Interest Shortfall for any Distribution Date will be allocated among the
respective classes of interest-bearing certificates of the 2000-C1 series, in
reduction of the interest distributable thereon, in the amounts and priorities
described under "Description of the Offered Certificates--Allocation of Realized
Losses and Certain Other Shortfalls and Expenses" in this prospectus supplement.
PRINCIPAL SPECIAL SERVICING COMPENSATION. The principal compensation to be
paid to the special servicer in respect of its special servicing activities will
be--
- the Special Servicing Fee,
- the Workout Fee, and
- the Liquidation Fee.
The Special Servicing Fee. In general, the "Special Servicing Fee" will--
- be earned in respect of each and every Specially Serviced Mortgage Loan,
if any, and each and every REO Mortgage Loan, if any,
- be computed on a 30/360 Basis (except in the case of partial periods, when
it will be computed on the basis of the actual number of days elapsed in
the partial period and a 360-day year) and accrue at 0.25% per annum (the
"Special Servicing Fee Rate") on the unpaid principal balance of each
Specially Serviced Mortgage Loan or REO Mortgage Loan, if any, net of
related unreimbursed advances of principal, and
- be payable monthly from general collections on all the Mortgage Loans and
any REO Properties on deposit in the Custodial Account from time to time.
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The Workout Fee. The special servicer will, in general, be entitled to
receive a Workout Fee with respect to each Corrected Mortgage Loan. As to each
Corrected Mortgage Loan, with limited exception, the "Workout Fee" will be
payable out of, and will be calculated by application of a "Workout Fee Rate" of
1.0% to, each collection of interest (other than Default Interest and Additional
Interest), principal (including scheduled payments, prepayments and Balloon
Payments at maturity) and prepayment consideration received on that Mortgage
Loan for so long as it remains a Corrected Mortgage Loan. The Workout Fee with
respect to any Corrected Mortgage Loan will cease to be payable if that loan
again becomes a Specially Serviced Mortgage Loan or if the related Mortgaged
Property becomes an REO Property. Nevertheless, a new Workout Fee will become
payable if and when that Mortgage Loan again becomes a Corrected Mortgage Loan.
If the special servicer is terminated (other than for cause) or resigns, it will
retain the right to receive any and all Workout Fees payable with respect to
Mortgage Loans that became Corrected Mortgage Loans during the period that it
acted as special servicer and remained Corrected Mortgage Loans at the time of
that termination or resignation. The successor special servicer will not be
entitled to any portion of those Workout Fees.
The Liquidation Fee. The special servicer will be entitled to receive a
Liquidation Fee with respect to each Specially Serviced Mortgage Loan as to
which the special servicer obtains a full, partial or discounted payoff from the
related Borrower and, except as otherwise described below, with respect to any
Specially Serviced Mortgage Loan or REO Property as to which the special
servicer receives any Liquidation Proceeds (as defined under "--Custodial
Account" below). As to each such Specially Serviced Mortgage Loan and REO
Property, the "Liquidation Fee" will be payable from, and will be calculated by
application of a "Liquidation Fee Rate" of 1.0% to, the related payment or
proceeds. Notwithstanding anything to the contrary described above, no
Liquidation Fee will be payable based on, or out of, Liquidation Proceeds
received in connection with:
- the repurchase of any Mortgage Loan by us or the UBS Mortgage Loan Seller
for a breach of representation or warranty or for defective or deficient
Mortgage Loan documentation so long as such repurchase occurs within the
180-day cure period (see "Description of the Mortgage Pool--Cures and
Repurchases" in this prospectus supplement).
- the purchase of any Specially Serviced Mortgage Loan or REO Property by
the master servicer, the special servicer or any holder of certificates of
the controlling class of the 2000-C1 series (a "Controlling Class
Certificateholder") as described in "--Realization upon Defaulted Mortgage
Loans; Sale of Defaulted Mortgage Loans and REO Properties" below); or
- the purchase of all of the Mortgage Loans and REO Properties by us, the
master servicer, the special servicer, Lehman Brothers Inc. or any
Controlling Class Certificateholder in connection with the termination of
the trust as described in "Description of the Offered Certificates--
Termination" in this prospectus supplement.
ADDITIONAL SPECIAL SERVICING COMPENSATION. As additional special servicing
compensation, the special servicer will be entitled to receive all late payment
charges and Default Interest, if any, collected in respect of the Mortgage Loans
that, in each such case--
- accrued in respect of the related Mortgage Loan during a period when it
was a Specially Serviced Mortgage Loan or an REO Mortgage Loan, and
- are not otherwise allocable to pay the master servicer, special servicer,
trustee or fiscal agent, as applicable, interest on Advances made thereby
with respect to the related Mortgage Loan as described in this prospectus
supplement.
Modification fees, assumption fees and certain other fees and charges
collected on the Mortgage Loans will be allocated between the master servicer
and the special servicer as additional servicing compensation.
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The special servicer will be authorized to invest or direct the investment
of funds held in the REO Account (as defined under "--REO Properties" below) in
Permitted Investments. The special servicer will be entitled to retain any
interest or other income earned on such funds. However, the special servicer
will be required to cover losses of principal on such investments out of its own
funds.
PAYMENT OF EXPENSES; SERVICING ADVANCES. Each of the master servicer and
special servicer will, in general, be required to pay all ordinary expenses
incurred by it in connection with its servicing activities under the Pooling
Agreement, including the fees of any sub-servicers retained by it, and will not
be entitled to reimbursement therefor except as expressly provided in the
Pooling Agreement. However, the master servicer will be permitted to pay, and
the special servicer will be permitted to direct payment of, certain of such
expenses, including certain expenses incurred as a result of a Mortgage Loan
default, directly out of the Custodial Account and at times without regard to
the relationship between the expense and the funds from which it is being paid.
See "--The Custodial Account" and "Description of the Offered Certificates--
Collection Account" in this prospectus supplement.
In general, customary, reasonable and necessary "out of pocket" costs and
expenses required to be incurred by the master servicer or special servicer in
connection with the servicing of a Mortgage Loan, if a default is imminent or
after a default, delinquency or other unanticipated event has occurred, or in
connection with the administration of any REO Property, will constitute
"Servicing Advances". Servicing Advances will be reimbursable from future
payments and other collections, including in the form of Insurance Proceeds,
Condemnation Proceeds and Liquidation Proceeds (each as defined under
"--Custodial Account" below), on or in respect of the related Mortgage Loan or
REO Property ("Related Proceeds").
The special servicer may request the master servicer to make Servicing
Advances in respect of a Specially Serviced Mortgage Loan or REO Property, in
lieu of the special servicer making those Servicing Advances. Any such request
is to be made in advance of the date on which the Servicing Advance is required
to be made. The master servicer is required to make any such Servicing Advance
requested by the special servicer. If the request is timely and properly made,
the special servicer will be relieved of any obligations with respect to the
subject Servicing Advance, regardless of whether or not the master servicer
makes that Servicing Advance.
If the master servicer or special servicer is required under the Pooling
Agreement to make a Servicing Advance, but neither does so within 15 days after
such Servicing Advance is required to be made, then the trustee will be
required: (a) if it has actual knowledge of such failure, to give the defaulting
party notice of its failure; and (b) if such failure continues for three more
business days, to make such Servicing Advance. The Pooling Agreement will
obligate the fiscal agent to make any Servicing Advance that the trustee was
obligated (but failed) to make.
NOTWITHSTANDING THE FOREGOING DISCUSSION OR ANYTHING ELSE TO THE CONTRARY IN
THIS PROSPECTUS SUPPLEMENT, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE AND THE FISCAL AGENT WILL NOT BE OBLIGATED TO MAKE SERVICING ADVANCES
THAT, IN THE REASONABLE AND GOOD FAITH JUDGMENT OF THE MASTER SERVICER, THE
SPECIAL SERVICER, THE TRUSTEE OR THE FISCAL AGENT, AS THE CASE MAY BE, WOULD NOT
BE ULTIMATELY RECOVERABLE FROM RELATED PROCEEDS (ANY SERVICING ADVANCE NOT SO
RECOVERABLE, A "NONRECOVERABLE SERVICING ADVANCE"). IF THE MASTER SERVICER, THE
SPECIAL SERVICER, THE TRUSTEE OR THE FISCAL AGENT MAKES ANY SERVICING ADVANCE
THAT IT SUBSEQUENTLY DETERMINES IS A NONRECOVERABLE SERVICING ADVANCE, IT MAY
OBTAIN REIMBURSEMENT FOR SUCH SERVICING ADVANCE OUT OF GENERAL FUNDS ON DEPOSIT
IN THE CUSTODIAL ACCOUNT FROM TIME TO TIME. See "--Custodial Account" below.
The master servicer, the special servicer, the trustee and the fiscal agent
will each be entitled to receive interest on Servicing Advances made by it. Such
interest will accrue on the amount of each Servicing Advance for so long as it
is outstanding (and will compound annually) at a rate per annum equal to the
"prime rate" as published in the "Money Rates" section of THE WALL STREET
JOURNAL (as such "prime
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rate" may change from time to time). Interest so accrued with respect to any
Servicing Advance will compound annually and be payable--
- out of Default Interest and late payment charges collected on or in
respect of the related Mortgage Loan during the Collection Period in which
such Servicing Advance is reimbursed, and
- if such Servicing Advance has been reimbursed, then (to the extent that
the Default Interest and late payment charges described in the prior
bullet point are insufficient) out of any amounts then on deposit in the
Collection Account.
EVIDENCE AS TO COMPLIANCE
On or before April 30 of each year, beginning April 30, 2001, each of the
master servicer and the special servicer must--
- at its expense, cause a firm of independent public accountants, that is a
member of the American Institute of Certified Public Accountants to
furnish a statement to the trustee, among others, to the effect that
(i) the firm has obtained a letter of representation regarding certain
matters from the management of the master servicer or special servicer, as
applicable, which includes an assertion that the master servicer or
special servicer, as applicable, has complied with certain minimum
mortgage loan servicing standards (to the extent applicable to commercial
and multifamily mortgage loans), identified in the Uniform Single
Attestation program for Mortgage Bankers established by the Mortgage
Bankers Association of America, with respect to the servicing of
commercial and multifamily mortgage loans during the most recently
completed calendar year and (ii) on the basis of an examination conducted
by the firm in accordance with standards established by the American
Institute of Certified Public Accountants, that representation is fairly
stated in all material respects, subject to those exceptions and other
qualifications that may be appropriate; except that, in rendering its
report the firm may rely, as to matters relating to the direct servicing
of commercial and multifamily mortgage loans by sub-servicers, upon
comparable reports of firms of independent certified public accountants
rendered on the basis of examinations conducted in accordance with the
same standards (rendered within one year of such report) with respect to
those sub-servicers; and
- deliver to the trustee, among others, a statement signed by one or more
officers thereof to the effect that, to the best knowledge of such officer
or officers, the master servicer or special servicer, as the case may be,
has fulfilled its material obligations under the Pooling Agreement in all
material respects throughout the preceding calendar year (or the portion
thereof during which the series 2000-C1 certificates were outstanding).
Copies of the foregoing annual accountants' statement and officer's
certificate of each of the master servicer and the special servicer will be made
available to series 2000-C1 certificateholders, at their expense, upon written
request to the trustee.
MODIFICATIONS, WAIVERS, AMENDMENTS AND CONSENTS
In the case of any Mortgage Loan other than a Specially Serviced Mortgage
Loan and subject to the rights of the special servicer described below, the
master servicer will be responsible for responding to any request by a Borrower
for the consent of the mortgagee with respect to a modification, waiver or
amendment which would not (with limited exceptions involving the waiver of
Default Interest and late payment charges)--
- affect the amount or timing of any of the payment terms of the Mortgage
Loan,
- result in the release of the related Borrower from any material terms of
the Mortgage Loan,
- waive any rights thereunder with respect to any guarantor thereof,
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- relate to the release or substitution of any material collateral for the
Mortgage Loan, or
- relate to any waiver of or granting of consent under a "due-on-sale" or
"due-on-encumbrance" clause.
To the extent consistent with the foregoing, the master servicer will also be
responsible for providing or withholding mortgagee consent with respect to
certain routine matters. Except as described above and in other limited matters,
the master servicer may not agree to waive, modify or amend any term of any
Mortgage Loan. Furthermore, the master servicer may not agree to any
modification, waiver or amendment of any term of any Mortgage Loan that would
cause any REMIC created under the Pooling Agreement to fail to qualify as a
REMIC under the Internal Revenue Code of 1986 or result in the imposition of any
tax on "prohibited transactions" or "contributions" after the startup day under
the REMIC provisions of the Internal Revenue Code of 1986.
The Pooling Agreement will permit the special servicer to modify, waive or
amend any term of any Mortgage Loan if that modification, waiver or amendment
(a) is consistent with the Servicing Standard, and (b) except under the
circumstances described below, will not--
(i) affect the amount or timing of any scheduled payments of principal,
interest or other amount, including Prepayment Premiums and Yield
Maintenance Charges but excluding Default Interest and other amounts
payable as additional servicing compensation, payable under the Mortgage
Loan,
(ii) affect the obligation of the related Borrower to pay a Prepayment
Premium or Yield Maintenance Charge or permit a principal prepayment
during the applicable Lockout Period,
(iii) except as expressly provided by the related Mortgage or in connection
with a material adverse environmental condition at the related
Mortgaged Property, result in a release of the lien of the related
Mortgage on any material portion of such Mortgaged Property without a
corresponding principal prepayment,
(iv) in the reasonable, good faith judgment of the special servicer,
materially impair the security for the Mortgage Loan or reduce the
likelihood of timely payment of amounts due thereon, or
(v) result in a tax on the holder of any Companion Loan.
Notwithstanding clause (b) of the preceding paragraph, but subject to the
following paragraph and the discussion under "--The Controlling Class
Representative" below, the special servicer may--
(i) reduce the amounts owing under any Specially Serviced Mortgage Loan by
forgiving principal, accrued interest and/or any Prepayment Premium or
Yield Maintenance Charge,
(ii) reduce the amount of the Scheduled P&I Payment on any Specially
Serviced Mortgage Loan, including by way of a reduction in the related
Mortgage Rate,
(iii) forbear in the enforcement of any right granted under any Mortgage Note
or Mortgage relating to a Specially Serviced Mortgage Loan,
(iv) accept a principal prepayment on a Specially Serviced Mortgage Loan
during any Lockout Period, or
(v) extend the date on which any Balloon Payment is scheduled to be due in
respect of a Specially Serviced Mortgage Loan;
provided that, among other things, (x) the related Borrower is in monetary
default or material non-monetary default with respect to the Specially Serviced
Mortgage Loan or, in the reasonable, good faith judgment of the special
servicer, that default is reasonably foreseeable, (y) in the reasonable, good
faith judgment of the special servicer, that modification, waiver or amendment
would increase the recovery
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to series 2000-C1 certificateholders and any affected holder of a Comapnion Loan
on a net present value basis, and (z) that modification, waiver or amendment
does not result in a tax being imposed on the trust or any affected holder of a
Companion Loan or cause any REMIC created pursuant to the Pooling Agreement to
fail to qualify as a REMIC at any time the series 2000-C1 certificates are
outstanding.
In no event, however, will the special servicer be permitted to--
(i) extend the maturity date of a Mortgage Loan beyond a date that is two
years prior to the Rated Final Distribution Date,
(ii) except in the case of the Westfield Portfolio Mortgage Loan, the Cherry
Creek Mortgage Loan, the Annapolis Mall Mortgage Loan and the
Sangertown Square Mortgage Loan, extend the maturity date of a Mortgage
Loan for more than 3 one-year periods without obtaining Rating Agency
approval,
(iii) extend the maturity date of any Mortgage Loan which has a Mortgage Rate
below the then prevailing interest rate for comparable loans, as
determined by the special servicer, unless (A) that Mortgage Loan is a
Balloon Loan as to which the Borrower has failed to make the Balloon
Payment at its scheduled maturity and (B) that Balloon Loan is not a
Specially Serviced Mortgage Loan (other than by reason of failure to
make the Balloon Payment) and has not been delinquent in the preceding
12 months (other than with respect to the Balloon Payment), in which
case the special servicer may make one or more extensions at the
then-existing Mortgage Rate for such Mortgage Loan, which extensions
may not exceed three years in the aggregate; except that this
limitation of extensions made at a below market rate will not limit the
ability of the special servicer to extend the maturity date of any
Mortgage Loan at an interest rate at or in excess of the prevailing
rate for comparable loans at the time of the modification, or
(iv) if the Mortgage Loan is secured by a ground lease (but not the related
fee interest), extend the maturity date of that Mortgage Loan beyond
the date that is 10 years prior to the expiration of the term of that
ground lease.
The special servicer and master servicer will each be required to notify the
trustee of any modification, waiver or amendment of any term of any Mortgage
Loan, and to deliver to the trustee (with a copy to be delivered to or retained
by, as applicable, the master servicer), for deposit in the related Mortgage
File, an original counterpart of the agreement related to that modification,
waiver or amendment, promptly following the execution thereof. Upon reasonable
prior written notice to the trustee, copies of each agreement whereby any
modification, waiver or amendment of any term of any Mortgage Loan is effected
are required to be available for review during normal business hours at the
offices of the trustee. See "Description of the Offered Certificates--Reports to
Certificateholders; Certain Available Information" in this prospectus
supplement.
CUSTODIAL ACCOUNT
GENERAL. The master servicer will be required to establish and maintain one
or more separate accounts for purposes of holding payments and other collections
in respect of the Mortgage Loans (collectively, the "Custodial Account"). The
Custodial Account must be established in such a manner and/or with such a
depository as are specified in the Pooling Agreement or, as confirmed in writing
by each of Moody's Investors Service, Inc. ("Moody's") and Fitch IBCA, Inc.
("Fitch", and, together with Moody's, the "Rating Agencies"), as would not cause
a qualification, downgrade or withdrawal of any of the ratings then assigned by
that Rating Agency to any class of series 2000-C1 certificates (any account
meeting this criteria, an "Eligible Account"). The funds held in the Custodial
Account may be held as cash or invested in Permitted Investments.
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Any interest or other income earned on funds in the Custodial Account will
be paid to the master servicer as additional compensation subject to the
limitations set forth in the Pooling Agreement. See "--Servicing and Other
Compensation and Payment of Expenses" above.
DEPOSITS. Under the Pooling Agreement, the master servicer must deposit or
cause to be deposited in the Custodial Account within one business day following
receipt thereof, in the case of payments and other collections on the Mortgage
Loans, or as otherwise required under the Pooling Agreement, the following
payments and collections received or made by or on behalf of the master servicer
subsequent to the Issue Date, other than in respect of Scheduled P&I Payments
due on the Mortgage Loans on or before the Cut-off Date, which belong to us or
the related mortgage loan seller:
(i) all payments on account of principal on the Mortgage Loans, including
principal prepayments;
(ii) all payments on account of interest on the Mortgage Loans, including
Default Interest and Additional Interest;
(iii) all Prepayment Premiums, Yield Maintenance Charges and late payment
charges collected in respect of the Mortgage Loans;
(iv) (A) all proceeds received under any hazard, flood, title or other
insurance policy that provides coverage with respect to a Mortgaged
Property or the related Mortgage Loan (collectively with any comparable
amounts received with respect to an REO Property, "Insurance
Proceeds"), other than any such proceeds applied to the restoration of
the property or otherwise released to the related Borrower or another
appropriate person, (B) all proceeds received in connection with the
condemnation or the taking by right of eminent domain of a Mortgaged
Property (collectively with any comparable amounts received with
respect to an REO Property, "Condemnation Proceeds"), other than any
such proceeds applied to the restoration of the property or otherwise
released to the related Borrower or another appropriate person, and
(C) all other amounts received and retained in connection with the
liquidation of defaulted Mortgage Loans by foreclosure or otherwise
(collectively with any amounts received in connection with the sale of
an REO Property and the amounts described in clause (v) below,
"Liquidation Proceeds");
(v) all cash proceeds paid in connection with (A) the repurchase of any
Mortgage Loan by us or the UBS Mortgage Loan Seller as described under
"Description of the Mortgage Pool--Cures and Repurchases" in this
prospectus supplement, (B) the purchase of any defaulted Mortgage Loan
by any party as described under "--Realization Upon Defaulted Mortgage
Loans; Sale of Defaulted Mortgage Loans and REO Properties" below and
(C) the purchase of all remaining Mortgage Loans and REO Properties by
us, the master servicer, the special servicer, the underwriters or any
Controlling Class Certificateholder as described under "Description of
the Offered Certificates--Termination" in this prospectus supplement;
(vi) any amounts required to be deposited by the master servicer in
connection with losses incurred with respect to Permitted Investments
of funds held in the Custodial Account;
(vii) all payments required to be deposited by the master servicer or the
special servicer in the Custodial Account with respect to any
deductible clause in any blanket insurance policy described under
"--Maintenance of Insurance" below;
(viii) any amount required to be transferred from the REO Account, if
established; and
(ix) any other amounts required to be so deposited under the Pooling
Agreement.
Upon receipt of any of the amounts described in clauses (i) through
(v) above with respect to any Specially Serviced Mortgage Loan, the special
servicer is generally required to promptly remit those amounts to the master
servicer for deposit in the Custodial Account.
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WITHDRAWALS. The master servicer may make withdrawals from the Custodial
Account for any of the following purposes (the order set forth below not
constituting an order of priority for such withdrawals):
(i) to remit to the trustee on or before the Distribution Date each month an
amount generally equal to that portion of the Available Distribution
Amount (as defined under "Description of the Offered
Certificates--Distributions" in this prospectus supplement) for the
related Distribution Date then on deposit in the Custodial Account,
together with certain amounts to be paid or reimbursed to the trustee
from the Collection Account and any Prepayment Premiums, Yield
Maintenance Charges and/or Additional Interest received during the
related Collection Period;
(ii) to apply amounts held for future distribution on the series 2000-C1
certificates to make advances ("P&I Advances"; and, collectively with
Servicing Advances, "Advances") to cover delinquent monthly debt
service payments (other than Balloon Payments), as and to the extent
described under "Description of the Offered Certificates--P&I Advances"
in this prospectus supplement;
(iii) to reimburse the fiscal agent, the trustee or itself (in that order),
as applicable, for unreimbursed P&I Advances (other than P&I Advances
that constitute Nonrecoverable Advances (as defined below), which are
reimbursable as described in clause (viii) below) made thereby, that
reimbursement to be made out of Related Proceeds;
(iv) to pay itself earned and unpaid Master Servicing Fees in respect of
each Mortgage Loan (including each Specially Serviced Mortgage Loan and
each REO Mortgage Loan), that payment being limited to amounts received
on or in respect of that Mortgage Loan that are allocable as a recovery
of interest thereon (or, if there has been a final liquidation of that
Mortgage Loan and any related REO Property, that payment to be made out
of general collections on the other Mortgage Loans and REO Properties);
(v) to pay the special servicer, out of general collections on the Mortgage
Loans and any REO Properties, Special Servicing Fees in respect of each
Specially Serviced Mortgage Loan and each REO Mortgage Loan;
(vi) to pay the special servicer (or, if applicable, a predecessor thereto)
earned and unpaid Workout Fees and Liquidation Fees to which it is
entitled, as and from the sources described under "--Servicing and
Other Compensation and Payment of Expenses" above;
(vii) to reimburse the fiscal agent, the trustee, itself or the special
servicer (in that order), as applicable, for any unreimbursed Servicing
Advances made thereby, that reimbursement to be made out of Related
Proceeds;
(viii) to reimburse the fiscal agent, the trustee, itself or the special
servicer (in that order), as applicable, out of general collections on
the Mortgage Loans and REO Properties, for any unreimbursed Advances
made thereby that have been determined not to be ultimately recoverable
from Related Proceeds (any such Advance, a "Nonrecoverable Advance");
(ix) to pay the fiscal agent, the trustee, itself or the special servicer
(in that order), as applicable, unpaid interest on any Advance made
thereby, that payment to be made out of Default Interest and late
payment charges received (A) in respect of the Mortgage Loan as to
which the Advance was made and (B) during the Collection Period in
which the Advance is reimbursed;
(x) when it reimburses the fiscal agent, the trustee, the special servicer
or itself, as applicable, for any unreimbursed Advance as described in
clause (iii), (vii) or (viii) above, to pay the fiscal agent, the
trustee, the special servicer or itself (in that order), as the case may
be, out of general collections on the Mortgage Loans and any REO
Properties, any interest accrued and payable on that Advance and not
otherwise payable pursuant to clause (ix) above;
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(xi) to pay, out of general collections on the Mortgage Loans and any REO
Properties, for costs and expenses incurred by the trust in connection
with environmental remediation as described under "--Realization Upon
Defaulted Mortgage Loans; Sale of Defaulted Mortgage Loans and REO
Properties" below;
(xii) to pay itself, as additional servicing compensation, (A) interest and
investment income earned in respect of amounts held in the Custodial
Account, (B) any Prepayment Interest Excesses collected in respect of
the Mortgage Loans and (C) to the extent not otherwise applied to cover
interest on Advances, any Default Interest and late payment charges
received and accrued in respect of Mortgage Loans that are not
Specially Serviced Mortgage Loans or REO Mortgage Loans;
(xiii) to pay the special servicer, as additional servicing compensation, any
Default Interest and late payment charges received and accrued in
respect of Specially Serviced Mortgage Loans and REO Mortgage Loans and
not otherwise applied to cover interest on Advances;
(xiv) to pay, out of general collections on the Mortgage Loans and any REO
Properties, for the cost of an independent appraiser or other expert in
real estate matters as required under the Pooling Agreement;
(xv) to pay itself, the special servicer, us, or any of their or our
respective directors, officers, employees and agents, as the case may
be, out of general collections on the Mortgage Loans and any REO
Properties, amounts payable to any such person as described under
"--Certain Matters Regarding Us, the Master Servicer and the Special
Servicer" below;
(xvi) to pay, out of general collections on the Mortgage Loans and any REO
Properties, for the cost of certain advice of counsel and tax
accountants, the cost of certain opinions of counsel, the cost of
recording the Pooling Agreement and the cost of the trustee's
transferring Mortgage Files to a successor after having been terminated
by series 2000-C1 certificateholders without cause, all as set forth in
the Pooling Agreement;
(xvii) with respect to each Mortgage Loan purchased pursuant to or as
contemplated by the Pooling Agreement, to pay to the purchaser thereof
all amounts received thereon subsequent to the date of purchase;
(xviii) to pay certain servicing expenses that would, if advanced, constitute
Nonrecoverable Advances, but the payment of which is determined
nonetheless to be in the best interests of the series 2000-C1
certificateholders; and
(xix) to clear and terminate the Custodial Account upon the termination of
the Pooling Agreement.
The Pooling Agreement will limit the extent to which amounts received on a
Companion Loan may be applied to cover certain expenses payable or reimbursable
out of general collections on the Mortgage Loans and REO Properties.
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THE CONTROLLING CLASS REPRESENTATIVE
SELECTION. The Pooling Agreement permits the holder or holders of
series 2000-C1 certificates representing a majority of the Voting Rights (as
defined under "Description of the Offered Certificates--Voting Rights" in this
prospectus supplement) allocated to the Controlling Class (as defined below) to
select a representative (the "Controlling Class Representative") from whom the
special servicer will seek advice and approval and take direction under the
circumstances described below. In addition, if the Controlling Class is held in
book-entry form and confirmation of the identities of the related beneficial
owners has been provided to the trustee, those beneficial owners entitled to a
majority of the Voting Rights allocated to the Controlling Class will be
entitled to directly select a Controlling Class Representative. The "Controlling
Class" of series 2000-C1 certificates will be the class of series 2000-C1
certificates (exclusive of classes X, R-I, R-II and R-III) with the latest
alphabetical class designation that has an aggregate principal balance that is
greater than 25% of its original aggregate principal balance. However, if no
such class of series 2000-C1 certificates has an aggregate principal balance
that is greater than 25% of its original aggregate principal balance, then the
outstanding class of series 2000-C1 certificates (exclusive of classes X, R-I,
R-II and R-III) with the latest alphabetical class designation will be the
"Controlling Class" of series 2000-C1 certificates. The class A-1 and A-2
certificates will be treated as one class for determining the Controlling Class
of series 2000-C1 certificates.
CERTAIN RIGHTS AND POWERS OF THE CONTROLLING CLASS REPRESENTATIVE. Except
as described below, the special servicer will not be permitted to take any of
the following actions as to which the Controlling Class Representative has
objected in writing within 10 business days of having been notified thereof and
having been provided with all reasonably requested information with respect
thereto:
(i) any foreclosure upon or comparable conversion (which may include
acquisitions of an REO Property) of the ownership of properties securing
such of the Specially Serviced Mortgage Loans as come into and continue
in default;
(ii) any modification, amendment or waiver of a monetary term (including the
timing of payments) or any material non-monetary term of a Mortgage
Loan;
(iii) any proposed sale of a defaulted Mortgage Loan or REO Property (other
than in connection with the termination of the trust as described under
"Description of the Offered Certificates--Termination" in this
prospectus supplement) for less than the applicable Purchase Price;
(iv) any acceptance of a discounted payoff;
(v) any determination to bring a Mortgaged Property or an REO Property into
compliance with applicable environmental laws or to otherwise address
hazardous material located at an REO Property;
(vi) any release of collateral for a Mortgage Loan (other than in accordance
with the terms of, or upon satisfaction of, that Mortgage Loan);
(vii) any acceptance of substitute or additional collateral for a Mortgage
Loan (other than in accordance with the terms of that Mortgage Loan);
(viii) any waiver of a "due-on-sale" or "due-on-encumbrance" clause; and
(ix) any acceptance of an assumption agreement releasing a Borrower from
liability under a Mortgage Loan.
In addition, except as otherwise described below, the Controlling Class
Representative may direct the special servicer to take, or to refrain from
taking, such actions as the Controlling Class Representative may deem advisable
or as to which provision is otherwise made in the Pooling Agreement.
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Notwithstanding the foregoing, no such advice, direction or objection
contemplated by either of the two preceding paragraphs may require or cause the
special servicer to violate any provision of the Pooling Agreement, including
the special servicer's obligation to act in accordance with the Servicing
Standard. Furthermore, the special servicer will not be obligated to seek
approval from the Controlling Class Representative for any actions to be taken
by the special servicer with respect to any particular Specially Serviced
Mortgage Loan if--
- the special servicer has, as described above, notified the Controlling
Class Representative in writing of various actions that the special
servicer proposes to take with respect to the workout or liquidation of
that mortgage loan, and
- for 60 days following the first such notice, the Controlling Class
Representative has objected to all of those proposed actions and has
failed to suggest any alternative actions that the special servicer
considers to be consistent with the Servicing Standard.
Also, notwithstanding the foregoing, if the unpaid principal amount of any
Companion Loan (net of any existing related Appraisal Reduction Amount) is equal
to or greater than 50% of the original unpaid principal amount of such Companion
Loan, then the Controlling Class Representative will not be entitled to exercise
any of the rights and powers described above with respect to that Companion Loan
or the Mortgage Loan secured by the same Mortgaged Property and, instead, the
holder of that Companion Loan or its designee will be entitled to exercise those
rights and powers with respect to that Companion Loan and the Mortgage Loan
secured by the same Mortgaged Property.
LIMITATION ON LIABILITY OF CONTROLLING CLASS REPRESENTATIVE. The
Controlling Class Representative will not be liable to the trust or the
series 2000-C1 certificateholders for any action taken, or for refraining from
the taking of any action, in good faith pursuant to the Pooling Agreement, or
for errors in judgment; except, that the Controlling Class Representative will
not be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties or by reason of reckless disregard of obligations or duties. Each
series 2000-C1 certificateholder acknowledges and agrees, by its acceptance of
its series 2000-C1 certificates, that the Controlling Class Representative may
have special relationships and interests that conflict with those of holders of
one or more classes of series 2000-C1 certificates, that the Controlling Class
Representative may act solely in the interests of the holders of the Controlling
Class, that the Controlling Class Representative does not have any duties to the
holders of any class of series 2000-C1 certificates other than the Controlling
Class, that the Controlling Class Representative may take actions that favor the
interests of the holders of the Controlling Class over the interests of the
holders of one or more other classes of series 2000-C1 certificates, that the
Controlling Class Representative will not be deemed to have been grossly
negligent or reckless, or to have acted in bad faith or engaged in willful
misconduct, by reason of its having acted solely in the interests of the
Controlling Class, and that the Controlling Class Representative will have no
liability whatsoever for having so acted, and no series 2000-C1
certificateholder may take any action whatsoever against the Controlling Class
Representative for having so acted.
Any holder of a Companion Loan or any designee thereof that is, with respect
to that Companion Loan and the Mortgage Loan secured by the same Mortgaged
Property, exercising the rights and powers described under "--The Controlling
Class Representative--Certain Rights and Powers of the Controlling Class
Representative" above, will be entitled to substantially the same limitations on
liability to which the Controlling Class Representative is entitled.
REALIZATION UPON DEFAULTED MORTGAGE LOANS; SALE OF DEFAULTED MORTGAGE LOANS AND
REO PROPERTIES
A Borrower's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a Borrower that is unable to make Mortgage Loan payments may also be
unable to make timely payments of taxes and to otherwise maintain and insure the
related Mortgaged
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Property. In general, the special servicer will be required to monitor any
Mortgage Loan that is in default, evaluate whether the causes of the default can
be corrected over a reasonable period without significant impairment of the
value of the related Mortgaged Property, initiate corrective action in
cooperation with the Borrower if cure is likely, inspect the related Mortgaged
Property and take such other actions as are consistent with the Servicing
Standard. A significant period of time may elapse before the special servicer is
able to assess the success of any such corrective action or the need for
additional initiatives.
The time within which the special servicer can make the initial
determination of appropriate action, evaluate the success of corrective action,
develop additional initiatives, institute foreclosure proceedings and actually
foreclose (or accept a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the series 2000-C1 certificateholders may vary considerably depending
on the particular Mortgage Loan, the Mortgaged Property, the Borrower, the
presence of an acceptable party to assume the Mortgage Loan and the laws of the
jurisdiction in which the Mortgaged Property is located. If a Borrower files a
bankruptcy petition, the special servicer may not be permitted to accelerate the
maturity of the related Mortgage Loan or to foreclose on the Mortgaged Property
for a considerable period of time. See "Certain Legal Aspects of Mortgage Loans"
in the accompanying prospectus.
The Pooling Agreement grants to the master servicer, the special servicer
and any Controlling Class Certificateholder (with priority among those holders
based on the size of their respective percentage interests in the Controlling
Class) a right to purchase from the trust certain defaulted Mortgage Loans in
the priority described below. If the special servicer has determined in good
faith that any defaulted Mortgage Loan will become subject to foreclosure or
similar proceedings, the special servicer will be required to give prompt
written notice of that determination to the trustee and the master servicer. The
trustee will be required, within 10 days after receipt of that notice, to
provide a similar notice to the Controlling Class Certificateholders. Upon their
receipt of the trustee's notice and for a period of 10 business days thereafter,
any of those certificateholders may, but will not be obligated to, purchase any
such defaulted Mortgage Loan from the trust, at a price equal to the applicable
Purchase Price. If none of those certificateholders has purchased that defaulted
Mortgage Loan within 10 business days of their having received notice in respect
thereof, either the special servicer or the master servicer, in that order of
priority, may, but is not obligated to, purchase such defaulted Mortgage Loan
from the trust, at a price equal to the applicable Purchase Price. Despite the
right of the master servicer, the special servicer and/or any Controlling Class
Certificateholder to purchase any defaulted Mortgage Loan, the special servicer
need not delay foreclosure or similar proceedings with respect to that Mortgage
Loan.
The special servicer, at any time, may offer to sell any defaulted Mortgage
Loan that has not otherwise been purchased as described in the prior paragraph,
if that sale would be in the best economic interests of the series 2000-C1
certificateholders, as a collective whole. That offer is to be made in a
commercially reasonable manner for a period of not less than 10 days. Subject to
any rights that the Controlling Class Representative may have to object if the
winning bid is not at least equal to the applicable Purchase Price, the special
servicer will be permitted to accept any cash offer that constitutes a "fair
price", as determined in accordance with the Pooling Agreement, for the
particular Mortgage Loan. See "--The Controlling Class Representative--Certain
Rights and Powers of the Controlling Class Representative" above.
Notwithstanding any of the foregoing, the special servicer will not be
obligated to accept the highest cash bid if it determines, in accordance with
the Servicing Standard, that rejection of that bid would be in the best
interests of the series 2000-C1 certificateholders, as a collective whole. In
addition, subject to any rights that the Controlling Class Representative may
have to object if the winning bid is not at least equal to the applicable
Purchase Price, the special servicer may accept a lower cash bid from any person
or entity other than itself or an affiliate, if it determines, in accordance
with the Servicing Standard, that acceptance of such bid would be in the best
interests of the series 2000-C1 certificateholders, as a collective whole. The
special servicer might make such a determination if the prospective buyer making
the lower bid is more
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likely to perform its obligations or the terms, other than the price, offered by
the prospective buyer making the lower bid are more favorable.
Neither the trustee, in its individual capacity, nor any of its affiliates
may bid for or purchase any defaulted Mortgage Loan or any REO Property.
If any of the Westfield Portfolio Mortgage Loan, the Cherry Creek Mortgage
Loan, the Annapolis Mall Mortgage Loan or the Sangertown Square Mortgage Loan
has become a Specially Serviced Mortgage Loan and, further, any Scheduled P&I
Payment on that Mortgage Loan or the corresponding Companion Loan is at least
60 days delinquent, the holder of the corresponding Companion Loan will be
entitled to purchase that Mortgage Loan as and at the price described under
"Description of the Mortgage Pool--Significant Mortgage Loans" in this
prospectus supplement.
The special servicer will be required to exercise reasonable efforts,
consistent with the Servicing Standard and the discussion under "--The
Controlling Class Representative--Certain Rights and Powers of the Controlling
Class Representative" above, to foreclose upon or otherwise comparably convert
the ownership of properties securing such of the Mortgage Loans as come into and
continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments and which are not sold as described above.
Notwithstanding the foregoing, the special servicer may not, on behalf of the
trust, obtain title to a Mortgaged Property by foreclosure, deed in lieu of
foreclosure or otherwise, or take any other action with respect to any Mortgaged
Property, if, as a result of any that action, the trustee, on behalf of the
series 2000-C1 certificateholders, could, in the reasonable, good faith judgment
of the special servicer exercised in accordance with the Servicing Standard, be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or "operator" of that Mortgaged Property within the meaning of CERCLA or
any comparable law, unless:
(i) the special servicer has previously determined in accordance with the
Servicing Standard, based on a report prepared by a person who regularly
conducts environmental audits, that the Mortgaged Property is in
compliance with applicable environmental laws and regulations and there
are no circumstances or conditions present at the Mortgaged Property
that have resulted in any contamination for which investigation,
testing, monitoring, containment, clean-up or remediation could be
required under any applicable environmental laws and regulations; or
(ii) in the event that the determination described in the immediately
preceding clause (i) above cannot be made, (A) the special servicer has
previously determined in accordance with the Servicing Standard, on the
same basis as described in the immediately preceding clause (i) above,
that it would maximize the recovery to the series 2000-C1
certificateholders and any affected holder of a Companion Loan on a
present value basis to acquire title to or possession of the Mortgaged
Property and to take such remedial, corrective and/or other further
actions as are necessary to bring the Mortgaged Property into
compliance with applicable environmental laws and regulations and to
appropriately address any of the circumstances and conditions referred
to in the immediately preceding clause (i) above, and (B) either the
Controlling Class Representative (or, if applicable, any affected
holder of a Companion Loan) has not objected to the special servicer's
doing so or, if the Controlling Class Representative (or, if
applicable, any affected holder of a Companion Loan) has objected, that
objection is, in the special servicer's judgment, contrary to the
Servicing Standard. See "--The Controlling Class
Representative--Certain Rights and Powers of the Controlling Class
Representative" above and "Certain Legal Aspects of Mortgage
Loans--Environmental Matters" in the accompanying prospectus.
The cost of any environmental testing will be covered by, and reimbursable
as, a Servicing Advance, and the cost of any remedial, corrective or other
further action contemplated by clause (ii) of the preceding paragraph will
generally be payable directly out of the Custodial Account.
If neither of the conditions set forth in clauses (i) and (ii) of the second
preceding paragraph has been satisfied with respect to any Mortgaged Property
securing a defaulted Mortgage Loan, the special servicer
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will be required to take such action as is in accordance with the Servicing
Standard, other than proceeding against the Mortgaged Property. In connection
therewith, the special servicer may, on behalf of the trust, release all or a
portion of such Mortgaged Property from the lien of the related Mortgage.
However, if the affected Mortgage Loan has a then outstanding principal balance
greater than $1 million, then prior to effecting that release, among other
things, (i) the special servicer must have notified the trustee, among others,
(ii) the trustee must have notified the series 2000-C1 certificateholders,
(iii) the holders of series 2000-C1 certificates entitled to a majority of the
Voting Rights must not have objected to such release within 30 days of their
having been so notified thereof and (iv) either the Controlling Class
Representative (or, if applicable, any affected holder of a Companion Loan) must
not have objected to the release or, if it did, that objection was, in the
special servicer's judgment, inconsistent with the Servicing Standard.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the special servicer on
behalf of the trust, then the special servicer will be required to sell that
Mortgaged Property not later than the end of the third calendar year following
the year of acquisition, unless (except in the case of the Westfield Portfolio
Property, the Cherry Creek Property, the Annapolis Mall Property and the
Sangertown Square Property, which are required to be sold within that three-year
period)--
- the Internal Revenue Service grants an extension of time to sell that
property (an "REO Extension"), or
- the special servicer obtains an opinion of independent counsel generally
to the effect that the holding of that property subsequent to the end of
the third calendar year following the year in which the acquisition
occurred will not result in the imposition of a tax on the trust or cause
any REMIC created under the Pooling Agreement to fail to qualify as a
REMIC under the Internal Revenue Code of 1986.
Subject to the foregoing, the special servicer will generally be required to
solicit cash offers for any REO Property in such a manner as will be reasonably
likely to realize a fair price for such property. The special servicer may
retain an independent contractor to operate and manage any REO Property. The
retention of an independent contractor will not relieve the special servicer of
its obligations with respect to such REO Property.
In general, the special servicer or an independent contractor employed by
the special servicer at the expense of the trust will be obligated to operate
and manage any Mortgaged Property acquired as REO Property in a manner that
(i) maintains its status as "foreclosure property" under the REMIC provisions of
the Internal Revenue Code of 1986 and (ii) would, to the extent commercially
reasonable and consistent with the foregoing clause (i), maximize the trust's
net after-tax proceeds from that property. After the special servicer reviews
the operation of such property and consults with the trustee, or any person
appointed thereby to act as REMIC administrator, to determine the trust's
federal income tax reporting position with respect to the income it is
anticipated that the trust would derive from such property, the special servicer
could determine, particularly in the case of an REO Property that is a hotel,
that it would not be commercially reasonable to manage and operate such property
in a manner that would avoid the imposition of a tax on "net income from
foreclosure property", within the meaning of Section 857(b)(4) (B) of the
Internal Revenue Code of 1986, or a tax on "prohibited transactions" under
Section 860F of the Internal Revenue Code of 1986 (either of the taxes referred
to in this prospectus supplement as an "REO Tax"). To the extent that income the
trust receives from an REO Property is subject to--
(i) a tax on "net income from foreclosure property", that income would be
subject to federal tax at the highest marginal corporate tax rate, which
is currently 35%, or
(ii) a tax on "prohibited transactions", that income would be subject to
federal tax at a 100% rate.
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The determination as to whether income from an REO Property would be subject
to an REO Tax will depend on the specific facts and circumstances relating to
the management and operation of each REO Property. Generally, income from an REO
Property that is directly operated by the special servicer would be apportioned
and classified as "service" or "non-service" income. The "service" portion of
that income could be subject to federal tax either at the highest marginal
corporate tax rate or at the 100% rate on "prohibited transactions". The
"non-service" portion of that income could be subject to federal tax at the
highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to "prohibited transactions". Any REO Tax imposed on the
trust's income from an REO Property would reduce the amount available for
distribution to series 2000-C1 certificateholders. See "Federal Income Tax
Consequences" in this prospectus supplement and "Federal Income Tax
Considerations" in the accompanying prospectus. The reasonable "out-of-pocket"
costs and expenses of obtaining professional tax advice in connection with the
foregoing will be payable out of the Custodial Account.
The special servicer will be required to segregate and hold all funds
collected and received in connection with any REO Property separate and apart
from its own funds and general assets. If an REO Property is acquired, the
special servicer will be required to establish and maintain one or more accounts
(collectively, the "REO Account"), to be held on behalf of the trustee in trust
for the benefit of the series 2000-C1 certificateholders, for the retention of
revenues and other proceeds derived from each REO Property. The REO Account is
to be an Eligible Account. The special servicer will be required to deposit, or
cause to be deposited, in the REO Account, upon receipt, all net income,
Insurance Proceeds, Condemnation Proceeds and Liquidation Proceeds received in
respect of an REO Property. The funds held in the REO Account may be held as
cash or invested in Permitted Investments. Any interest or other income earned
on funds in the REO Account will be payable to the special servicer, subject to
the limitations set forth in the Pooling Agreement.
The special servicer will be required to withdraw from the REO Account funds
necessary for the proper operation, management, leasing, maintenance and
disposition of any REO Property, but only to the extent of amounts on deposit in
the REO Account relating to such REO Property. Promptly following the end of
each Collection Period, the special servicer will be required to withdraw from
the REO Account and deposit, or deliver to the master servicer for deposit, into
the Custodial Account the aggregate of all amounts received in respect of each
REO Property during that Collection Period, net of (i) any withdrawals made out
of those amounts as described in the preceding sentence and (ii) any portion of
those amounts that may be retained as reserves as described in the next
sentence. The special servicer may, subject to certain limitations set forth in
the Pooling Agreement, retain in the REO Account such portion of those proceeds
and collections as may be necessary to maintain a reserve of sufficient funds
for the proper operation, management, leasing, maintenance and disposition of
the related REO Property, including the creation of a reasonable reserve for
repairs, replacements, necessary capital improvements and other related
expenses.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The special servicer will be required to perform or cause to be performed a
physical inspection of a Mortgaged Property as soon as practicable after the
related Mortgage Loan becomes a Specially Mortgage Loan and annually thereafter
for so long as the related Mortgage Loan remains a Specially Serviced Mortgage
Loan, the cost of which will be reimbursable to the Special Servicer as a
Servicing Advance. In addition, the special servicer must perform or cause to be
performed a physical inspection of each of the REO Properties at least once per
calendar year, the cost of which will be reimbursable to the Special Servicer as
a Servicing Advance. The master servicer will be required at its expense to
perform or cause to be performed a physical inspection of each Mortgaged
Property securing a non-Specially Serviced Mortgage Loan (i) at least once every
three calendar years in the case of Mortgaged Properties securing Credit Lease
Loans, (ii) at least once every two calendar years in the case of Mortgaged
Properties securing non-Credit Lease Loans or allocated portions thereof, as
applicable, that have outstanding
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principal balances of $2,000,000 or less and (iii) at least once every calendar
year in the case of all other such Mortgaged Properties. The master servicer and
the special servicer will each be required to prepare or cause to be prepared
and deliver to the trustee a written report of each of the inspections performed
by it that generally describes the condition of the Mortgaged Property and that
specifies the existence of any sale, transfer or abandonment of the Mortgaged
Property or any material change in its condition or value.
The special servicer, in the case of any Specially Serviced Mortgage Loans,
and the master servicer, in the case of all other Mortgage Loans, will also be
required to use reasonable efforts to collect from the related Borrowers and
review the quarterly and annual operating statements and rent rolls with respect
to each of the Mortgaged Properties and REO Properties. The special servicer
will be required to deliver to the master servicer copies of those operating
statements and rent rolls collected by the special servicer. In connection
therewith, with respect to each Mortgaged Property and REO Property, the master
servicer will be required to prepare, based on reports generated by itself and
the special servicer, and deliver to the trustee a Comparative Financial Status
Report for, or as of the end of, the applicable period. See "Description of the
Offered Certificates--Reports to Certificateholders; Certain Available
Information" in this prospectus supplement. Each of the Mortgage Loans requires
the related Borrower to deliver an annual property operating statement. However,
there can be no assurance that any operating statements required to be delivered
will in fact be delivered, nor are the master servicer and the special servicer
likely to have any practical means of compelling their delivery in the case of
an otherwise performing Mortgage Loan.
REPLACEMENT OF THE SPECIAL SERVICER
The Pooling Agreement will permit the holder or holders of series 2000-C1
certificates entitled to a majority of the Voting Rights allocated to the
Controlling Class to terminate an existing special servicer and to appoint a
successor thereto.
Any termination and/or appointment of a successor special servicer, as
described above, will be subject to, among other things, the trustee's receipt
of--
- written confirmation from each Rating Agency that the appointment of that
successor will not result in a qualification, downgrade or withdrawal of
any of the ratings then assigned thereby to the respective classes of
series 2000-C1 certificates, and
- the written agreement of the proposed special servicer to be bound by the
terms and conditions of the Pooling Agreement, together with an opinion of
counsel regarding, among other things, the enforceability thereof.
If the Controlling Class of series 2000-C1 certificates is held in
book-entry form and confirmation of the identities of the related beneficial
owners has been provided to the trustee, then the beneficial owners entitled to
a majority of the Voting Rights allocated to the Controlling Class will be
entitled to directly replace the special servicer.
MAINTENANCE OF INSURANCE
The Pooling Agreement will require the master servicer (with respect to
Mortgage Loans other than Specially Serviced Mortgage Loans) and the special
servicer (with respect to Specially Serviced Mortgage Loans) to use reasonable
efforts, consistent with the Servicing Standard, to cause to be maintained for
each Mortgaged Property all insurance coverage as is required under the related
Mortgage.
Any Controlling Class Certificateholder may request that earthquake
insurance be secured for one or more Mortgaged Properties at its expense, to the
extent that insurance may reasonably be obtained.
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The special servicer will be required, consistent with the Servicing
Standard, to cause to be maintained for each REO Property no less insurance
coverage than was previously required of the applicable Borrower under the
related Mortgage.
If either the master servicer or the special servicer obtains and maintains
a blanket policy insuring against hazard losses on all of the Mortgage Loans
and/or REO Properties that it is required to service and administer, then, to
the extent such policy (i) is obtained from an insurer having a "claims-paying
ability" or "financial strength" rating that meets (or the obligations of which
are guaranteed by an entity having such a rating that meets) the requirements of
the Pooling Agreement and (ii) provides protection equivalent to the individual
policies otherwise required, the master servicer or the special servicer, as the
case may be, will be deemed to have satisfied its obligation to cause hazard
insurance to be maintained on the related Mortgaged Properties and/or REO
Properties. That blanket policy may contain a customary deductible clause,
except that if there has not been maintained on the related Mortgaged Property
or REO Property an individual hazard insurance policy complying with the
requirements described above in this "--Maintenance of Insurance" section, and
there occur one or more losses that would have been covered by an individual
policy, then the master servicer or special servicer, as appropriate, must
promptly deposit into the Custodial Account from its own funds the amount of
those losses that would have been so covered by an individual policy but are not
covered under the blanket policy because of that deductible clause.
CERTAIN MATTERS REGARDING US, THE MASTER SERVICER AND THE SPECIAL SERVICER
Any entity serving as master servicer or special servicer under the Pooling
Agreement may have other normal business relationships with us or our
affiliates. The Pooling Agreement will permit each of the master servicer and
the special servicer to resign from its obligations thereunder, in that
capacity, upon a determination that those obligations are no longer permissible
under applicable law or are in material conflict by reason of applicable law
with any other activities carried on by it. Unless otherwise required by
applicable law, no such resignation will become effective until the trustee or
other successor has assumed the obligations and duties of the resigning master
servicer or special servicer, as the case may be, under the Pooling Agreement.
The master servicer and the special servicer will each also have the right to
resign at any other time provided that--
(i) a willing successor thereto has been found,
(ii) each of the Rating Agencies confirms in writing that the successor's
appointment will not result in a qualification, downgrade or withdrawal
of any rating or ratings then assigned to any class of series 2000-C1
certificates,
(iii) the resigning party pays all costs and expenses in connection with the
resignation and the resulting transfer of servicing, and
(iv) the successor accepts appointment prior to the effectiveness of the
resignation and agrees in writing to be bound by the terms and
conditions of the Pooling Agreement.
Unless the long-term debt obligations thereof satisfy the ratings criteria
specified in the Pooling Agreement, the master servicer and special servicer
will each be required to maintain a fidelity bond and errors and omissions
policy or their equivalent that provides coverage against losses that may be
sustained as a result of an officer's or employee's misappropriation of funds or
errors and omissions, subject to certain limitations as to amount of coverage,
deductible amounts, conditions, exclusions and exceptions permitted by the
Pooling Agreement.
The Pooling Agreement will provide that none of the master servicer, the
special servicer or us will be under any liability to the trust, the trustee,
the fiscal agent or the series 2000-C1 certificateholders for any action taken,
or not taken, in good faith pursuant to the Pooling Agreement or for errors in
judgment, except that none of those persons or entities, including us, will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of
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obligations or duties thereunder. The Pooling Agreement will further provide
that we, the master servicer, the special servicer and any director, officer,
employee or agent of us or any of them will be entitled to indemnification by
the trust against any loss, liability or expense, including legal fees and
expenses, incurred in connection with any legal action or claim relating to the
Pooling Agreement or the series 2000-C1 certificates, including in connection
with the distribution of reports and information as contemplated by the Pooling
Agreement, other than any costs and expenses that it is required to bear under
the Pooling Agreement without reimbursement or that constitute Servicing
Advances, and other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of obligations
or duties under the Pooling Agreement by the person being indemnified.
In addition, the Pooling Agreement will provide that none of the master
servicer, the special servicer or us will be under an obligation to appear in,
prosecute or defend any legal action unless (a) that action is related to the
particular person's or entity's respective responsibilities under the Pooling
Agreement and (b) either (i) that person or entity is specifically required to
bear the expense of that action or (ii) that action will not, in that person's
or entity's opinion, involve that person or entity, as the case may be, in any
ultimate expense or liability for which it would not be reimbursed under the
Pooling Agreement. However, each of the master servicer, the special servicer
and us may undertake any such action that it or we may deem necessary or
desirable with respect to the enforcement and/or protection of the rights and
duties of the parties to the Pooling Agreement and the interests of the
series 2000-C1 certificateholders thereunder. In that event, the legal expenses
and costs of the action, and any liability resulting therefrom, will be
expenses, costs and liabilities of the trust, and we, the master servicer or the
special servicer, as the case may be, will be entitled to charge the Custodial
Account therefor.
Any person (i) into which we, the master servicer or the special servicer
may be merged or consolidated, or (ii) resulting from any merger or
consolidation to which we, the master servicer or the special servicer is a
party, or (iii) succeeding to the business, which may, in the case of the master
servicer or special servicer, be limited to the commercial loan servicing
business, of us, the master servicer or the special servicer, will be the
successor of us, the master servicer or the special servicer, as the case may
be, under the Pooling Agreement. However, no successor or surviving person will
succeed to the rights of the master servicer or the special servicer unless,
among other things, that succession will not result in any qualification,
downgrade or withdrawal of the rating then assigned by any Rating Agency to any
class of series 2000-C1 certificates as confirmed in writing.
EVENTS OF DEFAULT
"Events of Default" under the Pooling Agreement will include each of the
following events, circumstances and conditions and may include others:
(1) any failure by the master servicer or the special servicer to deposit,
or to remit to the appropriate party for deposit, into the Custodial
Account or REO Account, as applicable, any amount required to be so
deposited, which failure is not remedied within one business day
following the date on which such deposit or remittance was first required
to be made;
(2) any failure by the master servicer to remit to the trustee for deposit
in the Collection Account any amount, including a P&I Advance, required
to be so remitted, which continues unremedied for one business day
following the date on which such remittance was required to be made, or
any failure by the master servicer to make in a timely manner any
payments required to be made to the holder of a Companion Loan;
(3) any failure by the master servicer or the special servicer to timely
make any Servicing Advance required to be made by it under the Pooling
Agreement, which Servicing Advance remains unmade for a period of three
business days following the date on which notice has been given to the
master servicer or the special servicer, as the case may be, by the
trustee as described under
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"Servicing of the Mortgage Loans--Servicing and Other Compensation and
Payment of Expenses" in this prospectus supplement;
(4) any failure by the master servicer or the special servicer duly to
observe or perform in any material respect any of its other covenants or
agreements under the Pooling Agreement, which failure continues
unremedied for 30 days (or, if the master servicer or special servicer,
as the case may be, is diligently pursuing a cure, 60 days) after written
notice of that failure, requiring the same to be remedied, has been given
to the master servicer or the special servicer, as the case may be, by
any other party to the Pooling Agreement or to the master servicer or the
special servicer, as the case may be (with a copy to each other party to
the Pooling Agreement), by the holder of a Companion Loan or by
series 2000-C1 certificateholders entitled to not less than 25% of the
Voting Rights;
(5) any breach by the master servicer or the special servicer of any of its
representations or warranties contained in the Pooling Agreement that
materially and adversely affects the interests of any class of
series 2000-C1 certificateholders or any holder of a Companion Loan and
that continues unremedied for 30 days (or, if the master servicer or
special servicer, as the case may be, is diligently pursuing a cure,
60 days) after written notice of that breach, requiring the same to be
remedied, has been given to the master servicer or the special servicer,
as the case may be, by any other party to the Pooling Agreement, or to
the master servicer or the special servicer, as the case may be (with a
copy to each other party to the Pooling Agreement), by the holder of a
Companion Loan or by series 2000-C1 certificateholders entitled to not
less than 25% of the Voting Rights;
(6) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings in respect of or relating
to the master servicer or the special servicer and certain actions by or
on behalf of the master servicer or the special servicer indicating its
insolvency or inability to pay its obligations;
(7) one or more ratings assigned by either Rating Agency to the
series 2000-C1 certificates or any securities backed by a Companion Loan
has been qualified, downgraded or withdrawn, or otherwise made the
subject of a "negative" credit watch, which that Rating Agency has
determined, and given written notice, is solely or in material part a
result of the master servicer or special servicer, as the case may be,
acting in that capacity; and
(8) the receipt by the trustee of notice from either Rating Agency to the
effect that the master servicer or the special servicer, as the case may
be, is no longer "approved" by that Rating Agency to act in such capacity
for pools of mortgage loans similar to the mortgage pool with ratings
similar to those of the series 2000-C1 certificates and the failure to be
so "approved" will cause a qualification, downgrade or withdrawal of one
or more ratings then assigned to the series 2000-C1 certificates or any
securities backed by a Companion Loan.
When a single entity acts as master servicer and special servicer, an Event
of Default in one such capacity will constitute an Event of Default in the other
such capacity.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default described in clauses (1)-(6) under "--Events of
Default" above occurs with respect to the master servicer or the special
servicer and remains unremedied, the trustee will be authorized, and at the
direction of certificateholders entitled to not less than 25% of the Voting
Rights or any affected holder of a Companion Loan, the trustee will be required,
to terminate all of the rights and obligations of the defaulting party under the
Pooling Agreement and in and to the assets of the trust other than any rights
thereof as a series 2000-C1 certificateholder. However, a termination based
solely on an Event of Default described in clause (6) under "--Events of
Default" above may be unenforceable. If an
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Event of Default described in clauses (7) and (8) under "--Events of Default"
above occurs with respect to the master servicer or the special servicer and
remains unremedied, the trustee is required to terminate all of the rights and
obligations of the defaulting party under the Pooling Agreement and in and to
the assets of the trust other than any rights thereof as a series 2000-C1
certificateholder. Upon any such termination, the trustee will succeed to all of
the responsibilities, duties and liabilities of the master servicer or special
servicer, as the case may be, under the Pooling Agreement and will be entitled
to like compensation arrangements. If the trustee is unwilling to so act, it may
(or, at the written request of series 2000-C1 certificateholders entitled to a
majority of the Voting Rights, or if the trustee is unable, or is not approved
by each Rating Agency, to act as a master servicer or special servicer, as the
case may be, the trustee will be required to) appoint, or petition a court of
competent jurisdiction to appoint, an established mortgage loan servicing
institution to act as successor master servicer or special servicer, as the case
may be, under the Pooling Agreement. Pending that appointment, the trustee will
be obligated to act in that capacity. Notwithstanding the foregoing, if an Event
of Default on the part of the master servicer affects only a Companion Loan, the
master servicer may not be terminated as such but must appoint a sub-servicer
that will be responsible for servicing that Companion Loan and the Mortgage Loan
secured by the same Mortgaged Property.
In general, series 2000-C1 certificateholders entitled to at least 66 2/3%
of the Voting Rights allocated to each class of series 2000-C1 certificates
affected by any Event of Default, together with any holder of a Companion Loan
affected by the Event of Default, may waive the Event of Default. However, an
Event of Default described in clauses 1, 2, 7 and 8 under "--Events of Default"
above may only be waived by all of the holders of the affected classes of
series 2000-C1 certificates and all the affected holders of Companion Loans.
Upon any such waiver of an Event of Default, such Event of Default will cease to
exist and will be deemed to have been remedied for every purpose under the
Pooling Agreement.
No series 2000-C1 certificateholder will have the right under the Pooling
Agreement to institute any proceeding with respect thereto unless--
- that holder previously has given to the trustee written notice of default,
- except in the case of a default by the trustee, series 2000-C1
certificateholders entitled to not less than 25% of the Voting Rights have
made written request upon the trustee to institute that 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 that
proceeding.
The trustee, however, will be under no obligation to exercise any of the
trusts or powers vested in it by the Pooling Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the series 2000-C1 certificateholders, unless in the
trustee's opinion, those certificateholders have offered to the trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
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DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The LB-UBS Commercial Mortgage Trust 2000-C1, Commercial Mortgage
Pass-Through Certificates, Series 2000-C1 (the "Certificates") will be issued on
or about April 6, 2000 (the "Issue Date") in multiple classes (each, a "Class")
pursuant to the Pooling Agreement. They will represent in the aggregate the
entire beneficial ownership interest in the trust. The assets of the trust will
include:
- the Mortgage Loans;
- any and all payments under and proceeds of the Mortgage Loans received
after the Cut-off Date (exclusive of payments of principal, interest and
other amounts due thereon on or before the Cut-off Date);
- the Mortgage Files for the Mortgage Loans;
- any REO Properties; and
- all funds or assets as from time to time are deposited in the Collection
Account (see "--Collection Account" below), the Custodial Account, the
Interest Reserve Account, and/or the REO Account.
The Certificates will include nineteen (19) separate Classes, nine (9) of
which are Classes of "Offered Certificates" and ten (10) of which are Classes of
"Private Certificates". The tables below set forth the Class designation, the
approximate initial Certificate Balance or Notional Amount (each as defined
below) and the initial Pass-Through Rate for each Class of Certificates. The
"Pass-Through Rate" for any Class of Certificates is the annual rate at which
that Class of Certificates will accrue interest from time to time.
OFFERED CERTIFICATES
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE BALANCE APPROXIMATE
OR % OF THE INITIAL
NOTIONAL INITIAL CREDIT INITIAL
CLASS DESIGNATION AMOUNT(1) POOL BALANCE SUPPORT(2) PASS-THROUGH RATE(3)
- ----------------- ------------------- ------------ ----------- --------------------
<S> <C> <C> <C> <C>
Class A-1.......................... $ 395,000,000 28.8% 20.25%
Class A-2.......................... 698,271,000 50.9% 20.25%
Class B............................ 75,398,000 5.5% 14.75%
Class C............................ 51,408,000 3.8% 11.00%
Class D............................ 20,563,000 1.5% 9.50%
Class E............................ 13,708,000 1.0% 8.50%
Class F............................ 13,709,000 1.0% 7.50%
Class G............................ 12,338,000 0.9% 6.60%
Class X............................ $1,370,873,183(4) N/A N/A
</TABLE>
- ------------------------
(1) The actual initial Certificate Balance or Notional Amount of any Class of
Offered Certificates at the date of issuance may be larger or smaller than
the amount shown above, depending on the actual size of the Initial Pool
Balance. The actual size of the Initial Pool Balance may be as much as 5%
larger or smaller than the amount presented in this prospectus supplement.
(2) Represents the aggregate initial Certificate Balance, expressed as a
percentage of the Initial Pool Balance, of all Classes of Certificates that
are subordinate to the indicated Class.
(3) The Pass-Through Rate shown above for each Class of Offered Certificates is
the rate applicable for the Distribution Date in April 2000.
(4) Notional Amount. The Class X Certificates will not have a Certificate
Balance.
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PRIVATE CERTIFICATES(1)
<TABLE>
<CAPTION>
% OF THE INITIAL
INITIAL INITIAL PASS-THROUGH
CLASS DESIGNATION CERTIFICATE BALANCE(2) POOL BALANCE RATE(3)
- ----------------- ---------------------- ------------ ------------
<S> <C> <C> <C>
Class H........................................... $21,934,000 1.6%
Class J........................................... 17,136,000 1.3
Class K........................................... 10,281,000 0.7
Class L........................................... 10,967,000 0.8
Class M........................................... 12,338,000 0.9
Class N........................................... 4,113,000 0.3
Class P........................................... 13,709,183 1.0
</TABLE>
- ------------------------
(1) The Private Certificates will also include the Class R-I, Class R-II and
Class R-III Certificates. However, the Class R-I, Class R-II and
Class R-III Certificates do not have Certificate Balances, Notional Amounts
or Pass-Through Rates.
(2) The actual initial Certificate Balance of any Class of Private Certificates
at the date of issuance may be larger or smaller than the amount shown
above, depending on the actual size of the Initial Pool Balance. The actual
size of the Initial Pool Balance may be as much as 5% larger or smaller than
the amount presented in this prospectus supplement.
(3) The Pass-Through Rate shown above for each Class of Private Certificates is
the rate applicable for the Distribution Date in April 2000.
The "Certificate Balance" of any Class of Certificates will represent the
aggregate distributions of principal to which the registered holders ("Holders"
or "Certificateholders") of those Certificates are entitled over time out of
payments, or Advances in lieu thereof, and other collections on the assets of
the trust. We refer in this prospectus supplement to the respective Classes of
Certificates with Certificate Balances as the "Principal Balance Certificates".
On each Distribution Date, the Certificate Balance of each Class of Principal
Balance Certificates will be permanently reduced by any distributions of
principal actually made with respect to that Class of Certificates on that
Distribution Date. On any particular Distribution Date, the Certificate Balance
of a Class of Principal Balance Certificates may also be permanently reduced as
and to the extent described under "--Allocation of Realized Losses and Certain
Other Shortfalls and Expenses" below, in connection with Realized Losses and
Additional Trust Fund Expenses (each as defined in that section).
The Class X Certificates will not have a Certificate Balance or entitle the
holders thereof to receive distributions of principal. The "Notional Amount" of
the Class X Certificates will represent the principal amount on which interest
will accrue in respect of that Class from time to time. The Notional Amount of
the Class X Certificates will equal the aggregate of the Certificate Balances of
the respective Classes of Principal Balance Certificates outstanding from time
to time. Each of those Certificate Balances will constitute a separate component
(a "Component") of the Class Notional Amount of the Class X Certificates, which
Component will have the same alphabetical and/or numerical designation as the
alphabetical and/or numerical Class designation for the related Class of
Principal Balance Certificates. For example, the Certificate Balance of the
Class A-1 Certificates outstanding from time to time will constitute Component
A-1 of the Notional Amount of the Class X Certificates.
A Class of Offered Certificates will be considered to be outstanding until
its Certificate Balance or Notional Amount, as the case may be, is reduced to
zero. Under very limited circumstances, however, the prior Holders thereof may
thereafter be entitled to certain payments in reimbursement of any reductions
made in the Certificate Balance, if any, of that Class of Certificates as
described under "--Allocation of
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Realized Losses and Certain Other Shortfalls and Expenses" below, in connection
with Realized Losses and Additional Trust Fund Expenses.
As described under "Federal Income Tax Consequences" in this prospectus
supplement, the Class R-I, Class R-II and Class R-III Certificates will
constitute REMIC residual interests and are referred to in this prospectus
supplement as the "Residual Interest Certificates". The remaining Certificates
will evidence REMIC regular interests and are referred to in this prospectus
supplement as the "Regular Interest Certificates".
We have prepared this prospectus supplement solely for the purposes of
offering the Offered Certificates. The Private Certificates have not been
registered under the Securities Act and are not being offered to you.
Accordingly, to the extent that this prospectus supplement contains information
regarding the terms of the Private Certificates, we have provided the
information because of its potential relevance to you as a prospective purchaser
of Offered Certificates.
REGISTRATION AND DENOMINATIONS
The Offered Certificates will be issued in book-entry form in original
denominations of:
- in the case of the Class X Certificates, $250,000 initial notional amount
and in any whole dollar denomination in excess thereof; and
- in the case of the other Offered Certificates, $10,000 initial principal
amount and in any whole dollar denomination in excess thereof.
Each Class of Offered Certificates will initially be represented by one or
more Certificates registered in the name of the Cede & Co., as nominee of The
Depository Trust Company ("DTC").
You will NOT be entitled to receive a fully registered physical Certificate
(a "Definitive Certificate") representing your interest in the Offered
Certificates, except under the limited circumstances described under
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates" in the accompanying prospectus. Unless and until Definitive
Certificates are issued in respect of the Offered Certificates, beneficial
ownership interests in those Certificates will be maintained and transferred on
the book-entry records of DTC and its participating organizations (the "DTC
Participants").
All references in this prospectus supplement to actions by Holders of the
Offered Certificates will refer to actions taken by DTC upon instructions
received from the related beneficial owners through their respective DTC
Participants in accordance with DTC procedures. In addition, all references in
this prospectus supplement to payments, notices, reports and statements to
Holders of the Offered Certificates will refer to payments, notices, reports and
statements to DTC or Cede & Co., as the registered holder thereof, for
distribution to the related beneficial owners through their respective DTC
Participants in accordance with DTC procedures.
As a result of the foregoing, you may experience certain delays in the
receipt of payments on your Certificates and may have difficulty in pledging
your Certificates. See "Description of the Securities--Book-Entry Registration"
in the accompanying prospectus.
The trustee will initially serve as registrar for purposes of providing for
the registration of the Offered Certificates and, if and to the extent
Definitive Certificates are issued in respect thereof, the registration of
transfers and exchanges of the Offered Certificates.
COLLECTION ACCOUNT
GENERAL. The trustee will be required to establish and maintain one or more
accounts (collectively, the "Collection Account") for the distribution of
payments to the Certificateholders. Each of those accounts is to be an Eligible
Account. The funds held in the Collection Account may be invested at the
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direction of the master servicer (or as otherwise provided in the Pooling
Agreement) in Permitted Investments.
DEPOSITS. On or before the business day prior to each Distribution Date,
the master servicer will be required to deliver to the trustee, for deposit in
the Collection Account, in immediately available funds, the amounts described in
clause (i) under "Servicing of the Mortgage Loans--Custodial
Account--Withdrawals". In addition, the master servicer will be required, as and
when provided in the Pooling Agreement, to deliver to the trustee for deposit in
the Collection Account, any P&I Advances and/or Compensating Interest Payment
with respect to each Distribution Date. Furthermore, during March of 2001 and
each calendar year thereafter, the trustee will transfer Interest Reserve
Amounts in respect of the Actual/360 Mortgage Loans from the Interest Reserve
Account to the Collection Account as described under "--Distributions--Interest
Reserve Account" below.
WITHDRAWALS. The trustee may, from time to time, make withdrawals from the
Collection Account for any of the following purposes, among others:
1. to make distributions to the Certificateholders on each Distribution
Date;
2. to pay itself its monthly fee;
3. to reimburse and/or indemnify itself and certain related persons as
described under "--The Trustee" below and to make certain comparable
reimbursements and/or indemnifications with respect to the fiscal agent;
4. to pay the master servicer, as additional servicing compensation,
interest and other investment income earned in respect of amounts held in
the Collection Account;
5. to pay for the cost of certain opinions of counsel required under the
Pooling Agreement;
6. to pay any federal, state and local taxes imposed on the trust, its
assets and/or transactions, together with all incidental costs and
expenses, to the extent required to be borne by the trust, all as
described under "Federal Income Tax Consequences--Possible Taxes on
Income from Foreclosure Property and Other Taxes" and "Servicing of the
Mortgage Loans--REO Properties" in this prospectus supplement and as
provided in the Pooling Agreement;
7. to transfer, during January (except in a leap year) and February of 2001
and each calendar year thereafter, Interest Reserve Amounts in respect of
the Actual/360 Mortgage Loans to the Interest Reserve Account as
described under "--Distributions--Interest Reserve Account" below; and
8. to clear and terminate the Collection Account upon termination of the
trust.
SENIORITY
The following chart sets forth the relative seniority of the respective
Classes of Certificates for purposes of--
- making distributions of interest and, if and when applicable,
distributions of principal, and
- allocating Realized Losses, Additional Trust Fund Expenses and Net
Aggregate Prepayment Interest Shortfalls.
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In general, each identified Class of Certificates will, for the
above-specified purposes, be subordinate to each other Class of Certificates, if
any, listed above it in the following chart.
EXPANDED SENIORITY CHART
<TABLE>
<S> <C> <C>
MOST SENIOR [LOGO] MOST SENIOR
MOST SUBORDINATE MOST SUBORDINATE
</TABLE>
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CERTAIN RELEVANT CHARACTERISTICS OF THE MORTGAGE LOANS
The following characteristics of the Mortgage Loans are, in addition to
those described elsewhere in this prospectus supplement, relevant to the
following discussions in this "Description of the Offered Certificates" section.
MORTGAGE PASS-THROUGH RATE. The "Mortgage Pass-Through Rate" in respect of
any Mortgage Loan for any Distribution Date will, in general, equal--
- in the case of each 30/360 Mortgage Loan, the Mortgage Rate for the
Mortgage Loan as of the commencement of the related Collection Period
(without regard to any modifications, waivers or amendments of the
Mortgage Loan subsequent to the Issue Date), minus the Administrative Cost
Rate for the Mortgage Loan, and
- in the case of each Actual/360 Mortgage Loan, an annual rate generally
equal to (a) a fraction (expressed as a percentage), the numerator of
which is, subject to adjustment in accordance with the following sentence,
equal to (i) twelve (12) times (ii) the aggregate amount of interest
accrued (or, in the event of prepayments, that would have accrued) in
respect of the Mortgage Loan during the one-month loan interest accrual
period most recently ended prior to that Distribution Date at the Mortgage
Rate for the Mortgage Loan as of the commencement of the related
Collection Period (without regard to any modifications, waivers or
amendments of the Mortgage Loan subsequent to the Issue Date), and the
denominator of which is equal to the Stated Principal Balance of the
Mortgage Loan immediately prior to that Distribution Date, minus (b) the
Administrative Cost Rate for the Mortgage Loan. The aggregate amount of
interest referred to in clause (ii) of the numerator of the fraction
described in clause (a) of the prior sentence, will--
- when the Mortgage Pass-Through Rate is being calculated for a
Distribution Date in the calendar months of January (except in a leap
year) and February, be decreased by the amount of any Interest Reserve
Amount transferred from the Collection Account to the Interest Reserve
Account in respect of that Mortgage Loan on that Distribution Date, and
- when the Mortgage Pass-Through Rate in being calculated for a
Distribution Date in the calendar month of March, be increased by the
Interest Reserve Amounts to be transferred from the Interest Reserve
Account to the Collection Account in respect of that Mortgage Loan on
that Distribution Date. See "--Distributions--Interest Reserve Account"
below.
STATED PRINCIPAL BALANCE. The "Stated Principal Balance" of each Mortgage
Loan will initially equal its Cut-off Date Balance and will permanently be
reduced on each Distribution Date (to not less than zero) by--
- that portion, if any, of the Principal Distribution Amount for that
Distribution Date that is attributable to the Mortgage Loan (see
"--Distributions--Calculation of the Principal Distribution Amount"
below), and
- the principal portion of any Realized Loss incurred in respect of the
Mortgage Loan during the related Collection Period (see "--Allocation of
Realized Losses and Certain Other Shortfalls and Expenses" below).
DISTRIBUTIONS
GENERAL. Subject to available funds, the trustee will, in general, make all
distributions required to be made on the Certificates on each Distribution Date
to the Certificateholders of record as of the close of business on the related
Record Date. Notwithstanding the foregoing, the final distribution of principal
and/or interest on any Regular Interest Certificate will be made only upon
presentation and surrender of the Certificate at the location that will be
specified in a notice of the pendency of that final distribution.
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In order to receive its distributions by wire transfer, a Certificateholder
must provide the trustee with written wiring instructions no less than five
business days prior to the related Record Date. Otherwise, such
Certificateholder will receive its distributions by check mailed to it.
Until Definitive Certificates are issued, Cede & Co. will be the registered
holder of your Certificates, and you will receive distributions on your
Certificates through your DTC Participant. See "--Registration and
Denominations" above.
THE AVAILABLE DISTRIBUTION AMOUNT. The aggregate amount available to make
distributions of interest and principal on the Certificates on each Distribution
Date is referred to in this prospectus supplement as the "Available Distribution
Amount". The Available Distribution Amount for any Distribution Date will
include--
(a) all payments and other collections on the Mortgage Loans and any REO
Properties that are on deposit in the Collection Account and the
Custodial Account as of the close of business on the related
Determination Date, EXCLUSIVE of any portion thereof that represents one
or more of the following:
(i) Scheduled P&I Payments due on a Due Date subsequent to the end of
the related Collection Period;
(ii) Prepayment Premiums, Yield Maintenance Charges and Additional
Interest (which are separately distributable on the Certificates
(or, in the case of Additional Interest, solely on the Class P
Certificates) as described below in this prospectus supplement);
(iii) all amounts that are payable or reimbursable to any person other
than the Certificateholders as described under "--Collection
Account--Withdrawals" above and "Servicing of the Mortgage
Loans--Custodial Account--Withdrawals" and "--REO Properties" in
this prospectus supplement.
(iv) if that Distribution Date occurs during February of any year or
during January of any year that is not a leap year, the Interest
Reserve Amounts with respect to the Actual/360 Mortgage Loans that
are to be transferred from the Custodial Account to the Interest
Reserve Account during that month and held for future distribution;
and
(v) amounts deposited in the Collection Account, the Custodial Account
and/or the REO Account in error;
(b) any P&I Advances and Compensating Interest Payments made with respect to
such Distribution Date; and
(c) if that Distribution Date occurs during March of any year, the Interest
Reserve Amounts with respect to the Actual/360 Mortgage Loans that are
transferred from the Interest Reserve Account to the Collection Account
during that month.
See "--Distributions--Interest Reserve Account" and "--Allocation of
Realized Losses and Certain Other Shortfalls and Expenses" below.
INTEREST RESERVE ACCOUNT. The trustee will establish and maintain an
"Interest Reserve Account" in its name for the benefit of the
Certificateholders. During January (except in a leap year) and February of each
calendar year, beginning in 2001, the trustee will, on or before the
Distribution Date in that month, withdraw from the Collection Account and
deposit in the Interest Reserve Account the Interest Reserve Amount with respect
to each Actual/360 Mortgage Loan as to which the Scheduled P&I Payment due in
that month was either received or advanced. The "Interest Reserve Amount" in
respect of any such Mortgage Loan for either of those months will, in general,
equal one day's interest accrued at the related Mortgage Rate on the Stated
Principal Balance of the Mortgage Loan immediately following the Distribution
Date in the preceding calendar month. During March of each calendar year,
beginning in 2001, the trustee will, on or before the Distribution Date in that
month, withdraw from the Interest Reserve Account and deposit in the Collection
Account any and all Interest Reserve Amounts then on
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deposit in the Interest Reserve Account with respect to the Actual/360 Mortgage
Loans. All of those Interest Reserve Amounts that are so transferred from the
Interest Reserve Account to the Collection Account will be included in the
Available Distribution Amount for the Distribution Date during the month of
transfer.
CALCULATIONS OF INTEREST. Each Class of Regular Interest Certificates will
bear interest, which interest is to accrue during each Interest Accrual Period
based upon--
- the Pass-Through Rate for that Class for the related Distribution Date;
- the Certificate Balance or Notional Amount, as the case may be, of that
Class outstanding immediately prior to the related Distribution Date; and
- the assumption that each year consists of twelve 30-day months.
We refer in this prospectus supplement to the total amount of interest
accrued from time to time with respect to each Class of Regular Interest
Certificates as "Accrued Certificate Interest". However, less than the full
amount of Accrued Certificate Interest in respect of any Class of Regular
Interest Certificates for any Interest Accrual Period may be distributable
thereon as a result of the allocation of any Net Aggregate Prepayment Interest
Shortfall for the related Distribution Date. We refer in this prospectus
supplement to the portion of the Accrued Certificate Interest in respect of any
Class of Regular Interest Certificates for any Interest Accrual Period that is
actually distributable thereon as the "Distributable Certificate Interest" for
that Class. The Distributable Certificate Interest in respect of any Class of
Regular Interest Certificates for any Interest Accrual Period will equal the
Accrued Certificate Interest in respect of that Class for that Interest Accrual
Period, reduced (to not less than zero) by any portion of the Net Aggregate
Prepayment Interest Shortfall for the related Distribution Date that has been
allocated to that Class as described under "--Allocation of Realized Losses and
Certain Other Shortfalls and Expenses" below. The "Interest Accrual Period" with
respect to any Distribution Date will be the period commencing on the 11th day
of the month preceding the month in which that Distribution Date occurs and
ending on the 10th day of the month in which that Distribution Date occurs.
CALCULATION OF PASS-THROUGH RATES. The Pass-Through Rate applicable to each
Class of Regular Interest Certificates for the initial Distribution Date will be
the rate per annum set forth with respect to that Class in the tables under
"--General" above.
The Pass-Through Rate applicable to each Class of Principal Balance
Certificates for each subsequent Distribution Date will equal the lesser of (i)
the initial Pass-Through Rate for that class and (ii) the Weighted Average
Mortgage Pass-Through Rate for that Distribution Date.
The Pass-Through Rate applicable to the Class X Certificates for each
subsequent Distribution Date will equal the weighted average of the then
applicable Class X Strip Rates for the respective Components of the Class
Notional Amount of the Class X Certificates, weighted on the basis of the
relative sizes of those Components immediately prior to that Distribution Date.
The "Class X Strip Rate" with respect to any Component of the Class Notional
Amount of the Class X Certificates for any Distribution Date will equal the
excess, if any, of (i) the Weighted Average Mortgage Pass-Through Rate for that
Distribution Date, over (ii) the Pass-Through Rate then applicable to the Class
of the Principal Balance Certificates whose Certificate Balance constitutes that
Component.
The Residual Interest Certificates will not have Pass-Through Rates.
The "Weighted Average Mortgage Pass-Through Rate" for each Distribution Date
will, in general, equal the weighted average of the Mortgage Pass-Through Rates
in effect for all the Mortgage Loans for that Distribution Date, weighted on the
basis of those Mortgage Loans' respective Stated Principal Balances immediately
prior to that Distribution Date.
CALCULATION OF THE PRINCIPAL DISTRIBUTION AMOUNT. The "Principal
Distribution Amount" for any Distribution Date represents the maximum amount of
principal distributable in respect of the Principal
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Balance Certificates for that Distribution Date. The Principal Distribution
Amount for any Distribution Date will, in general, equal the aggregate (without
duplication) of the following:
(a) the aggregate of all payments of principal (other than voluntary
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 for which a P&I
Advance was previously made for a prior Distribution Date or that
represents the principal portion of a Scheduled P&I Payment due on or
before the Cut-off Date or on a Due Date subsequent to the end of the
related Collection Period;
(b) the aggregate of the principal portions of all Scheduled P&I Payments
due in respect of the Mortgage Loans for their respective Due Dates
occurring during the related Collection Period, that were received prior
to the related Collection Period;
(c) the aggregate of all voluntary principal prepayments received on the
Mortgage Loans during the related Collection Period;
(d) the aggregate of all other collections, including Liquidation Proceeds,
Condemnation Proceeds and Insurance Proceeds, that were received on or in
respect of the Mortgage Loans during the related Collection Period and
that were identified and applied by the master servicer as recoveries of
principal thereof, in each case net of any portion of the particular
collection 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; and
(e) the aggregate of the principal portions of all P&I Advances made in
respect of the Mortgage Loans for the subject Distribution Date.
PRIORITY OF PAYMENTS.
General. In general, distributions of interest and principal are to be made
to the Holders of the various Classes of Regular Interest Certificates
sequentially based on their relative seniority as depicted in the Expanded
Seniority Chart under "--Seniority" above. Accordingly, the trustee will make
distributions of interest and principal on the Class A-1, Class A-2 and Class X
Certificates (collectively, the "Senior Certificates") prior to making those
distributions in respect of any other Class of Regular Interest Certificates.
Distributions of Interest and Principal on the Senior Certificates. On each
Distribution Date, the trustee will apply the Available Distribution Amount for
that date for the following purposes and in the following order of priority:
(1) to pay interest to the Holders of the respective Classes of Senior
Certificates, up to an amount equal to, and PRO RATA as among those Classes in
accordance with, all unpaid Distributable Certificate Interest accrued in
respect of each such Class of Certificates through the end of the related
Interest Accrual Period;
(2) to pay principal to the Holders of the Class A-1 and Class A-2
Certificates, allocable between those two Classes of Certificateholders as
described below, up to an amount equal to the lesser of (a) the aggregate of the
then outstanding Certificate Balances of those Classes of Certificates and
(b) the Principal Distribution Amount for such Distribution Date; and
(3) if applicable, to reimburse the Holders of the Class A-1 and Class A-2
Certificates, up to an amount equal to, and PRO RATA as between those two
Classes of Certificateholders in accordance with, the aggregate of all
unreimbursed reductions, if any, made to the Certificate Balance of each such
Class of Certificates as described under "--Allocation of Realized Losses and
Certain Other Shortfalls and Expenses" below in connection with Realized Losses
and Additional Trust Fund Expenses.
In general, all distributions of principal on the Class A-1 and Class A-2
Certificates on any Distribution Date will be distributable, FIRST, to the
Holders of the Class A-1 Certificates, until the Certificate
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Balance of the Class A-1 Certificates is reduced to zero, and THEREAFTER, to the
Holders of the Class A-2 Certificates. However, on each Distribution Date
coinciding with or following the occurrence of a Class A Principal Distribution
Cross-Over Date, all distributions of principal in respect of the Class A-1 and
Class A-2 Certificates will be made on a PRO RATA basis in accordance with the
respective Certificate Balances of those two Classes of Certificates. Similarly,
all distributions of principal, if any, in respect of the Class A-1 and
Class A-2 Certificates on the final Distribution Date in connection with a
termination of the trust will be made on the same PRO RATA basis.
The "Class A Principal Distribution Cross-Over Date" will be the first
Distribution Date as of the commencement of business on which (i) both the
Class A-1 Certificates and the Class A-2 Certificates remain outstanding and
(ii) the Certificate Balances of all of the other Classes of Principal Balance
Certificates have previously been reduced to zero as described under
"--Allocation of Realized Losses and Certain Other Shortfalls and Expenses"
below.
All Certificates, other than the Senior Certificates, collectively
constitute the "Subordinate Certificates". We refer in this prospectus
supplement to the portion, if any, of the Available Distribution Amount for any
Distribution Date that remains after the foregoing distributions on the Senior
Certificates as the "Subordinate Available Distribution Amount". The Subordinate
Available Distribution Amount for each Distribution Date will be applied to make
distributions on the Subordinate Certificates as described below.
Distributions of Interest and Principal on the Subordinate Certificates. On
each Distribution Date, the trustee will apply the Subordinate Available
Distribution Amount for that date for the following purposes and in the
following order of priority:
(1) to pay interest to the Holders of the Class B Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(2) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class B Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(3) if applicable, to reimburse the Holders of the Class B Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(4) to pay interest to the Holders of the Class C Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(5) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class C Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(6) if applicable, to reimburse the Holders of the Class C Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(7) to pay interest to the Holders of the Class D Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(8) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class D Certificates, up to an amount equal to the
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lesser of (a) the then outstanding Certificate Balance of that Class of
Certificates and (b) the remaining portion of the Principal Distribution Amount
for that Distribution Date;
(9) if applicable, to reimburse the Holders of the Class D Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(10) to pay interest to the Holders of the Class E Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(11) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class E Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(12) if applicable, to reimburse the Holders of the Class E Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(13) to pay interest to the Holders of the Class F Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(14) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class F Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(15) if applicable, to reimburse the Holders of the Class F Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(16) to pay interest to the Holders of the Class G Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(17) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class G Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(18) if applicable, to reimburse the Holders of the Class G Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(19) to pay interest to the Holders of the Class H Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(20) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class H Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
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(21) if applicable, to reimburse the Holders of the Class H Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(22) to pay interest to the Holders of the Class J Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(23) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class J Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(24) if applicable, to reimburse the Holders of the Class J Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(25) to pay interest to the Holders of the Class K Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(26) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class K Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(27) if applicable, to reimburse the Holders of the Class K Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(28) to pay interest to the Holders of the Class L Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(29) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class L Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(30) if applicable, to reimburse the Holders of the Class L Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(31) to pay interest to the Holders of the Class M Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(32) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class M Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(33) if applicable, to reimburse the Holders of the Class M Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class
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of Certificates as described under "--Allocation of Realized Losses and Certain
Other Shortfalls and Expenses" below in connection with Realized Losses and
Additional Trust Fund Expenses;
(34) to pay interest to the Holders of the Class N Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(35) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class N Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(36) if applicable, to reimburse the Holders of the Class N Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses;
(37) to pay interest to the Holders of the Class P Certificates, up to an
amount equal to all unpaid Distributable Certificate Interest accrued in respect
of that Class of Certificates through the end of the related Interest Accrual
Period;
(38) if the Certificate Balances of all more senior Classes of Principal
Balance Certificates have been reduced to zero, to pay principal to the Holders
of the Class P Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of that Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for that Distribution
Date;
(39) if applicable, to reimburse the Holders of the Class P Certificates, up
to an amount equal to the aggregate of all unreimbursed reductions, if any,
previously made to the Certificate Balance of that Class of Certificates as
described under "--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below in connection with Realized Losses and Additional Trust Fund
Expenses; and
(40) to pay to the Holders of the Residual Interest Certificates, the
balance, if any, of the Subordinate Available Distribution Amount for such
Distribution Date;
provided that, on the final Distribution Date in connection with a termination
of the trust, the distributions of principal to be made pursuant to clauses (2),
(5), (8), (11), (14), (17), (20), (23), (26), (29), (32), (35) and (38) above
will, in each case, subject to the then remaining portion of the Subordinate
Available Distribution Amount for that date, be made to the Holders of the
relevant Class of Principal Balance Certificates otherwise entitled to
distributions of principal pursuant to that clause in an amount equal to the
entire then remaining Certificate Balance of the particular Class of
Certificates outstanding immediately prior to the final Distribution Date, and
without regard to the Principal Distribution Amount for the final Distribution
Date.
DISTRIBUTIONS OF PREPAYMENT PREMIUMS AND YIELD MAINTENANCE CHARGES. On each
Distribution Date, any Prepayment Consideration, whether in the form of a
Prepayment Premium or a Yield Maintenance Charge, or specified portions thereof
collected on a Mortgage Loan during the related Collection Period, net of any
Workout Fees and Liquidation Fees payable therefrom, will be distributed to the
Holders of the Class of Principal Balance Certificates senior to the Class J
Certificates that is then entitled to distributions of principal on that
Distribution Date, up to its Prepayment Consideration Entitlement in connection
with the particular prepayment consideration or specified portion thereof.
If there are two or more Classes of Principal Balance Certificates senior to
the Class J Certificates that are entitled to distributions of principal on any
particular Distribution Date on which any prepayment consideration is
distributable, the aggregate amount of that prepayment consideration, net of any
portion thereof payable as a Workout Fee or Liquidation Fee, will be allocated
among all of those Classes up to, and on a PRO RATA basis in accordance with,
their respective Prepayment Consideration Entitlements.
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The "Prepayment Consideration Entitlement" of the Holders of any Class of
Principal Balance Certificates senior to the Class J Certificates with respect
to any prepayment consideration, or specified portion thereof, net of Workout
Fees and Liquidation Fees payable therefrom, for any Distribution Date on which
that Class of Certificates is entitled to distributions of principal, will be an
amount equal to (a) that prepayment consideration, net of any portion thereof
payable as a Workout Fee or Liquidation Fee, multiplied by (b) a fraction, which
in no event may be greater than 1.0, the numerator of which is equal to the
excess, if any, of the Pass-Through Rate for that Class of Principal Balance
Certificates over the relevant Discount Rate (as defined below), and the
denominator of which is equal to the excess, if any, of the Mortgage Rate of the
prepaid Mortgage Loan over the relevant Discount Rate, and further multiplied by
(c) a fraction, the numerator of which is equal to the amount of principal
distributable to such Class of Principal Balance Certificates on that
Distribution Date, and the denominator of which is the Principal Distribution
Amount for that Distribution Date.
The "Discount Rate" applicable to any Class of Principal Balance
Certificates with respect to any prepaid Mortgage Loan will equal the yield
(when compounded monthly) on the U.S. Treasury issue (primary issue) with a
maturity date closest to the maturity date for the prepaid Mortgage Loan. In the
event that there are two U.S. Treasury issues (a) with the same coupon, the
issue with the lower yield will be utilized, and (b) with maturity dates equally
close to the maturity date for the prepaid Mortgage Loan, the issue with the
earliest maturity date will be utilized.
The portion of any Prepayment Premium and/or Yield Maintenance Charge, net
of any portion thereof payable as a Workout Fee or Liquidation Fee, remaining
after distribution of the amounts calculated as described above to the Holders
of the respective Classes of Principal Balance Certificates senior to the
Class J Certificates will be distributed to the Holders of the Class X
Certificates. After the Distribution Date on which the Certificate Balances of
all Classes of Principal Balance Certificates senior to the Class J Certificates
have been reduced to zero, any Prepayment Premium and/or Yield Maintenance
Charge collected on the Mortgage Loans, net of any portion thereof payable as a
Workout Fee or Liquidation Fee, will be distributable entirely to the Holders of
the Class X Certificates.
We make no representation as to the enforceability of the provision of any
Mortgage Note requiring the payment of a Prepayment Premium and/or Yield
Maintenance Charge or of the collectability of any Prepayment Premium or Yield
Maintenance Charge. See "Description of the Mortgage Pool--Certain Terms and
Conditions of the Mortgage Loans--Prepayment Provisions" and "Risk
Factors--Risks Related to the Mortgage Loans--Limitations on Enforceability and
Collectability of Prepayment Premiums and Yield Maintenance Charges" in this
prospectus supplement.
TREATMENT OF REO PROPERTIES. Notwithstanding that any Mortgaged Property
may be acquired as part of the assets of the trust through foreclosure, deed in
lieu of foreclosure or otherwise, the related Mortgage Loan will be treated, for
purposes of, determining distributions on the Certificates, allocations of
Realized Losses and Additional Trust Fund Expenses to the Certificates, and the
amount of all fees payable under the Pooling Agreement, as having remained
outstanding until that REO Property is liquidated. The Mortgage Loan will be
taken into account when determining the Weighted Average Mortgage Pass-Through
Rate and the Principal Distribution Amount for each Distribution Date. Operating
revenues and other proceeds derived from that REO Property will first be applied
to pay certain costs and taxes, including certain reimbursements payable to the
master servicer, the special servicer and/or the trustee, incurred in connection
with the operation and disposition of that REO Property. Thereafter, those
revenues and proceeds will be "applied" by the master servicer as principal,
interest and other amounts "due" on that Mortgage Loan. As and to the extent
described under "--P&I Advances" below, the master servicer, the trustee and the
fiscal agent will be required to make P&I Advances in respect of that Mortgage
Loan, in all cases as if it had remained outstanding.
DISTRIBUTIONS OF ADDITIONAL INTEREST. On each Distribution Date, any
Additional Interest collected on an ARD Loan during the related Collection
Period will be distributed to the Holders of the Class P
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Certificates. There can be no assurance as to what extent Additional Interest
will accrue or be collected on the ARD Loans, if at all.
ALLOCATION OF REALIZED LOSSES AND CERTAIN OTHER SHORTFALLS AND EXPENSES
If Realized Losses and Additional Trust Fund Expenses are incurred, the
aggregate Stated Principal Balance of the mortgage pool may decline below the
aggregate Certificate Balance of the Principal Balance Certificates, thereby
resulting in a deficit (a "Mortgage Pool Deficit") equal to the difference
between those aggregate balances. In general, if a Mortgage Pool Deficit exists
following the distributions made to Certificateholders on any Distribution Date,
then the respective Certificate Balances of the various Classes of Principal
Balance Certificates will be successively reduced, in reverse order of seniority
as depicted on the Expanded Seniority Chart under "--Seniority" above, until the
Mortgage Pool Deficit is eliminated. The first such Certificate Balance to be
reduced would be that of the most subordinate Class of Principal Balance
Certificates then outstanding. No such reduction would be made to the
Certificate Balance of any Class of Principal Balance Certificates until the
Certificate Balance of each more subordinate Class of Principal Balance
Certificates, if any, is reduced to zero. If a Mortgage Pool Deficit exists at
any time after the Certificate Balances of the Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M, Class N
and Class P Certificates have all been reduced to zero, the Certificate Balances
of the Class A-1 and Class A-2 Certificates will be reduced on a PRO RATA basis
in accordance with the relative sizes of the Certificate Balances of those
Classes of Certificates, until the Mortgage Pool Deficit is eliminated.
The foregoing reductions in the Certificate Balances of the respective
Classes of the Principal Balance Certificates will effectively constitute an
allocation of the Realized Losses and/or Additional Trust Fund Expenses that
caused any Mortgage Pool Deficit. Any such reduction in the Certificate Balance
of a Class of Principal Balance Certificates will result in a corresponding
reduction in the Notional Amount of the Class X Certificates.
"Realized Losses" are losses on or in respect of the Mortgage Loans arising
from the inability of the master servicer and/or the special servicer to collect
all amounts due and owing under any such Mortgage Loan, including by reason of
the fraud or bankruptcy of a Borrower or, to the extent not covered by
insurance, a casualty of any nature at a Mortgaged Property. 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 the Mortgage Loan as of the date of liquidation, together with (i) all
accrued and unpaid interest thereon, other than Default Interest and Additional
Interest, to but not including the Due Date in the Collection Period in which
the liquidation occurred and (ii) all related unreimbursed Servicing Advances
and unpaid liquidation expenses, over (b) the aggregate amount of Liquidation
Proceeds, if any, recovered in connection with the liquidation. 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 master servicer or
the special servicer or in connection with the bankruptcy or similar proceeding
involving the related Borrower, the amount so forgiven, other than Default
Interest and Additional Interest, also will be treated as a Realized Loss.
An "Additional Trust Fund Expense" is, in general, an expense of the trust
that arises out of a default on a Mortgage Loan or an otherwise unanticipated
event and that is not covered by a Servicing Advance or a corresponding
collection from the related Borrower. Some examples of Additional Trust Fund
Expenses are:
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- any Special Servicing Fees, Workout Fees and Liquidation Fees paid to the
special servicer;
- any interest paid to the master servicer, the special servicer and/or the
trustee in respect of unreimbursed Advances, other than out of Default
Interest and late payment charges;
- certain servicing and administrative expenses that have not been the
subject of Servicing Advances, including the costs of certain required
opinions of counsel;
- certain unanticipated, non-Mortgage Loan specific expenses of the trust,
including certain reimbursements and indemnifications to the trustee and
the fiscal agent as described under "--The Trustee" in this prospectus
supplement (the fiscal agent having the same rights to indemnity and
reimbursement as described with respect to the trustee), certain
reimbursements to the master servicer, the special servicer and us as
described under "Servicing of the Mortgage Loans--Certain Matters
Regarding Us, the Master Servicer and the Special Servicer" in this
prospectus supplement and certain federal, state and local taxes, and
certain tax-related expenses, payable out of the trust assets as described
under "Federal Income Tax Consequences--Possible Taxes on Income From
Foreclosure Property and Other Taxes" and "Servicing of the Mortgage
Loans--REO Properties" in this prospectus supplement; and
- any amounts expended on behalf of the trust to remediate an adverse
environmental condition at any Mortgaged Property securing a defaulted
Mortgage Loan as described under "Servicing of the Mortgage
Loans--Realization Upon Defaulted Mortgage Loans; Sale of Defaulted
Mortgage Loans and REO Properties" in this prospectus supplement.
The Net Aggregate Prepayment Interest Shortfall, if any, for each
Distribution Date will be allocated on that Distribution Date among the
respective Classes of Regular Interest Certificates, other than the Senior
Certificates, sequentially in reverse order of their seniority as depicted on
the Expanded Seniority Chart under "--Seniority" above, in each case up to an
amount equal to the lesser of any remaining unallocated portion of the Net
Aggregate Prepayment Interest Shortfall and any Accrued Certificate Interest in
respect of the particular Class of Certificates for the related Interest Accrual
Period. If and to the extent that the Net Aggregate Prepayment Interest
Shortfall for any Distribution Date exceeds the aggregate Accrued Certificate
Interest in respect of the Subordinate Certificates for the related Interest
Accrual Period, that portion will be allocated among the respective Classes of
Senior Certificates, up to, and pro rata in accordance with, the respective
amounts of Accrued Certificate Interest for each such Class of Senior
Certificates for the related Interest Accrual Period.
P&I ADVANCES
The master servicer will be required to make for each Distribution Date an
aggregate amount of P&I Advances generally equal to all Scheduled P&I Payments,
other than Balloon Payments, and any Assumed P&I Payments, in each case net of
related Master Servicing Fees and Workout Fees, that (a) were due or deemed due,
as the case may be, in respect of the Mortgage Loans during the related
Collection Period and (b) were not paid by or on behalf of the related Borrowers
or otherwise collected as of the close of business on the related Determination
Date. The master servicer must make those P&I Advances either out of its own
funds or, subject to the replacement thereof as and to the extent provided in
the Pooling Agreement, funds held in the Custodial Account that are not required
to be part of the Available Distribution Amount for the subject Distribution
Date.
Notwithstanding the foregoing, if it is determined that an Appraisal
Reduction Amount (as defined below) exists with respect to any Required
Appraisal Loan (also as defined below), then the master servicer will reduce
each P&I Advance that it must make in respect of that Required Appraisal Loan
during the period that such Appraisal Reduction Amount exists. The amount of any
P&I Advance required to be made in respect of a Required Appraisal Loan, as to
which there exists an Appraisal Reduction Amount, will equal the product of
(i) the amount of that P&I Advance that would otherwise be required to
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be made for the subject Distribution Date without regard to this sentence and
the prior sentence, multiplied by (ii) a fraction, the numerator of which is
equal to the Stated Principal Balance of that Mortgage Loan, net of the
applicable Appraisal Reduction Amount, and the denominator of which is equal to
the Stated Principal Balance of that Mortgage Loan. See "--Appraisal Reductions"
below.
The master servicer will be required to make P&I advances on the Companion
Loans. For purposes of determining its advancing obligations in this regard,
including calculation of any Appraisal Reduction Amount, the master servicer
will treat each Companion Loan and the corresponding Mortgage Loan as a single
Mortgage Loan.
If the master servicer fails to make a required P&I Advance and the trustee
is aware of the failure, then the trustee will be obligated to make the Advance.
If the trustee fails to make a required P&I Advance, then the fiscal agent will
be required to make the Advance See "--The Trustee" and "--The Fiscal Agent"
below.
The master servicer, the trustee and the fiscal agent will each be entitled
to recover any P&I Advance made by it out of its own funds from Related
Proceeds. NONE OF THE MASTER SERVICER, THE TRUSTEE OR THE FISCAL AGENT WILL BE
OBLIGATED TO MAKE ANY P&I ADVANCE THAT, IN ITS REASONABLE GOOD FAITH JUDGMENT,
WOULD NOT BE ULTIMATELY RECOVERABLE OUT OF RELATED PROCEEDS. IF THE MASTER
SERVICER, THE TRUSTEE OR THE FISCAL AGENT MAKES ANY P&I ADVANCE THAT IT
SUBSEQUENTLY DETERMINES IS A NONRECOVERABLE ADVANCE, IT MAY OBTAIN REIMBURSEMENT
FOR THAT P&I ADVANCE OUT OF GENERAL FUNDS ON DEPOSIT IN THE CUSTODIAL ACCOUNT.
SEE "SERVICING OF THE MORTGAGE LOANS--CUSTODIAL ACCOUNT" IN THIS PROSPECTUS
SUPPLEMENT.
The master servicer, the trustee and the fiscal agent will each be entitled
to receive interest on P&I Advances made thereby. The interest will accrue on
the amount of each P&I Advance for so long as it is outstanding (and will
compound annually) at a rate per annum equal to the "prime rate" as published in
the "Money Rates" section of THE WALL STREET JOURNAL, as that "prime rate" may
change from time to time. Interest so accrued with respect to any P&I Advance
will be payable--
- out of Default Interest and late payment charges collected on the related
Mortgage Loan during the Collection Period in which the P&I Advance is
reimbursed, and
- if the P&I Advance has been reimbursed, then, to the extent that the
Default Interest and late payment charges described in the prior bullet
point were insufficient, out of any amounts then on deposit in the
Custodial Account.
Any delay between a Sub-Servicer's receipt of a late collection of a
Scheduled P&I Payment as to which a P&I Advance was made and the forwarding of
such late collection to the master servicer will increase the amount of interest
accrued and payable to the master servicer or the trustee, as the case may be,
on such P&I Advance. To the extent not offset by Default Interest and/or late
payment charges accrued and actually collected as described above, interest
accrued on outstanding P&I Advances will result in a reduction in amounts
payable on the Certificates.
An "Assumed P&I Payment" is an amount deemed due in respect of:
- each Mortgage Loan that is delinquent in respect of its Balloon Payment
beyond the first Determination Date that follows its maturity date and as
to which no arrangements have been made for collection of the delinquent
amounts, including an extension of maturity; and
- each Mortgage Loan as to which the related Mortgaged Property has become
an REO Property.
The Assumed P&I Payment deemed due on any Mortgage Loan that is delinquent
as to its Balloon Payment, for its stated maturity date and for each successive
Due Date that it remains outstanding, will equal the Scheduled P&I Payment that
would have been due on the Mortgage Loan on that date if the related Balloon
Payment had not come due, but instead the Mortgage Loan had continued to
amortize and accrue interest in accordance with its terms in effect prior to
that maturity date. The Assumed P&I
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Payment deemed due on any such Mortgage Loan as to which the related Mortgaged
Property has become an REO Property, for each Due Date that such REO Property
remains part of the trust, will equal the Scheduled P&I Payment or, in the case
of a Mortgage Loan delinquent in respect of its Balloon Payment, the Assumed P&I
Payment due or deemed due on the last Due Date prior to the acquisition of the
related REO Property.
APPRAISAL REDUCTIONS
Within 90 days after the date on which any of the following events (each, an
"Appraisal Trigger Event") has occurred with respect to any Mortgage Loan (upon
the occurrence of any such event, a "Required Appraisal Loan"), the special
servicer must obtain an appraisal of the related Mortgaged Property from an
independent appraiser meeting certain specified qualifications (any such
appraisal, a "Required Appraisal") or, if the related Stated Principal Balance
is less than $1,000,000, must perform a "desktop" value estimate of the related
Mortgaged Property, unless such an appraisal had previously been obtained within
the prior twelve months--
- The Mortgage Loan is 60 days or more delinquent in respect of any
Scheduled P&I Payment.
- The Mortgage Loan is modified by the special servicer to reduce the amount
of any Scheduled P&I Payment, other than a Balloon Payment.
- Any Balloon Payment with respect to the Mortgage Loan has not been paid
within 20 days following its scheduled maturity date, as that date may
have been extended.
- A receiver is appointed and continues in such capacity in respect of the
Mortgaged Property securing the Mortgage Loan.
- The related Borrower becomes the subject of bankruptcy, insolvency or
similar proceedings.
- The Mortgaged Property securing the Mortgage Loan becomes an REO Property.
As a result of any such appraisal or estimate, it may be determined that an
Appraisal Reduction Amount exists with respect to the related Required Appraisal
Loan. The Appraisal Reduction Amount for any Required Appraisal Loan will be
determined on the first Determination Date following the later of the occurrence
of the Appraisal Trigger Event (if no new appraisal or estimate is required) and
the receipt of a new appraisal or estimate (if one is required) and will be
recalculated monthly thereafter. The "Appraisal Reduction Amount" for any
Required Appraisal Loan will equal to the excess, if any, of "x" over "y"
where--
- "x" is equal to the sum of:
(i) the Stated Principal Balance of that Required Appraisal Loan;
(ii) to the extent not previously advanced by or on behalf of the master
servicer, the trustee or the fiscal agent, all unpaid interest on
that Required Appraisal Loan through the most recent Due Date prior
to the date of calculation, net of related Master Servicing Fees,
and exclusive of any portion of such accrued and unpaid interest
that constitutes Additional Interest and/or Default Interest;
(iii) all accrued but unpaid Master Servicing Fees, Special Servicing
Fees, Liquidation Fees and Workout Fees in respect of that Required
Appraisal Loan;
(iv) all related unreimbursed Advances made by or on behalf of the
master servicer, the special servicer, the trustee or the fiscal
agent with respect to that Required Appraisal Loan, together with
interest thereon;
(v) any other unpaid Additional Trust Fund Expenses in respect of that
Required Appraisal Loan; and
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(vi) all currently due and unpaid real estate taxes and assessments,
insurance premiums and, if applicable, ground rents, and any
unfunded improvement or other applicable reserves, in respect of
the related Mortgaged Property, net of any escrow reserves held by
the master servicer or special servicer to cover any such item; and
- "y" is equal to 90% of the resulting appraised value (or desktop estimate)
of the related Mortgaged Property or REO Property, as that appraised value
may be reduced (to not less than zero) by the amount of any obligations
secured by liens on that property that are prior to the lien of the
Required Appraisal Loan and estimated liquidation expenses.
For so long as any Mortgage Loan remains a Required Appraisal Loan, the
special servicer is required, on or about each anniversary of such loan's
becoming a Required Appraisal Loan, to order an updated appraisal or perform an
updated estimate, as applicable. Based upon that update, the special servicer
must redetermine and report to the trustee the new Appraisal Reduction Amount,
if any, with respect to the Required Appraisal Loan. A Mortgage Loan will cease
to be a Required Appraisal Loan, if--
- it has become a Corrected Mortgage Loan,
- it has remained current for a specified number of consecutive Scheduled
P&I Payments, and
- no other Servicing Transfer Event has occurred during a specified period.
The cost of each Required Appraisal, and any update thereof, will be
advanced by the special servicer and will be reimbursable thereto as a Servicing
Advance.
If an Appraisal Reduction Amount exists with respect to any Required
Appraisal Loan, the Controlling Class Representative or any affected holder of a
Companion Loan will be entitled to obtain and deliver to the master servicer and
the trustee an appraisal meeting the requirements for a Required Appraisal and,
further, will be entitled to request that the Appraisal Reduction Amount for
that Required Appraisal Loan be recalculated based upon the new appraisal.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
CERTIFICATEHOLDER REPORTS. Based solely on information provided in monthly
reports prepared by the master servicer and the special servicer and delivered
to the trustee, the trustee will be required on each Distribution Date to
provide or make available electronically as described under "--Information
Available Electronically" below, to the Holders of each Class of Certificates
and to each beneficial owner of an Offered Certificate held in book-entry form
that is identified to the reasonable satisfaction of the trustee:
1. A "Distribution Date Statement" setting forth, among other things:
- the amount of distributions, if any, made on that Distribution Date to the
Holders of each Class of Principal Balance Certificates that were applied
to reduce the Certificate Balance thereof;
- the amount of distributions, if any, made on that Distribution Date to the
Holders of each Class of Regular Interest Certificates allocable to
Distributable Certificate Interest, Prepayment Consideration and
Additional Interest, respectively;
- the Available Distribution Amount for that Distribution Date;
- the aggregate amount of P&I Advances made in respect of the mortgage pool
for the immediately preceding Distribution Date;
- the aggregate amount of (i) unreimbursed P&I Advances in respect of the
mortgage pool, and the aggregate amount of interest accrued and payable
thereon, as of the close of business on the related Determination Date and
(ii) unreimbursed Servicing Advances in respect of the mortgage pool, and
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the aggregate amount of interest accrued and payable thereon, outstanding
as of the close of business on the related Determination Date;
- the aggregate unpaid principal balance of the mortgage pool outstanding as
of the close of business on the related Determination Date;
- the number, aggregate unpaid principal balance, weighted average remaining
term to maturity and weighted average Mortgage Rate of the Mortgage Loans,
other than REO Mortgage Loans, as of the close of business on the related
Determination Date;
- the number, aggregate unpaid principal balance, as of the close of
business on the related Determination Date, and aggregate Stated Principal
Balance, immediately after that Distribution Date, of Mortgage Loans
(i) delinquent one month, (ii) delinquent two months, (iii) delinquent
three or more months, (iv) as to which foreclosure proceedings have been
commenced, and (v) as to which, to the knowledge of the master servicer,
bankruptcy proceedings have commenced in respect of the related Borrower;
- as to each Mortgage Loan referred to in the preceding bullet point,
(i) the loan number thereof, (ii) the Stated Principal Balance thereof
immediately following that Distribution Date, (iii) whether the
delinquency is in respect of its Balloon Payment, (iv) whether a notice of
acceleration has been sent to the related Borrower and, if so, the date of
such notice, (v) whether a "Phase I" environmental assessment of the
related Mortgaged Property has been performed as contemplated by the
Pooling Agreement and (vi) a brief description of the status of any
foreclosure or bankruptcy proceedings or any workout or loan modification
negotiations with the related Borrower;
- with respect to any Mortgage Loan as to which a liquidation event occurred
during the related Collection Period, other than a payment in full,
(i) the loan number thereof, (ii) the nature of the liquidation event and,
in the case of a determination by the special servicer with respect to any
defaulted Mortgage Loan or REO Property that there has been a recovery of
all Insurance Proceeds, Condemnation Proceeds, Liquidation Proceeds and
other payments or recoveries that the special servicer has determined in
accordance with the Servicing Standard, will be ultimately recoverable (a
"Final Recovery Determination"), a brief description of the basis for the
Final Recovery Determination, (iii) the aggregate of all Liquidation
Proceeds and other amounts received in connection with the liquidation
event, separately identifying the portion thereof allocable to
distributions on the Certificates, and (iv) the amount of any Realized
Loss in connection with the liquidation event;
- with respect to any REO Property included in the trust assets as of the
close of business on the related Determination Date, the loan number of
the related Mortgage Loan, the book value of the REO Property and the
amount of income and other amounts, if any, received with respect to the
REO Property during the related Collection Period, separately identifying
the portion thereof allocable to distributions on the Certificates, and,
if available, the appraised value of the REO Property as expressed in the
most recent appraisal thereof and the date of such appraisal;
- with respect to any Mortgage Loan as to which the related Mortgaged
Property became an REO Property during the related Collection Period, the
loan number of the Mortgage Loan and the Stated Principal Balance of the
Mortgage Loan as of the related acquisition date of such REO Property;
- with respect to any REO Property included in the trust as to which a Final
Recovery Determination was made during the related Collection Period,
(i) the loan number of the related Mortgage Loan, (ii) a brief description
of the basis for the Final Recovery Determination, (iii) the aggregate of
all Liquidation Proceeds and other amounts received in connection with
that Final Recovery Determination, separately identifying the portion
thereof allocable to distributions on the Certificates, (iv) the amount of
any Realized Loss in respect of the REO Property in connection with the
Final
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Recovery Determination, and (v), if available, the appraised value of the
REO Property as expressed in the most recent appraisal thereof and the
date of such appraisal;
- the Accrued Certificate Interest and Distributable Certificate Interest in
respect of each Class of Regular Interest Certificates for the related
Interest Accrual Period;
- any unpaid Distributable Certificate Interest in respect of each Class of
Regular Interest Certificates after giving effect to the distributions
made on that Distribution Date;
- the Pass-Through Rate for each Class of Regular Interest Certificates for
that Distribution Date;
- the Principal Distribution Amount for that Distribution Date, in each such
case separately identifying the respective components thereof;
- the aggregate of all Realized Losses incurred during the related
Collection Period and from the Issue Date and all Additional Trust Fund
Expenses, with a description thereof, incurred during the related
Collection Period and from the Issue Date;
- the Certificate Balance of each Class of Principal Balance Certificates
and the Notional Amount of the Class X Certificates immediately before and
immediately after that Distribution Date, separately identifying any
reduction therein due to the allocation of Realized Losses and Additional
Trust Fund Expenses on that Distribution Date;
- the aggregate amount of interest on Advances in respect of the mortgage
pool paid to the master servicer, the special servicer, the trustee and
the fiscal agent during the related Collection Period;
- the loan number for each Required Appraisal Loan and any related Appraisal
Reduction Amount as of the related Determination Date;
- the original and then current credit support levels for each Class of
Regular Interest Certificates;
- the original and then current ratings for each Class of Regular Interest
Certificates;
- the aggregate amount of Prepayment Premiums and Yield Maintenance Charges
collected (i) during the related Collection Period and (ii) since the
Issue Date;
- the aggregate amount of servicing compensation in respect of the mortgage
pool paid to the master servicer, the special servicer and, if payable
directly out of the trust assets without a reduction in the servicing
compensation otherwise payable to the master servicer or the special
servicer, to each sub-servicer, during the related Collection Period; and
- such other information as the trustee is required by the Internal Revenue
Code of 1986 or other applicable law to furnish to enable
Certificateholders to prepare their tax returns.
2. A "CMSA Loan Periodic Update File" and a "CMSA Property File" setting forth
certain information with respect to the Mortgage Loans and the Mortgaged
Properties, respectively.
3. A "Mortgage Pool Data Update Report", which may be included as part of the
Distribution Date Statement, containing information regarding the Mortgage
Loans as of the end of the related Collection Period, which report is to
contain substantially the categories of information regarding the Mortgage
Loans set forth on Annexes A-1 and A-2 to this prospectus supplement, and
which information is to be presented in tabular format substantially similar
to the format utilized on such annexes and shall also include a loan-by-loan
listing showing loan number, property type, location, unpaid principal
balance, Mortgage Rate, paid-through date, maturity date, gross interest
portion of the monthly payment, principal portion of the monthly payment,
and any prepayment consideration received.
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The master servicer or the special servicer, as specified in the Pooling
Agreement, is required to deliver to the trustee monthly, and the trustee is
required to make available as described under "--Information Available
Electronically" below, a copy of each of the following reports (collectively
with the Distribution Date Statement, CMSA Loan Periodic Update File, CMSA
Property File and Mortgage Pool Data Update Report, the "Certificateholder
Reports"):
(a) A "Delinquent Loan Status Report" containing substantially the
information set forth in Annex D attached hereto and including, among
other things, those Mortgage Loans which, in each such case as of the
Determination Date at least two business days prior to the preparation of
the report, was delinquent 30-59 days, was delinquent 60-89 days, was
delinquent 90 days or more, was current but specially serviced, was in
foreclosure but not REO Property or, to the knowledge of the master
servicer or the special servicer, as the case may be, was the obligation
of a Borrower as to which bankruptcy or insolvency proceedings have
commenced or been commenced.
(b) An "Historical Loan Modification Report" containing substantially the
information set forth in Annex E attached hereto and including, among
other things, those Mortgage Loans which, as of the close of business on
the Determination Date at least two business days prior to the
preparation of the report, have been modified pursuant to the Pooling
Agreement (i) during the Collection Period ending on that Determination
Date and (ii) since the Cut-off Date, showing the original and the
revised terms thereof.
(c) An "Historical Liquidation Report" containing substantially the
information set forth in Annex F attached hereto and including, among
other things, as of the close of business on the Determination Date at
least two business days prior to the preparation of the report, (i) the
aggregate amount of Liquidation Proceeds received, and liquidation
expenses incurred, both during the Collection Period ending on that
Determination Date and historically, and (ii) the amount of Realized
Losses occurring during that Collection Period and historically, set
forth on a Mortgage Loan-by-Mortgage Loan basis.
(d) An "REO Status Report" containing substantially the information set
forth in Annex G attached hereto and including, with respect to each REO
Property that was included in the trust as of the close of business on
the Determination Date at least two business days prior to the
preparation of the report, among other things, (i) the acquisition date
of such REO Property, (ii) the amount of income collected with respect to
such REO Property (net of related expenses) and other amounts, if any,
received on such REO Property during the Collection Period ending on such
Determination Date and (iii) the value of the REO Property based on the
most recent appraisal or other valuation thereof available to the special
servicer as of such Determination Date, including any prepared internally
by the special servicer.
(e) A "Servicer Watch List" containing substantially the content set forth
in Annex H attached hereto, prepared by the master servicer and
identifying, as of the Determination Date at least two business days
prior to the preparation of the report, each Mortgage Loan that is not a
Specially Serviced Mortgage Loan (i) with a debt service coverage ratio
of less than 1.05x, (ii) that has a stated maturity date occurring in the
next sixty days, (iii) that is delinquent in respect of its real estate
taxes, (iv) for which any outstanding Advances exist, (v) that has been a
Specially Serviced Mortgage Loan in the past 90 days, (vi) for which the
debt service coverage ratio has decreased by more than 10% in the prior
12 months, (vii) for which any lease relating to more than 25% of the
related Mortgaged Property has expired, been terminated, is in default or
will expire within the next three months (without a replacement tenant on
comparable terms), (viii) that is late in making its Scheduled P&I
Payment three or more times in the preceding 12 months, (ix) with
material deferred maintenance at the related Mortgaged Property or
(x) that is 30 or more days delinquent.
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(f) A "Loan Payoff Notification Report" containing substantially the
information set forth on Annex K attached hereto and setting forth for
each Mortgage Loan as to which written notice of anticipated payoff has
been received as of the Determination Date at least two business days
prior to the preparation of the report, among other things, the control
number, the property name, the amount of principal expected to be paid,
the expected date of payment and the estimated amount of the Yield
Maintenance Charge or Prepayment Premium due.
(g) A "Comparative Financial Status Report" containing substantially the
information set forth in Annex L attached hereto and including, among
other things, the occupancy and debt service coverage ratio for each
Mortgage Loan or related Mortgaged Property, as applicable, as of the end
of the calendar month immediately preceding the preparation of the
report, and the revenue and net operating income for each of the
following three periods, to the extent such information is in the master
servicer's or the special servicer's possession: (i) the most current
available year-to-date, (ii) each of the previous two full fiscal years
stated separately; and (iii) the "base year" representing the original
analysis of information used as of the Cut-off Date.
In addition, upon the request of any Holder or, to the extent identified to
the reasonable satisfaction of the trustee, beneficial owner of an Offered
Certificate, the trustee will be required to request from the master servicer,
and, upon receipt, make available to the requesting party, during normal
business hours at the offices of the trustee, copies of the following reports
required to be prepared and maintained by the master servicer and/or special
servicer:
(x) with respect to any Mortgaged Property or REO Property, an "Operating
Statement Analysis Report" (containing substantially the information set
forth in Annex I, together with copies of the subject annual operating
statements attached thereto as an exhibit, and presenting the
computations made in accordance with the methodology described in the
Pooling Agreement to "normalize" the full year net operating income and
debt service coverage numbers used by the master servicer or special
servicer in the other reports referenced above; and
(y) with respect to any Mortgaged Property or REO Property, an "NOI
Adjustment Worksheet" containing substantially the content set forth in
Annex J, with the related annual operating statements attached thereto as
an exhibit, presenting the computations made in accordance with the
methodology described in the Pooling Agreement to "normalize" the full
year net operating income and debt service coverage numbers used by the
master servicer or special servicer in the other reports referenced
above.
The reports identified in clauses (a), (b), (c), (d) and (f) above are
referred to in this prospectus supplement as the "Unrestricted Servicer
Reports", and the reports identified in clauses (e), (g), (x) and (y) above are
referred to in this prospectus supplement as the "Restricted Servicer Reports".
INFORMATION AVAILABLE ELECTRONICALLY. The trustee will be required to make
the Certificateholder Reports available monthly, to any Holder or, to the extent
identified to the reasonable satisfaction of the trustee, beneficial owner of an
Offered Certificate via the trustee's Internet Website, except that the CMSA
Property File and the Restricted Servicer Reports will, and the Unrestricted
Servicer Reports may, be accessible only with a password to be provided by the
trustee upon receipt by the trustee from the interested party of a certification
in the form attached to the Pooling Agreement. The trustee's Internet Website
will initially be located at WWW.LNBABS.COM. The trustee will make no
representations or warranties as to the accuracy or completeness of those
documents and will assume no responsibility therefor. Furthermore, the trustee
may disclaim responsibility for any information distributed by the trustee for
which it is not the original source.
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) certain items of the monthly Distribution Date Statements
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relating to amounts distributed to the Certificateholder and such other
information as may be required to enable the Certificateholder to prepare its
federal income tax returns. That information is required to include the amount
of original issue discount accrued on each Class of Certificates and information
regarding the expenses of the trust. The foregoing requirements will be deemed
to have been satisfied to the extent that the information is provided from time
to time pursuant to the applicable requirements of the Internal Revenue Code of
1986.
The information that pertains to Specially Serviced Assets reflected in
reports will be based solely upon the reports delivered by the special servicer,
directly or through the master servicer, to the trustee prior to the related
Distribution Date. Absent manifest error, none of the master servicer, the
special servicer or the trustee will be responsible for the accuracy or
completeness of any information supplied to it by a Borrower or third party that
is included in any reports, statements, materials or information prepared or
provided by the master servicer, the special servicer or the trustee, as
applicable.
OTHER INFORMATION. The Pooling Agreement will obligate the trustee to make
available at its Corporate Trust Office (as defined below), during normal
business hours, for review by any Holder or beneficial owner of an Offered
Certificate or any person identified to the trustee as a prospective transferee
of an Offered Certificate or any interest therein, originals or copies of, among
other things, the following items:
- this prospectus supplement, the accompanying prospectus and any other
disclosure document relating to the Offered Certificates and the Private
Certificates, in the form most recently provided to the trustee by us or
by any person designated by us;
- the Pooling Agreement, each sub-servicing agreement delivered to the
trustee since the Issue Date and any amendments thereto;
- all reports made available to Certificateholders since the Issue Date as
described under "--Reports to Certificateholders; Certain Available
Information--Certificateholder Reports" above;
- all annual performance certifications delivered by the master servicer and
the special servicer, respectively, to the trustee since the Issue Date as
described under "Servicing of the Mortgage Loans--Evidence as to
Compliance" in this prospectus supplement;
- all annual accountants' reports caused to be delivered by the master
servicer and the special servicer, respectively, to the trustee since the
Issue Date as described under "Servicing of the Mortgage Loans--Evidence
as to Compliance" in this prospectus supplement;
- any and all notices and reports delivered to the trustee with respect to
any Mortgaged Property as to which the environmental testing described
under "Servicing of the Mortgage Loans--Realization Upon Defaulted
Mortgage Loan; Sale of Defaulted Mortgage Loans and REO Properties" in
this prospectus supplement revealed that both of the conditions set forth
therein were not satisfied;
- each of the Mortgage Files, including any and all modifications, waivers
and amendments of the terms of a Mortgage Loan entered into or consented
to by the special servicer and delivered to the trustee;
- the most recent appraisal for each Mortgaged Property that has been
delivered to the trustee by either the master servicer or the special
servicer; and
- any and all officer's certificates and other evidence delivered to or by
the trustee to support its, the master servicer's, the special servicer's
or the fiscal agent's, as the case may be, determination that any Advance
was or, if made, would be a Nonrecoverable Advance.
Copies of any and all of the foregoing items will be available from the
trustee upon written 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.
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In connection with providing access to the items described above, the
trustee will require:
(A) in the case of a beneficial owner of a Certificate held in book-entry
form, a written confirmation executed by the requesting person or entity,
in a form reasonably acceptable to the trustee or master servicer, as
applicable, generally to the effect that the person or entity is a
beneficial owner of Offered Certificates and will keep such information
confidential; and
(B) in the case of a prospective purchaser of Certificates or interests
therein, confirmation executed by the requesting person or entity, in a
form reasonably acceptable to the trustee or master servicer, as
applicable, generally to the effect that the person or entity is a
prospective purchaser of Certificates or an interest therein, is
requesting the information for use in evaluating a possible investment in
such Certificates and will otherwise keep such information confidential.
Certificateholders, by the acceptance of their Certificates, will be deemed
to have agreed to keep such information confidential.
BOOK-ENTRY CERTIFICATES. Even if you hold your Certificates in book-entry
from through DTC, you may obtain direct access to Certificateholder Reports and
Operating Statement Analyses as if you were a Certificateholder, provided that
you deliver a written certification to the trustee confirming your beneficial
ownership in the Offered Certificates. Otherwise, until such time as Definitive
Certificates are issued in respect of your Certificates, the foregoing
information will be available to you only to the extent that it is made
available through DTC and the DTC Participants. Conveyance of notices and other
communications by DTC to the DTC Participants, and by the DTC Participants to
beneficial owners of the Offered Certificates, will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time. We, the master servicer, the special servicer, the
trustee, the fiscal agent and the Certificate Registrar 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.
VOTING RIGHTS
At all times during the term of the Pooling Agreement:
- 99% of the voting rights for the Certificates (the "Voting Rights") will
be allocated among the Holders of the various Classes of Principal Balance
Certificates in proportion to the respective Certificate Balances of such
Classes of Certificates; and
- 1% of the Voting Rights will be allocated to the Holders of the Class X
Certificates.
Voting Rights allocated to a Class of Certificateholders will be allocated
among those Certificateholders in proportion to the percentage interests in that
Class evidenced by their respective Certificates. See "Description of the
Certificates--Voting Rights" in the accompanying prospectus.
AMENDMENT
In general, the Pooling Agreement may be amended, under the circumstances
and subject to the conditions described in the accompanying prospectus under
"The Trust Agreement--Amendment of the Trust Agreement". In addition, the
Pooling Agreement may be amended by the parties thereto if:
- the Rating Agencies have confirmed in writing that such amendment will not
result in a qualification, downgrade or withdrawal of any of the ratings
then assigned to the respective Classes of Certificates; and
- the parties to the Pooling Agreement have obtained the consent of 100% of
the Holders of each Class of non-rated Certificates that may be materially
and adversely affected by such amendment and the consent of each holder of
a Companion Loan.
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TERMINATION
The obligations created by the Pooling Agreement will terminate following
the earliest of:
- the final payment, or advance in respect thereof, or other liquidation of
the last Mortgage Loan or related REO Property remaining in the trust; and
- the purchase of all of the Mortgage Loans and REO Properties remaining in
the trust by, in the following order of priority, us, Lehman
Brothers Inc., the special servicer, any Controlling Class
Certificateholder (with priority among such Holders based on the size of
their respective percentage interests in the Controlling Class) or the
master servicer.
Written notice of termination of the Pooling Agreement will be given to each
Certificateholder, and the final distribution with respect to each Certificate
will be made only upon surrender and cancellation of such Certificate at the
office of the Certificate Registrar or other location specified in such notice
of termination.
Any such purchase by us, Lehman Brothers Inc., the special servicer, a
Controlling Class Certificateholder or the master servicer of all the Mortgage
Loans and any REO Properties remaining in the trust is required to be made at a
price equal to (1) the aggregate Purchase Price of all the Mortgage Loans, other
than REO Mortgage Loans, plus the aggregate of appraised values of any REO
Properties then included in the trust, minus (2) if the purchaser is the master
servicer or the special servicer, the aggregate of amounts payable or
reimbursable to that person under the Pooling Agreement. This purchase will
effect early retirement of the then outstanding Offered Certificates, but the
right of us, Lehman Brothers Inc., the special servicer, any Controlling Class
Certificateholder or the master servicer to effect termination of the trust is
subject to the requirement that the then aggregate Stated Principal Balance of
the mortgage pool be less than 1% of the Initial Pool Balance.
The purchase price paid in connection with the purchase of all Mortgage
Loans and any REO Properties remaining in the trust, exclusive of any portion
thereof payable or reimbursable to any person other than the Certificateholders,
will constitute part of the Available Distribution Amount for the final
Distribution Date.
THE TRUSTEE
LaSalle Bank National Association, a national banking association, will act
as trustee on behalf of the Certificateholders. See "The Trust Agreement--The
Trustee", "--Duties of the Trustee" and "--Resignation of the Trustee" in the
accompanying prospectus. As of the Issue Date, the office of the Trustee
primarily responsible for administration of the trust assets (the "Corporate
Trust Office") is located at 135 South LaSalle Street, Suite 1625, Chicago,
Illinois 60603, Attention: Asset-Backed Securities Trust Services--LB-UBS
Commercial Mortgage Trust Series 2000-C1. As compensation for its services, the
trustee will be entitled to receive monthly, from general funds on deposit in
the Collection Account, the Trustee Fee. The "Trustee Fee" for each Mortgage
Loan, including each REO Mortgage Loan, for any Distribution Date will equal one
month's interest for the most recently ended calendar month--
- calculated on a 30/360 Basis,
- accrued at the per annum rate (the "Trustee Fee Rate") set forth in the
Pooling Agreement, and
- accrued on the Stated Principal Balance of the Mortgage Loan outstanding
immediately following the prior Distribution Date or, in the case of the
initial Distribution Date, as of the Issue Date.
The trustee and any director, officer, employee or agent thereof will be
entitled to indemnification, from amounts held in the trust, for any loss,
liability or reasonable "out-of-pocket" expense arising in respect of the
Pooling Agreement or the Certificates. However, that indemnification will not
extend to any expense specifically required to be borne by the trustee pursuant
to the terms of the Pooling Agreement, or
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to any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or negligence on the part of the trustee in the performance of its
obligations and duties thereunder.
The trustee will also have certain duties with respect to REMIC
administration. See "Federal Income Tax Consequences--REMICs--Reporting and
Other Administrative Matters" in this prospectus supplement.
THE FISCAL AGENT
ABN AMRO Bank N.V., a Netherlands Banking corporation, will act as fiscal
agent pursuant to the Pooling Agreement. The fiscal agent's office is located at
135 South LaSalle Street, Suite 1625, Chicago, Illinois 60603. The duties and
obligations of the fiscal agent consist only of making P&I Advances as described
under "--P&I Advances" above and Servicing Advances as described under
"Servicing of the Mortgage Loans--Servicing and Other Compensation and Payment
of Expenses" in this prospectus supplement. The fiscal agent will not be liable
except for the performance of such duties and obligations. The fiscal agent will
be entitled to reimbursement for each Advance made by it, with interest, in the
same manner and to the same extent as the trustee and the master servicer. The
fiscal agent will be entitled to various rights, protections and indemnities
similar to those afforded to the trustee. The trustee will be responsible for
payment of the compensation of the fiscal agent.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
GENERAL. The yield on any Offered Certificate will depend on (a) the price
at which that Certificate is purchased by an investor and (b) the rate, timing
and amount of distributions on that Certificate. The rate, timing and amount of
distributions on any Offered Certificate will in turn depend on:
- the Pass-Through Rate for that Certificate;
- the rate and timing of principal payments, including principal
prepayments, and other principal collections on or in respect of the
Mortgage Loans and the extent to which those amounts are to be applied or
otherwise result in reduction of the Certificate Balance or Notional
Amount of the Class of Certificates to which that Certificate belongs;
- the rate, timing and severity of Realized Losses, Additional Trust Fund
Expenses and Net Aggregate Prepayment Interest Shortfalls and the extent
to which those losses, expenses and reductions result in the nonpayment or
deferred payment of interest on, or reduction of the Certificate Balance
or Notional Amount of, the Class of Certificates to which that Certificate
belongs; and
- the extent to which Prepayment Premiums, Yield Maintenance Charges and
Additional Interest are collected on the Mortgage Loans and, in turn,
distributed on the Class of Certificates to which that Certificate
belongs.
PASS-THROUGH RATES. The Pass-Through Rates for the respective Classes of
Offered Certificates will be calculated based in part on, or will be limited by,
the Weighted Average Mortgage Pass-Through Rate from time to time. Accordingly,
the yield on the Offered Certificates will be sensitive to changes in the
relative composition of the mortgage pool as a result of scheduled amortization,
voluntary prepayments and liquidations of Mortgage Loans following default. In
addition, the Pass-Through Rate for the Class X Certificates will vary with
changes in the relative sizes of the Certificate Balances of the respective
Classes of Principal Balance Certificates. The Weighted Average Mortgage
Pass-Through Rate and the Pass-Through Rate for the Class X Certificates will
not be affected by modifications, waivers and amendments in respect of the
Mortgage Loans.
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See "Description of the Offered Certificates--Distributions--Calculation of
Pass-Through Rates" and "Description of the Mortgage Pool" in this prospectus
supplement and "--Rate and Timing of Principal Payments" below.
RATE AND TIMING OF PRINCIPAL PAYMENTS. The yield to maturity on the
Class X Certificates will be extremely sensitive to, and the yield to maturity
on any other Class of Offered Certificates purchased at a discount or premium
will be affected by, the rate and timing of reductions of the Certificate
Balance or Notional Amount, as the case may be, of that Class of Certificates.
As described in this prospectus supplement, the Principal Distribution Amount
for each Distribution Date will be distributable entirely in respect of the
Class A-1 and/or Class A-2 Certificates until the related Certificate Balances
of those Certificates are reduced to zero. Following retirement of the
Class A-1 and Class A-2 Certificates, the Principal Distribution Amount for each
Distribution Date will be distributable entirely in respect of the other Classes
of Principal Balance Certificates, sequentially based on their relative
seniority, in each such case until the related Certificate Balance is reduced to
zero. The Notional Amount of the Class X Certificates will equal the aggregate
of the Certificate Balances of all the Classes of Principal Balance Certificates
outstanding from time to time. Consequently, the rate and timing of reductions
of the Certificate Balance or Notional Amount, as the case may be, of each Class
of Offered Certificates will depend on the rate and timing of principal payments
on or in respect of the Mortgage Loans, which will in turn be affected by--
- the amortization schedules thereof,
- the respective dates on which any Balloon Payments are due,
- the respective Anticipated Repayment Dates for the ARD Loans, and
- the rate and timing of principal prepayments and other unscheduled
collections thereon, including for this purpose, collections made in
connection with liquidations of Mortgage Loans due to defaults, casualties
or condemnations affecting the Mortgaged Properties, or purchases of
Mortgage Loans out of the trust assets.
Prepayments and, assuming the respective stated maturity dates therefor have
not occurred, liquidations of the Mortgage Loans will result in distributions on
the Principal Balance Certificates of amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans and will tend to
shorten the weighted average lives of those Certificates. Defaults on the
Mortgage Loans, particularly in the case of Balloon Loans at or near their
stated maturity dates, may result in significant delays in payments of principal
on the Mortgage Loans and, accordingly, on the Principal Balance Certificates,
while workouts are negotiated or foreclosures are completed, and those delays
will tend to lengthen the weighted average lives of those Certificates. Failure
of the Borrower under any ARD Loan to repay its Mortgage Loan by or shortly
after the related Anticipated Repayment Date, for whatever reason, will also
tend to lengthen the weighted average lives of the Principal Balance
Certificates. Each ARD Loan includes incentives for the related Borrower to
repay the Mortgage Loan by its Anticipated Repayment Date, such as an increase
in the rate at which interest accrues and the application of all excess cash
(net of the minimum required debt service, approved property expenses and any
required reserves) from the related Mortgaged Property to pay down the Mortgage
Loan, in each case following the passage of that date. Despite those incentives,
there can be no assurance that the related Borrower will want or be able to
repay the Mortgage Loan in full. See "Servicing of the Mortgage
Loans--Modifications, Waivers, Amendments and Consents" and "--Realization Upon
Defaulted Mortgage Loans; Sale of Defaulted Mortgage Loans and REO Properties"
in this prospectus supplement and "Certain Legal Aspects of Mortgage Loans--
Foreclosure" in the accompanying prospectus.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which those Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on or in respect of the Mortgage Loans are
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distributed or otherwise result in a reduction of the Certificate Balance or
Notional Amount of those Certificates. If you purchase your Offered Certificates
at a discount, you should consider the risk that a slower than anticipated rate
of principal payments on the Mortgage Loans could result in an actual yield to
you that is lower than your anticipated yield. If you purchase a Class X
Certificate or if you purchase any other Offered Certificate at a premium, you
should consider the risk that a faster than anticipated rate of principal
payments on the Mortgage Loans could result in an actual yield to you that is
lower than your anticipated yield.
In general, assuming you purchased your Certificates at a discount or
premium, the earlier a payment of principal on or in respect of the Mortgage
Loans is distributed or otherwise results in reduction of the principal balance
or notional amount of your Certificates, the greater will be the effect on your
yield to maturity. As a result, the effect on your yield of principal payments
occurring at a rate higher (or lower) than you anticipated during any particular
period may not be fully offset by a subsequent like reduction (or increase) in
the rate of principal payments.
If you are considering the purchase of Class X Certificates, you should
fully consider the risk that an extremely rapid rate of principal payments on
the Mortgage Loans could result in your failure to recoup fully your initial
investment.
Because the rate of principal payments on or in respect of the Mortgage
Loans will depend on future events and a variety of factors, as described more
fully below, no assurance can be given as to that rate or the rate of principal
prepayments in particular. We are not aware of any relevant publicly available
or authoritative statistics with respect to the historical prepayment experience
of a large group of mortgage loans comparable to the Mortgage Loans.
Even if they are available and distributable on your Certificates,
Prepayment Premiums and Yield Maintenance Charges may not be sufficient to
offset fully any loss in yield on your Certificates attributable to the related
prepayments of the Mortgage Loans.
DELINQUENCIES AND DEFAULTS ON THE MORTGAGE LOANS. The rate and timing of
delinquencies and defaults on the Mortgage Loans will affect the amount of
distributions on your Certificates, the yield to maturity of your Certificates,
the rate of principal payments on your Certificates and the weighted average
life of your Certificates. Delinquencies on the Mortgage Loans, unless covered
by P&I Advances, may result in shortfalls in distributions of interest and/or
principal on your Certificates for the current month.
If you calculate the anticipated yield to maturity for your Certificates
based on an assumed rate of default and amount of losses on the Mortgage Loans
that is lower than the default rate and amount of losses actually experienced,
and if those additional losses result in a reduction of the distributions on or
the aggregate principal balance or notional amount of your Certificates, then
your actual yield to maturity will be lower than you calculated and could, under
certain scenarios, be negative. The timing of any loss on a liquidated Mortgage
Loan that results in a reduction of the distributions on or the aggregate
principal balance or notional amount of your Certificates will also affect the
actual yield to maturity of your Certificates, even if the rate of defaults and
severity of losses are consistent with your expectations. In general, the
earlier your loss occurs, the greater the effect on your yield to maturity.
Even if losses on the Mortgage Loans do not result in a reduction of the
distributions on or the aggregate principal balance or notional amount of your
Certificates, those losses may still affect the timing of distributions on, and
the weighted average life and yield to maturity of, your Certificates.
CERTAIN RELEVANT FACTORS. The rate and timing of principal payments and
defaults and the severity of losses on or in respect of the Mortgage Loans may
be affected by a number of factors, including:
- prevailing interest rates;
- the terms of the Mortgage Loans, such as provisions requiring prepayment
consideration and/or Lockout Periods and amortization terms that require
Balloon Payments;
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- the demographics and relative economic vitality of the areas in which the
Mortgaged Properties are located;
- the general supply and demand for retail shopping space, rental
apartments, office space, hotel and motel rooms, industrial space,
self-storage space or manufactured housing community pads, as the case may
be, in such areas;
- the quality of management of the Mortgaged Properties;
- the servicing of the Mortgage Loans;
- possible changes in tax laws;
- other opportunities for investment; and
- the purchase of Mortgage Loans from the trust.
See "Risk Factors--Risks Related to the Mortgage Loans", "Description of the
Mortgage Pool" and "Servicing of the Mortgage Loans" in this prospectus
supplement and "Yield and Prepayment Considerations" in the accompanying
prospectus.
The rate of prepayment on the Mortgage Loans is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below the annual
rate at which a Mortgage Loan accrues interest, a Borrower may have an increased
incentive to refinance the Mortgage Loan. Conversely, to the extent prevailing
market interest rates exceed the annual rate at which any Mortgage Loan accrues
interest, the Mortgage Loan may be less likely to voluntarily prepay. Assuming
prevailing market interest rates exceed the related Revised Rate, the primary
incentive to prepay an ARD Loan on or before its Anticipated Repayment Date is
to give the Borrower access to excess cash flow, all of which, net of the
minimum required debt service, approved property expenses and any required
reserves, must be applied to pay down principal of the Mortgage Loan.
Accordingly, there can be no assurance that any ARD Loan will be prepaid on or
before its Anticipated Repayment Date or on any other date prior to maturity.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some Borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some Borrowers may be motivated
by federal and state tax laws, which are subject to change, to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
If voluntary prepayments on a Mortgage Loan are permitted, any Prepayment
Premium or Yield Maintenance Charge in respect of the Mortgage Loan may not be
sufficient economic disincentive to prevent the related Borrower from
voluntarily prepaying the loan as part of a refinancing thereof or a sale of the
related Mortgaged Property. See "Description of the Mortgage Pool--Certain Terms
and Conditions of the Mortgage Loans" in this prospectus supplement.
We make no representation or warranty as to the particular factors that will
affect the rate and timing of prepayments and defaults on the Mortgage Loans, as
to the relative importance of those factors, as to the percentage of the
principal balance of the Mortgage Loans that will be prepaid or as to which a
default will have occurred as of any date or as to the overall rate of
prepayment or default on the Mortgage Loans.
UNPAID DISTRIBUTABLE CERTIFICATE INTEREST. If the portion of the Available
Distribution Amount distributable in respect of interest on your Certificates on
any Distribution Date is less than the Distributable Certificate Interest then
payable to you, the shortfall will be distributable to you on subsequent
Distribution Dates, to the extent of available funds. That shortfall will not
bear interest, however, and will therefore negatively affect the yield to
maturity on your Certificates for so long as it is outstanding. See "Description
of the Offered Certificates--Distributions--Priority of Payments" in this
prospectus supplement.
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DELAY IN PAYMENT OF DISTRIBUTIONS. Because monthly distributions will not
be made on the Certificates until several days after the Due Dates for the
Mortgage Loans during the related Collection Period, your effective yield will
be lower than the yield that would otherwise be produced by your Pass-Through
Rate and purchase price, assuming such price did not account for such delay.
PRICE/YIELD TABLES
The tables on Annex C-1 hereto (the "Yield Tables") show the pre-tax
corporate bond equivalent ("CBE") yield to maturity, modified duration (except
in the case of the Class X Certificates), weighted average life, first
Distribution Date on which principal is to be paid ("First Principal Payment
Date") and final Distribution Date on which principal is to be paid ("Last
Principal Payment Date") with respect to each Class of Offered Certificates,
prepared using the Modeling Assumptions (as described below). Where applicable,
they also show the specified assumed purchase prices, which prices do not
include accrued interest. Assumed purchase prices are expressed in 32nds (E.G.,
99.20 means 99 20/32%) and 64ths (E.G., 99.20+ means 99 20/32%+ 1/64%, or
99 41/64%) as a percentage of the initial Certificate Balance or Notional Amount
of each Class of Offered Certificates. For purposes of the Yield Tables relating
to the Class X Certificates, the information therein relating to weighted
average life, First Principal Payment Date and Last Principal Payment Date is
being calculated in respect of the Notional Amount of Class X Certificates as if
it were a Certificate Balance.
The yields set forth in the Yield Tables were calculated by--
- determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on each Class of Offered Certificates,
would cause the discounted present value of such assumed stream of cash
flows to equal the assumed purchase prices, plus accrued interest from and
including March 11, 2000 to but excluding the Assumed Settlement Date (as
defined below), and
- converting such monthly rates to semi-annual corporate bond equivalent
rates.
That calculation does not take into account variations that may occur in the
interest rates at which investors may be able to reinvest funds received by them
as distributions on the Offered Certificates and, consequently, does not purport
to reflect the return on any investment in the Offered Certificates when such
reinvestment rates are considered.
For purposes of the Yield Tables, "modified duration" has been calculated
using the modified Macaulay Duration as specified in the "PSA Standard
Formulas". The Macaulay Duration is calculated as the present value weighted
average time to receive future payments of principal and interest, and the PSA
Standard Formula modified duration is calculated by dividing the Macaulay
Duration by the appropriate semi-annual compounding factor. The duration of a
security may be calculated according to various methodologies. Accordingly, no
representation is made by us or any other person that the "modified duration"
approach used in this prospectus supplement is appropriate. Duration, like
yield, will be affected by the prepayment rate of the Mortgage Loans and
extensions in respect of Balloon Payments that actually occur during the life of
the Class A-1, Class A-2, Class B, Class C, Class D, Class E, Class F and
Class G Certificates and by the actual performance of the Mortgage Loans, all of
which may differ, and may differ significantly, from the assumptions used in
preparing the Yield Tables.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this prospectus supplement is the "Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant annual rate
of prepayment each month, expressed as a per annum percentage of the then
scheduled principal balance of one or more mortgage loans.
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The Yield Tables were derived from calculations based on the following
assumptions (collectively, the "Modeling Assumptions"):
- the Mortgage Loans have the characteristics set forth on Annex A-1 and
certain simplifying assumptions were made on the Mortgage Loans and the
Initial Pool Balance is approximately $1,370,873,184;
- the initial Certificate Balance or Notional Amount, as the case may be, of
each Class of Regular Interest Certificates is as described in this
prospectus supplement;
- the initial Pass-Through Rates on the Regular Interest Certificates are as
follows: Class A-1: 7.560%; Class A-2: 7.740%; Class B: 7.840%; Class C,
Class D, Class E and Class F: 8.000%; Class G, Class H, Class J, Class K,
Class L, Class M, Class N and Class P: 7.400%; and Class X: 0.817%, per
annum, respectively.
- there are no delinquencies or losses in respect of the Mortgage Loans,
there are no modifications, extensions, waivers or amendments affecting
the payment by Borrowers of principal or interest on the Mortgage Loans,
there are no Appraisal Reduction Amounts with respect to the Mortgage
Loans and there are no casualties or condemnations affecting the Mortgaged
Properties;
- all Mortgage Loans have Due Dates on the first day through the eleventh
day of each month and accrue interest on the respective basis described in
this prospectus supplement (I.E., a 30/360 Basis or an Actual/360 Basis);
- all prepayments are assumed to be accompanied by a full month's interest;
- there are no breaches of the representations and warranties regarding the
Mortgage Loans;
- Scheduled P&I Payments on the Mortgage Loans are timely received
commencing in April 2000;
- no voluntary or involuntary prepayments are received as to any Mortgage
Loan during that Mortgage Loan's lockout or combined lockout and
defeasance period, if any, ("LOP"), yield maintenance period ("YMP") or
declining premium period ("Declining Premium"), in each case if any; each
ARD Loan is paid in full on its Anticipated Repayment Date; and,
otherwise, prepayments are made on each of the Mortgage Loans at the
indicated CPRs set forth in the tables (without regard to any limitations
in such Mortgage Loans on partial voluntary principal prepayments);
- no person or entity entitled thereto exercises its right of optional
termination described in this prospectus supplement under "Description of
the Offered Certificates--Termination";
- no Mortgage Loan is required to be repurchased by us or the UBS Mortgage
Loan Seller;
- no Prepayment Interest Shortfalls are incurred and no Prepayment Premiums
or Yield Maintenance Charges are collected;
- there are no Additional Trust Fund Expenses;
- distributions on the Offered Certificates are made on the 15th day of each
month, commencing in April, 2000; and
- the Offered Certificates are settled on April 6, 2000 (the "Assumed
Settlement Date").
The characteristics of the Mortgage Loans will differ in certain respects
from those assumed in preparing the Yield Tables, and the Yield Tables are
presented for illustrative purposes only. Thus, neither the mortgage pool nor
any Mortgage Loan will prepay at any constant rate, and it is unlikely that the
Mortgage Loans will prepay in a manner consistent with any designated scenario
for the Yield Tables. In addition, there can be no assurance that--
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- the Mortgage Loans will prepay at any particular rate,
- the Mortgage Loans will not prepay, involuntarily or otherwise, during
lockout periods, yield maintenance periods and/or declining premium
periods,
- the ARD Loans will be paid in full on their respective Anticipated
Repayment Dates,
- the actual pre-tax yields on, or any other payment characteristics of, any
Class of Offered Certificates will correspond to any of the information
shown in the Yield Tables, or
- the aggregate purchase prices of the Offered Certificates will be as
assumed.
Investors must make their own decisions as to the appropriate assumptions,
including prepayment assumptions, to be used in deciding whether to purchase the
Offered Certificates.
For purposes of the Modeling Assumptions, a "yield maintenance period" is
any period during which a Mortgage Loan provides that voluntary prepayments be
accompanied by a Yield Maintenance Charge, or a "declining premium period" is
any period during which a Mortgage Loan provides that voluntary prepayments be
accompanied by a Prepayment Premium calculated as a declining percentage of the
principal amount prepaid.
WEIGHTED AVERAGE LIVES
The weighted average life of any Offered Certificate, other than a Class X
Certificate, refers to the average amount of time that will elapse from the date
of its issuance until each dollar to be applied in reduction of the principal
balance of that Certificate is distributed to the investor. For purposes of this
prospectus supplement, the weighted average life of any Offered Certificate,
other than a Class X Certificate, is determined as follows--
- multiply the amount of each principal distribution on the Certificate by
the number of years from the Assumed Settlement Date to the related
Distribution Date;
- sum the results; and
- divide the sum by the aggregate amount of the reductions in the principal
balance of the Certificate.
Accordingly, the weighted average life of any Offered Certificate, other
than a Class X Certificate, will be influenced by, among other things, the rate
at which principal of the Mortgage Loans is paid or otherwise collected or
advanced and the extent to which those payments, collections and/or advances of
principal are in turn applied in reduction of the Certificate Balance of the
Class of Certificates to which the Certificate belongs.
As described in this prospectus supplement, the Principal Distribution
Amount for each Distribution Date will be distributable first in respect of the
Class A-1 and/or Class A-2 Certificates until the Certificate Balances of those
Classes are reduced to zero, and will thereafter be distributable entirely in
respect of the other Classes of Principal Balance Certificates, sequentially
based upon their relative seniority, in each such case until the related
Certificate Balance is reduced to zero. As a consequence of the foregoing, the
weighted average lives of the Class A-1 and Class A-2 Certificates may be
shorter, and the weighted average lives of the other Classes of Principal
Balance Certificates may be longer, than would otherwise be the case if the
Principal Distribution Amount for each Distribution Date was being distributed
on a pro rata basis among the respective Classes of Principal Balance
Certificates.
The tables (the "Decrement Tables") set forth in Annex C-2 show with respect
to each Class of Offered Certificates (other than the Class X Certificates) the
weighted average life thereof, and the percentage of the initial related
Certificate Balance that would be outstanding after each of the specified dates,
based upon each of the indicated levels of CPR and the Modeling Assumptions.
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As used in each of the Decrement Tables, the column headed "0%" assumes that
none of the Mortgage Loans is prepaid before maturity, except that each ARD Loan
is paid in full on its Anticipated Repayment Date. The columns headed "25%",
"50%", "75%" and "100%" assume that no prepayments are made on any Mortgage Loan
during that Mortgage Loan's Lockout Period, defeasance period, yield maintenance
period or declining premium period, in each case if any, and are otherwise made
on each of the Mortgage Loans at the indicated CPRs, except that each ARD Loan
is paid in full on its Anticipated Repayment Date. There is no assurance,
however, that prepayments of the Mortgage Loans, whether or not in a Lockout
Period, a yield maintenance period or a declining premium period, will conform
to any particular CPR. We make no representation that--
- the Mortgage Loans will prepay in accordance with the assumptions set
forth in this prospectus supplement at any of the CPRs shown or at any
other particular prepayment rate,
- all the Mortgage Loans will prepay in accordance with the assumptions set
forth in this prospectus supplement at the same rate, or
- Mortgage Loans that are in a lockout period, a combined lockout and
defeasance period, a yield maintenance period or declining premium period
will not prepay as a result of involuntary liquidations upon default or
otherwise.
To the extent that the Mortgage Loans have characteristics that differ from
those assumed in preparing the Decrement Tables, the Class A-1, Class A-2,
Class B, Class C, Class D, Class E, Class F and/or Class G Certificates may
mature earlier or later than indicated by those tables. It is highly unlikely
that the Mortgage Loans will prepay in accordance with the Modeling Assumptions
at any of the specified CPRs until maturity or that the Mortgage Loans will all
prepay at the same rate. In addition, variations in the actual prepayment
experience and the balance of the Mortgage Loans that prepay may increase or
decrease the percentages of initial Certificate Balances and weighted average
lives shown in the Decrement Tables. Those variations may occur even if the
average prepayment experience of the Mortgage Loans were to conform to the
assumptions and be equal to any of the specified CPRs. You are urged to conduct
your own analyses of the rates at which the Mortgage Loans may be expected to
prepay.
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Offered Certificates
will be used by us to purchase the Mortgage Loans and to pay certain expenses in
connection with the issuance of the Certificates.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The Pooling Agreement will require the trustee, as REMIC administrator, to
make elections to treat designated portions of the trust assets as three
separate REMICs, with the designations "REMIC I", "REMIC II" and "REMIC III",
respectively. Upon the issuance of the Certificates, Sidley & Austin, our
counsel, will deliver its opinion generally to the effect that, assuming
compliance with the Pooling Agreement, REMIC I, REMIC II, and REMIC III,
respectively, will each qualify as a REMIC under the Internal Revenue Code of
1986 (the "Code"). For federal income tax purposes, (i) the separate
non-certificated regular interests in REMIC I will be "regular interests" in
REMIC I and will constitute the assets of REMIC II, (ii) the Class R-I
Certificates will evidence the sole Class of "residual interests" in REMIC I,
(iii) the separate non-certificated regular interests in REMIC II will be
"regular interests" in REMIC II and will constitute the assets of REMIC III,
(iv) the Class R-II Certificates will evidence the sole Class of "residual
interests" in REMIC II, (v) the Regular Interest Certificates will evidence the
"regular interests" in, and generally will be treated as debt obligations of,
REMIC III, and (vi) the Class R-III Certificates will evidence the sole Class of
residual interests in REMIC III.
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For federal income tax purposes the Class X Certificates will evidence
multiple "regular interests" in REMIC III. See "Federal Income Tax
Considerations" in the accompanying prospectus. The Class P Certificates will
represent undivided beneficial interests in the portion of the trust assets
consisting of any Additional Interest collected on the ARD Loans, and that
portion will be treated as part of a grantor trust for federal income tax
purposes.
DISCOUNT AND PREMIUM; PREPAYMENT PREMIUMS
For federal income tax reporting purposes, it is anticipated that the
Class , Class and Class X Certificates will, the Class Certificates may, and
the other Classes of Offered Certificates will not, be treated as having been
issued with more than a DE MINIMIS amount of original issue discount. The
prepayment assumption that will be used in determining the rate of accrual of
market discount and premium, if any, for federal income tax purposes will be
based on the assumption that subsequent to the date of any determination the
Mortgage Loans will not prepay (that is, a CPR of 0%), except that the ARD Loans
will be repaid in full on their respective Anticipated Repayment Dates. There
can be no assurance, however, that the Mortgage Loans will not prepay or that,
if they do, they will prepay at any particular rate. See "Federal Income Tax
Considerations" in the accompanying prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. You should be
aware, however, that the OID Regulations and Section 1272(a) (6) of the Code do
not adequately address certain issues relevant to, or are not applicable to,
prepayable securities such as the Offered Certificates. It is recommended that
you consult your own tax advisor concerning the tax treatment of your
Certificates.
If the method for computing original issue discount described in the
accompanying prospectus results in a negative amount for any period, a
possibility of particular relevance to the Class X Certificates, the amount of
original issue discount allocable to such period would be zero and the subject
Certificateholders will be permitted to offset that negative amount only against
future original issue discount (if any) attributable to the Certificate.
Although the matter is not free from doubt, a Holder of a Class X Certificate
may be permitted to deduct a loss to the extent that his or her respective
remaining basis in that Certificate exceeds the maximum amount of future
payments to which the Certificateholder is entitled, assuming no further
prepayments of the Mortgage Loans. That loss might be treated as a capital loss.
The OID regulations provide in general that original issue discount with
respect to debt instruments issued in connection with the same or related
transactions are treated as a single debt instrument for purposes of computing
the accrual of original issue discount with respect to those debt instruments.
This aggregation rule ordinarily is only to be applied when debt instruments are
issued by a single issuer to a single holder. Although it is not clear that this
aggregation rule technically applies to REMIC regular interests or other
instruments subject to Section 1272(a) (6) of the Code, information reports or
returns sent to Certificateholders and the IRS with respect to the Class X
Certificates, which evidence the ownership of multiple regular interests, will
be based on that aggregate method of computing the yield on the related regular
interests. If you are contemplating the purchase of Class X Certificates, it is
recommended that you consult your own tax advisor about the use of this
methodology and the potential consequences of being required to report original
issue discount separately with respect to each of the regular interests
evidenced by the Class X Certificates.
Certain Classes of the Offered Certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any Holder of
such a Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on the Certificateholder's purchase price
and the distributions remaining to be made on a Certificate at the time of its
acquisition by the Certificateholder. If you acquire an interest in any such
Class of Certificates, it is recommended that you consult your own tax advisor
regarding the possibility of making an election to amortize such premium. See
"Federal Income
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Tax Considerations--Taxation of Regular Interest Securities--Market Discount and
Premium" in the accompanying prospectus.
Prepayment Premiums and Yield Maintenance Charges actually collected on the
Mortgage Loans will be distributed to the Holders of each Class of Certificates
entitled thereto as described in this prospectus supplement. It is not entirely
clear under the Code when the amount of a Prepayment Premium or Yield
Maintenance Charge should be taxed to the Holder of a Class of Certificates
entitled thereto. For federal income tax reporting purposes, a Prepayment
Premium or Yield Maintenance Charge will be treated as income to the Holders of
a Class of Certificates entitled thereto only after the master servicer's actual
receipt of the Prepayment Premium or Yield Maintenance Charge. The IRS may
nevertheless seek to require that an assumed amount of Prepayment Premiums and
Yield Maintenance Charges be included in distributions projected to be made on
the Certificates and that taxable income be reported based on the projected
constant yield to maturity of the Certificates, including the projected
Prepayment Premiums and Yield Maintenance Charges prior to their actual receipt.
In the event that the projected Prepayment Premiums and Yield Maintenance
Charges were not actually received, presumably the Holder of a Certificate would
be allowed to claim a deduction or reduction in gross income at the time those
unpaid Prepayment Premiums and Yield Maintenance Charges had been projected to
be received. Moreover, it appears that Prepayment Premiums and Yield Maintenance
Charges are to be treated as ordinary income rather than capital gain. The
correct characterization of this income is not entirely clear, however, and it
is recommended that you consult your own tax advisor concerning the treatment of
Prepayment Premiums and Yield Maintenance Charges.
CONSTRUCTIVE SALES OF CLASS X CERTIFICATES
The Taxpayer Relief Act of 1997 added a provision to the Code that requires
the recognition of gain upon the "constructive sale of an appreciated financial
position". A constructive sale of a financial position occurs if a taxpayer
enters into certain transactions or series of transactions that have the effect
of substantially eliminating the taxpayer's risk of loss and opportunity for
gain with respect to the financial instrument. Debt instruments that
(i) entitle the Holder to a specified principal amount, (ii) pay interest at a
fixed or variable rate and (iii) are not convertible into the stock of the
issuer or a related party, cannot be the subject of a constructive sale for this
purpose. Accordingly, only a Class X Certificate, which does not have a
principal balance, could be subject to this provision if a Holder of the
Class X Certificate were to engage in a constructive sale transaction.
CHARACTERIZATION OF INVESTMENTS IN OFFERED CERTIFICATES
Generally, except to the extent noted below, the Offered Certificates will
be "real estate assets" within the meaning of Section 856(c)(5)(B) of the Code
in the same proportion that the assets of the trust would be so treated. In
addition, interest (including original issue discount, if any) on the Offered
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that those Certificates are treated as "real estate assets" within
the meaning of Section 856(c)(5)(B) of the Code.
Most of the Mortgage Loans are not secured by real estate used for
residential or certain other purposes prescribed in Section 7701(a)(19)(c) of
the Code, and consequently the Regular Interest Certificates will be treated as
assets qualifying under that section to only a limited extent. Accordingly,
investment in the Regular Interest Certificates may not be suitable for thrift
institutions seeking to be treated as a "domestic building and loan association"
under Section 7701(a)(19)(C) of the Code.
The Offered Certificates will be treated as "qualified mortgages" for
another REMIC under Section 860G(a)(3)(C) of the Code and "permitted assets" for
a "financial asset securitization investment trust" under Section 860L(c) of the
Code. To the extent an Offered Certificate represents ownership of an interest
in any Mortgage Loan that is secured in part by the related Borrower's interest
in an account containing any holdback of loan proceeds, a portion of the
Certificate may not represent ownership of
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assets described in Section 7701(a)(19)(C) of the Code and "real estate assets"
under Section 856(c)(5)(B) of the Code and the interest thereon may not
constitute "interest on obligations secured by mortgages on real property"
within the meaning of Section 856(c)(3)(B) of the Code. See "Description of the
Mortgage Pool" in this prospectus supplement.
POSSIBLE TAXES ON INCOME FROM FORECLOSURE PROPERTY AND OTHER TAXES
In general, the special servicer will be obligated to operate and manage any
Mortgaged Property acquired as REO Property in a manner that would, to the
extent commercially reasonable, maximize the trust's net after-tax proceeds from
such property. After the special servicer reviews the operation of such property
and consults with the trustee or other REMIC administrator to determine the
trust's federal income tax reporting position with respect to income it is
anticipated that the trust would derive from the property, the special servicer
could determine that it would not be commercially reasonable to manage and
operate the property in a manner that would avoid the imposition of a tax on
"net income from foreclosure property" within the meaning of
Section 857(b)(4)(B) of the Code or a tax on "prohibited transactions" under
Section 860F of the Code. "Net income from foreclosure property" is, in general,
income not derived from renting or selling real property. To the extent that
income the trust receives from an REO Property is subject to (i) a tax on "net
income from foreclosure property", that income would be subject to federal tax
at the highest marginal corporate tax rate, which is currently 35%, and (ii) a
tax on "prohibited transactions", that income would be subject to federal tax at
a 100% rate. The determination as to whether income from an REO Property would
be subject to an REO Tax will depend on the specific facts and circumstances
relating to the management and operation of the REO Property.
Generally, income from an REO Property that is directly operated by the
special servicer would be apportioned and classified as "service" or
"non-service" income. The "service" portion of the income could be subject to
federal tax either at the highest marginal corporate tax rate or at the 100%
rate on "prohibited transactions". The "non-service" portion of the income could
be subject to federal tax at the highest marginal corporate tax rate or,
although it appears unlikely, at the 100% rate applicable to "prohibited
transactions". These considerations will be of particular relevance with respect
to any hotels that become REO Property. However, unless otherwise required by
expressly applicable authority, it is anticipated that the trust will take the
position that no income from foreclosure property will be subject to the 100%
"prohibited transactions" tax. Any REO Tax imposed on the trust's income from an
REO Property would reduce the amount available for distribution to
Certificateholders.
To the extent permitted by then applicable laws, any tax on "prohibited
transactions", tax on non-permitted contributions or tax on "net income from
foreclosure property" that may be imposed on any of REMIC I, REMIC II or REMIC
III will be borne by the trustee or other REMIC administrator, the master
servicer or the special servicer, in any case out of its own funds, if--
- that person has sufficient assets to do so, and
- the tax arises out of a breach of that person's obligations under certain
specified sections of the Pooling Agreement.
Any such tax not borne by the trustee or other REMIC administrator, the
master servicer or the special servicer will be charged against the trust
resulting in a reduction in amounts available for distribution to the
Certificateholders.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Reporting of interest income, including original issue discount, if any,
with respect to Regular Interest Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual Holders of Regular Interest
Certificates and the IRS. Holders of Regular Interest Certificates that are
corporations, trusts, securities dealers and
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certain other non-individuals will be provided interest and original issue
discount income information and the information set forth in the following
paragraph upon request in accordance with the requirements of the applicable
regulations. The information must be provided by the later of 30 days after the
end of the quarter for which the information was requested, or two weeks after
the receipt of the request. The related REMIC must also comply with rules
requiring a Regular Interest Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring that information to be reported to the IRS. Reporting with respect
to the Residual Interest Certificates, including income, excess inclusions,
investment expenses and relevant information regarding qualification of the
related REMIC's assets will be made as required under the Treasury regulations,
generally on a quarterly basis.
As applicable, the Regular Interest Certificate information reports will
include a statement of the adjusted issue price of the Regular Interest
Certificate at the beginning of each accrual period. In addition, the reports
will include information required by regulations with respect to computing the
accrual of any market discount. Because exact computation of the accrual of
market discount on a constant yield method would require information relating to
a particular Holder's purchase price that the trustee or other REMIC
administrator may not have, those regulations only require that information
pertaining to the appropriate proportionate method of accruing market discount
be provided.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Federal Income Tax Considerations"
in the accompanying prospectus.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, including insurance company general
accounts, that is subject to Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 4975 of the Code (each, a "Plan")
should carefully review with its legal advisors whether the purchase or holding
of Offered Certificates could constitute or give rise to a transaction that is
prohibited or is not otherwise permitted either under ERISA or Section 4975 of
the Code or whether there exists any statutory or administrative exemption
applicable thereto. Certain fiduciary and prohibited transaction issues arise
only if the assets of the trust constitute "plan assets" for purposes of Part 4
of Title I of ERISA and Section 4975 of the Code ("Plan Assets"). Whether the
assets of the trust will constitute Plan Assets at any time will depend on a
number of factors, including the portion of any Class of Certificates that is
held by "benefit plan investors" (as defined in U.S. Department of Labor
Regulation Section 2510.3-101).
The U.S. Department of Labor has issued an individual prohibited transaction
exemption (each a "PTE" and, collectively, the "Exemptions") to each of Lehman
Brothers Inc. (PTE 91-14), Morgan Stanley & Co. Incorporated (PTE 90-24), and
Warburg Dillon Read LLC (PTE 91-22). Subject to the satisfaction of certain
conditions set forth therein, the Exemptions, as amended (including by PTE
97-34), generally exempt from the application of the prohibited transaction
provisions of Sections 406(a) and (b) and 407(a) of ERISA, and the excise taxes
imposed on those prohibited transactions pursuant to Sections 4975(a) and
(b) of the Code, certain transactions relating to, among other things, 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
Senior Certificates, that are underwritten by one of the following parties
(collectively, the "Exemption Favored Parties")--
- the underwriters,
- any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with an underwriter,
and
S-146
<PAGE>
- 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 Offered Certificates.
The Exemptions set forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of a Senior Certificate
to be eligible for exemptive relief thereunder. The conditions are as follows:
- FIRST, the acquisition of the Senior Certificate 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 Senior Certificate must
not be subordinated to the rights and interests evidenced by the other
Certificates;
- THIRD, at the time of its acquisition by the Plan the Senior Certificate
must be rated in one of the three highest generic rating categories by
Moody's, Fitch, Standard & Poor's or Duff & Phelps Credit Rating Co.
("DCR");
- FOURTH, the trustee cannot be an affiliate of any other member of the
"Restricted Group", which (in addition to the trustee) consists of us, the
Exemption-Favored Parties, the master servicer, the special servicer, any
sub-servicers, the related originator, each Borrower, if any, 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 Certificates and any and all affiliates of any of the
aforementioned persons;
- FIFTH, the sum of all payments made to and retained by the
Exemption-Favored Parties must represent not more than reasonable
compensation for underwriting the Senior Certificates; the sum of all
payments made to and retained by us pursuant to the assignment of the
Mortgage Loans to the trust must represent not more than the fair market
value of those obligations; and the sum of all payments made to and
retained by the master servicer, the special servicer and any sub-servicer
must represent not more than reasonable compensation for that person's
services under the Pooling Agreement and reimbursement of that person's
reasonable expenses in connection therewith; and
- SIXTH, the investing Plan must be an accredited investor as defined in
Rule 501(a) (1) of Regulation D under the Securities Act.
Because the Senior Certificates are not subordinated to any other Class of
Certificates, the second general condition set forth above is satisfied with
respect to those Certificates. It is a condition of their issuance that the
Class A-1, Class A-2 and Class X Certificates be rated not lower than "Aaa" by
Moody's and "AAA" by Fitch. Furthermore, upon initial issuance of the
Certificates, the trustee will not be affiliated with any other member of the
Restricted Group. Accordingly, as of the Issue Date, the third and fourth
general conditions set forth above will be satisfied with respect to the Senior
Certificates. A fiduciary of a Plan contemplating purchasing a Senior
Certificate in the secondary market must make its own determination that, at the
time of such purchase, the Certificate continues to satisfy the second, third
and fourth general conditions set forth above. A fiduciary of a Plan
contemplating purchasing a Senior Certificate, whether in the initial issuance
of that Certificate or in the secondary market, must make its own determination
that the first, fifth and sixth general conditions set forth above will be
satisfied with respect to that Certificate as of the date of such purchase. A
PLAN'S AUTHORIZING FIDUCIARY WILL BE DEEMED TO MAKE A REPRESENTATION REGARDING
SATISFACTION OF THE SIXTH GENERAL CONDITION SET FORTH ABOVE IN CONNECTION WITH
THE PURCHASE OF A SENIOR CERTIFICATE.
The Exemptions also require that the trust meet the following requirements:
- the trust assets must consist solely of assets of the type that have been
included in other investment pools;
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- certificates evidencing interests in those other investment pools must
have been rated in one of the three highest generic categories of Moody's,
Fitch, Standard & Poor's or DCR for at least one year prior to the Plan's
acquisition of Senior Certificates and
- certificates evidencing interests in those other investment pools must
have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of Senior Certificates.
We believe that these requirements have been satisfied as of the date of
this prospectus supplement.
If the general conditions of the Exemptions are satisfied, the Exemptions
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA, as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code, in
connection with--
(i) the direct or indirect sale, exchange or transfer of Senior Certificates
in the initial issuance of Certificates between us or an
Exemption-Favored Party and a Plan when we, an Exemption-Favored Party,
the trustee, the master servicer, the special servicer, a sub-servicer,
an originator, or a Borrower is a party in interest (within the meaning
of Section 3(14) of ERISA) or a disqualified person (within the meaning
of Section 4975(e)(2) of the Code) (a "Party in Interest") with respect
to the investing Plan;
(ii) the direct or indirect acquisition or disposition in the secondary
market of Senior Certificates by a Plan; and
(iii) the continued holding of Senior Certificates by a Plan.
However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
Senior Certificate on behalf of a Plan sponsored by any member of the Restricted
Group, by any person who has discretionary authority or renders investment
advice with respect to the assets of that plan.
In addition, if the general conditions of the Exemptions, as well as certain
other specific conditions set forth in the Exemptions, are satisfied, the
Exemptions may also provide an exemption from the restrictions imposed by
Sections 406(b)(1)and (b)(2) of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code, in
connection with--
(1) the direct or indirect sale, exchange or transfer of Senior Certificates
in the initial issuance of Certificates between us or an
Exemption-Favored Party and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of
Plan assets in those 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 Senior Certificates by a Plan; and
(3) the continued holding of Senior Certificates by a Plan.
Further, if the general conditions of the Exemptions, as well as certain
other conditions set forth in the Exemptions, are satisfied, the Exemptions 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 trust assets.
Lastly, if the general conditions of the Exemptions are satisfied, the
Exemptions also may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed
S-148
<PAGE>
by Sections 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A)
through (D) of the Code, if those restrictions are deemed to otherwise apply
merely because a person is deemed to be a Party in Interest with respect to an
investing Plan by virtue of providing services to the Plan, or by virtue of
having certain specified relationships to such a person, solely as a result of
the Plan's ownership of Senior Certificates.
Before purchasing a Senior Certificate, a fiduciary of a Plan should itself
confirm that:
- the Senior Certificates constitute "certificates" for purposes of the
Exemptions; and
- the specific and general conditions and the other requirements set forth
in the Exemptions would be satisfied at the time of the purchase.
In addition to determining the availability of the exemptive relief provided
in the Exemptions, a Plan fiduciary should consider the availability of any
other prohibited transaction class exemptions. See "ERISA Considerations" in the
accompanying prospectus. There can be no assurance that any of those class
exemptions will apply with respect to any particular Plan investment in the
Senior Certificates or, even if it were deemed to apply, that any exemption
would apply to all transactions that may occur in connection with the
investment. A purchaser of a Senior 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 which might be
construed as prohibited transactions.
THE CHARACTERISTICS OF THE CLASS B, CLASS C, CLASS D, CLASS E, CLASS F AND
CLASS G CERTIFICATES DO NOT MEET THE REQUIREMENTS OF THE EXEMPTIONS. AS A
RESULT, NO TRANSFER OF A CLASS B, CLASS C, CLASS D, CLASS E, CLASS F OR CLASS G
CERTIFICATE OR ANY INTEREST THEREIN MAY BE MADE TO A PLAN OR TO ANY PERSON WHO
IS DIRECTLY OR INDIRECTLY PURCHASING THAT 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 THAT CERTIFICATE OR INTEREST THEREIN IS EXEMPT FROM
THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND SECTION 4975
OF THE CODE UNDER SECTIONS I AND III OF PROHIBITED TRANSACTION CLASS EXEMPTION
95-60. SECTIONS I AND III OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60
PROVIDES AN EXEMPTION FROM THE PROHIBITED TRANSACTION RULES FOR CERTAIN
TRANSACTIONS INVOLVING AN INSURANCE COMPANY GENERAL ACCOUNT. ANY PERSON TO WHOM
A TRANSFER OF ANY CLASS B, CLASS C, CLASS D, CLASS E, CLASS F OR CLASS G
CERTIFICATE OR INTEREST THEREIN IS MADE WILL BE DEEMED TO HAVE REPRESENTED TO
US, THE UNDERWRITERS, THE MASTER SERVICER, THE SPECIAL SERVICER, THE TRUSTEE,
ANY SUB-SERVICER AND ANY MORTGAGOR WITH RESPECT TO THE MORTGAGE LOANS, THAT
EITHER (I) IT IS NOT A PLAN AND IS NOT DIRECTLY OR INDIRECTLY PURCHASING THAT
CERTIFICATE OR INTEREST THEREIN ON BEHALF OF, AS NAMED FIDUCIARY OF, OR WITH
ASSETS OF A PLAN OR (II) THE PURCHASE AND HOLDING OF THAT CERTIFICATE OR
INTEREST THEREIN IS SO EXEMPT ON THE BASIS OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60.
Section III of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")
exempts from the application of the prohibited transaction provisions of
Sections 406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Code
transactions in connection with the servicing, management and operation of a
trust in which an insurance company general account has an interest as a result
of its acquisition of certificates issued by the trust, provided that certain
conditions are satisfied. If these conditions are met, insurance company general
accounts would be allowed to purchase certain Classes of Certificates, such as
the Class B, Class C, Class D, Class E, Class F and Class G Certificates, that
do not meet the requirements of the Exemptions solely because they (a) are
subordinated to other Classes of Certificates or (b) have not received a rating
at the time of the purchase in one of the three highest rating categories from
Moody's, Fitch, Standard & Poor's or DCR. All other conditions of the Exemptions
would have to be satisfied in order for PTCE 95-60 to be available. Before
purchasing a Class B, Class C, Class D, Class E, Class F or Class G Certificate,
an insurance company general account seeking to rely on Section III of PTCE
95-60 should itself confirm that all applicable conditions and other
requirements have been satisfied.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
Title I of ERISA or Section 4975 of the Code. However, that governmental plan
may be subject to a federal, state or local law
S-149
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which is, to a material extent, similar to the foregoing provisions of ERISA or
the Code. A fiduciary of a governmental plan should make its own determination
as to the need for and the availability of any exemptive relief under that
similar law.
Any Plan fiduciary considering whether to purchase an Offered Certificate on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to the investment.
The sale of Offered Certificates to a Plan is in no respect a representation
or warranty by us or the underwriters that this investment meets all relevant
legal requirements with respect to investments by Plans generally or by any
particular Plan, or that this investment is appropriate for Plans generally or
for any particular Plan.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of SMMEA. As a result, the appropriate characterization of the
Offered Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase the Offered
Certificates, is subject to significant interpretive uncertainties.
We make no representation as to the ability of particular investors to
purchase the Offered Certificates under applicable legal investment or other
restrictions. All institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates constitute legal
investments for them or are subject to investment, capital or other
restrictions.
All depository institutions considering an investment in the Offered
Certificates should review the Federal Financial Institutions Examination
Council's Supervisory Policy Statement on the Selection of Investment Securities
and End-User Derivatives Activities (to the extent adopted by their respective
regulatory authorities), setting forth general guidelines which depository
institutions must follow in managing risks applicable to all securities
(including mortgage pass-through securities and mortgage-derivative products)
used for investment purposes.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying" and provisions which may restrict or prohibit
investments in securities which are issued in book-entry form.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or to
purchase Offered Certificates representing more than a specified percentage of
the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Offered Certificates constitute legal
investments for such investors.
See "Legal Investment" in the accompanying prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
arrangement between us and the underwriters, we have agreed to sell to the
underwriters, and the underwriters have agreed to purchase all of the Offered
Certificates allocated between the underwriters as set forth on the table below.
Proceeds to us from the sale of the Offered Certificates, before deducting
expenses payable by us, will be an amount equal to approximately % of the
initial aggregate Certificate Balance of the Class A-1, Class A-2,
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Class B, Class C, Class D, Class E, Class F and Class G Certificates, plus
accrued interest on all the Offered Certificates from March 11, 2000.
ALLOCATION OF OFFERED CERTIFICATES BETWEEN UNDERWRITERS
<TABLE>
<CAPTION>
UNDERWRITER CLASS A-1 CLASS A-2 CLASS X CLASS B CLASS C CLASS D CLASS E CLASS F CLASS G
- ----------- --------- --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lehman Brothers Inc..........
Warburg Dillon Read LLC......
Morgan Stanley & Co.
Incorporated...............
Deutsche Bank Securities
Inc........................
--- --- --- --- --- --- --- --- ---
Total.................... 100% 100% 100% 100% 100% 100% 100% 100% 100%
</TABLE>
Distribution of the Offered Certificates will be made by the underwriters
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The underwriters may effect those
transactions by selling the Offered Certificates to or through dealers, and
those dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the underwriters. In connection with the
purchase and sale of the Offered Certificates, the underwriters may be deemed to
have received compensation from us in the form of underwriting discounts. The
underwriters and any dealers that participate with the underwriters in the
distribution of the Offered Certificates may be deemed to be statutory
underwriters and any profit on the resale of the Offered Certificates positioned
by them may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended.
Purchasers of the Offered Certificates, including dealers, may, depending on
the facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended, in connection with
reoffers and sales by them of Offered Certificates. You should consult with your
legal advisors in this regard prior to any such reoffer or sale.
Each underwriter has advised us that it presently intends to make a market
in the Offered Certificates. However, none of the underwriters have any
obligation to do so, and any market making may be discontinued at any time.
There can be no assurance that an active public market for the Offered
Certificates will develop. See "Risk Factors--Risks Related to the Offered
Certificates--Risks Associated with Liquidity and Market Value" in this
prospectus supplement and "Risk Factors--Limited Liquidity" in the accompanying
prospectus.
We have agreed to indemnify the underwriters and each person, if any, who
controls the underwriters within the meaning of Section 15 of the Securities Act
of 1933, as amended, against, or to make contributions to the underwriters and
each such controlling person with respect to, certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended.
LEGAL MATTERS
Certain legal matters will be passed upon for us and the underwriters by
Sidley & Austin, New York, New York.
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<PAGE>
RATINGS
It is a condition to their issuance that the respective Classes of Offered
Certificates be rated as follows:
<TABLE>
<CAPTION>
CLASS MOODY'S/FITCH
- ----- -----------------
<S> <C>
Class A-1................................................... Aaa/AAA
Class A-2................................................... Aaa/AAA
Class B..................................................... Aa2/AA
Class C..................................................... A2/A
Class D..................................................... A3/A-
Class E..................................................... Baa1/BBB+
Class F..................................................... Baa2/BBB
Class G..................................................... Baa3/BBB-
Class X..................................................... Aaa/AAA
</TABLE>
The ratings of the Offered Certificates address the likelihood of the timely
receipt by Holders thereof of all payments of interest to which they are
entitled on each Distribution Date and, except in the case of the Class X
Certificates, the ultimate receipt by Holders thereof of all payments of
principal to which they are entitled by March 2032. The ratings take into
consideration the credit quality of the mortgage pool, structural and legal
aspects associated with the Offered Certificates, and the extent to which the
payment stream from the mortgage pool is adequate to make payments of principal
and/or interest, as applicable, required under the Offered Certificates. The
ratings of the Offered Certificates do not, however, represent any assessments
of:
- the tax attributes of the Offered Certificates or of the trust;
- the likelihood or frequency of voluntary or involuntary principal
prepayments on the Mortgage Loans;
- the degree to which those prepayments might differ from the principal
prepayments originally anticipated;
- whether and to what extent Prepayment Premiums and Yield Maintenance
Charges will be collected on the Mortgage Loans in connection with such
prepayments or the corresponding effect on yield to investors; or
- whether and to what extent Additional Interest will accrue or be collected
on the ARD Loans.
Also, a security rating does not represent any assessment of the yield to
maturity that you may experience or, if you are purchasing Class X Certificates,
the possibility that you might not fully recover your investment in the event of
rapid prepayments and/or other liquidations of the Mortgage Loans, including
both voluntary and involuntary prepayments.
In general, the ratings on the Offered Certificates address credit risk and
not prepayment risk. As described in this prospectus supplement, the amounts
payable with respect to the Class X Certificates do not include principal. Thus,
if the mortgage pool were to prepay in the initial month, the Holders of the
Class X Certificates would receive only a single month's interest. Although
those Holders may have suffered a nearly complete loss of their investment, this
result is consistent with the ratings received on the Class X Certificates
because all amounts "due" to those Certificateholders would have been paid. The
Notional Amount upon which interest is calculated with respect to the Class X
Certificates is subject to reduction in connection with each reduction in the
Certificate Balance of a Class of Principal Balance Certificates, whether as a
result of principal payments or in connection with Realized Losses and
Additional Trust Fund Expenses. The ratings on the Class X Certificates do not
address the timing or magnitude of any reduction of their Notional Amount, but
only the obligation to pay interest timely on
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<PAGE>
such Notional Amount as so reduced from time to time. Accordingly, the ratings
on the Class X Certificates should be evaluated independently from similar
ratings on other types of securities.
There is no assurance that any rating assigned to the Offered Certificates
by a Rating Agency will not be qualified, downgraded or withdrawn by that Rating
Agency, if, in its judgment, circumstances so warrant. There can be no assurance
as to whether any rating agency not requested to rate the Offered Certificates
will nonetheless issue a rating to any Class thereof and, if so, what the rating
would be. A rating assigned to any Class of Offered Certificates by a rating
agency that has not been requested by us to do so may be lower than the ratings
assigned thereto by Moody's and/or Fitch.
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. See "Risk
Factors--Limited Nature of Credit Ratings" in the accompanying prospectus.
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<PAGE>
ANNEX A-1-1
AMORTIZATION TYPES
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
% BY AVERAGE MAXIMUM
AGGREGATE AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
AMORTIZATION TYPES OF LOANS BALANCE BALANCE BALANCE BALANCE LTV(1)
- ---------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ARD............................... 31 $ 704,073,481 51.36% 2$2,712,048 $148,497,918 55.8%
Balloon........................... 154 642,553,196 46.87 4,172,423 36,312,585 71.9
Fully Amortizing.................. 5 24,246,507 1.77 4,849,301 14,300,000 0.0
- ---------------------------------- --------- ------------- --------- --------- ----------- ---------
TOTAL/AVG./WTD. AVG.:............. 190 $1,370,873,184 100.00% $7,215,122 $148,497,918 63.4%
================================== ========= ============= ========= ========= =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
U/W NCF OCCUPANCY MORTGAGE
AMORTIZATION TYPES DSCR(1) RATE(2) RATE
- ---------------------------------- ------------- ----------- -------------
<S> <C> <C> <C>
ARD............................... 1.56x 95.84% 8.325%
Balloon........................... 1.31 96.34 8.338
Fully Amortizing.................. 0.00 100.00 8.608
- ---------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:............. 1.44X 96.14% 8.336%
================================== ========= ========= =========
</TABLE>
- ------------------------
(1) The Cut-off Date LTV and U/W NCF DSCR information does not reflect the
seven Credit Lease Loans representing 2.3% of the Initial Pool Balance.
(2) Occupancy rates are calculated without reference to hospitality properties.
<PAGE>
ANNEX A-1-2
CUT-OFF DATE LOAN-TO-VALUE RATIOS
(ALL MORTGAGE LOANS OTHER THAN CREDIT LEASE LOANS)
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
RANGE OF CUT-OFF DATE NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
LOAN-TO-VALUE RATIOS (%) OF LOANS BALANCE BALANCE BALANCE BALANCE LTV
- ----------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
30.01--35.00....................... 1 $ 2,323,000 0.17% $2,323,000 $ 2,323,000 33.4%
35.01--40.00....................... 1 2,200,000 0.16 2,200,000 2,200,000 35.5
40.01--45.00....................... 2 161,145,749 12.04 80,572,875 99,000,000 42.2
45.01--50.00....................... 5 157,769,130 11.78 31,553,826 148,497,918 47.7
50.01--55.00....................... 7 18,154,389 1.36 2,593,484 3,950,000 53.7
55.01--60.00....................... 17 200,209,473 14.95 11,777,028 123,031,572 57.7
60.01--65.00....................... 11 90,693,390 6.77 8,244,854 18,979,929 62.6
65.01--70.00....................... 29 107,305,665 8.01 3,700,195 20,474,697 67.6
70.01--75.00....................... 68 358,370,034 26.77 5,270,148 36,312,585 73.2
75.01--80.00....................... 42 240,711,244 17.98 5,731,220 26,465,784 77.9
- ----------------------------------- --------- ------------- --------- --------- ----------- ---------
TOTAL/AVG./WTD. AVG.:.............. 183 $1,338,882,074 100.00% $7,316,295 $148,497,918 63.4%
=================================== ========= ============= ========= ========= =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF CUT-OFF DATE U/W NCF OCCUPANCY MORTGAGE
LOAN-TO-VALUE RATIOS (%) DSCR RATE(1) RATE
- ----------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
30.01--35.00....................... 2.43x 0.00% 8.845%
35.01--40.00....................... 1.59 71.88 9.625
40.01--45.00....................... 1.83 95.69 8.425
45.01--50.00....................... 1.70 97.43 7.729
50.01--55.00....................... 1.49 88.69 8.606
55.01--60.00....................... 1.50 95.89 8.342
60.01--65.00....................... 1.36 91.83 8.792
65.01--70.00....................... 1.32 97.37 8.539
70.01--75.00....................... 1.29 95.28 8.417
75.01--80.00....................... 1.26 97.90 8.227
- ----------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:.............. 1.44X 96.05% 8.332%
=================================== ========= ========= =========
</TABLE>
Weighted Average Cut-off Date LTV Ratio for Mortgage Loans other than Credit
Lease Loans: 63.42%
- ------------------------------
(1) Occupancy rates are calculated without reference to hospitality properties.
<PAGE>
ANNEX A-1-3
ORIGINAL TERM TO MATURITY
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
RANGE OF ORIGINAL NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
TERMS TO MATURITY (MONTHS) OF LOANS BALANCE BALANCE BALANCE BALANCE LTV(1)
- ----------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
49--60............................ 12 $ 71,936,184 5.25% $5,994,682 $13,054,504 68.5%
73--84............................ 10 204,600,648 14.92 20,460,065 148,497,918 54.6
85--96............................ 1 1,393,726 0.10 1,393,726 1,393,726 58.9
109--120........................... 160 1,054,593,842 76.93 6,591,212 123,031,572 64.7
121--132........................... 1 12,320,310 0.90 12,320,310 12,320,310 67.5
229--240........................... 5 24,433,759 1.78 4,886,752 14,300,000 0.0
241--252........................... 1 1,594,714 0.12 1,594,714 1,594,714 0.0
- ----------------------------------- --------- ------------- --------- --------- ----------- ---------
TOTAL/AVG./WTD. AVG.:.............. 190 $1,370,873,184 100.00% $7,215,122 $148,497,918 63.4%
=================================== ========= ============= ========= ========= =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF ORIGINAL U/W NCF OCCUPANCY MORTGAGE
TERMS TO MATURITY (MONTHS) DSCR(1) RATE(2) RATE
- ----------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
49--60............................ 1.31x 92.66% 8.526%
73--84............................ 1.59 97.21 7.873
85--96............................ 1.25 100.00 8.440
109--120........................... 1.43 96.04 8.406
121--132........................... 1.25 100.00 8.330
229--240........................... 0.00 100.00 8.644
241--252........................... 0.00 100.00 8.180
- ----------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:.............. 1.44X 96.14% 8.336%
=================================== ========= ========= =========
</TABLE>
Weighted Average Original Term to Maturity: 114 months
- ------------------------------
(1) The Cut-off Date LTV and U/W NCF DSCR information does not reflect the seven
Credit Lease Loans representing 2.3% of the Initial Pool Balance.
(2) Occupancy rates are calculated without reference to hospitality properties.
<PAGE>
ANNEX A-1-4
REMAINING TERM TO MATURITY
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
RANGE OF REMAINING NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
TERMS TO MATURITY (MONTHS) OF LOANS BALANCE BALANCE BALANCE BALANCE LTV(1)
- ---------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
49--60........................... 12 $ 71,936,184 5.25% $5,994,682 $13,054,504 68.5%
73--84........................... 10 204,600,648 14.92 20,460,065 148,497,918 54.6
85--96........................... 1 1,393,726 0.10 1,393,726 1,393,726 58.9
109--120.......................... 160 1,054,593,842 76.93 6,591,212 123,031,572 64.7
121--132.......................... 1 12,320,310 0.90 12,320,310 12,320,310 67.5
229--240.......................... 6 26,028,474 1.90 4,338,079 14,300,000 0.0
- ---------------------------------- --------- ------------- --------- --------- ----------- ---------
TOTAL/AVG./WTD. AVG.:............. 190 $1,370,873,184 100.00% $7,215,122 $148,497,918 63.4%
================================== ========= ============= ========= ========= =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF REMAINING U/W NCF OCCUPANCY MORTGAGE
TERMS TO MATURITY (MONTHS) DSCR(1) RATE(2) RATE
- ---------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
49--60........................... 1.31x 92.66% 8.526%
73--84........................... 1.59 97.21 7.873
85--96........................... 1.25 100.00 8.440
109--120.......................... 1.43 96.04 8.406
121--132.......................... 1.25 100.00 8.330
229--240.......................... 0.00 100.00 8.615
- ---------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:............. 1.44X 96.14% 8.336%
================================== ========= ========= =========
</TABLE>
Weighted Average Remaining Term to Maturity: 110 months
- ------------------------------
(1) The Cut-off Date LTV and U/W NCF DSCR information does not reflect the seven
Credit Lease Loans representing 2.3% of the Initial Pool Balance.
(2) Occupancy rates are calculated without reference to hospitality properties.
<PAGE>
ANNEX A-1-5
MORTGAGE LOANS BY PROPERTY TYPE
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
PROPERTY TYPE OF LOANS BALANCE BALANCE BALANCE BALANCE LTV(1)
- ---------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Regional Mall..................... 4 $ 432,675,239 31.56% $108,168,810 $148,497,918 48.6%
Office............................ 31 287,145,624 20.95 9,262,762 36,312,585 68.1
Retail............................ 44 264,453,767 19.29 6,010,313 26,465,784 72.1
Multifamily....................... 58 198,469,377 14.48 3,421,886 16,921,155 74.4
Industrial/W'hse.................. 14 56,776,866 4.14 4,055,490 8,717,860 70.7
Mobile Home Park.................. 18 39,811,009 2.90 2,211,723 4,150,000 68.2
Hotel............................. 8 35,361,045 2.58 4,420,131 11,370,971 59.5
CTL............................... 7 31,991,110 2.33 4,570,159 14,300,000 0.0
Self Storage...................... 2 13,988,507 1.02 6,994,253 13,054,504 73.4
Mixed Use......................... 4 10,200,641 0.74 2,550,160 3,830,386 60.1
- ---------------------------------- --------- ------------- --------- ----------- ----------- ---------
TOTAL/AVG./WTD. AVG.:............. 190 $1,370,873,184 100.00% $ 7,215,122 $148,497,918 63.4%
================================== ========= ============= ========= =========== =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
U/W NCF OCCUPANCY MORTGAGE
PROPERTY TYPE DSCR(1) RATE(2) RATE
- ---------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Regional Mall..................... 1.70x 97.24% 8.099%
Office............................ 1.29 93.17 8.474
Retail............................ 1.33 97.74 8.425
Multifamily....................... 1.30 95.92 8.353
Industrial/W'hse.................. 1.34 98.82 8.446
Mobile Home Park.................. 1.39 95.33 8.191
Hotel............................. 1.54 0.00 8.882
CTL............................... 0.00 100.00 8.521
Self Storage...................... 1.31 86.27 8.831
Mixed Use......................... 1.36 85.86 8.743
- ---------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:............. 1.44X 96.14% 8.336%
================================== ========= ========= =========
</TABLE>
- ------------------------
(1) The Cut-off Date LTV and U/W NCF DSCR information does not reflect the seven
Credit Lease Loans representation 2.3% of the Initial Pool Balance.
(2) Occupancy rates are calculated without reference to hospitality properties.
<PAGE>
ANNEX A-1-6
CUT-OFF DATE BALANCES
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
RANGE OF CUT-OFF NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
DATE BALANCES ($) OF LOANS BALANCE BALANCE BALANCE BALANCE LTV(1)
- --------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1--2,000,000............ 55 $ 59,646,810 4.35% $ 1,084,487 $ 2,000,000 68.1%
2,000,001--4,000,000........... 58 175,246,803 12.78 3,021,497 3,982,756 68.9
4,000,001--6,000,000........... 29 140,560,554 10.25 4,846,916 5,962,636 70.2
6,000,001--8,000,000........... 7 49,294,069 3.60 7,042,010 7,804,893 71.0
8,000,001--10,000,000.......... 12 106,417,738 7.76 8,868,145 9,737,411 75.3
10,000,001--15,000,000.......... 15 187,907,816 13.71 12,527,188 14,780,773 72.2
15,000,001--20,000,000.......... 5 87,155,521 6.36 17,431,104 18,979,929 66.0
20,000,001--25,000,000.......... 2 43,456,164 3.17 21,728,082 22,981,466 61.7
25,000,001--50,000,000.......... 3 88,512,469 6.46 29,504,156 36,312,585 75.0
50,000,001--75,000,000.......... 1 62,145,749 4.53 62,145,749 62,145,749 40.9
75,000,001--100,000,000......... 1 99,000,000 7.22 99,000,000 99,000,000 43.0
100,000,001--125,000,000......... 1 123,031,572 8.97 123,031,572 123,031,572 58.3
125,000,001--150,000,000......... 1 148,497,918 10.83 148,497,918 148,497,918 47.6
- --------------------------------- --------- ------------- --------- ----------- ----------- ---------
TOTAL/AVG./WTD. AVG.:............ 190 $1,370,873,184 100.00% $ 7,215,122 $148,497,918 63.4%
================================= ========= ============= ========= =========== =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF CUT-OFF U/W NCF OCCUPANCY MORTGAGE
DATE BALANCES ($) DSCR(1) RATE(2) RATE
- --------------------------------- --------------- ------------- -----------
<S> <C> <C> <C>
1--2,000,000............ 1.41x 96.72% 8.572%
2,000,001--4,000,000........... 1.37 97.23 8.534
4,000,001--6,000,000........... 1.33 95.05 8.431
6,000,001--8,000,000........... 1.36 97.38 8.347
8,000,001--10,000,000.......... 1.27 97.32 8.302
10,000,001--15,000,000.......... 1.27 95.56 8.469
15,000,001--20,000,000.......... 1.38 92.55 8.603
20,000,001--25,000,000.......... 1.32 89.75 8.669
25,000,001--50,000,000.......... 1.25 95.79 8.125
50,000,001--75,000,000.......... 1.76 93.70 8.820
75,000,001--100,000,000......... 1.87 96.94 8.177
100,000,001--125,000,000......... 1.51 98.94 8.177
125,000,001--150,000,000......... 1.71 97.50 7.680
- --------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:............ 1.44X 96.14% 8.336%
================================= ========= ========= =========
</TABLE>
Average Cut-off Date Balance: $7,215,122.
- ------------------------------
(1) The Cut-off Date LTV and U/W NCF DSCR information does not reflect the seven
Credit Lease Loans representing 2.3% of the Initial Pool Balance.
(2) Occupancy rates are calculated without reference to hospitality properties.
<PAGE>
ANNEX A-1-7
U/W NCF DSCR
(ALL MORTGAGE LOANS OTHER THAN CREDIT LEASE LOANS)
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
RANGE OF CUT-OFF NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
DATE DSC RATIOS (X) OF LOANS BALANCE BALANCE BALANCE BALANCE LTV
- -------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
= < 1.20........................ 3 $ 30,819,859 2.30% 1$0,273,286 $13,484,026 78.2%
1.2001--1.2499.................. 25 208,680,327 15.59 8,347,213 36,312,585 73.7
1.2500--1.2999.................. 49 267,197,703 19.96 5,453,014 25,734,101 71.5
1.3000--1.3499.................. 32 152,629,823 11.40 4,769,682 16,557,600 73.0
1.3500--1.3999.................. 23 112,997,158 8.44 4,912,920 22,981,466 68.0
1.4000--1.4499.................. 12 45,656,924 3.41 3,804,744 11,370,971 62.1
1.4500--1.4999.................. 10 16,822,385 1.26 1,682,239 6,522,236 70.2
1.5000--1.5499.................. 5 135,698,848 10.14 27,139,770 123,031,572 58.8
1.5500--1.5999.................. 10 12,635,421 0.94 1,263,542 2,200,000 59.7
1.6000--1.6499.................. 2 4,648,248 0.35 2,324,124 3,950,000 56.2
1.6500--1.6999.................. 2 5,700,000 0.43 2,850,000 3,300,000 55.3
1.7000--1.7499.................. 3 156,292,901 11.67 52,097,634 148,497,918 48.3
1.7500--1.8499.................. 5 87,779,476 6.56 17,555,895 62,145,749 45.4
1.8500--1.9499.................. 1 99,000,000 7.39 99,000,000 99,000,000 43.0
= > 2.2500...................... 1 2,323,000 0.17 2,323,000 2,323,000 33.4
- -------------------------------- --------- ------------- --------- --------- ----------- ---------
TOTAL/AVG./WTD. AVG.:........... 183 $1,338,882,074 100.00% $7,316,295 $148,497,918 63.4%
================================ ========= ============= ========= ========= =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF CUT-OFF U/W NCF OCCUPANCY MORTGAGE
DATE DSC RATIOS (X) DSCR RATE(1) RATE
- -------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
= < 1.20........................ 1.20x 96.64% 8.712%
1.2001--1.2499.................. 1.23 96.23 8.358
1.2500--1.2999.................. 1.27 95.75 8.496
1.3000--1.3499.................. 1.32 94.55 8.298
1.3500--1.3999.................. 1.36 93.82 8.543
1.4000--1.4499.................. 1.42 95.30 8.643
1.4500--1.4999.................. 1.47 98.21 8.228
1.5000--1.5499.................. 1.51 98.87 8.180
1.5500--1.5999.................. 1.57 91.49 8.713
1.6000--1.6499.................. 1.61 100.00 8.893
1.6500--1.6999.................. 1.69 0.00 8.940
1.7000--1.7499.................. 1.71 97.62 7.710
1.7500--1.8499.................. 1.77 93.93 8.659
1.8500--1.9499.................. 1.87 96.94 8.177
= > 2.2500...................... 2.43 0.00 8.845
- -------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:........... 1.44X 96.05% 8.332%
================================ ========= ========= =========
</TABLE>
Weighted Average U/W NCF DSC Ratio for all Mortgage Loans other than Credit
Lease Loans: 1.44x
- ------------------------------
(1) Occupancy rates are calculated without reference to hospitality properties
<PAGE>
ANNEX A-1-8
OCCUPANCY RATES
(ALL MORTGAGE LOANS OTHER THAN THOSE SECURED BY HOSPITALITY PROPERTIES)
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
RANGE OF OCCUPANCY NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
RATES (%) OF LOANS BALANCE BALANCE BALANCE BALANCE LTV(1)
- ---------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
70.1--75.0........................ 1 $ 2,200,000 0.16% $2,200,000 $ 2,200,000 35.5%
75.1--80.0........................ 2 20,227,855 1.51 10,113,927 16,557,600 59.5
80.1--85.0........................ 5 33,305,893 2.49 6,661,179 22,981,466 57.3
85.1--90.0........................ 7 41,661,084 3.12 5,951,583 13,706,333 68.2
90.1--95.0........................ 40 315,568,336 23.63 7,889,208 62,145,749 66.0
95.1 >=........................... 127 922,548,972 69.08 7,264,165 148,497,918 62.8
- ---------------------------------- --------- ------------- --------- --------- ----------- ---------
TOTAL/AVG./WTD. AVG.:............. 182 $1,335,512,139 100.00% $7,337,979 $148,497,918 63.5%
================================== ========= ============= ========= ========= =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF OCCUPANCY U/W NCF OCCUPANCY MORTGAGE
RATES (%) DSCR(1) RATE RATE
- ---------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
70.1--75.0........................ 1.59x 71.88% 9.625%
75.1--80.0........................ 1.32 78.86 8.486
80.1--85.0........................ 1.37 82.47 8.776
85.1--90.0........................ 1.28 86.76 8.533
90.1--95.0........................ 1.41 93.11 8.464
95.1 >=........................... 1.46 98.53 8.241
- ---------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:............. 1.44X 96.14% 8.322%
================================== ========= ========= =========
</TABLE>
Weighted Average Occupancy Rate for all Mortgage Loans other than those secured
by hospitality properties: 96.14%
- ------------------------------
(1) The Cut-off Date LTV and U/W NCF DSCR information does not reflect the seven
Credit Lease Loans representing 2.3% of the Initial Pool Balance.
<PAGE>
ANNEX A-1-9
REMAINING AMORTIZATION TERMS
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
RANGE OF REMAINING NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
AMORTIZATION TERMS (MONTHS) OF LOANS BALANCE BALANCE BALANCE BALANCE LTV(1)
- ---------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
145--156.......................... 1 $ 5,962,636 0.44% $5,962,636 $ 5,962,636 0.0%
229--240.......................... 8 42,305,434 3.11 5,288,179 14,300,000 66.4
265--276.......................... 4 11,431,966 0.84 2,857,992 3,950,000 54.8
289--300.......................... 33 241,411,096 17.77 7,315,488 148,497,918 54.7
313--324.......................... 1 3,107,793 0.23 3,107,793 3,107,793 74.9
325--336.......................... 1 9,586,541 0.71 9,586,541 9,586,541 73.7
349--360.......................... 139 1,044,874,717 76.90 7,517,084 123,031,572 65.5
- ---------------------------------- --------- ------------- --------- --------- ----------- ---------
TOTAL/AVG./WTD. AVG.:............. 187 $1,358,680,184 100.00% $7,265,669 $148,497,918 63.5%
================================== ========= ============= ========= ========= =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF REMAINING U/W NCF OCCUPANCY MORTGAGE
AMORTIZATION TERMS (MONTHS) DSCR(1) RATE(2) RATE
- ---------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
145--156.......................... 0.00x 100.00% 8.110%
229--240.......................... 1.32 100.00 8.524
265--276.......................... 1.66 100.00 8.904
289--300.......................... 1.58 96.24 8.048
313--324.......................... 1.34 100.00 8.830
325--336.......................... 1.29 92.53 8.720
349--360.......................... 1.41 95.94 8.384
- ---------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:............. 1.44X 96.11% 8.336%
================================== ========= ========= =========
</TABLE>
Weighted Average Remaining Amortization Term: 341 Months
- ------------------------------
(1) The Cut-off Date LTV and U/W NCF DSCR information does not reflect the seven
Credit Lease Loans representing 2.3% of the Initial Pool Balance.
(2) Occupancy rates are calculated without reference to hospitality properties.
<PAGE>
ANNEX A-1-10
MORTGAGE RATES
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
RANGE OF MORTGAGE NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
RATES (%) OF LOANS BALANCE BALANCE BALANCE BALANCE LTV(1)
- ---------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
7.251--7.500...................... 3 $ 20,732,357 1.51% $6,910,786 $ 8,808,628 77.8%
7.501--7.750...................... 4 156,260,740 11.40 39,065,185 148,497,918 49.1
7.751--8.000...................... 8 102,710,480 7.49 12,838,810 36,312,585 75.0
8.001--8.250...................... 41 429,047,972 31.30 10,464,585 123,031,572 61.1
8.251--8.500...................... 40 163,632,101 11.94 4,090,803 20,474,697 70.4
8.501--8.750...................... 47 231,968,388 16.92 4,935,498 25,734,101 70.6
8.751--9.000...................... 28 171,745,530 12.53 6,133,769 62,145,749 56.5
9.001--9.250...................... 14 90,159,125 6.58 6,439,938 18,979,929 67.3
9.251--9.500...................... 3 1,916,490 0.14 638,830 797,501 68.0
9.501--9.750...................... 2 2,700,000 0.20 1,350,000 2,200,000 42.9
- ---------------------------------- --------- ------------- --------- --------- ----------- ---------
TOTAL/AVG./WTD. AVG.:............. 190 $1,370,873,184 100.00% $7,215,122 $148,497,918 63.4%
================================== ========= ============= ========= ========= =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF MORTGAGE U/W NCF OCCUPANCY MORTGAGE
RATES (%) DSCR(1) RATE(2) RATE
- ---------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
7.251--7.500...................... 1.34x 100.00% 7.472%
7.501--7.750...................... 1.69 97.58 7.679
7.751--8.000...................... 1.29 95.99 7.854
8.001--8.250...................... 1.51 97.11 8.169
8.251--8.500...................... 1.34 97.18 8.396
8.501--8.750...................... 1.31 95.00 8.629
8.751--9.000...................... 1.52 92.32 8.850
9.001--9.250...................... 1.27 95.96 9.119
9.251--9.500...................... 1.34 99.53 9.448
9.501--9.750...................... 1.53 76.35 9.648
- ---------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:............. 1.44X 96.14% 8.336%
================================== ========= ========= =========
</TABLE>
Weighted Average Mortgage Rate: 8.336%
- ------------------------------
(1) The Cut-off Date LTV and U/W NCF DSCR information does not reflect the seven
Credit Lease Loans representing 2.3% of the Initial Pool Balance.
(2) Occupancy rates are calculated without reference to hospitality properties.
<PAGE>
ANNEX A-1-11
MATURITY DATE LTV RATIOS
(ALL MORTGAGE LOANS OTHER THAN CREDIT LEASE LOANS)
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
AGGREGATE % BY AGGREGATE CUT-OFF CUT-OFF WTD. AVG.
RANGE OF MATURITY NUMBER CUT-OFF DATE CUT-OFF DATE DATE DATE CUT-OFF DATE
DATE LTV RATIOS (%) OF LOANS BALANCE BALANCE BALANCE BALANCE LTV
- ---------------------------------- ------------- ------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
30.01--35.00...................... 2 $ 4,523,000 0.34% $2,261,500 $ 2,323,000 34.4%
35.01--40.00...................... 3 162,394,358 12.13 54,131,453 99,000,000 42.2
40.01--45.00...................... 1 2,377,512 0.18 2,377,512 2,377,512 47.6
45.01--50.00...................... 17 202,268,209 15.11 11,898,130 148,497,918 50.6
50.01--55.00...................... 14 191,433,496 14.30 13,673,821 123,031,572 57.7
55.01--60.00...................... 20 109,402,798 8.17 5,470,140 18,979,929 63.9
60.01--65.00...................... 32 126,831,763 9.47 3,963,493 20,474,697 69.8
65.01--70.00...................... 63 371,369,807 27.74 5,894,759 36,312,585 74.3
70.01--75.00...................... 30 153,500,357 11.46 5,116,679 16,921,155 77.5
75.01--80.00...................... 1 14,780,773 1.10 14,780,773 14,780,773 79.9
- ---------------------------------- --------- ------------- --------- --------- ----------- ---------
TOTAL/AVG./WTD. AVG.:............. 183 $1,338,882,074 100.00% $7,316,295 $148,497,918 63.4%
================================== ========= ============= ========= ========= =========== =========
<CAPTION>
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF MATURITY U/W NCF OCCUPANCY MORTGAGE
DATE LTV RATIOS (%) DSCR RATE(1) RATE
- ---------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
30.01--35.00...................... 2.02x 71.88% 9.224%
35.01--40.00...................... 1.83 95.72 8.431
40.01--45.00...................... 1.47 100.00 8.170
45.01--50.00...................... 1.64 96.99 7.922
50.01--55.00...................... 1.49 95.98 8.316
55.01--60.00...................... 1.35 92.17 8.751
60.01--65.00...................... 1.34 96.91 8.340
65.01--70.00...................... 1.28 96.39 8.358
70.01--75.00...................... 1.26 96.61 8.412
75.01--80.00...................... 1.21 95.73 8.170
- ---------------------------------- --------- --------- ---------
TOTAL/AVG./WTD. AVG.:............. 1.44X 96.05% 8.332%
================================== ========= ========= =========
</TABLE>
Weighted Average Maturity Date LTV Ratio for all Mortgage Loans other than
Credit Lease Loans: 57.39%
- ------------------------------
(1) Occupancy rates are calculated without reference to hospitality properties.
<PAGE>
ANNEX A-1-12
ALL MORTGAGE LOANS BY STATE
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
NUMBER CUT-OFF DATE CUT-OFF DATE
STATE OF LOANS BALANCE BALANCE
- --------------------------------------------------------------------- ----------- ---------------- ---------------
<S> <C> <C> <C>
CA................................................................... 18 $ 206,314,914 15.05%
NY................................................................... 26 192,983,682 14.08
MD................................................................... 9 188,926,836 13.78
CO................................................................... 4 169,992,147 12.40
TX................................................................... 30 111,400,054 8.13
NJ................................................................... 13 75,102,411 5.48
GA................................................................... 6 65,331,181 4.77
MS................................................................... 3 41,131,501 3.00
NC................................................................... 6 39,675,813 2.89
FL................................................................... 17 39,045,273 2.85
IL................................................................... 3 31,280,223 2.28
LA................................................................... 4 31,154,140 2.27
CT................................................................... 7 30,820,807 2.25
PA................................................................... 10 28,629,527 2.09
AZ................................................................... 8 17,685,930 1.29
MA................................................................... 3 17,492,940 1.28
AL................................................................... 2 11,580,897 0.84
NV................................................................... 1 10,880,192 0.79
MN................................................................... 1 10,691,214 0.78
AR................................................................... 2 8,111,251 0.59
IN................................................................... 2 7,890,870 0.58
SC................................................................... 3 5,865,392 0.43
TN................................................................... 2 5,482,826 0.40
NH................................................................... 2 3,656,495 0.27
UT................................................................... 1 3,383,169 0.25
OK................................................................... 1 3,286,079 0.24
MI................................................................... 1 3,264,399 0.24
MO................................................................... 1 3,244,500 0.24
WA................................................................... 2 2,497,051 0.18
OR................................................................... 1 2,289,501 0.17
OH................................................................... 1 1,781,966 0.13
--------- ---------------- ---------
TOTAL:............................................................... 190 $ 1,370,873,184 100.00%
========= ================ =========
</TABLE>
<PAGE>
CAMERA-READY PLACEHOLDER
82 PAGES GO HERE
ANNEXES
<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 supplements hereto (each, a "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
<PAGE>
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 AND 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 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
May 26, 1999
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUPPLEMENT....................................... 6
ADDITIONAL INFORMATION...................................... 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 7
SUMMARY OF TERMS............................................ 8
RISK FACTORS................................................ 28
DESCRIPTION OF THE SECURITIES............................... 35
General............................................... 35
The Bonds--General.................................... 35
The Certificates--General............................. 36
Bearer Securities and Registered Securities........... 37
Book-Entry Registration............................... 38
Valuation of Mortgage Assets.......................... 39
Payments or Distributions of Interest................. 40
Payments or Distributions of Principal................ 41
Special Redemption.................................... 42
Optional Redemption................................... 43
Mandatory Redemption.................................. 43
Optional Termination.................................. 43
Optional Repurchase of Certificates................... 43
Other Repurchases..................................... 43
YIELD AND PREPAYMENT CONSIDERATIONS......................... 44
Timing of Payment or Distribution of Interest and
Principal.............................................. 44
Principal Prepayments................................. 44
Prepayments and Weighted Average Life................. 45
Other Factors Affecting Weighted Average Life......... 46
SECURITY FOR THE BONDS AND CERTIFICATES..................... 48
General............................................... 48
Mortgage Loans........................................ 48
Private Mortgage-Backed Securities.................... 52
Substitution of Mortgage Assets....................... 54
Collection Account.................................... 54
Other Funds or Accounts............................... 55
Investment of Funds................................... 55
Guaranteed Investment Contract........................ 55
Enhancement........................................... 55
SERVICING OF MORTGAGE LOANS................................. 56
General............................................... 56
Collection Procedures................................. 57
Payments on Mortgage Loans; Deposits to Custodial
Accounts............................................... 57
Advances.............................................. 58
Maintenance of Insurance Policies and Other Servicing
Procedures............................................. 58
Enforcement of Due-On Sale Clauses.................... 59
Modification; Waivers................................. 59
Servicing Compensation and Payment of Expenses........ 59
Evidence as to Compliance............................. 60
Certain Matters Regarding the Master Servicer and
Special Servicer....................................... 60
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ENHANCEMENT................................................. 61
General............................................... 61
Subordinate Securities................................ 61
Cross-Support Features................................ 62
Insurance on the Mortgage Loans....................... 62
Letter of Credit...................................... 62
Bond Guarantee Insurance.............................. 63
Reserve Funds......................................... 63
DESCRIPTION OF INSURANCE ON THE MORTGAGE LOANS.............. 63
General............................................... 64
Hazard Insurance on the Mortgage Loans................ 64
FHA Insurance......................................... 65
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS..................... 65
Mortgages............................................. 65
Interest in Real Property............................. 65
Junior Mortgages; Rights of Senior Mortgages or
Beneficiaries.......................................... 65
Foreclosure of Mortgage............................... 67
Leasehold Risks....................................... 69
Rights of Redemption.................................. 70
Environmental Matters................................. 70
Certain Laws and Regulations.......................... 72
Leases and Rents...................................... 72
Personalty............................................ 73
Anti-Deficiency Legislation and Other Limitations on
Lenders................................................ 73
Federal Bankruptcy and Other Laws Affecting Creditors'
Rights................................................. 73
Due On-Sale Clauses in Mortgage Loans................. 75
Enforceability of Prepayment and Late Payment Fees.... 76
Equitable Limitations on Remedies..................... 76
Applicability of Usury Laws........................... 76
Alternative Mortgage Instruments...................... 77
Secondary Financing; Due-On-Encumbrance Provisions.... 77
Americans With Disabilities Act....................... 78
Soldiers' and Sailors' Civil Relief Act of 1940....... 78
Forfeitures in Drug and RICO Proceedings.............. 78
THE INDENTURE............................................... 79
Certain Covenants..................................... 79
Modification of Indenture............................. 79
Events of Default..................................... 80
Authentication and Delivery of Bonds.................. 82
Satisfaction and Discharge of the Indenture........... 82
Issuer's Annual Compliance Statement.................. 82
List of Bondholders................................... 83
Meetings of Bondholders............................... 83
Fiscal Year........................................... 83
Trustee's Annual Report............................... 83
The Trustee........................................... 83
THE TRUST AGREEMENT......................................... 84
Assignment of Mortgage Assets......................... 84
Repurchase of Non-Conforming Loans.................... 84
Reports to Certificateholders......................... 85
Event of Default...................................... 86
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Rights Upon Event of Default.......................... 87
The Trustee........................................... 87
Duties of the Trustee................................. 88
Resignation of Trustee................................ 88
Amendment of Trust Agreement.......................... 88
Voting Rights......................................... 89
List of Certificateholders............................ 89
REMIC Administrator................................... 89
Termination........................................... 89
THE ISSUER.................................................. 90
The Company........................................... 90
Owner Trust........................................... 90
Administrator......................................... 91
USE OF PROCEEDS............................................. 91
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES................ 92
FEDERAL INCOME TAX CONSIDERATIONS........................... 92
General............................................... 92
Characterization of Securities........................ 93
Taxation of Regular Interest Securities............... 94
Sale or Exchange of Regular Interest Securities....... 98
REMIC Expenses........................................ 99
Taxation of the REMIC................................. 99
Taxation of Holders of Residual Interest Securities... 101
Excess Inclusion Income............................... 102
Restrictions on Ownership and Transfer of Residual
Interest Securities.................................... 102
Administrative Matters................................ 103
Tax Status as a Grantor Trust......................... 103
Miscellaneous Tax Aspects............................. 107
Tax Treatment of Foreign Investors.................... 107
STATE AND LOCAL TAX CONSIDERATIONS.......................... 108
ERISA CONSIDERATIONS........................................ 109
LEGAL INVESTMENT............................................ 113
PLAN OF DISTRIBUTION........................................ 115
LEGAL MATTERS............................................... 116
GLOSSARY.................................................... 117
</TABLE>
5
<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; (e) 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; (f) the Stated
Maturity of each Class of Bonds or Final Scheduled Distribution Date of the
Certificates; (g) 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;
(h) the extent of subordination of any Subordinate Securities; (i) 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; (j) 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; (k) the Payment Dates or Distribution Dates,
as applicable for the respective Classes; (l) 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; (m) relevant financial information with
respect to the Mortgagor(s) and the Mortgaged Property underlying the Mortgage
Assets, if applicable; (n) information with respect to any required Insurance
Policies relating to any Mortgage Loans comprising Mortgage Assets or Underlying
Collateral; (o) additional information with respect to any Enhancement,
Guaranteed Investment Contract or other agreement relating to the Series;
(p) the plan of distribution of such Series; and (q) 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.
6
<PAGE>
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 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.
7
<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 or a trust established
by the Company and LaSalle National Bank, 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").
<TABLE>
<S> <C>
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--Subordinate
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
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
beneficial ownership interest in the Trust Fund for
such 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 of
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
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
beneficial ownership interest in such assets. Unless
otherwise specified in the related Prospectus
Supplement, (i) each 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
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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 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 or 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
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Certificates of a Series may be variable or change
with changes in the mortgage rates or annual
percentage rates of the Mortgage 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
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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 Prospectus 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
or 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
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given as to the actual prepayment experience of such
Mortgage Assets. See "YIELD AND PREPAYMENT
CONSIDERATIONS."
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 "YIELD AND PREPAYMENT
CONSIDERATIONS--Prepayments and Weighted Average"
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
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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 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
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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 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
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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 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.
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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 "SERVICING OF MORTGAGE LOANS--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 beneficial 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
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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
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 themselves 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
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related Series. See "DESCRIPTION OF THE
SECURITIES--Valuation of Mortgage Assets."
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 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
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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 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
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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 insurance 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
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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 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
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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
Servicer 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,
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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 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; (iv)
interests in an entity that will be treated as a
partnership for federal income tax purposes; or (v)
interests in an entity or a pool of assets that will
satisfy the requirements for qualification as a
financial asset securitization investment trust (a
"FASIT") for federal income tax purposes. Federal
income tax consequences to
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Bondholders or Certificateholders of any such Series
will be described in the applicable Prospectus
Supplement.
Compound Interest Securities, Interest Weighted
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 "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 and certain
interests in a FASIT) 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. Accordingly, a Residual Interest
Security may have a negative "value". In addition, a
portion (or all) of the income from a Residual
Interest Security (i) is not 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, is treated as unrelated
business taxable income and (iii) for a foreign
holder, does not qualify for exemption from or
reduction of withholding. Further, individual holders
are subject to limitations on the deductibility of
expenses of the REMIC. See "FEDERAL INCOME TAX
CONSIDERATIONS."
ERISA CONSIDERATIONS......................... A fiduciary of any employee benefit plan or other
retirement arrangement subject to Title I of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code,
should carefully review with its own legal advisors
whether the purchase or holding of Securities could
give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. See "ERISA
CONSIDERATIONS."
LEGAL INVESTMENT............................. The related Prospectus Supplement will specify
whether any Class of the Securities of the particular
Series offered by this Prospectus and the related
Prospectus Supplement will constitute "mortgage
related securities" under the Secondary
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Mortgage Market Enhancement Act of 1984, as amended
("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."
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." 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
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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.
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
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such value will accurately reflect the future value of the property and,
therefore, whether or not the Securities will be paid in full.
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 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."
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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
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 aggregate 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.
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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."
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
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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
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 sch 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--Taxation of Holders of Residual
Interest Securities." 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 (if any). A
portion (or 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
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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 Interest Bonds and Residual Interest Certificates, the taxable income
arising in a given year on a Residual Interest Bond or a Residual Interest
Certificate will not be equal to the taxable income associated with investment
in a corporate bond or stripped instrument having similar cash flow
characteristics and pre-tax yield. Therefore, the after-tax yield on the
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 LaSalle National Bank (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
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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.
THE CERTIFICATES--GENERAL
The Certificates will be issued in Series pursuant to separate Trust
Agreements between the Depositor and LaSalle National Bank (or another bank or
trust company named in the related Prospectus Supplement). 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.
Distributions 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
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minimum denomination for Certificates of such Class and the new principal
balance of such Certificate. See "THE TRUST AGREEMENT--Reports to
Certificateholders."
BEARER SECURITIES 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 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 "LIMITATIONS 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
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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 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.
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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.
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, Securities 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
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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, 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
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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
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
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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 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.
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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 qualifies as a "qualified
liquidation" under Section 860F of the Code. 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 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 one or more REMIC elections have been made, the Trustee
must conduct the optional termination 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.
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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.
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
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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 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 or distributed 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
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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 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.
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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 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
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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--Hazard 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 "SERVICING OF MORTGAGE LOANS--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 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
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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
pre-established 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 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
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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
generally 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 (a "Deleted Mortgage Loan") or
Trust Fund, as applicable, and substitute in its place one or more 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
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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 and Special
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, payments 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 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
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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
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for such Private Mortgage-Backed Securities or the Private Mortgage-Backed
Securities may, or 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,
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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).
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
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collection procedures as it follows with respect to mortgage loans serviced by
it that are comparable to the Mortgage Loans.
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.
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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 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 ON THE MORTGAGE LOANS."
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
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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 which no satisfactory arrangements can be made
for collection of delinquent payments. In connection with such foreclosure or
other conversion, the Primary Servicer will generally 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, subject to the express
provisions of the related Servicing Agreement.
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,
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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, 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.
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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 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
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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 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
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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 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.
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
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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
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 in the Federal Register by the Flood Emergency Management Agency, the
Master Servicer or the Servicer will be required to cause flood insurance to be
maintained with respect to such Mortgaged Property.
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 upon, or grants a title interest
in, 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. The lien of the mortgage is generally subordinate to the lien for real
estate taxes and assessments or other charges imposed under governmental police
powers. The priority of the lien with respect to such mortgage depends on its
terms, the knowledge of the parties to the mortgage and generally on the order
of recording the mortgage with the applicable public recording 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. In the
case where the borrower is 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 related Mortgaged 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).
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. Unless otherwise specified in the Prospectus Supplement,
the Depositor or the Asset Seller will make certain representations and
warranties in the Agreement with respect to the Mortgage Loans which are secured
by an interest in a leasehold estate. Such representation and warranties will be
set forth in the Prospectus Supplement if applicable.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES OR BENEFICIARIES
If specified in the applicable Prospectus Supplement, some of the Mortgage
Loans included in the Mortgage Pool will be secured by junior mortgages or deeds
of trust which are subordinate to senior
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mortgages or deeds of trust held by other lenders or institutional investors.
The rights of the Trust Fund (and therefore the Certificateholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive rents, hazard insurance and condemnation
proceeds and to cause the property securing the Mortgage Loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the Special Servicer asserts its
subordinate interest in a property in foreclosure litigation or satisfies the
defaulted senior loan. Accordingly, the Trust Fund (and therefore the
Certificateholders), as the holder of the junior lien, bear (i) the risk of
delay in distributions while a deficiency judgement against the borrower is
obtained and (ii) the risk of loss if the deficiency judgement is not realized
upon. Moreover, deficiency judgements may not be available in certain
jurisdictions or the Mortgage Loan may be nonrecourse. As discussed more fully
below, in many states a junior mortgagee or beneficiary may satisfy a defaulted
senior loan in full, or may cure such default and bring the senior loan current,
in either event adding the amounts expended to the balance due on the junior
loan. Absent a provision in the senior mortgage, no notice of default is
required to be given to the junior mortgagee.
The form of the mortgage or deed of trust used by many institutional lenders
confers on the mortgagee or beneficiary the right both to receive all proceeds
collected under any hazard insurance policy and all awards made in connection
with any condemnation proceedings, and to apply such proceeds and awards to any
indebtedness secured by the mortgage or deed of trust, in such order as the
mortgage or beneficiary may determine. Thus, in the event improvements on the
property are damaged or destroyed by fire or other casualty, or in the event the
property is taken by condemnation, the mortgagee or beneficiary under the senior
mortgage or deed of trust will have the prior right to collect any insurance
proceeds payable under a hazard insurance policy and any award of damages in
connection with the condemnation and to apply the same to the indebtedness
secured by the senior mortgage or deed of trust. Proceeds in excess of the
amount of senior mortgage indebtedness will, in most cases, by applied to the
indebtedness of a junior mortgage or trust deed. The laws of certain states may
limit the ability of mortgagees or beneficiaries to apply the proceeds of hazard
insurance and partial condemnation awards to the secured indebtedness. In such
states, the mortgagor or trustor must be allowed to use the proceeds of hazard
insurance to repair the damage unless the security of the mortgagee or
beneficiary has been impaired. Similarly, in certain states, the mortgagee or
beneficiary is entitled to the award for a partial condemnation of the real
property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinate to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments
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on the property and, when due, all encumbrances, charges and liens on the
property which appear prior to the mortgage or deed of trust, to provide and
maintain fire insurance on the property, to maintain and repair the property and
not to commit or permit any waste thereof, and to appear in and defend any
action or proceeding purporting to affect the property or the rights of the
mortgagee or beneficiary under the mortgage or deed of trust. Upon a failure of
the mortgagor or trustor to perform any of these obligations, the mortgagee or
beneficiary is given the right under the mortgage or deed of trust to perform
the obligation itself, at its election, with the mortgagor or trustor agreeing
to reimburse the mortgagee or beneficiary for any sums expended by the mortgagee
or beneficiary on behalf of the trustor. All sums so expended by the mortgagee
or beneficiary become part of the indebtedness secured by the mortgage or deed
of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged property,
including, without limitation, leasing activities (including new leases and
termination or modification of existing leases), alterations and improvements to
buildings forming a part of the mortgaged property and management and leasing
agreements for the mortgaged property. Tenants will often refuse to execute a
lease unless the mortgagee or beneficiary executes a written agreement with the
tenant not to disturb the tenant's possession of its premises in the event of a
foreclosure. A senior mortgagee or beneficiary may refuse to consent to matters
approved by a junior mortgagee or beneficiary with the result that the value of
the security for the junior mortgage or deed of trust is diminished. For
example, a senior mortgagee or beneficiary may decide not to approve a lease or
to refuse to grant a tenant a non-disturbance agreement. If, as a result, the
lease is not executed, the value of the mortgaged property may be diminished.
FORECLOSURE OF MORTGAGE
In states permitting nonjudicial foreclosure proceedings, 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. Generally, state law governs the procedure for
public sale, the parties entitled to notice, the method of giving notice and the
applicable time periods.
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 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
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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.
The holder of a junior mortgage that forecloses on any Mortgaged Property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
If title to any Mortgaged Property is acquired by the Trustee on behalf of
the Certificateholders, the Master Servicer or any related Sub-servicer or the
Special Servicer, on behalf of such holders, will be required to sell the
Mortgaged Property prior to the close of the third calendar year following the
year of acquisition of such Mortgaged Property by the Trust Fund, unless
(i) the Internal Revenue Service grants an extension of time to sell such
property (an "REO Extension") or (ii) it obtains an opinion of counsel generally
to the effect that the holding of the property for more than two years after its
acquisition will not result in the imposition of a tax on the Trust Fund or
cause any REMIC created pursuant to the Pooling and Servicing Agreement to fail
to qualify as a REMIC under the Code. Subject to the foregoing, the Master
Servicer or any related Sub-servicer or the Special Servicer will generally be
required to solicit bids
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for any Mortgaged Property so acquired in such a manner as will be reasonably
likely to realize a fair price for such property. The Master Servicer or any
related Sub-servicer or the Special Servicer may retain an independent
contractor to operate and manage any REO Property; however, the retention of an
independent contractor will not relieve the Master Servicer or any related
Sub-servicer or the Special Servicer of its obligations with respect to such REO
Property.
In general, the Master Servicer or any related Sub-servicer or the Special
Servicer or an independent contractor employed by the Master Servicer or any
related Sub-servicer or the Special Servicer at the expense of the Trust Fund
will be obligated to operate and manage any Mortgaged Property acquired as REO
Property in a manner that (i) would cause such property to be treated as
"foreclosure property" by any REMIC in which such REO Property is held and
(ii) would, to the extent commercially reasonable and consistent with
clause (i), maximize the Trust Fund's net after-tax proceeds from such property.
After the Master Servicer or any related Sub-servicer or the Special Servicer
reviews the operation of such property and consults with the Trustee to
determine the Trust Fund's federal income tax reporting position with respect to
the income it is anticipated that the Trust Fund would derive from such
property, the Master Servicer or any related Sub-servicer or the Special
Servicer could determine (particularly in the case of an REO Property that is a
hospitality property or residential health care facility) that it would not be
commercially feasible to manage and operate such property in a manner that would
avoid the imposition of a tax on "net income from foreclosure property," within
the meaning of Section 857(b)(4)(B) of the Code (an "REO Tax") at the highest
marginal corporate tax rate (currently 35%). The determination as to whether
income from an REO Property would be subject to an REO Tax will depend on the
specific facts and circumstances relating to the management and operation of
each REO Property. Any REO Tax imposed on the Trust Fund's income from an REO
Property would reduce the amount available for distribution to
Certificateholders. Certificateholders are advised to consult their tax advisors
regarding the possible imposition of REO Taxes in connection with the operation
of commercial REO Properties by REMICs.
LEASEHOLD RISKS
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate if,
among other reasons, the ground lessee breaches or defaults in is obligations
under the ground lease or there is a bankruptcy of the ground lessee or the
ground lessor. This risk may be minimized if the ground lease contains certain
provisions protective of the mortgagee, but the ground leases that secure
Mortgage Loans may not contain some of these protective provisions, and
mortgages may not contain the other protections discussed in the next paragraph.
Protective ground lease provisions include the right of the leasehold mortgagee
to receive notices from the ground lessor of any defaults by the mortgagor; the
right to cure such defaults, with adequate cure periods; if a default is not
susceptible of cure by the leasehold mortgagee, the right to acquire the
leasehold estate through foreclosure or otherwise; the ability of the ground
lease to be assigned to and by the leasehold mortgagee or purchaser at a
foreclosure sale and for the concomitant release of the ground lessee's
liabilities thereunder; and the right of the leasehold mortgagee to enter into a
new ground lease with the ground lessor on the same terms and conditions as the
old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may require
that the ground lease or leasehold mortgage prohibit the ground lessee from
treating the ground lease as terminated in the event of the ground lessor's
bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code), although the enforceability of such clause has
not been established.
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Without the protections described above, a leasehold mortgagee may lose the
collateral securing its leasehold mortgage. In addition, terms and conditions of
a leasehold mortgage are subject to the terms and conditions of the ground
lease. Although certain rights given to a ground lessee can be limited by the
terms of a leasehold mortgage, the rights of a ground lessee or a leasehold
mortgagee with respect to, among other things, insurance, casualty and
condemnation will be governed by the provisions of the ground lease.
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.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the end of the third taxable year
following the year of acquisition. Unless otherwise provided in the related
Prospectus Supplement, with respect to a series of Certificates for which an
election is made to qualify the Trust Fund or a part thereof as a REMIC, the
Agreement will permit foreclosed property to be held for more than two years if
the Internal Revenue Service grants an extension of time within which to sell
such property or independent counsel renders an opinion to the effect that
holding such property for such additional period is permissible under the REMIC
Provisions.
ENVIRONMENTAL MATTERS
Real property pledged as security to a lender may be subject to
environmental risks. For example, certain environmental liabilities may
(1) cause a diminution in the value of the Mortgaged Property; (2) limit the
lender's foreclosure rights; and (3) subject the lender to liability for
clean-up costs or other remedial actions. Under the laws of many 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.
The presence of hazardous or toxic substances, or the failure to remediate
such property properly, may adversely affect the market value of the property,
as well as the owner's ability to sell or use the real estate or to borrow using
the real estate as collateral. In addition, certain environmental laws and
common law principles govern the responsibility for the removal, encapsulation
or disturbance of asbestos containing materials ("ACMs") when these ACMs are in
poor condition or when a property with ACMs is undergoing repair, renovation or
demolition. Such laws could also be used to impose liability upon owners and
operators of real properties for release of ACMs into the air that cause
personal injury or other damage. In addition to cleanup and natural resource
damages actions brought by federal, state, and local agencies and private
parties, the presence of hazardous substances on a property may lead to claims
of personal injury, property damage, or other claims by private plaintiffs.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and under the laws of certain
states, a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a Mortgaged Property may
become liable in some circumstances either to the government or to private
parties for cleanup costs, even if the lender does not cause or contribute to
the contamination. Liability under some federal or state
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statutes may not be limited to the original or unamortized principal balance of
a loan or to the value of the property securing a loan. CERCLA imposes strict,
as well as joint and several, liability on several classes of potentially
responsible parties, including current owners and operators of the property,
regardless of whether they caused or contributed to the contamination. Many
states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest. This exemption for holders
of a security interest such as a secured lender applies only in circumstances
where the lender acts to protect its security interest in the contaminated
facility or property. Thus, if a lender's activities encroach on the actual
management of such facility or property, the lender faces potential liability as
an "owner or operator" under CERCLA. Similarly, when a lender forecloses and
takes title to a contaminated facility or property (whether it holds the
facility or property as an investment or leases it to a third party), the lender
may incur potential CERCLA liability.
Whether actions taken by a lender would constitute such an encroachment on
the actual management of a facility or property, so as to render the secured
creditor exemption unavailable to the lender has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the
"Asset Conservation Act"), signed into law by President Clinton on
September 30, 1996, which lists permissible actions that may be undertaken by a
lender holding security in a contaminated facility without exceeding the bounds
of the secured creditor exemption, subject to certain conditions and
limitations. The Asset Conservation Act provides that in order to be deemed to
have participated in the management of a secured property, a lender must
actually participate in the operational affairs of the property or the borrower.
The Asset Conservation Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a mortgaged
property, purchases it at a foreclosure sale or accepts a deed-in-lieu of
foreclosure provided that the lender seeks to sell the mortgaged property at the
earliest practicable commercially reasonable time on commercially reasonable
terms. In addition to its application to CERCLA, the Asset Conservation Act
applies to determining a lender's liability as an owner or operator of a
petroleum or hazardous substance underground storage tank ("UST") under the
federal Resource Conservation and Recovery Act ("RCRA").
The secured creditor exemption does not protect a lender from liability
under CERCLA in cases, among others, where the lender arranges for disposal of
hazardous substances or for transportation of hazardous substances. In addition,
the secured creditor exemption does not govern liability for cleanup costs under
federal laws other than CERCLA or the petroleum and hazardous substance UST
provisions of RCRA. For example, under other provisions of RCRA, a past or
present owner or operator of a facility may be ordered to conduct environmental
property remediation in a proceeding brought by the government or by private
citizens. In addition, many states have statutes similar to CERCLA, and not all
those statutes provide for a secured creditor exemption.
In a few states, transfer of some types of properties is conditioned upon
clean up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed-in-lieu of foreclosure
or otherwise, may be required to cleanup the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases, unanticipated or uninsurable liabilities of the borrower may
jeopardize the borrower's ability to meet its loan obligations.
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If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental hazard, but that
person or entity may be bankrupt or otherwise judgment proof. It is possible
that cleanup costs could become a liability of the Trust Fund and occasion a
loss to Certificateholders in certain circumstances described above if such
remedial costs were incurred.
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 any
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.
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. The manner of perfecting the mortgagee's interest in
rents may depend on whether the mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect the
rents. In most states, hotel and motel room revenues are considered accounts
receivable under the UCC; generally these revenues are either assigned by the
mortgagor, which remains entitled to collect such revenues absent a default, or
pledged by
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the mortgagor, as security for the loan. In general, the lender must file
financing statements in order to perfect its security interest in the revenues
and must file continuation statements, generally every five years, to maintain
perfection of such security interest. Even if the lender's security interest in
room revenues is perfected under the UCC, the lender will generally be required
to commence a foreclosure or otherwise take possession of the property in order
to collect the room revenues after a default.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and industrial
plants, are likely to derive a significant part of their value from personal
property which does not constitute "fixtures" under applicable state real
property law and, hence, would not be subject to the lien of a mortgage. Such
property is generally pledged or assigned as security to the lender under the
UCC. In order to perfect its security interest therein, the lender generally
must file UCC financing statements and, to maintain perfection of such security
interest, file continuation statements generally every five years.
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 bankruptcy petition acts as a stay of 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 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 also reinstate accelerated indebtedness and, 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 debtor, or a debtor as debtor-in-possession, may, despite the provisions
of the related Mortgage Loan to the contrary, sell its 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" as such term has been interpreted under the Bankruptcy Code. It
should be noted, however, that, in the case of hospitality properties, 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 remedies in the event that a 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
bankruptcy 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 "adequate assurance of future performance" by the assignee is provided to
the lessor or contract party. 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
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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 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 that the assignment 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 debtor, or a
debtor as a debtor-in-possession, rejects an unexpired lease of real property as
to which it is the lessor, 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 a mortgagor under
the related Mortgage Loan to the Trust Fund. Such payments may be protected from
recovery as preferences if they are payments in the ordinary course of business
made according to ordinary business terms on debts incurred in the ordinary
course of business. Whether any particular payment would be protected depends
upon the facts specific to the particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its costs
and expenses in preserving or selling 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 the ability 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 and the claim
of the mortgagee 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.
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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 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
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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 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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AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service after the
origination of such mortgagor's Mortgage Loan (including a mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of any servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of Certificates, and would
not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, any form of Credit Support provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected Mortgage Loan
during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in the
event that such a Mortgage Loan goes into default, there may be delays and
losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property," including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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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
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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
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
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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 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,
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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.
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.
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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 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
LaSalle National Bank (or another bank or trust company qualified under the
TIA and named in the Prospectus Supplement related to a Series of Bonds) will be
the Trustee under the Indenture for the Bonds. The Issuer may maintain other
banking relationships in the ordinary course of business with the Trustee. If
LaSalle National Bank serves as Trustee, the Trustee's "Corporate Trust Office"
is 135 South LaSalle Street, Suite 1625, Chicago, Illinois 60674, or at such
other addressees as the Trustee may designate from time to time by notice to the
Bondholders and the Issuer. If another bank or trust company serves as Trustee,
the address of its Corporate Trust Office will be specified in the related
Prospectus Supplement. 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 will be specified in the related Prospectus Supplement.
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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 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
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defect, repurchase the related Mortgage Loan or any property acquired in respect
thereof from the Trustee at a price generally 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 constitutes the sole remedy 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.
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
(ii) 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;
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(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 of Senior Securities is less
than their required distribution, the amount of the shortfall;
(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
Unless otherwise specified in the related Prospectus Supplement, 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 after
the giving of written notice of such failure to the
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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
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 the 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
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Trustee may be LaSalle National Bank. 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; provided, however, the Trustee
will not be responsible for the accuracy or content of any such documents
furnished to it.
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 connection with the occurrence and/or continuation of
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.
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, if the Trustee becomes insolvent, or 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 (ii) 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
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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.
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
Mortgage 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
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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.
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
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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 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.
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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."
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 the income of which is
subject to United States federal income taxation regardless of its source or a
trust if a court within the United States is able to exercise primary
supervision over the administration of such trust and one or more United States
persons have the authority to control all substantial decisions of such trust,
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.
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 summary and the opinion of
counsel to which the summary refers below, are based are subject to change, and
such a change could apply retroactively. No rulings have been or will be sought
from the IRS on these matters.
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
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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;
(iv) interests in an entity that will be treated as a partnership for federal
income tax purposes, or (v) interests in an entity or a pool of assets that will
satisfy the requirements for qualification as a financial asset securitization
investment trust (a "FASIT") 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.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the Trust
Fund's income for the period in which the requirements for such status are not
satisfied. The Pooling Agreement or Indenture with respect to each REMIC will
include provisions designed to maintain the Trust Fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any Trust Fund as
a REMIC will be terminated.
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 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 which is . . . residential real property," and other types of
assets described in Code Section 7701(a)(19)(C)); and (ii) Securities held by a
real estate investment trust will constitute "real estate assets" within the
meaning of Code Section 856(c)(5)(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) or (ii) above, then Securities will qualify
for the tax treatment described in (i) or (ii) 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 which is . . . residential real property" within the
meaning of Section 7701(a)(19)(C). The Small Business Job Protection Act of 1996
(the "SBJPA of 1996") repealed the
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reserve method for bad debts of domestic building and loan associations and
mutual savings banks, and thus has eliminated the asset category of "qualifying
real property loans" in former Code Section 593(d) for taxable years beginning
after December 31, 1995. The requirement in the SBJPA of 1996 that such
institutions must "recapture" a portion of their existing bad debt reserves is
suspended if a certain portion of their assets are maintained in "residential
loans" under Code Section 7701(a)(19)(C)(v), but only if such loans were made to
acquire, construct or improve the related real property and not for the purpose
of refinancing. However, no effort will be made to identify the portion of the
Mortgage Loans of any Series meeting this requirement, and no representation is
made in this regard.
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"). Treasury regulations (the "Contingent Regulations") governing the
treatment of contingent payment obligations also have been adopted. 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 Contingent Regulations
contain rules applicable to instruments governed by Section 1272(a)(6). Although
technically not applicable to prepayable securities, the Contingent Regulations
may represent a possible method to be applied in calculating OID on certain
Classes of Certificates. Until the Treasury Department 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 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, generally less than 0.25% of the
stated redemption price at maturity of the Regular Interest Security multiplied
by the weighted average maturity of the Regular Interest Security. For this
purpose, the weighted average maturity of the Regular Interest Security is
computed as the sum of the amounts determined by multiplying the number of full
years (I.E., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount
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of each distribution included in the stated redemption price at maturity of the
Regular Interest Security and the denominator of which is the stated redemption
price at maturity of the Regular Interest Security. The schedule of such
distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Loans used in pricing the Regular Interest Securities
(the "Prepayment Assumption") relating to the Regular Interest Securities. The
Prepayment Assumption with respect to a Series of Regular Interest Securities
will be set forth in the applicable Prospectus Supplement. However, the amount
of any DE MINIMIS OID must be included in income as principal payments are
received on a Regular Interest Security, in the proportion that each such
payment bears to the original principal balance of the Security.
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, Interest Weighted
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. For example, any securities upon which interest can be
deferred and added to principal ("Deferred Interest Securities") 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 for income tax information reporting
purposes 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 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. 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.
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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.
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 offsetting 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 is 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. Those calculations could result in an income accrual
for a period below zero (a "Negative Adjustment"). The legislative history to
the relevant Code provisions indicates, and the relevant Code provisions appear
to provide that any such Negative Adjustment may not be taken as current loss or
deduction, but may only be carried forward to offset future accruals of positive
OID. Thus, in the absence of such accruals of positive OID, it appears that any
losses resulting from a Negative Adjustment must be carried forward until
disposition or retirement of the debt obligation, and may give rise to a capital
loss at that time. However it is possible that income derived from an Interest
Weighted Security that had a principal balance might 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 had in effect an election under
Section 171 of the Code with respect to all taxable debt instruments held by
such holder, as described below.
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, interest is treated as payable at a variable rate if, generally,
(i) the issue price does not exceed the original principal balance by more than
a specified amount and (ii) the interest compounds or is payable at least
annually at current values of (a) one or more "qualified floating rates," (b) a
single fixed rate and one or more qualified floating rates, (c) a single
"objective rate," or (d) a singled fixed rate and a single objective rate that
is a "qualified inverse floating rate." A floating rate is a qualified floating
rate if variations in the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds, where such rate
is subject to a fixed multiple that is greater than 0.65 but not more than 1.35.
Such rate may also be increased or decreased by a fixed spread or subject to a
fixed cap or floor, or a cap or floor that is not reasonably expected as of the
issue date to affect the yield of the instrument significantly. An objective
rate is any rate (other than a qualified floating rate) that is determined using
a single fixed formula and that is based on objective financial or economic
information, provided that such information
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is not (i) within the control of the issuer or a related party or (ii) unique to
the circumstances of the issuer or a related party. A qualified inverse floating
rate is a rate equal to a fixed rate minus a qualified floating rate that
inversely reflects contemporaneous variations in the cost of newly borrowed
funds; an inverse floating rate that is not a qualified inverse floating rate
may nevertheless be an objective rate.
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 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 bear interest at an "objective
rate."
Due to the complexity of these rules and the variety of Variable Rate
Securities that may be offered hereunder, the precise application of these rules
to any Variable Rate Securities offered hereunder will be discussed in the
related Prospectus Supplement, based on the specific characteristics of each
such security.
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
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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 the ratio of (a) in the case of a
Regular Interest Security 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 a
Regular Interest Security originally issued at a discount, original issue
discount in the relevant period to total original issue discount remaining to be
paid. 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 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.
ELECTION TO TREAT ALL INTEREST UNDER THE CONSTANT YIELD METHOD. A holder of
a debt instrument such as a Regular Interest Security may elect to treat all
interest that accrues on the instrument using the constant yield method, with
none of the interest being treated as qualified stated interest. For purposes of
applying the constant yield method to a debt instrument subject to such an
election, (i) "interest" includes stated interest, original issue discount, DE
MINIMIS original issue discount, market discount and DE MINIMIS market discount,
as adjusted by any amortizable bond premium or acquisition premium and (ii) the
debt instrument is treated as if the instrument were issued on the holder's
acquisition date in the amount of the holder's adjusted basis immediately after
acquisition. It is unclear whether, for this purpose, the initial Prepayment
Assumption would continue to apply or if a new prepayment assumption as of the
date of the holder's acquisition would apply. A holder generally may make such
an election on an instrument by instrument basis or for a class or group of debt
instruments. However, if the holder makes such an election with respect to a
debt instrument with amortizable bond premium or with market discount, the
holder is deemed to have made elections to amortize bond premium or to report
market discount income currently as it accrues under the constant yield method,
respectively, for all premium bonds held or market discount bonds acquired by
the holder in the same taxable year or thereafter. The election is made on the
holder's federal income tax return for the year in which the debt instrument is
acquired and is irrevocable except with the approval of the Internal Revenue
Service. Investors should consult their own tax advisors regarding the
advisability of making such an election.
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 and market discount included in income and
reduced by any payments received (other than qualified periodic interest
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payments), any amortized premium, and any prior losses. 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. The
Taxpayer Relief Act of 1997 (the "1997 Act") has generally reduced capital gains
tax rates for non-corporate taxpayers, who should consult their tax advisors
regarding the consequences to them of the 1997 Act. There is no such discrepancy
in tax rates on capital gains and ordinary income in the case of corporations.
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 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. Moreover, such expenses are disallowed entirely
as deductions for purposes of the Alternative Minimum Tax. 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.
Unless otherwise disclosed in the related Prospectus Supplement, REMICs
issuing securities offered hereunder will not be treated as "single class"
REMICs under these 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.
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
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produced by the REMIC's assets, including stated interest and any original issue
discount or market discount on loans and other assets, income from amortization
of premium on Regular Interest Securities issued at a premium and income from
write-off of Regular Interest Securities, and (ii) deductions, including stated
interest and original issue discount accrued on a Regular Interest Security,
amortization of any premium with respect to loans, losses on Mortgage 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 a specified applicable
amount 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 for a real estate investment trust. A
trust agreement or indenture may permit the Servicer to operate a Foreclosed
Property in a manner that produces income subject to the foregoing tax if
certain conditions are satisfied. 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 "net income from
foreclosure property" at a rate of 100%. Accordingly, operation of Foreclosed
Properties generally will be required to be conducted through an independent
contractor.
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
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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. Unless chargeable
to the servicer or trustee under the applicable Trust Agreement or Indenture,
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.
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 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.
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. Consequently, a Residual Interest Security may
have a negative "value".
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.
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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 Treasury regulations that
generally require a securities dealer to mark to market securities held for sale
to customers.
SALE OR EXCHANGE. A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security 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. 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 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
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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 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 share of the excess
inclusion income of the REMIC allocable to such Disqualified Organization.
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. The holder of the Residual Interest
Security holding the largest percentage interest will be designated as "tax
matters person" of the related REMIC for purposes of any such 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"),
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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 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 a specified applicable amount 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. Under Legislation enacted in 1997,
Section 1272(a)(6) of the Code requires in the case of a pool of Mortgage Loans
with original issue discount in excess of a prescribed DE MINIMIS amount, that a
holder of a Certificate 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, based on a prepayment assumption, 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. It is unclear when such
prepayment assumption is determined or adjusted. 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
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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 MINIMISamount 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, using a prepayment assumption, in a manner to
be provided in Treasury regulations. The 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), which rules now appear to require the use of a prepayment
assumption, 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.
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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. Legislation enacted
in 1997 extends this treatment to instruments such as the Stripped Certificates.
The Cash Flow Bond Method will consequently be used in preparing information
reports as to the income accruing on such Certificates, and it is expected that
original issue discount will be reported on that basis. 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.
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 Mortgage 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 "real estate
assets" within the meaning of Section 856(c)(5)(B) of the Code, and "loans . . .
secured by an interest in real property which is . . . residential 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
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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, in each case
to the extent the underlying Mortgage Loans qualify for such treatments.
However, Mortgage Loans secured by non-residential real property will not
constitute "loans . . . secured by an interest in real property which is . . .
residential real property" within the meaning of Section 7701(a)(19)(C)(v) of
the Code. In addition, it is possible that various reserve 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 the Code that would otherwise require the Issuer to withhold at a
30% rate (unless
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such rate were reduced or eliminated by an applicable tax treaty) on, among
other things, interest and original issue discount paid to Nonresidents.
It is possible, under regulations promulgated under Section 881 of the Code
concerning conduit financing transactions, that the exemption from withholding
taxes described above may not be available to a holder that is a Nonresident if
such holder owns 10% or more of one or more underlying mortgagors or if the
holder is a controlled foreign corporation that is related to one or more
mortgagors.
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. In such case, however, they will generally be subject to the
regular United States income tax.
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. 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 and other retirement
arrangements, such as individual retirement accounts and Keogh plans, that are
subject to Section 4975 of 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 or may become 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 might be considered to 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 95-60, which
exempts certain transactions between insurance company general accounts and
Parties in Interest; PTCE 84-14, which exempts certain transactions effected on
behalf of a Plan by a "qualified plan asset manager"; PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house 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 statutory or administrative exemptions.
Special caution should be exercised before the assets of a Plan (including
assets that may be held in an insurance company's separate or general accounts
where assets in such accounts may be deemed Plan assets for purposes of ERISA)
are used to purchase a Security if the Issuer, the Master Servicer, if any, the
Servicer, the Trustee, the provider of Enhancement, if any, or an affiliate
thereof is a fiduciary with respect to such assets.
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. 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 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, another exception provides that if
at all times less than 25% of the value of all classes of equity interests in
the Issuer are held by "benefit plan investors" (which is defined as including
plans subject to ERISA, individual retirement accounts, certain plans not
subject to ERISA, and entities whose underlying assets include plan assets by
reason of plan investment in such entities), the investing Plan's assets will
not include any of the underlying assets of the Issuer.
If a particular Series is treated as "equity" for purposes of the Plan Asset
Regulations and the underlying assets of the Issuer are 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
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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 and the underlying assets of the Issuer are 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 one or
more statutory or administrative exemptions is applicable.
Furthermore, in either of the cases above, 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.
Even if the underlying assets of the Issuer are treated as assets of a Plan
purchasing Securities of such Series, 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. The
Prospectus Supplement will specify whether the Exemption will apply with respect
to any particular series.
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 Services, a Division of the
McGraw Hill Companies, Inc. ("Standard & Poor's"), Moody's Investors
Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch
Investors Service, L.P. ("Fitch");
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
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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
(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, provider of Enhancement, if any, 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, it should
be assumed, unless the Prospectus Supplement provides otherwise, that none 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.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA or Section 4975 of the Code. However, such a governmental plan may be
subject to a federal, state, or local law which is, to a material extent,
similar to the provisions of ERISA or Section 4975 of the Code ("Similar Law").
A
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fiduciary of a governmental plan should make its own determination as to the
need for and the availability of any exemptive relief under Similar Law.
The sale of Securities to a Plan is in no respect a representation by the
Issuer or the Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or by any particular
Plan, or that this investment is appropriate for Plans generally or for any
particular Plan.
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LEGAL INVESTMENT
The Prospectus Supplement for each Series of Securities will specify which,
if any, of the Classes of Securities offered thereby will constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984, as amended ("SMMEA"). The appropriate characterization of those
Securities not qualifying as "mortgage related securities" ("Non-SMMEA
Securities") under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase such Securities, may be
subject to significant interpretive uncertainties. Accordingly, investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether and to what extent the Non-SMMEA Securities
constitute legal investments for them.
Those Classes of Securities that (i) are rated in one of the two highest
rating categories by one or more Rating Agencies and (ii) are part of a Series
representing interests in, or secured by, a Trust Fund consisting of Mortgage
Loans or Private Mortgage-Backed Securities, provided that such Mortgage Loans
(or the Mortgage Loans underlying the Private Mortgage-Backed Securities) are
secured by first liens on Mortgaged Property and were originated by certain
types of originators as specified in SMMEA, will be "mortgage related
securities" for purposes of SMMEA. As "mortgage related securities," such
Classes will constitute legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including,
but not limited to, state-chartered savings banks, commercial banks, savings and
loan associations and insurance companies, as well as trustees and state
government employee retirement systems) created pursuant to or existing under
the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Pursuant
to SMMEA, a number of states enacted legislation, on or before the October 3,
1991 cutoff for such enactments, limiting to varying extents the ability of
certain entities (in particular, insurance companies) to invest in "mortgage
related securities" secured by liens on residential, or mixed residential and
commercial properties, in most cases by requiring the affected investors to rely
solely upon existing state law, and not SMMEA. Pursuant to Section 347 of the
Riegle Community Development and Regulatory Improvement Act of 1994, which
amended the definition of "mortgage related security" (effective December 31,
1996) to include, in relevant part, Securities satisfying the rating, first lien
and qualified originator requirements for "mortgage related securities," but
representing interests in, or secured by, a Trust Fund consisting, in whole or
in part, of first liens on one or more parcels of real estate upon which are
located one or more commercial structures, states were authorized to enact
legislation, on or before September 23, 2001, specifically referring to
Section 347 and prohibiting or restricting the purchase, holding or investment
by state-regulated entities in such types of Securities. Accordingly, the
investors affected by such legislation will be authorized to invest in
Securities qualifying as "mortgage related securities" only to the extent
provided in such legislation. However, enactment by a state of any such
legislative restrictions will not affect the validity of any contractual
commitment to purchase, hold or invest in securities qualifying as "mortgage
related securities" that was made, and will not require the sale or disposition
of any securities that were acquired prior to enactment of such state
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
Section 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") has amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards in 12 C.F.R. Section1.5 concerning
"safety and soundness" and retention of credit
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information), certain "Type IV securities," defined in 12 C.F.R. Section1.2(1)
to include certain "commercial mortgage-related securities" and "residential
mortgage-related securities." As so defined, "commercial mortgage-related
security" and "residential mortgage-related security" mean, in relevant part,
"mortgage-related security" within the meaning of SMMEA, PROVIDED THAT, in the
case of a "commercial mortgage-related security," it "represents ownership of a
promissory note or certificate of interest or participation that is directly
secured by a first lien on one or more parcels of real estate upon which one or
more commercial structures are located and that is fully secured by interests in
a pool of loans to NUMEROUS OBLIGORS." In the absence of any rule or
administrative interpretation by the OCC defining the term "numerous obligors,"
no representation is made as to whether any Class of Securities will qualify as
"commercial mortgage-related securities," and thus as "Type IV securities," for
investment by national banks. The National Credit Union Administration ("NCUA")
has adopted rules, codified at 12 C.F.R. Part 703, which permit federal credit
unions to invest in certain "mortgage related securities" other than stripped
mortgage related securities, residual interests in mortgage related securities,
and commercial mortgage related securities, unless the credit union has obtained
written approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. 703.140. The Office of Thrift Supervision (the "OTS") has
issued Thrift Bulletin 3a (December 1, 1998), "Management of Interest Rate Risk,
Investment Securities, and Derivatives Activities", which thrift institutions
subject to the jurisdiction of the OTS should consider before investing in any
Securities.
All depository institutions considering an investment in the Securities
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the Federal
Financial Institutions Examination Council, which has been adopted by the Board
of Governors of the Federal Reserve System, the FDIC, the OCC and the OTS
effective May 26, 1998, and by the NCUA effective October 1, 1998. The 1998
Policy Statement sets forth general guidelines which depository institutions
must follow in managing risks (including market, credit, liquidity, operational
(transaction), and legal risks) applicable to all securities (including mortgage
pass-through securities and mortgage-derivative products) used for investment
purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Securities,
as certain Series or Classes may be deemed unsuitable investments, or may
otherwise be restricted, under such rules, policies or guidelines (in certain
instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Securities issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain Classes of Securities as "mortgage
related securities," no representations are made as to the proper
characterization of the Securities for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase Securities under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Securities) may adversely affect the liquidity of the
Securities.
Investors should consult their own legal advisors in determining whether and
to what extent the Securities constitute legal investments for such investors or
are subject to investment, capital or other restrictions and, if applicable,
whether SMMEA has been overriden in any jurisdiction.
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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 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
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"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, Cadwalader, Wickersham & Taft, New York, New
York, Sidley & Austin, New York, New York or Thacher Proffitt & Wood, 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
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Supplement shall set forth, for purposes of calculating the Asset Value of
Mortgage Assets, the dates on 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.
"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 cities in which the Corporate Trust Office or, if applicable, the offices of
the Servicer or the Special Servicer, are 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 per annum 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.
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"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.
"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.
"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.
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"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.
"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.
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"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.
"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.
"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.
"Guarantor" means a guarantor acceptable to the Rating Agencies rating the
Securities.
"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 Policies" means hazard insurance and other insurance policies
required to be maintained with respect to Mortgage Loans.
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"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.
"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.
"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.
"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.
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"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.
"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.
"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.
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"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.
"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 Only Securities" means a Security entitled to receive payments of
principal only.
"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
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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.
"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.
"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.
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"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.
"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.
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"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, as
amended.
"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.
"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.
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"Trustee" means LaSalle National Bank or another bank or trust company named
as trustee in the Prospectus Supplement for a series of Securities and, in the
case of a series of Bonds, qualified under the TIA.
"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.
"Uncertificated Regular Interest" means a regular interest in a REMIC that
is not represented by a physical Certificate.
"Undelivered Mortgage Assets" means Mortgage Assets that are not pledged and
delivered to the Trustee on the related Closing Date.
"Underlying Collateral" means, with respect to a Private Mortgage-Backed
Security, the underlying Mortgage Loans.
"Underwriters" means, collectively, Lehman Brothers, as agent or as
underwriter, or underwriting syndicates represented by Lehman Brothers.
"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 applicable 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.
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"LBUBS00C2.XLS" is a Microsoft Excel*, Version 5.0 spreadsheet that provides in
electronic format certain information shown in Annexes A-1, A-2 and A-3, as well
as certain Mortgage Loan and Mortgaged Property information shown in this
prospectus supplement.
To open the file, insert the diskette into your floppy drive. Copy the file
"LBUBS00C2.XLS" to your hard drive or network drive. Open the file
"LBUBS00C2.XLS" as you would normally open any spreadsheet in Microsoft Excel.
After the file is opened, a securities law legend will be displayed. READ THE
LEGEND CAREFULLY. To view the data, see the worksheets labeled, "Annex A-1",
"Annex A-2", "Annex A-3" or "Step Schedule", respectively.
- ------------------------
* Microsoft Excel is a registered trademark of Microsoft Corporation.
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUPPLEMENT
Important Notice about the Information
Contained in this Prospectus Supplement,
the Accompanying Prospectus and the Related
Registration Statement..................... 3
Forward-Looking Statements................... 3
Summary of Prospectus Supplement............. 4
Risk Factors................................. 27
Description of the Mortgage Pool............. 43
Servicing of the Mortgage Loans.............. 84
Description of the Offered Certificates...... 109
Yield and Maturity Considerations............ 135
Use of Proceeds.............................. 142
Federal Income Tax Consequences.............. 142
Certain ERISA Considerations................. 146
Legal Investment............................. 150
Method of Distribution....................... 150
Legal Matters................................ 151
Ratings...................................... 152
ANNEX A-1--Certain Characteristics of the
Mortgage Loans............................. A-1-1
ANNEX A-2--Certain Monetary Terms of the
Mortgage Loans............................. A-2-1
ANNEX A-3--Certain Information Regarding
Reserves................................... A-3-1
ANNEX B--Term Sheet.......................... B-1
ANNEX C-1--Price/Yield Tables................ C-1-1
ANNEX C-2--Decrement Tables.................. C-2-1
ANNEX D--Form of Delinquent Loan Status
Report..................................... D-1
ANNEX E--Form of Historical Loan Modification
Report..................................... E-1
ANNEX F--Form of Historical Liquidation
Report..................................... F-1
ANNEX G--Form of REO Status Report........... G-1
ANNEX H--Form of Servicer Watch List......... H-1
ANNEX I--Form of Operating Statement Analysis
Report..................................... I-1
ANNEX J--Form of NOI Adjustment Worksheet.... J-1
ANNEX K--Form of Loan Payoff Notification
Report..................................... K-1
ANNEX L--Form of Comparative Financial Status
Report..................................... L-1
PROSPECTUS
Prospectus Supplement........................ 6
Additional Information....................... 6
Incorporation of Certain Documents by
Reference.................................. 7
Summary of Terms............................. 8
Risk Factors................................. 28
Description of the Securities................ 35
Yield and Prepayment Considerations.......... 44
Security for the Bonds and Certificates...... 48
Servicing of Mortgage Loans.................. 56
Enhancement.................................. 61
Description of Insurance on the Mortgage
Loans...................................... 63
Certain Legal Aspects of Mortgage Loans...... 65
The Indenture................................ 79
The Trust Agreement.......................... 84
The Issuer................................... 90
Use of Proceeds.............................. 91
Limitations on Issuance of Bearer
Securities................................. 92
Federal Income Tax Considerations............ 92
State and Local Tax Considerations........... 108
ERISA Considerations......................... 109
Legal Investment............................. 113
Plan of Distribution......................... 115
Legal Matters................................ 116
Glossary..................................... 117
</TABLE>
UNTIL , 2000 ALL DEALERS THAT EFFECT TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$1,280,395,000
(APPROXIMATE)
LB-UBS COMMERCIAL
MORTGAGE TRUST 2000-C1
CLASS A-1, CLASS A-2,
CLASS B, CLASS C, CLASS D,
CLASS E, CLASS F, CLASS G AND CLASS X
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES
SERIES 2000-C1
---------------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
WARBURG DILLON READ LLC
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANC ALEX. BROWN
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