<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998
REGISTRATION
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
(Exact Name of registrant as specified in governing charter)
Delaware 13-3411414
---------------------- ----------------------------------
State of Incorporation IRS Employer Identification Number
ONE NEW YORK PLAZA, 18TH FLOOR
NEW YORK, NEW YORK 10292-2018
(212) 214-1000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
-------------------
FRED ROBUSTELLI, ESQ.
PRUDENTIAL SECURITIES SECURED FINANCING CORP.
ONE SEAPORT PLAZA, 30TH FLOOR
NEW YORK, NEW YORK 10292
(Name and address of agent for service)
--------------------
Copy to:
GARY BARNETT, ESQ.
O'MELVENY & MYERS LLP
CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. [X]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed
Proposed Maximum
Maximum Aggregate Amount Of
Title of Securities Amount Being Offering Price Offering Registration
being registered Registered(1) Per Unit(2) Price Fee
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial/Multifamily
Mortgage
Pass-Through $100,000,000 100% $100,000,000 $29,500
==============================================================================================================================
<FN>
(1) This Registration Statement and the registration fee pertain to the
initial offering of the Commercial/Multifamily Mortgage Pass-Through
Certificates registered hereunder by the Registrant and to offers and sales
relating to market-making transactions by Prudential Securities Inc., an
affiliate of the Registrant. The amount of Mortgage Pass-Through Certificates
that may be initially offered hereunder and the registration fee shall not be
affected by any offers and sales relating to any such market-making
transactions.
(2) Estimated solely for purposes of calculating the registration fee on the
basis of the proposed maximum aggregate offering price.
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section, may determine.
Pursuant to Rule 429 of the Securities and Exchange Commission's
Rules and Regulations under the Securities Act of 1933, as amended, the
Prospectus and Prospectus Supplement contained in this Registration Statement
also relate to the Registrant's Registration Statement on Form S-3
(Registration No. 33-84930).
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS SUPPLEMENT, DATED 17, 1998
SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT
(To Prospectus dated __________, 1998)
PRUDENTIAL LOGO
$___________ (Approximate)
Prudential Securities Secured Financing Corp.
______________________ (Master Servicer and Special Servicer)
Commercial Mortgage Pass-Through Certificates, Series 199__-__
The Commercial Mortgage Pass-Through Certificates, Series _______ (the
"Certificates") will consist of 17 Classes of Certificates, designated as the
Class A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates,
the Class A-EC Certificates, the Class B Certificates, the Class C
Certificates, the Class D Certificates, the Class E Certificates, the Class F
Certificates, the Class G Certificates, the Class H Certificates, the Class J
Certificates, the Class K-1 Certificates, the Class K-2 Certificates
(collectively, the "Regular Certificates"), the Class R-I Certificates, the
Class R-II Certificates and the Class R-III Certificates (together, the
"Residual Certificates"). Only the Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D, Class E and Class F Certificates (the "Offered Certificates")
are offered hereby.
- -------------------------------------------------------------------------------
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION
OF THE DEPOSITOR, THE MORTGAGE LOAN SELLERS, THE MASTER SERVICER, THE SPECIAL
SERVICER, THE TRUSTEE, THE FISCAL AGENT OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
===============================================================================
Prospective Investors should review fully this Prospectus Supplement
and the Prospectus, including, without limitation, the factors discussed under
"RISK FACTORS" at page ____ in this Prospectus Supplement and Page __ of the
Prospectus before purchasing any of the Offered Certificates.
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
CLASS INITIAL CERTIFICATE PASS-THROUGH RATED FINAL PRICE TO
OR NOTIONAL(1) RATE(2) DISTRIBUTION(3) (4)(5)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1...................... $___________ _____% ______%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-2...................... $___________ _____% ______%
- -----------------------------------------------------------------------------------------------------------------------------------
Class A-3...................... $___________ _____% ______%
- -----------------------------------------------------------------------------------------------------------------------------------
Class B........................ $___________ _____% (6) ______%
- -----------------------------------------------------------------------------------------------------------------------------------
Class C........................ $___________ _____% (7) ______%
- -----------------------------------------------------------------------------------------------------------------------------------
Class D........................ $___________ _____% (8) ______%
- -----------------------------------------------------------------------------------------------------------------------------------
Class E........................ $___________ _____% (9) ______%
- -----------------------------------------------------------------------------------------------------------------------------------
Class F........................ $___________ _____% (10) ______%
===================================================================================================================================
<FN>
(1) Approximate, subject to an upward or downward variance of up to 5%.
(2) In addition to distributions of principal and interest, holders of
certain Classes of Certificates will be entitled to receive a portion
of the Prepayment Premiums received from the borrowers as described
herein. See "DESCRIPTION OF THE CERTIFICATES--Distributions--Prepayment
Premiums" herein.
(3) The Rated Final Distribution Date (the "Rated Final Distribution
Date") for each Class of Offered Certificates is the Distribution Date
occurring two years after the latest Assumed Maturity Date of any of
the Mortgage Loans. The "Assumed Maturity Date" of (a) any Mortgage
Loan that is not a Balloon Loan is the maturity date of such Mortgage
Loan and (b) any Balloon Loan is the date on which such Mortgage Loan
would be deemed to mature in accordance with its original amortization
schedule absent its Balloon Payment.
(4) Proceeds to the Depositor from the sale of the Offered Certificates
will be approximately $_________, before deducting underwriting fees
of _____% of the aggregate initial Certificate Balance on the Offered
Certificates and certain expenses expected to be approximately $_____
payable by the Depositor.
(5) [Plus accrued interest at the applicable Pass-Through Rate from
December ___, ____.]
(6) Initial Pass-Through Rate. The Class B Certificates accrue interest at
the Weighted Average Unmodified Net Mortgage Rate less _____%.
(7) Initial Pass-Through Rate. The Class C Certificates accrue interest at
the Weighted Average Unmodified Net Mortgage Rate less _____%.
(8) Initial Pass-Through Rate. The Class D Certificates accrue interest at
the Weighted Average Unmodified Net Mortgage Rate less _____%.
(9) Initial Pass-Through Rate. The Class E Certificates accrue interest at
the Weighted Average Unmodified Net Mortgage Rate less _____%.
(10) Initial Pass-Through Rate. The Class F Certificates accrue interest at
the Weighted Average Unmodified Net Mortgage Rate less _____%.
</TABLE>
The Offered Certificates are offered by Prudential Securities
Incorporated and __________________ (the "Underwriters"), subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part.
It is expected that delivery of the Offered Certificates will be made
in book-entry form through the Same-Day Funds Settlement System of The
Depository Trust Company ("DTC"), on or about __________, 1998 (the "Delivery
Date"), against payment therefor in immediately available funds.
--------------------------------
Prudential Securities Incorporated
[ ]
________________________, 1998
<PAGE>
The Certificates will represent beneficial ownership interests in a
trust fund (the "Trust Fund") to be created by Prudential Securities Secured
Financing Corp. (the "Depositor"). The Trust Fund will consist primarily of a
pool (the "Mortgage Pool") of fixed-rate mortgage loans secured by first liens
on commercial and multifamily residential properties (each, a "Mortgaged
Property").
The Mortgaged Properties consist of properties improved by (a) office
buildings; (b) health care-related properties (c) congregate care facilities
(d) hotels and motels; (e) industrial properties; (f) warehouse, mini warehouse
and self-storage facilities; (g) mobile home parks; (h) apartment buildings or
complexes consisting of five or more rental units or a complex of duplex units;
(i) cooperative apartment buildings; (j) nursing homes; (k) office/retail
properties; (l) anchored retail properties; (m) single tenant retail
properties; (n) unanchored retail properties; and/or (o) other commercial
real estate properties, multifamily residential properties, and/or mixed
residential commerical properties. [__________ of the Mortgage Loans were
originated by __________ ("__________"), and subsequently sold by __________
to __________ ("____"), one of the Mortgage Loan Sellers hereunder, ("_____")
or by correspondents of , or other entities related to___________ .
___________ of the Mortgage Loans were purchased by___________from various
unaffiliated banks, savings institutions or other entities in the secondary
market.] The Mortgage Loans will be sold to the Depositor by the Mortgage Loan
Seller[s] on or prior to the date of initial issuance of the Certificates. The
characteristics of the Mortgage Loans and the related Mortgaged Properties are
described under "RISK FACTORS" and "DESCRIPTION OF THE MORTGAGE POOL" herein.
The Class A-1, Class A-2, Class A-3, Class B. Class C, Class D, Class
E, Class F, Class G, Class H and Class J Certificates (the "P&I Certificates")
will be entitled to distributions of interest on their respective Certificate
Balances at the applicable Pass-Through Rate for each such Class. The Class
A-EC Certificates will be entitled to distributions of Class A-EC Excess
Interest, on each Distribution Date. "Class A-EC Excess Interest" is an amount
equal to the Class A-EC Pass-Through Rate multiplied by the Class A-EC Notional
Balance. With respect to each Distribution Date, the Class K-2 Certificates
will be entitled to distributions of interest at the Class K-2 Pass-Through
Rate on the Class K-2 Notional Balance. The Class K-1 Certificates are
principal only and will not be entitled to distributions of interest. See
"DESCRIPTION OF THE CERTIFICATES--Distributions" herein.
Distributions of principal and interest, as applicable, on the Regular
Certificates will be made, to the extent of Available Funds, on the___ th day of
each month or, if any such day is not a Business Day, on the next succeeding
Business Day, beginning in __________ (each, a "Distribution Date").
Distributions allocable to interest on the Certificates will be made as
described under "DESCRIPTION OF THE CERTIFICATES--Distributions" herein. The
rights of the holders of the Class B, Class C, Class D, Class E, Class F, Class
G, Class H, Class J, Class K-1 and Class K-2 Certificates (the "Subordinate
Certificates") to receive distributions of principal and interest will be
subordinate to such rights of the holders of the Class A-1, Class A-2, Class
A-3 and Class A-EC Certificates (the "Senior Certificates"); the rights of the
holders of the Class C, Class D, Class E, Class F, Class G, Class H, Class J,
Class K-1 and Class K-2 Certificates to receive such distributions will be
subordinate to such rights of the holders of the Class B Certificates; the
rights of the Class D, Class E, Class F, Class G, Class H, Class J, Class K-1
and Class K-2 Certificates to receive distributions will be subordinate to such
rights of the holders of the Class C Certificates; the rights of the Class E,
Class F, Class G, Class H, Class J, Class K-1 and Class K-2 Certificates to
receive distributions will be subordinate to such rights of the Class D
Certificates; the rights of the holders of the Class F, Class G, Class H, Class
J, Class K-1 and Class K-2 Certificates to receive distributions will be
subordinate to such rights of the Class E Certificates; the rights of the
holders of the Class G. Class H. Class J. Class K-1 and Class K-2 Certificates
to receive distributions will be subordinate to such rights of the holders of
the Class F Certificates; the rights of the Class H. Class J. Class K-1 and
Class K-2 Certificates to receive distributions will be subordinate to such
rights of the holders of the Class G Certificates; the rights of the Class J.
Class K-1 and Class K-2 Certificates to receive distributions will be
subordinate to such rights of the holders of the Class H Certificates; and the
rights of the Class K-1 and Class K-2 Certificates to receive distributions
will be subordinate to such rights of the holders of the Class J Certificates.
In addition, each Class of Regular Certificates will have the benefit of
subordination of the Residual Certificates to the extent of any distributions
to which the Residual Certificates would otherwise be entitled. See
"DESCRIPTION OF THE CERTIFICATES--Subordination" herein.
The Residual Certificates are not entitled to distributions of
interest or principal.
The yield to maturity on each Class of the Regular Certificates will
be sensitive, and, in the case of the Class A-EC, Class K-1 and Class K-2
Certificates, will be very sensitive, to the amount and timing of debt service
payments
S-3
<PAGE>
(including both voluntary and involuntary prepayments, defaults and
liquidations) on the Mortgage Loans, and payments with respect to repurchases
thereof that are applied in reduction of the Certificate Balance of such Class
(or, in the case of the Class A-EC or Class K-2 Certificates, which reduce the
Class A-EC Notional Balance or the Class K-2 Notional Balance, respectively).
No representation is made as to the rate of prepayments on or liquidations of
the Mortgage Loans or as to the anticipated yield to maturity of any Class of
Regular Certificates. All, but __________ of the Mortgage Loans generally
provide that for a specified amount of time during which a prepayment is
permitted, it must be accompanied by payment of a Prepayment Premium. See
"DESCRIPTION OF THE MORTGAGE POOL--Certain Terms and Conditions of the Mortgage
Loans--Prepayment Provisions" herein. Prepayment Premiums, to the extent
collected, are distributable to the holders of the Regular Certificates as and
to the extent described under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Prepayment Premiums" herein.
The yield to investors on each Class of the Regular Certificates will
also be very sensitive to the timing and magnitude of losses on the Mortgage
Loans due to liquidations to the extent that the Certificate Balances of the
Class or Classes of Certificates that are subordinate to such Class have been
reduced to zero. A loss on any one of the Mortgage Loans included in the
Mortgage Pool could result in a significant loss, and in some cases a complete
loss, of an investor's investment in any Class of the Regular Certificates. No
representation is made as to the rate of liquidations of or losses on the
Mortgage Loans.
The Certificates are being issued pursuant to a Pooling and Servicing
Agreement dated as of __________ (the "Pooling and Servicing Agreement"), by
and among the Depositor, _________, as servicer (in such capacity, the "Master
Servicer") and special servicer (in such capacity, the __________), __________,
as trustee (the "Trustee"), and __________, as fiscal agent (the "Fiscal'
Agent"). The obligations of the Master Servicer with respect to the
Certificates will be limited to its contractual servicing obligations and the
obligation under certain circumstances to make Advances with respect to the
Mortgage Loans. See "THE POOLING AND SERVICING AGREEMENT" herein.
It is a condition to the issuance of the Certificates that: the Class
A-1, Class A-2, Class A-3 and Class A-EC Certificates be rated "AAA" by _____.
(" ") and "_____" by ________ Inc. ("________" and together with ______,
the "Rating Agencies"); the Class B Certificates be rated "AA" by _______
and "_____" by ________; the Class C Certificates be rated "A" by ______ and
"______" by ________; the Class D Certificates be rated "BBB+" by and
"_____" by ________; the Class E Certificates be rated "BBB" by ______ and
"_____" by ________; the Class F Certificates be rated "BBB-" by ______ and
"_____" by ________; the Class G Certificates be rated "BB" by ______ and
"______" by ________; the Class H Certificates be rated "BB-" by _______
and "_______" by ________; and the Class J Certificates be rated "B" by _______
and "_____" by ______'s. The Class K-1, Class K-2, Class R-I, Class R-II and
Class R-III Certificates are unrated.
Elections will be made to treat designated portions of the Trust Fund
(such portions of the Trust Fund, the "Trust REMICs"), and the Trust REMICs
will qualify, as three separate "real estate mortgage investment conduits"
(each a "REMIC" or, alternatively, "REMIC I," "REMIC II" and "REMIC III") for
federal income tax purposes. As described more fully herein, the Class A-1,
Class A-2, Class A-3, Class A-EC, Class B, Class C, Class D, Class E, Class F,
Class G, Class H, Class J, Class K-1 and Class K-2 Certificates will constitute
"regular interests" in REMIC III, and the Class R-I Certificates, the Class
R-II Certificates and the Class R-III Certificates will constitute the sole
Class of "residual interests" in REMIC I, REMIC II and REMIC III, respectively.
See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES," and "DESCRIPTION OF THE
CERTIFICATES--Delivery, Form and Denomination" herein and "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES," and "DESCRIPTION OF THE CERTIFICATES" and in the
Prospectus.
There is currently no secondary market for the Certificates. The
Underwriters have advised the Depositor that they currently intend to make a
secondary market in the Certificates, but they are under no obligation to do
so. There can be no assurance that such a market will develop or, if it does
develop, that it will continue or will provide investors with a sufficient
level of liquidity of investment. See "RISK FACTORS--Limited Liquidity" herein.
This Prospectus Supplement does not contain complete information about
the offering of the Offered Certificates. Additional Information is contained
in the Prospectus and investors are urged to read both this Prospectus
Supplement and the Prospectus in full. Sales of the Offered Certificates may
not be consummated unless the purchaser has received both this Prospectus
Supplement and the Prospectus.
S-4
<PAGE>
Until 90 days after the date of this Prospectus Supplement, all
dealers effecting transactions in the Offered Certificates, whether or not
participating in this distribution, may be required to deliver a Prospectus
Supplement and Prospectus. This is in addition to the obligation of dealers
acting as underwriters to deliver a Prospectus Supplement and Prospectus with
respect to their unsold allotments and subscriptions.
The only obligation of the Depositor with respect to the Certificates
will be to secure the Seller certain representations and warranties with
respect to the ________________ and to assign to ________________, as trustee
(the "Trustee") under the Pooling and Servicing Agreement pursuant to which the
Trust Fund is formed (the "Agreement"), the obligation of the Seller to
repurchase or substitute for any ________________ as to which there exists any
material and uncured breach of any such representation or warranty.
The Certificates will be purchased by the Underwriters from the
Depositor and are being offered by the Underwriters from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Certificates will be ___% of the Scheduled Principal Balance (as defined
herein) as of ____, 199_ (the "Cut-Off Date"), plus accrued interest at the
weighted average net mortgage rate (as defined herein) from the Cut-Off Date,
before deducting expenses payable by the Depositor.
[________________] will act as master servicer of the Mortgage Pool
(the "Master Servicer"). The Master Servicer's obligations with respect to the
Certificates are limited to contractual servicing obligations and the
obligations under certain circumstances to make Advances (as defined herein) to
the Certificateholders.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement under the Securities Act of 1933,
as amended (the "1933 Act"), with respect to the Offered Certificates. This
Prospectus Supplement and the accompanying Prospectus, which form a part of the
Registration Statement, omit certain information contained in such Registration
Statement pursuant to the rules and regulations of the Commission. The
Registration Statement can be inspected and copied at the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W, Washington D.C. 20549.
EXECUTIVE SUMMARY
Prospective investors are advised to read carefully, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus relating to the Offered Certificates in making
their investment decision. The following Executive Summary does not include all
relevant information relating to the Offered Certificates or the Mortgage
Loans, particularly with respect to the risks and special considerations
involved with an investment in the Offered Certificates and is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the Prospectus. Prior to making any investment
decision, a prospective investor should review fully this Prospectus Supplement
and the Prospectus. Capitalized terms used and not otherwise defined herein
have the respective meanings assigned to them in this Prospectus Supplement and
the Prospectus.
S-5
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
APPROXIMATE APPROXIMATE
PERCENT OF TOTAL CREDIT SUPPORT
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
_____% CLASS A-EC Class A-1 Ratings: (AAA/____) _____%
_____% Excess interest on Class A-2 Ratings: (AAA/____) _____%
Class A-1 through
Class E
_____% Class A-3 Ratings: (AAA/____)
_____% Class B Ratings: (AA/_____) _____%
_____% Class C Ratings: (A/_____) _____%
_____% Class D Ratings: (BBB+/___) _____%
_____% Class E Ratings: (BBB/___) _____%
-----% -----%
- ---------------------------------------------------------------------------------------------------------------------------------
_____% CLASS F Ratings: BB/Ba2 _____%
- ---------------------------------------------------------------------------------------------------------------------------------
_____% CLASS G Ratings: BB/Ba3 _____%
- ---------------------------------------------------------------------------------------------------------------------------------
_____% CLASS H Ratings: B/B2 _____%
- ---------------------------------------------------------------------------------------------------------------------------------
_____% CLASS J Ratings: (B/_____) _____%
- ---------------------------------------------------------------------------------------------------------------------------------
_____% CLASS K-2 INTEREST Principal: Class K-1 only Unrated
ONLY UNRATED
=================================================================================================================================
</TABLE>
Not offered hereby: Classes A-EC, F, G, H, J, K-1 and K-2
Ratings: ( / )
<TABLE>
<CAPTION>
=================================================================================================================================
CLASS RATING BY INITIAL % OF DESCRIPTION PASS- WEIGHTED PRINCIPAL
THROUGH
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Senior Certificates
- ---------------------------------------------------------------------------------------------------------------------------------
A-1 AAA/___ $______ ___% Fixed Rate ___%
- ---------------------------------------------------------------------------------------------------------------------------------
A-2 AAA/___ $______ ___% Fixed Rate ___%
- ---------------------------------------------------------------------------------------------------------------------------------
A-3 AAA/___ $______ ___% Fixed Rate ___%
- ---------------------------------------------------------------------------------------------------------------------------------
A-EC AAA/___ N/A N/A Excess Interest ___%(2) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Subordinated Certificates
- ---------------------------------------------------------------------------------------------------------------------------------
B AA/___ $______ ___% [Variable Rate] ___%(3)
- ---------------------------------------------------------------------------------------------------------------------------------
C A/___ $______ ___% [Variable Rate] ___%(4)
- ---------------------------------------------------------------------------------------------------------------------------------
D BBB+/___- $______ ___% [Variable Rate] ___%(5)
- ---------------------------------------------------------------------------------------------------------------------------------
E BBB/___ $______ ___% [Variable Rate] ___%(6)
- ---------------------------------------------------------------------------------------------------------------------------------
F BBB-/___- $______ ___% [Variable Rate] ___%(7)
- ---------------------------------------------------------------------------------------------------------------------------------
G BB/___ $______ ___% [Variable Rate] ___%(7)
- ---------------------------------------------------------------------------------------------------------------------------------
H BB-/____ $______ ___% [Variable Rate] ___%(7)
- ---------------------------------------------------------------------------------------------------------------------------------
J B/___ $______ ___% [Variable Rate] ___%(7)
- ---------------------------------------------------------------------------------------------------------------------------------
K-1 Unrated $______ ___% Principal Only ___%
- ---------------------------------------------------------------------------------------------------------------------------------
K-2 Unrated $______ N/A Interest Only ___%(7) N/A N/A
=================================================================================================================================
<FN>
(1) Based respectively on Scenario 2, which assumes a 0% CPR, no defaults and an Auction in ,
and Scenario 1, which assumes a 0% CPR and no defaults. See "YIELD AND MATURITY
CONSIDERATIONS--Weighted Average Life" herein.
S-6
<PAGE>
(2) Initial Pass-Through Rate. [The Certificate Pass-Through Rate will be equal to a fraction, the
numerator of which is the sum of (i) the excess of the Weighted Average Unmodified Net Mortgage
Rate over the weighted averages of the Pass-Through Rates of the Class A-1, Class A-2 and Class
A-3 Certificates multiplied by the Class A-EC Notional Component A, (ii) the Class B Strip
multiplied by the Class B Certificate Balance, (iii) the Class C Strip multiplied by the Class C
Certificate Balance, (iv) the Class D Strip multiplied by the Class D Certificate Balance, and (v) the
Class E Strip multiplied by the Class E Certificate Balance, and the denominator of which is the
Class A-EC Notional Balance.]
(3) Initial Pass-Through Rate. The Pass-Through Rate will be the Weighted Average Unmodified Net
Mortgage Rate less ___% (the "Class ___ Strip").
(4) Initial Pass-Through Rate. The Pass-Through Rate will be the Weighted Average Unmodified Net
Mortgage Rate less ___% (the "Class ___ Strip").
(5) Initial Pass-Through Rate. The Pass-Through Rate will be the Weighted Average Unmodified Net
Mortgage Rate less ___% (the "Class ___ Strip").
(6) Initial Pass-Through Rate. The Pass-Through Rate will be the Weighted Average Unmodified Net
Mortgage Rate less ___% (the "Class ___ Strip").
(7) Initial Pass-Through Rate. Weighted Average Unmodified Net Mortgage Rate.
</TABLE>
SECURITIES:
Distribution Dates. The ____th day of each month, or if such ____th day is not
a Business Day, the Business Day immediately following such day, commencing
_____________________. See "DESCRIPTION OF THE CERTIFICATES --Distributions"
herein.
<TABLE>
<CAPTION>
Class Designation Scheduled Final Distribution Date
----------------- ---------------------------------
<C> <C>
Class A-1...................................
Class A-2...................................
Class A-3...................................
Class A-EC..................................
Class B.....................................
Class C.....................................
Class D.....................................
Class E.....................................
Class F.....................................
Class G.....................................
Class H.....................................
Class J.....................................
Class K-1...................................
Class K-2...................................
</TABLE>
The Scheduled Final Distribution Dates set forth above have been
determined on the basis of the assumptions described in
"DESCRIPTION OF THE CERTIFICATES -- Scheduled Final
Distribution Date" herein.
Early Termination ............ The Trust Fund is subject to early termination
if less than 10% of the Initial Pool Balance
remains outstanding. See "DESCRIPTION OF THE
CERTIFICATES--Early Termination" herein.
S-7
<PAGE>
[Auction Call Date ........... On or after the Distribution Date occurring in
[__________], the Trust Fund is subject to
early termination pursuant to the auction
procedures described herein. See "DESCRIPTION
OF THE CERTIFICATES--Auction" herein.]
S-8
<PAGE>
Federal Tax Status............ Elections will be made to treat designated
portions of the Trust Fund as three separate
"real estate mortgage investment conduits"
("REMIC").
ERISA......................... The Class A-1, Class A-2 and Class A-3
Certificates should qualify for an exemption
from the prohibited transaction provisions of
ERISA and may be purchased by and transferred
to employee benefit plans. The Subordinate
Certificates may not be acquired by employee
benefit plans subject to ERISA, but may be
acquired by an insurance company investing the
assets of its general account if an exemption
from the prohibited transaction provisions of
ERISA is applicable. See "ERISA
CONSIDERATIONS" herein and in the Prospectus.
SMMEA......................... [None of the Offered Certificates are
mortgage-related securities pursuant to the
Secondary Mortgage Market Enhancement Act of
1984.]
DTC Eligibility .............. The Offered Certificates are being delivered
through the facilities of The Depository Trust
Company ("DTC").
Closing Date.................. On or about __________.
Structural Summary:
Interest Payments............. On each Distribution Date, each Class of
Certificates (other than the Class K-1
Certificates) generally will be entitled to
receive interest distributions in an amount
equal to the Class Interest Distribution
Amount for such Class and Distribution Date,
together with any unpaid Class Interest
Shortfalls remaining from prior Distribution
Dates, in each case to the extent of Available
Funds remaining after payment to each
outstanding Class of Certificates bearing an
earlier sequential Class designation of (i)
the Class Interest Distribution Amount and any
unpaid Class Interest Shortfall for such
Classes, (ii) the Pooled Principal
S-9
<PAGE>
Distribution Amount for such Distribution Date
for such Classes and (iii) payment of the
unreimbursed amount of Realized Losses
previously allocated to such Classes. See
"DESCRIPTION OF THE
CERTIFICATES--Distributions" herein.
Principal Payments............ The Pooled Principal Distribution Amount for
each Distribution Date will be distributed,
first, to the Class A-1 Certificates, until
the Certificate Balance thereof has been
reduced to zero and thereafter, sequentially
to each other Class of Regular Certificates
(other than the Class A-EC and Class K-2
Certificates), until its Certificate Balance
is reduced to zero, in each case, to the
extent of Available Funds remaining after (i)
payment of the Class Interest Distribution
Amount, any unpaid Class Interest Shortfalls
remaining from prior Distribution Dates, the
Pooled Principal Distribution Amount and the
unreimbursed amount of Realized Losses, if
any, up to an amount equal to the aggregate of
such unreimbursed amount previously allocated
to each other outstanding Class of
Certificates having an earlier sequential
Class designation and (ii) payment of the
Class Interest Distribution Amount and any
unpaid Class Interest Shortfalls remaining
from prior Distribution Dates to such Class
(or, with respect to the Class K-1
Certificates, to the Class K-2 Certificates)
and to any other outstanding Class that is
pari passu with such Class.
Credit Enhancement............ The Class A-1, Class A-2, Class A-3 and Class
A-EC Certificates are credit-enhanced by the
Classes of Subordinate Certificates, which
consist of the Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class J,
Class K-1 and Class K-2 Certificates. Each
other Class of Regular Certificates will
likewise be protected by the subordination
offered by the other Classes of Certificates
that bear a later sequential designation.
Realized Losses of principal and interest from
any Mortgage Loan and certain other losses
experienced by the Trust Fund will generally
be allocated to the Classes of Regular
Certificates (other than the Class A-EC and
Class K-2 Certificates) in reverse sequential
order starting with the Class K-1
Certificates. Realized Losses allocated to the
Class K-1 Certificates will reduce the Class
K-2 Notional Balance. Realized Losses
allocated to the Class A-1, Class A-2, Class
A-3, Class B, Class C, Class D or Class E
Certificates will reduce the Class A-EC
Notional Balance.
S-10
<PAGE>
Collateral Overview;
Loan Details.................. See Annex A hereto for certain characteristics
of Mortgage Loans on a loan-by-loan basis. All
weighted average information regarding the
Mortgage Loans reflects weighing of the
Mortgage Loans by their Cut-off Date Principal
Balances. The "Cut-off Date Principal Balance"
of each Mortgage Loan is equal to the unpaid
principal balance thereof as of the Cut-off
Date, after application of all payments of
principal due on or before such date, whether
or not received. See also "DESCRIPTION OF THE
MORTGAGE POOL" for additional statistical
information regarding the Mortgage Loans.
<TABLE>
<CAPTION>
Characteristics
<S> <C>
==============================================================================
Aggregate Cut-off Date Principal Balance $_____
- ------------------------------------------------------------------------------
Number of Mortgage Loans..........................................
- ------------------------------------------------------------------------------
Weighted Average Mortgage Rate.................................... _____%
- ------------------------------------------------------------------------------
Weighted Average Remaining Term to Maturity....................... ___ months
- ------------------------------------------------------------------------------
Weighted Average DSCR (1)......................................... x
- ------------------------------------------------------------------------------
Average Mortgage Loan Balance $_____
- ------------------------------------------------------------------------------
Balloon Mortgage Loans............................................ _____%
==============================================================================
<FN>
(1) Debt Service Coverage Ratio ("DSCR") is calculated based on the ratio
of Underwritten Cash Flow to the Annual Debt Service. For more
information on the Debt Service Coverage Ratios, see "DESCRIPTION OF
THE MORTGAGE POOL--Certain Characteristics of the Mortgage Pool"
herein.
</TABLE>
<TABLE>
<CAPTION>
Cut-off Date Principal Balances
% by Cut-off Date Number of
Cut-off Date Principal Balance Principal Balance Mortgage Loans
- ------------------------------ ----------------- --------------
<S> <C> <C>
$ 500,000- $ 999,999.............. ________% ________
$ 1,000,000- $ 1,999,999............ ________% ________
$ 2,000,000- $ 2,999,999............ ________% ________
$ 3,000,000- $ 3,999,999............ ________% ________
S-11
<PAGE>
$ 4,000,000- $ 4,999,999............ ________% ________
$ 5,000,000- $ 5,999,999............ ________% ________
$ 6,000,000- $ 6,999,999............ ________% ________
$ 7,000,000- $ 7,999,999............ ________% ________
$ 8,000,000- $ 8,999,999............ ________% ________
$ 9,000,000- $ 9,999,999............ ________% ________
$10,000,000- $10,999,999............ ________% ________
$11,000,000- $11,999,999............ ________% ________
$12,000,000- $12,999,999............ ________% ________
$13,000,000- $13,999,999............ ________% ________
$14,000,000- $14,999,999. . . . . . ________% ________
$15,000,000- over .................. ________% ________
</TABLE>
<TABLE>
<CAPTION>
Geographical Distribution
% by Cut-off
Date Principal
State Location Balance Number of Mortgage Loans
- -------------- ------- ------------------------
<S> <C> <C>
Other (1)............ ____________________________
<FN>
(1) No other jurisdiction has Mortgage Loans
aggregating more than ___% of the Initial
Pool Balance.
</TABLE>
Debt Service Coverage Ratios (1)
<TABLE>
<CAPTION>
RANGE OF DEBT
SERVICE COVERAGE % BY CUT-OFF
RATIOS BALANCE DATE PRINCIPAL NUMBER OF MORTGAGE LOANS
-------------- -------------- ------------------------
<S> <C> <C>
1.00-1.04
1.15-1.19
1.20-1.24
1.25-1.29
1.35-1.39
1.40-1.44
1.45-1.49
1.50-1.54
1.55-1.59
1.60-1.64
1.65-1.69
1.70-1.74
S-12
<PAGE>
<CAPTION>
RANGE OF DEBT
SERVICE COVERAGE % BY CUT-OFF
RATIOS BALANCE DATE PRINCIPAL NUMBER OF MORTGAGE LOANS
-------------- -------------- ------------------------
<S> <C> <C>
1.75-1.79
1.85-1.89
2.15-2.19
2.25-2.29
<FN>
(1) Calculated based on the ratio of Underwritten Cash Flow to Annual Debt
Service. See "DESCRIPTION OF THE MORTGAGE POOL--Certain
Characteristics of the Mortgage Pool" herein for more information
relating to the calculation of debt service coverage ratios.
</TABLE>
Loan to Value Ratios
<TABLE>
<CAPTION>
% BY CUT-OFF DATE
RANGE OF LOAN TO VALUE RATIOS PRINCIPAL BALANCE NUMBER OF MORTGAGE LOANS
----------------------------- ----------------- ------------------------
<S> <C> <C>
25.0% to less than 30.0%.................. _____%
30.0% to less than 35.0%.................. _____%
40.0% to less than 45.0%.................. _____%
45.0% to less than 50.0%.................. _____%
50.0% to less than 55.0%.................. _____%
55.0% to less than 60.0%.................. _____%
60.0% to less than 65.0%.................. _____%
65.0% to less than 70.0%.................. _____%
70.0% to less than 75.0%.................. _____%
75.0% to less than 80.0%.................. _____%
</TABLE>
PROPERTY TYPES
<TABLE>
<CAPTION>
% BY CUT-OFF DATE
PROPERTY TYPES PRINCIPAL BALANCE NUMBER OF MORTGAGE LOANS
<S> <C> <C>
-----%
-----%
-----%
-----%
-----%
-----%
-----%
-----%
-----%
-----%
-----%
-----%
-----%
</TABLE>
S-13
<PAGE>
MATURITY YEARS
<TABLE>
<CAPTION>
% BY CUT-OFF DATE
YEAR PRINCIPAL YEAR BALANCE NUMBER OF MORTGAGE LOANS
- ---- ---------------------- ------------------------
<S> <C> <C>
1999 . . . . . . . . . . . ______%
2000 . . . . . . . . . . . ______%
2001 . . . . . . . . . . . ______%
2002 . . . . . . . . . . . ______%
2003 . . . . . . . . . . . ______%
2004 . . . . . . . . . . . ______%
2005 . . . . . . . . . . . ______%
2006 . . . . . . . . . . . ______%
2007 . . . . . . . . . . . ______%
2008 . . . . . . . . . . . ______%
2009 . . . . . . . . . . . ______%
2010 . . . . . . . . . . . ______%
2011 . . . . . . . . . . . ______%
2012 . . . . . . . . . . . ______%
DELINQUENCY STATUS AS OF ____________________
% BY CUT-OFF
DATE PRINCIPAL
STATUS STATUS BALANCE
------ --------------
No Delinquencies.......................... ________%
S-14
<PAGE>
Prepayment Lockout/Premium Analysis (F1)
Percentage of Mortgage Pool by Prepayment
Restriction Assuming No Prepayments
</TABLE>
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(S) (C) (C) (C) (C) (C) (C) (C) (C) (C) (C) (C) (C)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lockout Prepayment Restrictions .........
Greater of Yield
Maintenance or Percentage Premium
of:
5.00% or greater ........................
4.00% to 4.99% ..........................
3.00% to 3.99% ..........................
2.00% to 2.99% ..........................
1.00% to 1.99% ..........................
0.00% to 0.99% ..........................
Total of Yield Maintenance...............
Total of Yield Maintenance and
Lockout Percentage Premium:
5.00% or greater
4.00 to 4.99%
3.00 to 3.99%
2.00 to 2.99%
1.00 to 1.99%
Total with Percentage Premium
Open.....................................
Total....................................
% of Initial Pool Balance (2)
<FN>
- ------------------------------------------
(1) This table sets forth an analysis of the percentage of the declining balance of the
Mortgage Pool that, on __________, in each of the years indicated, will be within
a Lockout Period or in which Principal Prepayments must be accompanied by the
indicated Prepayment Premium or yield maintenance charge. See
"DESCRIPTION OF THE MORTGAGE POOL--Certain Terms and Conditions
of the Mortgage Loans--Prepayment Provisions" for the assumptions used in
preparing this table.
(2) Represents the approximate percentage of the Initial Pool Balance that
will remain outstanding at the indicated date based upon the
assumptions used in preparing this table.
</TABLE>
S-15
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
Prospectus. Capitalized terms used herein and not otherwise defined herein have
the meanings assigned in the Prospectus. See "INDEX OF SIGNIFICANT DEFINITIONS"
herein and in the Prospectus.
Title of Certificates......... Prudential Securities Secured Financial
Corporation Commercial Mortgage Pass-Through
Certificates, Series 199__ (the
"Certificates").
The Certificates.............. $______________________ initial aggregate
principal balance ("Certificate Balance") of
Class A-1 Certificates;
$___________initial _______________
Certificate Balance of Class A-2 Certificates;
$_________________ initial _______________
Certificate Balance of Class A-3 Certificates;
Class A-EC Certificates;
$_________________ initial Certificate Balance
of Class B Certificates;
$_________________ initial Certificate Balance
of Class C Certificates;
$_________________ initial Certificate Balance
of Class D Certificates;
$_________________ initial Certificate Balance
of Class E Certificates;
$_________________ initial Certificate Balance
of Class F Certificates;
$_________________ initial Certificate Balance
of Class G Certificates;
$_________________ initial Certificate Balance
of Class H Certificates;
$_________________ initial Certificate Balance
of Class J Certificates;
S-16
<PAGE>
$_________________ initial _______________
Certificate Balance of Class K-1 Certificates;
Class K-2 Certificates;
Class R-I Certificates;
Class R-II Certificates; and
Class R-III Certificates.
The aggregate initial Certificate Balance of
all Classes of Certificates is subject to a
permitted variance of plus or minus 5% as
described herein. The Certificates will be
issued pursuant to a Pooling and Servicing
Agreement to be dated as of______ (the "Pooling
and Servicing Agreement") among the Depositor,
the Master Servicer, the Special Servicer, the
Trustee and the Fiscal Agent.
ONLY THE CLASS A-1, CLASS A-2, CLASS A-3,
CLASS B, CLASS C, CLASS D, CLASS E AND CLASS F
CERTIFICATES ARE OFFERED HEREBY.
The Class A-EC, Class G. Class H. Class J.
Class K-1, Class K- 2, Class R-I, Class R-II
and Class R-III Certificates (collectively,
the "Private Certificates") have not been
registered under the 1933 Act and are not
offered hereby. Accordingly, to the extent
this Prospectus Supplement contains
information regarding the terms of the Private
Certificates, such information is provided
solely because of its relevance to a
prospective purchaser of an Offered
Certificate.
Depositor..................... Prudential Securities Secured
Financing Corporation
One New York Plaza
New York, New York 10292.
Master Servicer............... __________________________________
Special Servicer.............. __________________________________
Trustee....................... __________________________________
Fiscal Agent.................. __________________________________
Cut-off Date.................. __________________________________
Closing Date.................. On or about _____________.
S-17
<PAGE>
Distribution Date............. The _____th day of each month, or if such
____th day is not a Business Day, the Business
Day immediately following such day, commencing
on ________________. As used herein, a
"Business Day" is any day other than a
Saturday, Sunday or a day in which banking
institutions in the States of New York,
Missouri or Illinois are authorized or
obligated by law, executive order or
governmental decree to close.
Record Date................... With respect to each Distribution Date, the
close of business on the last Business Day of
the month preceding the month in which such
Distribution Date occurs.
Interest Accrual Period......... With respect to any Distribution Date, the
calendar month preceding the month in which
such Distribution Date occurs. Interest for
each Interest Accrual Period is calculated
based on a 360-day year consisting of twelve
30-day months.
Collection Period............. With respect to each Distribution Date and any
Mortgage Loan, the period beginning on the day
following the Determination Date in the month
preceding the month in which such Distribution
Date occurs (or, in the case of the
Distribution Date occurring in _________ on
the day after the Cut-off Date) and ending on
the Determination Date in the month in which
such Distribution Date occurs.
Determination Date............ The ____th day of any month, or if such_____ th
day is not a Business Day, the Business Day
immediately preceding such ____th day,
commencing on ________________.
Due Date...................... With respect to any Collection Period and
Mortgage Loan, the date on which scheduled
payments are due on such Mortgage Loan
(without regard to grace periods), which date,
for the Mortgage Loans, is the first day of
the month;
Denominations................. The Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D, Class E and Class F
Certificates will be issued in minimum
denominations of Certificate Balance or
Notional Balance, as applicable, of $100,000
and integral multiples of $1,000 in excess
thereof and will be registered in the name of
a nominee of The Depository Trust Company
("DTC" and, together with any successor
depository selected by the Depositor, the
"Depository") and beneficial interests therein
will be held by investors through the
book-entry facilities of the Depository. The
Depositor has been informed by DTC that its
nominee will be Cede & Co. Beneficial Owners
will hold and transfer their respective
ownership interests in
S-18
<PAGE>
and to such Book-Entry Certificates through
the book-entry facilities of DTC and will not
be entitled to definitive, fully registered
Certificates except in the limited
circumstances set forth herein. See
"DESCRIPTION OF THE CERTIFICATES--Delivery,
Form and Denomination" herein.
Distributions................. On each Distribution Date, each Class of
Certificates (other than the Class K-1
Certificates) will be entitled to receive
interest distributions in an amount equal to
the Class Interest Distribution Amount for
such Class and Distribution Date, together
with any unpaid Class Interest Shortfalls
remaining from prior Distribution Dates, in
each case to the extent of Available Funds, if
any, remaining after (i) payment of the Class
Interest Distribution Amount and any unpaid
Class Interest Shortfalls remaining from prior
Distribution Dates for each other outstanding
Class of Certificates, if any, having an
earlier sequential Class designation, (ii)
payment of the Pooled Principal Distribution
Amount for such Distribution Date to each
outstanding Class of Certificates having an
earlier sequential Class designation and (iii)
payment of the unreimbursed amount of Realized
Losses, if any, up to an amount equal to the
aggregate of such unreimbursed amount
previously allocated to each other outstanding
Class of Certificates having an earlier
sequential Class designation. References
herein to the sequential Class designation of
such Classes of Certificates means such
Classes in alphabetical order; provided,
however, that the Class A-1, Class A-2, Class
A-3 and Class A-EC Certificates will be
treated pari passu (other than with respect to
distributions of principal) and the Class K-1
and Class K-2 Certificates will be treated
pari passu.
The "Class Interest Distribution Amount" with
respect to any Distribution Date and any Class
of Regular Certificates other than the Class
K-1 and Class K-2 Certificates is equal to
interest accrued during the related Interest
Accrual Period at the applicable Pass-Through
Rate for such Class and such Interest Accrual
Period on the Certificate Balance of such
Class; provided that reductions of the
Certificate Balance or Notional Balance of
such Class as a result of distributions in
respect of principal or the allocation of
losses on the Distribution Date occurring in
such Interest Accrual Period will be deemed to
have been made as of the first day of such
Interest Accrual Period. With respect to any
Distribution Date and the Class K-2
Certificates, the
S-19
<PAGE>
"Class Interest Distribution Amount" will
equal an amount equal to the product of the
Class K-2 Pass-Through Rate and the Class K-2
Notional Balance; provided that reductions of
the Notional Balance of such Class as a result
of distributions in respect of principal or
the allocation of losses on the Distribution
Date occurring in such Interest Accrual Period
will be deemed to have been made as of the
first day of such Interest Accrual Period. The
Class Interest Distribution Amount of each
Class will be reduced by its allocable sum of
the amount of any Prepayment Interest
Shortfalls not offset by Prepayment Interest
Surplus, the Servicing Fee and, if the Master
Servicer and the Special Servicer are the same
person, the Special Servicing Fee with respect
to such Distribution Date, all as provided
herein. The Class K-1 Certificates are
principal only certificates and have no Class
Interest Distribution Amount.
The Pooled Principal Distribution Amount for
each Distribution Date will be distributed,
first, to the Class A-1 Certificates, until
the Certificate Balance thereof has been
reduced to zero and thereafter, sequentially
to each other Class of Regular Certificates
(other than the Class A-EC and Class K-2
Certificates, neither of which has a
Certificate Balance and neither of which is
entitled to distributions in respect of
principal) until its Certificate Balance is
reduced to zero, in each case, to the extent
of Available Funds remaining after (i) payment
of the Class Interest Distribution Amount, any
unpaid Class Interest Shortfalls remaining
from prior Distribution Dates, the Pooled
Principal Distribution Amount and the
unreimbursed amount of Realized Losses, if
any, up to an amount equal to the aggregate of
such unreimbursed amount previously allocated
to each other outstanding Class of
Certificates having an earlier sequential
Class designation and (ii) payment of the
Class Interest Distribution Amount and any
unpaid Class Interest Shortfalls remaining
from prior Distribution Dates to such Class
(or, with respect to the Class K-1
Certificates, to the Class K-2 Certificates)
and to any other outstanding Class that is
pari passu with such Class.
The "Pooled Principal Distribution Amount" for
any Distribution Date is equal to the sum
(without duplication), for all Mortgage Loans,
of (i) the principal component of all
scheduled Monthly Payments (other than Balloon
Payments) that become due (regardless of
whether
S-20
<PAGE>
received) on the Mortgage Loans during the
related Collection Period; (ii) the principal
component of all Assumed Scheduled Payments as
applicable, deemed to become due (regardless
of whether received) during the related
Collection Period with respect to any Mortgage
Loan that is delinquent in respect of its
Balloon Payment; (iii) the Scheduled Principal
Balance of each Mortgage Loan that was
repurchased from the Trust Fund in connection
with the breach of a representation or
warranty or purchased from the Trust Fund
pursuant to the Pooling and Servicing
Agreement, in either case, during the related
Collection Period; (iv) the portion of
Unscheduled Payments allocable to principal of
any Mortgage Loan that was liquidated during
the related Collection Period; (v) the
principal component of all Balloon Payments
received during the related Collection Period;
(vi) all other Principal Prepayments received
in the related Collection Period; and (vii)
any other full or partial recoveries in
respect of principal, including Insurance
Proceeds, Condemnation Proceeds, Liquidation
Proceeds and Net REO Proceeds.
Additional Master Servicer or Special Servicer
compensation,interest on Advances,
extraordinary expenses of the Trust Fund and
other similar items will create a shortfall in
Available Funds, which generally will result
in a Class Interest Shortfall for the most
subordinate Class then outstanding.
See "DESCRIPTION OF THE CERTIFICATES
--Distributions" herein.
Advances...................... Subject to the limitations described herein,
the Master Servicer is required to make
advances (each such amount, a "P&I Advance")
in respect of delinquent Monthly Payments on
the Mortgage Loans. The Master Servicer will
not be required to advance the full amount of
any Balloon Payment not made by the related
borrower on its due date, but will advance an
amount equal to the monthly payment (or
portion thereof not received) deemed to be due
on the Mortgage Loan after such default,
calculated on the original amortization
schedule of such Mortgage Loan with interest
as described herein. Upon determination of the
Anticipated Loss with respect to any Seriously
Delinquent Loan, the amount of any P&I Advance
required to be made with respect to such
Seriously Delinquent Loan on any Distribution
Date will be an amount equal to the product of
(A) the amount of the P&I Advance that would
S-21
<PAGE>
be required to be made in respect of such
Seriously Delinquent Loan without regard to
the application of this sentence, multiplied
by (B) a fraction, the numerator of which is
equal to the Scheduled Principal Balance of
such Seriously Delinquent Loan as of the
immediately preceding Determination Date less
the Anticipated Loss and the denominator of
which is such Scheduled Principal Balance. See
"THE POOLING AND SERVICING
AGREEMENT--Advances" herein. If the Master
Servicer fails to make a required P&I Advance,
the Trustee, acting in accordance with the
servicing standard, will be required to make
such P&I Advance, and if the Trustee fails to
make a required P&I Advance,' the Fiscal Agent
will be required to make such P&I Advance.
Subordination................. As a means of providing a certain amount of
protection to the holders of the Senior
Certificates against losses associated with
delinquent and defaulted Mortgage Loans, the
rights of the holders of the Subordinate
Certificates to receive distributions of
interest and principal, as applicable, will be
subordinated to such rights of the holders of
the Senior Certificates. Each other Class of
Regular Certificates will likewise be
protected by the subordination offered by the
other Classes of Certificates that bear a
later sequential Class designation. This
subordination will be effected in two ways:
(i) by the preferential right of the holders
of a Class of Certificates to receive, on any
Distribution Date, the amounts of both
interest and principal, as applicable,
distributable in respect of such Certificates
on such Distribution Date prior to any
distribution being made on such Distribution
Date in respect of any Classes of Certificates
subordinate thereto, and (ii) by the
allocation of Realized Losses to the
Certificates in reverse order of their
sequential Class designations, provided that
Realized Losses are allocated pro rata to the
Class A-1, Class A- 2 and Class A-3
Certificates in accordance with their
respective Certificate Balances. In addition,
each Class of Regular Certificates will have
the benefit of subordination of the Residual
Certificates to the extent of any
distributions to which the Residual
Certificates would otherwise be entitled.
See "DESCRIPTION OF THE CERTIFICATES--
Subordination" herein. No other form of credit
enhancement is offered for the benefit of the
holders of the Offered Certificates.
S-22
<PAGE>
Early Termination............. Any holder of the Class R-I Certificates
representing more than a 50% Percentage
Interest of the Class R-I Certificates, the
Master Servicer and the Depositor will each
have the option to purchase, at the purchase
price specified herein, all of the Mortgage
Loans, and all property acquired through
exercise of remedies in respect of any
Mortgage Loans, remaining in the Trust Fund,
and thereby effect a termination of the Trust
Fund and early retirement of the then
outstanding Certificates, on any Distribution
Date on which the aggregate Scheduled
Principal Balance of the Mortgage Loans
remaining in the Trust Fund is less than 10%
of the Initial Pool Balance. See "DESCRIPTION
OF THE CERTIFICATES--Early Termination"
herein.
[Auction Call Date............ If the Trust Fund has not been terminated
earlier as described under "DESCRIPTION OF THE
CERTIFICATES--Early Termination" herein, the
Trustee will on the Distribution Date
occurring in [month] of each year from and
including_______________ on any date after the
Distribution Date occurring in _______________
on which the Trustee receives an unsolicited
bona fide offer to purchase all (but not less
than all) of the Mortgage Loans (each, an
"Auction Valuation Date"), request that four
independent financial advisory or investment
banking or investment brokerage firms
nationally recognized in the field of real
estate analysis and reasonably acceptable to
the Master Servicer provide the Trustee with
an estimated value at which the Mortgage Loans
and all other property acquired in respect of
any Mortgage Loan in the Trust Fund could be
sold pursuant to an auction. If the aggregate
value of the Mortgage Loans and all other
property acquired in respect of any Mortgage
Loan, as determined by the average of the
three highest such estimates, equals or
exceeds the aggregate amount of the
Certificate Balances of all Certificates
outstanding on the Auction Valuation Date,
plus unpaid interest thereon, the anticipated
Auction fees, unpaid servicing compensation,
unreimbursed Advances (together with interest
thereon at the Advance Rate) and unpaid Trust
Fund expenses, the Trustee will auction the
Mortgage Loans and such property thereby
effect a termination of the Trust Fund and
early retirement of the then outstanding
Certificates on or after the Distribution Date
in _________. The Trustee will accept no bid
lower than the Minimum Auction
CERTIFICATES--Auction" herein.]
S-23
<PAGE>
Certain Federal Income
Tax Consequences.............. Elections will be made to treat the Trust
REMICs, and the Trust REMICs will qualify, as
three separate real estate mortgage investment
conduits (each, a "REMIC" or, alternatively,
"REMIC I", "REMIC II" and "REMIC III") for
federal income tax purposes. The Class A-1,
Class A-2, Class A-3, Class A-EC, Class B,
Class C, Class D, Class E, Class F, Class G,
Class H, Class J, Class K-1 and Class K-2
Certificates (collectively, the "Regular
Certificates") will represent "regular
interests" in REMIC III and the Class R-III
Certificates will be designated as the sole
Class of "residual interest" in REMIC III.
Certain uncertificated classes of interests
will represent "regular interests" in REMIC I
and REMIC II and the Class R-I and Class R-II
Certificates will be designated as the sole
Class of "residual interest" in REMIC I and
REMIC II, respectively.
Because they represent regular interests, the
Regular Certificates generally will be treated
as newly originated debt instruments for
federal income tax purposes. Holders of the
Regular Certificates will be required to
include in income all interest on such
Certificates in accordance with the accrual
method of accounting, regardless of a
Certificateholder's usual method of
accounting. None of the Offered Certificates
are expected to be treated for federal income
tax reporting purposes as having been issued
with an original issue discount. For the
purposes of determining the rate of accrual of
market discount, original issue discount and
premium for federal income tax purposes, it
has been assumed that the Mortgage Loans will
prepay at the rate of ___% CPR and that the
Trust Fund will be terminated on the
Distribution Date occurring in
________________ pursuant to the auction
termination procedure described herein. No
representation is made as to whether the
Mortgage Loans will prepay at that rate or any
other rate or whether the Trust Fund will be
terminated on such date. See "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES."
Certain Classes of the Offered Certificates
may be treated for federal income tax purposes
as having been issued at a premium.
Whether any holder of such a Class of
Certificates will be treated as holding a
Certificate with amortizable bond premium will
depend on such Certificateholder's purchase
price. Holders of such Classes of Certificates
should consult
S-24
<PAGE>
their own tax advisors regarding the
possibility of making an election to amortize
any such premium. See "MATERIAL FEDERAL INCOME
TAX CONSEQUENCES" in the Prospectus.
Offered Certificates held by a mutual savings
bank or domestic building and loan association
will represent interests in "qualifying real
property loans" within the meaning of Section
593(d) of the Internal Revenue Code of 1986
(the "Code"). Offered Certificates held by a
real estate investment trust will constitute
"real estate assets" within the meaning of
Section 856(c)(5)(B) of the Code, and income
with respect to Offered Certificates will be
considered "interest on obligations secured by
mortgages on real property or on interests in
property" within the meaning of Section
856(c)(3)(B) of the Code. Offered Certificates
held by a domestic building and loan
association will generally constitute a
"regular or a residual interest in a REMIC"
within the meaning of Section
7701(a)(19)(C)(xi) of the Code only in the
proportion that the Mortgage Loans are secured
by multifamily apartment buildings. See
"MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--Taxation of the REMIC and its
Holders" in the Prospectus.
For further information regarding the federal
income tax consequences of investing in the
Offered Certificates, see "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES--Taxation of the
REMIC" in the Prospectus and "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES" herein.
ERISA Considerations.......... The United States Department of Labor has
issued to Prudential Securities Incorporated
an individual prohibited transaction
exemption, Prohibited Transaction Exemption
90-32, as amended by Prohibited Transaction
Exemption 97-34, which generally exempts from
the application of certain of the prohibited
transaction provisions of Section 406 of the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the excise
taxes imposed by Sections 4975(a) and (b) of
the Code and the civil penalties imposed by
502(i) of ERISA, transactions relating to the
purchase, sale and holding of pass-through
certificates such as the Senior Certificates
by (a) employee benefit plans and certain
other retirement arrangements, including
individual retirement accounts and Keogh
plans, which are subject to ERISA or the Code
(all of which are
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<PAGE>
hereinafter referred to as "Plans"), (b)
collective investment funds in which such
Plans are invested, (c) other persons acting
on behalf of any such Plan or using the assets
of any such Plan or any entity whose
underlying assets include Plan assets by
reason of a Plan's investment in the entity
(within the meaning of Department of Labor
Regulations Section 2510.3-101), and (d)
insurance companies that are using assets of
any insurance company separate account or
general account in which the assets of such
Plans are invested (or which are deemed
pursuant to ERISA or any Similar Law to
include assets of such Plans) and the
servicing and operation of mortgage pools such
as the Mortgage Pool, provided that certain
conditions are satisfied. See "ERISA
CONSIDERATIONS" herein.
THE SUBORDINATE CERTIFICATES DO NOT MEET THE
REQUIREMENTS OF THE FOREGOING EXEMPTION AND,
ACCORDINGLY, THE SUBORDINATE CERTIFICATES MAY
NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN
OR PERSON ACTING ON BEHALF OF ANY PLAN OR
USING THE ASSETS OF ANY SUCH PLAN, OTHER THAN
AN INSURANCE COMPANY USING ASSETS OF ITS
GENERAL ACCOUNT UNDER CIRCUMSTANCES IN WHICH
THE PURCHASE OR TRANSFER AND THE SUBSEQUENT
HOLDING OF SUCH CERTIFICATES WOULD NOT
CONSTITUTE OR RESULT IN A PROHIBITED
TRANSACTION. THE RESIDUAL CERTIFICATES MAY NOT
BE PURCHASED BY OR TRANSFERRED TO A PLAN.
Ratings....................... It is a condition to the issuance of the
Certificates that: the Class A-1, Class A-2,
Class A-3 and Class A-EC Certificates each be
rated "AAA" by ______ and "_________" by_____;
the Class B Certificates be rated "AA" by and
"____" by ____; the Class C Certificates be
rated "A" by _____ and "_____" by _____; the
Class D Certificates be rated "BBB+" by _____
and "_____" by _____ ; the Class E
Certificates be rated "BBB" by _____ and
"_____ " by _____; the Class F Certificates be
rated "BBB-" by and "_____" by _____; the
Class G Certificates be rated "BB" by and
"_____" by _____; the Class H Certificates be
rated "BB-" by _____ and "_____" by _____; and
the Class J Certificates be rated "B" by _____
and "_____" by _____. The Class K-1, Class
K-2, Class R-I, Class R-II and Class R-III
Certificates are unrated. A security rating is
not a recommendation to buy, sell or hold
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<PAGE>
securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization. A security rating does not
address the likelihood or frequency of
prepayments (both voluntary and involuntary)
or the possibility that Certificateholders
might suffer a lower than anticipated yield,
nor does a security rating address the
likelihood of receipt of Prepayment Premiums
or the likelihood of collection by the Master
Servicer of Default Interest. The Class A-EC
Certificate Notional Balance upon which
interest is calculated is reduced by the
allocation of Realized Losses and prepayments,
whether voluntary or involuntary. The Rating
does not address the timing or magnitude of
reduction of such Notional Balance, but only
the obligation to pay interest timely on the
Notional Balance as so reduced from time to
time. Accordingly, the ratings of the Class
A-EC Certificates should be evaluated
independently from similar ratings on other
types of securities. See "RISK FACTORS" and
"RATINGS" herein.
Legal Investment.............. [The Certificates will not constitute
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984.] The appropriate
characterization of the Certificates under
various legal investment restrictions, and
thus the ability of investors subject to these
restrictions to purchase the Certificates, may
be subject to significant interpretative
uncertainties. Accordingly, investors should
consult their own legal advisors to determine
whether and to what extent the Certificates
constitute legal investments for them. See
"LEGAL INVESTMENT" herein and in the
Prospectus.
RISK FACTORS
Prospective holders of Certificates should consider, among other
things, the factors listed below and in the Prospectus under "RISK FACTORS" in
connection with the purchase of the Certificates.
INVESTMENT IN COMMERCIAL AND MULTIFAMILY MORTGAGE LOANS
Commercial and Multifamily Lending Generally. Commercial and
multifamily lending generally is viewed as exposing a lender to risks which are
different than many of the risks faced in connection with other types of
lending, such as consumer lending. Commercial and multifamily lending generally
involves larger loans, thereby providing lenders with less diversification of
risk and the potential for greater losses resulting from the delinquency and/or
default of individual loans. Many of the Mortgage Loans are non-recourse
obligations of the related borrowers, the repayment of which is often solely
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<PAGE>
dependent upon the successful operation of the related Mortgaged Properties.
Commercial and multifamily property values and net operating income are subject
to volatility. Many of the Mortgage Loans are also balloon loans, which may
pose additional risks associated with both the value of the related Mortgaged
Property and the borrower's ability to obtain financing as of the maturity of
the related Mortgage Loan. A borrower's ability to repay its loan may be
impaired if future operating results are not comparable to historical operating
results. This may occur for a variety of reasons, including an increase in
vacancy rates, a decline in rental rates, an increase in operating expenses
and/or an increase in necessary capital expenditures. The income from and
market value of a Mortgaged Property may also be adversely affected by such
factors as changes in the general economic climate, the existence of an
oversupply of comparable space or a reduction in demand for real estate in the
area, the attractiveness of the property to tenants and guests and perceptions
regarding such property's safety, convenience and services. Real estate values
and income are also affected by such factors as government regulations and
changes in real estate, zoning or tax laws, the willingness and ability of a
property owner to provide capable management, changes in interest rate levels,
the availability of financing and potential liability under environmental and
other laws.
a. Aging and Deterioration of Commercial and Multifamily Properties.
The age, construction quality and design of a particular Mortgaged Property may
affect the occupancy level as well as the rents that may be charged for
individual leases or, in the case of the Nursing Home Properties and the Hotel
Properties, the amounts that customers may be charged for the occupancy
thereof. The effects of poor construction quality are likely to require the
borrower to spend increasing amounts of money over time for maintenance and
capital improvements. Even Mortgaged Properties that were well constructed and
have been well maintained will require ongoing capital improvements in order
for such Mortgaged Properties to remain competitive in the market and retain
tenants and other occupants.
b. Leases. Repayment of the Mortgage Loans may be affected by the
expiration or termination of occupancy leases and the ability of the related
borrowers to renew such leases with the existing occupants or to relet the
space on economically favorable terms to new occupants, or the existence of a
market which requires a reduced rental rate, substantial tenant improvements or
expenditures or other concessions to a tenant in connection with a lease
renewal. No assurance can be given that leases that expire can be renewed, that
the space covered by leases that expire or are terminated can be leased in a
timely manner at comparable rents or on comparable terms or that the borrower
will have the cash or be able to obtain the financing to fund any required
tenant improvements. Income from and the market value of the Mortgaged
Properties would be adversely affected if vacant space in the Mortgaged
Properties could not be leased for a significant period of time, if tenants
were unable to meet their lease obligations or if, for any other reason, rental
payments could not be collected. Upon the occurrence of an event of default by
a tenant, delays and costs in enforcing the lessor's rights could occur. If a
significant portion of a Mortgaged Property is leased to a single tenant, the
consequences of the failure of the borrower to relet such portion of such
Mortgaged Property in the event that such tenant vacates the space leased to it
(either as a result of
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<PAGE>
the expiration of the term of the lease or a default by the tenant) or a
failure of such tenant to perform its obligations under the related lease, will
be more pronounced than if such Mortgaged Property were leased to a greater
number of tenants. See "--Tenant Matters" herein. Certain tenants at the
Mortgaged Properties may be entitled to terminate their leases or reduce their
rents based upon negotiated lease provisions, e.g. if an anchor tenant ceases
operations at the related Mortgaged Property. In such cases, there can be no
assurance that the operation of such provisions will not allow such a
termination or rent reduction. A tenant's lease may also be terminated or
otherwise affected if such tenant become the subject of a bankruptcy
proceeding.
c. Competition. Other multifamily and commercial properties located in
the areas of the Mortgaged Properties compete with the Mortgaged Properties of
similar types to attract customers, tenants and other occupants. Such
properties generally compete on the basis of rental rates, location, condition
and features of the property. If any oversupply of available space exists in a
particular market (either as a result of the building of new construction or a
decrease in the number of customers, tenants or other occupants due to a
decline in economic activity in the area), the rental rates for the Mortgaged
Properties may be adversely affected. Commercial or multifamily properties may
also face competition from other types of property as such properties are
converted to competitive uses in the future. Such conversions may occur based
upon future trends in the use of property by tenants and occupants, e.g. the
establishment of more home based offices and businesses and the conversion of
warehouse space for multifamily use. Increased competition could adversely
affect income from and the market value of the Mortgaged Properties.
d. Quality of Management. The successful operation of the Mortgaged
Properties is also dependent on the performance of the respective property
managers of the Mortgaged Properties. Such property managers are responsible
for responding to changes in the local market, planning and implementing the
rental rate structure, including establishing levels of rent payments, and
advising the related borrower so that maintenance and capital improvements can
be carried out in a timely fashion.
No Guaranty. No Mortgage Loan is insured or guarantied by the United
States of America, any governmental agency or instrumentality, any private
mortgage insurer or by the Depositor, _____,__________ , _________, the Master
Servicer, the Special Servicer, the Trustee or the Fiscal Agent or any of their
respective affiliates.
Limited Recourse. The majority of the Mortgage Loans are non-recourse
loans wherein recourse generally may be had only against the specific Mortgaged
Property securing such Mortgage Loan and such limited other assets as have been
pledged to secure such Mortgage Loan, and not against the borrower's other
assets. Consequently, the payment of each non-recourse Mortgage Loan is
primarily dependent upon the sufficiency of the net operating income from the
related Mortgaged Property and, at maturity, upon the market value of such
Mortgaged Property. See "DESCRIPTION OF THE MORTGAGE POOL--General" herein.
S-29
<PAGE>
Concentration of Mortgage Loans and Borrowers. In general, a mortgage
pool with a significant portion of its loans having larger average balances and
a smaller number of loans may be subject to losses that are more severe than
other pools having the same or similar aggregate principal balance and composed
of smaller average loan balances and a greater number of loans. In all cases,
each Investor should carefully consider all aspects of any loans representing a
significant percentage of the outstanding principal balance of a mortgage pool
in order to ensure that such loans are not subject to risks unacceptable to
such Investor. Additionally, a mortgage pool with a high concentration of
Mortgage Loans to the same borrower or related borrowers is subject to the
potential risk that a borrower undergoing financial difficulties might divert
its resources or undertake remedial actions (such as a bankruptcy) in order to
alleviate such difficulties, to the detriment of the Mortgaged Properties. See
"DESCRIPTION OF THE MORTGAGE POOL--Certain Characteristics of the Mortgage
Pool--Concentration of Mortgage Loans and Borrowers" herein.
Tax Considerations Related to Foreclosure. [REMIC III] might become
subject to federal (and possibly state or local) tax, at the highest marginal
corporate rate (currently ___%), on certain of its net income from the
operation and management of a Mortgaged Property subsequent to the Trust Fund's
acquisition of a Mortgaged Property pursuant to a foreclosure or deed-in-lieu
of foreclosure, thereby reducing net proceeds available for distribution to
Certificateholders. Such taxable net income does not include qualifying "rents
from real property," or any rental income based on the net profits of a tenant
or sub-tenant or allocable to a service that is customary in the area and for
the type of property involved.
Future Changes in the Composition of the Mortgage Pool. As principal
payments or if prepayments are made on the Mortgage Loans at different rates
based upon the varied amortization schedules and maturities of the Mortgage
Loans, the Mortgage Pool may be subject to more concentrated risk with respect
to the reduction in both the diversity of types of Mortgaged Properties and the
number of borrowers. Because principal on the Certificates is payable in
sequential order, and no Class receives principal until the Certificate Balance
of the preceding sequential Class or Classes has been reduced to zero, Classes
that have a later sequential designation are more likely to be exposed to such
risk of concentration than Classes with an earlier sequential priority.
Geographic Concentration. Repayments by borrowers and the market
values of the Mortgaged Properties could be affected by economic conditions
generally or in the regions where the borrowers and the Mortgaged Properties
are located, conditions in the real estate markets where the Mortgaged
Properties are located, changes in governmental rules and fiscal policies,
natural disasters (which may result in uninsured losses) and other factors that
are beyond the control of the borrowers. The economy of any state or region in
which a Mortgaged Property is located may be adversely affected to a greater
degree than that of other areas of the country by certain developments
affecting industries concentrated in such state or region.
Moreover, in recent periods, several regions of the United States have
experienced significant downturns in the market value of real estate. To the
extent that
S-30
<PAGE>
general economic or other relevant conditions in states or regions in which
Mortgaged Properties securing significant portions of the aggregate principal
balance of the Mortgage Loans are located decline and result in a decrease in
commercial property, housing or consumer demand in the region, the income from
and market value of the Mortgaged Properties may be adversely affected. See
"DESCRIPTION OF THE MORTGAGE POOL--Certain Characteristics of the Mortgage
Pool--Geographic Concentration" herein.
Environmental Risks. Each of the Mortgage Loan Sellers has represented
to the Depositor that each of the related Mortgaged Properties was subject to a
"Phase I" environmental site assessment or similar study (or an update of a
previously conducted assessment or an update of an assessment based upon
information in an established database), which was performed on behalf of the
related Mortgage Loan Seller, or as to which the related report was delivered
to the related Mortgage Loan Seller in connection with its origination or
acquisition of the related Mortgage Loan. Such environmental assessments,
updates or reviews were conducted within the 24-month period prior to the
Cut-Off Date. The Mortgage Loan Sellers have informed the Depositor that no
such environmental assessment revealed any material adverse environmental
condition or circumstance with respect to any Mortgaged Property, except for:
(i) those cases in which an operations and maintenance plan or periodic
monitoring of such Mortgaged Property or nearby properties was recommended or
an escrow reserve to cover the estimated cost of remediation was established;
(ii) those cases involving a leaking underground storage tank or groundwater
contamination at a nearby property, which condition has not yet affected such
Mortgaged Property and as to which a responsible party has been identified
under applicable law; (iii) those cases where such conditions were either (x)
remediated or abated prior to the Closing Date or as to which the property is
the subject of an administrative consent order with a party that has
established a remediation fund pursuant to such order or as to which the
responsible party has provided an indemnity or guaranty, or (y) the borrower
has otherwise agreed to bear the costs of such abatement or remediation; and
(iv) those cases in which groundwater or soil contamination was identified or
suspected, and either environmental insurance was obtained or a letter of
credit was provided to cover estimated costs of continued monitoring or
remediation.
The information contained herein is based on the environmental
assessments or similar studies and has not been independently verified by the
Depositor, the Mortgage Loan Sellers, the Underwriters, or any of their
respective affiliates.
If an adverse environmental condition exists with respect to a
Mortgaged Property, the Trust Fund may be subject to the following risks: (i) a
diminution in the value of a Mortgaged Property or the inability to foreclose
against such Mortgaged Property; (ii) the inability to lease such Mortgaged
Property to potential tenants; (iii) the potential that the related borrower
may default on a Mortgage Loan due to such borrower's inability to pay high
remediation costs or difficulty in bringing its operations into compliance with
environmental laws; or (iv) in certain circumstances as more fully described
below, liability for clean-up costs or other remedial actions, which liability
could exceed the value of such Mortgaged Property. Additionally, the
environmental condition of a Mortgaged Property may be affected by the
operations of tenants and
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<PAGE>
occupants thereof, and current and future environmental laws, ordinances or
regulations, may impose additional compliance obligations on business
operations that can be met only by significant capital expenditures.
Under certain federal and state laws, the reimbursement of remedial
costs incurred by state and federal regulatory agencies to correct
environmental conditions are secured by a statutory lien over the subject
property, which lien, in some instances, may be prior to the lien of an
existing mortgage. Any such lien arising with respect to a Mortgaged Property
would adversely affect the value of such Mortgaged Property and could make
impracticable the foreclosure by the Special Servicer on such Mortgaged
Property in the event of a default by the related borrower.
Under various federal, state and local laws, ordinances and
regulations, a current or previous owner or operator of real property, as well
as certain other categories of parties, may be liable for the costs of removal
or remediation of hazardous or toxic substances on, under, adjacent to or in
such property. The cost of any required remediation and the owner's liability
therefor as to any property is generally not limited under applicable federal,
state or local laws, and could exceed the value of the property and/or the
aggregate assets of the owner. Under some environmental laws, a secured lender
(such as the Trust Fund) may be deemed an "owner" or "operator" of the related
Mortgaged Property if the lender is deemed to have participated in the
management of the borrower, regardless of whether the borrower actually caused
the environmental damage. In such cases, a secured lender may be liable for the
costs of any required removal or remediation of hazardous substances. One court
has held that a lender will be deemed to have participated in the management of
the borrower if the lender participated in the financial management of the
borrower to a degree indicating the capacity to influence the borrower's
treatment of hazardous waste. The Trust Fund's potential exposure to liability
for cleanup costs will increase if the Trust Fund actually takes possession of
a Mortgaged Property or control of its day-to-day operations; such potential
exposure to environmental liability may also increase if a court grants a
petition to appoint a receiver to operate the Mortgaged Property in order to
protect the Trust Fund's collateral. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Environmental Risks" in the Prospectus, and "DESCRIPTION OF THE MORTGAGE
POOL--Certain Characteristics of the Mortgage Pool--Environmental Risks"
herein.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto on behalf of the Trust Fund or assuming its operation.
Such requirement may effectively preclude enforcement of the security for the
related Note until a satisfactory environmental site assessment is obtained (or
until any required remedial action is thereafter taken), but will decrease the
likelihood that the Trust Fund will become liable under any environmental law.
However, there can be no assurance that such environmental site assessment will
reveal the existence of conditions or circumstances that would result in the
Trust Fund becoming liable under any environmental law, or that the
requirements of the Pooling and Servicing Agreement will effectively insulate
the Trust Fund from potential liability under environmental laws. See "THE
POOLING
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<PAGE>
AND SERVICING AGREEMENT--Realization Upon Mortgage Loans--Standards for Conduct
Generally in Effecting Foreclosure or the Sale of Defaulted Loans" herein and
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Environmental Risks" in the
Prospectus.
Other Financing. In general, the borrowers are prohibited from
encumbering the related Mortgaged Property with additional secured debt or the
mortgagee's approval is required for such an encumbrance. However, a violation
of such prohibition may not become evident until the related Mortgage Loan
otherwise defaults. In cases in which one or more subordinate liens are imposed
on a Mortgaged Property or the borrower incurs other indebtedness, the Trust
Fund is subject to additional risks, including, without limitation, the risks
that the necessary maintenance of the Mortgaged Property could be deferred to
allow the borrower to pay the required debt service on the subordinate
financing and that the value of the Mortgaged Property may fall as a result,
and that the borrower may have a greater incentive to repay the subordinate or
unsecured indebtedness first and that it may be more difficult for the borrower
to refinance the Mortgage Loan or to sell the Mortgaged Property for purposes
of making any Balloon Payment upon the maturity of the Mortgage Loan. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Secondary Financing; Due-on-
Encumbrance Provisions" in the Prospectus, and "DESCRIPTION OF THE MORTGAGE
POOL--Certain Characteristics of the Mortgage Pool--Other Financing" herein.
Bankruptcy of Borrowers. The borrowers may be either individuals or
legal entities. Most of the borrowers which are legal entities are not
bankruptcy-remote entities. The borrowers that are not bankruptcy remote
entities may be more likely to become insolvent or the subject of a voluntary
or involuntary bankruptcy proceeding because such borrowers may be (a)
operating entities with businesses distinct from the operation of the property
with the associated liabilities and risks of operating an ongoing business and
(b) individuals who may have personal liabilities unrelated to the property.
However, any borrower, even a bankruptcy- remote entity, as owner of real
estate will be subject to certain potential liabilities and risks as such an
owner. No assurance can be given that a borrower will not file for bankruptcy
protection or that creditors of a borrower or a corporate or individual general
partner or member will not initiate a bankruptcy or similar proceeding against
such borrower or corporate or individual general partner or member. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Foreclosure--Bankruptcy Laws" in
the Prospectus.
Limitations of Appraisals and Engineering Reports. In general,
appraisals represent the analysis and opinion of qualified experts and are not
guaranties of present or future value. Moreover, appraisals seek to establish
the amount a willing buyer would pay a willing seller. Such amount could be
significantly higher than the amount obtained from the sale of a Mortgaged
Property under a distress or liquidation sale. Information regarding the values
of the Mortgaged Properties as of the Cut-off Date is presented under
"DESCRIPTION OF THE MORTGAGE POOL--Certain Characteristics of the Mortgage
Pool" herein for illustrative purposes only. The architectural and engineering
reports represent the analysis of the individual engineers or site inspectors
at or before the origination of the respective Mortgage Loans, have not been
updated since they were
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originally conducted and may not have revealed all necessary or desirable
repairs, maintenance or capital improvement items.
Zoning Compliance. The Mortgaged Properties are typically subject to
applicable building and zoning ordinances and codes ("Zoning Laws") affecting
the construction and use of real property. Since the Zoning Laws applicable to
a Mortgaged Property (including, without limitation, density, use, parking and
set back requirements) are generally subject to change by the applicable
regulatory authority at any time, certain of the improvements upon the
Mortgaged Properties may not comply fully with all applicable current and
future Zoning Laws. Such changes may limit the ability of the related borrower
to rehabilitate, renovate and update the premises, and to rebuild or utilize
the premises "as is" in the event of a substantial casualty loss with respect
thereto.
Costs of Compliance with Applicable Laws and Regulations. A borrower
may be required to incur costs to comply with various existing and future
federal, state or local laws and regulations applicable to the related
Mortgaged Property, e.g. Zoning Laws, and the Americans with Disabilities Act
of 1990. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Americans With
Disabilities Act" in the Prospectus. The expenditure of such costs, or the
imposition of injunctive relief, penalties or fines in connection with the
borrower's noncompliance could negatively impact the borrower's cash flow, and
consequently, its ability to pay its Mortgage Loan.
Limitations on Enforceability of Cross-Collateralization. Arrangements
whereby certain of the Mortgage Loans (the "Cross-Collateralized Loans") are
cross-collateralized and cross-defaulted with one or more related
Cross-Collateralized Loans could be challenged as fraudulent conveyances by
creditors of any of the related borrowers or by the representative of the
bankruptcy estate of such borrowers if one or more of such borrowers were to
become a debtor in a bankruptcy case. Generally, under federal and most state
fraudulent conveyance statutes, the incurring of an obligation or the transfer
of property (including the granting of a mortgage lien) by a person will be
subject to avoidance under certain circumstances if the person did not receive
fair consideration or reasonably equivalent value in exchange for such
obligation or transfer and (i) was insolvent or was rendered insolvent by such
obligation or transfer, (ii) was engaged in a business or a transaction, or was
about to engage in a business or a transaction, for which properties remaining
with the person constitute an unreasonably small capital or (iii) intended to
incur, or believed that it would incur, debts that would be beyond the person's
ability to pay as such debts matured. Accordingly, a lien granted by any such
borrower could be avoided if a court were to determine that (x) such borrower
was insolvent at the time of granting the lien, was rendered insolvent by the
granting of the lien, was left with inadequate capital or was not able to pay
its debts as they matured and (y) the borrower did not, when it allowed its
Mortgaged Property to be encumbered by the liens securing the indebtedness
represented by the other Cross-Collateralized Loans, receive fair consideration
or reasonably equivalent value for pledging such Mortgaged Property for the
equal benefit of the other related borrowers. No assurance can be given that a
lien granted by a borrower on a Cross-Collateralized Loan to secure the
Mortgage Loan of an affiliated borrower, or any payment thereon, would not be
avoided as a fraudulent conveyance. See "DESCRIPTION OF THE MORTGAGE
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POOL--Certain Characteristics of the Mortgage Pool--Limitations on
Enforceability of Cross-Collateralization" herein for more information
regarding the Cross-Collateralized Loans.
Tenant Matters. Certain of the Mortgaged Properties are leased wholly
or in large part to a single tenant or are wholly or in large part
owner-occupied (each such tenant or owner-occupier, a "Major Tenant"). Any
default by a Major Tenant could adversely affect the related borrower's ability
to make payments on the related Mortgage Loan. There can be no assurance that
any Major Tenant will continue to perform its obligations under its lease (or,
in the case of an owner-occupied Mortgaged Property, under the related Mortgage
Loan documents). See "DESCRIPTION OF THE MORTGAGE POOL--Certain Characteristics
of the Mortgage Pool--Tenant Matters" and "Annex A" herein.
Litigation. From time to time, there may be legal proceedings pending
or threatened against the borrowers and their affiliates relating to the
business of, or arising out of the ordinary course of business of, the
borrowers and their affiliates. There can be no assurance that any such
litigation will not have a material adverse effect on any borrower's ability to
meet its obligations under the related Mortgage Loan and, thus, on the
distributions to Certificateholders.
PREPAYMENT AND YIELD CONSIDERATIONS
Effect of Borrower Defaults and Delinquencies. The aggregate amount of
distributions on the Regular Certificates, the yield to maturity of the Regular
Certificates, the rate of principal payments on the Regular Certificates and
the weighted average life of the Regular Certificates will be affected by the
rate and the timing of delinquencies, defaults, losses or other shortfalls
experienced on the Mortgage Loans. If a purchaser of a Regular Certificate of
any Class calculates its anticipated yield based on an assumed default rate and
amount of losses on the Mortgage Loans that is lower than the default rate and
amount of losses actually experienced and such additional losses are allocable
to such Class of Certificates or, with respect to the Class A-EC or Class K-2
Certificates, such losses result in a reduction of the Class A-EC Notional
Balance or the Class K-2 Notional Balance, respectively, such purchaser's
actual yield to maturity will be lower than the anticipated yield calculated
and could, under certain extreme scenarios, be negative. The timing of any loss
on a liquidated Mortgage Loan will also affect the actual yield to maturity of
the Regular Certificates to which a portion of such loss is allocable, even if
the rate of defaults and severity of losses are consistent with an investor's
expectations. In general, the earlier a loss borne by an investor occurs, the
greater will be the effect on such investor's yield to maturity.
Most of the Mortgage Loans are Balloon Loans, which involve a greater
risk of default than self-amortizing loans because the ability of a borrower to
make a Balloon Payment typically will depend upon its ability either to
refinance the related Mortgaged Property or to sell such Mortgaged Property at
a price sufficient to permit the borrower to make the Balloon Payment. The
ability of a borrower to accomplish either of these
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goals will be affected by a number of factors at the time of attempted sale or
refinancing, including the level of available mortgage rates, the fair market
value of the related Mortgaged Property, the borrower's equity in the related
Mortgaged Property, the financial condition of the borrower and the operating
history of the related Mortgaged Property, tax laws, prevailing economic
conditions and the availability of credit for multifamily or commercial
properties (as the case may be) generally. See "YIELD AND MATURITY
CONSIDERATIONS--Yield Considerations--Balloon Payments" herein.
Regardless of whether losses ultimately result, prior to the
liquidation of any defaulted Mortgage Loan, delinquencies on the Mortgage Loans
may significantly delay the receipt of payments by the holder of a Regular
Certificate to the extent that Advances or the subordination of another Class
of Certificates does not fully offset the effects of any delinquency or
default. The Available Funds generally consist of, as more fully described
herein, principal and interest on the Mortgage Loans actually collected or
advanced. The Master Servicer's, the Trustee's or the Fiscal Agent's
obligation, as applicable, to make Advances is limited to the extent described
under "THE POOLING AND SERVICING AGREEMENT--Advances" herein. In particular,
upon determination of the Anticipated Loss with respect to any Seriously
Delinquent Loan, the amount of any P&I Advance required to be made with respect
to such Seriously Delinquent Loan on any Distribution Date will be an amount
equal to the product of (A) the amount of the P&I Advance that would be
required to be made in respect of such Seriously Delinquent Loan without regard
to the application of this sentence, multiplied by (B) a fraction, the
numerator of which is equal to the Scheduled Principal Balance of such
Seriously Delinquent Loan as of the immediately preceding Determination Date
less the Anticipated Loss and the denominator of which is such Scheduled
Principal Balance. In addition, no Advances are required to be made to the
extent that, in the good faith judgment of the Master Servicer, the Trustee or
the Fiscal Agent, as applicable, any such Advance, if made, would be
nonrecoverable from proceeds of the Mortgage Loan to which such Advance
relates. See "THE POOLING AND SERVICING AGREEMENT--Advances" herein.
Effect of Prepayments and other Unscheduled Payments. The investment
performance of the Certificates may vary materially and adversely from the
investment expectations of investors due to the rate of prepayments on the
Mortgage Loans being higher or lower than anticipated by investors. In
addition, in the event of any repurchase of a Mortgage Loan by a Mortgage Loan
Seller [or ________] from the Trust Fund under the circumstances described
under "DESCRIPTION OF THE MORTGAGE POOL--Representations and Warranties;
Repurchase" herein, the repurchase price paid will be passed through to the
holders of the Certificates with the same effect as if such Mortgage Loan had
been prepaid in full (except that no Prepayment Premium will be payable with
respect to any such repurchase). No representation is made as to the
anticipated rate of prepayments (voluntary or involuntary) on the Mortgage
Loans or as to the anticipated yield to maturity of any Certificate.
Furthermore, the distribution of Liquidation Proceeds to the Class or Classes
of Certificates then entitled to distributions in respect of principal will
reduce the weighted average lives of such Classes and may
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reduce or increase the weighted average life of other Classes of Certificates.
See "YIELD AND MATURITY CONSIDERATIONS" herein.
In general, the yield on Certificates purchased at a premium or at a
discount and the yield on the Class A-EC and Class K-2 Certificates, which have
no Certificate Balances, will be sensitive to the amount and timing of
principal distributions thereon (or of reductions of the respective Notional
Balances). The occurrence of principal distributions at a rate faster than that
anticipated by an investor at the time of purchase will cause the actual yield
to maturity of a Certificate purchased at a premium to be lower than
anticipated. The yield to maturity of the Class A-EC and Class K-2 Certificates
will be especially sensitive to the occurrence of high rates of principal
distributions which could result in the failure of the holders of such Classes
to recover fully their initial investments. Conversely, if a Certificate is
purchased at a discount (especially the Class K-1 Certificates) and principal
distributions thereon occur at a rate slower than that assumed at the time of
purchase, the investor's actual yield to maturity will be lower than assumed at
the time of purchase.
Effect of Prepayment Premiums. The rate and timing of principal
payments made on a Mortgage Loan will be affected by restrictions on voluntary
prepayments contained in the related Note (e.g., lockout periods and Prepayment
Premiums). Most of the Mortgage Loans provide that for a specified amount of
time during which a prepayment is permitted, it must be accompanied by a
Prepayment Premium. The existence of Prepayment Premiums generally will result
in the Mortgage Loans prepaying at a lower rate. However, the requirement that
a prepayment be accompanied by a Prepayment Premium may not provide a
sufficient economic disincentive to a borrower seeking to refinance at a more
favorable interest rate. In addition, since holders of the Class A-EC
Certificates are anticipated to receive most, if not all, Prepayment Premiums,
potential purchasers of this Class should especially consider that provisions
requiring Prepayment Premiums may not be enforceable in some states and under
federal bankruptcy law and may constitute interest for usury purposes.
Accordingly, no assurance can be given that the obligation to pay a Prepayment
Premium will be enforceable under applicable state or federal law or, if
enforceable, that the foreclosure proceeds received with respect to a defaulted
Mortgage Loan will be sufficient to make such payment. See "DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions" herein.
Effect of Interest on Advances, Special Servicing Fees and other
Servicing Expenses. As and to the extent described herein, the Master Servicer,
the Trustee or the Fiscal Agent, as applicable, will be entitled to receive
interest on unreimbursed Advances at the Advance Rate from the date on which
the related Advance is made to the date on which such amounts are reimbursed
(which in no event will be later than the Determination Date following the date
on which funds are available to reimburse such Advance with interest thereon at
the Advance Rate). The Master Servicer's, the Trustee's or the Fiscal Agent's
right, as applicable, to receive such payments of interest is prior to the
rights of Certificateholders to receive distributions on the Regular
Certificates and, consequently, may result in decreased distributions to the
Regular Certificates that would not otherwise have resulted, absent the accrual
of such interest.
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<PAGE>
See "THE POOLING AND SERVICING AGREEMENT--Advances" herein. In
addition, certain circumstances, including delinquencies in the payment of
principal and interest, will result in a Mortgage Loan being specially
serviced. The Special Servicer is entitled to additional compensation for
special servicing activities, including Special Servicing Fees, Disposition
Fees and Workout Fees, which may result in decreased distributions to the
Regular Certificates that would not otherwise have resulted absent such
compensation. See "THE POOLING AND SERVICING AGREEMENT--Special Servicing"
herein.
LIMITED LIQUIDITY
There is currently no secondary market for the Regular Certificates.
The Underwriters have advised the Depositor that they currently intend to make
a secondary market in the Regular Certificates, but they are under no
obligation to do so. Accordingly, there can be no assurance that a secondary
market for the Regular Certificates will develop. Moreover, if a secondary
market does develop, there can be no assurance that it will provide holders of
Regular Certificates with liquidity of investment or that it will continue for
the life of the Regular Certificates. The Regular Certificates will not be
listed on any securities exchange.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of__________ multifamily and commercial
"whole" mortgage loans (the "Mortgage Loans"). The Mortgage Loans have an
aggregate Cut-off Date Principal Balance of approximately $______ (the "Initial
Pool Balance"), subject to a variance of plus or minus 5%. The "Cut-off Date
Principal Balance" of each Mortgage Loan is the unpaid principal balance
thereof as of the Cut-off Date, after application of all payments of principal
due on or before such date, whether or not received. Any description of the
terms and provisions of the Mortgage Loans herein is a generalized description
of the terms and provisions of the Mortgage Loans in the aggregate. Many of the
individual Mortgage Loans have special terms and provisions that deviate from
the generalized, aggregated description.
Generally, each Mortgage Loan is evidenced by a separate promissory
note (collectively, the "Promissory Notes"). 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 lien on one or more of a fee
simple estate, an estate for years or a leasehold estate in a real property
("Mortgaged Property") improved for multifamily or commercial use. The
Mortgaged Properties consist of properties improved by (a) office buildings
("Office Properties," and any Mortgage Loan secured thereby, "Office Loans");
(b) health care-related properties ("Health Care-Related Properties"); (c)
congregate care facilities ("Congregate Care Properties," and any Mortgage Loan
secured thereby, "Congregate Care Loans"); (d) hotels and motels ("Hotel and
Motel Properties," and any Mortgage Loan secured thereby, "Hotel and Motel
Loans"); (e) industrial properties
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("Industrial Properties," and any Mortgage Loan secured thereby, "Industrial
Loans"); (f) warehouse, mini warehouse and self-storage facilities ("Warehouse
Properties," "Mini Warehouse Properties," and "Self-Storage Properties" and any
Mortgage Loan secured thereby, "Warehouse Loans" "Mini Warehouse Loans" &
"Self-Storage Loans"); (g) mobile home parks ("Mobile Home Park Properties,"
and any Mortgage Loan secured thereby, "Mobile Home Park Loans");
(h) apartment buildings or complexes consisting of five or more rental units
or a complex of duplex units ("Multifamily Properties," and Mortgage Loans
secured thereby, "Multifamily Loans"); (i) cooperative apartment buildings;
(j) nursing homes ("Nursing Home Properties," and any Mortgage Loan secured
thereby, "Nursing Home Loans"); (k) office/retail properties ("Office/Retail
Properties," and any Mortgage Loan secured thereby, "Office/Retail Loans");
(l) anchored retail properties ("Retail, Anchored Properties," and any
Mortgage Loan secured thereby, "Retail, Anchored Loans"); (m) single tenant
retail properties ("Retail, Single Tenant Properties," and any Mortgage Loan
secured thereby, "Retail, Single Tenant Loans"); (n) unanchored retail
properties ("Retail, Unanchored Properties," and any Mortgage Loan secured
thereby, "Retail, Unanchored Loans"); and/or (o) other commercial real estate
properties, multifamily residential properties and/or mixed residential
commercial properties. The percentage of the Initial Pool Balance represented
by each type of Mortgaged Property is as follows:
<TABLE>
<CAPTION>
Percentage of
Property Type Initial Pool Balance Number of Loans
- ------------- -------------------- ---------------
<S> <C> <C>
%
%
%
%
%
%
%
%
%
%
%
%
%
</TABLE>
Approximately ____% of the Initial Pool Balance represents the refinancing of
existing mortgage indebtedness.
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<PAGE>
None of the Mortgage Loans is insured or guaranteed by the United
States of America, any governmental agency or instrumentality, any private
mortgage insurer or by the Depositor, _____, the Mortgage Loan Sellers,
_________, the Master Servicer, the Special Servicer, the Trustee or the Fiscal
Agent or any of their respective affiliates. ____________ of the Mortgage
Loans, representing approximately____ % of the Initial Pool Balance, provide for
full recourse against the related borrower, while the remainder of the Mortgage
Loans are non-recourse loans. In the event of a borrower default under a
non-recourse Mortgage Loan, recourse generally may be had only against the
specific Mortgaged Property or Mortgaged Properties securing such Mortgage Loan
and such limited other assets as have been pledged to secure such Mortgage
Loan, and not against the borrower's other assets.
[The Depositor will purchase________ the _______ Mortgage Loans, on or
before the Closing Date from _____ pursuant to a Mortgage Loan Purchase and Sale
Agreement (the "____ Mortgage Loan Purchase Agreement") dated as of ________
(the "Loan Purchase Closing Date"), between ____ and the Depositor. The Mortgage
Loans will be acquired by the Depositor on or before the Closing Date from
________________ pursuant to a Mortgage Loan Purchase and Sale Agreement (the "
Mortgage Loan Purchase Agreement") dated as of______ , between the Depositor and
________. ____ and _________ are herein sometimes individually referred to as a
"Mortgage Loan Seller," and collectively as the "Mortgage Loan Sellers." The
Depositor will assign the Mortgage Loans in the Mortgage Pool, and make the
representations or warranties regarding the Mortgage Loans, to the Trustee
pursuant to the Pooling and Servicing Agreement. The Master Servicer and the
Special Servicer will each service the Mortgage Loans pursuant to the Pooling
and Servicing Agreement. See "THE POOLING AND SERVICING AGREEMENT--Servicing of
the Mortgage Loans; Collection of Payments."]
SECURITY FOR THE MORTGAGE LOANS
Each Mortgage Loan is secured by a Mortgage encumbering the related
borrower's interest in the related Mortgaged Property_________. of the Mortgage
Loans, representing approximately____ % of the Initial Pool Balance, provide for
full recourse against the related borrower, while the remainder of the Mortgage
Loans are non-recourse loans. Each Mortgage Loan is also secured by an
assignment of the related borrower's interest in the leases, rents, issues and
profits of the related Mortgaged Property. In certain instances, additional
collateral may exist in the nature of letters of credit, a pledge of demand
notes, the establishment of one or more Reserve Accounts (for necessary repairs
and replacements, tenant improvements and leasing commissions, real estate
taxes and assessments, insurance premiums, deferred maintenance and/or
scheduled capital improvements or as reserves for the payment of Monthly
Payments and other payments due under the related Mortgage Loan), grants of
security interests in equipment, inventory, accounts receivable and other
personal property, assignments of licenses, trademarks and/or trade names, one
or more guaranties of all or part of the related Mortgage Loan, one or more
guaranties with respect to a tenant's performance of the terms and conditions
of such tenant's lease, the assignment of an option to obtain a ground lease
with respect to the related Mortgaged Property or the assignment of the
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proceeds of purchase options. Each Mortgage Loan provides for the
indemnification of the mortgagee by the related borrower for the presence of
any hazardous substances affecting the Mortgaged Property. However, borrowers
generally have limited assets and there can be no assurance that any borrower
will have sufficient assets to support any such indemnification obligations
that may arise. See "RISK FACTORS--The Mortgage Loans; Investment in Commercial
and Multifamily Mortgage Loans--Environmental Risks" herein. Each Mortgage
constitutes a first lien on a Mortgaged Property, subject generally only to (a)
liens for real estate and other taxes and special assessments, (b) covenants,
conditions, restrictions, rights of way, easements and other encumbrances
whether or not of public record as of the date of recording of such Mortgage,
and (c) such other exceptions and encumbrances on the Mortgaged Property as are
reflected in the related title insurance policies.
Ground Leases; Estates For Years. ____ Mortgage Loan(s), representing
approximately ___% of the Initial Pool Balance, is secured by a first lien
encumbering the related borrower's (a) leasehold interest in a portion of the
related Mortgaged Property, and (b) fee interest in the remainder of such
Mortgaged Property._______ Mortgaged Loans, representing approximately ____% of
the Initial Pool Balance, encumber leasehold interests as follows: _____. The
related ground lease expires on _____________. See "CERTAIN LEGAL ASPECTS OF
THE MORTGAGE LOANS--Foreclosure--Leasehold Risks" in the Prospectus.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Due Dates. The Mortgage Loans provide for Monthly Payments to be due
on the first day of each month; provided, however, that ____ of the Mortgage
Loans, representing approximately ___% of the Initial Pool Balance, provide for
Monthly Payments to be due on the ____ day of each month.
Mortgage Rates; Calculations of Interest. Except with respect to the
loans discussed below, each Mortgage Loan generally accrues interest at an
annualized rate (a "Mortgage Rate") that is fixed for the entire term of such
Mortgage Loan and does not permit any negative amortization or the deferral of
interest.
Amortization of Principal. _________ of the Mortgage Loans (the
"Balloon Loans"), which represent approximately ___% of the Initial Pool
Balance, provide for monthly payments of principal based on amortization
schedules longer than their remaining terms, thereby leaving substantial
principal amounts due and payable on their respective maturity dates (each such
payment, together with interest on the related Balloon Loan for the one-month
period ending on the day preceding such Balloon Loan's maturity date, a
"Balloon Payment"), unless previously prepaid. ____of the Mortgage Loans, which
represent approximately____ % of the Initial Pool Balance, have remaining
amortization terms that are the same as their respective remaining terms to
maturity. The weighted average Balloon LTV applicable to the Mortgage Pool is
____%.
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Prepayment Provisions. The imposition of a premium or fee (a
"Prepayment Premium") payable in connection with a voluntary prepayment of each
of the Mortgage Loans is designed primarily to deter a borrower from
voluntarily prepaying the principal amounts of its Mortgage Loan. Although
certain of the Mortgage Loans are subject to specified periods following the
origination of such Mortgage Loans wherein no voluntary prepayments are allowed
(any such period, a "Lockout Period"), the Mortgage Loans generally permit each
borrower to voluntarily prepay the entire principal balance of its Mortgage
Loan provided that any applicable Prepayment Premium is paid in connection
therewith; provided, however, that the applicable Prepayment Premium
requirement expires prior to the maturity date of all but ___ of the Mortgage
Loans, representing approximately ___% of the Initial Pool Balance. Voluntary
prepayments of less than the full outstanding principal of a Mortgage Loan are
generally prohibited; provided, however, that (a) ___ in of the Mortgage Loans,
representing approximately ___% of the Initial Pool Balance, the related
borrower is permitted to make partial voluntary prepayments of its Mortgage
Loan subject to certain specified conditions and limitations, including payment
of the required Prepayment Premium, and (b) in ___ of the Mortgagee Loans,
representing approximately ___% of the Initial Pool Balance, the related
borrower is permitted to prepay all or any part of its Mortgage Loan at any
time without the payment of a Prepayment Premium. Additionally, with respect to
___ of the Balloon Loans, representing approximately ___% of the Initial Pool
Balance, the related borrower is permitted to make voluntary prepayments
sufficient to fully amortize the principal balance thereof over the remaining
term thereof without the payment of Prepayment Premiums. Neither of such
borrowers have made any such voluntary prepayments since the origination of
such Balloon Loan.
The Prepayment Premium applicable with respect to the majority of the
Mortgage Loans is generally calculated (a) for a certain period (any such
period, a "Yield Maintenance Period") after the origination of such Mortgage
Loan or the expiration of the applicable Lockout Period, if any, on the basis
of a yield maintenance formula and/or a specified percentage of the amount
prepaid, and (b) after the expiration of the applicable Yield Maintenance
Period, a specified percentage (which percentage may either remain constant or
decline over time) of the amount prepaid. Annex A attached hereto contains more
specific information regarding the Prepayment Premiums applicable to each of
the Mortgage Loans.
The Mortgage Loans generally provide that so long as no event of
default then exists, no Prepayment Premium is payable in connection with any
involuntary prepayment resulting from a Casualty or Condemnation. The Mortgage
Loans generally also permit prepayment after an event of default (but prior to
the sale by the mortgagee thereunder of the Mortgaged Property through
foreclosure or otherwise) provided that the related borrower pays the
applicable Prepayment Premium. Certain of the Mortgage Loans may permit the
related borrower to transfer the related Mortgaged Property to a third party
without prepaying the related Mortgage Loan, provided that certain conditions
are satisfied, including, without limitation, an assumption by the transferee
of all of such borrower's obligations in respect of such Mortgage Loan. See "--
`Due-on-Encumbrance' and `Due-on-Sale' Provisions" herein.
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The Depositor makes no representation as to the enforceability of the
provisions of any Mortgage Loan requiring the payment of a Prepayment Premium
or as to the collectability of any Prepayment Premium. See "RISK
FACTORS--Prepayment and Yield Considerations" herein and "CERTAIN LEGAL ASPECTS
OF THE MORTGAGE LOANS--Enforceability of Certain Provisions" in the Prospectus.
"Due-on-Encumbrance" and "Due-on-Sale" Provisions. The Mortgages
generally contain "due-on-encumbrance" clauses that permit the holder of the
Mortgage to accelerate the maturity of the related Mortgage Loan if the
borrower encumbers the related Mortgaged Property without the consent of the
mortgagee. However, in certain of the Mortgage Loans, the related borrower is
allowed, under certain circumstances, to encumber the related Mortgaged
Property with additional liens. See "RISK FACTORS--Investment in Commercial and
Multi-Family Mortgage Loans--Other Financing" herein. The Master Servicer or
the Special Servicer, as applicable, will determine, in a manner consistent
with the servicing standard described herein under "THE POOLING AND SERVICING
AGREEMENT--Servicing of the Mortgage Loans; Collection of Payments" whether to
exercise any right the mortgagee may have under any such clause to accelerate
payment of a Mortgage Loan upon, or to withhold its consent to, any additional
encumbrance of the related Mortgaged Property.
The Mortgages for the Mortgage Loans generally prohibit, without the
mortgagee's prior consent, the borrower from transferring the Mortgaged
Property or allowing a change in ownership (generally defined as, among other
things, (a) a specified percentage (generally ranging from 10% to 49%) change
in the ownership of the borrower, a guarantor or, with respect to certain of
such Mortgage Loans, in the ownership of the general partner of the borrower or
a guarantor, (b) the removal, resignation of change in ownership of any general
partner or managing partner of a borrower, a guarantor or, with respect to
certain of such Mortgage Loans, any general partner of a borrower or a
guarantor, (c) with respect to certain of such Mortgage Loans, the removal,
resignation or change in ownership of the managing agent of the related
Mortgaged Property), or (d) the voluntary or involuntary transfer or dilution
of the controlling interest in the related borrower held by a specified person;
provided, however, that with respect to certain of such Mortgage Loans, the
borrower may be entitled to transfer the Mortgaged Property or allow a change
in ownership if certain conditions are satisfied, typically including one or
more of the following, (i) no event of default has occurred, (ii) the proposed
transferee meets the mortgagee's customary underwriting criteria, (iii) the
Mortgaged Property continues to meet the mortgagee's customary underwriting
criteria, (iv) an acceptable assumption agreement is executed, and (v) a
specified assumption fee (generally 1% or .5% of the then outstanding principal
balance of the applicable Note) has been received by the mortgagee. Certain of
the Mortgages may also allow transfers of interests in the related Mortgaged
Property in the nature of residential leases and easements and changes in
ownership between partners, family members, for estate planning purposes,
affiliated companies and certain specified individuals. In the event of any
transfer or change in ownership of the Mortgaged Property in violation of the
applicable provisions of the related Mortgage Loan documents, the related
Mortgage Loan documents generally provide that the mortgagee is permitted to
accelerate the maturity of the related Mortgage Loan. See
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"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Enforceability of Certain
Provisions--Due-on-Sale Provisions" in the Prospectus. The Depositor makes no
representation as to the enforceability of any due-on-sale or
due-on-encumbrance provision in any Mortgage Loan which is the subject of a
proceeding under the Bankruptcy Code.
Default Provisions. Except as described below, the related Mortgage
Loan documents generally provide that an event of default will exist if (a) any
regular installment of principal and/or interest is not paid when specified
(generally either (i) upon the date the same is due, (ii) within a specified
period (generally five days to 10 days) after the date upon which the same was
due, or (iii) within a specified period (generally five days to 10 days)
following written notice from the mortgagee of such failure), or (b) any
violation of the conditions described in "--`Due-on-Encumbrance' and
`Due-on-Sale' Provisions" above occurs. The Mortgage Loan documents for
________ of the Mortgage Loans, representing approximately ___% of the Initial
Pool Balance, do not contain any specific description of events of default,
rather, they generally provide that a default will exist upon any breach of any
covenant or agreement of the borrower under the related Mortgage Loan documents
Additionally, the related Mortgage Loan documents may contain other specified
events of default, including one or more of the following, the borrower's
failure to pay taxes or other charges when due, to keep all required insurance
policies in full force and effect, to cure any material violations of laws or
ordinances affecting the Mortgaged Property or to operate the related
Mortgaged. Property according to certain criteria; the imposition of a
mechanic's, materialman's or other lien against the Mortgaged Property; the
institution of a bankruptcy, receivership or similar actions against the
borrower or the Mortgaged Property; unapproved conversion of the related
Mortgaged Property to a condominium or cooperative; defaults under certain
other agreements; defaults under or unapproved modifications to any related
franchise agreement; material changes to or defaults under any related
management agreement; failure to correct any deficiency that would justify
termination of a Medicare or Medicaid contract or a ban on new patients
otherwise qualifying for Medicaid or Medicare coverage or the assessment of
fines or penalties in excess of specified amounts by any state or any Medicare,
Medicaid, health, reimbursement or licensing agency.
Upon the occurrence of an event of default with respect to any
Mortgage Loan, the Master Servicer or the Special Servicer, as applicable, may
take such action as the Master Servicer or the Special Servicer deems advisable
to protect and enforce the rights of the Trustee, on behalf of the
Certificateholders, against the related borrower and in and to the related
Mortgaged Property, subject to the terms of the related Mortgage Loan,
including, without limitation, declaring the entire debt to be immediately due
and payable and/or instituting a proceeding, judicial or non-judicial, for the
complete or partial foreclosure of the Mortgage Loan.
Default Interest. All of the Mortgage Loans provide for imposition of
a rate of interest higher than the stated interest rate upon the occurrence of
an event of default by the related borrower ("Default Interest"); excepting,
however, Loan #____, which represents approximately ___% of the Initial Pool
Balance. The Default Interest
S-44
<PAGE>
applicable to the Mortgage Loans is generally calculated as either (a) a
specified rate above the stated interest rate of such Mortgage Loan, or (b) a
rate equal to the greater of (i) a specified rate above the stated interest
rate of such Mortgage Loan, and (ii) a specified rate above a specified base
rate (typically either the prime rate reported in The Wall Street Journal, or
the base rate announced by Citibank N.A. in New York as its base rate). No
assurance can be given as to the enforceability of any provision of any
Mortgage Loan requiring the payment of any Default Interest or as to the
collectability of any Default Interest. See "CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS--Enforceability of Certain Provisions" in the Prospectus.
Hazard, Liability and other Insurance. Generally, each Mortgage Loan
requires that the related Mortgaged Property be insured (in an amount not less
than the lesser of (a) the full replacement cost of the Mortgaged Property and
(b) the outstanding principal balance of the related Note, but in any event in
an amount sufficient to ensure that the insurer would not deem the borrower a
co-insurer) against loss or damage by fire or other risks and hazards covered
by a standard extended coverage insurance policy. Generally, each Mortgage Loan
also requires that the related borrower obtain and maintain during the entire
term of the Mortgage Loan (a) comprehensive public liability insurance,
typically with a minimum limit of $ ____ per occurrence, (b) if any part of the
Mortgaged Property upon which a material improvement is located lies in a
special flood hazard area and for which flood insurance has been made
available, a flood insurance policy in an amount equal to the lesser of the
outstanding principal balance of the related Note or the maximum limit of
coverage available from governmental sources, (c) if deemed advisable by the
Mortgage Loan Seller, rent loss and/or business interruption insurance in an
amount equal to all rents or estimated gross revenues from the operations of
the Mortgaged Property for a period as required by the Mortgage, (d) if
applicable, insurance against loss or damage from explosion of steam boilers,
air conditioning equipment, high pressure piping, machinery and equipment,
pressure vessels or similar apparatus, and (e) such other insurance as may from
time to time reasonably be required by the mortgagee. With respect to many of
the Mortgage Loans, the related borrower has satisfied the applicable insurance
requirements by obtaining blanket insurance policies, subject to the review and
approval of the same by the mortgagee, including the amount of insurance and
the number of properties covered by such policies.
Casualty and Condemnation. The related Mortgage Loan documents
typically provide that in the event of damage to the related Mortgaged Property
by reason of fire or other casualty (a "Casualty"), all insurance proceeds will
be paid to the mortgagee and then it is such mortgagee's option as to whether
to apply such proceeds to the outstanding indebtedness of the related Mortgage
Loan, or to allow such proceeds to be applied to the restoration of the related
Mortgaged Property; provided, however, that if certain conditions are
satisfied, the mortgagee may be required to disburse such proceeds in
connection with a restoration of the related Mortgaged Property. These required
conditions typically include one or more of the following (a) if the insurance
proceeds payable are less than a specified amount, (b) if less than a specified
percentage of the related Mortgaged Property is destroyed or if the value of
the related Mortgaged Property following such Casualty remains greater than
either a specified amount or a
S-45
<PAGE>
specified percentage of the value of the related Mortgaged Property immediately
preceding such Casualty, (c) if the Casualty affects less than a specified
percentage of the net rentable area of the Mortgaged Property or interrupts
less than a specified percentage of the rentals from the Mortgaged Property,
(d) if such restoration will cost less than a specified amount and if
sufficient funds are available to complete such restoration, (e) if such
restoration can be accomplished within a specified time period, (f) if the
restored Mortgaged Property will adequately secure the related Mortgage Loan,
(g) if adequate income (including rentals and insurance) will be available
during the restoration period and (h) if no event of default then exists. In
certain of the Mortgage Loans, the lease between the related borrower and a
tenant of all or part of the related Mortgaged Property may require the
borrower or the tenant to rebuild the buildings located upon the related
Mortgaged Property in the event of a Casualty, and the related Mortgage Loan
documents may permit the application of insurance proceeds to satisfy such
requirement, regardless of the value of such Mortgaged Property following such
Casualty.
Generally, the Mortgage Loans provide that all awards payable to the
borrower in connection with any taking or exercise of the power of eminent
domain with respect to the related Mortgaged Property (a "Condemnation") will
be paid directly to the mortgagee, and then it is such mortgagee's option as to
whether to apply such proceeds to the outstanding indebtedness of the related
Mortgage Loan, or to allow such proceeds to be applied to the restoration of
the related Mortgaged Property, provided, however, that if certain conditions
are satisfied, the mortgagee may be required to disburse such awards in
connection with a restoration of the related Mortgaged Property. These required
conditions typically include one or more of the following (a) if the award is
less than a specified amount, (b) if less than a specified percentage of the
related Mortgaged Property is taken, (c) if the Condemnation affects less than
a specified percentage of the net rentable area of the Mortgaged Property or
interrupts less than a specified percentage of the rentals from the Mortgaged
Property, (d) if such restoration will cost less than a specified amount and if
sufficient funds are available to complete such restoration, (e) if such
restoration can be accomplished within a specified time period, (f) if adequate
income (including the Condemnation award, rentals and insurance) will be
available during the restoration period, (h) if no event of default then
exists, and (i) if such restoration and repair is feasible and the related
Mortgaged Property will be commercially viable after such restoration. In
certain of the Mortgage Loans, the lease between the related borrower and a
tenant of all or part of the related Mortgaged Property may require the
borrower or the tenant to restore the related Mortgaged Property in the event
of a Condemnation and the related Mortgage Loan documents may permit the
application of condemnation proceeds to satisfy such requirement.
Delinquencies and Modifications. As of the Cut-off Date for each
Mortgage Loan, no Mortgage Loan was more than 30 days delinquent in respect of
any Monthly Payment, and no Mortgage Loan has been modified in any material
manner since its origination in connection with any default or threatened
default on the part of the related borrower.
CERTAIN CHARACTERISTICS OF THE MORTGAGE POOL
S-46
<PAGE>
Concentration of Mortgage Loans and Borrowers. Several of the Mortgage
Loans have Cut-off Date Principal Balances that are substantially higher than
the average Cut-off Date Principal Balance. The largest single Mortgage Loan
(Loan # ___) has a Cut-off Date Principal Balance that represents approximately
___% of the Initial Pool Balance provided, however, that ___ Mortgage Loans
which were made to affiliated entities, when considered together, represent
approximately ___% of the Initial Pool Balance. The ____largest individual
Mortgage Loans have Cut-off Date Principal Balances that represent in the
aggregate approximately ___% of the Initial Pool Balance.
The Mortgage Pool consists of ___ Mortgage Loans to ___ separate
borrowers. _______ of the Mortgage Loans were made to a borrower which was also
the borrower in one or more of the other Mortgage Loans. ____of the Mortgage
Loans were made to borrowers that are affiliated with the borrower of another
Mortgage Loan. However, no set of Mortgage Loans made to a single borrower or
to a single group of affiliated borrowers constitutes more than approximately
___% of the Initial Pool Balance. ______Mortgage Loans (representing
approximately ___% of the Initial Pool Balance) are cross-collateralized and
cross-defaulted with other Mortgage Loans to the related borrower or to a
related affiliated borrower. See "--Limitations on Enforceability of
Cross-Collateralization" herein. The following table sets forth more detailed
information regarding Mortgage Loans made to a single borrower or to a single
group of affiliated borrowers. The column entitled "%" in such table sets forth
the approximate percentage of the Initial Pool Balance represented by each
identified group of Mortgage Loans.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Loans Relationship Cross-Collateralized
Numbers % of and
Borrower(s) Cross-Defaulted
<S> <C> <C>
- -----------------------------------------------------------------------
%
- -----------------------------------------------------------------------
%
- -----------------------------------------------------------------------
%
- -----------------------------------------------------------------------
</TABLE>
Geographic Concentration. The Mortgaged Properties are located in ____
states and the District of Columbia. _________ of the Mortgage Loans, which
represent approximately ___% of the Initial Pool Balance, are secured by liens
on Mortgaged Properties located in [ ]; ____ of the Mortgage Loans, which
represent approximately ___% of the Initial Pool Balance, are secured by liens
on Mortgaged Properties located in [ ]; ___ of the Mortgage Loans, which
represent approximately ___% of the Initial Pool Balance, are secured by liens
on Mortgaged Properties located in [ ]; of the
S-47
<PAGE>
Mortgage Loans, which represent approximately ___% of the Initial Pool
Balance, are secured by liens on Mortgaged Properties located in [ ]; of the
Mortgage Loans, which represent approximately ___% of the Initial Pool Balance,
are secured by liens on Mortgaged Properties located in [ ]; and ______ of the
Mortgage Loans, which represent approximately ____% of the Initial Pool Balance,
are secured by liens on Mortgaged Properties located in [ ]. The remaining
Mortgaged Properties are located throughout _ other states and the District of
Columbia, with no more than ___% of the Initial Pool Balance being secured by
Mortgaged Properties located in any such individual jurisdiction.
Environmental Risks. Except as discussed below, (a) environmental site
assessments with respect to the Mortgaged Properties were obtained either by
(i) the Mortgage Loan Seller within seven months of the respective origination
dates of the Mortgage Loans, or (ii) ____ or ____ within seven months of the
respective dates such Mortgaged Loans were acquired by _______ or ______, and
(b) the Mortgaged Properties have been subject to environmental site
assessments within __ months preceding the Cut-off Date. No environmental site
assessments were obtained with respect to three of the Mortgage Loans
(representing approximately ___% of the Initial Pool Balance), the
environmental site assessment obtained with respect to one of the Mortgage
Loans (representing approximately ___% of the Initial Pool Balance), did not
include asbestos containing materials or radon as reviewed categories, and the
environmental site assessments obtained with respect to ____ of the Mortgage
Loans (representing approximately ___% of the Initial Pool Balance), were
obtained approximately ___ months and ___ months, respectively, prior to the
respective origination dates of such Mortgage Loans, and approximately ___
months and ___ months, respectively, prior to the Cut-off Date. All of the
Mortgage Loans referenced in the preceding sentence are Multifamily Loans. A
search of available governmental databases containing information regarding
properties with known environmental contamination has been conducted with
respect to each of the Mortgaged Properties in which the applicable
environmental site assessment was dated more than ___ months prior to the
Cut-off Date.
Other than as described below, the environmental site assessments did
not reveal the existence of conditions or circumstances respecting the
Mortgaged Properties securing any Mortgage Loan that would constitute or result
in a material violation of applicable environmental law, impose a material
constraint on the operation of such Mortgaged Properties, require any material
change in the use thereof, require any material clean-up, remedial action or
other response with respect to hazardous materials on or affecting such
Mortgaged Properties under any applicable environmental law, with the exception
of conditions or circumstances (a) that such assessments indicated could be
cleaned up, remediated or brought into compliance with applicable environmental
law by the taking of certain actions and (b) either for which (i) a hold-back
or other escrow of funds in an amount not less than the cost of taking such
clean-up, remediation or compliance actions as estimated in such assessments
has been created, (ii) an environmental insurance policy in an amount
satisfactory to the Mortgage Loan Seller has been obtained by the related
borrower or an indemnity for such costs has been obtained from a potentially
culpable party or (iii) such clean up, remediation or
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<PAGE>
compliance actions have been completed in compliance with applicable
environmental law prior to the closing of such Mortgage Loan.
Investors should understand that the results of the environmental site
assessments do not constitute an assurance or guaranty by the Depositor, the
Mortgage Loan Sellers, ____, ___ , _______, the borrowers, any environmental
consultants or any other person as to the absence or extent of the existence of
any environmental condition on the Mortgaged Properties that could result in
environmental liability. Given the scope of the environmental site assessments,
an environmental condition that affects a Mortgaged Property may not be
discovered or its severity revealed during the course of the assessment.
Further, no assurance can be given that future changes in applicable
environmental laws, the development or discovery of presently unknown
environmental conditions at the Mortgaged Properties or the deterioration of
existing conditions will not require material expenses for remediation or other
material liabilities.
Other Financing. The related Mortgage Loan documents generally
prohibit subordinate financing without the mortgagee's prior consent. With
respect to ___ of the Mortgage Loans, representing approximately ___% of the
Initial Pool Balance, the related Mortgage Loan documents allowed the borrower,
under certain specified circumstances, to either maintain an existing
subordinate mortgage encumbering the related Mortgaged Properties, or to grant
such a subordinate mortgage in the future. Generally, prior to any such
subordinate mortgage being allowed, certain conditions specified in the related
Mortgage Loan documents must be satisfied. Such conditions typically include
one or more of the following: (a) the purpose, amount, term and amortization
period of the proposed subordinate debt, together with the identity of the
subordinate lender and the terms of the subordinate loan documents, must be
acceptable to the senior mortgagee; (b) pursuant to either the specific terms
of the subordinate mortgage or a separate recorded agreement obtained from such
subordinate lender, the subordinate mortgage must be unconditionally
subordinated to the related Mortgage Loan documents, and the subordinate lender
is also typically prohibited from exercising any remedies against the borrower
without the senior mortgagee's consent and from receiving any payments on such
subordinate debt if, for the immediately prior 12 months, either (i) the
aggregate debt service coverage ratio for such Mortgage Loan and such
subordinate debt is less than a specified ratio (generally ranging from 1.20 to
1.30), or (ii) the aggregate loan to value ratio for such Mortgage Loan and
such subordinate debt is greater than a specified ratio (generally ranging from
70% to 80%); (c) the subordinate debt must be non-recourse; and (d) acceptable
economic conditions regarding the related Mortgaged Property must exist as of
the effective date of such subordinate financing, typically including (i) an
aggregate debt service coverage ratio for such Mortgage Loan and such
subordinate debt equal to or exceeding a specified ratio (generally 1.20)',
and/or (ii) an aggregate loan to value ratio for such Mortgage Loan and such
subordinate debt of less than a specified ratio (generally ranging from 70% to
80%).
Zoning Compliance. The Mortgage Loan Seller generally received
assurances that all of the improvements located upon each respective Mortgaged
Property complied with
S-49
<PAGE>
all Zoning Laws in all respects material to the continued use of the related
Mortgaged Property, or that such improvements qualified as permitted
nonconforming uses.
Limitations on Enforceability of Cross-Collateralization. _______ of
the Mortgage Loans (the "Cross-Collateralized Loans"), each of which was made
to a borrower that is affiliated with the borrower under another Mortgage Loan
are cross-collateralized and cross-defaulted with one or more related
Cross-Collateralized Loans. This arrangement is designed to reduce the risk
that the inability of an individual Mortgaged Property securing a
Cross-Collateralized Loan to generate net operating income sufficient to pay
debt service thereon will result in defaults (and ultimately losses). The
arrangement is based on the belief that the risk of default is reduced by
making the collateral pledged to secure each related Cross-Collateralized Loan
available to support debt service on, and principal repayment of, the aggregate
indebtedness evidenced by the related Cross-Collateralized Loans. See
"--Concentration of the Mortgage Loans and Borrowers" herein for more
information regarding the Cross-Collateralized Loans.
Tenant Matters. Certain additional information regarding Major Tenants
is set forth in "Annex A" herein. Generally, Major Tenants do not have
investment-grade credit ratings. In connection with ___ of the Mortgage Loans,
representing approximately ___% of the Initial Pool Balance, a Major Tenant
occupies more than 60% of the net leasable area of the related Mortgaged
Property. Many of such Major Tenants occupy their respective leased premises
pursuant to leases which require them to pay all applicable real property
taxes, maintain insurance over the improvements thereon and maintain the
physical condition of such improvements. Additionally, in connection with Loan
# ____, the related Major Tenant has generally assumed, in addition to the
foregoing, all other responsibilities related to the entire Mortgaged Property.
With respect to Mortgage Loans 'secured by a retail, office or industrial
property, the related Mortgage Loan Seller generally obtained an estoppel from
each Major Tenant as it deemed advisable.
Other Information. The following tables and Annex A set forth certain
information with respect to the Mortgage Loans and the Mortgaged Properties,
which was primarily derived from financial statements supplied by each borrower
for its related Mortgaged Property. The financial statements supplied by the
borrowers in most cases are unaudited and were not prepared in accordance with
generally accepted accounting principles. "Net Operating Income" and "Cash
Flow" do not represent the net operating income and cash flow reflected on the
borrowers' financial statements. The differences between "Net Operating Income"
and "Cash Flow" determined by ____ and _____ and net operating income and cash
flow reflected on the borrowers' financial statements represent the adjustments
made by ____ and _____ described below, which adjustments generally were
intended to increase the level of consistency between the financial statements
provided by the borrowers. However, such adjustments were subjective in nature
and were not made in a uniform manner nor in accordance with generally accepted
accounting principles. "Underwritten NOI" and "Underwritten Cash Flow" are pro
forma numbers prepared by ____ and _________ to reflect their assessment of the
market based performance of the related Mortgaged Property. Neither the
Depositor
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<PAGE>
nor the Underwriters have made any attempt to verify the accuracy of the
financial statements supplied by the borrowers or the accuracy or
appropriateness of the adjustments discussed below that were made by ____ and
___________ to determine "Net Operating Income," "Cash Flow," "Underwritten
NOI," and "Underwritten Cash Flow."
The numbers representing "Net Operating Income," "Cash Flow,"
"Underwritten NOI" and "Underwritten Cash Flow" are not a substitute for or an
improvement upon, net income as determined in accordance with generally
accepted accounting principles as a measure of the results of a Mortgaged
Property's operations or a substitute for cash flows from operating activities
determined in accordance with generally accepted accounting principles as a
measure of liquidity. No representation is made as to the future net cash flow
of the properties, nor is "Net Operating Income," "Cash Flow," "Underwritten
NOI" and "Underwritten Cash Flow" set forth herein intended to represent such
future net cash flow.
All of the Mortgaged Properties were appraised at the request of the
Mortgage Loan Seller of the related Mortgage Loan by a state certified
appraiser or an appraiser belonging to the Appraisal Institute. The purpose of
each appraisal was to provide an opinion of the fair market value of the
related Mortgaged Property. None of the Depositor, ______, __________ _______,
the Master Servicer, the Special Servicer, the Trustee or the Fiscal Agent or
any other entity has prepared or obtained a separate independent appraisal or
reappraisal. There can be no assurance that another appraiser would have
arrived at the same opinion of value. No representation is made that any
Appraised Value would approximate either the value that would be determined in
a current appraisal of the related Mortgaged Property or the amount that would
be realized upon a sale or liquidation of the Mortgaged Property. Accordingly,
investors should not place undue reliance on the Loan-to-Value Ratios set forth
herein.
Debt service coverage ratios are used by lenders of loans secured by
income producing property to measure the ratio of (a) cash currently generated
by a property that is available for debt service (that is, cash that remains
after payment of operating expenses) to (b) required debt service payments.
However, debt service coverage ratios only measure the current, or recent,
ability of a property to service mortgage debt. If a property is not expected
to have a stable operating cash flow (for instance, if it is subject to
material leases that are scheduled to expire during the loan term and that
provide for above-market rents, may be difficult to replace, or both) a debt
service coverage ratio may not be a reliable indicator of a property's ability
to service the mortgage debt over the entire remaining loan term. In addition,
a debt service coverage ratio may not adequately reflect the significant
amounts of cash that a property owner may be required to expend to pay for
capital improvements, and for tenant improvements and leasing commissions when
expiring leases are replaced. For the reasons discussed above, the Debt Service
Coverage Ratios presented herein are limited in their usefulness in predicting
the future ability of a Mortgaged Property to generate sufficient cash flow to
repay the related Mortgage Loan. Accordingly, no assurance can be given, and no
representation is made, that the Debt Service Coverage Ratios accurately
reflect that ability.
S-51
<PAGE>
For purposes of the tables and Annex A:
(1) "Net Operating Income" or "NOI" is revenue derived from
the use and operation of the Mortgaged Property (consisting primarily
of rental income) less operating expenses (such as utilities, general
administrative expenses, management fees, advertising, repairs and
maintenance) and less fixed expenses (such as insurance and real
estate taxes). NOI generally does not reflect capital expenditures,
replacement reserves, interest expense, income taxes and non-cash
items such as depreciation or amortization. The Mortgage Loan Sellers
have informed the Depositor that they have adjusted items of revenue
and expense shown on the borrower financial statements in order to
reflect the historical operating results for a Mortgaged Property on a
normalized basis (e.g., adjusting for the payment of two years of real
estate taxes in a single year). Revenue was generally adjusted to
eliminate items not related to the operation of the Mortgaged
Property, to eliminate security deposits and to eliminate
non-recurring items. Expense was generally adjusted to eliminate
distributions to owners, items of expense not related to the operation
of the Mortgaged Property, non-recurring items, such as capital
expenditures, and refunds of security deposits. The Mortgage Loan
Sellers have informed the Depositor that they have made the
adjustments based upon their review of the borrower financial
statements, their experience in originating loans and, in some cases,
conversations with borrowers. The adjustments were subjective in
nature and were not uniform for each Mortgaged Property.
(2) "Cash Flow" means, with respect to any Mortgage Loan, the
NOI for the related Mortgaged Property decreased by tenant
improvements, leasing commissions and other non-recurring
expenditures, as appropriate.
(3) "Underwritten NOI" means, with respect to any Mortgage
Loan, the NOI for the related Mortgaged Property as determined by the
Mortgage Loan Sellers as applicable, in accordance with their
underwriting guidelines for similar properties. Although there are
differences in the underwriting guidelines of the Mortgage Loan
Sellers, the nature and types of adjustments made by each of them were
generally the same. Revenue generally is calculated as follows. Rental
revenue is calculated using the lower of actual or market rental
rates, with a vacancy rate equal to the higher of the Mortgaged
Property's historical rate, the market rate or an assumed vacancy
rate. Other revenues, such as parking fees, are included only if
sustainable. Certain revenues, such as application fees and lease
termination fees, are not included. Operating and fixed expenses
generally are adjusted to reflect the higher of the Mortgaged
Property's average expenses or a mid-range industry norm for expenses
on similar properties in similar locations (generally adjusted upward
to account for inflation), a market rate management fee and an annual
reserve for replacement of capital items.
(4) "Underwritten Cash Flow" means, with respect to any
Mortgage Loan, the Underwritten NOI for such Mortgage Loan decreased
by an amount that [_____] or a Mortgage Loan Seller, as applicable,
has determined to be an
S-52
<PAGE>
appropriate allowance for average annual tenant improvements and
leasing commissions based upon their respective underwriting
guidelines.
(5) "Appraised Value" means, for each of the Mortgaged
Properties, the appraised value of such property as determined by an
appraisal thereof made not more than nine months prior to the
origination date of the related Mortgage Loan and reviewed by the
Mortgage Loan Seller of such Mortgage Loan.
(6) "Annual Debt Service" means, for any Mortgage Loan, the
current annual debt service (including interest allocable to payment
of the Servicing Fee and principal) payable with respect to such
Mortgage Loan during the 12-month period commencing on the Cut-off
Date (assuming no principal prepayments occur).
(7) "Debt Service Coverage Ratio," "Underwritten DSCR" or
"DSCR" means, with respect to any Mortgage Loan, (a) the Underwritten
Cash Flow for the related Mortgaged Property divided by (b) the Annual
Debt Service for such Mortgage Loan.
(8) "Loan-to-Value Ratio," "Appraised LTV" or "LTV" means,
with respect to any Mortgage Loan, the principal balance of such
Mortgage Loan as of the Cut-off Date divided by the Appraised Value of
the Mortgaged Property securing such Mortgage Loan.
(9) "Balloon LTV" for any Mortgage Loan is calculated in the
same manner as LTV, except that the Balloon Amount is used instead of
the Cut-off Date principal balance.
(10) "Balloon Amount" or "Balloon Balance" for each Mortgage
Loan is equal to the principal amount, if any, due at maturity, taking
into account scheduled amortization, assuming no prepayments or
defaults.
(11) "Occupancy Rate" means the percentage of gross leasable
area, rooms, units, beds, pads or sites of a Mortgaged Property that
are leased or occupied. Occupancy rates are calculated based upon the
most recent rent information received by ____ or _________ , as
applicable. The "Occupancy Percentage" and "Occupancy Date" for each
Mortgage Loan are based upon rent information received by [_____] or
________ , as applicable, from the related borrower.
(12) "Remaining Term to Maturity" generally means the number
of months remaining from the Cut-off Date until the maturity of a
mortgage loan. The method for calculating the "Remaining Term to
Maturity" for any Mortgage Loan (other than loans with loan numbers
listed below) is determined by subtracting (a) the number of Due Dates
from and including the first payment date to and including the Cut-off
Date from (b) the number of Due Dates from and including the first
payment date to and including the original scheduled maturity date for
such Mortgage Loan.
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<PAGE>
(13) "Remaining Amortization Term" for any Mortgage Loan
(other than Loan # _______ and Loan # ______ ) is calculated as the
original amortization term of the related Mortgaged Loan (based upon
such Mortgage Loan's original balance, interest rate and monthly
payment) less the number of Due Dates from and including the first
payment date to and including the Cut-off Date.
(14) The "Year Built" is based on information contained in
deed records, appraisals, engineering surveys, architectural papers,
title insurance, and/or other insurance policies.
(15) The "Year Renovated" is based upon information contained
in the appraisal of the related Mortgaged Property; excepting,
however, that the "Year Renovated" with respect to Loan # ______ ,
Loan # ______ , Loan # _______ and Loan #_________ was provided by
(16) All calculations of any applicable Lockout Period, Yield
Maintenance Period or Prepayment Premium for a Mortgage Loan are
determined based upon such Mortgage Loan's first scheduled payment
date.
(17) [Certain loans [ ____ ] are secured by _______________
Multifamily Properties], [while certain loans [ ] are secured by
___________ Congregate Care Properties.] The "Number of Units,"
"Units/SF," "Appraised Value," "Current Occupancy," "Underwritten
NOI," "Underwritten Cash Flow," " _____ NOI," " _____ Cash Flow,"
"_____ NOI" and " ______ Cash Flow" for each such Mortgage Loan is the
sum of the respective values for each Mortgaged Property securing such
Mortgaged Loan.
(18) The Monthly Payments for each of Loan # ________ and
Loan #______ are to be paid on the __________ of each month during the
respective terms of such Mortgage Loans. The Cut-off Date Principal
Balance for each such Mortgage Loan is the outstanding principal
balance of such Mortgage Loan after the application of all Monthly
Payments due on or before________________
(19) A "Lease Expiration Date" for Loan # _________ set forth
for the Major Tenant of the related Mortgaged Property is the earliest
expiration date of the two separate leases held by such Major Tenant.
The "SF" and "Percent of Property" set forth are the sum of such
values for all of the related Mortgaged Property leased by such Major
Tenant pursuant to both such leases.
(20) [The Mortgaged Property securing Loan # _____ was
constructed in two phases, with _______ of the _______ total units
being constructed in _______ with the remaining units being
constructed during the _____________.]
(21) "Weighted Average Maturity" means the weighted average
of the Remaining Terms to Maturity of the Mortgage Loans.
S-54
<PAGE>
(22) Due to rounding, percentages may not add to 100% and
amounts may not add to the indicated total.
<TABLE>
<CAPTION>
Range of Cut-off Date Principal Balances
Range of Number Percent Aggregate Pct by Weighted Weighted
Cut-off of by Number Cut-off Aggregate Average Average
Balances Mortgage Date Cut-off Date Mortgage DSCR(X)
Loans Principal Principal Rate
Balance Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Range of Mortgage Rates
Range of Number Percent Aggregate Pct by Weighted Weighted
Mortgage of by Number Cut-off Aggregate Average Average
Rates Mortgage Date Cut-off Mortgage DSCR
Loans Principal Date Rate
Balance Principal
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
S-55
<PAGE>
<TABLE>
<CAPTION>
Range of Remaining Term of Amortization (in Months)
Range of Number of Percent Aggregate Pct by Weighted Weighted
Remaining Mortgage by Cut-off Aggregate Average Average
Amort. (In Loans Number Date Cut-off Mortgage DSCR(x)
Months) Principal Date Rate
Balance Principal
Balance
<S> <C> <C> <C> <C> <C> <C>
Wtd Avg. Term:
</TABLE>
<TABLE>
<CAPTION>
Range of Maturity Years
Year of Number Percent Aggregate Pct by Weighted Weighted
Maturity of by Number Cut-off Aggregate Average Average
Mortgage Date Cut-off Mortgage DSCR(x)
Loans Principal Date Rate
Balance Principal
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
S-56
<PAGE>
<TABLE>
<CAPTION>
Range of Loan Origination Years
Year of Number of Percent Aggregate Pct by Weighted Weighted
Origination Mortgage by Number Cut-off Aggregate Average Average
Loans Date Cut-off Mortgage DSCR(x)
Principal Date Rates
Balance Principal
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Range of LTVs
Range of Number Percent Aggregate Pct by Weighted Weighted
LTV of Mortgage by Number Cut-off Aggregate Average Average
Loans Date Cut-off Mortgage DSCR(x)
Principal Date Rate
Balance Principal
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
S-57
<PAGE>
Wtd Avg LTV: %
<TABLE>
<CAPTION>
Range of DSCRs
Range of Number Percent Aggregate Pct by Weighted Weighted
DSCR(x) of by Number Cut-off Aggregate Average Average
Mortgage Date Cut-off Mortgage DSCR(x)
Loans Principal Date Rate
Principal
<S> <C> <C> <C> <C> <C> <C>
Wtd Avg DSCR:
</TABLE>
<TABLE>
<CAPTION>
Year Built/Renovated
Year Built/ Number Percent Aggregate Pct by Weighted Weighted
Renovated of by Number Cut-off Aggregate Average Average
Mortgage Date Cut-off Mortgage DSCR(x)
Loans Principal Date Rate
Balance Principal
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
S-58
<PAGE>
<TABLE>
<CAPTION>
Types of Mortgaged Properties
Property Number Percent Aggregate Pct by Weighted Weighted
Type of by Number Cut-off Aggregate Average Average
Mortgage Date Cut-off Mortgage DSCR(x)
Loans Principal Date Rate
Balance Principal
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Geographic Distribution of the Mortgaged Properties
Property Number Percent Aggregate Pct by Weighted Weighted
Location of by Number Cut-off Aggregate Average Average
Mortgage Date Cut-off Mortgage DSCR(x)
Loans Principal Date Rate
Balance Principal
Balance
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at
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<PAGE>
the close of business on the Cut-off Date, as adjusted for scheduled principal
payments due on the Mortgage Loans on or before the Cut-off Date. Prior to the
issuance of the Certificates, one or more Mortgage Loans may be removed from
the Mortgage Pool if the Depositor deems such removal necessary or appropriate
or if it is prepaid. A limited number of other mortgage loans may be included
in the Mortgage Pool prior to the issuance of the Certificates, unless
including such mortgage loans would materially alter the characteristics of the
Mortgage Pool as described herein. Accordingly, the range of Mortgage Rates and
maturities, as well as the other characteristics of the Mortgage Loans
constituting the Mortgage Pool at the time the Certificates are issued may vary
from those described herein.
A Current Report on Form 8-K (the "Form 8-K") will be filed, together
with the Pooling and Servicing Agreement, with the Securities and Exchange
Commission within 15 days after the initial issuance of the Certificates. The
Form 8-K will be available to the Certificateholders promptly after its filing.
In the event that Mortgage Loans are removed from or added to the Mortgage Pool
as set forth in the preceding paragraph, such removal or addition will be noted
in the Form 8-K.
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<PAGE>
REPRESENTATIONS AND WARRANTIES; REPURCHASE
[Describe relevant representations and warranties.]
S-61
<PAGE>
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
Prudential Securities Secured Financing Corporation, formerly known as
P-B Secured Financing Corporation (the "Depositor"), was incorporated in the
State of Delaware on _____________ as a wholly-owned, limited purpose finance
subsidiary of Prudential Securities Group Inc. (a wholly-owned indirect
subsidiary of The Prudential Insurance Company of America). The Depositor's
principal executive offices are located at One Seaport Plaza, 28th Floor, New
York, New York 10292. Its telephone number is (212) 214-1000, Attention, David
Rodgers.
The only obligations, if any, of the Depositor with respect to a
Certificate will be pursuant to certain limited representations and warranties
and limited undertakings to repurchase or substitute Mortgage Loans or
Contracts under certain circumstances. The Depositor does not have, nor is it
expected in the future to have, any significant assets.
Neither the Depositor nor Prudential Securities Group Inc. nor any of
its affiliates, including The Prudential Insurance Company of America, will
insure or guarantee the Certificates of any Series.
MORTGAGE LOAN SELLERS
The Depositor will purchase the Mortgage Loans to be included in the
Mortgage Pool on or before _____________ from the Mortgage Loan Sellers
pursuant to certain Mortgage Loan Purchase Agreements (collectively, the
"Mortgage Loan Purchase Agreements," each to be dated on or before the Cut-Off
Date, and each between the related Mortgage Loan Seller and the Depositor.
[Insert information regarding the Mortgage Loan Sellers.]
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of 17 Classes to be designated as the Class A-1
Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the Class
A-EC Certificates, the Class B Certificates, the Class C Certificates, the
Class D Certificates, the Class E Certificates, the Class F Certificates, the
Class G Certificates, the Class H Certificates, the Class J Certificates, the
Class K-1 Certificates, the Class K-2 Certificates, the Class R-I Certificates,
the Class R-II Certificates and the Class R-III Certificates. Only the Class
A-1, Class A-2, Class A-3, Class B, Class C, Class D, Class E and Class F
Certificates are offered hereby. The Pooling and Servicing Agreement will be
included as part of the Form 8-K to be filed with the Commission within 15 days
after the Closing Date. See "THE POOLING AND SERVICING AGREEMENT" herein and
"DESCRIPTION OF
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<PAGE>
THE CERTIFICATES" and "SERVICING OF THE MORTGAGE LOANS" in the
Prospectus for more important additional information regarding the terms of the
Pooling and Servicing Agreement and the Certificates.
The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting primarily of: (i) the Mortgage
Loans, all scheduled payments of interest and principal due after the Cut-off
Date (whether or not received) and all payments under and proceeds of the
Mortgage Loans received after the Cut-off Date (exclusive of payments of
principal and interest due on or before the Cut-off Date); (ii) any Mortgaged
Property acquired on behalf of the Trust Fund through foreclosure or
deed-in-lieu of foreclosure (upon acquisition, an "REO Property"); (iii) such
funds or assets as from time to time are deposited in the Collection Account,
the Distribution Account and any account established in connection with REO
Properties (an "REO Account"); (iv) the rights of the mortgagee under all
insurance policies with respect to the Mortgage Loans; (v) the Depositor's
rights and remedies under the _____ Mortgage Loan Purchase Agreement and the
________________ Mortgage Loan Purchase Agreement; and (vi) all of the
mortgagee's right, title and interest in the Reserve Accounts.
The Certificate Balance of any Class of Certificates outstanding at
any time represents the maximum amount that the holders thereof are entitled to
receive as distributions allocable to principal from the cash flow on the
Mortgage Loans and the other assets in the Trust Fund. The respective
Certificate Balance of each Class of Certificates will in each case be reduced
by amounts actually distributed on such Class that are allocable to principal
and by any Realized Losses allocated to such Class. The Class A-EC and Class
K-2 Certificates are interest only Certificates, have no Certificate Balances
and are not entitled to distributions in respect of principal. The Class K-1
Certificates are principal only certificates and are not entitled to
distributions in respect of interest.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Regular Certificates
will be made on the _____ th day of each month or, if such day is not a
Business Day, then on the next succeeding Business Day, commencing in
_____________ (each, a "Distribution Date"). All distributions (other than the
final distribution on any Certificate) will be made by the Trustee to the
persons in whose names the Certificates are registered at the close of business
on the last Business Day of the month preceding the month in which such
Distribution Date occurs (the "Record Date"). Such distributions will be made
(i) by wire transfer of immediately available funds to the account specified by
the Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder (a) is DTC or its nominee or (b) provides
the Trustee with wiring instructions no less than five Business Days prior to
the related Record Date and is the registered owner of Certificates the
aggregate Certificate Balance or Notional Balance of which is at least
$5,000,000 or otherwise (ii) by check mailed to such Certificateholder. The
"Class A-EC Notional Balance" as of any date is equal to the sum of the Class
A-EC Notional Component A and the Certificate Balances
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<PAGE>
of the Class B, Class C, Class D and Class E Certificates. The "Class K-2
Notional Balance" as of any date is equal to the Certificate Balance of the
Class K-1 Certificates. The Class A-EC and Class K-2 Notional Balances are
referred to herein generally as "Notional Balances." The final distribution on
any Certificate will be made in like manner, but only upon presentment or
surrender of such Certificate at the location specified in the notice to the
holder thereof of such final distribution. All distributions made with respect
to a Class of Certificates on each Distribution Date will be allocated pro rata
among the outstanding Certificates of such Class based on their respective
Percentage Interests. The "Percentage Interest" evidenced by any Regular
Certificate is equal to the initial denomination thereof as of the Closing Date
divided by the initial Certificate Balance (or, with respect to the Class A-EC
and Class K-2 Certificates, the initial Class A-EC Notional Balance or initial
Class K-2 Notional Balance) of the related Class.
The aggregate distribution to be made on the Regular Certificates on
any Distribution Date will equal the Available Funds. The "Available Funds" for
a Distribution Date will be the sum of all previously undistributed Monthly
Payments or other receipts on account of principal and interest on or in
respect of the Mortgage Loans (including Unscheduled Payments and Net REO
Proceeds, if any) received by the Master Servicer in the related Collection
Period, including all P&I Advances made by the Master Servicer, the Trustee or
the Fiscal Agent, as applicable, in respect of such Distribution Date, plus all
other amounts required to be placed in the Collection Account by the Master
Servicer pursuant to the Pooling and Servicing Agreement allocable to the
Mortgage Loans, but excluding the following:
(a) amounts permitted to be used to reimburse the Master Servicer, the
Trustee or the Fiscal Agent, as applicable, for previously unreimbursed
Advances and interest thereon as described herein under "THE POOLING AND
SERVICING AGREEMENT--Advances;"
(b) those portions of each payment of interest which represent the
applicable servicing compensation;
(c) all amounts in the nature of late fees, late charges and similar
fees, NSF check charges, loan modification fees, extension fees, loan service
transaction fees, demand fees, beneficiary statement charges, assumption fees
and similar fees, which the Master Servicer or the Special Servicer, as
applicable, is entitled to retain as additional servicing compensation;
(d) all amounts representing scheduled Monthly Payments due after the
Due Date in the related Collection Period (such amounts to be treated as
received on the Due Date when due);
(e) that portion of (i) amounts received in connection with the
liquidation of Specially Serviced Mortgage Loans, by foreclosure, trustee's
sale or otherwise, (ii) amounts received in connection with a sale of a
Specially Serviced Mortgage Loan or REO Property in accordance with the terms
of the Pooling and Servicing Agreement,
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<PAGE>
(iii) amounts (other than Insurance Proceeds) received in connection with the
taking of a Mortgaged Property by exercise of the power of eminent domain or
condemnation ("Condemnation Proceeds"; clauses (i), (ii) and (iii) are
collectively referred to as "Liquidation Proceeds") or (iv) proceeds of the
insurance policies (to the extent such proceeds are not to be applied to the
restoration of the property or released to the borrower in accordance with the
normal servicing procedures of the Master Servicer or the related sub-servicer,
subject to the terms and conditions of the related Mortgage and Note)
("Insurance Proceeds") with respect to a Mortgage Loan that represents any
unpaid servicing compensation to which the Master Servicer or Special Servicer
is entitled;
(f) all amounts representing certain expenses reimbursable to the
Master Servicer, the Special Servicer, the Trustee or the Fiscal Agent and
other amounts permitted to be retained by the Master Servicer or the Special
Servicer or withdrawn by the Master Servicer from the Collection Account
pursuant to the terms of the Pooling and Servicing Agreement;
(g) Prepayment Premiums received in the related Collection Period;
(h) any interest or investment income on funds on deposit in the
Collection Account or in Permitted Investments in which such funds may be
invested; and
(i) Default Interest received in the related Collection Period with
respect to a Mortgage Loan that is in default with respect to its Balloon
Payment.
The "Monthly Payment" with respect to any Mortgage Loan for any
Distribution Date (other than any REO Mortgage Loan) is the scheduled monthly
payment of principal and interest, excluding any Balloon Payment, which is
payable by the related borrower on the related Due Date. The Monthly Payment
with respect to an REO Mortgage Loan for any Distribution Date is the monthly
payment that would otherwise have been payable on the related Due Date had the
related Note not been discharged (after giving effect to any extension or other
modification), determined as set forth in the Pooling and Servicing Agreement.
"Unscheduled Payments" are all Liquidation Proceeds, Condemnation
Proceeds and Insurance Proceeds payable under the Mortgage Loans, the
Repurchase Price of any Mortgage Loans that are repurchased or purchased
pursuant to the Pooling and Servicing Agreement and any other payments under or
with respect to the Mortgage Loans not scheduled to be made, including
Principal Prepayments, but excluding Prepayment Premiums.
"Prepayment Premiums" are payments received on a Mortgage Loan as the
result of a Principal Prepayment thereon, not otherwise due thereon in respect
of principal or interest, which are intended to be a disincentive to
prepayment.
"Net REO Proceeds" with respect to any REO Property and any related
Mortgage Loan are all revenues received by the Special Servicer with respect to
such REO
S-65
<PAGE>
Property or REO Mortgage Loan that do not constitute Liquidation Proceeds, net
of any insurance premiums, taxes, assessments and other costs and expenses
permitted to be paid from the related REO Account pursuant to the Pooling and
Servicing Agreement.
"Principal Prepayments" are payments of principal made by a borrower
on a Mortgage Loan which are received in advance of the scheduled Due Date for
such payments and which are not accompanied by an amount of interest
representing the full amount of scheduled interest due on any date or dates in
any month or months subsequent to the month of prepayment.
The "Collection Period" with respect to a Distribution Date is the
period beginning on the day following the Determination Date in the month
preceding the month in which such Distribution Date occurs (or, in the case of
the Distribution Date occurring in _______, on the day after the Cut-off Date)
and ending on the Determination Date in the month in which such Distribution
Date occurs.
"Determination Date" means the __th day of any month, or if such __th
day is not a Business Day, the Business Day immediately preceding such __th
day, commencing on ______________.
"Default Interest" with respect to any Mortgage Loan is interest
accrued on such Mortgage Loan at the excess of the Default Rate over the
Mortgage Rate.
The "Default Rate" with respect to any Mortgage Loan is the annual
rate at which interest accrues on such Mortgage Loan following any event of
default on such Mortgage Loan including a default in the payment of a Monthly
Payment or a Balloon Payment.
Priorities. As used below in describing the priorities of distribution
of Available Funds for each Distribution Date, the terms set forth below will
have the following meanings.
"Class Interest Distribution Amount" with respect to any Distribution
Date and any of the P&I Certificates will equal interest for the related
Interest Accrual Period at the applicable Pass-Through Rate for such Class of
Certificates for such Interest Accrual Period on the Certificate Balance of
such Class. With respect to any Distribution Date and the Class A-EC
Certificates, the "Class Interest Distribution Amount" will equal for any
Distribution Date, the Class A-EC Excess Interest. The Class K-1 Certificates
are principal only Certificates and have no Class Interest Distribution Amount.
With respect to any Distribution Date and the Class K-2 Certificates, the
"Class Interest Distribution Amount" will equal the product of the Class K-2
Pass-Through Rate and the Class K-2 Notional Balance. For purposes of
determining any Class Interest Distribution Amount, any distributions in
reduction of Certificate Balance (and any resulting reductions in Notional
Balance) as a result of allocations of Realized Losses on the Distribution Date
occurring in such Interest Accrual Period will be deemed to have been made as
of the first day of such Interest Accrual Period. Notwithstanding the
foregoing, the Class Interest Distribution Amount for each Class of
Certificates otherwise calculated as described above will be reduced by such
Class's pro rata share of any Prepayment
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<PAGE>
Interest Shortfall not offset by Prepayment Interest Surplus, the Servicing Fee
and, if the Master Servicer and the Special Servicer are the same person, the
Special Servicing Fee with respect to such Distribution Date (pro rata
according to each respective Class's Class Interest Distribution Amount
determined without regard to this sentence).
"Class A-EC Excess Interest" with respect to any Distribution Date is
an amount equal to the Class A-EC Pass-Through Rate multiplied by the Class
A-EC Notional Balance.
"Class A-EC Notional Balance" means, as of any date of determination,
an amount equal to the sum of (i) the Class A-EC Notional Component A and (ii)
the Certificate Balances of the Class B, Class C, Class D and Class E
Certificates.
"Class A-EC Notional Component A" means, as of any date of
determination, an amount equal to the sum of the Certificate Balances of the
Class A-1, Class A-2 and Class A-3 Certificates.
["Class A-EC Pass-Through Rate" with respect to any Interest Accrual
Period is a per annum rate equal to a fraction, the numerator of which is the
sum of (i) the excess of the Weighted Average Unmodified Net Mortgage Rate over
the weighted averages of the Pass-Through Rates of the Class A-1, Class A-2 and
Class A-3 Certificates (weighted in each case on the basis of a fraction equal
to the Certificate Balance of each such Class of Certificates divided by the
Class A-EC Notional Component A as of the first day of such Interest Accrual
Period) multiplied by the A-EC Notional Component A, (ii) the Class B Strip
multiplied by the Class B Certificate Balance as of the first day of such
Interest Accrual Period, (iii) the Class C Strip multiplied by the Class C
Certificate Balance as of the first day of such Interest Accrual Period, (iv)
the Class D Strip multiplied by the Class D Certificate Balance as of the first
day of such Interest Accrual Period, and (v) the Class E Strip multiplied by
the Class E Certificate Balance as of the first day of such Interest Accrual
Period, and the denominator of which is the Class A-EC Notional Balance as of
the first day of such Interest Accrual Period.]
"Prepayment Interest Shortfall" with respect to any Distribution Date
and any Mortgage Loan as to which a Principal Prepayment was made by the
related borrower during the related Collection Period is the amount by which
(i) 30 full days of interest at the related Net Mortgage Rate on the Scheduled
Principal Balance of such Mortgage Loan in respect of which interest would have
been due in the absence of such Principal Prepayment on the Due Date next
succeeding the date of such Principal Prepayment exceeds (ii) the amount of
interest received from the related borrower in respect of such Mortgage Loan
during such Collection Period. Such shortfall may result because interest on a
Principal Prepayment is paid by the related borrower only to the date of
prepayment or because no interest is paid on a Principal Prepayment, to the
extent that such Principal Prepayment is applied to reduce the principal
balance of the related Mortgage Loan as of the Due Date preceding the date of
prepayment. Prepayment Interest Shortfalls with respect to each Distribution
Date (to the extent not offset as provided in the following two sentences) will
be allocated to each Class of Certificates
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<PAGE>
pro rata based on such Class's Class Interest Distribution Amount (without
taking into account the amount of Prepayment Interest Shortfalls to such Class
on such Distribution Date) for such Distribution Date. The amount of any
Prepayment Interest Shortfall with respect to any Distribution Date will be
offset by the Master Servicer first by the amount of any Prepayment Interest
Surplus and then up to an amount equal to the aggregate Servicing Fees to which
the Master Servicer would otherwise be entitled on such Distribution Date. If
the Master Servicer and the Special Servicer are the same person, any remaining
Prepayment Interest Shortfall after the application of the prior sentence will
be offset by the aggregate Special Servicing Fees to which the Special Servicer
would otherwise be entitled to on such Distribution Date.
"Prepayment Interest Surplus" with respect to any Distribution Date
and any Mortgage Loan as to which a Principal Prepayment was made by the
related borrower during the related Collection Period is the amount by which
(i) the amount of interest received from the related borrower in respect of
such Mortgage Loan during such Collection Period exceeds (ii) 30 full days of
interest at the related Net Mortgage Rate on the Scheduled Principal Balance of
such Mortgage Loan in respect of which interest would have been due in the
absence of such Principal Prepayment on the Due Date next succeeding the date
of such Principal Prepayment. The Master Servicer will be entitled to retain
any Prepayment Interest Surplus as additional servicing compensation to the
extent not required to offset Prepayment Interest Shortfalls as described in
the preceding paragraph.
The "Pass-Through Rate" for any Class of Regular Certificates is the
per annum rate at which interest accrues on the Certificates of such Class
during any Interest Accrual Period. The Pass-Through Rate on the Class A-1,
Class A-2 and Class A-3 Certificates during any Interest Accrual Period will be
____%, ____% and ____%, respectively. The Pass-Through Rate on the Class A-EC
Certificates during any Interest Accrual Period will be the Class A-EC
Pass-Through Rate. [The Pass-Through Rate on the Class B Certificates during
any Interest Accrual Period will be equal to the Weighted Average Unmodified
Net Mortgage Rate less the Class B Strip. The Pass-Through Rate on the Class C
Certificates during any Interest Accrual Period will be equal to the Weighted
Average Unmodified Net Mortgage Rate less the Class C Strip. The Pass-Through
Rate on the Class D Certificates during any Interest Accrual Period will be
equal to the Weighted Average Unmodified Net Mortgage Rate less the Class D
Strip. The Pass-Through Rate on the Class E Certificates during any Interest
Accrual Period will be equal to the Weighted Average Unmodified Net Mortgage
Rate less the Class E Strip. The Pass-Through Rate on the Class F, Class G,
Class H, Class J and Class K-2 Certificates during any Interest Accrual Period
will be equal to the Weighted Average Unmodified Net Mortgage Rate.] The Class
K-1 Certificates are principal only certificates and are not entitled to
distributions in respect of interest.
[The "Class B Strip" is a rate per annum equal to -----%.]
[The "Class C Strip" is a rate per annum equal to -----%.]
[The "Class D Strip" is a rate per annum equal to -----%.]
[The "Class E Strip" is a rate per annum equal to -----%.]
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<PAGE>
The "Weighted Average Net Mortgage Rate" for any Interest Accrual
Period is a per annum rate equal to the weighted average of the Net Mortgage
Rates as of the first day of such Interest Accrual Period. The "Net Mortgage
Rate" for each Mortgage Loan, is the Mortgage Rate for such Mortgage Loan (in
the absence of a default) minus the Servicing Fee Rate.
The "Weighted Average Unmodified Net Mortgage Rate" for any Interest
Accrual Period is a per annum rate equal to the weighted average of the
Unmodified Net Mortgage Rates as of the first day of such Interest Accrual
Period. The "Unmodified Net Mortgage Rate" for each Mortgage Loan, is the Net
Mortgage Rate for such Mortgage Loan as of the Cut-off Date, [except that with
respect to Loan # _____, the Unmodified Net Mortgage Rate for such Mortgage
Loan will be adjusted on the date such Mortgage Loan's interest rate resets
under the terms of the related Mortgage Loan documents to the Net Mortgage Rate
for such Mortgage Loan after giving effect to the interest rate reset.]
The "Interest Accrual Period" with respect to any Distribution Date is
the calendar month preceding the month in which such Distribution Date occurs.
Interest for each Interest Accrual Period is calculated based on a 360-day year
consisting of twelve 30-day months.
"Class Interest Shortfall" means on any Distribution Date for any
Class of Certificates, the excess, if any, of the amount of interest required
to be distributed to the holders of such Class of Certificates on such
Distribution Date over the amount of interest actually distributed to such
holders. No interest will accrue on unpaid Class Interest Shortfalls.
The "Pooled Principal Distribution Amount" for any Distribution Date
will be equal to the sum of (without duplication):
(i) the principal component of all scheduled Monthly Payments (other
than Balloon Payments) that become due (regardless of whether received) on the
Mortgage Loans during the related Collection Period;
(ii) the principal component of all Assumed Scheduled Payments, as
applicable, deemed to become due (regardless of whether received) during the
related Collection Period with respect to any Balloon Loan that is delinquent
in respect of its Balloon Payment;
(iii) the Scheduled Principal Balance of each Mortgage Loan that was,
during the related Collection Period, repurchased from the Trust Fund in
connection with the breach of a representation or warranty as described herein
under "DESCRIPTION OF THE MORTGAGE POOL--Representations and Warranties;
Repurchase" or purchased from the Trust Fund as described herein under
"DESCRIPTION OF THE MORTGAGE POOL--Early Termination" and "--Auction;"
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<PAGE>
(iv) the portion of Unscheduled Payments allocable to principal of
any Mortgage Loan that was liquidated during the related Collection Period;
(v) the principal component of all Balloon Payments received during
the related Collection Period;
(vi) all other Principal Prepayments received in the related
Collection Period; and
(vii) any other full or partial recoveries in respect of principal,
including Insurance Proceeds, Liquidation Proceeds, Condemnation Proceeds and
Net REO Proceeds.
The "Assumed Scheduled Payment" is an amount deemed due in respect of
(i) any Mortgage Loan that is delinquent in respect of its Balloon Payment and
(ii) any REO Mortgage Loan, which will be equal to the Monthly Payment that
would have been due on the Mortgage Loan in accordance with the terms of the
related Note if (a) the maturity date for such Mortgage Loan had not occurred,
(b) the related Mortgaged Property had not become an REO Property, such
Mortgage Loan was still outstanding and no acceleration of the Mortgage Loan
had occurred, and (c) in the case of any Mortgage Loan that provided for
amortization of principal prior to its maturity date, principal continued to
amortize on the same amortization schedule.
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
On each Distribution Date, holders of each Class of Certificates will
receive distributions, up to the amount of Available Funds, in the amounts and
in the order of priority (the "Available Funds Allocation") set forth below:
(i) First, to the Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates and Class A-EC Certificates, pro rata in accordance with
the Class Interest Distribution Amount of each, up to an amount equal to the
Class Interest Distribution Amount of each such Class for such Distribution
Date;
(ii) Second, to the Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates and Class A-EC Certificates, pro rata in accordance with
the Class Interest Shortfall of each, up to an amount equal to the aggregate
unpaid Class Interest Shortfalls previously allocated to such Class on any
previous Distribution Dates and not paid;
(iii) Third, to the Class A-1 Certificates, in reduction of the
Certificate Balance thereof, the Pooled Principal Distribution Amount for such
Distribution Date, until the Certificate Balance thereof is reduced to zero;
(iv) Fourth, after the Certificate Balance of the Class A-1
Certificates has been reduced to zero, to the Class A-2 Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date, until the Certificate Balance thereof is
reduced to zero;
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<PAGE>
(v) Fifth, after the Certificate Balance of the Class A-2 Certificates
has been reduced to zero, to the Class A-3 Certificates, in reduction of the
Certificate Balance thereof, the Pooled Principal Distribution Amount for such
Distribution Date, until the Certificate Balance thereof is reduced to zero;
(vi) Sixth, to the Class A-1 Certificates, Class A-2 Certificates and
Class A-3 Certificates, pro rata, based upon the unreimbursed amounts of
Realized Losses, of each such class, if any, up to an amount equal to the
aggregate of such unreimbursed Realized Losses;
(vii) Seventh, to the Class B Certificates, up to an amount equal to
the Class Interest Distribution Amount of such Class for such Distribution
Date;
(viii) Eighth, to the Class B Certificates, up to an amount equal to
the aggregate unpaid Class Interest Shortfalls previously allocated to such
Class on any previous Distribution Dates and not paid;
(ix) Ninth, after the Certificate Balance of the Class A-3
Certificates has been reduced to zero, to the Class B Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(x) Tenth, to the Class B Certificates, for the unreimbursed amounts
of Realized Losses of such class, if any, up to an amount equal to the
aggregate of such unreimbursed Realized Losses;
(xi) Eleventh, to the Class C Certificates, up to an amount equal to
the Class Interest Distribution Amount of such Class for such Distribution
Date;
(xii) Twelfth, to the Class C Certificates, up to an amount equal to
the aggregate unpaid Class Interest Shortfalls previously allocated to such
Class on any previous Distribution Dates and not paid;
(xiii) Thirteenth, after the Certificate Balance of the Class B
Certificates has been reduced to zero, to the Class C Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xiv) Fourteenth, to the Class C Certificates, for the unreimbursed
amounts of Realized Losses of such Class, if any, up to an amount equal to the
aggregate of such unreimbursed Realized Losses;
(xv) Fifteenth, to the Class D Certificates, up to an amount equal to
the Class Interest Distribution Amount of such Class for such Distribution
Date;
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(xvi) Sixteenth, to the Class D Certificates, up to an amount equal to
the aggregate unpaid Class Interest Shortfalls previously allocated to such
Class on any previous Distribution Dates and not paid;
(xvii) Seventeenth, after the Certificate Balance of the Class C
Certificates has been reduced to zero, to the Class D Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xviii) Eighteenth, to the Class D Certificates, for the unreimbursed
amounts of Realized Losses of such Class, if any, up to an amount equal to the
aggregate of such unreimbursed Realized Losses;
(xix) Nineteenth, to the Class E Certificates, up to an amount equal
to the Class Interest Distribution Amount of such Class for such Distribution
Date;
(xx) Twentieth, to the Class E Certificates, up to an amount equal to
the aggregate unpaid Class Interest Shortfalls previously allocated to such
Class on any previous Distribution Dates and not paid;
(xxi) Twenty-First, after the Certificate Balance of the Class D
Certificates has been reduced to zero, to the Class E Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xxii) Twenty-Second, to the Class E Certificates, for the
unreimbursed amounts of Realized Losses of such Class, if any, up to an amount
equal to the aggregate of such unreimbursed Realized Losses;
(xxiii) Twenty-Third, to the Class F Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xxiv) Twenty-Fourth, to the Class F Certificates, up to an amount
equal to the aggregate unpaid Class Interest Shortfalls previously allocated to
such Class on any previous Distribution Dates and not paid;
(xxv) Twenty-Fifth, after the Certificate Balance of the Class E
Certificates has been reduced to zero, to the Class F Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xxvi) Twenty-Sixth, to the Class F Certificates, for the unreimbursed
amounts of Realized Losses, of such Class, if any, up to an amount equal to the
aggregate of such unreimbursed Realized Losses;
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(xxvii) Twenty-Seventh, to the Class G Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xxviii) Twenty-Eighth, to the Class G Certificates, up to an amount
equal to the aggregate unpaid Class Interest Shortfalls previously allocated to
such Class on any previous Distribution Dates and not paid;
(xxix) Twenty-Ninth, after the Certificate Balance of the Class F
Certificates has been reduced to zero, to the Class G Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xxx) Thirtieth, to the Class G Certificates, for the unreimbursed
amounts of Realized Losses of such class, if any, up to an amount equal to the
aggregate of such unreimbursed Realized Losses;
(xxxi) Thirty-First, to the Class H Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xxxii) Thirty-Second, to the Class H Certificates, up to an amount
equal to the aggregate unpaid Class Interest Shortfalls previously allocated to
such Class on any previous Distribution Dates and not paid;
(xxxiii) Thirty-Third, after the Certificate Balance of the Class G
Certificates has been reduced to zero, to the Class H Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xxxiv) Thirty-Fourth, to the Class H Certificates, for the
unreimbursed amounts of Realized Losses of such Class, if any, up to an amount
equal to the aggregate of such unreimbursed Realized Losses;
(xxxv) Thirty-Fifth, to the Class J Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xxxvi) Thirty-Sixth, to the Class J Certificates, up to an amount
equal to the aggregate unpaid Class Interest Shortfalls previously allocated to
such Class on any previous Distribution Dates and not paid;
(xxxvii) Thirty-Seventh, after the Certificate Balance of the Class H
Certificates has been reduced to zero, to the Class J Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
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(xxxviii) Thirty-Eighth, to the Class J Certificates, for the
unreimbursed amounts of Realized Losses of such Class, if any, up to an amount
equal to the aggregate of such unreimbursed Realized Losses;
(xxxix) Thirty-Ninth, to the Class K-2 Certificates, up to an amount
equal to the Class Interest Distribution Amount of such Class for such
Distribution Date;
(xl) Fortieth, to the Class K-2 Certificates, up to an amount equal to
the aggregate unpaid Class Interest Shortfalls previously allocated to such
Class on any previous Distribution Dates and not paid;
(xli) Forty-First, after the Certificate Balance of the Class J
Certificates has been reduced to zero, to the Class K-1 Certificates, in
reduction of the Certificate Balance thereof, the Pooled Principal Distribution
Amount for such Distribution Date less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
(xlii) Forty-Second, to the Class K-1 Certificates, for the
unreimbursed amounts of Realized Losses of such Class, if any, up to an amount
equal to the aggregate of such unreimbursed Realized Losses; and
(xliii) Forty-Third, any remaining funds shall be distributed to the
Residual Certificates.
All references to pro rata in the preceding clauses shall mean pro
rata based on the amount distributable pursuant to such clause.
Additional Master Servicer or Special Servicer compensation, interest
on Advances, extraordinary expenses of the Trust Fund and other similar items
will create a shortfall in Available Funds, which generally will result in a
Class Interest Shortfall for the most subordinate Class then outstanding.
Distributions of Principal on the Class A-1, Class A-2 and Class A-3
Certificates. Notwithstanding anything to the contrary herein or in the Pooling
and Servicing Agreement, on each Distribution Date prior to the earlier of (i)
the Senior Principal Distribution Cross-Over Date and (ii) the final
Distribution Date in connection with the termination of the Trust Fund, all
distributions of principal to the Class A-1 Certificates, the Class A-2
Certificates and the Class A-3 Certificates will be paid, first, to holders of
the Class A-1 Certificates until the Certificate Balance of such Certificates
is reduced to zero, second, to holders of the Class A-2 Certificates until the
Certificate Balance of such Certificates is reduced to zero, and thereafter, to
holders of the Class A-3 Certificates, until the Certificate Balance of such
Certificates is reduced to zero. On each Distribution Date on and after the
Senior Principal Distribution Cross-Over Date, and in any event on the final
Distribution Date in connection with the termination of the Trust Fund,
distributions of principal on the Class A-1 Certificates, the Class A-2
Certificates and the Class A-3 Certificates will be paid to holders of such
three Classes of Certificates, pro rata in accordance with their respective
Certificate Balances outstanding
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immediately prior to such Distribution Date, until the Certificate Balance of
each such Class of Certificates is reduced to zero.
The "Senior Principal Distribution Cross-Over Date" will be the first
Distribution Date as of which the aggregate Certificate Balance of the Class
A-1 Certificates, Class A-2 Certificates and Class A-3 Certificates outstanding
immediately prior thereto exceeds the sum of (i) the aggregate Scheduled
Principal Balance of the Mortgage Loans that will be outstanding immediately
following such Distribution Date and (ii) the portion of the Available
Distribution Amount for such Distribution Date that will remain after the
distribution of interest to be made on the Class A-1, Class A-2 and Class A-3
Certificates on such Distribution Date has been made.
Prepayment Premiums. All but _________ of the Mortgage Loans generally
provide that a prepayment be accompanied by the payment of a Prepayment Premium
for all or a portion of the period during which such prepayments are permitted.
Any Prepayment Premiums calculated with reference to a yield
maintenance formula ("Yield Maintenance Charges") received in the related
Collection Period will be distributed as follows:
(a) First, until the later to occur of (i) [ _________ ] and (ii) the
date on which the Class A- EC Notional Balance is reduced to zero, the Yield
Maintenance Charges will be distributed to the holders of the Offered
Certificates outstanding on such Distribution Date, in the following amounts
and order of priority:
(i) to each of the Class A-1, Class A-2, Class A-3, Class B, Class C,
Class D, Class E and Class F Certificates, an amount equal to the product of
(A) a fraction, the numerator of which is the amount distributed as principal
to such Class on such Distribution Date, and the denominator of which is the
total amount distributed as principal to all Classes of Certificates on such
Distribution Date, (B) the Base Interest Fraction for the related principal
payment and such Class of Offered Certificates and (C) the aggregate amount of
Yield Maintenance Charges collected on such principal prepayment during the
related Collection Period; and
(ii) any remaining Prepayment Premiums following the distribution in
clause (i) immediately above, to the Class A-EC Certificates; and
(b) Second, after the last to occur of (i) _______________ and (ii)
the date on which the Class A-EC Notional Balance is zero, and for so long as
the Class F Certificates are still outstanding, the Yield Maintenance Charges
will be distributed as follows:
(i) to the Class F Certificates, an amount equal to the product of (A)
the Base Interest Fraction for the related principal payment and the Class F
Certificates and (B) the aggregate amount of Yield Maintenance Charges
collected on such principal prepayment during the related Collection Period;
and
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(ii) any remaining Prepayment Premiums following the distribution in
clause (i) immediately above, shall be retained by the Master Servicer as
additional servicing compensation.
(c) Thereafter, Yield Maintenance Charges shall be retained by the
Master Servicer as additional servicing compensation.
Any Prepayment Premiums that are not Yield Maintenance Charges
received in the related Collection Period will be distributed as follows:
(a) First, until the last to occur of (i) _______________ and (ii) the
date on which the A-EC Notional Balance is reduced to zero, the Prepayment
Premiums that are not Yield Maintenance Charges will be distributed to the
holders of the Class A-EC Certificates; and
(b) thereafter, the Prepayment Premiums that are not Yield Maintenance
Charges will be retained by the Master Servicer as additional servicing
compensation.
The "Base Interest Fraction" with respect to any principal prepayment
on any Mortgage Loan and with respect to any Class of Offered Certificates is a
fraction (A) the numerator of which is the greater of (x) zero and (y) the
difference between the Pass-Through Rate on such Class of Offered Certificates
and the discount rate used in calculating the Yield Maintenance Charge with
respect to such Principal Prepayment and (B) the denominator of which is the
difference between the Mortgage Rate on the related Mortgage Loan and the
discount rate used in calculating the Yield Maintenance Charge with respect to
such Principal Prepayment; provided, however, that under no circumstances shall
the Base Interest Fraction be greater than one. If the discount rate used in
calculating the Yield Maintenance Charge with respect to any Principal
Prepayment is greater than the Mortgage Rate on the related Mortgage Loan, then
the Base Interest Fraction shall equal zero.
Notwithstanding the foregoing, Prepayment Premiums will be distributed
on any Distribution Date only to the extent they are received in respect of the
Mortgage Loans in the related Collection Period.
Default Interest with Respect to Balloon Payments. Default Interest
received with respect to a Mortgage Loan that is in default with respect to its
Balloon Payment will be distributed on such Distribution Date to the holders of
the Class of Certificates that is entitled to distributions in respect of
principal on such Distribution Date; provided that if more than one Class of
Certificates is entitled to distributions in respect of principal on such
Distribution Date, the amount of such Default Interest will be allocated among
such Classes pro rata in accordance with their respective Certificate Balances
immediately prior to said Distribution Date.
Realized Losses. The Certificate Balance of the Regular Certificates
(other than the Class A-EC and Class K-2 Certificates) will be reduced without
distribution on any Distribution Date as a write-off to the extent of any
Realized Loss with respect to such
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Distribution Date. As referred to herein, the "Realized Loss" with respect to
any Distribution Date will mean the amount, if any, by which (i) the aggregate
Certificate Balance after giving effect to distributions made on such
Distribution Date exceeds (ii) the aggregate Scheduled Principal Balance of the
Mortgage Loans as of the Due Date in the month in which such Distribution Date
occurs. Any such write-offs will be applied to the Classes of Certificates in
the following order, until each is reduced to zero: first, to the Class K-1
Certificates, second, to the Class J Certificates, third, to the Class H
Certificates, fourth, to the Class G Certificates, fifth, to the Class F
Certificates, sixth, to the Class E Certificates, seventh, to the Class D
Certificates, eighth, to the Class C Certificates, ninth, to the Class B
Certificates and finally to the Class A-1, Class A-2 and Class A-3
Certificates, pro rata in accordance with their respective Certificate Balances
immediately prior to said Distribution Date. Any amounts recovered in respect
of any amounts previously written off as Realized Losses will be distributed to
the Classes of Certificates in reverse order of allocation of Realized Losses
thereto. Realized Losses allocated to the Class K-1 Certificates will reduce
the Class K-2 Notional Balance. Realized Losses allocated to the Class A-1,
Class A-2, Class A-3, Class B, Class C, Class D or Class E Certificates will
reduce the Class A-EC Notional Balance.
Notwithstanding anything to the contrary contained herein or in the
Pooling and Servicing Agreement, the aggregate amount distributable to each
Class will be reduced by the aggregate amount paid of any indemnification
payments made to any person under the Pooling and Servicing Agreement, such
reduction to be allocated among such Classes pro rata, based upon the
respective amounts so distributable without taking into account the provision
of this paragraph. Such reduction amounts otherwise distributable to a Class
shall be allocated first in respect of interest and second in respect of
principal. For purposes of determining Class Interest Shortfalls and
Certificate Balances, the amount of any such reduction so allocated to a Class
shall be deemed to have been distributed to such Class. See "SERVICING OF THE
MORTGAGE LOANS--Certain Matters With Respect to the Master Servicer, the
Special Servicer, the Trustee and the Depositor" in the Prospectus.
The "Scheduled Principal Balance" of any Mortgage Loan as of any Due
Date will be the principal balance of such Mortgage Loan as of such Due Date,
after giving effect to (i) any Principal Prepayments, non- premium prepayments
or other unscheduled recoveries of principal and any Balloon Payments received
during the related Collection Period and (ii) any payment in respect of
principal, if any, due on or before such Due Date (other than a Balloon
Payment, but including the principal portion of any Assumed Scheduled Payment,
if applicable), irrespective of any delinquency in payment by the borrower. The
Scheduled Principal Balance of any REO Mortgage Loan is equal to the principal
balance thereof outstanding on the date that the related Mortgaged Property
became an REO Property minus any Net REO Proceeds allocated to principal on
such REO Mortgage Loan and reduced by the principal component of Monthly
Payments due thereon on or before such Due Date. With respect to any Mortgage
Loan, from and after the date on which the Master Servicer makes a
determination that it has recovered all amounts that it reasonably expects to
be finally recoverable (a "Final Recovery Determination"), the Scheduled
Principal Balance thereof will be zero.
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SCHEDULED FINAL DISTRIBUTION DATE
The "Scheduled Final Distribution Date" with respect to any Class of
Certificates is the Distribution Date on which the aggregate Certificate
Balance or aggregate Notional Balance, as the case may be, of such Class of
Certificates would be reduced to zero based on the assumptions set forth below.
Such Distribution Date shall in each case be as follows:
<TABLE>
<CAPTION>
Scheduled
Class Designation Final Distribution Date
<S> <C>
=======================================================================
Class A-1........................... __________________________
- -----------------------------------------------------------------------
Class A-2........................... __________________________
- -----------------------------------------------------------------------
Class A-3........................... __________________________
- -----------------------------------------------------------------------
Class A-EC.......................... __________________________
- -----------------------------------------------------------------------
Class B............................. __________________________
- -----------------------------------------------------------------------
Class C............................. __________________________
- -----------------------------------------------------------------------
Class D............................. __________________________
- -----------------------------------------------------------------------
Class E............................. __________________________
- -----------------------------------------------------------------------
Class F............................. __________________________
- -----------------------------------------------------------------------
Class G............................. __________________________
- -----------------------------------------------------------------------
Class H............................. __________________________
- -----------------------------------------------------------------------
Class J............................. __________________________
- -----------------------------------------------------------------------
Class K-1........................... __________________________
- -----------------------------------------------------------------------
Class K-2........................... __________________________
=======================================================================
</TABLE>
The Scheduled Final Distribution Dates set forth above (the "Scheduled
Final Distribution Dates") were calculated without regard to any delays in the
collection of Balloon Payments and without regard to a reasonable liquidation
time with respect to any Mortgage Loans that may be delinquent. Accordingly, in
the event of defaults on the Mortgage Loans, the actual final Distribution Date
for one or more Classes of the Certificates may be later, and could be
substantially later, than the related Scheduled Final Distribution Date(s).
In addition, the Scheduled Final Distribution Dates set forth above
were calculated assuming no prepayments (involuntary or voluntary), no Auction,
no Early Termination, no defaults, no modifications and no extensions. Since
the rate of payment (including prepayments) of the Mortgage Loans can be
expected to exceed the scheduled
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rate of payments, and could exceed such scheduled rate by a substantial amount,
the actual final Distribution Date for one or more Classes of the Certificates
may be earlier, and could be substantially earlier, than the related scheduled
Final Distribution Date(s). The rate of payments (including prepayments) on the
Mortgage Loans will depend on the characteristics of the Mortgage Loans, as
well as on the prevailing level of interest rates and other economic factors,
and no assurance can be given as to actual payment experience.
SUBORDINATION
As a means of providing a certain amount of protection to the holders
of the Senior Certificates against losses associated with delinquent and
defaulted Mortgage Loans, the rights of the holders of the Subordinate
Certificates to receive distributions of interest and principal, as applicable,
will be subordinated to such rights of the holders of the Senior Certificates.
Each Class of the Regular Certificates with a lower class designation will
likewise be protected by the subordination of all Classes of Certificates with
yet lower Class designations. This subordination will be effected in two ways:
(i) by the preferential right of the holders of a Class of Certificates to
receive on any Distribution Date the amounts of interest and principal, as
applicable, distributable in respect of such Certificates on such date prior to
any distribution being made on such Distribution Date in respect of any Classes
of Certificates subordinate thereto and (ii) by the allocation of Realized
Losses, first, to the Class K-1 Certificates, second, to the Class J
Certificates, third, to the Class H certificates, fourth, to the Class G
Certificates, fifth, to the Class F Certificates, sixth, to the Class E
Certificates, seventh, to the Class D Certificates, eighth, to the Class C
Certificates, ninth, to the Class B Certificates, and, finally, to the Class
A-1, Class A-2 and Class A-3 Certificates, pro rata, in each case in reduction
of the Certificate Balance of such Class until the Certificate Balance thereof
is reduced to zero. In addition, each Class of Regular Certificates will have
the benefit of subordination of the Residual Certificates to the extent of any
distributions to which the Residual Certificates would otherwise be entitled.
No other form of credit enhancement will be available for the benefit of the
holders of the Offered Certificates.
ADDITIONAL RIGHTS OF THE RESIDUAL CERTIFICATES
The Residual Certificates will remain outstanding for as long as the
Trust Fund exists. Holders of the Residual Certificates are not entitled to
distributions in respect of principal, interest or Prepayment Premiums. Holders
of the Residual Certificates are not expected to receive any distributions
until after the Certificate Balances of all other Classes of Certificates have
been reduced to zero and only to the extent of any Available Funds remaining on
any Distribution Date and any remaining assets of the REMICs, if any, on the
final Distribution Date for the Certificates, after distributions in respect of
any accrued but unpaid interest on the Certificates and after distributions in
reduction of principal balance have reduced the principal balances of the
Certificates to zero.
A holder of a greater than 50% Percentage Interest of the Class R-III
Certificates may, under certain circumstances, purchase the remaining assets of
the Trust Fund,
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thereby effecting the termination of the Trust REMICs. See "--Early
Termination" herein.
EARLY TERMINATION
The holder of the Class R-I Certificates representing greater than a
50% Percentage Interest of the Class R-I Certificates, and, if such holder does
not exercise its option, the Master Servicer and the Depositor, will have the
option to purchase all of the Mortgage Loans and all property acquired in
respect of any Mortgage Loan remaining in the Trust Fund, and thereby effect
termination of the Trust Fund and early retirement of the then outstanding
Certificates, on any Distribution Date on which the aggregate Scheduled
Principal Balance of the Mortgage Loans remaining in the Trust Fund is less
than ____% of the aggregate principal balance of such Mortgage Loans as of the
Cut-off Date. The purchase price payable upon the exercise of such option on
such a Distribution Date will be an amount equal to not less than the greater
of (i) the sum of (A) 100% of the outstanding principal balance of each
Mortgage Loan included in the Trust Fund as of the last day of the month
preceding such Distribution Date (less any Advances previously made on account
of principal); (B) the fair market value of all other property included in the
Trust Fund as of the last day of the month preceding such Distribution Date, as
determined by an independent appraiser as of a date not more than 30 days prior
to the last day of the month preceding such Distribution Date; (C) all unpaid
interest accrued on such principal balance of each such Mortgage Loan
(including any Mortgage Loan as to which title to the related Mortgaged
Property has been acquired) at the Mortgage Rate to the last day of the month
preceding such Distribution Date (less any Advances previously made on account
of interest); and (D) unreimbursed Advances with interest thereon at the
Advance Rate, unpaid servicing compensation and unpaid Trust Fund expenses; or
(ii) the aggregate fair market value of the Mortgage Loans, and all other
property acquired in respect of any Mortgage Loan in the Trust Fund, on the
last day of the month preceding such Distribution Date, as determined by an
independent appraiser as of a date not more than 30 days prior to the last day
of the month preceding such Distribution Date, together with one month's
interest thereon at the related Mortgage Rate plus disposition expenses. See
"--Additional Rights of the Residual Certificates" herein.
[AUCTION
On each of (i) the Distribution Date occurring in [September] of each
year from and including ___________ and (ii) any date after the Distribution
Date occurring in _____ on which the Trustee receives an unsolicited bona fide
offer to purchase all (but not less than all) of the Mortgage Loans (each, an
"Auction Valuation Date"), the Trustee will request that four independent
financial advisory or investment banking or investment brokerage firms
nationally recognized in the field of real estate analysis and reasonably
acceptable to the Master Servicer provide the Trustee with an estimated value
at which
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the Mortgage Loans and all other property acquired in respect of any Mortgage
Loan in the Trust Fund could be sold pursuant to an auction. If the average of
the three highest such estimates received equals or exceeds the aggregate
amount of the Certificate Balances of all Certificates outstanding on the
Auction Valuation Date, plus unpaid interest thereon, the anticipated Auction
Fees, unpaid servicing compensation, unreimbursed Advances (together with
interest thereon at the Advance Rate) and unpaid Trust Fund expenses, the
Trustee will conduct an auction of the Mortgage Loans. The Trustee will, in
such case, appoint an auction agent to solicit offers from prospective
purchasers, who must meet certain requirements described in the Pooling and
Servicing Agreement, to purchase all (but not less than all) of the Mortgage
Loans and such property, for a price not less than an amount equal to the
aggregate amount of the Certificate Balances of all Certificates outstanding
as of the close of business on the closing date (the "Auction Closing Date"),
plus unpaid interest thereon, the Auction Fees, unpaid servicing compensation,
unreimbursed Advances (together with interest thereon at the Advance Rate) and
unpaid Trust Fund expenses (the "Minimum Auction Price"). The Auction Closing
Date shall be no earlier than the Distribution Date in_________________ . In
determining the aggregate Certificate Balances of all Certificates, all
Certificates owned by or on behalf of the Depositor, a property manager, the
Master Servicer, the Special Servicer, the Trustee, a borrower or any
affiliate thereof will be included.
If the Trustee receives no bids that are qualified pursuant to the
terms of the Pooling and Servicing Agreement, the Trust Fund will not be
terminated pursuant to these auction procedures. If the Trustee receives
qualified bids, the Trustee will accept the highest of such bids, notify the
Depositor, the Master Servicer and the Special Servicer of the adoption of a
plan of complete liquidation and will sell the Mortgage Loans and such property
to the successful bidder on or before the Remittance Date immediately preceding
the third Distribution Date following the Auction Valuation Date (or such later
Distribution Date determined by the auction agent appointed in accordance with
the immediately preceding paragraph), but, in either event, no later than the
Distribution Date which immediately precedes the date which is 90 days
following the date of adoption of a plan of complete liquidation by the
Trustee. Such sale will effect a termination of the Trust Fund and an early
retirement of the then outstanding Certificates. The Trustee will be entitled
to be reimbursed from the Collection Account for expenses that it or any
auction agent incurs in connection with an auction, including all fees and
reasonable expenses of legal counsel and other professionals ("Auction Fees").
Any auction will be conducted in accordance with auction procedures to
be developed by the auction agent in connection with such auction, provided
that such procedures will include at a minimum provisions substantially to the
effect that: (i) no due diligence of the Master Servicer's, the Special
Servicer's or the Trustee's records with respect to the Mortgage Loans may be
conducted by any bidder prior to being notified that it has submitted the
highest bid; (ii) the auction agent is entitled to require that the highest
bidder provide a non-refundable good faith deposit sufficient to reimburse the
Trustee and the auction agent for all expenses in connection with the
evaluation of such bid and in connection with such highest bidder's due
diligence; (iii) each bidder may be required to enter into a confidentiality
agreement with the Master
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Servicer, the Special Servicer, the auction agent and the Trustee prior to
being permitted to conduct due diligence; (iv) borrowers on any of the Mortgage
Loans will be prohibited from submitting bids; and (v) in the event that the
highest bidder withdraws, the next highest bidder will be permitted to conduct
due diligence of the Master Servicer's, the Special Servicer's or the Trustee's
records with respect to the Mortgage Loans as if it were the highest bidder.]
DELIVERY, FORM AND DENOMINATION
Book-Entry Certificates. No Person acquiring a Class A-1, Class A-2,
Class A-3, Class B, Class C, Class D, Class E and Class F Certificate (each
such Certificate, a "Book-Entry Certificate") will be entitled to receive a
physical certificate representing such Certificate, except under the limited
circumstances described below. Absent such circumstances, the Book-Entry
Certificates will be registered in the name of a nominee of DTC and beneficial
interests therein will be held by investors ("Beneficial Owners") through the
book-entry facilities of DTC, as described herein, in denominations of $100,000
initial Certificate Balance or Notional Balance and integral multiples of
______ in excess thereof, except one certificate of each such Class may be
issued that represents a different initial Certificate Balance or Notional
Balance to accommodate the remainder of the initial Certificate Balance or
Notional Balance of such Class. The Depositor has been informed by DTC that its
nominee will be Cede & Co. Accordingly, Cede & Co. is expected to be the holder
of record of the Book-Entry Certificates.
No Beneficial Owner of a Book-Entry Certificate will be entitled to
receive a definitive Certificate (a "Definitive Certificate") representing such
person's interest in the Book-Entry Certificates, except as set forth below.
Unless and until Definitive Certificates are issued to Beneficial Owners in
respect of the Book-Entry Certificates under the limited circumstances
described herein, all references to actions taken by Certificateholders or
holders will, in the case of the Book-Entry Certificates, refer to actions
taken by DTC upon instructions from its participants, and all references herein
to distributions, notices, reports and statements to Certificateholders or
holders will, in the case of the Book-Entry Certificates, refer to
distributions, notices, reports and statements to DTC or Cede & Co., as the
case may be, for distribution to Beneficial Owners in accordance with DTC
procedures. DTC may discontinue providing its services as securities depository
with respect to the Book-Entry Certificates at any time by giving reasonable
notice to the Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, certificates are required to be printed
and delivered. The Trustee, the Master Servicer, the Special Servicer, the
Fiscal Agent and the Certificate Registrar may for all purposes, including the
making of payments due on the Book-Entry Certificates, deal with DTC as the
authorized representative of the Beneficial Owners with respect to such
Certificates for the purposes of exercising the rights of Certificateholders
under the Pooling and Servicing Agreement.
The Depository Trust Company. DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to Section
17A of the
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Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and to facilitate the
clearance and settlement of securities transactions among Participants through
electronic computerized book-entry charges in Participants' accounts, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies and clearing corporations and certain other organizations. The
Rules applicable to DTC and its participants are on file with the Securities
and Exchange Commission. Indirect access to the DTC system also is available to
banks, brokers, dealers, trust companies and other institutions that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants"). DTC is owned by a number of
its Direct Participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.
Purchases of Book-Entry Certificates under the DTC system must be made
by or through Direct Participants, which will receive a credit for the
Book-Entry Certificates on DTC's records. The ownership interest of each
Beneficial Owner is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Book-Entry Certificates are to be accomplished by entries made
on the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
the Certificates except in the event that use of the book-entry system for the
Book-Entry Certificates is discontinued. Neither the Certificate Registrar nor
the Trustee will have any responsibility to monitor or restrict the transfer of
ownership interests in Book-Entry Certificates through the book-entry
facilities of DTC.
To facilitate subsequent transfers, all Book-Entry Certificates
deposited by Participants with DTC are registered in the name of DTC's
partnership nominee, Cede & Co. The deposit of Book-Entry Certificates with DTC
and their registration in the name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the
Book-Entry Certificates; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Book-Entry Certificates are credited, which
may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Beneficial Owners will not be recognized as Certificateholders, as such term is
used in the Pooling and Servicing Agreement, by the Trustee or any paying agent
(each, a "Paying Agent") appointed by the Trustee. Beneficial Owners will be
permitted to exercise the rights of Certificateholders only indirectly through
DTC and its Participants.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
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Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Beneficial
Owner to pledge Book-Entry Certificates to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to lack of a definitive Certificate
for such Book-Entry Certificates. In addition, under a book-entry format,
Beneficial Owners may experience delays in their receipt of payments, since
distributions will be made by the Trustee or a Paying Agent on behalf of the
Trustee to Cede & Co., as nominee for DTC.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Book-Entry Certificates. Under its usual procedures, DTC mails an Omnibus Proxy
to the Trustee as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the Securities are credited on that record date (identified
in a listing attached to the Omnibus Proxy). DTC may take conflicting actions
with respect to Percentage Interests or Voting Rights to the extent that
Participants whose holdings of Book-Entry Certificates evidence such Percentage
Interests or Voting Rights authorize divergent action.
Neither the Depositor, the Trustee, the Master Servicer, the Special
Servicer, the Fiscal Agent, nor any Paying Agent will have any responsibility
for any aspect of the records relating to, or payments made on account of,
beneficial ownership interests of the Book-Entry Certificates registered in the
name of Cede & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests. In the
event of the insolvency of DTC, a Participant or an Indirect Participant in
whose name Book-Entry Certificates are registered, the ability of the
Beneficial Owners of such Book-Entry Certificates to obtain timely payment may
be impaired. In addition, in such event, if the limits of applicable insurance
coverage by the Securities Investor Protection Corporation are exceeded or if
such coverage is otherwise unavailable, ultimate payment of amounts
distributable with respect to such Book-Entry Certificates may be impaired.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Depositor believes to be
reliable, but the Depositor takes no responsibility for the accuracy thereof.
Physical Certificates. The Class A-EC, Class G, Class H, Class J,
Class K-1, Class K-2, Class R-I, Class R-II and Class R-III Certificates will
be issued in fully registered certificated form only. The Class A- EC, Class G,
Class H, Class J, Class K-1 and Class K-2 Certificates will be issued in
denominations of $100,000 initial Certificate Balance or Notional Balance, as
applicable, and integral multiples of $1__ in excess thereof, except one
Certificate of each such Class may be issued that represents a different
initial Certificate Balance or Notional Balance to accommodate the remainder of
the initial Certificate Balance or Notional Balance. The Residual Certificates
will be issued in definitive, physical, registered form in Percentage Interests
of _% and integral multiples of a _% Percentage Interest in excess thereof.
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Book-Entry Certificates will be converted to Definitive Certificates
and reissued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i)(A) the Depositor advises the Certificate Registrar in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as Depository with respect to any Class of the Book-Entry
Certificates and (B) the Depositor is unable to locate a qualified successor or
(ii) the Depositor, at its option, advises the Trustee and Certificate
Registrar that it elects to terminate the book-entry system through DTC with
respect to any Class of the Book-Entry Certificates.
Upon the occurrence of any event described in the immediately
preceding paragraph, the Certificate Registrar will be required to notify all
affected Beneficial Owners through DTC of the availability of Definitive
Certificates. Upon surrender by DTC of the physical certificates representing
the affected Book-Entry Certificates and receipt of instructions for
re-registration, the Certificate Registrar will reissue the Book-Entry
Certificates as Definitive Certificates to the Beneficial Owners. Upon the
issuance of Definitive Certificates for purposes of evidencing ownership of the
Class A-1, Class A-2, Class A-3, Class B, Class C, Class D, Class E or Class F
Certificates, the registered holders of such Definitive Certificates will be
recognized as Certificateholders under the Pooling and Servicing Agreement and,
accordingly, will be entitled directly to receive payments on, and exercise
Voting Rights with respect to, and to transfer and exchange such Definitive
Certificates.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or the Certificate Registrar in accordance with the
terms of the Pooling and Servicing Agreement.
REGISTRATION AND TRANSFER
Subject to the restrictions on transfer and exchange set forth in the
Pooling and Servicing Agreement, the holder of any Definitive Certificate may
transfer or exchange the same in whole or part (in a principal amount equal to
the minimum authorized denomination or any integral multiple thereof) by
surrendering such Definitive Certificate at the corporate trust office of the
certificate registrar appointed pursuant to the Pooling and Servicing Agreement
(the "Certificate Registrar") or at the office of any transfer agent, together
with an executed instrument of assignment and transfer in the case of transfer
and a written request for exchange in the case of exchange. In exchange for any
Definitive Certificate properly presented for transfer or exchange with all
necessary accompanying documentation, the Certificate Registrar will, within
five Business Days of such request if made at the corporate trust office of the
Certificate Registrar, or within ten Business Days if made at the office of a
transfer agent (other than the Certificate Registrar), execute and deliver at
such corporate trust office or the office of the transfer agent, as the case
may be, to the transferee (in the case of transfer) or holder (in the case of
exchange) or send by first class mail at the risk of the transferee (in the
case of transfer) or holder (in the case of exchange) to such address as the
transferee or holder, as applicable, may request, a Definitive Certificate or
Definitive Certificates, as the case may require, for a like aggregate
Certificate Balance or Notional Balance, as applicable, and in such authorized
denomination or denominations as may be
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requested. The presentation for transfer or exchange of any Definitive
Certificate will not be valid unless made at the corporate trust office of the
Certificate Registrar or at the office of a transfer agent by the registered
holder in person, or by a duly authorized attorney-in-fact. The Certificate
Registrar may decline to accept any request for an exchange or registration of
transfer of any Definitive Certificate during the period of 15 days preceding
any Distribution Date.
No fee or service charge will be imposed by the Certificate Registrar
for its services in respect of any registration of transfer or exchange
referred to herein; provided, however, that in connection with the transfer of
Private Certificates to certain institutional accredited investors, the
Certificate Registrar will be entitled to be reimbursed by the transferor for
any costs incurred in connection with such transfer. The Certificate Registrar
may require payment by each transferor of a sum sufficient to pay any tax,
expense or other governmental charge payable in connection with any such
transfer.
For a discussion of certain transfer restrictions, see "ERISA
CONSIDERATIONS" herein.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Regular Certificate will depend on (a) the
price at which such Certificate is purchased by an investor and (b) the rate,
timing and amount of distributions on such Certificate. The rate, timing and
amount of distributions on any Regular Certificate will in turn depend on,
among other things, (i) the rate and timing of principal payments (including
voluntary prepayments, involuntary prepayments resulting from defaults and
liquidations or other dispositions of the Mortgage Loans and Mortgaged
Properties or the application of insurance or condemnation proceeds and/or the
purchase of the Mortgage Loans as described under "DESCRIPTION OF THE MORTGAGE
POOL--Representations and Warranties; Repurchase" and "DESCRIPTION OF THE
CERTIFICATES--Early Termination" and "--Auction") and the extent to which such
amounts are to be applied in reduction of the Certificate Balance (or Notional
Balance) of the Class of Certificates to which such Certificate belongs, (ii)
the rate, timing and severity of Realized Losses on the Mortgage Loans and the
extent to which such losses are allocable in reduction of the Certificate
Balance (or Notional Balance) of the Class of Certificates to which such
Certificate belongs and (iii) with respect to the Class A-EC, Class F, Class G,
Class H, Class J and Class K-2 Certificates, the Weighted Average Unmodified
Net Mortgage Rate as in effect from time to time. Disproportionate principal
payments (whether resulting from differences in amortization schedules,
prepayments or otherwise) on Mortgage Loans having Unmodified Net Mortgage
Rates that are higher or lower than the current Weighted Average Unmodified Net
Mortgage Rate will affect the yield on the Class A-EC Certificates. Such
disproportionate principal payments will also affect the Pass-Through
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Rates of the Class F, Class G, Class H, Class J and Class K-2 Certificates and
therefore the yield on each such Class.
Rate and Timing of Principal Payments. The yield to holders of the
Regular Certificates purchased at a discount or premium will be affected by the
rate and timing of principal payments made in reduction of the Certificate
Balance of such Certificates. As described herein, the Pooled Principal
Distribution Amount for each Distribution Date generally will be distributable
in its entirety in respect of the Class A-1 Certificates until the Certificate
Balance thereof is reduced to zero, and will thereafter be distributable in its
entirety to each remaining Class of Regular Certificates, sequentially in order
of Class designation, in each case until the Certificate Balance of each such
Class of Certificates is, in turn, reduced to zero. Consequently, the rate and
timing of principal payments made in reduction of the Certificate Balance of
the Regular Certificates will be directly related to the rate and timing of
principal payments on or in respect of the Mortgage Loans, which will in turn
be affected by the amortization schedules thereof, the dates on which Balloon
Payments are due and the rate and timing of Principal Prepayments and other
unscheduled collections thereon (including, for this purpose, collections made
in connection with liquidations of Mortgage Loans due to defaults, Casualties
or Condemnations affecting the Mortgaged Properties or purchases of Mortgage
Loans out of the Trust Fund in the manner described under "DESCRIPTION OF THE
MORTGAGE POOL--Representations and Warranties; Repurchase" and "DESCRIPTION OF
THE CERTIFICATES--Early Termination" and "--Auction" herein). Prepayments and,
assuming the respective stated maturity dates therefor have not occurred,
liquidations and purchases of the Mortgage Loans will result in distributions
on the Regular Certificates (other than the Class A-EC and Class K-2
Certificates) of amounts that would otherwise have been distributed over the
remaining terms of the Mortgage Loans. Defaults on the Mortgage Loans,
particularly at or near their stated maturity dates, may result in significant
delays in payments of principal on the Mortgage Loans and, accordingly, on the
Regular Certificates while work-outs are negotiated, foreclosures are completed
or bankruptcy proceedings are resolved. The yield to investors in the
Subordinate Certificates will be very sensitive to the timing and magnitude of
losses on the Mortgage Loans due to liquidations following a default, and will
also be very sensitive to delinquencies in payment. In addition, the Special
Servicer has the option, subject to certain limitations, to extend the maturity
of Mortgage Loans following a default in the payment of a Balloon Payment. See
"THE POOLING AND SERVICING AGREEMENT--Servicing of the Mortgage Loans;
Collection of Payments" and "--Realization Upon Mortgage Loans" herein and
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Foreclosure" in the Prospectus.
The rate and timing of principal payments and defaults and the
severity of losses on the Mortgage Loans may be affected by a number of
factors, including, without limitation, the terms of the Mortgage Loans (for
example, the provisions requiring the payment of Prepayment Premiums and
amortization terms that require Balloon Payments), prevailing interest rates,
the market value of the Mortgaged Properties, the demographics and relative
economic vitality of the areas in which the Mortgaged Properties are located,
the general supply and demand for such facilities (and their uses) in such
areas, the quality of management of Mortgaged Properties, the servicing of the
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Mortgage Loans, federal and state tax laws (which are subject to change) and
other opportunities for investment.
The rate of prepayment on the Mortgage Pool is likely to be affected
by the amount of any required Prepayment Premiums and the borrowers' ability to
refinance their related Mortgaged Loans. If prevailing market interest rates
for mortgage loans of a comparable type, term and risk level have decreased
enough to offset any required Prepayment Premium, a borrower may have an
increased incentive to refinance its Mortgage Loan for purposes of either (i)
converting to another fixed rate loan with a lower interest rate and thereby
"locking in" such rate or (ii) taking advantage of an initial "teaser rate" on
an adjustable rate mortgage loan (that is, a mortgage interest rate below that
which would otherwise apply if the applicable index and gross margin were
applied). However, the ability of a borrower to refinance its Mortgage Loan
will be affected not only by prevailing market rates, but also by the current
market value of the Mortgaged Property. See "RISK FACTORS--Prepayment and Yield
Considerations" herein and "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Enforceability of Certain Provisions" in the Prospectus.
In addition, some borrowers may sell Mortgaged Properties in order to
realize their equity therein, to meet cash flow needs or to make other
investments.
If the markets for commercial and multifamily real estate should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans exceed the value of the respective Mortgaged
Properties, a borrower under a non-recourse loan may have a decreased incentive
to fund operating cash flow deficits and, as a result, actual losses may be
higher than those originally anticipated by investors.
Neither the Depositor, the Mortgage Loan Sellers nor ________ makes
any representation as to the particular factors that will affect the rate and
timing of prepayments and defaults on the Mortgage Loans, as to the relative
importance of such factors, as to the percentage of the principal balance of
the Mortgage Loans that will be prepaid or as to which a default will have
occurred as of any date or as to the overall rate of prepayment, default or
principal payment on the Mortgage Loans.
The extent to which the yield to maturity of any Class of Regular
Certificates may vary from the anticipated yield will depend upon the degree to
which they are purchased at a discount or premium and when, and to what degree,
payments of principal on the Mortgage Loans are in turn distributed in
reduction of the Certificate Balance of such Certificates. An investor should
consider, in the case of any Regular Certificate purchased at a discount,
especially the Class K-1 Certificates, the risk that a slower than anticipated
rate of principal payments on the Mortgage Loans could result in an actual
yield to such investor that is lower than the anticipated yield and, in the
case of any Regular Certificate purchased at a premium (or the Class A-EC and
Class K-2 Certificates, which have no Certificate Balances), the risk that a
faster than anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield. In general,
the earlier a payment of principal on the Mortgage
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Loans is distributed in reduction of the Certificate Balance of any Regular
Certificate purchased at a discount or premium (or, in the case of the Class
A-EC and Class K-2 Certificates, applied in reduction of the Notional Balance),
the greater will be the effect on an investor's yield to maturity. As a result,
the effect on an investor's yield of principal payments on the Mortgage Loans
occurring at a rate higher (or lower) than the rate anticipated by the investor
during any particular period would not be fully offset by a subsequent like
reduction (or increase) in the rate of such principal payments. Because the
rate of principal payments on the Mortgage Loans will depend on future events
and a variety of factors (as described more fully below), no assurance can be
given as to such rate or the rate of Principal Prepayments in particular. The
Depositor is not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a large
group of commercial and/or multifamily loans comparable to the Mortgage Loans.
See "RISK FACTORS--Prepayment and Yield Considerations" herein.
The amounts payable with respect to the Class K-1 Certificates derive
only from principal payments on the Mortgage Loans. As a result, the yield on
the Class K-1 Certificates will be adversely affected by slower than expected
payments of principal (including prepayments, defaults and liquidations) on the
Mortgage Loans.
Balloon Payments. Most of the Mortgage Loans are Balloon Loans that
will have substantial payments (that is, Balloon Payments) due at their stated
maturities, unless previously prepaid. The ability of the borrowers to pay the
Balloon Payment at the maturity of the Balloon Loans will depend on their
ability to sell or refinance the Mortgaged Properties, which, in turn, depends
on a number of factors, many of which are beyond the control of such borrowers.
Such factors include the level of interest rates and general economic
conditions at the time of sale or refinancing and changes in federal, state or
local laws, including tax laws, environmental laws and safety standards. The
Certificates are subject to the risk of default by the borrowers in making the
required Balloon Payments. If any borrower with respect to any of such Balloon
Loans is unable to make the applicable Balloon Payment when due, the average
life of the Certificates will be longer than expected. See the Range of
Maturity Years Table in "DESCRIPTION OF THE MORTGAGE POOL--Certain
Characteristics of the Mortgage Pool--Other Information" herein for additional
information regarding maturity dates of the Mortgage Loans.
Losses and Shortfalls. The yield to holders of the Regular
Certificates will also depend on the extent to which such holders are required
to bear the effects of any losses or shortfalls on the Mortgage Loans.
Shortfalls in Available Funds resulting from shortfalls in collections of
amounts payable on the Mortgage Loans (to the extent not advanced) or
additional Master Servicer or Special Servicer compensation, interest on
Advances, extraordinary Trust Fund expenses or other similar items will
generally be borne: first, by the holders of the Class K-1 Certificates, to the
extent of amounts otherwise distributable thereto; second, by the holders of
the Class J Certificates, to the extent of amounts otherwise distributable
thereto; third, by the holders of the Class H Certificates, to the extent of
amounts otherwise distributable thereto; fourth, by the holders of the Class G
Certificates, to the extent of amounts otherwise distributable
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thereto; fifth, by the holders of the Class F Certificates, to the extent of
amounts otherwise distributable thereto; sixth, by the holders of the Class E
Certificates, to the extent of amounts otherwise distributable thereto;
seventh, by the holders of the Class D Certificates to the extent of amounts
otherwise distributable thereto; eighth, by the holders of the Class C
Certificates, to the extent of amounts otherwise distributable thereto; ninth,
by the holders of the Class B Certificates, to the extent of amounts otherwise
distributable thereto; and, last, by the holders of the Class A-1, Class A-2
and Class A-3 Certificates on a pro-rata basis. The amount of any such
shortfall generally will be distributable to holders of such Class on
subsequent Distribution Dates, to the extent of Available Funds on such
Distribution Dates. Any such shortfall will not bear interest, however, and
will therefore negatively affect the yield to maturity of such Class of
Certificates for so long as it is outstanding.
Realized Losses will be allocated, as and to the extent described
herein, to the Classes of Certificates (in reduction of the Certificate Balance
of each such Class) in reverse order of their Class designation. As a result, a
loss on any one of the Mortgage Loans could result in a significant loss, or in
some cases a complete loss, of an investors's investment in any Class of the
Subordinate Certificates. Consequently prospective investors should perform
their own analysis of the expected timing and severity of Realized Losses prior
to investing in any Subordinate Certificate. Even if losses on the Mortgage
Loans are not borne by an investor in any Class, such losses may affect the
weighted average life and yield to maturity of such investor's Certificates.
Pass-Through Rate. The Pass-Through Rates on the Class B, Class C,
Class D and Class E Certificates are related to the Weighted Average Unmodified
Net Mortgage Rate, the Pass-Through Rate on the Class F, Class G, Class H,
Class J and Class K-2 Certificates is equal to the Weighted Average Unmodified
Net Mortgage Rate and the Class A-EC Pass-Through Rate, used to calculate
interest distributable on the Class A-EC Certificates, is derived with
reference to the Weighted Average Unmodified Net Mortgage Rate.
The Weighted Average Unmodified Net Mortgage Rate will fluctuate over
the lives of the Certificates as a result of scheduled amortization, voluntary
prepayments and liquidations of Mortgage Loans. If principal payments,
including voluntary and involuntary Principal Prepayments, are made on a
Mortgage Loan with a relatively high Unmodified Net Mortgage Rate at a rate
faster than the rate of principal payments on the Mortgage Pool as a whole, the
Pass-Through Rates applicable to the Certificates (other than the Class A-1,
Class A-2 and Class A-3 Certificates) will be adversely affected. Accordingly,
the yield on each such Class of Certificates will be sensitive to changes in
the outstanding principal balances of the Mortgage Loans as a result of
scheduled amortization, voluntary prepayments and liquidations of Mortgage
Loans.
The Pass-Through Rate on each of the Class B, Class C, Class D and
Class E Certificates is equal to the Weighted Average Unmodified Net Mortgage
Rate less the related Class strip and the Pass-Through Rate on each of the
Class F, Class G, Class H, Class J and Class K-2 Certificates is equal to the
Weighted Average Unmodified Net
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Mortgage Rate. Since the Pass-Through Rates for the Certificates (other than
the Class A-1, Class A-2 and Class A-3 Certificates) are related to the
Weighted Average Unmodified Net Mortgage Rate, a decrease in the Net Mortgage
Rate for any Mortgage Loan as a result of a modification will result in the
Certificates accruing interest at a rate higher than the Net Mortgage Rate for
the Mortgage Pool and there will not be sufficient cash flow to make all
interest payments due on each of such Classes. Any such interest shortfall
would affect such Certificates in reverse sequential order commencing with the
Class K-2 Certificates. See "DESCRIPTION OF THE CERTIFICATES--Distributions"
herein. For a description of the interest rates applicable to the Mortgage
Loans see "DESCRIPTION OF THE MORTGAGE POOL--Certain Characteristics of the
Mortgage Pool--Range of Mortgage Rates" herein.
Delay in Payment of Distributions. Because monthly distributions will
not be made to Certificateholders until, at the earliest, the _____ th day of
the month following the month in which interest accrued on the Certificates,
the effective yield to the holders of the Regular Certificates will be lower
than the yield that would otherwise be produced by the applicable Pass-Through
Rate and purchase prices (assuming such prices did not account for such delay).
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution to the
investor of each dollar distributed in reduction of principal balance or
notional balance of such security. The weighted average life of the Regular
Certificates will be influenced by, among other things, the rate at which
principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, Balloon Payments, prepayments or liquidations.
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
rate of prepayment each month, expressed as an annual rate, relative to the
then outstanding principal balance of a pool of mortgage loans for the life of
such mortgage loans. CPR of "0%" assumes that no Mortgage Loan is prepaid by a
borrower before maturity, while CPRs "2%" and "4%" assume that prepayments on
the Mortgage Loans are made by borrowers at those CPRs. CPR does not purport to
be either an historical description of the prepayment experience of any pool of
mortgage loans or a prediction of the anticipated rate of prepayment of any
mortgage loans, including the Mortgage Loans to be included in the Trust Fund.
The tables set forth below have been prepared on the basis of certain
assumptions as described below regarding the characteristics of the Mortgage
Loans that are expected to be included in the Mortgage Pool as described under
"DESCRIPTION OF THE MORTGAGE POOL" herein and the performance thereof. The
tables assume, among other things, that: (i) as of the date of issuance of the
Regular Certificates, the Mortgage Loans (except as set forth herein) provide
for a Monthly Payment of principal and interest that would fully amortize the
remaining principal balance of such Mortgage
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Loan using the Monthly Payments in the amounts set forth in Annex A hereto,
commencing on the first day of the month immediately following the month in
which such issuance occurs, with, if such Mortgage Loan is a Balloon Loan, the
Monthly Payments in the amounts set forth in Annex A hereto and a principal
payment in the amount that would reduce the principal balance of such Balloon
Loan to zero on the maturity date set forth in Annex A; (ii) neither _____ nor
_______ will repurchase any Mortgage Loan and none of the Master Servicer, the
Special Servicer, the Depositor or the holders of the Class R-I Certificates
exercises its option to purchase Mortgage Loans and thereby cause a termination
of the Trust Fund; (iii) there are no delinquencies or Realized Losses on the
Mortgage Loans; (iv) no Prepayment Premiums are paid with respect to any
Mortgage Loan; (v) payments on the Certificates will be made on the ____ th day
of each month, commencing on ______________ , _______ (notwithstanding that any
such day is not a Business Day); (vi) there are no additional ongoing Trust
Fund expenses payable out of the Trust Fund other than the Servicing Fee; (vii)
the Regular Certificates will be purchased on _____________ ; (viii) that no
defaults occur with respect to any of the Mortgage Loans; (x) that the Monthly
Payments under the two Mortgage Loans that require Monthly Payments to be made
on the of each month are made on the first of each month following the month in
which such Monthly Payment was actually due (i.e., ____________________________
); (xi) that all of the Mortgage Loans accrue interest based upon a 360 day
year composed of twelve 30 day months; (xii) that all Mortgage Loans that have
a maturity date other than the first day of a month make their final payment on
the first day of the month following the month of maturity; and [(xiii) that
Loan # ___ has _________scheduled payment dates, with the first such payment
consisting of interest only and the remaining payments consisting of principal
and interest.]
The actual performance of the Mortgage Loans will differ from the
assumptions used in calculating the tables set forth below, which are
hypothetical in nature and are provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. Any
difference between such assumptions and the actual performance of the Mortgage
Loans, or actual prepayment or loss experience, will affect the percentages of
initial Certificate Balance outstanding over time and the weighted average
lives of the Classes of Regular Certificates.
Subject to the foregoing discussion and assumptions, the following
tables indicate the weighted average life of each Class of Regular
Certificates, and set forth the percentages of the initial Certificate Balance
or Notional Balance of each such Class of Regular Certificates that would be
outstanding after each of the Distribution Dates shown based on the assumptions
described above and the following additional assumptions for each of the
designated scenarios (the "Scenarios"). In the case of Scenario 1, it was
assumed that none of the Mortgage Loans prepay prior to their maturity date and
that there are no defaults. In the case of Scenario 2, the prepayment
assumptions set forth in Scenario 1 were assumed and it was further assumed
that the Trust Fund will be terminated pursuant to an auction on the
Distribution Date occurring in ____. In the case of Scenario 3 and Scenario 4,
it was assumed that the Mortgage Loans prepay prior to their maturity date at a
rate equal to 2% CPR and 4% CPR, respectively, and that there are no defaults
and that it was further assumed that the Trust Fund will be terminated pursuant
to an auction on the Distribution Date
S-92
<PAGE>
occurring in ________________. See "DESCRIPTION OF THE CERTIFICATES--Auction"
herein.
<TABLE>
<CAPTION>
Percentage of Initial Certificate Balance
(or Notional Balance)
Outstanding for
Each Designated Scenario
=================================================================================================================================
CLASS CLASS CLASS
DISTRIBUTION A-1 A-2 A-3
DATE SCENARIO SCENARIO SCENARIO
=================================================================================================================================
DATE 1 2 3 4 1 2 3 4 1 2 3 4
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percentage
- ---------------------------------------------------------------------------------------------------------------------------------
Initial Balance
- ---------------------------------------------------------------------------------------------------------------------------------
December 1997
- ---------------------------------------------------------------------------------------------------------------------------------
December 1998
- ---------------------------------------------------------------------------------------------------------------------------------
December 1999
- ---------------------------------------------------------------------------------------------------------------------------------
December 2000
- ---------------------------------------------------------------------------------------------------------------------------------
December 2001
- ---------------------------------------------------------------------------------------------------------------------------------
December 2002
- ---------------------------------------------------------------------------------------------------------------------------------
December 2003
- ---------------------------------------------------------------------------------------------------------------------------------
December 2004
- ---------------------------------------------------------------------------------------------------------------------------------
December 2005
- ---------------------------------------------------------------------------------------------------------------------------------
December 2006
- ---------------------------------------------------------------------------------------------------------------------------------
December 2007
- ---------------------------------------------------------------------------------------------------------------------------------
December 2008
- ---------------------------------------------------------------------------------------------------------------------------------
December 2009
- ---------------------------------------------------------------------------------------------------------------------------------
December 2010
- ---------------------------------------------------------------------------------------------------------------------------------
December 2011
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted
Average Life(1)
=================================================================================================================================
<FN>
(1) The weighted average life of each Class is determined by (i) multiplying the
amount of each distribution in reduction of the Certificate Balance or Notional
Balance of such Class by the number of years from the date of purchase to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the aggregate distributions in reduction of Certificate Balance or Notional
Balance referred to in clause (i).
</TABLE>
S-93
<PAGE>
<TABLE>
<CAPTION>
Percentage of Initial Certificate Balance
(or Notional Balance)
Outstanding for
Each Designated Scenario
CLASS B CLASS C CLASS D
SCENARIO SCENARIO SCENARIO
DISTRIBUTION DATE 1 2 3 4 1 2 3 4 1 2 3 4
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
Initial Balance
December 1997
December 1998
December 1999
December 2000
December 2001
December 2002
December 2003
December 2004
December 2005
December 2006
December 2007
December 2008
December 2009
December 2010
December 2011
Weighted
Average Life(1)
<FN>
- --------
(1) The weighted average life of each Class is determined by (i) multiplying
the amount of each distribution in reduction of the Certificate Balance or
Notional Balance of such Class by the number of years from the date of
purchase to the related Distribution Date, (ii) adding the results and (iii)
dividing the sum by the aggregate distributions in reduction of Certificate
Balance or Notional Balance referred to in clause (i).
</TABLE>
S-94
<PAGE>
<TABLE>
<CAPTION>
CLASS E CLASS F CLASS G
SCENARIO SCENARIO SCENARIO
DISTRIBUTION DATE 1 2 3 4 1 2 3 4 1 2 3 4
- - - - - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
Initial Balance
December 1997
December 1998
December 1999
December 2000
December 2001
December 2002
December 2003
December 2004
December 2005
December 2006
December 2007
December 2008
December 2009
December 2010
December 2011
Weighted
Average Life(1)
<FN>
- --------
(1) The weighted average life of each Class is determined by (i) multiplying the
amount of each distribution in reduction of the Certificate Balance or Notional
Balance of such Class by the number of years from the date of purchase to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the aggregate distributions in reduction of Certificate Balance or Notional
Balance referred to in clause (i).
</TABLE>
S-95
<PAGE>
<TABLE>
<CAPTION>
CLASS H CLASS J CLASS K-1 AND
SCENARIO SCENARIO CLASS K-2
SCENARIO
DISTRIBUTION DATE 1 2 3 4 1 2 3 4 1 2 3 4
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
Initial Balance
December 1997
December 1998
December 1999
December 2000
December 2001
December 2002
December 2003
December 2004
December 2005
December 2006
December 2007
December 2008
December 2009
December 2010
December 2011
Weighted
Average Life(1)
- --------
(1) The weighted average life of each Class is determined by (i) multiplying the
amount of each distribution in reduction of the Certificate Balance or Notional
Balance of such Class by the number of years from the date of purchase to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the aggregate distributions in reduction of Certificate Balance or Notional
Balance referred to in clause (i).
S-96
<PAGE>
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of _________ (the "Pooling and Servicing Agreement"),
by and among the Depositor, the Master Servicer, the Special Servicer, the
Trustee and the Fiscal Agent.
The Depositor will provide to a prospective or actual holder of a
Certificate without charge, upon written request, a copy (without exhibits) of
the Pooling and Servicing Agreement. Requests should be addressed to Prudential
Securities Secured Financing Corporation, One Seaport Plaza, 30th Floor, New
York, New York 10292, attention David Rodgers, at telephone number (212)
214-1000.
ASSIGNMENT OF THE MORTGAGE LOANS
On or before the Closing Date, the Depositor will assign or cause the
assignment of the Mortgage Loans without recourse, to the Trustee for the
benefit of the holders of Certificates. On or prior to the Closing Date, the
Depositor will deliver to the Trustee, with a copy to the Master Servicer, with
respect to each Mortgage Loan the following set of documents (the "Trustee
Mortgage File"):
(i) the original of the related Note, endorsed
by the applicable Mortgage Loan Seller in blank in
the following form: "Pay to the order of
___________________, without recourse" which the
Trustee or its designee is authorized to complete
and which Note and all endorsements thereof shall
show a complete chain of endorsement from
_______________ to the applicable Mortgage Loan
Seller;
(ii) the related original recorded Mortgage or a copy
thereof certified by the related title insurance
company, public recording office or closing agent
to be in the form in which executed or submitted
for recording, the related original recorded
Assignment of Mortgage to the applicable Mortgage
Loan Seller or a copy thereof certified by the
related title insurance company, public recording
office or closing agent to be in the form in which
executed or submitted for recording and the related
original Assignment of Mortgage executed by the
applicable Mortgage Loan Seller in blank which the
Trustee or its designee is authorized to complete
(and but for the insertion of the name of the
assignee and any related recording information
which is not yet available to the applicable
Mortgage Loan Seller, is in suitable form for
recordation in the jurisdiction in which the
related Mortgaged Property is located);
(iii) if the related security agreement is separate
from the Mortgage, the original security agreement
or a counterpart thereof, and if the security
agreement is not assigned under the Assignments of
Mortgage described in clause (ii) above, the related
original assignment of such security
S-97
<PAGE>
agreement to the applicable Mortgage Loan Seller or
a counterpart thereof and the related original
assignment of such security agreement executed by
the applicable Mortgage Loan Seller in blank which
the Trustee or its designee is authorized to
complete;
(iv) a copy of each Form UCC-1 financing statement, if
any, filed with respect to personal property
constituting a part of the related Mortgaged
Property, together with a copy of each Form UCC-2
or UCC-3 assignment, if any, of such financing
statement to the applicable Mortgage Loan Seller
and a copy of each Form UCC-2 or UCC-3 assignment,
if any, of such financing statement executed by the
applicable Mortgage Loan Seller in blank which the
Trustee or its designee is authorized to complete
(and but for the insertion of the name of the
assignee and any related filing information which
is not yet available to the applicable Mortgage
Loan Seller, is in suitable form for filing in the
filing office in which such financing statement was
filed);
(v) the related original of the Loan Agreement, if any,
relating to such Mortgage Loan or a counterpart
thereof;
(vi) the related original lender's title insurance
policy (or the original pro forma title insurance
policy), together with any endorsements thereto;
(vii) if any related Assignment of Leases, Rents and
Profits is separate from the Mortgage, the original
recorded Assignment of Leases, Rents and Profits or
a copy thereof certified by the related title
insurance company, public recording office, or
closing agent to be in the form in which executed
or submitted for recording, the related original
recorded reassignment of such instrument, if any,
to the applicable Mortgage Loan Seller or a copy
thereof certified by the related title insurance
company or closing agent to be in the form in which
executed or submitted for recording and the related
original reassignment of such instrument, if any,
executed by the applicable Mortgage Loan Seller in
blank which the Trustee or its designee is
authorized to complete (and but for the insertion
of the name of the assignee and any related
recording information which is not yet available to
the applicable Mortgage Loan Seller, is in suitable
form for recordation in the jurisdiction in which
the related Mortgaged Property is located) (any of
which reassignments, however, may be included in a
related Assignment of Mortgage and need not be a
separate instrument);
(viii) copies of the original Environmental Reports with
respect to the Mortgaged Property made in
connection with the origination of such Mortgage
Loan;
(ix) if any related assignment of contracts is
separate from the Mortgage, the original assignment
of contracts or a counterpart thereof, and if the
assignment of contracts is not assigned under the
Assignments of Mortgage
S-98
<PAGE>
described in clause (ii) above, the related
original reassignment of such instrument to the
applicable Mortgage Loan Seller or a counterpart
thereof and the related original reassignment of
such instrument executed by the applicable Mortgage
Loan Seller in blank which the Trustee or its
designee is authorized to complete;
(x) with respect to the related Reserve
Accounts, if any, a copy of the original of any
separate agreement with respect thereto between the
related borrower and the Mortgage Loan Seller;
(xi) the original of any other written agreement,
instrument or document securing such Mortgage Loan,
including, without limitation, originals of any
guaranties with respect to such Mortgage Loan or
the original letter of credit, if any, with respect
thereto, together with any and all amendments
thereto, including, without limitation, any
amendment which entitles the Master Servicer to
draw upon such letter of credit on behalf of the
Trustee for the benefit of the Certificateholders,
and the original of each instrument or other item
of personal property given as security for a
Mortgage Loan possession of which by a secured
party is necessary to a secured party's valid,
perfected, first priority security interest
therein, together with all assignments or
endorsements thereof necessary to entitle the
Master Servicer to enforce a valid, perfected,
first priority security interest therein on behalf
of the Trustee for the benefit of the
Certificateholders;
(xii) with respect to the related Reserve Accounts, if
any, a copy of the UCC-1 financing statements, if
any, submitted for filing with respect to the
applicable Mortgage Loan Seller's security interest
in such Reserve Accounts and all funds contained
therein, together with a copy of each Form UCC-2 or
UCC-3 assignment, if any, of such financing
statement to the applicable Mortgage Loan Seller
and a copy of each Form UCC-2 or UCC-3 assignment,
if any, of such financing statement executed by the
applicable Mortgage Loan Seller in blank which the
Trustee or its designee is authorized to complete
(and but for the insertion of the name of the
assignee and any related filing information which
is not yet available to the applicable Mortgage
Loan Seller, is in suitable form for filing in the
filing office in which such financing statement was
filed); and
(xiii) copies of any and all amendments, modifications and
supplements to, and waivers related to, any of the
foregoing.
If the Depositor cannot deliver any original or certified recorded document
described above on the Closing Date, the Depositor will use its best efforts
to deliver (or cause to be delivered) such original or certified recorded
documents within 45 days from the Closing Date (subject to delays attributable
to the failure of the appropriate recording office to return such documents,
in which case the Depositor will deliver such documents promptly upon receipt
thereof). The
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<PAGE>
Trustee is obligated to review the Trustee Mortgage File for each Mortgage Loan
within 45 days after the later of delivery or the Closing Date and report any
missing documents or certain types of defects therein to the Depositor.
The Master Servicer will hold all remaining Mortgage Loan Documents
and all other documents related to each Mortgage Loan, including copies of any
management agreements, ground leases, appraisals, surveys, environmental
reports and similar documents and any other written agreements relating to each
Mortgage Loan (collectively, the "Master Servicer Mortgage File" and together
with the Trustee Mortgage File, the "Mortgage File") in trust for the benefit
of the Trustee on behalf of Certificateholders. The legal ownership of all
records and documents with respect to each Mortgage Loan prepared by or that
come into the possession of the Master Servicer will immediately vest in the
Trustee, in trust for the benefit of Certificateholders.
SERVICING OF THE MORTGAGE LOANS; COLLECTION OF PAYMENTS
The Pooling and Servicing Agreement requires the Master Servicer and
the Special Servicer to service and administer the Mortgage Loans (or in the
case of the Special Servicer, the Specially Serviced Mortgage Loans and REO
Mortgage Loans) on behalf of the Trust Fund solely in the best interests of and
for the benefit of all of the Certificateholders and the Trustee in accordance
with the terms of the Pooling and Servicing Agreement and the Mortgage Loans.
In furtherance of and to the extent consistent with the foregoing, except to
the extent that the Pooling and Servicing Agreement provides for a contrary
specific course of action, each of the Master Servicer and the Special Servicer
are required to service and administer the Mortgage Loans (x) in the same
manner in which, and with the same care, skill, prudence and diligence with
which it services and administers similar mortgage loans for other third-party
portfolios, giving due consideration to customary and usual standards of
practice of prudent institutional commercial mortgage loan servicers used with
respect to loans comparable to the Mortgage Loans or (y) in the same manner in
which, and with the same care, skill, prudence and diligence with which, it
services and administers similar mortgage loans which it owns, whichever
standard of care is higher, and taking into account its other obligations under
the Pooling and Servicing Agreement, but without regard to (i) any other
relationship that the Master Servicer, the Special Servicer, any sub-servicer
or any affiliate of the Master Servicer, the Special Servicer or any
sub-servicer may have with the borrowers or any affiliate of such borrowers;
(ii) the ownership of any Certificate by the Master Servicer, the Special
Servicer or any affiliate of either; (iii) the Master Servicer's, the Trustee's
or the Fiscal Agent's obligations, as applicable, to make Advances or to incur
servicing expenses with respect to the Mortgage Loans; (iv) the Master
Servicer's, the Special Servicer's or any sub-servicer's right to receive
compensation for its services under the Pooling and Servicing Agreement or with
respect to any particular transaction; or (v) the ownership, servicing or
management for others, by the Master Servicer, the Special Servicer or any
sub-servicer of any other mortgage loans or property. Each of the Master
Servicer and the Special Servicer is permitted, at its own expense, to employ
sub-servicers, agents or attorneys in performing any of its obligations under
the Pooling and Servicing Agreement, but will not thereby be relieved of any
such obligation, and will be responsible for the acts and omissions of any such
sub-servicers, agents or attorneys. The Pooling and Servicing Agreement
provides, however, that neither the Master Servicer (or its general partner)
nor the Special Servicer (or its general partner), nor any of their directors,
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<PAGE>
officers, employees or agents, will have any liability to the Trust Fund or the
Certificateholders for taking any action or refraining from taking an action in
good faith or for errors in judgment. The foregoing provision would not protect
the Master Servicer, the Special Servicer or such person for the breach of any
of the Master Servicer's or Special Servicer's respective representations or
warranties in the Pooling and Servicing Agreement, or against any specific
liability imposed on the Master Servicer or the Special Servicer for a breach
of the servicing standards set forth in the Pooling and Servicing Agreement,
any liability by reason of willful misfeasance, bad faith, fraud or negligence
in the performance of its duties or by reason of its reckless disregard of
obligations or duties under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement requires the Master Servicer and
the Special Servicer to make reasonable efforts to collect all payments called
for under the terms and provisions of the Mortgage Loans, and to follow
collection procedures as are consistent with the servicing standard under the
Pooling and Servicing Agreement. Consistent with the above, the Master Servicer
or the Special Servicer, as applicable, may, in its discretion, waive any late
payment charge or penalty fee in connection with any delinquent Monthly Payment
or Balloon Payment with respect to any Mortgage Loan.
ADVANCES
Subject to the limitations described below, the Master Servicer will
be obligated to advance (each such amount, a "P&I Advance"), on the Business
Day preceding each Distribution Date (the "Remittance Date"), an amount equal
to the total or any portion of the Monthly Payment on a Mortgage Loan that was
delinquent as of the close of business on the Business Day preceding such
Remittance Date or, in the event of a default in the payment of a Balloon
Payment, the Assumed Scheduled Payment with respect to the related Balloon
Loan, unless the Master Servicer determines that any such advance would be a
nonrecoverable Advance and delivers to the Trustee an officer's certificate and
accompanying documentation related to a determination of nonrecoverability as
required by the Pooling and Servicing Agreement. In the event any Mortgage Loan
becomes a Seriously Delinquent Loan, the Special Servicer will order an Updated
Appraisal of the related Mortgaged Property and upon receipt of such Updated
Appraisal the Master Servicer will determine the amount (the "Anticipated
Loss") equal to the excess, if any, of (i) the sum of (w) the Scheduled
Principal Balance of such Mortgage Loan as of the immediately preceding
Determination Date, (x) to the extent not previously advanced by the Master
Servicer, the Trustee or the Fiscal Agent, all accrued and unpaid interest on
such Mortgage Loan at a per annum rate equal to the related Mortgage Rate, (y)
all unreimbursed Advances with respect to such Mortgage Loan with interest
thereon at the Advance Rate, and (z) to the extent not previously advanced by
the Master Servicer, the Trustee or the Fiscal Agent, all currently due but
unpaid real estate taxes and assessments, insurance premiums, and, if
applicable, ground rents and a good faith estimate of any expenses relating to
uncontested foreclosure, realization and liquidation of such Mortgaged
Property, over (ii) an amount equal to 90% of the appraised value of the
related Mortgaged Property as reflected in the Updated Appraisal thereof;
provided, however, that in the event the Updated Appraisal has not been
received within 60 days after the Special Servicer has ordered such appraisal,
the Anticipated Loss shall be equal to 30% of the Scheduled Principal Balance
of the Seriously Delinquent Loan; provided, however, that in the event the
Updated Appraisal has not been received within 60 days after the Special
Servicer has ordered such appraisal, the
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<PAGE>
Anticipated Loss shall be equal to 30% of the Scheduled Principal Balance of
the Seriously Delinquent Loan; provided, further that promptly upon its receipt
of such appraisal, the Servicer shall recalculate the Anticipated Loss. Upon
determination of the Anticipated Loss with respect to any Seriously Delinquent
Loan, the amount of any P&I Advance required to be made with respect to such
Seriously Delinquent Loan on any Distribution Date will be an amount equal to
the product of (A) the amount of the P&I Advance that would be required to be
made in respect of such Seriously Delinquent Loan without regard to the
application of this sentence, multiplied by (B) a fraction, the numerator of
which is equal to the Scheduled Principal Balance of such Mortgage Loan as of
the immediately preceding Determination Date less the Anticipated Loss and the
denominator of which is such Scheduled Principal Balance. A "Seriously
Delinquent Loan" is any Mortgage Loan as to which an Updated Appraisal has been
ordered with respect to the related Mortgaged Property. See "--Realization Upon
Mortgage Loans--Appraisals for Specially Serviced Mortgage Loans" herein. A
Mortgage Loan shall cease to be a Seriously Delinquent Loan in the event such
Mortgage Loan is no longer a Specially Serviced Mortgage Loan pursuant to the
terms of the Pooling and Servicing Agreement and as to which the related
Mortgagor has made 24 consecutive Monthly Payments since the date on which such
Mortgage Loan became a Seriously Delinquent Loan.
In addition to P&I Advances, the Master Servicer will also be
obligated (subject to the limitations described herein) to make cash advances
("Property Advances," and together with P&I Advances, "Advances") to pay (i)
certain costs and expenses incurred in connection with defaulted Mortgage
Loans, acquiring title to, or management of, REO Property or the sale of
defaulted Mortgage Loans or REO Properties, (ii) delinquent real estate taxes,
assessments and hazard insurance premiums and (iii) to cover other similar
costs and expenses necessary to protect and preserve the security of the
related Mortgage. The Master Servicer will not, however, be obligated to
advance from its own funds any amounts required to cure any failure of any
Mortgaged Property to comply with the Americans with Disabilities Act of 1990,
and all rules and regulations promulgated pursuant thereto, or any applicable
environmental law or to contain, clean up or remedy any environmental condition
present at any Mortgaged Property.
If the Master Servicer fails to fulfill its obligation to make any
required Advance, the Trustee, acting in accordance with the servicing
standard, will be required to make the Advance subject to its determination of
recoverability. If the Trustee fails to make any such required Advance, the
Fiscal Agent will be required to make the Advance, subject to its determination
of recoverability. Both the Trustee and the Fiscal Agent will be entitled to
rely conclusively on any non-recoverability determination of the Master
Servicer. See "--The Trustee" and "--The Fiscal Agent" below.
The obligation of the Master Servicer, the Trustee or the Fiscal
Agent, as applicable, to make Advances with respect to any Mortgage Loan
pursuant to the Pooling and Servicing Agreement continues through the
foreclosure of such Mortgage Loan and until the liquidation of the Mortgage
Loan or related Mortgaged Properties. Advances are intended to provide a
limited amount of liquidity, not to guarantee or insure against losses. None of
the Master Servicer, the Trustee or the Fiscal Agent will be required to make
any Advance that it determines (based on, among other things, an updated
Appraisal) in its good faith business judgment will not be recoverable by the
Master Servicer, the Trustee or the Fiscal Agent, as applicable, out of related
late payments, Insurance Proceeds, Liquidation Proceeds and certain
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<PAGE>
other collections with respect to the Mortgage Loan as to which such Advances
were made. To the extent that any borrower is not obligated under its Mortgage
Loan documents to pay or reimburse any portion of any Advances that are
outstanding with respect to the related Mortgage Loan as a result of a
modification of such Mortgage Loan by the Special Servicer that forgives loan
payments or other amounts that the Master Servicer, the Trustee or the Fiscal
Agent previously advanced, and the Master Servicer, the Trustee or the Fiscal
Agent determines that no other source of payment or reimbursement for such
Advances is available to it, such Advances will be deemed to be nonrecoverable;
provided, however, in connection with the foregoing, the Master Servicer, the
Trustee or the Fiscal Agent will provide an officer's certificate as described
below. In addition, if the Master Servicer, the Trustee or the Fiscal Agent, as
applicable, determines that any Advance previously made will not be recoverable
from the foregoing sources, then the Master Servicer, the Trustee or the Fiscal
Agent, as applicable, will be entitled to reimburse itself for such Advance,
plus interest thereon, out of amounts on deposit in the Collection Account
prior to distributions on the Certificates. Any such judgment or determination
must be evidenced by an officer's certificate delivered to the Trustee (or, in
the case of the Trustee or the Fiscal Agent, the Depositor) setting forth such
judgment or determination of nonrecoverability and the procedure and
considerations of the Master Servicer, the Trustee or the Fiscal Agent, as
applicable, forming the basis of such determination, which will include a copy
of the Updated Appraisal and any other information or reports obtained by the
Master Servicer, the Trustee or the Fiscal Agent, such as property operating
statements, rent rolls, property inspection reports, engineering reports and
other documentation which may support such determinations.
The Master Servicer, the Trustee or the Fiscal Agent, as applicable,
will be entitled to reimbursement for any Advance equal to the amount of such
Advance from (i) any collections on or in respect of the particular Mortgage
Loan or REO Property with respect to which each such Advance was made or (ii)
upon determining that such Advance is not recoverable in the manner described
in the preceding paragraph, from any other amounts from time to time on
deposit in the Collection Account.
The Master Servicer, the Trustee or the Fiscal Agent, as applicable,
will be entitled to receive interest at a rate equal to the Prime Rate (as
published in The Wall Street Journal, or if The Wall Street Journal is no
longer published, The New York Times, from time to time), (the "Advance Rate")
on its outstanding Advances and will be authorized to pay itself such interest
from general collections with respect to all of the Mortgage Loans prior to any
payment to holders of Certificates. If the interest on such Advance is not
offset by Default Interest a shortfall will result which generally will result
in a Class Interest Shortfall for the most Subordinate Class then outstanding.
ACCOUNTS
Collection Account. The Master Servicer will, pursuant to the Pooling
and Servicing Agreement, establish and maintain a segregated account or
accounts (the "Collection Account") into which it will be required to deposit,
within one Business Day of receipt the following payments and collections
received or made by it on or with respect to the Mortgage Loans: (i) all
payments on account of principal on the Mortgage Loans, including the principal
component of Unscheduled Payments on the Mortgage Loans; (ii) all payments on
account of interest and
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<PAGE>
Default Interest on the Mortgage Loans and the interest portion of all
Unscheduled Payments and all Prepayment Premiums; (iii) any amounts required to
be deposited by the Master Servicer in connection with losses realized on
Permitted Investments with respect to funds held in the Collection Account and
in connection with Prepayment Interest Shortfalls; (iv) (x) all Net REO
Proceeds transferred from an REO Account and (y) all Condemnation Proceeds,
Insurance Proceeds and Net Liquidation Proceeds not required to be applied to
the restoration or repair of the related Mortgaged Property; (v) any amounts
received from borrowers that represent recoveries of Property Advances; and
(vi) any other amounts required by the provisions of the Pooling and Servicing
Agreement to be deposited into the Collection Account by the Master Servicer or
the Special Servicer, including, without limitation, proceeds of any purchase
or repurchase of a Mortgage Loan as described under "DESCRIPTION OF THE
MORTGAGE POOL--Representations and Warranties; Repurchase," "THE POOLING AND
SERVICING AGREEMENT--Realization Upon Mortgage Loans" and "DESCRIPTION OF THE
CERTIFICATES--Early Termination" and "--Auction" herein.
The foregoing requirements for deposits in the Collection Account will
be exclusive, and any payments in the nature of late payment charges, late
fees, NSF check charges, assumption fees, loan modification fees, loan service
transaction fees, extension fees, demand fees, beneficiary statement charges
and similar fees need not be deposited in the Collection Account by the Master
Servicer and, to the extent permitted by applicable law, the Master Servicer or
the Special Servicer, as applicable, will be entitled to retain any such
charges and fees received with respect to the Mortgage Loans. In the event that
the Master Servicer deposits into the Collection Account any amount not
required to be deposited therein, the Master Servicer may at any time withdraw
such amount from the Collection Account.
Distribution Account. The Trustee will, pursuant to the Pooling and
Servicing Agreement, establish and maintain a segregated account or accounts
(the "Distribution Account") in the name of the Trustee for the benefit of the
holders of Certificates. With respect to each Distribution Date, the Master
Servicer will deposit in the Distribution Account, to the extent of funds on
deposit in the Collection Account, on or before the Remittance Date an
aggregate amount of immediately available funds equal to the Available Funds
plus (i) (prior to the EC-Maturity Date) any Prepayment Premiums received by
the Master Servicer during the related Collection Period and (ii) Default
Interest received with respect to a Mortgage Loan that is in default with
respect to its Balloon Payment. To the extent not included in Available Funds,
the Master Servicer will remit to the Trustee all P&I Advances for deposit into
the Distribution Account on the related Remittance Date. See "DESCRIPTION OF
THE CERTIFICATES--Distributions" herein.
The Collection Account and the Distribution Account will be held in
the name of the Trustee (or, in the case of the Collection Account, the Master
Servicer on behalf of the Trustee) on behalf of the holders of Certificates and
the Trustee (and, in the case of the Collection Account, the Master Servicer)
will be authorized to make withdrawals therefrom. Each of the Collection
Account and the Distribution Account will be either (i) a segregated account or
accounts maintained with either a federally or state-chartered depository
institution or trust company the short term unsecured debt obligations of which
are rated "A-1+" by S&P and the long term unsecured debt obligations of which
(or of such institution's parent holding company) are rated by each of the
Rating Agencies in the rating category equal to or greater
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than the highest then-current rating assigned to a Class of Certificates then
outstanding at the time of any deposit therein, but in no event less than "A"
or (ii) a segregated trust account or accounts maintained with a federally or
state chartered depository institution or trust company acting in its fiduciary
capacity, having, in either case, a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authority, or otherwise confirmed in writing by each of the Rating Agencies
that the maintenance of such account and subject to regulations regarding
fiduciary funds on deposit substantially similar to 12 CFR 9.10(b), will not,
in and of itself, result in a downgrading, withdrawal or qualification of the
rating then assigned by such Rating Agency to any Class of Certificates (an
"Eligible Bank"). Amounts on deposit in such accounts may be invested in
certain United States government securities and other investments specified in
the Pooling and Servicing Agreement ("Permitted Investments"). See "DESCRIPTION
OF THE CERTIFICATES--Accounts" in the Prospectus for a listing of Permitted
Investments.
WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Master Servicer may make withdrawals from the Collection Account
for the following purposes: (i) to remit on or before each Remittance Date to
the Distribution Account an amount equal to Available Funds and any Prepayment
Premiums for such Distribution Date; (ii) to pay or reimburse the Master
Servicer, the Trustee or the Fiscal Agent, as applicable, for Advances made by
it and interest on Advances, the Master Servicer's right to reimburse itself
for items described in this clause (ii) being limited as described herein under
"--Advances"; (iii) to pay on or before each Remittance Date to the Master
Servicer and Special Servicer the fee portion of the servicing compensation in
respect of the related Distribution Date to be paid, in the case of the
Servicing Fee, from interest received on the related Mortgage Loan, and to pay
from time to time, to the Master Servicer, any interest or investment income
earned on funds deposited in the Collection Account, and pay the Master
Servicer as additional servicing compensation any Prepayment Interest Surplus
received in the preceding Collection Period and to pay the Master Servicer or
the Special Servicer, as applicable, any other amounts constituting additional
servicing compensation; (iv) to pay on or before each Distribution Date to the
Depositor, _____, or other purchaser with respect to each Mortgage Loan or REO
Property that has previously been purchased or repurchased by it pursuant to
the Pooling and Servicing Agreement, all amounts received thereon during the
related Collection Period and subsequent to the date as of which the amount
required to effect such purchase or repurchase was determined; (v) to the
extent not reimbursed or paid pursuant to any of the above clauses, to
reimburse or pay the Master Servicer, the Special Servicer, the Trustee, the
Depositor and/or the Fiscal Agent, as applicable, for certain other
unreimbursed expenses incurred by or on behalf of such person pursuant to and
to the extent reimbursable under the Pooling and Servicing Agreement and to
satisfy any indemnification obligations of the Trust Fund under the Pooling and
Servicing Agreement; (vi) to pay to the Trustee amounts requested by it to pay
taxes on certain net income with respect to REO Properties; (vii) to withdraw
any amount deposited into the Collection Account that was not required to be
deposited therein; and (viii) to clear and terminate the Collection Account
pursuant to a plan for termination and liquidation of the Trust Fund.
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ENFORCEMENT OF "DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" CLAUSES
The Master Servicer or the Special Servicer, as applicable, will be
obligated to enforce the Trustee's rights under the "due-on-sale" clause in the
related Mortgage Loan documents to accelerate the maturity of the related
Mortgage Loan, unless such provision is not enforceable under applicable law or
such enforcement is reasonably likely to result in meritorious legal action by
the related borrower or to the extent the Master Servicer or the Special
Servicer, as applicable, acting in accordance with the servicing standard
described herein, determines that such enforcement is not in the best interests
of the Trust Fund. A "due-on-sale" or "due-on-encumbrance" clause may, under
certain circumstances, be unenforceable against a borrower that is a debtor in
a case under the Bankruptcy Code.
If applicable law prohibits the enforcement of a "due-on-sale" clause
or the Master Servicer or Special Servicer is (i) otherwise prohibited from
taking such action as described in the preceding paragraph or (ii) determines
that such enforcement is not in the best interests of the Trust Fund and, as a
consequence, a Mortgage Loan is assumed, (x) the original borrower may be
released from liability for the unpaid principal balance of the related
Mortgage Loan and interest thereon at the applicable Mortgage Rate during the
remaining term of such Mortgage Loan, (y) the Master Servicer may accept
payments in respect of the Mortgage Loan from the new owner of the Mortgaged
Property and (z) the Master Servicer or the Special Servicer, as applicable,
may enter into an assumption agreement with a new purchaser whereby the new
owner of the Mortgaged Property will be substituted as the borrower and the
original borrower released, so long as (to the extent permitted by law) the new
owner satisfies the underwriting requirements customarily imposed by the Master
Servicer or the Special Servicer, as applicable, as a condition to its approval
of a borrower on a new mortgage loan substantially similar to such Mortgage
Loan. In the event a Mortgage Loan is assumed as described in the preceding
sentences, the Trustee, the Master Servicer and the Special Servicer, will not
permit any modification of such Mortgage Loan other than as described below
under "--Amendments, Modifications and Waivers." The Master Servicer or Special
Servicer, as applicable, will be entitled to retain as additional servicing
compensation any assumption fees paid by the original borrower or the new owner
in connection with such assumption. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Enforceability of Certain Provisions--Due-on-Sale Provisions" in the
Prospectus. A new owner of the Mortgaged Property may be substituted or a
junior or senior lien allowed on the Mortgaged Property, without the consent of
the Master Servicer, the Special Servicer or the Trustee in a bankruptcy
proceeding involving the Mortgaged Property.
If any Mortgage Loan contains a provision in the nature of a
"due-on-encumbrance" clause, which by its terms (i) provides that such Mortgage
Loan will (or may at the related mortgagee's' option) become due and payable
upon the creation of any lien or other encumbrance on such Mortgaged Property
or (ii) requires the consent of the related mortgagee to the creation of any
such lien or other encumbrance on such Mortgaged Property, then, for so long as
such Mortgage Loan is included in the Trust Fund, the Master Servicer or the
Special Servicer, as applicable, on behalf of the Trust Fund, will enforce such
provision and in connection therewith will (x) accelerate the payments due on
such Mortgage Loan or (y) withhold its consent to the creation of any such lien
or other encumbrance, as applicable, except, in each case, to the extent that
the Master Servicer or the Special Servicer, as
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applicable, acting in accordance with the applicable servicing standard,
determines that such enforcement would not be in the best interests of the
Trust Fund and receives written confirmation from _____ that forbearance to
enforce such provision shall not result, in and of itself, in a downgrading,
withdrawal or qualification of the rating then assigned by ______ to any Class
of Certificates. Notwithstanding the foregoing, the Master Servicer or the
Special Servicer, as applicable, may forbear from enforcing any
"due-on-encumbrance" provision in connection with any junior or senior lien on
the Mortgaged Property imposed in connection with any bankruptcy proceeding
involving the Mortgaged Property.
INSPECTIONS; APPRAISALS
The Master Servicer (or the Special Servicer with respect to Specially
Serviced Mortgage Loans or REO Property) is required (at its own expense) to
inspect each Mortgaged Property at such times and in such manner as are
consistent with the servicing standards described herein, but will in any event
(i) inspect each Mortgaged Property at least once every 12 months with the
first such inspection being completed on or prior to unless each of the Rating
Agencies has confirmed in writing that a longer period between inspections
(which may not exceed 24 months) will not result, in and of itself, in a
downgrading, withdrawal or qualification of the rating then assigned by such
Rating Agency to any Class of the Certificates, (ii) if the Master Servicer or
the Special Servicer, as applicable, retains any Financial and Lease Reporting
Fees pursuant to the related Mortgage Loan, inspect the related Mortgaged
Property as soon as practicable thereafter (except to the extent such property
has been inspected by the Master Servicer or the Special Servicer within the
preceding 120 days) and (iii) if any Monthly Payment becomes more than 60 days
delinquent (without giving effect to any grace period permitted under the
related Note or Mortgage) each related Mortgaged Property shall be inspected by
the Special Servicer (at its own expense) as soon as practicable thereafter.
REALIZATION UPON MORTGAGE LOANS
Appraisals for Specially Serviced Mortgage Loans. Contemporaneously
with the earliest to occur of (i) the effective date of any modification of the
stated maturity, Mortgage Rate, principal balance or amortization terms of any
Specially Serviced Mortgage Loan or other "significant modification" (as
defined in Section 1.1001-3 of the Treasury regulations) of any Mortgage Loan,
as to which a default has occurred or is reasonably foreseeable, (ii) the date
90 days after the occurrence of any uncured payment delinquency, (iii) the date
180 days after a receiver is appointed in respect of a Mortgaged Property or
(iv) the date a Mortgaged Property becomes an REO Property, the Special
Servicer will promptly order an Updated Appraisal of the Mortgaged Property or
REO Property, as the case may be, except to the extent such appraisal had been
previously obtained within the prior twelve months. In addition, the Special
Servicer will promptly order a new Updated Appraisal or an update from the
prior Updated Appraisal in the event any Mortgage Loan is a Seriously
Delinquent Loan and such prior Updated Appraisal is more than twelve months
old. An "Updated Appraisal" is (i) an appraisal of the related Mortgaged
Property conducted in accordance with MAI standards from an independent
appraiser who is a member of the Appraisal Institute with respect to any
Mortgage Loan with an outstanding principal balance in excess of $3,000,000 and
(ii) an internal property valuation performed by the Special Servicer in
accordance with the servicing standard set forth in the Pooling and Servicing
Agreement or an appraisal performed by an independent appraiser
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with respect to any Mortgage Loan with an outstanding principal balance equal
to or less than $3,000,000.
Following a default in the payment of a Balloon Payment, the Special
Servicer may grant any number of successive extensions of up to 12 months (or
the period since the beginning of the first such extension, if shorter) with
respect to the defaulted Mortgage Loan; provided that the Special Servicer may
not grant any such successive extensions if, during the previous 12-month
period, such borrower was 60 days delinquent in payment of any principal or
interest; and provided further that if any extension is granted after the third
successive extension has been granted, such further extension will only be
granted with the approval of the person appointed to advise upon extensions
(the "Extension Advisor"). The Special Servicer may not grant any extension (i)
that permits such borrower to make payments of interest only for a period, in
the aggregate, of greater than 12 months or (ii) extends the maturity date of
any mortgage loan beyond the date occurring on or after _______________.
Notwithstanding anything to the contrary described herein, the Special Servicer
will not have any right or obligation to consult with or seek and/or obtain the
approval or direction from an Extension Advisor prior to acting, and the
provisions of the Pooling and Servicing Agreement relating thereto or requiring
such will be of no effect during any period that no person is acting in such
capacity.
The holders of 66 2/3% of the aggregate Voting Rights of all Classes
of Regular Certificates, other than the most subordinate such Class of Regular
Certificates, will be entitled to appoint an initial Extension Advisor or
remove and replace the current Extension Advisor by providing written notice
thereof to the Trustee and Special Servicer. The Trustee will notify
Certificateholders and the Rating Agencies in the event the Trustee receives
written notice from the holders of 66 2/3% of the aggregate Voting Rights of
all Classes of Regular Certificates, other than the most subordinate such Class
of Regular Certificates, or, in the case of resignation, from the Extension
Advisor which notices provides that an initial Extension Advisor has been
appointed or that the current Extension Advisor has been removed or has been
reassigned.
The Extension Advisor generally will be entitled to indemnification
from the Trust Fund to the same extent that the Master Servicer is entitled to
indemnification. See "SERVICING OF THE MORTGAGE LOANS--Certain Matters with
Respect to the Master Servicer, the Special Servicer, the Trustee and the
Depositor" in the Prospectus.
Standards for Conduct Generally in Effecting Foreclosure or the Sale
of Defaulted Loans. In connection with any foreclosure or other acquisition,
any costs and expenses incurred in any such proceedings will be advanced by the
Master Servicer as a Property Advance, unless the Master Servicer determines
that such Advance would constitute a nonrecoverable Advance.
If the Special Servicer elects to proceed with a non-judicial
foreclosure in accordance with the laws of the state in which the Mortgaged
Property is located, the Special Servicer will not be required to pursue a
deficiency judgment against the related borrower, or any other liable party if
the laws of the state do not permit such a deficiency judgment after a
non-judicial foreclosure or if the Special Servicer determines, in its best
judgment, that the likely recovery if a deficiency judgment is obtained will
not be sufficient to warrant the cost, time, expense
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and/or exposure of pursuing the deficiency judgment and such determination is
evidenced by an officer's certificate delivered to the Trustee.
Notwithstanding any provision to the contrary, the Special Servicer
will not, on behalf of the Trust Fund, obtain title to a Mortgaged Property as
a result of or in lieu of foreclosure or otherwise, and will not otherwise
acquire possession of, or take any other action with respect to, any Mortgaged
Property if, as a result of any such action, the Trustee, for the Trust Fund or
the holders of Certificates, would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of, such
Mortgaged Property within the meaning of CERCLA or any comparable law, unless
the Special Servicer has previously determined, based on an updated
environmental assessment report prepared by an independent person who regularly
conducts environmental audits, that: (i) such Mortgaged Property is in
compliance with applicable environmental laws or, if not, after consultation
with an environmental consultant, that it would be in the best economic
interest of the Trust Fund to take such actions as are necessary to bring such
Mortgaged Property in compliance therewith and (ii) there are no circumstances
present at such Mortgaged Property relating to the use, management or disposal
of any hazardous materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any currently
effective federal, state or local law or regulation, or that, if any such
hazardous materials are present for which such action could be required, after
consultation with an environmental consultant, it would be in the best economic
interest of the Trust Fund to take such actions with respect to the affected
Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed-in-lieu of foreclosure, the deed or certificate of sale
will be issued to the Trustee, or to its nominee (which shall not include the
Master Servicer or the Special Servicer) or a separate trustee or co-trustee on
behalf of the Trustee as the holder of the REMIC I Certificates and the holders
of Certificates. Notwithstanding any such acquisition of title and cancellation
of the related Mortgage Loan, such Mortgage Loan will be considered to be a
Mortgage Loan held in the Trust Fund until such time as the related REO
Property is sold by the Trust Fund and will be reduced by Net REO Proceeds
allocated to principal.
If the Trust Fund acquires a Mortgaged Property by foreclosure or
deed-in-lieu of foreclosure upon a default of a Mortgage Loan, the Pooling and
Servicing Agreement provides that the Special Servicer must administer such
Mortgaged Property so that it qualifies at all times as "foreclosure property"
within the meaning of Code Section 860G(a)(8). The Pooling and Servicing
Agreement also requires that any such Mortgaged Property be managed and
operated by an "independent contractor," within the meaning of applicable
Treasury regulations, who furnishes or renders services to the tenants of such
Mortgaged Property, unless the Special Servicer provides the Trustee with an
opinion of counsel that the operation and management of the Mortgaged Property
other than through an independent contractor will not cause such Mortgaged
Property to fail to qualify as "foreclosure property" (which opinion will be an
expense of the Trust Fund). Generally, REMIC-I will not be taxable on income
received with respect to the Mortgaged Property to the extent that it
constitutes "rents from real property," within the meaning of Code Section
856(c)(3)(A) and Treasury regulations thereunder. "Rents from real property" do
not include the portion of any rental based on the net income or gain of any
tenant or sub-tenant. NO DETERMINATION HAS BEEN MADE WHETHER RENT ON ANY OF THE
MORTGAGED PROPERTIES MEETS THIS REQUIREMENT. "Rents from real property" include
charges for
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services customarily furnished or rendered in connection with the rental of
real property, whether the charges are separately stated. Services furnished to
the tenants of a particular building will be considered as customary if, in the
geographic market in which the building is located, tenants in buildings that
are of a similar class are customarily provided with the service. NO
DETERMINATION HAS BEEN MADE WHETHER THE SERVICES FURNISHED TO THE TENANTS OF
THE MORTGAGED PROPERTIES ARE "CUSTOMARY" WITHIN THE MEANING OF APPLICABLE
REGULATIONS. It is therefore possible that a portion of the rental income with
respect to a Mortgaged Property owned by the Trust Fund, presumably allocated
based on the value of any non-qualifying services, would not constitute "rents
from real property." In addition to the foregoing, any net income from a trade
or business operated or managed by an independent contractor on a Mortgaged
Property owned by REMIC-I, including but not limited to a skilled nursing care
business, will not constitute "rents from real property." Any of the foregoing
types of income may instead constitute "net income from foreclosure property,"
which would be taxable to REMIC-I at the highest marginal federal corporate
rate (currently ____ %) and may also be subject to state or local taxes. Any
such taxes would be chargeable against the related income for purposes of
determining the Net REO Proceeds available for distribution to holders of
Certificates. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES."
The Special Servicer may offer to sell to any person any Specially
Serviced Mortgage Loan or any REO Property, if and when the Special Servicer
determines, consistent with the servicing standards set forth in the Pooling
and Servicing Agreement, that no satisfactory arrangements can be made for
collection of delinquent payments thereon and such a sale would be in the best
economic interests of the Trust Fund, but will, in any event, so offer to sell
any REO Property no later than the time determined by the Special Servicer to
be sufficient to result in the sale of such REO Property within the period
specified in the Pooling and Servicing Agreement, including extensions thereof.
The Special Servicer will give the Trustee not less than 10 Business Days'
prior written notice of its intention to sell any Specially Serviced Mortgage
Loan or REO Property, in which case the Special Servicer will accept any offer
received from any person that is determined by the Special Servicer to be a
fair price for such Specially Serviced Mortgage Loan or REO Property, if the
highest offeror is an Interested Person, or is determined to be such a price by
the Trustee (which may be based upon updated independent appraisals received by
the Trustee or the Special Servicer, as applicable), if the highest offeror is
an Interested Person; provided, however, that any offer by an Interested Person
in the amount of the Repurchase Price shall be deemed to be a fair price.
"Interested Person" means the Depositor, 'the Master Servicer, the Special
Servicer, the Trustee, any borrower or property manager of a Mortgaged
Property, an independent contractor engaged by the Special Servicer to manage
or operate an REO Property or any affiliate of any of the foregoing.
Notwithstanding anything to the contrary herein, neither the Trustee, in its
individual capacity, nor any of its affiliates may offer for or purchase any
Specially Serviced Mortgage Loan or any REO Property. In addition, the Special
Servicer may accept an offer that is not the highest offer if it determines, in
accordance with the servicing standard stated in the Pooling and Servicing
Agreement, that acceptance of such offer would be in the best interests of the
holders of Certificates (for example, if the prospective buyer making the lower
offer is more likely to perform its obligations, or the terms offered by the
prospective buyer making the lower offer are more favorable).
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AMENDMENTS, MODIFICATIONS AND WAIVERS
Neither the Master Servicer nor the Special Servicer may modify,
amend, waive or otherwise consent to the change of the stated maturity date of
any Mortgage Loan, the payment of principal of, or interest or Default Interest
on, any Mortgage Loan, or any other term of a Mortgage Loan, unless (i) such
modification, amendment, waiver or consent is not a "significant modification"
under Section 1001 of the Code, (ii) to the extent such modification,
amendment, waiver or consent would constitute a "significant modification"
under Section 1001 of the Code, such Mortgage Loan is in default or a default
with respect thereto is reasonably foreseeable or (iii) such modification,
amendment, waiver or consent is permitted under "--Realization Upon Mortgage
Loans--Appraisals for Specially Serviced Mortgage Loans" herein. Neither Master
Servicer nor the Special Servicer may agree to any retroactive modification,
amendment, waiver or consent.
THE TRUSTEE
_____________________, a nationally chartered bank with its principal
offices in _______, ________, will act as Trustee pursuant to the Pooling and
Servicing Agreement. The Trustee's corporate trust office is located at
____________________________________________.
The Trustee may resign at any time by giving written notice to the
Depositor, the Master Servicer, the Special Servicer and the Rating Agencies.
Upon such notice of the Trustee's resignation, the Fiscal Agent will also be
deemed removed and, accordingly, the Master Servicer will appoint a successor
trustee, which appointment of successor trustee will not result, in and of
itself, in a downgrading, withdrawal or qualification of the rating then
assigned by the Rating Agencies to any Class of the Certificates as confirmed
in writing by each of the Rating Agencies, and a successor fiscal agent, which,
if the successor trustee is not rated by each Rating Agency in one of its two
highest long-term debt rating categories, will be confirmed in writing by each
of the Rating Agencies that such appointment of such successor fiscal agent
will not result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by such Rating Agency to any Class of
the Certificates. If no successor trustee and successor fiscal agent is
appointed within 30 days after the giving of such notice of resignation, the
resigning Trustee and departing Fiscal Agent may petition any court of
competent jurisdiction for appointment of a successor trustee and successor
fiscal agent.
The Depositor or the Master Servicer may remove the Trustee and the
Fiscal Agent if, among other things, the Trustee teases to be eligible to
continue as such under the Pooling and Servicing Agreement or if at any time
the Trustee or the Fiscal Agent becomes incapable of acting, or is adjudged
bankrupt or insolvent, or a receiver of the Trustee or the Fiscal Agent or its
property is appointed or any public officer takes charge or control of the
Trustee or the Fiscal Agent or of its property. The holders of Certificates
evidencing a majority of the aggregate Voting Rights may remove the Trustee and
the Fiscal Agent upon written notice to the Master Servicer, the Special
Servicer, the Depositor, the Trustee and the Fiscal Agent. Any resignation or
removal of the Trustee and the Fiscal Agent and appointment of a successor
trustee and, if such trustee is not rated by each Rating Agency in one of its
two highest long-term debt rating categories, fiscal agent will not become
effective until acceptance of the appointment by the successor trustee and, if
necessary, fiscal agent.
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The "Voting Rights" assigned to each Class shall be (i) 0% in the case
of the Residual Certificates, (ii) in the case of any other Class of P&I
Certificates, a percentage equal to the product of (x) [ %] so long as the
Class A-EC Notional Balance is greater than zero and [ %] thereafter and (y) a
fraction, the numerator of which is equal to the aggregate outstanding
Certificate Balance of such Class and the denominator of which is equal to the
aggregate outstanding Certificate Balances of all such Classes of Certificates;
(iii) in the case of the Class A-EC Certificates, [ %] so long as the Class
A-EC Notional Balance is greater than zero, and 0% thereafter; (iv) [ %] in the
Case of Class K-l Certificates; and (v) [ %] in the case of Class K-2
Certificates. The Voting Rights of any Class of Certificates shall be allocated
among holders of Certificates of such Class in proportion to their respective
Percentage Interests; provided, however that, any Certificate held or
beneficially owned by the Depositor, the Master Servicer, the Special Servicer,
the Trustee, a property manager or a borrower or any affiliate thereof will be
deemed not to be outstanding and the Voting Rights to which it is entitled
shall not be taken into account in determining whether the requisite percentage
of Voting Rights necessary to effect any consent, approval or waiver that
specifically relates to any such person has been obtained (unless such consent,
approval or waiver is to an action that would materially and adversely affect
the interests of the holders of any Class of Certificates while any such person
is the holder of Certificates aggregating not less than 66 2/3% of the
Percentage Interest of any such Class).
Pursuant to the Pooling and Servicing Agreement, the Trustee will be
entitled to receive a monthly fee from the Master Servicer.
The Trust Fund will indemnify the Trustee, the Fiscal Agent and their
respective directors, officers, employees, agents and affiliates against any
and all losses, liabilities, damages, claims or expenses (including reasonable
attorneys' fees) arising in respect of the Pooling and Servicing Agreement or
the Certificates (but only to the extent that they are expressly reimbursable
under the Pooling and Servicing Agreement or are unanticipated expenses
incurred by the REMIC) other than those resulting from the negligence, fraud,
bad faith or willful misconduct of the Trustee and those for which such
indemnified persons are indemnified pursuant to the last sentence of this
paragraph. The Trustee will not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
under the Pooling and Servicing Agreement, or in the exercise of any of its
rights or powers, if in the Trustee's opinion the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. Each of the Master Servicer and the Special Servicer will indemnify the
Trustee, the Fiscal Agent and their respective directors, officers, employees,
agents and affiliates for similar losses incurred related to the willful
misconduct, fraud, bad faith and/or negligence in the performance of the Master
Servicer's or the Special Servicer's respective duties under the Pooling and
Servicing Agreement or by reason of reckless disregard of the Master Servicer's
or the Special Servicer's respective obligations and duties under the Pooling
and Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee, the Fiscal Agent, the Special Servicer and Master
Servicer will make no representation as to the validity or sufficiency of the
Pooling and Servicing Agreement, the Certificates, this Prospectus Supplement
or the validity, enforceability or sufficiency of the
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Mortgage Loans or related documents. The Trustee and the Fiscal Agent will not
be accountable for the use or application by the Depositor of any Certificates
or of the proceeds of such Certificates, or for the use of or application of
any funds paid to the Depositor, the Master Servicer or the Special Servicer in
respect of the Mortgage Loans, or any funds deposited in or withdrawn from the
Collection Account or the Distribution Account by the Depositor, the Master
Servicer or the Special Servicer, other than with respect to any funds held by
the Trustee.
If no Event of Default has occurred of which the Trustee has actual
knowledge and after the curing of all Events of Default that may have occurred,
the Trustee is required to perform only those duties specifically required
under the Pooling and Servicing Agreement. Upon receipt of the various
certificates, reports or other instruments required to be furnished to it, the
Trustee is required to examine such documents and to determine whether they
conform on their face to the requirements of the Pooling and Servicing
Agreement.
If the Master Servicer fails to make any required Advance, the
Trustee, as acting or successor Master Servicer, will be required to make such
Advance to the extent that such Advance is not deemed to be nonrecoverable. The
Trustee will be entitled to rely conclusively on any determination by the
Master Servicer that an Advance, if made, would be nonrecoverable. The Trustee
will be entitled to reimbursement for each Advance made by it in the same
manner and to the same extent as the Master Servicer. See "--Advances" herein.
THE FISCAL AGENT
______________________ , a banking corporation and the corporate
parent of the Trustee, will act as Fiscal Agent for the Trustee and will be
obligated to make any Advance required to be made, and not made, by the
Trustee under the Pooling and Servicing Agreement, provided that the Fiscal
Agent will not be obligated to make any Advance that it deems to be
nonrecoverable. The Fiscal Agent will be entitled to rely conclusively on any
determination by the Master Servicer that an Advance, if made, would not be
recoverable. The Fiscal Agent will be entitled to reimbursement for each
Advance made by it in the same manner and to the same extent as the Trustee
and the Master Servicer. See "--Advances" herein.
In the event of the resignation or removal of the Trustee, the Fiscal
Agent shall be entitled to resign, it being understood that the initial Fiscal
Agent shall not be obligated to act in such capacity hereunder at any time that
_________________________ is not the Trustee. No resignation or removal of the
Fiscal Agent will become effective until a successor fiscal agent has assumed
the Fiscal Agent's obligations and duties under the Pooling and Servicing
Agreement and it is confirmed in writing by each of the Rating Agencies that
the appointment of such successor fiscal agent will not result, in and of
itself, in a downgrading, withdrawal or qualification of the rating then
assigned by such Rating Agency to any Class of the Certificates.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Pursuant to the Pooling and Servicing Agreement, the Master Servicer
will be entitled to receive a monthly servicing fee (the "Servicing Fee") for
each _______________________ equal to a per annum rate of _______ % and for
each Mortgage Loan equal to a per annum rate of %
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(the "Servicing Fee Rate") on the then outstanding principal balance of such
Mortgage Loan calculated on the basis of a 360-day year consisting of twelve
30-day months. The Servicing Fee relating to each Mortgage Loan will be
retained by the Master Servicer from payments and collections (including
Insurance Proceeds and Liquidation Proceeds) in respect of such Mortgage Loan.
The Master Servicer will also be entitled to retain as additional servicing
compensation (i) all investment income earned on amounts on deposit in the
Reserve Accounts (to the extent consistent with applicable law and the related
Mortgage Loan documents), the Collection Account and the Distribution Account,
(ii) all amounts collected with respect to the Mortgage Loans (that are not
Specially Serviced Mortgage Loans) in the nature of late payment charges, late
fees, NSF check charges (including with respect to Specially Serviced Mortgage
Loans), loan service transaction fees, extension fees, demand fees,
modification fees, assumption fees, beneficiary statement charges and similar
fees and charges (but not including any Prepayment Premiums so long as the A-EC
Notional Balance is greater than zero or Default Interest), (iii) Financial and
Lease Reporting Fees (with respect to any Mortgage Loan that is not a Specially
Serviced Mortgage Loan and to the extent permitted under the related Mortgage
Loan) and (iv) any Prepayment Interest Surplus (to the extent not offset
against any Prepayment Interest Shortfall in accordance with the provisions of
the Pooling and Servicing Agreement).
The Master Servicer will pay all expenses incurred in connection with
its responsibilities under the Pooling and Servicing Agreement (subject to
reimbursement as described herein), including all fees of any sub-servicers
retained by it, all fees payable to the Trustee and the various expenses of the
Master Servicer specifically described herein.
SPECIAL SERVICING
_____________________________ will be the initial Special Servicer.
[The Special Servicer may be removed without cause and a successor Special
Servicer appointed (i) first, by the holders of the majority of the aggregate
Voting Rights of the Class H and Class J Certificates at such time as Realized
Losses allocated to the Class K-1 Certificates equal or exceed 75% of the
initial Certificate Balance of such Class, but only until such time as Realized
Losses allocated to the Class H and the Class J Certificates equal or exceed
50% of the aggregate initial Certificate Balances of such Classes; (ii) second,
by the holders of the majority of the aggregate Voting Rights of the Class G
Certificates, but only until such time as Realized Losses allocated to the
Class G Certificates equal or exceed 50% of the initial Certificate Balance of
such Class; and (iii) thereafter, by the holders of the majority of the
aggregate Voting Rights of the second most subordinate Class of Certificates
then outstanding, but only until such time as Realized Losses allocated to the
most subordinate Class equals or exceeds 50% of the initial Certificate Balance
of such Class.]
Notwithstanding the foregoing, the removal of the Special Servicer and
the appointment of a successor Special Servicer shall not be effective until
(i) the successor Special Servicer has assumed in writing all of the
responsibilities, duties and liabilities of the Special Servicer hereunder
pursuant to an agreement satisfactory to the Trustee, and (ii) each of the
Rating Agencies confirms to the Trustee in writing that such appointment and
assumption shall not result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by such Rating Agency to any Class of
Certificates.
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The duties of the Special Servicer relate primarily to Specially
Serviced Mortgage Loans and to any REO Property. The Pooling and Servicing
Agreement will define a "Specially Serviced Mortgage Loan" to include any
Mortgage Loan with respect to which: (i) the related borrower is 60 or more
days delinquent in the payment of principal and interest (regardless of whether
in respect thereof P&I Advances have been reimbursed); (ii) the borrower under
which has expressed to the Master Servicer an inability to pay or a hardship in
paying the Mortgage Loan in accordance with its terms; (iii) the Master
Servicer has received notice that the borrower has become the subject of any
bankruptcy, insolvency or similar proceeding, admitted in writing the inability
to pay its debts as they come due or made an assignment for the benefit of
creditors; (iv) the Master Servicer has received notice of a foreclosure or
threatened foreclosure of any lien on the Mortgaged Property securing the
Mortgage Loan; (v) a default of which the Master Servicer has notice (other
than a failure by the borrower to pay principal or interest) and which
materially and adversely affects the interests of the Certificateholders has
occurred and remained unremedied for the applicable grace period specified in
the Mortgage Loan (or, if no grace period is specified, 60 days); provided,
that a default requiring a Property Advance will be deemed to materially and
adversely affect the interests of Certificateholders; (vi) the borrower has
failed to make a Balloon Payment (except in the case where the Master Servicer
and the Special Servicer agree in writing that such Mortgage Loan is likely to
be paid in full within 30 days after such default); or (vii) the Master
Servicer proposes to commence foreclosure or other workout arrangements;
provided, however, that a Mortgage Loan will cease to be a Specially Serviced
Mortgage Loan (a) with respect to the circumstances described in clauses (i)
and (vi) above, when the borrower thereunder has brought the Mortgage Loan
current (with respect to the circumstances described in clause (vi), pursuant
to any workout recommended by the Special Servicer) and thereafter made three
consecutive full and timely Monthly Payments, (b) with respect to the
circumstances described in clauses (ii) and (iv) above, when such circumstances
cease to exist in the good faith judgment of the Special Servicer and with
respect to the circumstances described in clauses (iii) and (vii), when such
circumstances cease to exist or (c) with respect to the circumstances described
in clause (v) above, when such default is cured; provided, in any such case,
that at that time no circumstance exists (as described above) that would cause
the Mortgage Loan to continue to be characterized as a Specially Serviced
Mortgage Loan.
Pursuant to the Pooling and Servicing Agreement, the Special Servicer
will be entitled to certain fees, including a special servicing fee (the
"Special Servicing Fee") equal to 1/12th of [0.____%] on a monthly basis of
the Scheduled Principal Balance of each related Specially Serviced Mortgage
Loan. The Special Servicer will also receive with respect to any Specially
Serviced Mortgage Loan or REO Property that is sold or transferred or
otherwise liquidated (except in connection with the repurchase of a Mortgage
Loan as described under "DESCRIPTION OF THE MORTGAGE POOL--Representations and
Warranties; Repurchase"), in addition to the Special Servicing Fee, a
disposition fee (the "Disposition Fee") equal to the product of (A) the
excess, if any, of (x) the proceeds of the sale or liquidation of any
Specially Serviced Mortgage Loan or REO Property over (y) any broker's
commission and related brokerage referral fees and (B) (x) [ ____ %], if such
sale or liquidation occurs prior to 12 months following the date on which the
Mortgage Loan initially became a Specially Serviced Mortgage Loan or (y) [
____ %], if such sale or liquidation occurs upon or after the expiration of
such 12-month period. Furthermore, the Special Servicer shall be entitled to
receive, as additional servicing compensation, a workout fee (the "Workout
Fee") equal to the product of _____ % and the amount
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of Net Collections received by the Master Servicer or the Special Servicer with
respect to each Corrected Mortgage Loan. If any Corrected Mortgage Loan again
becomes a Specially Serviced Mortgage Loan, any right to the Workout Fee with
respect to such Mortgage Loan earned in connection with the initial
modification, restructuring or workout thereof shall terminate, and the Special
Servicer shall be entitled to a new Workout Fee for such Mortgage Loan upon
resolution or workout of the subsequent event-of default under such Mortgage
Loan. If the Special Servicer is terminated for any reason it will retain the
right to receive any Workout Fees payable in respect of any Mortgage Loans that
become Corrected Mortgage Loans during the period that it acted as Special
Servicer (and the successor Special Servicer will not be entitled to any
portion of such Workout Fees), in each case until the Workout Fees for any
Mortgage Loan cease to be payable in accordance with this paragraph. Each of
the foregoing fees, along with certain expenses related to special servicing of
a Mortgage Loan, will be payable out of funds otherwise available to pay
principal and interest on the Certificates. The Special Servicer will also be
entitled to retain as additional servicing compensation (i) all investment
income earned on amounts on deposit in any REO Account and (ii) to the extent
permitted under the related Mortgage Loan, all amounts collected with respect
to the Specially Serviced Mortgage Loans in the nature of late payment charges,
late fees, assumption fees, loan modification fees, extension fees, Financial
and Lease Reporting Fees (to the extent such fees are not required to be
remitted to the related borrower pursuant to the related Note), loan service
transaction fees, beneficiary statement charges or similar items (but not
including any Default Interest or Prepayment Premiums), in each case to the
extent received with respect to any Specially Serviced Mortgage Loan and not
required to be deposited or retained in the Collection Account pursuant to the
Pooling and Servicing Agreement.
"Corrected Mortgage Loan" means any Mortgage Loan that is no longer a
Specially Serviced Mortgage Loan pursuant to the first proviso to the
definition of the term "Specially Serviced Mortgage Loan" as a result of the
curing of any event of default under such Specially Serviced Mortgage Loan
through a modification, restructuring or workout entered into by the Special
Servicer.
"Net Collections" means, with respect to any Corrected Mortgage Loan,
an amount equal to all payments on account of interest and principal on such
Mortgage Loan and all Prepayment Premiums.
The Special Servicer shall make its Servicing Officers available to
representatives of a Consulting Certificateholder during normal business hours
upon reasonable notice in order to discuss matters relating to any Specially
Serviced Mortgage Loan and REO Property, except to the extent doing so is
prohibited by applicable law or by any Mortgage Loan Documents. The Special
Servicer may, in its sole discretion, require that an agreement governing the
availability, use and disclosure of any information derived pursuant to such
discussions, and which may provide indemnification to the Special Servicer for
any liability or damage that may arise therefrom, be executed by the Consulting
Certificateholder.
The "Consulting Certificateholder" shall be any holder of Certificates
of the most subordinate Class or the next most subordinate Class then
outstanding, which Classes have an aggregate Certificate Balance of at least $
______________ .
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REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Monthly Reports. On each Distribution Date, the Trustee will forward
by mail to each Certificateholder, with copies to the Depositor, the Paying
Agent, the Underwriter, the Master Servicer and each Rating Agency, a statement
as to such distribution setting forth for each class:
(i) the Pooled Principal Distribution Amount and the
amount allocable to principal, included in
Available Funds;
(ii) The Class Interest Distribution Amount distributable
to such Class and the amount of Available Funds
allocable thereto, together with any Class Interest
Shortfall allocable to such Class;
(iii) The amount of any P&I Advances by the Master
Servicer, the Trustee or the Fiscal Agent included
in the amounts distributed to the
Certificateholders;
(iv) The Certificate Balance of each Class of
Certificates after giving effect to the distribution
of amounts in respect of the Pooled Principal
Distribution Amount on such Distribution Date;
(v) Realized Losses and their allocation to the
Certificate Balance of any Class of Certificates;
(vi) The Scheduled Principal Balance of the Mortgage
Loans as of the Due Date preceding such
Distribution Date;
(vii) The number and aggregate principal balance of
Mortgage Loans (A) delinquent one month, (B)
delinquent two months, (C) delinquent three or more
months, (D) as to which foreclosure proceedings
have been commenced and (E) that otherwise
constitute Specially Serviced Mortgage Loans, and,
with respect to each Specially Serviced Mortgage
Loan, the amount of Property Advances made during
the related Collection Period, the amount of the
P&I Advances made on such Distribution Date, the
aggregate amount of Property Advances theretofore
made that remain unreimbursed and the aggregate
amount of P&I Advances theretofore made that remain
unreimbursed;
(viii) With respect to any Mortgage Loan that became an
REO Mortgage Loan during the preceding calendar
month, the principal balance of such Mortgage Loan
as of the date it became an REO Mortgage Loan;
(ix) As of the Due Date preceding such Distribution Date,
as to any REO Property sold during the related
Collection Period, the date on which the Special
Servicer made a Final Recovery Determination and the
amount of
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the proceeds' of such sale deposited into the
Collection Account, and the aggregate amount of REO
Proceeds and Net REO Proceeds (in each case other
than Liquidation Proceeds) and other revenues
collected by the Special Servicer with respect to
each REO Property during the related Collection
Period and credited to the Collection Account, in
each case identifying such REO Property by name;
(x) The outstanding principal balance of each
REO Mortgage Loan as of the close of business on
the immediately preceding Due Date and the
appraised value of the related REO Property per the
most recent appraisal obtained;
(xi) The amount of the servicing compensation paid
to the Master Servicer with respect to such
Distribution Date, and the amount of the additional
servicing compensation that was paid to the Master
Servicer with respect to such Distribution Date;
(xii) The amount of any Special Servicing Fee,
Disposition Fee or Workout Fee paid to the Special
Servicer with respect to such Distribution Date;
and
(xiii) (A) The amount of Prepayment Premiums, if any,
received during the related Collection Period, and
(B) the amount of Default Interest received during
the related Collection Period.
In the case of information furnished pursuant to subclauses (i), (ii),
(iii) and (xiii)(A) above, the amounts will be expressed as a dollar amount in
the aggregate for all Certificates of each applicable Class and for each Class
of Certificates for a denomination of $1,000 initial Certificate Balance or
Notional Balance.
Within a reasonable period of time after the end of each calendar
year, the Trustee will furnish to each person who at any time during the
calendar year was a holder of a Certificate (except for a Residual Certificate)
a statement containing the information set forth in subclauses (i) and (ii)
above, aggregated for such calendar year or applicable portion thereof during
which such person was a Certificateholder. Such obligation of the Trustee will
be deemed to have been satisfied to the extent that it provided substantially
comparable information pursuant to any requirements of the Code as from time to
time in force.
On each Distribution Date, the Trustee will forward to each holder of
a Residual Certificate a copy of the reports forwarded to the other
Certificateholders on such Distribution Date and a statement setting forth the
amounts, if any, actually distributed with respect to the Residual Certificates
on such Distribution Date.
Within a reasonable period of time after the end of each calendar
year, the Trustee will furnish to each person who at any time during the
calendar year was a holder of a Residual Certificate a statement setting forth
the amounts actually distributed with respect to such Certificate aggregated
for such calendar year or applicable portion thereof during which such person
was a Certificateholder. Such obligation of the Trustee will be deemed to have
been
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satisfied to the extent that it provided substantially comparable information
pursuant to any requirements of the Code as from time to time in force.
In addition, the Trustee will forward to each Certificateholder any
additional information, if any, regarding the Mortgage Loans that the Master
Servicer or the Special Servicer, in its sole discretion, delivers to the
Trustee for distribution to the Certificateholders.
Certain information made available in the Distribution Date statements
referred to above may be obtained by calling _______________ and requesting
statement number _____ or such other mechanism as the Trustee may have in place
from time to time.
Other Available Information. The Master Servicer or the Special
Servicer, if applicable, will promptly give notice to the Trustee, who will
provide a copy to each Certificateholder, each Rating Agency, the Depositor,
the Underwriters, _________, _____ and _________, of (a) any notice from a
borrower or insurance company regarding an upcoming voluntary or involuntary
prepayment (including that resulting from a Casualty or Condemnation) of all or
part of the related Mortgage Loan (provided that a request by a borrower or
other party for a quotation of the amount necessary to satisfy all obligations
with respect to a Mortgage Loan will not, in and of itself, be deemed to be
such notice); and (b) of any other occurrence known to it with respect to a
Mortgage Loan or REO Property that the Master Servicer or the Special Servicer
determines would have a material effect on such Mortgage Loan or REO Property,
which notice will include an explanation as to the reason for such material
effect (provided that any extension of the term of any Mortgage Loan will be
deemed to have a material effect).
In addition to the other reports and information made available and
distributed to the Depositor, the Underwriters, the Trustee or the
Certificateholders pursuant to other provisions of the Pooling and Servicing
Agreement, the Master Servicer and the Special Servicer will, in accordance
with such reasonable rules and procedures as it may adopt (which may include
the requirement that an agreement governing the availability, use and
disclosure of such information, and which may provide indemnification to the
Master Servicer or the Special Servicer, as applicable, for any liability or
damage that may arise therefrom, be executed to the extent the Master Servicer
or the Special Servicer, as applicable, deems such action to be necessary or
appropriate), also make available any information relating to the Mortgage
Loans, the Mortgaged Properties or the borrower for review by the Depositor,
the Underwriters, the Trustee, the Certificateholders and any other persons to
whom the Master Servicer or the Special Servicer, as the case may be, believes
such disclosure is appropriate, in each case except to the extent doing so is
prohibited by applicable law or by any documents related to a Mortgage Loan.
The Trustee will also make available during normal business hours, for
review by the Depositor, the Rating Agencies, any Certificateholder, the
Underwriters, any person identified to the Trustee by a Certificateholder as a
prospective transferee of a Certificate and any other persons to whom the
Trustee believes such disclosure is appropriate, the following items: (i) the
Pooling and Servicing Agreement, (ii) all monthly statements to
Certificateholders delivered since the closing date, (iii) all annual
statements as to compliance delivered to the Trustee and the Depositor and (iv)
all annual independent accountants' reports
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delivered to the Trustee and the Depositor. The Master Servicer or the Special
Servicer, as appropriate, will make available at its offices during normal
business hours, for review by the Depositor, the Underwriters, the Trustee, the
Rating Agencies, any Certificateholder, any person identified to the Master
Servicer or the Special Servicer, as applicable, by a Certificateholder as a
prospective transferee of a Certificate any other persons to whom the Master
Servicer or the Special Servicer, as applicable, believes such disclosure is
appropriate, the following items: (i) the inspection reports prepared by or on
behalf of the Master Servicer or the Special Servicer, as applicable, in
connection with the property inspections conducted by the Master Servicer or
the Special Servicer, as applicable, (ii) any and all modifications, waivers
and amendments of the terms of a Mortgage Loan entered into by the Master
Servicer or the Special Servicer and (iii) any and all officer's certificates
and other evidence delivered to the Trustee and the Depositor to support the
Master Servicer's determination that any Advance was, or if made would be, a
Nonrecoverable Advance, in each case except to the extent doing so is
prohibited by applicable laws or by any documents related to a Mortgage Loan.
The Master Servicer, the Special Servicer and the Trustee will be permitted to
require payment (other than from any Rating Agency) of a sum sufficient to
cover the reasonable costs and expenses incurred by it in providing copies of
or access to any of the above information.
The Master Servicer will, on behalf of the Trust Fund, prepare, sign
and file with the Commission any and all reports, statements and information
respecting the Trust Fund that the Master Servicer or the Trustee determines
are required to be filed with the Commission pursuant to Sections 13(a) or
15(d) of the 1934 Act, each such report, statement and information to be filed
on or prior to the required filing date for such report, statement or
information. Notwithstanding the foregoing, the Depositor will file with the
Commission, within 15 days of the closing date, a Form 8-K together with the
Pooling and Servicing Agreement.
None of the Trustee, the Fiscal Agent, the Master Servicer and the
Special Servicer will be responsible for the accuracy or completeness of any
information supplied to it by a borrower or other third party for inclusion in
any notice or in any other report or information furnished or provided by the
Master Servicer, the Special Servicer or the Trustee hereunder, and the Master
Servicer, the Special Servicer, the Trustee and the Fiscal Agent will be
indemnified and held harmless by the Trust Fund against any loss, liability or
expense incurred in connection with any legal action relating to any statement
or omission or alleged statement or omission therein, including any liability
related to the inclusion of such information in any report filed with the
Commission.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, three separate "real estate mortgage
investment conduit" ("REMIC") elections will be made with respect to the Trust
Fund, creating three REMICs. Upon the issuance of the Offered Certificates,
O'Melveny & Myers LLP will deliver its opinion, generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
(i) each pool of assets with respect to which a REMIC election is made will
qualify as a REMIC under the above Internal Revenue Code of 1986 (the "Code"),
and (ii) (a) the Class A-1, Class A-2, Class A-3, Class A-EC, Class B, Class C,
Class D, Class E, Class F, Class G, Class H, Class J. Class K-1 and Class K-2
Certificates will be, or will represent ownership of, REMIC "regular interests"
and (b) each residual interest will be the
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sole "residual interest" in the related REMIC. Holders of the Offered
Certificates will be required to include in income all interest on such
Certificates in accordance with the accrual method of accounting regardless of
such Certificateholders' usual methods of accounting.
Because they represent regular interests, the Regular Certificates
generally will be treated as newly originated debt instruments for federal
income tax purposes. Holders of such Classes of Certificates will be required
to include in income all interest on such Certificates in accordance with the
accrual method of accounting, regardless of a Certificateholder's usual method
of accounting. Except as discussed with respect to the [Class A-EC, Class G,
Class H, Class J, Class K-1 and Class K-2] Certificates, the Certificates are
not expected to be treated for federal income tax reporting purposes as having
been issued with original issue discount. The Class A-EC and Class K-2
Certificates constitute interest only Classes and the Class K-l Certificates
constitute a principal only Class. These Certificates, together with the [Class
G, Class H and Class J Certificates], will be deemed to have been issued with
original issue discount ("OID"). The Trustee intends to treat the Class A-EC
and Class K-2 Certificates as having no "qualified stated interest."
Accordingly, the Class A-EC and Class K-2 Certificates will be considered to be
issued with OID in an amount equal to the excess of all distributions of
interest expected to be received thereon over their respective issue prices
(including accrued interest, if any, unless the holder elects on its federal
income tax return to exclude such amount from the issue price and to recover it
on the first Distribution Date). In addition, the Class K-l Certificates will
be issued with OID in an amount equal to the excess of the initial principal
balance thereof over their issue price. Any "negative" amounts of OID on the
Class A-EC or Class K-2 Certificates attributable to rapid prepayments with
respect to the Mortgage Loans will not be deductible currently, but may be
offset against future positive accruals of OID, if any. However, the holder of
a Class A-EC or Class K-2 Certificate may be entitled to a loss deduction to
the extent it becomes certain that such holder will not recover a portion of
its basis in such Certificate. No representation is made as to the timing,
amount or character of such loss, if any. See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES." For the purposes of determining the rate of accrual of market
discount, original issue discount and premium for federal income tax purposes,
it has been assumed that the Mortgage Loans will prepay at the rate of % CPR
and that the Trust Fund will be terminated on the Distribution Date occurring
in _________ pursuant to the auction termination procedure described herein. No
representation is made as to whether the Mortgage Loans will prepay at that
rate or any other rate or whether the Trust Fund will be terminated on such
date. If it were ultimately determined that market discount, original issue
discount and premium should be amortized over the longer term of the Mortgage
Loans disregarding the assumed termination of the Trust Fund in , the [Class G,
Class H. Class J, Class K-l and Class K-2] Certificates would recognize less
original issue discount in the years prior to and including _________ and the
Class R-I, R-II and R-III Certificateholders would realize greater excess
inclusion income in such years. Although it is unclear whether the [Class A-EC,
Class G, Class H, Class J and Class K-2 Certificates] will qualify as "variable
rate instruments" under the OID Regulations, it will be assumed for purposes of
determining the original issue discount thereon that such Certificates so
qualify. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
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
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on such Certificateholder's purchase price. Holders of such Classes of
Certificates should consult their own tax advisors regarding the possibility of
making an election to amortize any such premium. See "MATERIAL FEDERAL INCOME
TAX CONSEQUENCES" in the Prospectus.
Offered Certificates held by a mutual savings bank or domestic
building and loan association will represent interests in "qualifying real
property loans" within the meaning of Section 593(d) of the Code. Offered
Certificates held by a real estate investment trust will constitute "real
estate assets" within the meaning of Section 856(c)(5)(B) of the Code, and
income with respect to Offered Certificates will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code. Offered
Certificates held by a domestic building and loan association will generally
constitute "a regular or a residual interest in a REMIC" with the meaning of
Section 7701(a)(19)(C)(xi) of the Code only in the proportion that the Mortgage
Loans are secured by multifamily apartment buildings. See "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES--Taxation of the REMIC and its Holders" in the
Prospectus.
For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--Taxation of the REMIC" in the Prospectus.
DUE TO THE COMPLEXITY OF THESE RULES AND THE CURRENT UNCERTAINTY AS TO
THE MANNER OF THEIR APPLICATION TO THE TRUST FUND AND CERTIFICATEHOLDERS, IT IS
PARTICULARLY IMPORTANT THAT POTENTIAL INVESTORS CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX TREATMENT OF THEIR ACQUISITION, OWNERSHIP AND DISPOSITION OF
THE CERTIFICATES.
ERISA CONSIDERATIONS
SUMMARY
The Subordinate Certificates may not be purchased by or transferred to
(A) an employee benefit plan or other retirement arrangement, including an
individual retirement account or a Keogh plan, which is subject to the
fiduciary responsibility provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Section 4975 of the Code, or a
governmental plan subject to any federal, state or local law ("Similar Law")
that is, to a material extent, similar to the foregoing provisions of ERISA or
the Code ("Plans"), (B) a collective investment fund in which such Plans are
invested, (C) other persons acting on behalf of any such Plan or using the
assets of any such Plan or any entity whose underlying assets include plan
assets by reason of a Plan's investment in the entity (within the meaning of
Department of Labor Regulations Section 2510.3-101), or (D) an insurance
company that is using assets of any insurance company separate account or
general account in which the assets of such Plans are invested (or which are
deemed pursuant to ERISA or any Similar Law to include assets of such Plans)
other than an insurance company using the assets of its general account under
circumstances whereby the purchase and the subsequent holding of such
Certificates would not constitute or result in a prohibited transaction within
the meaning of Section 406 or 407 of ERISA, Section 4975 of the Code or a
materially similar characterization
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under any Similar Law. Each prospective transferee of a Certificate will be
required to deliver to the Depositor, the Certificate Registrar and the Trustee
either: (i) a transferee representation letter, substantially in the form of
Exhibit D-2 to the Pooling and Servicing Agreement, stating that such
prospective transferee is not a person referred to in clause (A), (B), (C) or
(D) above, or (ii) an opinion of counsel which establishes to the satisfaction
of the Depositor, the Trustee and the Certificate Registrar that the purchase
and holding of such Certificate will not result in the assets of the Trust Fund
being deemed to be "plan assets" and subject to the fiduciary responsibility or
prohibited transaction provision of ERISA, the Code or any Similar Law, and
will not constitute or result in a non-exempt prohibited transaction within the
meaning of Section 406 or 407 of ERISA, Section 4975 of the Code or any Similar
Law, and will not subject the Master Servicer, the Special Servicer, the
Depositor, the Trustee or the Certificate Registrar to any obligation of
liability (including obligations or liabilities under ERISA or Section 4975 of
the Code), which opinion of counsel will not be an expense of the Trustee, the
Trust Fund, the Master Servicer, the Special Servicer, the Certificate
Registrar or the Depositor.
TO THE EXTENT ANY OFFERED CERTIFICATE IS IN BOOK-ENTRY FORM, THE
HOLDER OF BENEFICIAL INTEREST IN SUCH CERTIFICATE AND ANY TRANSFEREE THEREOF
SHALL BE DEEMED TO HAVE REPRESENTED THAT IT IS NOT A PERSON REFERRED TO IN
CLAUSES (A), (B), (C) OR (D) ABOVE.
None of the Residual Certificates may be purchased by or transferred
to a Plan. Accordingly, the following discussion does not purport to discuss
the considerations under ERISA or Code Section 4975 with respect to the
purchase, holding or disposition of the Residual Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
General. ERISA and the Code impose certain duties and restrictions on
Plans and certain persons who perform services for Plans. In accordance with
ERISA's general fiduciary standards, before investing in a Certificate a Plan
fiduciary should determine whether to do so is permitted under the governing
Plan instruments and is appropriate for the Plan in view of its overall
investment policy and the composition and diversification of its portfolio. A
Plan fiduciary should especially consider the ERISA requirement of investment
prudence and the sensitivity of the return on the Certificates to the rate of
principal repayments (including voluntary prepayments by the borrowers and
involuntary liquidations) on the Mortgage Loans, as discussed in "YIELD AND
MATURITY CONSIDERATIONS" herein.
Parties in Interest/Disqualified Persons. Other provisions of ERISA
(and corresponding provisions of the Code) prohibit certain transactions
involving the assets of a Plan and persons who have certain specified
relationships to the Plan (so-called "parties in interest" within the meaning
of ERISA or "disqualified persons" within the meaning of the Code). The
Depositor, the Underwriters, the Master Servicer, the Special Servicer or the
Trustee or certain affiliates thereof might be considered or might become
"parties in interest" or "disqualified persons" with respect to a Plan. If so,
the acquisition or holding of Certificates by or on behalf of such Plan could
be considered to give rise to a "prohibited transaction" within the meaning of
ERISA and the Code unless an administrative exemption described below or some
other exemption is
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available. Special caution should be exercised before the assets of a Plan are
used to purchase a Certificate if, with respect to such assets, the Depositor,
the Underwriters, the Master Servicer, the Special Servicer or the Trustee or
an affiliate thereof either: (i) has discretionary authority or control with
respect to the investment or management of such assets of such Plan, or (ii)
has authority or responsibility to give, or regularly gives, investment advice
with respect to such assets pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
such assets and that such advice will be based on the particular needs of the
Plan.
Delegation of Fiduciary Duty. Further, if the assets included in the
Trust Fund were deemed to constitute Plan assets, it is possible that a Plan's
investment in the Certificates might be deemed to constitute a delegation under
ERISA of the duty to manage Plan assets by the fiduciary deciding to invest in
the Certificates, and certain transactions involved in the operation of the
Trust Fund might be deemed to constitute prohibited transactions under ERISA
and the Code. Neither ERISA nor the Code define the term "plan assets."
The United States Department of Labor has issued regulations (the
"Plan Asset Regulations") concerning whether a Plan's assets will be considered
to include an interest in the underlying assets of an entity (such as the Trust
Fund) for purposes of the general fiduciary responsibility provisions of ERISA,
as well as for the prohibited transaction provisions of ERISA and the Code, if
the Plan acquires an "equity interest" (such as a Certificate) in an entity.
Certain exceptions are provided in the Plan Asset Regulations whereby
an investing Plan's assets would be considered merely to include its interest
in the Certificates instead of being deemed to include an interest in the
underlying assets of a Trust Fund. However, the Depositor cannot predict in
advance, nor can there be any continuing assurance whether such exceptions may
be applicable, because of the factual nature of certain of the rules set forth
in the Plan Asset Regulations. For example, one of the exceptions in the Plan
Asset Regulations states that the underlying assets of an entity will not be
considered "plan assets" if less than 25% of the value of each class of equity
interests is held by "benefit plan investors," which are defined as Plans,
individual retirement accounts and employee benefit plans not subject to ERISA
(for example, governmental plans), but this exception is tested immediately
after each acquisition of an equity interest in the entity whether upon initial
issuance or in the secondary market.
ADMINISTRATIVE EXEMPTIONS
Individual Administrative Exemptions. The Department has granted to
Prudential Securities Incorporated an individual administrative exemption
(Prohibited Transaction Exemption 90-32, 55 Fed. Reg. 23147 (June 6, 1990, as
amended by Prohibited Transaction Exemption 97-34, 62 Fed. Reg. 39021 (July 21,
1997)) referred to herein as the "Exemption," for certain mortgage-backed and
asset-backed certificates underwritten in whole or in part by Prudential
Securities Incorporated. The Exemption may be applicable to the initial
purchase, the holding and the subsequent resale by a Plan of certain
certificates, such as the Senior Certificates, underwritten by the
Underwriters, representing interests in pass-through trusts that consist of
certain receivables, loans and other obligations, provided that the conditions
and
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requirements of the Exemption are satisfied. The loans described in the
Exemption include mortgage loans such as the Mortgage Loans.
Among the conditions that must be satisfied for the Exemption to apply are the
following:
(1) The acquisition of Certificates by a Plan is on
terms (including the price for the Certificates) 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 Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust fund;
(3) The Certificates acquired by the Plan have
received a rating at the time of such acquisition that is one of the
three highest generic rating categories from either Moody's Investors
Service, Fitch IBCA, Inc., Standard & Poors, or Dufff & Phelps;
(4) The Trustee must not be an affiliate of any of the
Depositor, the Underwriters, the Master Servicer, the Special Servicer
(if any), any obligor with respect to the Mortgage Loans included in
the Trust Fund constituting more than 5% of the aggregate unamortized
balance of the assets in the Trust Fund, or any affiliate of such
parties (the "Restricted Group");
(5) The sum of all payments made to and retained by
the Underwriters in connection with the distribution of certificates
represents not more than reasonable compensation for underwriting the
certificates; the sum of all payments made to and retained by the
Depositor pursuant to the assignment of the mortgage loans to the
Trust represents not more than the fair market value of such mortgage
loans; the sum of all payments made to and retained by the Master
Servicer and any other Servicer represents not more than reasonable
compensation for such person's services under the pooling and
servicing agreement and reimbursement of such person's reasonable
expenses in connection therewith; and
(6) The Plan investing in the Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the Commission under the 1933 Act.
In addition the Trust must also meet the following requirements:
(a) The corpus of the trust fund must consist solely of
assets of the type that have been included in other investment pools;
(b) Certificates in such other investment pools must have
been rated in one of the three highest rating categories of Moody's
Investors Service, Fitch IBCA, Inc., Standard & Poors, or Dufff &
Phelps for at least one year prior to the Plan's acquisition of the
certificates pursuant to the Exemption; and
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(c) 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 the
Certificates pursuant to the Exemption.
If the conditions of the Exemption are met, the acquisition, holding
and resale of Certificates by Plans would be exempt from the prohibited
transaction provisions of ERISA and the Code (regardless of whether a Plan's
assets would be considered to include an ownership interest in the Mortgage
Loans in the Mortgage Pool).
Moreover, the Exemption provides relief from certain
self-dealing/conflict-of-interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables, loans or
obligations held in the trust provided that, among other requirements, (i) in
the case of an acquisition in connection with the initial issuance of
certificates, at least 50% of each class of certificates in which Plans have
invested is acquired by persons independent of the Restricted Group; and at
least 50% 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 5% or less of the fair market value of the
obligations contained in the trust; (iii) the Plan's investment in certificates
of any class does not exceed 25% of all of the certificates of that class
outstanding at the time of the acquisitions; and (iv) immediately after the
acquisition no more than 25% of the assets of the Plan with respect to which
such person is a fiduciary are invested in certificates representing an
interest in one or more trusts containing assets sold or served by the same
entity.
The Exemption does not apply to the purchasing or holding of
Certificates by Plans sponsored by the Depositor, the Underwriters, the
Trustee, the Master Servicer, the Special Servicer, any obligor with respect to
Mortgage Loans included in the Trust Fund constituting more than 5% of the
aggregate unamortized principal balance of the assets in the Trust Fund or any
affiliate of such parties (the "Restricted Group").
THE CHARACTERISTICS OF THE SUBORDINATE CERTIFICATES AND THE RESIDUAL
CERTIFICATES DO NOT MEET THE REQUIREMENTS OF THE EXEMPTION. ACCORDINGLY, THE
SUBORDINATE CERTIFICATES MAY NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN OR
PERSON ACTING ON BEHALF OF ANY PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OTHER
THAN AN INSURANCE COMPANY USING ASSETS OF ITS GENERAL ACCOUNT UNDER
CIRCUMSTANCES IN WHICH SUCH PURCHASE OR TRANSFER WOULD NOT CONSTITUTE OR RESULT
IN A PROHIBITED TRANSACTION. THE RESIDUAL CERTIFICATES MAY NOT BE PURCHASED BY
OR TRANSFERRED TO A PLAN.
Before purchasing a Senior Certificate, a fiduciary of a Plan should
make its own determination as to the availability of the exemptive relief
provided by the Exemption or the availability of any other prohibited
transaction exemptions, and whether the conditions of any such exemption will
be applicable to the Senior Certificates. Any fiduciary of a Plan (including an
entity that is deemed to hold Plan assets for purposes of ERISA and the Code)
considering whether to purchase a Senior Certificate should also carefully
review with its own legal advisors
S-126
<PAGE>
the applicability of the fiduciary duty and prohibited transaction provisions
of ERISA and the Code to such investment and the availability of the Exemption.
THE SALE OF SENIOR CERTIFICATES TO A PLAN IS IN NO RESPECT A
REPRESENTATION BY THE DEPOSITOR, THE UNDERWRITERS OR ANY OTHER MEMBER OF THE
RESTRICTED GROUP THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS
WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY PARTICULAR PLAN OR THAT
THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR ANY PARTICULAR PLAN.
EXEMPT PLAN
A governmental plan as defined in Section 3(32) of ERISA is not
subject to ERISA or Code Section 4975. However, such a governmental plan may be
subject to a Similar Law. A fiduciary of a governmental plan should make its
own determination as to the need for and the availability of any exemptive
relief under any Similar Law.
UNRELATED BUSINESS TAXABLE INCOME; RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code Section
501(a), including most varieties of ERISA Plans, may give rise to "unrelated
business taxable income" as described in Code Sections 511-515 and 860E.
Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a "Disqualified
Organization," which term as defined above includes certain tax-exempt entities
not subject to Code Section 511 including certain governmental plans, as
discussed above under the caption "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in
the Prospectus. Accordingly, Plans may not purchase Residual Certificates.
LEGAL INVESTMENT
[The Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA").] The appropriate characterization of the Certificates under various
legal investment restrictions, and thus the ability of investors subject to
these restrictions to purchase the Certificates, may be subject to significant
interpretive uncertainties.
The Depositor makes no representations as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes or other purposes or as to the ability of
particular investors to purchase the Certificates under applicable legal
investment restrictions. These uncertainties may adversely affect the liquidity
of the Certificates. Accordingly, all institutions whose investment activities
are subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Certificates
constitute a legal investment or are subject to investment, capital or other
restrictions.
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<PAGE>
PLAN OF DISTRIBUTION
Prudential Securities Incorporated and __________________ (the
"Underwriters") have agreed, severally and not jointly, pursuant to an
Underwriting Agreement dated ____________,
(the "Underwriting Agreement") to purchase from the Depositor the
respective principal or notional amounts of Certificates set forth opposite
their names below.
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITER PRINCIPAL OR NOTIONAL
AMOUNT
<S> <C>
Prudential Securities Incorporated......... $
--------------------------
$
- ---------------------...................... --------------------------
Total............................. $
</TABLE>
The Offered Certificates will be offered by the Underwriters [at fixed
prices as stated on this cover page of this Prospectus Supplement.] The
Underwriters may effect such transactions by selling such Certificates to or
through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriters or
purchasers of the Certificates for whom they may act as agent. Any dealers that
participate with the Underwriters in the distribution of the Certificates
purchased by the Underwriters may be deemed to be underwriters, and any
discounts or commissions received by them or the Underwriters and any profit on
the resale of Certificates by them or the Underwriters may be deemed to be
underwriting discounts or commissions under the 1933 Act.
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and the Underwriters
will be obligated to purchase all of the Certificates if any are purchased. The
Depositor has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the 1933 Act, or contribute to payments that the
Underwriters may be required to make in respect thereof.
The Depositor also has been advised by the Underwriters that they
currently expect to make a market in the Certificates, however, they have no
obligation to do so. Any market making may be discontinued at any time, and
there can be no assurance that an active public market for the Certificates
will develop. For further information regarding any offer or sale of the
Certificates pursuant to this Prospectus Supplement and the Prospectus, see
"PLAN OF DISTRIBUTION" in the Prospectus.
USE OF PROCEEDS
The net proceeds from the sale of Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans, to repay
indebtedness that has been incurred to obtain funds to acquire the Mortgage
Loans and to pay costs of structuring, issuing and underwriting the
Certificates.
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LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and for
the Underwriters by O'Melveny & Myers LLP.
RATINGS
It is a condition to the issuance of the Certificates that the Class
A-1, Class A-2, Class A-3 and Class A-EC Certificates each be rated "AAA" by
________ and "___________" by _________ ; each of the Class B Certificates be
rated "AA" by ________ and "___________ " by _________ ; the Class C
Certificates be rated "A" by ________ and "__________" by _________ ; the
Class D Certificates be rated "BBB+" by ________ and "___________" by
_________ ; the Class E Certificates be rated "BBB" by ____________ and
"__________" by ________"; the Class F Certificates be rated "BBB-" by _______
and "__________" by ________; the Class G Certificates be rated "BB" by ______
and "___________" by ; the Class H Certificates be rated "BB-" by ________ and
"_______" by ________ ; and the Class J Certificates be rated "B" by ________
and "__________" by ________ . The Class K-1, Class K-2, Class R-I, Class R-II
and Class R-III Certificates are unrated.
The Rating Agencies' ratings on mortgage pass-through certificates
address the likelihood of the receipt by holders of payments to which they are
entitled by the Rated Final Distribution Date. The Rating Agencies' ratings
take into consideration the credit quality of the mortgage pool, structural and
legal aspects associated with the Certificates, and the extent to which the
payment stream in the mortgage pool is adequate to make payments required under
the Certificates. Ratings on mortgage pass-through certificates do not,
however, represent an assessment of the likelihood, timing or frequency of
principal prepayments by borrowers or the degree to which such prepayments
(both voluntary and involuntary) might differ from those originally
anticipated. The security ratings do not address the possibility that
Certificateholders might suffer a lower than anticipated yield. In addition,
ratings on mortgage pass-through certificates do not address the likelihood of
receipt of Prepayment Premiums or the timing of the receipt thereof or the
likelihood of collection by the Master Servicer of Default Interest. In
general, the ratings thus address credit risk and not prepayment risk. As
described herein, the amounts payable with respect to the Class A-EC
Certificates consist only of interest. If the entire pool of Mortgage Loans
were to prepay in the initial month, with the result that the Class A-EC
Certificateholders receive only a single month's interest and thus suffer a
nearly complete loss of their investment, all amounts "due" to such holders
will nevertheless have been paid, and such result is consistent with the "AAA"
and "_______" ratings received on the Class A-EC Certificates. The Class A-EC
Certificate Notional Balance upon which interest is calculated is reduced by
the allocation of Realized Losses and Prepayments, whether voluntary or
involuntary. The Rating does not address the timing or magnitude of reductions
of such Notional Balance, but only the obligation to pay interest timely on the
Notional Balance as so reduced from time to time. Accordingly, the ratings of
the Class A-EC Certificates should be evaluated independently from similar
ratings on other types of securities.
There can be no assurance as to whether any rating agency not
requested to rate the Certificates will nonetheless issue a rating and, if so,
what such rating would be. A rating assigned to the Certificates by a rating
agency that has not been requested by the Depositor to do so may be lower than
the rating assigned by the Rating Agencies pursuant to the Depositor's request.
The rating of the Certificates should be evaluated independently from
similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency.
S-129
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
Definitions Page
1933 Act.......................................................... 5
Annual Debt Service............................................... 53
Anticipated Loss..................................................101
Appraised LTV..................................................... 53
Appraised Value................................................... 53
Assumed Maturity Date............................................. 2
Assumed Scheduled Payment......................................... 70
Auction Fees...................................................... 81
Auction Valuation Date............................................ 23
Available Funds................................................... 64
Available Funds Allocation........................................ 70
Balloon Amount.................................................... 53
Balloon Balance................................................... 41
Balloon Loans..................................................... 53
Balloon LTV....................................................... 36
Balloon Payment................................................... 89
Beneficial Owners................................................. 82
Book-Entry Certificate............................................ 82
Business Day...................................................... 18
Cash Flow......................................................... 52
Casualty.......................................................... 45
Certificate Balance............................................... 16
Certificate Registrar............................................. 85
Class A-EC Pass-Through Rate...................................... 67
Class A-EC Excess Interest........................................ 67
Class A-EC Notional Balance....................................... 67
Class A-EC Notional Component A................................... 67
Class Interest Distribution Amount................................ 66
Closing Date...................................................... 9
Code.............................................................. 25
Collection Account................................................103
Collection Period................................................. 66
Commission........................................................ 5
Condemnation...................................................... 46
Condemnation Proceeds............................................. 65
Congregate Care Loan.............................................. 38
Congregate Care Properties........................................ 38
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<PAGE>
Constant Prepayment Rate.......................................... 91
Corrected Mortgage Loan...........................................116
CPR............................................................... 91
Cross-Collateralized Loans........................................ 34
Cut-off Date...................................................... 5
Cut-off Date Principal Balance.................................... 11
Debt Service Coverage Ratio....................................... 11
Default Interest.................................................. 66
Default Rate...................................................... 66
Definitive Certificate............................................ 82
Delivery Date..................................................... 2
Depositor......................................................... 3
Depository........................................................ 18
Determination Date................................................ 66
Disposition Fee...................................................115
Disqualified Organization.........................................127
Distribution Account..............................................104
Distribution Date................................................. 18
DSCR.............................................................. 53
DTC............................................................... 2
Due Date.......................................................... 18
Eligible Bank.....................................................105
ERISA............................................................. 25
Extension Advisor.................................................108
Final Recovery Determination...................................... 77
Fiscal Agent...................................................... 4
Form 8-K.......................................................... 60
Indirect Participants............................................. 83
Industrial Loan................................................... 39
Industrial Properties............................................. 39
Initial Pool Balance.............................................. 38
Insurance Proceeds................................................ 65
Interest Accrual Period........................................... 69
Interested Person.................................................110
Liquidation Proceeds.............................................. 65
Loan-to-Value Ratio............................................... 49
Loan Purchase Closing Date........................................ 40
Lockout Period.................................................... 42
LTV............................................................... 53
Major Tenant...................................................... 35
Master Servicer................................................... 4
Master Servicer Mortgage File.....................................100
S-131
<PAGE>
Mini Warehouse & Office/Warehouse Loan............................ 40
Mini Warehouse & Office/Warehouse Property........................ 49
Mini Warehouse Loan............................................... 39
Mini Warehouse Properties......................................... 39
Mortgage Loans.................................................... 38
Mortgage Pool..................................................... 3
Mortgage Rate..................................................... 41
Mortgaged Property................................................ 3
Multifamily Loan.................................................. 39
Multifamily Property.............................................. 39
Net Collections...................................................116
Net Mortgage Rate................................................. 69
Net Operating Income.............................................. 50
Net REO Proceeds.................................................. 66
NOI............................................................... 52
Notional Balances................................................. 64
Nursing Home Loan................................................. 39
Nursing Home Properties........................................... 39
Occupancy Rate.................................................... 53
Offered Certificates............................................. 1
Office Loan....................................................... 38
Office Properties................................................. 38
Office/Retail Loan................................................ 39
Office/Retail Properties.......................................... 39
OID...............................................................121
P&I Advance....................................................... 11
P&I Certificates.................................................. 3
Participants...................................................... 83
Paying Agent...................................................... 83
Percentage Interest............................................... 64
Permitted Encumbrances............................................ none
Permitted Investments.............................................105
Plans............................................................. 26
Pooled Principal Distribution Amount.............................. 21
Pooling and Servicing Agreement................................... 4
Prepayment Interest Shortfall..................................... 67
Prepayment Interest Surplus....................................... 68
Prepayment Premium................................................ 42
Principal Prepayments............................................. 66
Private Certificates.............................................. 17
Property Advances.................................................102
Rated Final Distribution Date..................................... 2
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Realized Loss..................................................... 77
Record Date....................................................... 63
Regular Certificates.............................................. 1
REMIC............................................................. 4
REMIC I........................................................... 4
REMIC II.......................................................... 4
REMIC III......................................................... 4
Remittance Date...................................................101
REO Account....................................................... 63
REO Mortgage Loan................................................. 70
REO Property...................................................... 63
Repurchase Price.................................................. 65
Reserve Accounts.................................................. 40
Residual Certificates............................................. 1
Restricted Group..................................................125
Retail, Anchored Properties....................................... 39
Retail, Anchored Loan............................................. 39
Retail, Single Tenant Loan........................................ 39
Retail, Single Tenant Properties.................................. 39
Retail, Unanchored Loan........................................... 38
Retail, Unanchored Properties..................................... 39
Scenarios......................................................... 92
Scheduled Final Distribution Date................................. 78
Scheduled Principal Balance....................................... 77
Senior Certificates............................................... 3
Senior Principal Distribution Cross-Over Date..................... 75
Seriously Delinquent Loan.........................................102
Servicing Fee.....................................................113
Servicing Fee Rate................................................114
Similar Law.......................................................112
SMMEA.............................................................127
Special Servicer.................................................. 1
Special Servicing Fee.............................................115
Specially Serviced Mortgage Loan..................................102
Subordinate Certificates.......................................... 3
Trust Fund........................................................ 3
Trustee........................................................... 4
Trustee Mortgage File............................................. 97
Underwriters...................................................... 2
Underwriting Agreement............................................128
Underwritten Cash Flow............................................ 50
Underwritten DSCR................................................. 53
Underwritten NOI.................................................. 50
Unscheduled Payments.............................................. 65
Updated Appraisal.................................................107
S-133
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Voting Rights..................................................... 84
Weighted Average Net Mortgage Rate................................ 69
Weighted Average Unmodified Net Mortgage Rate..................... 69
Workout Fee....................................................... 46
Zoning Laws....................................................... 34
S-134
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that the information herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the affairs of the Depositor since such date.
S-135
<PAGE>
$-----------------
Commercial Mortgage
Pass-Through Certificates
Series
PROSPECTUS SUPPLEMENT
Prudential Securities Secured Financing Incorporated
________________, 1998
S-136
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
AVAILABLE INFORMATION.................................................. S-5
EXECUTIVE SUMMARY...................................................... S-5
SUMMARY OF TERMS....................................................... S-16
RISK FACTORS........................................................... S-27
Investment in Commercial and Multifamily Loans................ S-27
Prepayment and Yield Considerations........................... S-35
Limited Liquidity............................................. S-38
DESCRIPTION OF THE MORTGAGE POOL....................................... S-38
General ..................................................... S-38
Security for the Mortgage Loans............................... S-40
Certain Terms and Conditions of the Mortgage Loans............ S-41
Certain Characteristics of the Mortgage Pool.................. S-46
Changes in Mortgage Pool Characteristics...................... S-59
Representations and Warranties; Repurchase.................... S-61
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION.................... S-62
MORTGAGE LOAN SELLERS.................................................. S-62
DESCRIPTION OF THE CERTIFICATES........................................ S-62
General ..................................................... S-62
Distributions................................................. S-63
Scheduled Final Distribution Date............................. S-78
Subordination................................................. S-79
Additional Rights of the Residual Certificates................ S-79
Early Termination............................................. S-80
Auction ..................................................... S-80
Registration and Transfer..................................... S-85
YIELD AND MATURITY CONSIDERATIONS...................................... S-86
Yield Considerations.......................................... S-86
Weighted Average Life......................................... S-91
THE POOLING AND SERVICING AGREEMENT.................................... S-97
General ..................................................... S-97
Assignment of the Mortgage Loans.............................. S-97
Servicing of the Mortgage Loans; Collection of Payments....... S-100
Advances ..................................................... S-101
Accounts ..................................................... S-103
Withdrawals from the Collection Account....................... S-105
Enforcement of "Due-on-Sale" and "Due-on-Encumbrance" Clauses. S-106
S-137
<PAGE>
Inspections; Appraisals....................................... S-107
Realization Upon Mortgage Loans............................... S-107
Amendments, Modifications and Waivers......................... S-111
The Trustee................................................... S-111
Duties of the Trustee......................................... S-112
The Fiscal Agent.............................................. S-113
Servicing Compensation and Payment of Expenses................ S-113
Special Servicing............................................. S-114
Reports to Certificateholders; Available Information.......... S-117
MATERIAL FEDERAL INCOME TAX CONSEQUENCES............................... S-120
ERISA CONSIDERATIONS................................................... S-122
Certain Requirements Under ERISA.............................. S-123
Administrative Exemptions..................................... S-124
Exempt Plan................................................... S-127
Unrelated Business Taxable Income; Residual Certificates...... S-127
LEGAL INVESTMENT....................................................... S-127
PLAN OF DISTRIBUTION................................................... S-128
USE OF PROCEEDS........................................................ S-128
LEGAL MATTERS.......................................................... S-129
RATINGS .............................................................. S-129
S-138
<PAGE>
EXPLANATORY NOTE
Immediately following this explanatory note there are eight
separate sets of alternative pages labeled in the upper right corner as
follows: "Version 1: Multifamily Properties", "Version 2: Office Properties",
"Version 3: Retail Properties", "Version 4: Hotel and Motel Properties",
"Version 5: Health Care-Related Properties", "Version 6: Industrial
Properties", "Version 7: Warehouse, Mini-Warehouse and Self-Storage
Facilities", "Version 8: Mobile Home Parks". Each such "version" contains
inserts to the Prospectus and each Prospectus Supplement included herein
showing the text specific to a material concentration in each of the eight
specified types of properties (i.e. multifamily properties, office properties,
retail properties, hotel and motel properties, health care-related facilities,
industrial properties, warehouse, mini-warehouse and self-storage facilities,
and mobile home parks).
The above described eight "versions" of changes to the
Prospectus and each Prospectus Supplement included herein are being filed with
this Registration Statement for purposes of identifying changes that will be
made thereto as a result of a material concentration in any of the eight
specified types of properties in any specific securitization transaction.
Depending on the types of properties that involve a material concentration in
any particular transaction, the respective changes to the Prospectus and each
Prospectus Supplement from one or more of the above described "versions" would
be included in the specific Prospectus and Prospectus Supplement for that
transaction. When multiple sets of inserts are to be included in the specific
Prospectus and Prospectus Supplement for any particular transaction, such
inserts will be included in each appropriate location in an order that goes
from highest material concentration to lowest material concentration (provided
that single-sentence inserts that simply identify properties that involve a
material concentration may be combined but will still present such properties
in the aforementioned order). The specific Prospectus and Prospectus
Supplement for each particular transaction reflecting such changes, together
with the corresponding Prospectus Supplement, would be filed at the time and
in the manner provided by Rule 424 under the Securities Act of 1933.
<PAGE>
Version 1: Multifamily Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Multifamily properties consisting of multiple rental or
cooperatively owned dwellings will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.
S-2
<PAGE>
Version 1: Multifamily Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED ___________, 1998.
PROSPECTUS
PRUDENTIAL SECURITIES SECURED FINANCING CORP.
Depositor
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
Prudential Securities Secured Financing Corp. (the "Depositor") from time to
time will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Offered Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Offered Certificates, together with
any other Commercial/Multifamily Mortgage Pass-Through Certificates of such
Series, are collectively referred to herein as the "Certificates."
The Certificates of each Series will evidence beneficial ownership interests
in a trust fund (the "Trust Fund") to be established by the Depositor. The
Certificates of a Series may be divided into two or more "Classes," which may
have different interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights of the
holders of certain Classes to receive principal and interest may be
subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on fee simple or leasehold
interests in commercial real estate properties, multifamily residential
properties and/or mixed residential/commercial properties and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any Credit Enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates (including private mortgage-pass-through
certificates, Certificates issued or guaranteed by FHLMC, FNMA or GNMA or
mortgage pass-through certificates previously created by the Depositor). Such
mortgage loans, participation interests, installment contracts and mortgage
pass-through certificates are hereinafter referred to as the "Mortgage Loans."
[** Multifamily properties consisting of multiple rental or cooperatively
owned dwelling will represent security for a material concentration of the
Mortgage Loans (and the underlying the MBS included in a particular Trust
Fund) constituting the Trust Fund for any Series, based on principal balance
at the time such Series is issued.**]
S-3
<PAGE>
Version 1: Multifamily Properties
The Mortgage Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity and others
will provide for balloon payments at maturity. The Mortgage Loans will provide
for recourse against only the Mortgaged Properties or provide for recourse
against the other assets of the obligors thereunder. The Mortgage Loans will
be newly originated or seasoned, and will be acquired by the Depositor either
directly or through one or more affiliates. Information regarding each Series
of Certificates, including interest and principal payment provisions for each
Class, as well as information regarding the size, composition and other
characteristics of the Mortgage Pool relating to such Series, will be
furnished in the related Prospectus Supplement. The Mortgage Loans will be
serviced by a Master Servicer identified in the related Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER "RISK
FACTORS" AT PAGE 9 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OF
THE OFFERED CERTIFICATES.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all of a specified portion of the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as
a "real estate mortgage investment conduit" (a "REMIC"). If such election is
made, each Class of Certificates of a Series will be either Regular
Certificates or Residual Certificates, as specified in the related Prospectus
Supplement.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result
of such offering or, if it does develop, that it will provide the holders of
Certificates with liquidity or that it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF THE CERTIFICATES OFFERED HEREBY UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is ____________, 1998.
S-4
<PAGE>
Version 1: Multifamily Properties
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
RISKS PARTICULAR TO MULTIFAMILY RENTAL PROPERTIES.
Adverse economic conditions, either local, regional or
national, may limit the amount of rent that can be charged for rental units,
may adversely affect tenants' ability to pay rent and may result in a
reduction in timely rent payments or a reduction in occupancy levels without a
corresponding decrease in expenses. Occupancy and rent levels may also be
affected by construction of additional housing units, local military base
closings, company relocations and closings and national and local politics,
including current or future rent stabilization and rent control laws and
agreements. Multifamily apartment units are typically leased on a short-term
basis, and consequently, the occupancy rate of a multifamily rental property
may be subject to rapid decline, including for some of the foregoing reasons.
In addition, the level of mortgage interest rates may encourage tenants in
multifamily rental properties to purchase single-family housing rather than
continue to lease housing or the characteristics of a neighborhood may change
over time or in relation to newer developments. Further, the cost of operating
a multifamily rental property may increase, including the cost of utilities
and the costs of required capital expenditures. Also, multifamily rental
properties may be subject to rent control laws which could impact the future
cash flows of such properties.
Certain multifamily rental properties are eligible to
receive low-income housing tax credits pursuant to Section 42 of the Code
("Section 42 Properties"). However, rent limitations associated therewith may
adversely affect the ability of the applicable borrowers to increase rents to
maintain such Mortgaged Properties in proper condition during periods of rapid
inflation or declining market value of such Mortgaged Properties. In addition,
the income restrictions on tenants imposed by Section 42 of the Code may
reduce the number of eligible tenants in such Mortgaged Properties and result
in a reduction in occupancy rates applicable thereto. Furthermore, some
eligible tenants may not find any differences in rents between the Section 42
Properties and other multifamily rental properties in the same area to be a
sufficient economic incentive to reside at a Section 42 Property, which may
have fewer amenities or otherwise be less attractive as a residence. All of
these conditions and events may increase the possibility that a borrower may
be unable to meet its obligations under its Mortgage Loan.
RISKS PARTICULAR TO COOPERATIVELY-OWNED APARTMENT BUILDINGS.
Generally, a tenant-shareholder of a cooperative corporation
must make a monthly maintenance payment to the cooperative corporation that
owns the subject apartment building representing such tenant-shareholder's pro
rata share of the corporation's payments in respect of the Mortgage Loan
secured by, and all real property taxes, maintenance expenses and other
capital and ordinary expenses with respect to, such property, less any other
income that the cooperative corporation may realize. Adverse economic
conditions, either local regional or national, may adversely affect
tenant-shareholders' ability to make required maintenance payments, either
because such adverse economic conditions have impaired the individual
financial conditions of such tenant-shareholders or their ability to sub-let
the subject apartments. To the extent that a large number of
tenant-shareholders in a cooperatively-owned apartment building rely on
sub-letting their apartments to make maintenance payments, the lender on any
mortgage loan secured by such building will be subject to all the risks that
it would have in connection with lending on the security of a multifamily
rental property. See "--Risks Particular to Multifamily Rental Properties"
above. In addition, if in connection with any cooperative conversion of an
apartment building, the sponsor holds the shares allocated to a large number
of the apartment units, any lender secured by a mortgage on such building will
be subject to a risk associated with such sponsor's creditworthiness.
S-5
<PAGE>
Version 1: Multifamily Properties
[The following is to be inserted in the Prospectus
immediately following "The Mortgage Pools- -General":]
MORTGAGE LOANS SECURED BY MULTIFAMILY RENTAL PROPERTIES.
Significant factors determining the value and successful
operation of a multifamily rental property are the location of the property,
the number of competing residential developments in the local market (such as
apartment buildings, manufactured housing communities and site-built single
family homes), the physical attributes of the multifamily building (such as
its age and appearance) and state and local regulations affecting such
property. In addition, the successful operation of an apartment building will
depend upon other factors such as its reputation, the ability of management to
provide adequate maintenance and insurance, and the types of services it
provides.
Certain states regulate the relationship of an owner and its
tenants. Commonly, these laws require a written lease, good cause for
eviction, disclosure of fees, and notification to residents of changed land
use, while prohibiting unreasonable rules, retaliatory evictions, and
restrictions on a resident's choice of unit vendors. Apartment building owners
have been the subject of suits under state "Unfair and Deceptive Practices
Acts" and other general consumer protection statutes for coercive, abusive or
unconscionable leasing and sales practices. A few states offer more
significant protection. For example, there are provisions that limit the basis
on which a landlord may terminate a tenancy or increase its rent or prohibit a
landlord from terminating a tenancy solely by reason of the sale of the
owner's building.
In addition to state regulation of the landlord-tenant
relationship, numerous counties and municipalities impose rent control on
apartment buildings. These ordinances may limit rent increases to fixed
percentages, to percentages of increases in the consumer price index, to
increases set or approved by a governmental agency, or to increases determined
through mediation or binding arbitration. In many cases, the rent control laws
do not provide for decontrol of rental rates upon vacancy of individual units.
Any limitations on a borrower's ability to raise property rents may impair
such borrower's ability to repay its Mortgage Loan from its net operating
income or the proceeds of a sale or refinancing of the related Mortgaged
Property.
Adverse economic conditions, either local, regional or
national, may limit the amount of rent that can be charged, may adversely
affect tenants' ability to pay rent and may result in a reduction in timely
rent payments or a reduction in occupancy levels. Occupancy and rent levels
may also be affected by construction of additional housing units, local
military base closings, company relocations and closings and national and
local politics, including current or future rent stabilization and rent
control laws and agreements. Multifamily apartment units are typically leased
on a short-term basis, and consequently, the occupancy rate of a multifamily
rental property may be subject to rapid decline, including for some of the
foregoing reasons. In addition, the level of mortgage interest rates may
encourage tenants to purchase single-family housing rather than continue to
lease housing. The location and construction quality of a particular building
may affect the occupancy level as well as the rents that may be charged for
individual units. The characteristics of a neighborhood may change over time
or in relation to newer developments.
Mortgage Loans Secured by Cooperatively-Owned Apartment
Buildings. A cooperative apartment building and the land under the building
are owned or leased by a non-profit cooperative corporation. The cooperative
corporation is in turn owned by tenant-shareholders who, through ownership of
stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific apartments or units. Generally, a tenant-shareholder of a
cooperative corporation must make a monthly maintenance payment to the
corporation representing such tenant-shareholder's pro rata share of the
corporation's payments in respect of any mortgage loan secured by, and all
real property taxes, maintenance expenses and other capital and ordinary
expenses with respect to, the real property owned by
S-6
<PAGE>
Version 1: Multifamily Properties
such cooperative corporation, less any other income that the cooperative
corporation may realize. Such payments to the cooperative corporation are in
addition to any payments of principal and interest the tenant-shareholder must
make on any loans of the tenant-shareholder secured by its shares in the
corporation.
A cooperative corporation is directly responsible for
building management and payment of real estate taxes and hazard and liability
insurance premiums. A cooperative corporation's ability to meet debt service
obligations on a mortgage loan secured by the real property owned by such
corporation, as well as all other operating expenses of such property, is
dependent primarily upon the receipt of maintenance payments from the
tenant-shareholders, together with any rental income from units or commercial
space that the cooperative corporation might control. Unanticipated
expenditures may in some cases have to be paid by special assessments on the
tenant-shareholders. A cooperative corporation's ability to pay the amount of
any balloon payment due at the maturity of a mortgage loan secured by the real
property owned by such cooperative corporation depends primarily on its
ability to refinance the mortgage loan. Neither the Depositor nor any other
person will have any obligation to provide refinancing for any of the Mortgage
Loans.
In a typical cooperative conversion plan, the owner of a
rental apartment building contracts to sell the building to a newly formed
cooperative corporation. Shares are allocated to each apartment unit by the
owner or sponsor, and the current tenants have a certain period to subscribe
at prices discounted from the prices to be offered to the public after such
period. As part of the consideration for the sale, the owner or sponsor
receives all the unsold shares of the cooperative corporation. The sponsor
usually also controls the corporation's board of directors and management for
a limited period of time.
Each purchaser of shares in the cooperative corporation
generally enters into a long-term proprietary lease which provides the
shareholder with the right to occupy a particular apartment unit. However,
many cooperative conversion plans are "non-eviction" plans. Under a
non-eviction plan, a tenant at the time of conversion who chooses not to
purchase shares is entitled to reside in the unit as a subtenant from the
owner of the shares allocated to such apartment unit. Any applicable rent
control or rent stabilization laws would continue to be applicable to such
subtenancy, and the subtenant may be entitled to renew its lease for an
indefinite number of times, with continued protection from rent increases
above those permitted by any applicable rent control and rent stabilization
laws. The shareholder is responsible for the maintenance payments to the
cooperative without regard to its receipt or non-receipt of rent from the
subtenant, which may be lower than maintenance payments on the unit.
Newly-formed cooperative corporations typically have the greatest
concentration of non-tenant shareholders.
S-7
<PAGE>
Version 1: Multifamily Properties
[The following is to be inserted in the Prospectus
Supplement immediately following "Risk Factors--Limited Recourse":]
RISKS PARTICULAR TO MULTIFAMILY PROPERTIES.
_____ of the Mortgage Loans, which represent ___% of the
Initial Pool Balance, are secured by Mortgages on fee and/or leasehold
interests in multifamily properties. Mortgage Loans that are secured by liens
on such types of properties are exposed to certain unique risks. See "Risks
Particular to Multifamily Rental Properties," "Risks Particular to
Cooperatively-Owned Apartment Buildings," and "Mortgage Loans Secured by
Multifamily Rental Properties".
S-8
<PAGE>
Version 2: Office Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Office properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.
S-9
<PAGE>
Version 2: Office Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED ___________, 1998.
PROSPECTUS
PRUDENTIAL SECURITIES SECURED FINANCING CORP.
Depositor
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
Prudential Securities Secured Financing Corp. (the "Depositor") from time to
time will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Offered Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Offered Certificates, together with
any other Commercial/Multifamily Mortgage Pass-Through Certificates of such
Series, are collectively referred to herein as the "Certificates."
The Certificates of each Series will evidence beneficial ownership interests
in a trust fund (the "Trust Fund") to be established by the Depositor. The
Certificates of a Series may be divided into two or more "Classes," which may
have different interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights of the
holders of certain Classes to receive principal and interest may be
subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on fee simple or leasehold
interests in commercial real estate properties, multifamily residential
properties and/or mixed residential/commercial properties and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any Credit Enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates (including private mortgage-pass-through
certificates, Certificates issued or guaranteed by FHLMC, FNMA or GNMA or
mortgage pass-through certificates previously created by the Depositor). Such
mortgage loans, participation interests, installment contracts and mortgage
pass-through certificates are hereinafter referred to as the "Mortgage Loans."
[** Office properties will represent security for a material concentration of
the Mortgage Loans (and the mortgage loans underlying the MBS included, in a
particular Trust Fund) constituting the Trust Fund for any Series, based on
principal balance at the time such Series is issued.**]
The Mortgage Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity and others
will provide for balloon payments at maturity. The Mortgage Loans will provide
for recourse against only the Mortgaged Properties or provide for recourse
against the other assets of the obligors thereunder.
S-10
<PAGE>
Version 2: Office Properties
The Mortgage Loans will be newly originated or seasoned, and will be acquired
by the Depositor either directly or through one or more affiliates.
Information regarding each Series of Certificates, including interest and
principal payment provisions for each Class, as well as information regarding
the size, composition and other characteristics of the Mortgage Pool relating
to such Series, will be furnished in the related Prospectus Supplement. The
Mortgage Loans will be serviced by a Master Servicer identified in the related
Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER "RISK
FACTORS" AT PAGE 9 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OF
THE OFFERED CERTIFICATES.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all of a specified portion of the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as
a "real estate mortgage investment conduit" (a "REMIC"). If such election is
made, each Class of Certificates of a Series will be either Regular
Certificates or Residual Certificates, as specified in the related Prospectus
Supplement.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result
of such offering or, if it does develop, that it will provide the holders of
Certificates with liquidity or that it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF THE CERTIFICATES OFFERED HEREBY UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is ____________, 1998.
S-11
<PAGE>
Version 2: Office Properties
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
RISKS PARTICULAR TO OFFICE PROPERTIES.
In addition to risks generally associated with real estate,
Mortgage Loans secured by office properties are also affected significantly by
adverse changes in population and employment growth (which generally creates
demand for office space), local competitive conditions (such as the supply of
office space or the existence or construction of new competitive office
buildings), the quality and management philosophy of management, the
attractiveness of the properties to tenants and their customers or clients,
the attractiveness of the surrounding neighborhood and the need to make major
repairs or improvements to satisfy the needs of tenants. Office properties
that are not equipped to accommodate the needs of modern business may become
functionally obsolete and thus non-competitive. In addition, office properties
may be adversely affected by an economic decline in the businesses operated by
their tenants. Such decline may result in one or more significant tenants
ceasing operations at such locations (which may occur on account of a
voluntary decision not to renew a lease, bankruptcy or insolvency of such
tenants, such tenants' general cessation of business activities or for other
reasons). The risk of such an economic decline is increased if revenue is
dependent on a single tenant or if there is a significant concentration of
tenants in a particular business or industry.
S-12
<PAGE>
Version 2: Office Properties
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
MORTGAGE LOANS SECURED BY OFFICE PROPERTIES.
Significant factors affecting the value of office properties
include the quality of the tenants in the building, the physical attributes of
the building in relation to competing buildings, the location of the building
with respect to the central business district or population centers,
demographic trends within the metropolitan area to move away from or towards
the central business district, social trends combined with space management
trends (which may change towards options such as telecommuting ), tax
incentives offered to businesses by cities or suburbs adjacent to or near the
city where the building is located and the strength and stability of the
market area as a desirable business location. Office properties may be
adversely affected by an economic decline in the businesses operated by their
tenants. The risk of such an economic decline is increased if revenue is
dependent on a single tenant or if there is a significant concentration of
tenants in a particular business or industry.
Repayment of the related Mortgage Loans will be affected by
the expiration of space leases and the ability of the respective borrowers to
renew or relet the space on comparable terms. Even if vacated space is
successfully relet, the costs associated with reletting, including tenant
improvements, leasing commissions and free rent, could be substantial and
could reduce cash flow from the retail properties. The correlation between the
success of tenant businesses and property value is increased when the property
is a single tenant property.
Office properties are also subject to competition with other
office properties in the same market. Competition is affected by a building's
age, condition, design (including floor sizes and layout), access to
transportation, availability of parking and ability to offer certain amenities
to its tenants (including sophisticated building systems, such as fiberoptic
cables, satellite communications or other base building technological
features). Office properties that are not equipped to accommodate the needs of
modern business may become functionally obsolete and thus non-competitive.
The success of an office property also depends on the local
economy. A company's decision to locate office headquarters in a given area,
for example, may be affected by such factors as labor cost and quality, tax
environment and quality of life matters, such as schools and cultural
amenities. A central business district may have a substantially different
economy from that of a suburb. The local economy will affect an office
property's ability to attract stable tenants on a consistent basis. In
addition, the cost of refitting office space for a new tenant is often higher
than for other property types.
S-13
<PAGE>
Version 2: Office Properties
[The following is to be inserted in the Prospectus
Supplement immediately following "Risk Factors--Limited Recourse":]
RISKS PARTICULAR TO OFFICE PROPERTIES.
_____ of the Mortgage Loans, which represent _____ % of the
Initial Pool Balance, are secured by Mortgages on fee and/or leasehold
interests in office properties. Mortgage Loans that are secured by liens on
such types of properties are exposed to certain unique risks. See "Risks
Particular to Office Properties"; and "Mortgage Loans Secured by Office
Properties" in the Prospectus.
S-14
<PAGE>
Version 3: Retail Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Retail properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying any MBS
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.
S-15
<PAGE>
Version 3: Retail Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED _________, 1998.
PROSPECTUS
PRUDENTIAL SECURITIES SECURED FINANCING CORP.
Depositor
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
Prudential Securities Secured Financing Corp. (the "Depositor") from time to
time will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Offered Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Offered Certificates, together with
any other Commercial/Multifamily Mortgage Pass-Through Certificates of such
Series, are collectively referred to herein as the "Certificates."
The Certificates of each Series will evidence beneficial ownership interests
in a trust fund (the "Trust Fund") to be established by the Depositor. The
Certificates of a Series may be divided into two or more "Classes," which may
have different interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights of the
holders of certain Classes to receive principal and interest may be
subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on fee simple or leasehold
interests in commercial real estate properties, multifamily residential
properties and/or mixed residential/commercial properties and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any Credit Enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates (including private mortgage-pass-through
certificates, Certificates issued or guaranteed by FHLMC, FNMA or GNMA or
mortgage pass-through certificates previously created by the Depositor). Such
mortgage loans, participation interests, installment contracts and mortgage
pass-through certificates are hereinafter referred to as the "Mortgage Loans."
[** Retail properties will represent security for a material concentration of
the Mortgage Loans (and the mortgage loans underlying any MBS included, in a
particular Trust Fund) constituting the Trust Fund for any Series, based on
principal balance at the time such Series is issued.**]
The Mortgage Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity and others
will provide for balloon payments at maturity. The Mortgage Loans will provide
for recourse against only the Mortgaged Properties or provide for recourse
against the other assets of the obligors thereunder. The Mortgage Loans will
be newly originated or seasoned, and will be acquired by the Depositor either
directly or through one or more affiliates. Information regarding each Series
of Certificates, including interest and principal payment provisions
S-16
<PAGE>
Version 3: Retail Properties
for each Class, as well as information regarding the size, composition and
other characteristics of the Mortgage Pool relating to such Series, will be
furnished in the related Prospectus Supplement. The Mortgage Loans will be
serviced by a Master Servicer identified in the related Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER "RISK
FACTORS" AT PAGE 9 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OF
THE OFFERED CERTIFICATES.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all of a specified portion of the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as
a "real estate mortgage investment conduit" (a "REMIC"). If such election is
made, each Class of Certificates of a Series will be either Regular
Certificates or Residual Certificates, as specified in the related Prospectus
Supplement.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result
of such offering or, if it does develop, that it will provide the holders of
Certificates with liquidity or that it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF THE CERTIFICATES OFFERED HEREBY UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is ____________, 1998.
S-17
<PAGE>
Version 3: Retail Properties
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
RISKS PARTICULAR TO RETAIL PROPERTIES.
In addition to risks generally associated with real estate,
Mortgage Loans secured by retail properties are also affected significantly by
adverse changes in consumer spending patterns, local competitive conditions
(such as the supply of retail space or the existence or construction of new
competitive shopping centers or shopping malls), alternative forms of
retailing (such as direct mail, video shopping networks and selling through
the Internet, which reduce the need for retail space by retail companies), the
quality and management philosophy of management, the attractiveness of the
properties and the surrounding neighborhood to tenants and their customers,
the public perception of the safety of customers (at shopping malls and
shopping centers, for example) and the need to make major repairs or
improvements to satisfy the needs of major tenants.
Retail properties may be adversely affected if an anchor or
other significant tenant ceases operations at such locations (which may occur
on account of a decision not to renew a lease, bankruptcy or insolvency of
such tenant, such tenant's general cessation of business activities or for
other reasons). Significant tenants at a shopping center play an important
part in generating customer traffic and making the property a desirable
location for other tenants at such property. In addition, certain tenants at
retail properties may be entitled to terminate their leases if an anchor
tenant ceases operations at such property.
S-18
<PAGE>
Version 3: Retail Properties
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
MORTGAGE LOANS SECURED BY RETAIL PROPERTIES.
Retail properties generally derive all or a substantial
percentage of their income from lease payments from commercial tenants. Income
from and the market value of retail properties is dependent on various factors
including, but not limited to, the ability to lease space in such properties,
the ability of tenants to meet their lease obligations, the possibility of a
significant tenant becoming bankrupt or insolvent, as well as fundamental
aspects of real estate such as location and market demographics.
The correlation between the success of tenant businesses and
property value is more direct with respect to retail properties than other
types of commercial property because (a significant component) of the total
rent paid by retail tenants is often tied to a percentage of gross sales.
Declines in tenant sales will cause a corresponding decline in percentage
rents, and may also cause such tenants to become unable to pay their base rent
or other occupancy costs. The default by a tenant under its lease could result
in delays and costs in enforcing the lessor's rights. Repayment of the related
Mortgage Loans will be affected by the expiration of space leases and the
ability of the respective borrowers to renew or relet the space on comparable
terms. Even if vacated space is successfully relet, the costs associated with
reletting, including tenant improvements, leasing commissions and free rent,
could be substantial and could reduce cash flow from the retail properties.
The correlation between the success of tenant businesses and property value is
increased when the property is a single tenant property.
Whether a shopping center is "anchored" or "unanchored" is
also an important distinction. Anchor tenants in shopping centers
traditionally have been a major factor in the public's perception of a
shopping center. The anchor tenants at a shopping center play an important
part in generating customer traffic and making a center a desirable location
for other tenants of the center. The failure of an anchor tenant to renew its
leases, the termination of an anchor tenant's lease, the bankruptcy or
economic decline of an anchor tenant, or the cessation of the business of an
anchor tenant (notwithstanding any continued payment of rent) can have a
material negative effect on the economic performance of a shopping center.
Furthermore, the correlation between the success of tenant businesses and
property value is increased when the property is a single tenant property.
Unlike certain other types of commercial properties, retail
properties also face competition from sources outside a given real estate
market. Catalogue retailers, home shopping networks, telemarketing, selling
through the Internet, and outlet centers all compete with more traditional
retail properties for consumer dollars. Continued growth of these alternative
retail outlets (which are often characterized by lower operating costs) could
adversely affect the retail properties.
S-19
<PAGE>
Version 3: Retail Properties
[The following is to be inserted in the Prospectus
Supplement immediately following "Risk Factors--Limited Recourse":]
RISKS PARTICULAR TO RETAIL PROPERTIES.
_____ of the Mortgage Loans, which represent _____ % of the
Initial Pool Balance, are secured by Mortgages on fee and/or leasehold
interests in retail properties. Mortgage Loans that are secured by liens on
such types of properties are exposed to certain unique risks. See "Mortgage
Loans Secured by Retail Properties" in the Prospectus.
S-20
<PAGE>
Version 4: Hotel and Motel Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Hotel and motel properties will represent security for a
material concentration of the Mortgage Loans (and the mortgage loans
underlying any MBS included in a particular Trust Fund) constituting the Trust
Fund for any Series, based on principal balance at the time such Series is
issued.
S-21
<PAGE>
Version 4: Hotel and Motel Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED _________, 1998.
PROSPECTUS
PRUDENTIAL SECURITIES SECURED FINANCING CORP.
Depositor
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
Prudential Securities Secured Financing Corp. (the "Depositor") from time to
time will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Offered Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Offered Certificates, together with
any other Commercial/Multifamily Mortgage Pass-Through Certificates of such
Series, are collectively referred to herein as the "Certificates."
The Certificates of each Series will evidence beneficial ownership interests
in a trust fund (the "Trust Fund") to be established by the Depositor. The
Certificates of a Series may be divided into two or more "Classes," which may
have different interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights of the
holders of certain Classes to receive principal and interest may be
subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on fee simple or leasehold
interests in commercial real estate properties, multifamily residential
properties and/or mixed residential/commercial properties and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any Credit Enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates (including private mortgage-pass-through
certificates, Certificates issued or guaranteed by FHLMC, FNMA or GNMA or
mortgage pass-through certificates previously created by the Depositor). Such
mortgage loans, participation interests, installment contracts and mortgage
pass-through certificates are hereinafter referred to as the "Mortgage Loans."
[** Hotel and Motel properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying any MBS
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.**]
The Mortgage Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity and others
will provide for balloon payments at maturity. The Mortgage Loans will provide
for recourse against only the Mortgaged Properties or provide for recourse
against the other assets of the obligors thereunder. The Mortgage Loans will
be newly originated or seasoned, and will be acquired by the Depositor either
directly or through one or more affiliates. Information regarding each Series
of Certificates, including interest and principal payment provisions
S-22
<PAGE>
Version 4: Hotel and Motel Properties
for each Class, as well as information regarding the size, composition and
other characteristics of the Mortgage Pool relating to such Series, will be
furnished in the related Prospectus Supplement. The Mortgage Loans will be
serviced by a Master Servicer identified in the related Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER "RISK
FACTORS" AT PAGE 9 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OF
THE OFFERED CERTIFICATES.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all of a specified portion of the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as
a "real estate mortgage investment conduit" (a "REMIC"). If such election is
made, each Class of Certificates of a Series will be either Regular
Certificates or Residual Certificates, as specified in the related Prospectus
Supplement.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result
of such offering or, if it does develop, that it will provide the holders of
Certificates with liquidity or that it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF THE CERTIFICATES OFFERED HEREBY UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is ____________, 1998.
S-23
<PAGE>
Version 4: Hotel and Motel Properties
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
RISKS PARTICULAR TO HOTEL AND MOTEL PROPERTIES.
Hotel and motel properties are subject to operating risks
common to the lodging industry. These risks include, among other things, a
high level of continuing capital expenditures to keep necessary furniture,
fixtures and equipment updated, competition from other hotels and motels,
increases in operating costs (which increases may not necessarily in the
future be offset by increased room rates), dependence on business and
commercial travelers and tourism, increases in energy costs and other expenses
of travel and adverse effects of national, regional and local economic
conditions. These factors could adversely affect the related borrower's
ability to make payments on the related Mortgage Loans. Since limited service
hotels and motels are relatively quick and inexpensive to construct and may
quickly accompany an initially positive value, an over-building of such hotels
and motels could occur in any given region, which would likely adversely
affect occupancy and daily room rates. (The availability of construction
capital is generally independent from the primary drivers of room demand.)
Further, because hotel and motel rooms are generally rented for short periods
of time, hotel and motel properties tend to be more sensitive to adverse
economic conditions and competition than many other commercial properties.
Additionally, the revenues of certain hotels and motels, particularly those
located in regions whose economies depend upon tourism, may be highly seasonal
in nature.
A hotel or motel property may present additional risks as
compared to other commercial property types in that: (i) hotels and motels may
be operated pursuant to franchise, management and operating agreements that
may be terminable by the franchiser, the manager or the operator; (ii) the
transferability of any operating, liquor and other licenses to the entity
acquiring such hotel or motel (either through purchase or foreclosure) is
subject to local law requirements; (iii) it may be difficult to terminate an
ineffective operator of a hotel or motel property subsequent to a foreclosure
of such property; and (iv) future occupancy rates may be adversely affected
by, among other factors, any negative perception of a hotel or motel based
upon its historical reputation.
Hotel and motel properties may be operated pursuant to
franchise agreements. The continuation of franchises is typically subject to
specified operating standards and other terms and conditions. The franchiser
periodically inspects its licensed properties to confirm adherence to its
operating standards. The failure of the hotel or motel property to maintain
such standards or adhere to such other terms and conditions could result in
the loss or cancellation of the franchise license. It is possible that the
franchiser could condition the continuation of a franchise license on the
completion of capital improvements or the making of certain capital
expenditures that the related borrower determines are too expensive or are
otherwise unwarranted in light of general economic conditions or the operating
results or prospects of the affected hotels. In that event, the related
borrower may elect to allow the franchise license to lapse. In any case, if
the franchise is terminated, the related borrower may seek to obtain a
suitable replacement franchise or to operate such hotel or motel property
independently of a franchise license. The loss of a franchise license could
have a material adverse effect upon the operations or the underlying value of
the hotel or motel covered by the franchise because of the loss of associated
name recognition, marketing support and centralized reservation systems
provided by the franchiser.
S-24
<PAGE>
Version 4: Hotel and Motel Properties
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
MORTGAGE LOANS SECURED BY HOTEL AND MOTEL PROPERTIES.
Hotel and motel properties may include full service hotels,
resort hotels with many amenities, limited service hotels, hotels and motels
associated with national franchise chains, hotels and motels associated with
regional franchise chains and hotels that are not affiliated with any
franchise chain but may have their own brand identity. Various factors,
including location, quality and franchise affiliation affect the economic
performance of a hotel or motel. Adverse economic conditions, either local,
regional or national, may limit the amount that can be charged for a room and
may result in a reduction in occupancy levels. The construction of competing
hotels and motels can have similar effects. To meet competition in the
industry and to maintain economic values, continuing expenditures must be made
for modernizing, refurbishing, and maintaining existing facilities prior to
the expiration of their anticipated useful lives. Because hotel and motel
rooms generally are rented for short periods of time, hotels and motels tend
to respond more quickly to adverse economic conditions and competition than do
other commercial properties. Furthermore, the financial strength and
capabilities of the owner and operator of a hotel or motel may have an impact
on quality of service and economic performance. Additionally, the lodging
industry , in certain locations, is seasonal in nature and this seasonality
can be expected to cause periodic fluctuations in room and other revenues,
occupancy levels, room rates and operating expenses. The demand for particular
accommodations may also be affected by changes in travel patterns caused by
changes in energy prices, strikes, relocation of highways, the construction of
additional highways and other factors.
The viability of any hotel or motel property that is part of
a national or regional hotel or motel chain depends in part on the continued
existence and financial strength of the franchiser, the public perception of
the franchise service mark and the duration of the franchise licensing
agreement. The transferability of franchise license agreements may be
restricted and, in the event of a foreclosure on any such hotel or motel
property, the consent of the franchiser for the continued use the franchise
license by the hotel or motel property would be required. Conversely, a lender
may be unable to remove a franchiser that it desires to replace following a
foreclosure. Further, in the event of a foreclosure on a hotel or motel
property, it is unlikely that the purchaser of such hotel or motel property
would be entitled to the rights under any associated liquor license, and such
purchaser would be required to apply in its own right for such license. There
can be no assurance that a new license could be obtained or that it could be
obtained promptly.
S-25
<PAGE>
Version 4: Hotel and Motel Properties
[The following is to be inserted in the Prospectus
Supplement immediately following "Mortgage Loans Secured by Hotel and Motel
Properties":]
RISKS PARTICULAR TO HOTEL AND MOTEL PROPERTIES.
_____ of the Mortgage Loans, which represent _____ % of the
Initial Pool Balance, are secured by Mortgages on fee and/or leasehold
interests in hotels and motels. Mortgage Loans that are secured by liens on
such types of properties are exposed to certain unique risks. See "Mortgage
Loans Secured by Hotel and Motel Properties." in the Prospectus.
S-26
<PAGE>
Version 5: Health Care-Related Facilities
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Health Care-Related Properties will represent security for a
material concentration of the Mortgage Loans (and the mortgage loans
underlying the MBS included in a particular Trust Fund) constituting the Trust
Fund for any Series, based on principal balance at the time such Series is
issued.
S-27
<PAGE>
Version 5: Health Care-Related Facilities
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED ____________, 1998.
PROSPECTUS
PRUDENTIAL SECURITIES SECURED FINANCING CORP.
Depositor
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
Prudential Securities Secured Financing Corp. (the "Depositor") from time to
time will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Offered Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Offered Certificates, together with
any other Commercial/Multifamily Mortgage Pass-Through Certificates of such
Series, are collectively referred to herein as the "Certificates."
The Certificates of each Series will evidence beneficial ownership interests
in a trust fund (the "Trust Fund") to be established by the Depositor. The
Certificates of a Series may be divided into two or more "Classes," which may
have different interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights of the
holders of certain Classes to receive principal and interest may be
subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on fee simple or leasehold
interests in commercial real estate properties, multifamily residential
properties and/or mixed residential/commercial properties and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any Credit Enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates (including private mortgage-pass-through
certificates, Certificates issued or guaranteed by FHLMC, FNMA or GNMA or
mortgage pass-through certificates previously created by the Depositor). Such
mortgage loans, participation interests, installment contracts and mortgage
pass-through certificates are hereinafter referred to as the "Mortgage Loans."
[** Health Care-Related Properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.**]
The Mortgage Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity and others
will provide for balloon payments at maturity. The Mortgage Loans will provide
S-28
<PAGE>
Version 5: Health Care-Related Facilities
for recourse against only the Mortgaged Properties or provide for recourse
against the other assets of the obligors thereunder. The Mortgage Loans will
be newly originated or seasoned, and will be acquired by the Depositor either
directly or through one or more affiliates. Information regarding each Series
of Certificates, including interest and principal payment provisions for
each Class, as well as information regarding the size, composition and
other characteristics of the Mortgage Pool relating to such Series, will be
furnished in the related Prospectus Supplement. The Mortgage Loans will be
serviced by a Master Servicer identified in the related Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER "RISK
FACTORS" AT PAGE 9 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OF
THE OFFERED CERTIFICATES.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all of a specified portion of the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as
a "real estate mortgage investment conduit" (a "REMIC"). If such election is
made, each Class of Certificates of a Series will be either Regular
Certificates or Residual Certificates, as specified in the related Prospectus
Supplement.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result
of such offering or, if it does develop, that it will provide the holders of
Certificates with liquidity or that it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF THE CERTIFICATES OFFERED HEREBY UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is ____________, 1998.
S-29
<PAGE>
Version 5: Health Care-Related Facilities
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
RISKS PARTICULAR TO HEALTH CARE-RELATED PROPERTIES.
Certain types of health care-related facilities (including
nursing homes) typically receive a substantial portion of their revenues from
government reimbursement programs, primarily Medicaid and Medicare. Medicaid
and Medicare are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings, policy interpretations, delays by fiscal
intermediaries and government funding restrictions, all of which can adversely
affect revenues from operation. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers and
various proposals for national health care relief could, if enacted, further
limit these payments. In addition, providers of long-term nursing care and
other medical services are highly regulated by federal, state and local law
and are subject to, among other things, federal and state licensing
requirements, facility inspections, the setting of rates and charges,
governmental reimbursement policies and laws relating to the adequacy of
medical care, distribution of pharmaceuticals, equipment, personnel operating
policies and maintenance of and additions to facilities and services, any or
all of which factors can increase the cost of operation and limit growth. In
extreme cases, violations of applicable laws can result in suspension or
cessation of operations.
Under federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a Mortgaged Property
that is operated as a health care-related facility, neither the Trustee nor a
subsequent lessee or operator of the Mortgaged Property would generally be
entitled to obtain any outstanding reimbursement payments relating to services
furnished prior to such foreclosure. Furthermore, in the event of foreclosure,
there can be no assurance that the Trustee or purchaser in a foreclosure sale
would be entitled to the rights under any required licenses and regulatory
approvals, that a new license could be obtained or that a new approval would
be granted. In addition, Health Care-Related Properties are generally "special
purpose" properties that are not readily converted to general residential,
retail or office use, and transfers of Health Care-Related Properties are
subject to regulatory approvals under state, and in some cases federal, law
not required for transfers of most other types of commercial operations and
other types of real estate. Any of the foregoing circumstances may adversely
affect the liquidation value.
S-30
<PAGE>
Version 5: Health Care-Related Facilities
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
MORTGAGE LOANS SECURED BY HEALTH CARE-RELATED PROPERTIES.
The Mortgaged Properties may include Senior Housing,
Assisted Living Facilities, Skilled Nursing Facilities and Acute Care
Facilities (any of the foregoing, "Health Care-Related Properties"). "Senior
Housing" generally consists of apartment-style facilities, the residents of
which are ambulatory and handle their own affairs. "Assisted Living
Facilities" are typically single or double room occupancy, dormitory-style
housing facilities which provide food service, cleaning and some personal care
and assistance with certain daily routines. "Skilled Nursing Facilities"
provide services to post trauma and frail residents with limited mobility who
require sub-acute medical treatment. "Acute Care Facilities" generally consist
of hospital and other facilities providing short-term, acute medical care
services.
Certain types of Health Care-Related Properties,
particularly Acute Care Facilities and Skilled Nursing Facilities, typically
receive a substantial portion of their revenues from government reimbursement
programs, primarily Medicaid and Medicare. Medicaid and Medicare
reimbursements are subject to statutory and regulatory changes, retroactive
rate adjustments, administrative rulings, policy interpretations, delays by
fiscal intermediaries and government funding restrictions. Moreover,
governmental payors have employed cost-containment measures that limit
payments to health care providers, and there exist various proposals for
national health care reform that could further limit those payments.
Accordingly, there can be no assurance that payments under government
reimbursement programs will, in the future, be sufficient to fully reimburse
the cost of caring for program beneficiaries. If such payments are
insufficient, net operating income of those Health Care-Related Properties
that receive revenues from those sources, and consequently the ability of the
related borrowers to meet their obligations under any Mortgage Loans secured
thereby, could be adversely affected.
Moreover, Health Care-Related Properties that provide
medical care are generally subject to federal and state laws that relate to
the adequacy of medical care, distribution of pharmaceuticals, rates and
charges, equipment, personnel, operating policies and additions to facilities
and services. In addition, those facilities are subject to periodic inspection
by governmental authorities to determine compliance with various standards
necessary to continued licensing under state law and continued participation
in the Medicaid and Medicare reimbursement programs. Providers of assisted
living services are also subject to state licensing requirements in certain
states. The failure of an operator to maintain or renew any required license
or regulatory approval could prevent it from continuing operations at a Health
Care-Related Property or, if applicable, prohibit it from participating in
government reimbursement programs. Furthermore, under applicable federal and
state laws, Medicare and Medicaid reimbursements are generally not permitted
to be made to any person other than the provider who actually furnished the
related medical goods and services. Accordingly, in the event of foreclosure,
neither the Trustee nor a subsequent lessee or operator of any Health
Care-Related Property securing a defaulted Mortgage Loan would generally be
entitled to obtain from federal or state governments any outstanding
reimbursement payments relating to services furnished prior to such
foreclosure. Any of the aforementioned circumstances may adversely affect the
ability of the related borrowers to meet their Mortgage Loan obligations.
Government regulation applying specifically to Acute Care
Facilities, Skilled Nursing Facilities and Assisted Living Facilities includes
health planning legislation, enacted by most states, intended, at least in
part, to regulate the supply of nursing beds. The most common method of
control is the requirement that a state authority first make a determination
of need, evidenced by its issuance of a Certificate of Need ("CON"), before a
long-term care provider can establish a new facility, add beds to an existing
facility or, in some states, take certain other actions (for example, acquire
major medical equipment, make major capital expenditures, add services,
refinance long-term debt, or transfer ownership of a facility). States also
regulate nursing bed supply in other ways. For example, some states have
imposed moratoria on the licensing of new beds, or on the certification of new
Medicaid beds, or have discouraged the construction of new nursing facilities
by limiting Medicaid reimbursements allocable to the cost of new construction
and equipment. In general, a CON is site specific and operator specific; it
cannot be transferred from one site to another, or to another operator,
without the approval of the appropriate state agency. Accordingly, if a
Mortgage Loan secured by a lien on such a Health Care-Related Property were
foreclosed upon, the purchaser at foreclosure might be required to obtain a
new CON or an appropriate exemption. In addition, compliance by a purchaser
with applicable regulations may in any case require the engagement of a new
operator and the issuance of a new operating license. Upon a foreclosure, a
state regulatory agency may be willing to expedite any
S-31
<PAGE>
Version 5: Health Care-Related Facilities
necessary review and approval process to avoid interruption of care to a
facility's residents, but there can be no assurance that any will do so or
that any necessary licenses or approvals will be issued.
Further government regulation applicable to Health
Care-Related Properties exists in the form of federal and state "fraud and
abuse" laws that generally prohibit payment or fee-splitting arrangements
between health care providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products or services. Violation of these restrictions can result in
license revocation, civil and criminal penalties, and exclusion from
participation in Medicare or Medicaid programs. The state law restrictions in
this area vary considerably from state to state. Moreover, the federal
anti-kickback law includes broad language that potentially could be applied to
a wide range of referral arrangements, and regulations designed to create
"safe harbors" under the law provide only limited guidance. Accordingly, there
can be no assurance that such laws will be interpreted in a manner consistent
with the practices of the owners or operators of the Health Care-Related
Properties that are subject to such laws.
The operators of Health Care-Related Properties are likely
to compete on a local and regional basis with others that operate similar
facilities, some of which competitors may be better capitalized, may offer
services not offered by such operators, or may be owned by non-profit
organizations or government agencies supported by endowments, charitable
contributions, tax revenues and other sources not available to such operators.
The successful operation of a Health Care-Related Property will generally
depend upon the number of competing facilities in the local market, as well as
upon other factors such as its age, appearance, reputation and management, the
types of services it provides and, where applicable, the quality of care and
the cost of that care.
S-32
<PAGE>
Version 5: Health Care-Related Facilities
[The following is to be inserted in the Prospectus
Supplement immediately following "Risk Factors--Limited Recourse":]
RISKS PARTICULAR TO HEALTH CARE-RELATED PROPERTIES.
_____ of the Mortgage Loans, which represent _____ % of the
Initial Pool Balance, are secured by Mortgages on fee and/or leasehold
interests in health care-related properties. Mortgage Loans that are secured
by liens on such types of properties are exposed to certain unique risks. See
"Risks Particular to Health Care-Related Properties" and "Mortgage Loans
Secured by Health Care-Related Properties" in the Prospectus.
S-33
<PAGE>
Version 6: Industrial Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Industrial properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.
S-34
<PAGE>
Version 6: Industrial Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED ___________, 1998.
PROSPECTUS
PRUDENTIAL SECURITIES SECURED FINANCING CORP.
Depositor
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
Prudential Securities Secured Financing Corp. (the "Depositor") from time to
time will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Offered Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Offered Certificates, together with
any other Commercial/Multifamily Mortgage Pass-Through Certificates of such
Series, are collectively referred to herein as the "Certificates."
The Certificates of each Series will evidence beneficial ownership interests
in a trust fund (the "Trust Fund") to be established by the Depositor. The
Certificates of a Series may be divided into two or more "Classes," which may
have different interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights of the
holders of certain Classes to receive principal and interest may be
subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on fee simple or leasehold
interests in commercial real estate properties, multifamily residential
properties and/or mixed residential/commercial properties and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any Credit Enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates (including private mortgage-pass-through
certificates, Certificates issued or guaranteed by FHLMC, FNMA or GNMA or
mortgage pass-through certificates previously created by the Depositor). Such
mortgage loans, participation interests, installment contracts and mortgage
pass-through certificates are hereinafter referred to as the "Mortgage Loans."
[** Industrial properties will represent security for a material consideration
of the Mortgage Loans (and the mortgage loans underlying the MBS included in a
particular Trust Fund) constituting the Trust Fund for any Series, based on
principal balance at the time such Series is issued.**]
The Mortgage Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity and others
will provide for balloon payments at maturity. The Mortgage Loans will provide
for recourse against only the Mortgaged Properties or provide for recourse
against the other assets of the obligors thereunder. The Mortgage Loans will
be newly originated or seasoned, and will be acquired by the Depositor either
directly or through one or more affiliates. Information regarding each Series
of Certificates, including interest and principal payment provisions
S-35
<PAGE>
Version 6: Industrial Properties
for each Class, as well as information regarding the size, composition and
other characteristics of the Mortgage Pool relating to such Series, will be
furnished in the related Prospectus Supplement. The Mortgage Loans will be
serviced by a Master Servicer identified in the related Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER "RISK
FACTORS" AT PAGE 9 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OF
THE OFFERED CERTIFICATES.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all of a specified portion of the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as
a "real estate mortgage investment conduit" (a "REMIC"). If such election is
made, each Class of Certificates of a Series will be either Regular
Certificates or Residual Certificates, as specified in the related Prospectus
Supplement.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result
of such offering or, if it does develop, that it will provide the holders of
Certificates with liquidity or that it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF THE CERTIFICATES OFFERED HEREBY UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is ____________, 1998.
S-36
<PAGE>
Version 6: Industrial Properties
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
RISKS PARTICULAR TO INDUSTRIAL PROPERTIES.
Industrial properties may be adversely affected by reduced
demand for industrial space occasioned by a decline in a particular industry
segment and/or by a general slow-down in the economy, and an industrial
property that suited the particular needs of its original tenant may be
difficult to relet to another tenant or may become functionally obsolete
relative to newer properties. Furthermore, industrial properties may be
adversely affected by the availability of labor sources or a change in the
proximity of supply sources. Because industrial properties frequently have a
single tenant, any such property is heavily dependent on the success of such
tenant's business.
S-37
<PAGE>
Version 6: Industrial Properties
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
MORTGAGE LOANS SECURED BY INDUSTRIAL PROPERTIES.
Significant factors that affect the value of industrial
properties are the quality of tenants, building design and adaptability and
the location of the property. Industrial properties may be adversely affected
by reduced demand for industrial space occasioned by a decline in a particular
industry segment and/or by a general slow-down in the economy, and an
industrial property that suited the particular needs of its original tenant
may be difficult to relet to another tenant or may become functionally
obsolete relative to newer properties. Furthermore, industrial properties may
be adversely affected by the availability of labor sources or a change in the
proximity of supply sources. Because industrial properties frequently have a
single tenant, any such property is heavily dependent on the success of such
tenant's business.
Aspects of building site, design and adaptability affect the
value of an industrial property. Site characteristics which are valuable to an
industrial property include clear heights, column spacing, number of bays and
bay depths, divisibility, floor loading capacities, truck turning radius and
overall functionality and accessibility. Nevertheless, site characteristics of
an industrial property suitable for one tenant may not be appropriate for
other potential tenants, which may make it difficult to relet the property.
Location is also important because an industrial property
requires the availability of labor sources, proximity to supply sources and
customers and accessibility to rail lines, major roadways and other
distribution channels. Further, industrial properties may be adversely
affected by economic declines in the industry segment of their tenants.
S-38
<PAGE>
Version 6: Industrial Properties
[The following is to be inserted in the Prospectus
Supplement immediately following "Risk Factors--Limited Recourse":]
RISKS PARTICULAR TO INDUSTRIAL PROPERTIES.
_____ of the Mortgage Loans, which represent _____ % of the
Initial Pool Balance, are secured by Mortgages on fee and/or leasehold
interests in industrial properties. Mortgage Loans that are secured by liens
on such types of properties are exposed to certain unique risks. See "Risks
Particular to Industrial Properties"; and "Mortgage Loans Secured by
Industrial Properties" in the Prospectus.
S-39
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Warehouse, mini-warehouse and self-storage facilities will
represent security for a material concentration of the Mortgage Loans (and the
mortgage loans underlying the MBS included in a particular Trust Fund)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued.
S-40
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED ___________, 1998.
PROSPECTUS
PRUDENTIAL SECURITIES SECURED FINANCING CORP.
Depositor
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
Prudential Securities Secured Financing Corp. (the "Depositor") from time to
time will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Offered Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Offered Certificates, together with
any other Commercial/Multifamily Mortgage Pass-Through Certificates of such
Series, are collectively referred to herein as the "Certificates."
The Certificates of each Series will evidence beneficial ownership interests
in a trust fund (the "Trust Fund") to be established by the Depositor. The
Certificates of a Series may be divided into two or more "Classes," which may
have different interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights of the
holders of certain Classes to receive principal and interest may be
subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on fee simple or leasehold
interests in commercial real estate properties, multifamily residential
properties and/or mixed residential/commercial properties and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any Credit Enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates (including private mortgage-pass-through
certificates, Certificates issued or guaranteed by FHLMC, FNMA or GNMA or
mortgage pass-through certificates previously created by the Depositor). Such
mortgage loans, participation interests, installment contracts and mortgage
pass-through certificates are hereinafter referred to as the "Mortgage Loans."
[** Warehouse, mini-warehouse and self-storage facilities will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying the MBS included in a particular Trust Fund) constituting the
Trust Fund for any Series, based on principal balance at the time such Series
is issued.**]
The Mortgage Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity and others
will provide for balloon payments at maturity. The Mortgage Loans will provide
for recourse against only the Mortgaged Properties or provide for recourse
against the other assets of the obligors thereunder.
S-41
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
The Mortgage Loans will be newly originated or seasoned, and will be acquired
by the Depositor either directly or through one or more affiliates.
Information regarding each Series of Certificates, including interest and
principal payment provisions for each Class, as well as information regarding
the size, composition and other characteristics of the Mortgage Pool relating
to such Series, will be furnished in the related Prospectus Supplement. The
Mortgage Loans will be serviced by a Master Servicer identified in the related
Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER "RISK
FACTORS" AT PAGE 9 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OF
THE OFFERED CERTIFICATES.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all of a specified portion of the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as
a "real estate mortgage investment conduit" (a "REMIC"). If such election is
made, each Class of Certificates of a Series will be either Regular
Certificates or Residual Certificates, as specified in the related Prospectus
Supplement.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result
of such offering or, if it does develop, that it will provide the holders of
Certificates with liquidity or that it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF THE CERTIFICATES OFFERED HEREBY UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is ____________, 1998.
S-42
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
RISKS PARTICULAR TO SELF-STORAGE FACILITIES.
Warehouse, mini-warehouse and self-storage properties
("Storage Properties") are considered vulnerable to competition because both
acquisition costs and break-even occupancy are relatively low. The conversion
of Storage Properties to alternative uses would generally require substantial
capital expenditures. Thus, if the operation of any of the Storage Properties
becomes unprofitable due to decreased demand, competition, age of improvements
or other factors, such that the borrower becomes unable to meet its obligation
on the related Mortgage Loan, the liquidation value of that Storage Property
may be substantially less, relative to the amount owing on the Mortgage Loan,
than would be the case if the Storage Property were readily adaptable to other
uses. Tenant privacy, anonymity and efficient access are important to the
success of a Storage Property, as is building design and location.
S-43
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
MORTGAGE LOANS SECURED BY WAREHOUSE, MINI-WAREHOUSE AND
SELF-STORAGE FACILITIES.
Because of relatively low acquisition costs and break-even
occupancy rates, warehouse, mini-warehouse and self-storage properties
("Storage Properties") are considered vulnerable to competition. Despite their
relatively low acquisition costs, and because of their particular building
characteristics, Storage Properties would require substantial capital
investments in order to adapt them to alternative uses. Limited adaptability
to other uses may substantially reduce the liquidation value of a Storage
Property. In addition to competition, factors that affect the success of a
Storage Property include the location and visibility of the facility, its
proximity to apartment complexes or commercial users, trends of apartment
tenants in the area moving to single-family homes, services provided (such as
security and accessibility), age of improvements, the appearance of the
improvements and the quality of management.
S-44
<PAGE>
Version 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following is to be inserted in the Prospectus
Supplement immediately following "Risk Factors--Limited Recourse":]
RISKS PARTICULAR TO WAREHOUSE, MINI-WAREHOUSE AND SELF-STORAGE FACILITIES.
______ of the Mortgage Loans, which represent _____% of the
Initial Pool Balance, are secured by Mortgages on fee and/or leasehold
interests in [warehouse, mini-warehouse and self-storage facilities. Mortgage
Loans that are secured by liens on such types of properties are exposed to
certain unique risks. See "Risks Particular to Self-Storage Facilities";
"Mortgage Loans Secured by Warehouse, Mini-Warehouse and Self-Storage
Facilities"" in the Prospectus.
S-45
<PAGE>
Version 8: Mobile Home Parks
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Mobile home parks will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.
S-46
<PAGE>
Version 8: Mobile Home Parks
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED ___________, 1998.
PROSPECTUS
PRUDENTIAL SECURITIES SECURED FINANCING CORP.
Depositor
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
Prudential Securities Secured Financing Corp. (the "Depositor") from time to
time will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Offered Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Offered Certificates, together with
any other Commercial/Multifamily Mortgage Pass-Through Certificates of such
Series, are collectively referred to herein as the "Certificates."
The Certificates of each Series will evidence beneficial ownership interests
in a trust fund (the "Trust Fund") to be established by the Depositor. The
Certificates of a Series may be divided into two or more "Classes," which may
have different interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights of the
holders of certain Classes to receive principal and interest may be
subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on fee simple or leasehold
interests in commercial real estate properties, multifamily residential
properties and/or mixed residential/commercial properties and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any Credit Enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates (including private mortgage-pass-through
certificates, Certificates issued or guaranteed by FHLMC, FNMA or GNMA or
mortgage pass-through certificates previously created by the Depositor). Such
mortgage loans, participation interests, installment contracts and mortgage
pass-through certificates are hereinafter referred to as the "Mortgage Loans."
[** Mobile home parks will represent security for a material concentration of
the Mortgage Loans ( and the mortgage loans underlying the MBS included in a
particular Trust Fund) constituting the Trust Fund for any Series, based on
principal balance at the time such Series is issued.**]
S-47
<PAGE>
Version 8: Mobile Home Parks
The Mortgage Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity and others
will provide for balloon payments at maturity. The Mortgage Loans will provide
for recourse against only the Mortgaged Properties or provide for recourse
against the other assets of the obligors thereunder.
The Mortgage Loans will be newly originated or seasoned, and will be acquired
by the Depositor either directly or through one or more affiliates. Information
regarding each Series of Certificates, including interest and principal payment
provisions for each Class, as well as information regarding the size,
composition and other characteristics of the Mortgage Pool relating to such
Series, will be furnished in the related Prospectus Supplement. The Mortgage
Loans will be serviced by a Master Servicer identified in the related
Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER "RISK
FACTORS" AT PAGE 9 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OF
THE OFFERED CERTIFICATES.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all of a specified portion of the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as
a "real estate mortgage investment conduit" (a "REMIC"). If such election is
made, each Class of Certificates of a Series will be either Regular
Certificates or Residual Certificates, as specified in the related Prospectus
Supplement.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result
of such offering or, if it does develop, that it will provide the holders of
Certificates with liquidity or that it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF THE CERTIFICATES OFFERED HEREBY UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is ____________, 1998.
S-48
<PAGE>
Version 8: Mobile Home Parks
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
RISKS PARTICULAR TO MOBILE HOME PARKS.
The successful operation of a Mortgaged Property operated as
a mobile home park will generally depend upon the number of competing parks in
the local market, as well as upon other factors such as its age, appearance,
reputation, management and the types of facilities and services it provides.
Mobile home parks also compete against alternative forms of
residential housing, including multifamily rental properties,
cooperatively-owned apartment buildings, condominium complexes and
single-family residential developments.
Mobile home parks are "special purpose" properties that
cannot be readily converted to general residential, retail or office use.
Thus, if the operation of a mobile home park becomes unprofitable due to
competition, age of the improvements or other factors such that the borrower
becomes unable to meet its obligations on the related Mortgage Loan, the
liquidation value of the park may be substantially less, relative to the
amount owing on such Mortgage Loan, than would be the case if the park were
readily adaptable to other uses.
S-49
<PAGE>
Version 8: Mobile Home Parks
[The following is to be inserted in the Prospectus
immediately following "Risks Associated with Lending on Income Producing
Properties":]
MORTGAGE LOANS SECURED BY MOBILE HOME PARKS.
Mobile home parks consist of land that is divided into
"spaces" or "homesites" that are primarily leased to mobile home owners.
Accordingly, the related Mortgage Loans will be secured by mortgage liens on
the real estate (or a leasehold interest therein) upon which the mobile homes
are situated, but not the mobile homes themselves. The mobile home owner often
invests in site-specific improvements such as carports, steps, fencing, skirts
around the base of the mobile home, and landscaping. The park owner typically
provides private roads within the park, common facilities and, in many cases,
utilities. Park amenities may include driveways, visitor parking, recreational
vehicle and pleasure boat storage, laundry facilities, community rooms,
swimming pools, tennis courts, security systems and healthclubs. Due to
relocation costs and, in some cases, demand for mobile home spaces, the value
of a mobile home in place in a park is generally higher, and can be
significantly higher, than the value of the same unit not placed in a park. As
a result, a well-operated mobile home park that has achieved stabilized
occupancy is typically able to maintain occupancy at or near that level. For
the same reason, a lender that provided financing for the mobile home of a
tenant who defaulted in his or her space rent generally has an incentive to
keep rental payments current until the mobile home can be resold in place,
rather than to allow the unit to be removed from the park.
Mortgage Loans secured by liens on mobile home parks are
affected by factors not associated with loans secured by liens on other types
of income-producing real estate. The successful operation of such types of
properties will generally depend upon the number of competing parks, as well
as upon other factors such as its age, appearance, reputation, the ability of
management to provide adequate maintenance and insurance, and the types of
facilities and services it provides. Mobile home parks also compete against
alternative forms of residential housing, including multifamily rental
properties, cooperatively-owned apartment buildings, condominium complexes and
single-family residential developments. Mobile home parks are "special
purpose" properties that cannot be readily converted to general residential,
retail or office use. Thus, if the operation of a mobile home park becomes
unprofitable due to competition, age of the improvements or other factors such
that the borrower becomes unable to meet its obligations on the related
Mortgage Loan, the liquidation value of the park may be substantially less,
relative to the amount owing on the Mortgage Loan, than would be the case if
the park were readily adaptable to other uses.
Certain states regulate the relationship of a mobile home
park owner and its tenants. Commonly, these laws require a written lease, good
cause for eviction, disclosure of fees, and notification to residents of
changed land use, while prohibiting unreasonable rules, retaliatory evictions,
and restrictions on a resident's choice of unit vendors. Mobile home park
owners have been the subject of suits under state "Unfair and Deceptive
Practices Acts" and other general consumer protection statutes for coercive,
abusive or unconscionable leasing and sales practices. A few states offer more
significant protection. For example, there are provisions that limit the basis
on which a landlord may terminate a mobile home owner's tenancy or increase
its rent or prohibit a landlord from terminating a tenancy solely by reason of
the sale of the owner's mobile home. Certain states also regulate changes in
mobile home park use and require that the landlord give written notice to its
tenants a substantial period of time prior to the projected change.
In addition to state regulation of the landlord-tenant
relationship, numerous counties and municipalities impose rent control on
mobile home parks. These ordinances may limit rent increases to fixed
percentages, to percentages of increases in the consumer price index, to
increases set or approved by a governmental agency, or to increases determined
through mediation or binding arbitration. In many cases, the rent control laws
do not provide for decontrol of rental rates upon vacancy of individual units
or permit such decontrol only in the relatively rare event that the mobile
home is removed from the homesite. Any limitations on a borrower's ability to
raise property rents may impair such borrower's ability to repay its Mortgage
Loan from its net operating income or the proceeds of a sale or refinancing of
the related Mortgaged Property.
S-50
<PAGE>
Version 8: Mobile Home Parks
[The following is to be inserted in the Prospectus
Supplement immediately following "Risk Factors--Limited Recourse":]
RISKS PARTICULAR TO MOBILE HOME PARKS.
______ of the Mortgage Loans, which represent _____ % of the
Initial Pool Balance, are secured by Mortgages on fee and/or leasehold
interests in mobile home parks. Mortgage Loans that are secured by liens on
such types of properties are exposed to certain unique risks.
S-51
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED ____________, 1998
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
Depositor
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
Prudential Securities Secured Financing Corporation (the "Depositor") from
time to time will offer Commercial/Multifamily Mortgage Pass-Through
Certificates (the "Offered Certificates") in "Series" by means of this
Prospectus and a separate Prospectus Supplement for each Series. The Offered
Certificates, together with any other Commercial/Multifamily Mortgage
Pass-Through Certificates of such Series, are collectively referred to herein
as the "Certificates."
The Certificates of each Series will evidence beneficial ownership interests
in a trust fund (the "Trust Fund") to be established by the Depositor. The
Certificates of a Series may be divided into two or more "Classes," which may
have different interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights of the
holders of certain Classes to receive principal and interest may be
subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on fee simple or leasehold
interests in commercial real estate properties, multifamily residential
properties and/or mixed residential/commercial properties and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any Credit Enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates (including private mortgage-pass-through
certificates, Certificates issued or guaranteed by FHLMC, Fannie Mae or GNMA
or mortgage pass-through certificates previously created by the Depositor).
Such mortgage loans, participation interests, installment contracts and
mortgage pass-through certificates are hereinafter referred to as the
"Mortgage Loans."
The Mortgage Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity and others
will provide for balloon payments at maturity. The Mortgage Loans will provide
for recourse against only the Mortgaged Properties, or provide for recourse
against the other assets of the obligors thereunder. The Mortgage Loans will
be newly originated or seasoned, and will be acquired by the Depositor either
directly or through one or more affiliates. Information regarding
<PAGE>
each Series of Certificates, including interest and principal payment
provisions for each Class, as well as information regarding the size,
composition and other characteristics of the Mortgage Pool relating to such
Series, will be furnished in the related Prospectus Supplement. The Mortgage
Loans will be serviced by a Master Servicer identified in the related
Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED HEREIN UNDER "RISK
FACTORS" AT PAGE 9 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OF
THE OFFERED CERTIFICATES.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all of a specified portion of the collateral securing any Series of
Certificates or the arrangement by which a Series of Certificates is issued as
a "real estate mortgage investment conduit" (a "REMIC"). If such election is
made, each Class of Certificates of a Series will be either Regular
Certificates or Residual Certificates, as specified in the related Prospectus
Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
With respect to each Series, all of the Offered Certificates will be rated in
one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result
of such offering or, if it does develop, that it will provide the holders of
Certificates with liquidity of investment or that it will continue.
2
<PAGE>
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF THE CERTIFICATES OFFERED HEREBY UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is ____________, 1998.
3
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of Certificates will, among
other things, set forth with respect to such Series of Certificates: (i) the
identity of each Class within such Series; (ii) the initial aggregate
principal amount, the interest rate (the "Pass-Through Rate") (or the method
for determining it) and the authorized denominations of each Class of
Certificates of such Series; (iii) certain information concerning the Mortgage
Loans relating to such Series, including the principal amount, type and
characteristics of such Mortgage Loans on the date of issue of such Series of
Certificates; (iv) the circumstances, if any, under which the Certificates of
such Series are subject to redemption prior to maturity; (v) the final
scheduled distribution date of each Class of Certificates of such Series; (vi)
the method used to calculate the aggregate amount of principal available and
required to be applied to the Certificates of such Series on each Distribution
Date; (vii) the order of the application of principal and interest payments to
each Class of Certificates of such Series and the allocation of principal to
be so applied; (viii) the extent of subordination of any Subordinate
Certificates; (ix) the principal amount of each Class of Certificates of such
Series that would be outstanding on specified Distribution Dates, if the
Mortgage Loans relating to such Series were prepaid at various assumed rates;
(x) the Distribution Dates for each Class of Certificates of such Series; (xi)
relevant financial information with respect to the Mortgagor(s) and the
Mortgaged Properties underlying the Mortgage Loans relating to such Series, if
applicable; (xii) information with respect to the terms of the Subordinate
Certificates or Residual Certificates, if any, of such Series; (xiii)
additional information with respect to the Credit Enhancement, if any,
relating to such Series; (xiv) additional information with respect to the plan
of distribution of such Series; and (xv) whether the Certificates of such
Series will be registered in the name of the nominee of The Depository Trust
Company or another depository.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of
the information set forth in the Registration Statement (the "Registration
Statement") of which this Prospectus and the related Prospectus Supplement is
a part. For further information, reference is made to such Registration
Statement and the exhibits thereto which the Depositor has filed with the
Securities and Exchange Commission (the "Commission"), under the Securities
Act of 1933, as amended (the "1933 Act"). Statements contained in this
Prospectus and any Prospectus Supplement as to the contents of any contract or
other document referred to are summaries and in each instance reference is
made to the copy of the contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement may be obtained from the
Commission, upon payment of the prescribed charges, or may be examined free of
charge at the Commission's offices. Reports and other information filed with
the Commission can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, 13th Floor, New York, New York
4
<PAGE>
10048; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of the Agreement pursuant to which a Series of
Certificates is issued will be provided to each person to whom a Prospectus
and the related Prospectus Supplement are delivered, upon written or oral
request directed to: Prudential Securities Secured Financing Corporation, One
New York Plaza, New York, New York 10292 attention, David Rodgers,
(212) 214-1000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to the Trust Fund for each Series, there are incorporated herein
by reference all documents and reports filed or caused to be filed by the
Depositor with respect to such Trust Fund pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, after the date of this
Prospectus and prior to the termination of the offering of the Offered
Certificates evidencing an interest in such Trust Fund. The Depositor will
provide or cause to be provided without charge to each person to whom this
Prospectus is delivered in connection with the offering of one or more Classes
of Certificates, upon request, a copy of any or all such documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such Classes of such Certificates, other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). The Depositor has determined
that its financial statements are not material to the offering of any of the
Offered Certificates. See "FINANCIAL INFORMATION." Requests to the Depositor
should be directed to: Prudential Securities Secured Financing Corporation,
One New York Plaza, New York, New York 10292, attention, David Rodgers,
(212) 214-1000.
5
<PAGE>
REPORTS
In connection with each distribution and annually, Certificateholders will be
furnished with statements containing information with respect to principal and
interest payments and the related Trust Fund, as described herein and in the
applicable Prospectus Supplement for such Series. Any financial information
contained in such reports most likely will not have been examined or reported
upon by an independent public accountant. See "DESCRIPTION OF THE
CERTIFICATES-Reports to Certificateholders." The Master Servicer for each
Series will furnish periodic statements setting forth certain specified
information relating to the Mortgage Loans to the related Trustee, and, in
addition, annually will furnish such Trustee with a statement from a firm of
independent public accountants with respect to the examination of certain
documents and records relating to the servicing of the Mortgage Loans in the
related Trust Fund. See "SERVICING OF THE MORTGAGE LOANS-Evidence of
Compliance." Copies of the monthly and annual statements provided by the
Master Servicer to the Trustee will be furnished to Certificateholders of each
Series upon request addressed to the Depositor's principal executive offices
are located at Prudential Securities Secured Financing Corporation, One New
York Plaza, New York, New York 10292, attention David Rodgers, (212) 214-1000.
6
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each
Series of Certificates contained in the Prospectus Supplement to be prepared
and delivered in connection with the offering of such Series. An Index of
Significant Definitions is included at the end of this Prospectus.
Title of Certificates...............Commercial/Multifamily Mortgage
Pass-Through Certificates, issuable in
Series (the "Certificates").
Depositor...........................Prudential Securities Secured Financing
Corporation, One New York Plaza, New York,
New York 10292. Its telephone number is
(212) 214-1000
Master Servicer.....................The Master Servicer for each Series of
Certificates will be named in the related
Prospectus Supplement. See "SERVICING OF
THE MORTGAGE LOANS- General."
Special Servicer....................The special servicer (the "Special
Servicer"), if any, for each Series of
Certificates, will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed, will
be described in the related Prospectus
Supplement. See "SERVICING OF THE MORTGAGE
LOANS-General."
Trustee.............................The trustee (the "Trustee") for each
Series of Certificates will be named in
the related Prospectus Supplement. See
"DESCRIPTION OF THE CERTIFICATES-The
Trustee."
The Trust Fund......................Each Series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in a Trust Fund
consisting primarily of the following:
A. Mortgage Pool....................The primary assets of each Trust Fund will
consist of a pool of mortgage loans (the
"Mortgage Pool") secured by first or
junior mortgages, deeds of trust or
similar security instruments (each, a
"Mortgage") on, or installment contracts
("Installment Contracts') for the sale of,
fee simple or leasehold interests in
property improved by office buildings,
health-care related properties, congregate
care facilities, hotels and motels,
7
<PAGE>
industrial properties, warehouse,
mini-warehouse, and self-storage facilities,
mobile home parks, multifamily properties,
cooperative apartment buildings, nursing
homes, office/retail properties, anchored
retail properties, single-tenant
retail properties, unanchored retail
properties and other commercial real estate
properties, multifamily residential
properties and/or mixed residential
commercial properties (each, a "Mortgaged
Property"). A Mortgage Pool may also
include any or all of the participation
interests in such types of mortgage loans,
private-label mortgage pass-through or
collateralized mortgaged obligations
certificates, certificates issued or
guaranteed by FHLMC, Fannie Mae or GNMA.
Each such mortgage loan, Installment
Contract, participation interest or
certificate or collateralized mortgage
obligation is herein referred to as a
"Mortgage Loan." The Mortgage Loans will
not be guaranteed or insured by the
Depositor or any of its affiliates. The
Prospectus Supplement will indicate whether
the Mortgage Loans will be guaranteed or
insured by any governmental agency or
instrumentality or other person. The
Mortgage Loans will have the additional
characteristics described under "THE
MORTGAGE POOLS" herein and "DESCRIPTION
MORTGAGE POOL" in the related Prospectus
Supplement. All Mortgage Loans will have
been purchased, either directly or
indirectly, by the Depositor on or before
the date of initial issuance of the related
Series of Certificates.
All Mortgage Loans will be of one or more
of the following types: Mortgage Loans
with fixed interest rates; Mortgage Loans
with adjustable interest rates; Mortgage
Loans whose principal balances fully
amortize over their remaining terms to
maturity. Mortgage Loans whose principal
balances do not fully amortize, but
instead provide for a substantial
principal payment at the stated maturity
of the loan; Mortgage Loans that provide
for recourse against only the Mortgaged
Properties; Mortgage Loans that provide
for recourse against the other assets of
the related mortgagors; and any other
types of Mortgages described in the
related Prospectus Supplement.
8
<PAGE>
Certain Mortgage Loans may provide that
scheduled interest and principal payments
thereon are applied first to interest
accrued from the last date to which
interest has been paid to the date such
payment is received and the balance
thereof is applied to principal. and other
Mortgage Loans may provide for payment of
interest in advance rather than in
arrears. Each Mortgage Loan may contain
prohibitions on prepayment or require
payment of a premium or a yield
maintenance penalty in connection with a
prepayment, in each case as described in
the related Prospectus Supplement. The
Mortgage Loans may provide for payments of
principal, interest or both, on due dates
that occur monthly, quarterly,
semi-annually or at such other interval as
is specified in the related Prospectus
Supplement.
B. Accounts.........................A Collection Account and a Distribution
Account. The Master Servicer generally
will be required to establish and maintain
an account (the "Collection Account") in
the name of the Trustee on behalf of the
Certificateholders into which the Master
Servicer will, to the extent described
herein and in the related Prospectus
Supplement, deposit all payments and
collections received or advanced with
respect to the Mortgage Loans. The Trustee
generally will be required to establish an
account (the "Distribution Account") into
which the Master Servicer will deposit
amounts held in the Collection Account
from which distributions of principal and
interest will be made. Such distributions
will be made to the Certificateholders in
the manner described in the related
Prospectus Supplement. Funds held in the
Collection Account and Distribution
Account may be invested in certain
short-term, investment grade obligations.
C. Credit Enhancement...............If so provided in the related Prospectus
Supplement, credit enhancement with
respect to one or more Classes of
Certificates of a Series or the related
Mortgage Loans ("Credit Enhancement").
Credit Enhancement may be in the form of a
letter of credit, the subordination of one
or more Classes of the Certificates of
such Series, the establishment of one or
more reserve funds, surety bonds,
certificate guarantee insurance, limited
9
<PAGE>
guarantees, or another type of credit
support, or a combination thereof. It is
unlikely that Credit Enhancement will
protect against all risks of loss or
guarantee repayment of the entire
principal balance of the Certificates and
interest thereon. The amount and types of
coverage, the identification of the entity
providing the coverage (if applicable) and
related information with respect to each
type of Credit Enhancement, if any, will
be described in the applicable Prospectus
Supplement for a Series of Certificates.
See "RISK FACTORS-Credit Enhancement
Limitations" and "CREDIT
ENHANCEMENT-General."
Description of Certificates.........The Certificates of each Series will be
issued pursuant to a Pooling and Servicing
Agreement (the "Agreement"). If so
specified in the applicable Prospectus
Supplement, Certificates of a given Series
may be issued in several Classes, which
may pay interest at different rates, may
represent different allocations of the
right to receive principal and interest
payments, and certain of which may be
subordinated to other Classes in the event
of shortfalls in available cash flow from
the underlying mortgage loans.
Alternatively, or in addition, Classes may
be structured to receive principal
payments in sequence. Each Class in a
group of sequential pay Classes would be
entitled to be paid in full before the
next Class in the group is entitled to
receive any principal payments. A Class of
Certificates may also provide for payments
of principal only or interest only or for
disproportionate payments of principal and
interest. Each Series of Certificates
(including any Class or Classes of
Certificates of such Series not offered
hereby) will represent in the aggregate
the entire beneficial ownership interest
in the Trust Fund. See "PROSPECTUS
SUPPLEMENT" for a listing of additional
characteristics of the Certificates that
will be included in the Prospectus
Supplement for each Series.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates. Unless so specified in the
related Prospectus Supplement, neither the
Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental
agency Or instrumentality or by any other
person or entity. See "RISK
FACTORS-Limited Assets" and "DESCRIPTION
OF THE CERTIFICATES."
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Distributions on Certificates...... Distributions of principal and interest on
the Certificates of each Series will be
made to the registered holders thereof on
the day (the "Distribution Date")
specified in the related Prospectus
Supplement, beginning in the period
specified in the related Prospectus
Supplement following the establishment
related Trust Fund.
With respect to each Series of
Certificates on each Distribution Date,
the Trustee (or such other paying agent as
may be identified in the applicable
Prospectus Supplement) will distribute to
the Certificateholders the amounts
described in the related Prospectus
Supplement that are due to be paid on such
Distribution Date. In general, such
amounts will include previously
undistributed payments of principal
(including principal prepayments, if any)
and interest on the Mortgage Loans
received by the Master Servicer or the
Special Servicer, if any, after a date
specified in the related Prospectus
Supplement (the "Cut-off Date") and prior
to the day preceding each Distribution
Date specified in the related Prospectus
Supplement.
Advances............................The related Prospectus Supplement will set
forth the obligations, if any, of the
Master Servicer and the Special Servicer,
if any, as part of their servicing
responsibilities, to make certain advances
with respect to delinquent payments on the
Mortgage Loans, payments of taxes,
assessments, insurance premiums and other
required payments. See "DESCRIPTION OF THE
CERTIFICATES-Advances."
Termination.........................The obligations of the parties to the
Agreement for each Series will terminate
upon: (i) the purchase of all of the
assets of the related Trust Fund, as
described in the related Prospectus
Supplement; (ii) the later of (a) the
distribution to Certificateholders of that
Series of final payment with respect to
the last outstanding Mortgage Loan or (b)
the disposition of all property acquired
upon foreclosure or deed-in-lieu of
foreclosure with respect to the last
outstanding Mortgage Loan and the
remittance to the Certificateholders of
all funds due under the Agreement; (iii)
the sale of the assets of the related
Trust Fund after the principal amounts of
all Certificates have been reduced to zero
under circumstances set forth in the
Agreement; or (iv) mutual consent of the
parties
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and all Certificateholders. With respect
to each Series, the Trustee will give or
cause to be given written notice of
termination of the Agreement to each
Certificateholder and, unless otherwise
specified in the applicable Prospectus
Supplement, the final distribution under
the Agreement will be made only upon
surrender and cancellation of the related
Certificates at an office or agency
specified in the notice of termination.
See "DESCRIPTION OF THE CERTIFICATES
termination."
Tax Status of the Certificates......The Certificates of each Series will
constitute either (i) "Regular Interests"
("Regular Certificates") and "Residual
Interests" ("Residual Certificates") in a
Trust Fund treated as a REMIC under
Sections 860A through 860G of the Internal
Revenue Code of 1986 (the "Code"), or (ii)
interests in a Trust Fund treated as a
grantor trust under applicable provisions
of the Code. For the treatment of Regular
Certificates, Residual Certificates or
grantor trust certificates under the Code,
see "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" herein and in the related
Prospectus Supplement.
ERISA Considerations................Fiduciaries of employee benefit plans or
of certain other retirement plans and
arrangements that are subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section
4975 of the Code should carefully review
with their legal advisors whether the
purchase or holding of Certificates may
give rise to a transaction that is
prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the
Code. See "ERISA CONSIDERATIONS" herein
and in the related Prospectus Supplement.
Legal Investment....................The related Prospectus Supplement will
indicate whether the Offered Certificates
will constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984.
Accordingly, investors whose investment
authority is subject to legal restrictions
should consult their own legal advisors to
determine whether and to what extent the
Certificates constitute legal investments
for them. See "LEGAL INVESTMENT" herein
and in the related Prospectus Supplement.
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Rating..............................At the date of issuance, as to each Series,
each Class of Offered Certificates will be
rated not lower than investment grade by
one or more nationally recognized
statistical rating agencies (each a
"Rating Agency"). See "RATING" herein and
"RATINGS" in the related Prospectus
Supplement.
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<PAGE>
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may, be set forth in "RISK FACTORS" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of any
Series will develop or, if it does develop, that it will provide holders with
liquidity of investment or will continue while Certificates of such Series
remain outstanding. The market value of Certificates will fluctuate with
changes in prevailing rates of interest. Consequently, any sale of
Certificates by a holder in any secondary market that may develop may be at a
discount from 100% of their original principal balance or from their purchase
price. Furthermore, secondary market purchasers may look only hereto, to the
related Prospectus Supplement and to the reports to Certificateholders
delivered pursuant to the Agreement as described herein under the heading
"DESCRIPTION OF THE CERTIFICATES-Reports to Certificateholders" and "SERVICING
OF THE MORTGAGE LOANS-Evidence of Compliance" for information concerning the
Certificates. Certificateholders will have only those redemption rights and
the Certificates will be subject to early retirement only under the
circumstances described herein or in the related Prospectus Supplement. See
"DESCRIPTION OF THE CERTIFICATES-Termination."
LIMITED ASSETS
A Series of Certificates will have a claim against or security interest in the
Trust Funds for another Series only if so specified in the related Prospectus
Supplement. If the related Prospectus Supplement does not specify that a
Series of Certificates will have a claim against or security interest in the
Trust Funds for another Series and the related Trust Fund is insufficient to
make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Distribution Account, the Collection Account
and any accounts maintained as Credit Enhancement, may be withdrawn under
certain conditions, as described in the related Prospectus Supplement. In the
event of such withdrawal, such amounts will not be available for future
payment of principal of or interest on the Certificates. If so provided in the
Prospectus Supplement for a Series of Certificates consisting of one or more
Classes of Subordinate Certificates, on any Distribution Date in respect of
which losses or shortfalls in collections on the Mortgaged Properties have
been realized, the amount of such losses or shortfalls will be borne first by
one or more Classes of the Subordinate Certificates, and, thereafter, by the
remaining Classes of Certificates in the priority and manner and subject to
the limitations specified in such Prospectus Supplement.
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<PAGE>
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments on the Mortgage Loans in any Trust Fund generally will result in a
faster rate of principal payments on one or more Classes of the related
Certificates than if payments on such Mortgage Loans were made as scheduled.
Thus, the prepayment experience on the Mortgage Loans may affect the average
life of each Class of related Certificates. The rate of principal payments on
pools of mortgage loans varies between pools and from time to time is
influenced by a variety of economic, demographic, geographic, social, tax,
legal and other factors. There can be no assurance as to the rate of
prepayment on the Mortgage Loans in any Trust Fund or that the rate of
payments will conform to any model described in any Prospectus Supplement. If
prevailing interest rates fall significantly below the applicable rates borne
by the Mortgage Loans included in a Trust Fund, principal prepayments are
likely to be higher than if prevailing rates remain at or above the rates home
by those Mortgage Loans. As a result, the actual maturity of any Class of
Certificates could occur significantly earlier than expected. Alternatively,
the actual maturity of any Class of Certificates could occur significantly
later than expected as a result of prepayment premiums or the existence of
defaults on the Mortgage Loans, particularly at or near their maturity dates.
In addition, the Master Servicer or the Special Servicer, if any, may have the
option under the Agreement for such Series to extend the maturity of the
Mortgage Loans following a default in the payment of a balloon payment, which
would also have the effect of extending the average life of each Class of
related Certificates. A Series of Certificates may include one or more Classes
of Certificates with priorities of payment and, as a result, yields on other
Classes of Certificates, including Classes of Offered Certificates, of such
Series may be more sensitive to prepayments on Mortgage Loans. A Series of
Certificates may include one or more Classes offered at a significant premium
or discount. Yields on such Classes of Certificates will be sensitive, and in
some cases extremely sensitive, to prepayments on Mortgage Loans. With respect
to interest only or disproportionately interest weighted Classes purchased at
a premium, such Classes may not return their purchase Prices under rapid
repayment scenarios. See "YIELD AND MATURITY CONSIDERATIONS" in the related
Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a Class of Certificates will reflect
such Rating Agency's assessment solely of the likelihood that holders of
Certificates of such Class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments on
the related Mortgage Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the Series Of Certificates. Such rating will not
address the possibility that prepayment at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that an investor purchasing a Certificate at a
significant premium, or a Certificate that is entitled to disproportionately
low, nominal or no principal distributions, might fail to recoup its initial
investment under certain prepayment scenarios. Each Prospectus Supplement will
identify any payment to which
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<PAGE>
holders of Offered Certificates of the related Series are entitled that is not
covered by the applicable rating. See "Credit Enhancement Limitations."
RISKS ASSOCIATED WITH LENDING ON INCOME PRODUCING PROPERTIES
Mortgage loans made with respect to multifamily or commercial property may
entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single-family
property. For example, the ability of a mortgagor to repay a loan secured by
an income-producing property typically is dependent primarily upon the
successful operation of such property rather than any independent income or
assets of the mortgagor; thus, the value of an income-producing property is
directly related to the net operating income, as defined in the prospectus
supplement, derived from such property. In contrast, the ability of a
mortgagor to repay a single-family loan typically is dependent primarily upon
the mortgagor's household income, rather than the capacity of the property to
produce income; thus, other than in geographical areas where employment is
dependent upon a particular employer or an industry, the mortgagor's income
tends not to reflect directly the value of such property. A decline in the net
operating income of an income-producing property will likely affect both the
performance of the related loan as well as the liquidation value of such
property, whereas a decline in the income of a mortgagor on a single-family
property will likely affect the performance of the related loan but may not
affect the liquidation value of such property.
Further, the concentration of default foreclosure and loss risks for Mortgage
Loans in a particular Trust Fund or the related Mortgaged Properties will
generally be greater than for pools of single-family loans both because the
Mortgage Loans in a Trust Fund will generally consist of a smaller number of
loans than would a single-family pool of comparable aggregate unpaid principal
balance and because of the higher principal balance of individual Mortgage
Loans.
The performance of a mortgage loan secured by an income-producing property
leased by the mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants
or, if applicable, a diversity of types of business operated by such tenants.
A number of the Mortgage Loans may be secured by liens on owner-occupied
Mortgaged Properties or on Mortgaged Properties leased to a single tenant.
Accordingly, a decline in the financial condition of the borrower 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 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 tax rates and other operating expenses; changes in governmental
rules, regulations and fiscal policies, including environmental legislation;
natural disasters; and other factors beyond the control of the Master Servicer
or the Special Servicer, if any.
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<PAGE>
Additional risk may be presented by the type and use of a particular mortgaged
property. For instance, mortgaged properties that operate as hospitals.
nursing homes or convalescent homes may present special risks to mortgagees
due to the significant governmental regulation of the ownership, operation,
maintenance, control and financing of health care institutions. Mortgages
encumbering mortgaged properties that are owned by the mortgagor under a
condominium form of ownership are subject to the declaration, by-laws and
other rules and regulations of the condominium association. Hotel and motel
properties are often operated pursuant to franchise, management or operating
agreements that may be terminable by the franchiser or operator. Moreover, the
transferability of a hotel's operating, liquor and other licenses upon a
transfer of the hotel, whether through purchase or foreclosure, is subject to
local law requirements. In addition, mortgaged properties that are multifamily
residential properties or cooperatively owned multifamily properties may be
subject to rent control laws, which could impact the future cash flows of such
properties. Any such risks will be more fully described in the related
Prospectus Supplement under the captions "RISK FACTORS" and "DESCRIPTION OF
THE MORTGAGE POOL."
If applicable, certain legal aspects of the Mortgage Loans for a Series of
Certificates may be described in the related Prospectus Supplement. See also
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS."
MATERIAL FEDERAL TAX CONSIDERATIONS REGARDING RESIDUAL CERTIFICATES
Holders of Residual Certificates will be required to report on
their federal income tax returns as ordinary income their pro rata share of
the taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Material Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates".
Accordingly, under certain circumstances, holders of Offered Certificates that
constitute Residual Certificates may have taxable income and tax liabilities
arising from such investment during a taxable year in excess of the cash
received during such period. The requirement that holders of Residual
Certificates report their pro rata share of the taxable income and net loss of
the REMIC will continue until the Certificate Balances of all classes of
Certificates of the related series have been reduced to zero, even though
holders of Residual Certificates have received full payment of their stated
interest and principal. A portion (or, in certain circumstances, all) of such
Certificateholder's share of the REMIC taxable income may be treated as
"excess inclusion" income to such holder which (i) generally, will not be
subject to offset by losses from other activities, (ii) for a tax-exempt
holder, will be treated as unrelated business taxable income and (iii) for a
foreign holder, will not qualify for exemption from withholding tax.
Individual holders of Residual Certificates may be limited in their ability to
deduct servicing fees and other expenses of the REMIC. In addition, Residual
Certificates are subject to certain restrictions on transfer. Because of the
special tax treatment of Residual Certificates, the taxable income arising in
a given year on a Residual Certificate will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pre-tax yield. Therefore, the after-tax
yield on the Residual
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<PAGE>
Certificate may be significantly less than that of a corporate bond or
stripped instrument having similar cash flow characteristics.
MATERIAL FEDERAL TAX CONSIDERATIONS REGARDING ORIGINAL ISSUE DISCOUNT
Accrual Certificates will be, and certain of the other Classes
of Certificates of a series may be, issued with "original issue discount" for
federal income tax purposes, which generally will result in recognition of
some taxable income in advance of the receipt of cash attributable to such
income. See "Material Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Regular Certificates."
CERTAIN TAX CONSIDERATIONS OF VARIABLE RATE CERTIFICATES
There are certain tax matters as to which counsel to the Depositor is unable
to opine at the time of the issuance of the Prospectus due to uncertainty in
the law. Specifically, the treatment of Interest Weighted Certificates and
Variable Rate Regular Interests are subject to unsettled law which creates
uncertainty as to the exact method of income accrual which should control. The
REMIC will accrue income using a method which is consistent with certain
regulations; however, there can be no assurance that such method will be
controlling.
NONRECOURSE MORTGAGE LOANS
It is anticipated that a substantial portion of the Mortgage Loans included in
any Trust Fund will be nonrecourse loans or loans for which recourse may be
restricted or unenforceable. As to such Mortgage Loans, in the event of
mortgagor default, recourse may he had only against the specific multifamily
or commercial property and such other assets, if any, as have been pledged to
secure the Mortgage Loan. With respect. to those Mortgage Loans that provide
for recourse against the mortgagor and its assets generally, there can be no
assurance that such recourse will ensure a recovery in respect of a defaulted
Mortgage Loan greater than the liquidation value of the related Mortgaged
Property.
DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular Series of Certificates may include Mortgage Loans that are past due
or are non-performing. If so specified in the related Prospectus Supplement,
the servicing of such Mortgage Loans will be performed by a Special Servicer.
Credit Enhancement, if provided with respect to a particular Series of
Certificates, may not cover all losses related to such delinquent or
non-performing Mortgage Loans, and investors should consider the risk that the
inclusion of such Mortgage Loans in the Trust Fund may adversely affect the
rate of defaults and prepayments on Mortgaged Properties and the yield on the
Certificates of such Series.
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<PAGE>
JUNIOR MORTGAGE LOANS
Certain of the Mortgage Loans may be junior mortgage loans. The primary risk
to holders of mortgage loans secured by junior liens is the possibility that a
foreclosure of a related senior lien would extinguish the junior lien and that
adequate funds will not be received in connection with such foreclosure to pay
the debt held by the holder of such junior mortgage loan after satisfaction of
all related senior liens.
See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS-Junior Mortgages; Rights of
Senior Mortgagees or Beneficiaries" and "-Foreclosure" for a discussion of
additional risks to holders of mortgage loans secured by junior liens.
BALLOON PAYMENTS
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity. Mortgage
loans with balloon payments involve a greater degree of risk because the
ability of a mortgagor to make a balloon payment typically will depend upon
its ability either to refinance the loan or to sell the related mortgaged
property in a timely manner. The ability of a mortgagor to accomplish either
of these goals will be affected by a number of factors, including the level of
available mortgage rates at the time of sale or refinancing, the mortgagor's
equity in the related mortgaged property, the financial condition and
operating history of the mortgagor and the related mortgaged property, tax
laws, rent control laws (with respect to certain multifamily properties and
mobile home parks), reimbursement rates (with respect to certain hospitals,
nursing homes and congregate care facilities), renewability of operating
licenses, prevailing general economic conditions and the availability of
credit for commercial or multifamily, as the case may be, real properties
generally.
EXTENSIONS AND MODIFICATIONS OF DEFAULTED MORTGAGE LOANS; ADDITIONAL SERVICING
FEES
In order to maximize recoveries on defaulted Mortgage Loans, a Master Servicer
or Special Servicer, if any, will be permitted (within the parameters
specified in the related Prospectus Supplement) to extend and modify Mortgage
Loans that are in default or as to which a payment default is reasonably
foreseeable, including in particular with respect to balloon payments. In
addition, a Master Servicer or a Special Servicer, if any, may receive workout
fees, management fees, liquidation fees or other similar fees based on
receipts from or proceeds of such Mortgage Loans. Although a Master Servicer
or Special Servicer, if any, generally will be required to determine that any
such extension or modification is reasonably likely to produce a greater
recovery amount than liquidation, there can be no assurance that such
flexibility with respect to extensions or modifications or payment of a
workout fee will increase the amount of receipts from or proceeds of Mortgage
Loans that are in default or as to which a payment default is reasonably
foreseeable.
RISKS RELATED TO THE MORTGAGOR'S FORM OF ENTITY AND SOPHISTICATION
Mortgage loans made to partnerships, corporations or other entities may entail
risks of loss from delinquency and foreclosure that are greater than those of
mortgage loans made to
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individuals. For example, an entity, as opposed to an individual, may be more
inclined to seek legal protection from its creditors, such as a mortgagee,
under the bankruptcy laws. Unlike individuals involved in bankruptcies,
various types of entities generally do not have personal assets and
creditworthiness at stake. The bankruptcy of a mortgagor may impair the
ability of the mortgagee to enforce its rights and remedies under the related
mortgage. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS-Foreclosure-
Bankruptcy Law." The mortgagor's sophistication may increase the likelihood of
protracted litigation or bankruptcy in default situations. The more
sophisticated a mortgagor is, the more likely it will be aware of its rights,
remedies and defenses against its mortgagee and the more likely it will have
the resources to make effective use of all of its rights, remedies and
defenses.
CREDIT ENHANCEMENT LIMITATIONS
The Prospectus Supplement for a Series of Certificates will describe any
Credit Enhancement in the related Trust Fund, which may include letters of
credit, insurance policies, surety bonds, limited guarantees, reserve funds or
other types of credit support, or combinations thereof. Use of Credit
Enhancement will be subject to the conditions and limitations described herein
and in the related Prospectus Supplement and is not expected to cover all
potential losses or risks or guarantee repayment of the entire principal
balance of the Certificates and interest thereon.
A Series of Certificates may include one or more Classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce
the risk to holders of Senior Certificates of delinquent distributions or
ultimate losses, the amount of subordination will be limited and may decline
or be reduced to zero under certain circumstances. In addition, if principal
payments on one or more Classes of Certificates of a Series are made in a
specified order of priority, any limits with respect to the aggregate amount
of claims under any related Credit Enhancement may be exhausted before the
principal of the lower priority Classes of Certificates of such Series has
been repaid. As a result, the impact of significant losses and shortfalls on
the Mortgaged Properties may fall primarily upon those Classes of Certificates
having a lower priority of payment. Moreover, if a form of Credit Enhancement
covers more than one Series of Certificates, holders of Certificates of one
Series will be subject to the risk that such Credit Enhancement will be
exhausted by the claims of the holders of Certificates of one or more other
Series.
The amount, type and nature of Credit Enhancement, if any, established with
respect to a Series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating Classes of the Certificates
of such Series. Such criteria are sometimes based upon an actuarial analysis
of the behavior of mortgage loans in a larger group. Such analysis is often
the basis upon which each Rating Agency determines the amount of Credit
Enhancement required with respect to each such Class. There can be no
assurance that the historical data supporting any such actuarial analysis will
accurately reflect future experience nor any assurance that the data derived
from a large pool of mortgage loans accurately predicts the delinquency,
foreclosure or loss experience of any particular pool of Mortgage
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Loans. No assurance can be given with respect to any Mortgage Loan that the
appraised value of the related Mortgaged Property has remained or will remain
at its level as of the origination date of such Mortgage Loan. Moreover, there
is no assurance that appreciation of real estate values generally will limit
loss experiences on commercial or multifamily properties. If the commercial or
multifamily residential real estate markets should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans in a particular Trust Fund and any secondary financing on the
related Mortgaged Properties become equal to or greater than the value of the
Mortgaged Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional lenders
for similar mortgage loans. In addition, adverse economic conditions (which
may or may not affect real property values) may affect the timely payment by
mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the rates of delinquencies, foreclosures and losses
with respect to any Trust Fund. To the extent that such losses are not covered
by Credit Enhancement, such losses will be borne, at least in part, by the
holders of one or more Classes of the Certificates of the related Series. See
"Limited Nature of Ratings," "DESCRIPTION OF THE CERTIFICATES" and "CREDIT
ENHANCEMENT."
RISKS TO SUBORDINATED CERTIFICATEHOLDERS
If so provided in the related Prospectus Supplement, a Series of Certificates
may include one or more Classes of Subordinate Certificates (which may include
Offered Certificates). If losses or shortfalls in collections on Mortgaged
Properties are realized, the amount of such losses or shortfalls will be borne
first by one or more Classes of the Subordinate Certificates. The remaining
amount of such losses or shortfalls, if any, will be borne by the remaining
Classes of Certificates in the priority and subject to the limitations
specified in such Prospectus Supplement. In addition to the foregoing, any
Credit Enhancement, if applicable, may be used by the Certificates of a higher
priority of payment before the principal of the lower priority Classes of
Certificates of such Series has been repaid. Therefore, the impact of
significant losses and shortfalls on the mortgaged properties may fall
primarily upon those Classes of Certificates with a lower payment priority.
TAXABLE INCOME IN EXCESS OF DISTRIBUTIONS RECEIVED
A holder of a certificate in a Class of Subordinate Certificates could be
allocated taxable income attributable to accruals of interest and original
issue discount in excess of cash distributed to such holder if mortgage loans
were in default giving rise to delays in distributions. See "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES-Taxation of Regular Interests-Treatment of Subordinate
Certificates" herein.
DUE-ON-SALE CLAUSES AND ASSIGNMENTS OF LEASES AND RENTS
Mortgages may contain a due-on-sale clause, which permits the mortgagee to
accelerate the maturity of the mortgage loan if the mortgagor sells, transfers
or conveys the related mortgaged property or its interest in the mortgaged
property. Mortgages may also include a debt-acceleration clause, which permits
the mortgagee to accelerate the debt upon a
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monetary or non-monetary default of the mortgagor. Such clauses are generally
enforceable subject to certain exceptions. The courts of all states will
enforce clauses providing for acceleration in the event of a material payment
default. The equity courts of any state, however, may refuse the foreclosure
of a mortgage or deed of trust when an acceleration of the indebtedness would
be inequitable or unjust or the circumstances would render the acceleration
unconscionable.
The related Prospectus Supplement will describe whether and to what extent the
Mortgage Loans will be secured by an assignment of leases and rents pursuant
to which the mortgagor typically assigns its right, title and interest as
landlord under the leases on the related Mortgaged Property and the income
derived therefrom to the mortgagee as further security for the related
Mortgage Loan, while retaining a license to collect rents for so long as there
is no default. In the event the mortgagor defaults, the license terminates and
the mortgagee is entitled to collect rents. Such assignments are typically not
perfected as security interests prior to the mortgagee's taking possession of
the related mortgaged property and/or appointment of a receiver. Some state
laws may require that the mortgagee take possession of the mortgaged property
and obtain a judicial appointment of a receiver before becoming entitled to
collect the rents. In addition, if bankruptcy or similar proceedings are
commenced by or in respect of the mortgagor, the mortgagee's ability to
collect the Tents may be adversely affected. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS-Leases and Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan 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
cleanup. 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 mortgagee 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 mortgagee have become sufficiently involved in the
operations of the mortgagor, regardless of whether the environmental damage or
threat was caused by a prior owner. A mortgagee also risks such liability on
foreclosure of the mortgage. Each Agreement will generally provide that the
Master Servicer or the Special Servicer, if any, acting on behalf of the Trust
Fund, may not acquire title to a Mortgaged Property securing a Mortgage Loan
or take over its operation unless the Master Servicer or 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 there are no
circumstances present at the Mortgaged Property relating to the use,
management or disposal of any hazardous substances, hazardous materials,
wastes or petroleum based materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
federal, state or local law or regulation; or (ii) if the Mortgaged Property
is not so in compliance or such circumstances are so present, then it would be
in the best economic interest of the Trust Fund to acquire title to the
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Mortgaged Property and further to take such actions as would be necessary and
appropriate to effect such compliance and/or respond to such circumstances,
which may include obtaining an environmental insurance policy. The related
Prospectus Supplement may impose additional restrictions on the ability of the
Master Servicer or the Special Servicer, if any, to take any of the foregoing
actions. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS-Environmental
Risks."
ERISA CONSIDERATIONS
Generally, title I of ERISA and certain sections of the Code apply to
investments made by employee benefit plans and transactions involving the
assets of such plans. Due to the complexity of regulations that govern such
plans, prospective benefit plan investors that are subject to ERISA or the
Code are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
Series. See "ERISA CONSIDERATIONS."
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a Series or a similar means of allocating decision-making
under the related Agreement, which will be specified in the related Prospectus
Supplement ("Voting Rights"), will be required to direct, and will be
sufficient to bind all Certificateholders of such Series to, certain actions,
including amending the related Agreement in certain circumstances. See
"SERVICING OF THE MORTGAGE LOANS-Events of Default," "-Rights Upon Event of
Default" and "DESCRIPTION OF THE CERTIFICATES-Amendment."
BOOK-ENTRY REGISTRATION
The related Prospectus Supplement may provide that one or more Classes of the
Certificates initially will be represented by one or more certificates
registered in the name of the nominee for The Depository Trust Company, and
will not be registered in the names of the Certificateholders or their
nominees. Because of this, unless and until definitive certificates, as
defined in the Prospectus Supplement, are issued, beneficial owners of the
Certificates of such Class or Classes will not be recognized by the Trustee as
"Certificateholders" (as that term is to be used in the related Agreement).
Hence, until such time as definitive certificates are issued, the beneficial
owners will be able to exercise the rights of Certificateholders only
indirectly through The Depository Trust Company and its participating
organizations. See "DESCRIPTION OF THE CERTIFICATES-General."
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THE DEPOSITOR
Prudential Securities Financing Corp. was incorporated in the State of
Delaware on August 26, 1988 as a wholly owned, limited purpose finance
subsidiary of Prudential Securities Group. The principal executive offices of
the Depositor are located at One New York Plaza, New York, New York 10292,
attention David Rodgers, (212) 214-1000.
The Depositor will have no servicing obligations or responsibilities with
respect to any Series of Certificates, Mortgage Pool or Trust Fund. The
Depositor does not have, nor is it expected in the future to have, any
significant assets.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will insure or guarantee distributions on
the Certificates of any Series.
Unless otherwise specified in the applicable Prospectus Supplement, the assets
of the Trust Funds will be acquired by the Depositor directly or through one
or more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from the
sale of each Series of Offered Certificates to purchase the Mortgage Loans
relating to such Series, to repay indebtedness that has been incurred to
obtain funds to acquire Mortgage Loans, to obtain Credit Enhancement, if any,
for the Series and to pay costs of structuring, issuing and underwriting the
Certificates. If so specified in the related Prospectus Supplement,
Certificates may be exchanged by the Depositor for Mortgage Loans.
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DESCRIPTION OF THE CERTIFICATES
The Certificates of each Series will he issued pursuant to a separate Pooling
and Servicing Agreement (the "Agreement") to be entered into among the
Depositor, the Master Servicer, the Special Servicer, if any, and the Trustee
for that Series and any other parties described in the applicable Prospectus
Supplement, substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus is a part or in such other form as may be
described in the applicable Prospectus Supplement. The following summaries
describe certain provisions expected to be common to each Series and the
Agreement with respect to the underlying Trust Fund. However, the Prospectus
Supplement for each Series will describe more fully the Certificates and the
provisions of the related Agreement, which may be different from the summaries
set forth below.
At the time of issuance, the Offered Certificates of each Series will be rated
"investment grade," typically one of the four highest generic rating
categories, by at least one nationally recognized statistical rating
organization. Each of such rating organizations specified in the applicable
Prospectus Supplement as rating the Offered Certificates of the related Series
is hereinafter referred to as a "Rating Agency." 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.
GENERAL
The Certificates of each Series will be issued in registered or book-entry
form and will represent beneficial ownership interests in the trust fund (the
"Trust Fund") created pursuant to the Agreement for such Series. The Trust
Fund for each Series will primarily comprise, to the extent provided in the
Agreement: (i) the Mortgage Loans conveyed to the Trustee pursuant to the
Agreement; (ii) all payments on or collections in respect of the Mortgage
Loans due after the Cut-off Date; (iii) any REO property, as defined in the
Prospectus Supplement; (iv) all revenue received in respect of REO Property;
(v) insurance policies with respect to such Mortgage Loans; (vi) any
assignments of leases, rents and profits and security agreements; (vii) any
indemnities or guaranties given as additional security for such Mortgage
Loans; (viii) the Trustee's right, title and interest in and to any reserve
or escrow accounts established pursuant to any of the Mortgage Loan documents
(each, a "Reserve Account"); (ix) the Collection Account; (x) the Distribution
Account and the REO Account; (xi) any environmental indemnity agreements
relating to such Mortgaged Properties; (xii) the rights and remedies under the
Mortgage Loan Purchase and Sale Agreement; (xiii) the proceeds of any of the
foregoing (excluding interest earned on deposits in any Reserve Account, to
the extent such interest belongs to the related mortgagor); and (xiv) such
other assets or rights as are described in the related Prospectus Supplement.
In addition, the Trust Fund for a Series may include private mortgage
pass-through certificates, certificates issued or guaranteed by the Federal
Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage
Association ("Fannie Mae") or the Governmental National Mortgage Association
("GNMA") or mortgage pass-through certificates previously created by the
Depositor, as well as various forms of Credit Enhancement. See "CREDIT
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ENHANCEMENT." Such other assets will be described more fully in the related
Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, Certificates of a
given Series may be issued in several Classes, which may pay interest at
different rates, may represent different allocations of the right to receive
principal and interest payments, and certain of which may be subordinated to
other Classes in the event of shortfalls in available cash flow from the
underlying Mortgage Loans. Alternatively, or in addition, Classes may be
structured to receive principal payments in sequence. Each Class in a group of
sequential pay Classes would be entitled to be paid in full before the next
Class in the group is entitled to receive any principal payments. A Class of
Certificates may also provide for payments of principal only or interest only
or for disproportionate payments of principal and interest. Subordinate
Certificates of a given Series of Certificates may he offered in the same
Prospectus Supplement as the Senior Certificates of such Series or may be
offered in a separate offering document. Each Class of Certificates of a
Series will be issued in the minimum denominations specified in the related
Prospectus Supplement.
The Prospectus Supplement for any Series including Classes similar to any of
those described above will contain a complete description of their
characteristics and risk factors, including, as applicable, (i) mortgage
principal prepayment effects on the weighted average lives of Classes; (ii)
the risk that interest only, or disproportionately interest weighted, Classes
purchased at a premium may not return their purchase prices under rapid
prepayment scenarios; and (iii) the degree to which an investor's yield is
sensitive to principal prepayments.
The Offered Certificates of each Series will be freely transferable and
exchangeable at the office specified in the related Agreement and Prospectus
Supplement, provided, however, that certain Classes of Certificates may be
subject to transfer restrictions described in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, the
Certificates may be transferable only on the books of The Depository Trust
Company or another deposition, identified in such Prospectus Supplement.
DISTRIBUTIONS ON CERTIFICATES
Distributions of principal and interest on the Certificates of each Series
will be made to the registered holders thereof ("Certificateholders") by the
Trustee (or such other paying agent as may be identified in the related
Prospectus Supplement) on the day (the "Distribution Date") specified in the
related Prospectus Supplement, beginning in the period specified in the
related Prospectus Supplement following the establishment of the related Trust
Fund. Distributions for each Series will be made by check mailed to the
address of the person entitled thereto as it appears on the certificate
register for such Series maintained by the Trustee or by wire transfer if so
specified in the related Prospectus Supplement. The final distribution in
retirement of the Certificates of each Series will be made only upon
presentation and surrender of the Certificates at the office or agency
specified in the notice to the Certificateholders of such final distribution.
In addition, the Prospectus Supplement
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relating to each Series will set forth the applicable due period, prepayment
period, record date, Cut-off Date and determination date in respect of each
Series of Certificates.
With respect to each Series of Certificates on each Distribution Date, the
Trustee (or such other paying agent as may be identified in the applicable
Prospectus Supplement) will distribute to the Certificateholders the amounts
described in the related Prospectus Supplement that are due to be paid on such
Distribution Date. In general, such amounts will include previously
undistributed payments of principal (including principal prepayments, if any)
and interest on the Mortgage Loans received by the Master Servicer or the
Special Servicer, if any, after a date specified in the related Prospectus
Supplement (the "Cut-off Date") and prior to the day preceding each
Distribution Date specified in the related Prospectus Supplement.
ACCOUNTS
It is expected that the Agreement for each Series of Certificates will provide
that the Trustee establish an account (the "Distribution Account") into which
the Master Servicer will deposit amounts held in the Collection Account from
which Certificateholder distributions will be made with respect to a given
Distribution Date. On each Distribution Date, the Trustee will apply amounts
on deposit in the Distribution Account generally to make distributions of
interest and principal to the Certificateholders in the manner described in
the related Prospectus Supplement.
It is also expected that the Agreement for each Series of Certificates will
provide that the Master Servicer establish and maintain an account (the
"Collection Account") in the name of the Trustee for the benefit of
Certificateholders. The Master Servicer will generally be required to deposit
into the Collection Account all amounts received on or in respect of the
Mortgage Loans. The Master Servicer will be entitled to make certain
withdrawals from the Collection Account to, among other things: (i) remit
certain amounts for the related Distribution Date into the Distribution
Account; (ii) pay Property Protection Expenses, taxes, assessments and
insurance premiums and certain third-party expenses in accordance with the
Agreement; (iii) pay accrued and unpaid servicing fees and other servicing
compensation to the Master Servicer and the Special Servicer, if any, and (iv)
reimburse the Master Servicer, the Special Servicer, if any, the Trustee and
the Depositor for certain expenses and provide indemnification to the
Depositor. the Master Servicer and the Special Servicer, if any, as described
in the Agreement. "Property Protection Expenses" comprise certain costs and
expenses incurred in connection with defaulted Mortgage Loans, acquiring title
to, or management of, REO Property or the sale of defaulted Mortgage Loans or
REO Properties, as more fully described in the related Agreement. The
applicable Prospectus Supplement may provide for additional circumstances in
which the Master Servicer will be entitled to make withdrawals from the
Collection Account.
The amount at any time credited to the Collection Account or the Distribution
Account may be invested in Permitted Investments that are payable on demand or
in general mature or are subject to withdrawal or redemption on or before the
business day preceding the next succeeding Master Servicer Remittance Date, in
the case of the Collection Account, or the
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business day preceding the next succeeding Distribution Date, in the case of
the Distribution Account. The Master Servicer will be required to remit
amounts on deposit in the Collection Account that are required for
distribution to Certificateholders to the Distribution Account on or before
the business day preceding the related Distribution Date (the "Master Servicer
Remittance Date"). The income from the investment of funds in the Collection
Account and the Distribution Account in Permitted Investments will constitute
additional servicing compensation for the Master Servicer, and the risk of
loss of funds in the Collection Account and the Distribution Account resulting
from such investments will be home by the Master Servicer. The amount of each
such loss will be required to be deposited by the Master Servicer in the
Collection Account or the Distribution Account, as the case may be, promptly
as realized.
It is expected that the Agreement for each Series of Certificates will provide
that an account (the "REO Account") will be established and maintained in
order to be used in connection with REO Properties and, if specified in the
related Prospectus Supplement, certain other Mortgaged Properties. To the
extent set forth in the Agreement, certain withdrawals from the REO Account
will be made to, among other things, (i) make remittances to the Collection
Account as required by the Agreement; (ii) pay taxes, assessments, insurance
premiums, other amounts necessary for the proper operation, management and
maintenance of the REO Properties and such Mortgaged Properties and certain
third-party expenses in accordance with the Agreement; and (iii) provide for
the reimbursement of certain expenses in respect of the REO Properties and
such Mortgaged Properties.
The amount at any time credited to the REO Account may be invested in
Permitted Investments that are payable on demand or mature, or are subject to
withdrawal or redemption, on or before the business day preceding the day on
which such amounts are required to be remitted to the Master Servicer for
deposit in the Collection Account. The income from the investment of funds in
the REO Account in Permitted Investments will be for the benefit of the Master
Servicer, or the Special Servicer, if applicable, and the risk of loss of
funds in the REO Account resulting from such investments will be borne by the
Master Servicer, or the Special Servicer, if applicable.
"Permitted Investments" will generally consist of one or more of the
following, unless the Rating Agencies rating Certificates of a Series require
other or additional investments:
(i) direct obligations of, or guarantees as to timely payment
of principal and interest by, the United States or any agency or
instrumentality thereof, provided that such obligations are backed by
the full faith and credit of the United States of America;
(ii) direct obligations of the FHLMC (debt obligations only),
Fannie Mae (debt obligations only), the Federal Farm Credit System
(consolidated system-wide bonds and notes only), the Federal Home Loan
Banks (consolidated debt obligations only), the Student Loan Marketing
Association (debt obligations only), the Financing Corp. (consolidated
debt obligations only) and the Resolution Funding Corp. (debt
obligations only);
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(iii) federal funds time deposits in, or certificates
of deposit of, or bankers' acceptances, or repurchase obligations,
all having maturities of not more than 365 days, issued by any bank
or trust company, savings and loan association or savings bank,
depositing institution or trust company having the highest short-term
debt obligation from Standard & Poor's Rating Services, a division of
the McGraw-Hill Companies, Inc. ("S&P") or A+1, at least one of the
Rating Agencies rating such Certificates, or such lower rating as
will not result in the downgrade or withdrawal of the rating or
ratings then assigned to the Certificates by any Rating Agency rating
such Certificates;
(iv) commercial paper having a maturity of 365 days
or less (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 and demand
notes that constitute vehicles for investment in commercial paper)
that is rated by each Rating Agency rating such Certificates in its
highest short-term unsecured rating category;
(v) units of taxable money market funds or mutual
funds, which funds seek to maintain a constant asset value and have
been rated by each Rating Agency rating such Certificates as
Permitted Investments with respect to this definition;
(vi) if previously confirmed in writing to the
Trustee, any other demand, money market or time deposit, or any other
obligation, security or investment. as may be acceptable to each
Rating Agency rating such Certificates as a permitted investment of
funds backing securities having ratings equivalent to each Rating
Agency's highest initial rating of the Certificates; and
(vii) such other obligations as are acceptable as
Permitted Investments to each Rating Agency rating such Certificates;
provided, however, that (a) if _____ S&P is rating such Certificates, none of
such obligations or securites listed above may have an "r" highlighter affixed
to its rating if rated by _____ S&P; (b) except with respect to units of money
market funds pursuant to clause (v) above, each such obligation or security
will have a fixed dollar amount of principal due at maturity which cannot vary
or change; (c) except with respect to units of money market funds pursuant to
clause (v) above, if any such obligation or security provides for a variable
rate of interest, interest will be tied to a single interest rate index plus a
single fixed spread (if any) and move proportionately with that index; and (d)
if any of the obligations or securities listed in paragraphs (iii) - (vi)
above are not rated by each Rating Agency rating such Certificates, such
investment will nonetheless qualify as a Permitted Investment if it is rated
by one of the Rating Agencies rating such Certificates and one other
nationally recognized statistical rating organization; and provided, further,
that such instrument continues to qualify as a "cash flow investment" pursuant
to Code Section 860G(a)(6) earning a passive return in the nature of interest
and that no instrument or security will be a Permitted Investment if (i) such
instrument or security evidences a right to receive only interest payments or
(ii) the right to receive principal and interest payments derived from the
underlying investment
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provides a yield to maturity in excess of 120% of the yield to maturity at par
of such underlying investment as of the date of its acquisition.
AMENDMENT
Generally, the Agreement for each Series will provide that it may be amended
from time to time by the parties thereto, without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provisions therein that may be inconsistent with any other provisions
therein, (iii) to amend any provision thereof to the extent necessary or
desirable to maintain the rating or ratings assigned to each of the Classes of
Certificates by each Rating Agency or (iv) to make any other provisions with
respect to matters or questions arising under the Agreement that will not (a)
be inconsistent with the provisions of the Agreement, (b) result in the
downgrading, withdrawal or qualification of the rating or ratings then
assigned to any outstanding Class of Certificates and (c) adversely affect in
any material respect the interests of any Certificateholder, as evidenced by
an opinion of counsel.
Each Agreement will also provide that it may be amended from time to time by
the parties thereto with the consent of the holders of each of the Classes of
Regular Certificates representing not less than a percentage specified in the
related Agreement of each Class of Certificates affected by the amendment for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Agreement or of modifying in any
manner the rights of the Certificateholders; provided, however, that no such
amendment shall: (i) reduce in any manner the amount of, or delay the timing
of, payments received on Mortgage Loans that are required to be distributed on
any Certificate without the consent of each affected Certificateholder; (ii)
change the percentage of Certificates the holders of which are required to
consent to any action or inaction under the Agreement, without the consent of
the holders of all Certificates then outstanding; or (iii) alter the
obligations of the Master Servicer or the Trustee to make an advance without
the consent of the holders of all Certificates representing all of the Voting
Rights of the Class or Classes affected thereby.
Further, the Agreement for each Series may provide that the parties thereto,
at any time and from time to time, without the consent of the
Certificateholders, may amend the Agreement to modify, eliminate or add to any
of its provisions to such extent as shall be necessary to maintain the
qualification of any REMIC related to such Series or to prevent the imposition
of any additional material state or local taxes, at all times that any of the
Certificates are outstanding, provided, however, that such action, as
evidenced by an opinion of counsel, is necessary or helpful to maintain such
qualification or to prevent the imposition of any such taxes, and would not
adversely affect in any material respect the interest of any
Certificateholder.
The related Prospectus Supplement will specify. the method for allocating
Voting Rights among holders of Certificates of a Class. Any Certificate
beneficially owned by the Depositor, the Master Servicer, the Special Servicer
(if any), any mortgagor, the Trustee, a manager or any of their respective
affiliates will be deemed not to be outstanding;
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provided, however, that, Certificates beneficially owned by the Master
Servicer, the Special Servicer (if any), or any affiliate thereof will be
deemed to be outstanding in connection with any required consent to an
amendment of the Agreement that relates to an action that would materially
adversely affect in any material respect the interests of the
Certificateholders of any Class while the Master Servicer, the Special
Servicer (if any), or any such affiliate owns not less than a percentage
specified in the related Agreement of such Class.
The Agreement relating to each Series may provide that no amendment to such
Agreement will be made unless there has been delivered in accordance with such
Agreement an opinion of counsel to the effect that such amendment will not
cause such Series to fail to qualify as a REMIC at any time that any of the
Certificates are outstanding.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the amendment of the related Agreement required by the
Rating Agencies rating Certificates of such Series.
TERMINATION
The obligations of the parties to the Agreement for each Series will terminate
upon: (i) the purchase of all of the assets of the related Trust Fund, as
described in the related Prospectus Supplement; (ii) the later of (a) the
distribution to Certificateholders of that Series of final payment with
respect to the last outstanding Mortgage Loan or (b) the disposition of all
property acquired upon foreclosure or deed-in-lieu of foreclosure with respect
to the last outstanding Mortgage Loan and the remittance to the
Certificateholders of all funds due under the Agreement; (iii) the sale of the
assets of the related Trust Fund after the principal amounts of all
Certificates have been reduced to zero under circumstances set forth in the
Agreement; or (iv) mutual consent of the parties and all Certificateholders.
With respect to each Series, the Trustee will give or cause to be given
written notice of termination of the Agreement to each Certificateholder and
the final distribution under the Agreement will be made only upon surrender
and cancellation of the related Certificates at an office or agency specified
in the notice of termination.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution for each Series, the Trustee (or such
other paying agent as may be identified in the applicable Prospectus
Supplement) will forward to each Certificateholder a statement setting forth
such information relating to such distribution as is specified in the
Agreement and described in the applicable Prospectus Supplement.
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THE TRUSTEE
The Depositor will select a bank or trust company to act as trustee (the
"Trustee") under the Agreement for each Series and the Trustee will be
identified, and its obligations under that Agreement will be described, in the
applicable Prospectus Supplement. The Rating Agencies rating Certificates of a
Series may require the appointment of a Fiscal Agent to guarantee certain
obligations of the Trustee. Such Fiscal Agent will be a party to the
Agreement. In such event, the Fiscal Agent will be identified, and its
obligations under the Agreement will be described, in the applicable
Prospectus Supplement. See "SERVICING OF THE MORTGAGE LOAN Certain Matters
with Respect to the Master Servicer, the Special Servicer, the Trustee and the
Depositor."
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THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist of mortgage loans secured by first or junior
mortgages, deeds of trust or similar security instruments (each, a "Mortgage")
on, or installment contracts ("Installment Contracts") for the sale of, fee
simple or leasehold interests in properties improved by office buildings,
health-care related properties, congregate care facilities, hotels and motels,
industrial properties, warehouse, mini-warehouse, and self-storage facilities,
mobile home parks, multifamily properties, cooperative apartment buildings,
nursing homes, office/retail properties, anchored retail properties,
single-tenant retail properties, unanchored retail properties and other
commercial real estate properties, multifamily residential properties and/or
mixed residential commercial properties (each, a "Mortgaged Property"). A
Mortgage Pool may also include participation interests in such types of
mortgage loans, private-label mortgage pass-through certificates, certificates
issued or guaranteed by FHLMC, Fannie Mae or GNMA, mortgage pass-through
certificates, or collateralized mortgage obligations. Each such mortgage loan,
Installment Contract, participation interest, certificate, or collateralized
mortgage obligation is herein referred to as a "Mortgage Loan."
All Mortgage Loans will be of one or more of the following types:
1. Mortgage Loans with fixed interest rates;
2. Mortgage Loans with adjustable interest rates;
3. Mortgage Loans whose principal balances fully amortize over their
remaining terms to maturity;
4. Mortgage Loans whose principal balances do not fully amortize, but
instead provide for a substantial principal payment at the stated
maturity of the loan;
5. Mortgage Loans that provide for recourse against only the Mortgaged
Properties;
6. Mortgage Loans that provide for recourse against the other assets of
the related mortgagors; and
7. Any other types of Mortgage Loans described in the applicable
Prospectus Supplement.
Mortgage Loans may also be secured by one or more assignments of leases and
rents, management agreements or operating agreements relating to the Mortgaged
Property and in some cases by certain letters of credit, personal guarantees
or both. Pursuant to an assignment of leases and rents, the obligor on the
related promissory note, bond, mortgage consolidation agreement, installment
contract or other similar instrument (each, a "Note") assigns its right, title
and interest as landlord under each lease and the income derived
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therefrom to the related mortgagee, while retaining a license to collect the
rents for so long as there is no default. If the obligor defaults, the license
terminates and the related mortgagee is entitled to collect the rents from
tenants to he applied to the monetary obligations of the obligor. State law
may limit or restrict the enforcement of the assignment of leases and rents by
a mortgagee until the mortgagee takes possession of the related mortgaged
property and/or a receiver is appointed. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS-Leases and Rents."
If so specified in the related Prospectus Supplement, a Trust Fund may include
a number of Mortgage Loans with a single obligor or related obligors
thereunder; provided, however, that the principal balance of the mortgage
loans to a single obligor or group of related obligors will not exceed 45% of
the initial principal amount of the Certificates for a Series. In addition, in
the event that the Mortgage Pool securing Certificates for any Series includes
a Mortgage Loan or mortgage-backed security or a group of Mortgage Loans or
mortgage-backed securities of a single obligor or group of affiliated obligors
representing 10% or more, but less than 45%, of the principal amount of such
Certificates, the Prospectus Supplement will contain information, including
financial information, regarding the credit quality of the obligors. The
Mortgage Loans will be newly originated or seasoned, and will be acquired by
the Depositor either directly or through one or more affiliates.
Unless otherwise specified in the Prospectus Supplement for a Series, the
Mortgage Loans will not be insured or guaranteed by the United States, any
governmental agency, any private mortgage insurer or any other person or
entity.
The Prospectus Supplement relating to each Series will specify the Mortgage
Loan Seller or Mortgage Loan Sellers relating to the Mortgage Loans, which may
include, among others, Real Estate Investment Trusts ("REITs"), commercial
banks, savings and loan associations, other financial institutions, mortgage
banks, credit companies, insurance companies, real estate developers or other
HUD approved lenders, and the underwriting criteria to the extent available in
connection with originating the Mortgage Loans. The criteria applied by the
Depositor in selecting the Mortgage Loans to be included in a Mortgage Pool
will vary from Series to Series. The Prospectus Supplement relating to each
Series also will provide specific information regarding the characteristics of
the Mortgage Loans, as of the Cut-off Date, including, among other things: (i)
the aggregate principal balance of the Mortgage Loans; (ii) the types of
properties securing the Mortgage Loans and the aggregate principal balance of
the Mortgage Loans secured by each type of property; (iii) the interest rate
or range of interest rates of the Mortgage Loans; (iv) the origination dates
and the original and, with respect to seasoned Mortgage Loans, remaining terms
to stated maturity of the Mortgage Loans; (v) the loan-to-value ratios at
origination and, with respect to seasoned Mortgage Loans, current loan
balance-to-original value ratios of the Mortgage Loans; (vi) the geographic
distribution of the Mortgaged Properties underlying the Mortgage Loans; (vii)
the minimum interest rates, margins, adjustment caps, adjustment frequencies,
indices and other similar information applicable to adjustable rate Mortgage
Loans; (viii) the debt service coverage ratios relating to the Mortgage Loans;
and (ix) payment delinquencies, if any, relating to the Mortgage Loans. The
applicable Prospectus Supplement will also specify any materially inadequate,
incomplete or obsolete
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documentation relating to the Mortgage Loans and other characteristics of the
Mortgage Loans relating to each Series. If specified in the applicable
Prospectus Supplement, the Depositor may segregate the Mortgage Loans in a
Mortgage Pool into separate "Mortgage Loan Groups" (as described in the
related Prospectus Supplement) as part of the structure of the payments of
principal and interest on the Certificates of a Series. In such case, the
Depositor will disclose the above-specified information by Mortgage Loan
Group.
The Depositor will file a current report on Form 8-K (the "Form 8-K") with the
Commission within 15 days after the initial issuance of each Series of
Certificates (each, a "Closing Date"), as specified in the related Prospectus
Supplement, which will set forth information with respect to the Mortgage
Loans included in the Trust Fund for a Series as of the related Closing Date.
The Form 8-K will be available to the Certificateholders of the related Series
promptly after its filing.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates of each Series, the Depositor will
cause the Mortgage Loans to be assigned to the Trustee, together with all
scheduled payments of interest and principal due after the Cut-off Date
(whether received) and all payments of interest and principal received by the
Depositor or the Master Servicer on or with respect to the Mortgage Loans
after the Cut-off Date. The Trustee, concurrently with such assignment, will
execute and deliver Certificates evidencing the beneficial ownership interests
in the related Trust Fund to the Depositor in exchange for the Mortgage Loans.
Each Mortgage Loan will be identified in a schedule appearing as an exhibit to
the Agreement for the related Series (the "Mortgage Loan Schedule"). The
Mortgage Loan Schedule will include, among other things, as to each Mortgage
Loan, information as to its outstanding principal balance as of the close of
business on the Cut-off Date, as well as information respecting the interest
rate, the scheduled monthly (or other periodic) payment of principal and
interest as of the Cut-off Date, the maturity date of each Note and the
address of the property securing the Note.
In addition, the Depositor will, as to each Mortgage Loan, deliver to the
Trustee: (i) the Note, endorsed to the order of the Trustee without recourse;
(ii) the Mortgage and an executed assignment thereof in favor of the Trustee
or otherwise as required by the Agreement; (iii) any assumption, modification
or substitution agreements relating to the Mortgage Loan; (iv) a mortgagee's
title insurance policy (or owner's policy in the case of an Installment
Contract), together with its endorsements, or an attorney's opinion of title
issued as of the date of origination of the Mortgage Loan; (v) if the security
losses are not covered by the methods of Credit Enhancement or the insurance
policies described herein and/or in the related Prospectus Supplement, the
ability of the Trust Fund to pay principal of and interest on the Certificates
may be adversely affected. Even if 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 Loans, thus shortening
weighted average life and affecting yield to maturity.
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REPRESENTATIONS AND WARRANTIES
The seller of a Mortgage Loan to the Depositor (the "Mortgage Loan Seller"),
which may be an affiliate of the Depositor, will have made representations and
warranties in respect of the Mortgage Loans sold by such Mortgage Loan Seller
to the Depositor. Such representations and warranties will generally include,
among other things: (i) with respect to each Mortgaged Property, that title
insurance (or in the case of Mortgaged Properties located in areas where such
policies are generally not available, an attorney's opinion of title) and any
required hazard insurance was effective at the origination of each Mortgage
Loan, and that each policy (or opinion of title) remained in effect on the
date of purchase of the Mortgage Loan from the Mortgage Loan Seller, (ii) that
the Mortgage Loan Seller had good and marketable (or indefeasible, in the case
of real property located in Texas) title to each such Mortgage Loan, (iii)
with respect to each Mortgaged Property, that each mortgage constituted a
valid first lien on the Mortgaged Property (subject only to permissible title
insurance exceptions); (iv) that there were no delinquent tax or assessment
liens against the Mortgaged Property; and (v) that each Mortgage Loan was
current as to all required payments. The Prospectus Supplement for a Series
will specify the representations and warranties being made by the Mortgage
Loan Seller.
All of the representations and warranties of a Mortgage Loan Seller in respect
of a Mortgage Loan generally will have been made as of the date on which such
Mortgage Loan Seller sold the Mortgage Loan to the Depositor. The related
Prospectus Supplement will indicate if a different date is applicable. A
substantial period of time may have elapsed between such date and the date of
the initial issuance of the Series of Certificates evidencing an interest in
such Mortgage Loan. Since the representations and warranties of the Mortgage
Loan Seller do not address events that may occur following the sale of a
Mortgage Loan by the Mortgage Loan Seller, the repurchase obligation of the
Mortgage Loan Seller described below will not arise if, on or after the date
of the sale of a Mortgage Loan by the Mortgage Loan Seller to the Depositor,
the relevant event occurs that would have given rise to such an obligation.
However, the Depositor will not include any Mortgage Loan in the Trust Fund
for any Series of Certificates if anything has come to the Depositor's
attention that would cause it to believe that the representations and
warranties of the Mortgage Loan Seller will not be accurate and complete in
all material respects in respect of such Mortgage Loan as of the related
Cut-off Date. If so specified in the related Prospectus Supplement, the
Depositor will make certain representations and warranties for the benefit of
Certificateholder of a Series in respect of a Mortgage Loan that relate to the
period commencing on the date of sale of such Mortgage Loan to the Depositor.
Upon the discovery of the breach of any representation or warranty made by the
Mortgage Loan Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Certificateholders of the related
Series. Such Mortgage Loan Seller generally will be obligated to repurchase
such Mortgage Loan at a purchase price equal to 100% of the unpaid principal
balance thereof at the date of repurchase or, in the case of a Series of
Certificates as to which the Depositor has elected to treat the related Trust
Fund as a REMIC, as defined in the Code, at such other price as may be
necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together
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with accrued interest at the interest rate for such Mortgage Loan, to the
first day of the month following such repurchase and the amount of any
unreimbursed advances made by the Master Servicer in respect of such Mortgage
Loan, together with interest thereon at the reimbursement rate. The Master
Servicer will be required to enforce such obligation of the Mortgage Loan
Seller for the benefit of the Trustee and the Certificateholders, following
the practices it would employ in its good faith business judgment were it the
owner of such Mortgage Loan. This repurchase obligation will generally
constitute the sole remedy available to the Certificateholders of such Series
for a breach of a representation or warranty by a Mortgage Loan Seller and the
Depositor and the Master Servicer will have no liability to the Trust Fund for
any such breach. The applicable Prospectus Supplement will indicate whether
any additional remedies will be available to the Certificateholders. No
assurance can be given that a Mortgage Loan Seller will carry out its
repurchase obligation with respect to the Mortgage Loans.
If specified in the related Prospectus Supplement, the Mortgage Loan Seller
may deliver to the Trustee within a specified number of days following the
issuance of a Series of Certificates Mortgage Loans in substitution for any
one or more of the Mortgage Loans initially included in the Trust Fund but
which do not conform in one or more respects to the description thereof
contained in the related Prospectus Supplement, as to which a breach of a
representation or warranty is discovered, which breach materially and
adversely affects the interests of the Certificateholders, or as to which a
document in the related Mortgage Loan File is defective in any material
respect. The related Prospectus Supplement will describe any required
characteristics of any such substituted Mortgage Loans.
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SERVICING OF THE MORTGAGE LOANS
GENERAL
The servicer of the Mortgage Loans (the "Master Servicer") will be specified
in the applicable Prospectus Supplement and may be an affiliate of the
Depositor. The Prospectus Supplement for the related Series will set forth
certain information concerning the Master Servicer. The Master Servicer will
be responsible for servicing the Mortgage Loans pursuant to the Agreement for
the related Series. To the extent so specified in the related Prospectus
Supplement, one or more Special Servicers may be a party to the related
Agreement or may be appointed by holders of certain Classes of Regular
Certificates representing a certain percentage specified in the related
Agreement of such Class or Classes of Certificates or by another specified
party. Certain information with respect to the Special Servicer will be set
forth in such Prospectus Supplement. A Special Servicer for any Series of
Certificates may be an affiliate of the Depositor or the Master Servicer and
may hold, or be affiliated with the holder of, Subordinate Certificates of
such Series. A Special Servicer may be entitled to any of the rights, and
subject to any of the obligations, described herein in respect of a Master
Servicer. In general, a Special Servicer's duties will relate to defaulted
Mortgage Loans or those Mortgage Loans that otherwise require special
servicing ("Specially Serviced Mortgage Loans"), including instituting
foreclosures and negotiating work-outs and will also include asset management
activities with respect to any REO Property. The related Prospectus Supplement
will describe the rights, obligations and compensation of any Special Servicer
for a particular Series of Certificates. The Master Servicer or Special
Servicer generally may subcontract the servicing of all or a portion of the
Mortgage Loans to one or more sub-servicers provided certain conditions are
met. Such sub-servicer may be an affiliate of the Depositor and may have other
business relationships with Depositor and its affiliates.
COLLECTIONS AND OTHER SERVICING PROCEDURES
The Master Servicer and the Special Servicer, if any, will make reasonable
efforts to collect all pavements called for under the Mortgage Loans and will,
consistent with the related Agreement, follow such collection procedures as it
deems necessary or desirable. Consistent with the above and unless otherwise
specified in the related Prospectus Supplement. The Master Servicer or the
Special Servicer, if applicable, may, in its discretion, waive any late
payment charge or penalty fees in connection with a late payment of a Mortgage
Loan and, if so specified in the related Prospectus Supplement, may extend the
due dates for payments due on a Note.
It is expected that the Agreement for each Series will provide that the Master
Servicer establish and maintain an escrow account (the "Escrow Account") in
which the Master Servicer will be required to deposit amounts received from
each mortgagor, if required by the terms of the related Mortgage Loan
documents, for the payment of taxes, assessments, certain mortgage and hazard
insurance premiums and other comparable items ("Escrow Payments"). The Special
Servicer, if any, will be required to remit amounts received for such purposes
on Mortgage Loans serviced by it to the Master Servicer for deposit into the
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Escrow Account, and will be entitled to direct the Master Servicer to make
withdrawals from the Escrow Account as may be required for servicing of such
Mortgage Loans. Withdrawals from the Escrow Account generally may be made to
(i) effect timely payment of taxes, assessments, mortgage and hazard insurance
premiums and other comparable items, (ii) to transfer funds to the Collection
Account to reimburse the Master Servicer or the Trustee, as applicable, for
any advance with interest thereon relating to Escrow Payments, (iii) to
restore or repair the Mortgaged Properties, (iv) to clear and terminate such
account, (v) to pay interest to mortgagors on balances in the Escrow Account,
if required by the terms of the related Mortgage Loan documents or by
applicable law, (vi) to remit to the related borrower the Financial Lease and
Reporting Fee as and when required by the related Mortgage, and (vii) to
remove amounts not required to be deposited therein. The related Prospectus
Supplement may provide for other permitted withdrawals from the Escrow
Account. The Master Servicer will be entitled to all income on the funds in
the Escrow Account invested in Permitted Investments not required to be paid
to mortgagors by the terms of the related Mortgage Loan documents or by
applicable law. The Master Servicer will be responsible for the administration
of the Escrow Account.
INSURANCE
The Agreement for each Series will require that the Master Servicer use its
reasonable efforts to or require each mortgagor to maintain insurance in
accordance with the related Mortgage Loan documents, which generally will
include a standard fire and hazard insurance policy with extended coverage. To
the extent required by the related Mortgage Loan, the coverage of each such
standard hazard insurance policy will be in an amount that is at least equal
to the lesser of (i) the full replacement cost of the improvements and
equipment securing such Mortgage Loan or (ii) the outstanding principal
balance owing on such Mortgage Loan or such amount as is necessary to prevent
any reduction in such policy by reason of the application of co-insurance and
to prevent the Trustee thereunder from being deemed to be a co-insurer, in
each case with a replacement cost rider. The Master Servicer will also use its
reasonable efforts to require each mortgagor to maintain (i) insurance
providing coverage against 12 months of rent interruptions and (ii) such other
insurance as provided in the related Mortgage Loan. Subject to the
requirements for modification, waiver or amendment of a Mortgage Loan (See
"Modifications, Waivers and Amendments"), the Master Servicer may in its
reasonable discretion consistent with the servicing standard set forth in the
related Agreement waive the requirement of a Mortgage Loan that the related
mortgagor maintain earthquake insurance on the related Mortgaged Property.
If a Mortgaged Property is located at the time of origination of the related
Mortgage Loan in a federally designated special flood hazard area, the Master
Servicer will also use its reasonable efforts to require the related mortgagor
to maintain flood insurance in an amount equal to the lesser of the unpaid
principal balance of the related Mortgage Loan and the maximum amount
obtainable with respect to the Mortgage Loan. The related Agreement will
provide that the Master Servicer will be required to maintain the foregoing
insurance if the related mortgagor fails to maintain such insurance to the
extent such insurance is available at commercially reasonable rates and to the
extent the Trustee, as
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mortgagee, has an insurable interest. The cost of any such insurance
maintained by the Master Servicer will be advanced by the Master Servicer. The
Master Servicer or the Special Servicer, if any, will cause to be maintained
fire and hazard insurance with extended coverage on each REO Property in an
amount that is at least equal to the full replacement cost of the improvements
and equipment. The cost of any such insurance with respect to an REO Property
will be payable out of amounts on deposit in the related REO Account or will
be advanced by the Master Servicer. The Master Servicer or the Special
Servicer, if any, will maintain flood insurance providing substantially the
same coverage as described above on any REO Property that was located in a
federally designated special flood hazard area at the time the related
mortgage loan was originated. The Master Servicer or the Special Servicer, if
any, will maintain with respect to each REO Property (i) public liability
insurance, (ii) loss of rent endorsements and (iii) such other insurance as
provided in the related Mortgage Loan. Any such insurance that is required to
be maintained with respect to any REO Property will only be so required to the
extent such insurance is available at commercially reasonable rates. The
related Agreement will provide that the Master Servicer or Special Servicer,
if any, may satisfy its obligation to cause hazard insurance policies to be
maintained by maintaining a master force placed insurance policy insuring
against losses on the Mortgage Loans or REO Properties, as the case may be.
The incremental cost of such insurance allocable to any particular Mortgage
Loan or REO Property, if not home by the related mortgagor, will be an expense
of the Trust Fund. Alternatively, the Master Servicer or Special Servicer, if
any, may satisfy its obligation by maintaining, at its expense, a blanket
policy (i.e., not a master force placed policy) insuring against losses on the
Mortgage Loans or REO Properties, as the case may be. If such a blanket or
master force placed policy contains a deductible clause, the Master Servicer
or the Special Servicer, if any, will be obligated to deposit in the
Collection Account all sums that would have been deposited therein but for
such clause to the extent any such deductible exceeds the deductible
limitation that pertained to the related Mortgage Loan, or in the absence of
any such deductible limitation, the deductible limitation that is consistent
with the servicing standard under the related Agreement.
In general, the standard form of fire and hazard extended coverage insurance
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. Since the standard hazard insurance
policies relating to the Mortgage Loans will be underwritten by different
insurers and win cover Mortgaged Properties located in various states, such
policies will not contain identical terms and conditions. The most significant
terms thereof, however, generally will be determined by state law and
conditions. 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 earthquakes, 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. Any losses incurred with respect to Mortgage Loans due to
uninsured risks (including earthquakes, mudflows and floods) or insufficient
hazard insurance proceeds could affect distributions to the
Certificateholders.
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The standard hazard insurance policies covering Mortgaged Properties securing
Mortgage Loans typically will contain a "coinsurance" clause which, in effect,
will require the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other 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 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 structures and other improvements damaged or destroyed
and (ii) such proportion of the loss, without deduction for depreciation, as
the amount of insurance carried bears to the specified percentage of the full
replacement cost of such dwellings, structures and other improvements.
The Prospectus Supplement may describe other provisions concerning the
insurance policies required to be maintained under the related Agreement.
Unless otherwise specified in the applicable Prospectus Supplement, no pool
insurance policy, special hazard insurance policy, bankruptcy bond, repurchase
bond or guarantee insurance will be maintained with respect to the Mortgage
Loans nor will any Mortgage Loan be subject to FHA insurance.
The FHA is responsible for administering various federal programs, including
mortgage insurance, authorized under the National Housing Act of 1934, 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 Master Servicer will be required
to take such steps as are reasonably necessary to keep such insurance in full
force and effect.
FIDELITY BONDS AND ERRORS AND OMISSIONS
The Agreement for each Series will generally require that the Master Servicer
and the Special Servicer, if applicable, obtain and maintain in effect a
fidelity bond or similar form of insurance coverage (which may provide blanket
coverage) or any combination thereof insuring against loss occasioned by
fraud, theft or other intentional misconduct of the officers and employees of
the Master Servicer and the Special Servicer, if applicable. The related
Agreement will allow the Master Servicer and the Special Servicer, if
applicable, to self-insure against loss occasioned by the errors and omissions
of the officers and employees of the Master Servicer and the Special Servicer,
if applicable, so long as certain criteria set forth in the Agreement are met.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer's principal compensation for its activities under the
Agreement for each Series will come from the payment to it or retention by it,
with respect to each Mortgage Loan, of a "Servicing Fee" (as defined in the
related Prospectus Supplement). The exact amount and calculation of such
Servicing Fee will be established in the Prospectus Supplement and Agreement
for the related Series. Since the aggregate unpaid principal
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balance of the Mortgage Loans will generally decline over time, the Master
Servicer's servicing compensation will ordinarily decrease as the Mortgage
Loans amortize.
In addition, the Agreement for a Series may provide that the Master Servicer
be entitled to receive, as additional compensation, (i) Prepayment Premiums,
late fees and certain other fees collected from mortgagors and (ii) any
interest or other income earned on funds deposited in the Collection Account
and Distribution Account (as described under "DESCRIPTION OF THE
CERTIFICATES-Accounts") and, except to the extent such income is required to
be paid to the related mortgagors, the Escrow Account.
The Master Servicer will generally pay the fees and expenses of the Trustee.
The amount and calculation of the fee for the servicing of Specially Serviced
Mortgage Loans (the "Special Servicing Fee") will be described in the
Prospectus Supplement and Agreement for the related Services.
In addition to the compensation described above, the Master Servicer and the
Special Servicer, if applicable, (or any other party specified in the
applicable Prospectus Supplement) may retain, or be entitled to the
reimbursement of, such other amounts and expenses as are described in the
applicable Prospectus Supplement.
ADVANCES
The applicable Prospectus Supplement will set forth the obligations, if any,
of the Master Servicer and the Special Servicer, if applicable, to make any
advances with respect to delinquent payments on Mortgage Loans, payments of
taxes, assessments, insurance premiums and Property Protection Expenses or
otherwise. Any such advances will be made in the form and manner described in
the Prospectus Supplement and Agreement for the related Series.
MODIFICATIONS, WAIVERS AND AMENDMENTS
The Agreement for each Series will provide the Master Servicer or the Special
Servicer, if any, with the discretion to modify, waive or amend certain of the
terms of any Mortgage Loan without the consent of the Trustee or any
Certificateholder subject to certain conditions set forth therein, including
the condition that such modification, waiver or amendment will not result in
such Mortgage Loan ceasing to be a "qualified mortgage" under the REMIC
Regulations.
EVIDENCE OF COMPLIANCE
The Agreement for each Series will generally provide that on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, there will be furnished to
the related Trustee a report of a firm of independent certified public
accountants stating that (i) it has obtained a letter of representation
regarding certain matters from the management of the Master Servicer or
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Special Servicer, if any, which includes an assertion that the Master Servicer
or Special Servicer, if any, has complied with certain minimum mortgage loan
servicing standards (to the extent applicable to commercial and multifamily
mortgage loans), identified in the Uniform Single Attestation Program for
Mortgage Bankers established by the Mortgage Bankers Association of America,
with respect to the Master Servicer's or, if applicable, the Special
Servicer's servicing of commercial and multifamily mortgage loans during the
most recently completed calendar year and (ii) on the basis of an examination
conducted by such firm in accordance with standards established by the
American Institute of Certified Public Accountants, such representation is
fairly stated in all material respects, subject to such exceptions and other
qualifications that, in the opinion of such firm, such standards require it to
report.
In rendering its report such firm may rely, as to the matters relating to the
direct servicing of commercial and multifamily mortgage loans by sub-services,
upon comparable reports of firms of independent public accountants rendered on
the basis of examination conducted in accordance with the same standards
(rendered within one year of such report) with respect to those sub-servicers.
The Prospectus Supplement may provide that additional reports of independent
certified public accountants relating to the servicing of mortgage loans may
be required to be delivered to the Trustee.
In addition, the Agreement for each Series will generally provide that the
Master Servicer and the Special Servicer, if any, will each deliver to the
Trustee, the Depositor and each Rating Agency, annually on or before a date
specified in the Agreement, a statement signed by an officer of the Master
Servicer or the Special Servicer, as applicable, to the effect that, based on
a review of its activities during the preceding calendar year, to the best of
such officer's knowledge, the Master Servicer or the Special Servicer, as
applicable, has fulfilled in all material respects its obligations under the
Agreement throughout such year or, if there has been a default in the
fulfillment of any such obligation, specifying each default known to such
officer.
CERTAIN MATTERS WITH RESPECT TO THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE AND THE DEPOSITOR
The Agreement for each Series will also provide that none of the Depositor,
the Master Servicer, the Special Servicer, if any, or any partner, director,
officer, employee or agent of the Depositor, the Master Servicer or the
Special Servicer, if any (or any general partner thereof), will be under any
liability to the Trust Fund or the Certificateholders for any action taken, or
for refraining from the taking of any action, in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the
Depositor, the Master Servicer, the Special Servicer, if any, nor any such
person will be protected against any liability for a breach of any
representations or warranties under the Agreement or that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence (or, in the
case of the Master Servicer or Special Servicer, if any, a breach of the
servicing standards set forth in the Agreement) in the performance of its
duties or by reason of negligent disregard of its obligations and duties
thereunder. The Agreement will further provide that the Depositor, the Master
Servicer, the Special Servicer, if any, and any
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director, officer, employee or agent of the Depositor, the Master Servicer,
the Special Servicer, if any (and any general partner thereof), will be
entitled to indemnification by the Trust Fund for any loss, liability or
expense incurred in connection with any legal action relating to the Agreement
or the Certificates, other than any loss, liability or expense incurred by
reason of its respective willful misfeasance, bad faith, fraud or negligence
(or, in the case of the Master Servicer or the Special Servicer, if any, a
breach of the servicing standard set forth in the Agreement) in the
performance of duties thereunder or by reason of negligent disregard of its
respective obligations and duties thereunder. Any loss resulting from such
indemnification will reduce amounts distributable to Certificateholders. The
Prospectus Supplement will specify any variations to the foregoing required by
the Rating Agencies rating Certificates of a Series.
In addition, the Agreement will generally provide that none of the Depositor,
the Special Servicer or the Master Servicer, if any, will be under any
obligation to appear in, prosecute or defend any legal action unless such
action is related to its duties under the Agreement and which in its opinion
does not involve it in any expense or liability. The Master Servicer or the
Special Servicer, if any, may, however, in its discretion undertake any such
action that is related to its respective obligations under the related
Agreement and that it may deem necessary or desirable with respect to the
Agreement and the rights and duties of the parties thereto and the interests
of the holders of Certificates thereunder. In such event, the legal expenses
and costs of such action and any liability resulting therefrom (except any
liability related to the Master Servicer's or the Special Servicer's, if any
obligations to service the Mortgage Loans in accordance with the servicing
standard under the Agreement) will be expenses, costs and liabilities of the
Trust Fund, and the Master Servicer or Special Servicer, if applicable, will
be entitled to be reimbursed therefor and to charge the Collection Account.
Any person into which the Master Servicer or the Special Servicer, if any, may
be merged or consolidated, or any person resulting from any merger or
consolidation to which the Master Servicer or the Special Servicer, if any, is
a party, or any person succeeding to the business of the Master Servicer or
the Special Servicer, if any, will be the successor of the Master Servicer or
the Special Servicer, as applicable, under the Agreement, and will be deemed
to have assumed all of the liabilities and obligations of the Master Servicer
or the Special Servicer, as applicable, under the Agreement, if each of the
Rating Agencies has confirmed in writing that such merger or consolidation and
succession will not result in a downgrading, withdrawal or qualification of
the rating then assigned by such Rating Agency to any Class of the
Certificates. The related Prospectus Supplement will describe any additional
restrictions on such a merger or consolidation.
Generally, the Master Servicer or the Special Servicer, if any, may assign its
rights and delegate its duties and obligations under the Agreement in
connection with the sale or transfer of a substantial portion of its mortgage
servicing or asset management portfolio; provided that certain conditions are
met, including the written consent of the Trustee and written confirmation by
each of the Rating Agencies that such assignment and delegation by the Master
Servicer or the Special Servicer, as applicable, will not, in and of itself,
result in a downgrading, withdrawal or qualification of the rating then
assigned by such Rating
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Agency to any Class of Certificates. The related Prospectus will describe any
additional restrictions on such assignment.
The Agreement will also provide that the Master Servicer or the Special
Servicer, if any, may not otherwise resign from its obligations and duties as
Master Servicer or Special Servicer thereunder, except upon the determination
that performance of its duties is no longer permissible under applicable law
and provided that such determination is evidenced by an opinion of counsel
delivered to the Trustee. No such resignation or removal may become effective
until the Trustee or a successor Master Servicer or Special Servicer, as the
case may be, has assumed the obligations of the Master Servicer or the Special
Servicer, as applicable, under the Agreement.
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor, the Master Servicer, the
Special Servicer, if any, and/or any of their respective affiliates.
The Trustee may resign from its obligations under the Agreement at any time,
in which event a successor Trustee will be appointed. In addition, the
Depositor may remove the Trustee if the Trustee ceases to be eligible to act
as Trustee under the Agreement or if the Trustee becomes insolvent, at which
time the Depositor will become obligated to appoint a successor Trustee. The
Trustee may also be removed at any time by the holders of Certificates
evidencing the percentage of Voting Rights specified in the applicable
Prospectus Supplement. Any resignation and removal of the Trustee, and the
appointment of a successor Trustee, will not become effective until acceptance
of such appointment by the successor Trustee.
The Depositor is not obligated to monitor or supervise the performance of the
Master Servicer, Special Servicer, if any, or the Trustee under the Agreement.
EVENTS OF DEFAULT
Events of default with respect to the Master Servicer or the Special Servicer,
if any, as applicable (each, an "Event of Default") under the Agreement for
each Series will consist of, in summary form, (i) any failure by the Master
Servicer or the Special Servicer, if any, to remit to the Collection Account
or any failure by the Master Servicer to remit to the Trustee for deposit into
the Distribution Account any amount required to be so remitted pursuant to the
Agreement; (ii) any failure by the Master Servicer or Special Servicer, as
applicable, duly to observe or perform in any material respect any of its
other covenants or agreements or the breach of its representations or
warranties (which breach materially and adversely affects the interests of the
Certificateholders, the Trustee, the Master Servicer or the Special Servicer,
if any, with respect to any Mortgage Loan) under the Agreement, which in each
case continues unremedied for 30 days after the giving of written notice of
such failure to the Master Servicer or the Special Servicer, as applicable, by
the Depositor or the Trustee, or to the Master Servicer or Special Servicer,
if any, the Depositor and the Trustee by the holders of Certificates
evidencing Voting Rights of at least 25% of any affected Class;
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(iii) confirmation in writing by any of the Rating Agencies that the then
current rating assigned to any Class of Certificates would be withdrawn,
downgraded or qualified unless the Master Servicer or Special Servicer, as
applicable, is removed; (iv) certain events of insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceedings and certain
actions by, on behalf of or against the Master Servicer or Special Servicer,
as applicable, indicating its insolvency or inability to pay its obligations;
or (v) any failure by the Master Servicer to make a required advance. The
related Prospectus Supplement may provide for other Events of Default to the
extent required by the Rating Agencies rating Certificates of a Series.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default remains unremedied, the Trustee may, and at the
written direction of the holders of Certificates entitled to 25% of the
aggregate Voting Rights of all Certificates will, terminate all of the rights
and obligations of the Master Servicer or Special Servicer, as the case may
be. Notwithstanding the foregoing, upon any termination of the Master Servicer
or the Special Servicer, as applicable, under the Agreement the Master
Servicer or the Special Servicer, as applicable, will continue to be entitled
to receive all accrued and unpaid servicing compensation through the date of
termination plus, in the case of the Master Servicer, all advances and
interest thereon as provided in the Agreement.
The holders of Certificates evidencing not less than 66 2/3% of the aggregate
Voting Rights of the Certificates may, on behalf of all holders of
Certificates, waive any default by the Master Servicer or Special Servicer, if
any, in the performance of its obligations under the Agreement and its
consequences, except a default in making any required deposits to (including
advances) or payments from the Collection Account or the Distribution Account
or in remitting payments as received, in each case in accordance with the
Agreement. Upon any such waiver of a past default, such default will cease to
exist, and any Event of Default arising therefrom will be deemed to have been
remedied for every purpose of the Agreement. No such waiver will extend to any
subsequent or other default or impair any right consequent thereon.
On and after the date of termination, the Trustee will succeed to all
authority and power of the Master Servicer or the Special Servicer, as
applicable. under the Agreement and will be entitled to similar compensation
arrangements to which the Master Servicer or the Special Servicer, as
applicable, would have been entitled. If the Trustee is unwilling or unable so
to act, or if the holders of Certificates evidencing a majority of the
aggregate Voting Rights so request or if the Trustee is not rated in one of
its two highest long-term debt rating categories by each of the Rating
Agencies or if the Trustee is not approved as a servicer by the Rating
Agencies, the Trustee must appoint, or petition a court of competent
jurisdiction for the appointment of, an established mortgage loan servicing
institution with a net worth of at least $10,000,000 and which is either
Fannie Mae or FHLMC approved, the appointment of which will not result in the
downgrading, withdrawal or qualification of the rating or ratings then
assigned to any Class of Certificates as evidenced in writing by each Rating
Agency, to act as successor to the Master Servicer or the Special Servicer, as
applicable, under the Agreement. Pending such appointment, the
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Trustee will be obligated to act in such capacity. The Trustee and any such
successor may agree upon the servicing compensation to be paid, which in no
event may be greater than the compensation payable to the Master Servicer or
the Special Servicer, as the case may be, under the Agreement.
No Certificateholder will have any right under the Agreement to institute any
proceeding with respect to the Agreement or the Mortgage Loans, unless, with
respect to the Agreement, such holder previously shall have given to the
Trustee a written notice of a default under the Agreement and of the
continuance thereof, and unless also the holders of Certificates representing
a majority of the aggregate Voting Rights allocated to each affected Class
have made written request of the Trustee to institute such proceeding in its
own name as Trustee under the Agreement and have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 30 days
after its receipt of such notice, request and offer of indemnity, has
neglected or refused to institute such proceeding.
The Trustee will have no obligation to institute, conduct or defend any
litigation under the Agreement or in relation thereto at the request, order or
direction of any of the holders of Certificates, unless such holders of
Certificates 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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CREDIT ENHANCEMENT
GENERAL
If specified in the related Prospectus Supplement for any Series, credit
enhancement may be provided with respect to one or more Classes thereof or the
related Mortgage Loans ("Credit Enhancement"). Credit Enhancement may be in
the form of a letter of credit, the subordination of one or more Classes of
the Certificates of such Series, the establishment of one or more reserve
funds, surety bonds, certificate guarantee insurance, the use of cross-support
features, limited guarantees or another method of Credit Enhancement described
in the related Prospectus Supplement, or any combination of the foregoing.
It is unlikely that Credit Enhancement will provide protection against all
risks of loss or guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur that exceed the amount
covered by Credit Enhancement or that are not covered by Credit Enhancement,
Certificateholders will bear their allocable share of deficiencies. See "RISK
FACTORS-Credit Enhancement Limitations"
ENHANCEMENT LIMITATIONS
If Credit Enhancement is provided with respect to a Series, or the related
Mortgage Loans, the applicable Prospectus Supplement will include a
description of (a) the amount payable under such Credit Enhancement, (b) any
conditions to payment thereunder not otherwise described herein, (c) the
conditions (if any) under which the amount payable under such Credit
Enhancement may be reduced and under which such Credit Enhancement may be
terminated or replaced and (d) the material provisions of any agreement
relating to such Credit Enhancement. Additionally, the applicable Prospectus
Supplement will set forth certain information with respect to the issuer of
any third-party Credit Enhancement, including (i) a brief description of its
principal business activities, (ii) its principal place of business, the
jurisdiction of organization and the jurisdictions under which it is chartered
or licensed to do business, (iii) if applicable, the identity of regulatory
agencies that exercise primary jurisdiction over the conduct of its business
and (iv) its total assets and its stockholders' or policyholders' surplus, if
applicable, as of the date specified in such Prospectus Supplement. If the
holders of any Certificates of any Series will be materially dependent upon
the issuer of any third party Credit Enhancement for timely payment of
interest and/or principal on their Certificates, the Depositor will file a
current report on Form 8-K within 15 days after the initial issuance of such
Certificates, which will include any material information regarding such
issuer, including audited financial statements to the extent required.
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes of a
Series may be Subordinate Certificates. If so specified in the related
Prospectus Supplement, the rights of the holders of subordinate Certificates
(the "Subordinate Certificates") to receive distributions of principal and
interest from the Distribution Account on any Distribution
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Date will be subordinated to such rights of the holders of senior Certificates
(the "Senior Certificates') to the extent specified in the related Prospectus
Supplement. In addition, subordination may be effected by the allocation of
losses first to Subordinate Certificates in reduction of the principal balance
of such Certificates until the principal balance thereof is reduced to zero
before any losses are allocated to Senior Certificates. The Agreement may
require a trustee that is not the Trustee to be appointed to act on behalf of
holders of Subordinate Certificates.
A Series may include one or more Classes of Subordinate Certificates entitled
to receive cash flows remaining after distributions are made to all other
Classes designated as being senior thereto. Such right to receive payments
will effectively be subordinate to the rights of holders of such senior
designated Classes of Certificates. A Series may also include one or more
Classes of Subordinate Certificates that will be allocated losses prior to any
losses being allocated to Classes of Subordinate Certificates designated as
being senior thereto. If so specified in the related Prospectus Supplement,
the subordination of a Class may apply only in the event of (or may be limited
to) certain types of losses not covered by insurance policies or other Credit
Enhancement, such as losses arising from damage to property securing a
Mortgage Loan not covered by standard hazard insurance policies.
The related Prospectus Supplement will describe any such subordination in
greater detail and set forth information concerning, among other things. to
the extent applicable, (i) the amount of subordination of a Class or Classes
of Subordinate Certificates in a Series, (ii) the circumstances in which such
subordination will be applicable, (iii) the manner, if any, in which the
amount of subordination will decrease over time, (iv) the manner of funding
any related reserve fund, (v) the conditions under which amounts in any
applicable reserve fund will be used to make distributions to holders of
Senior Certificates and/or to holders of Subordinate Certificates or be
released from the applicable Trust Fund and (vi) if one or more Classes of
Subordinate Certificates of a Series are offered Certificates, the sensitivity
of distributions on such Certificates based on certain default assumptions.
See "RISK FACTORS-Risks to Subordinated Certificateholders" herein.
RESERVE FUNDS
If specified in the related Prospectus Supplement, one or more reserve funds
(each, a "Reserve Fund") may be established with respect to one or more
Classes of the Certificates of a Series, in which cash, a letter of credit,
Permitted Investments or a combination thereof, in the amounts, if any, so
specified in the related Prospectus Supplement will be deposited. Such Reserve
Funds may also be funded over time by depositing therein a specified amount of
the distributions received on the applicable Mortgage Loans if specified in
the related Prospectus Supplement. The Depositor may pledge the Reserve Funds
to a separate collateral agent specified in the related Prospectus Supplement.
Amounts on deposit in any Reserve Fund for one or more Classes of Certificates
of a Series 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 of
principal of and interest on the Certificates, if required as
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a condition to the rating of such Series by any Rating Agency. If so specified
in the related Prospectus Supplement, Reserve Funds may be established to
provide limited protection, in an amount satisfactory to a Rating Agency,
against certain types of losses not covered by insurance policies or other
Credit Enhancement. Reserve Funds may also be established for other purposes
and in such amounts as will be specified in the related Prospectus Supplement.
Following each Distribution Date amounts in any 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 Fund generally will be permitted to be
invested in Permitted Investments. Generally, 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. If specified in the related Prospectus Supplement, such
income or other gain may be payable to the Servicer as additional servicing
compensation, and any loss resulting from such investment will be borne by the
Servicer. The Reserve Fund. if any for a Series will be a part of the Trust
Fund only if the related Prospectus Supplement so specifies. If the Reserve
Fund is not a part of the Trust Fund, the right of the Trustee to make draws
on the Reserve Fund will be an asset of the Trust Fund.
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 purpose for which funds in the Reserve Fund may be
applied to make distributions to Certificateholders and use of investment
earnings, if any, from the Reserve Fund.
CROSS-SUPPORT FEATURES
If the Mortgage Pool for a Series is divided into separate Mortgage Loan
Groups, each securing a separate Class or Classes of a Series, Credit
Enhancement may be provided by a cross-support feature that requires that
distributions be made on Senior Certificates secured by one Mortgage Loan
Group prior to distributions on Subordinate Certificates secured by another
Mortgage Loan Group within the Trust Fund. The related Prospectus Supplement
for a Series that includes a cross-support feature will describe the manner
and conditions for applying such cross-support feature.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, certificate guarantee
insurance, if any, with respect to a Series of Certificates will be provided
by one or more insurance companies. Such certificate guarantee insurance will
guarantee, with respect to one or more Classes of Certificates of the
applicable Series, timely distributions of interest and full distributions of
principal on the basis of a schedule of principal distributions set forth in
or determined in the manner specified in the related Prospectus Supplement. If
so specified
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in the related Prospectus Supplement, the certificate guarantee insurance will
also guarantee against any payment made to a Certificateholder that is
subsequently recovered as a "voidable preference" payment under the Bankruptcy
Code. A copy of the certificate guarantee insurance for a Series, if any, will
be filed with the Commission as an exhibit to the Form 8-K to be filed with
the Commission within 15 days of issuance of the Certificates of the
applicable Series.
LIMITED GUARANTEE
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, Credit Enhancement may be provided in the form of a limited
guarantee issued by a guarantor named therein.
LETTER OF CREDIT
Alternative Credit Enhancement with respect to one or more Classes of
Certificates of a Series of Certificates may be provided by the issuance of a
letter of credit by the bank or financial institution specified in the
applicable Prospectus Supplement. The coverage, amount and frequency of any
reduction in coverage provided by a letter of credit issued with respect to
one or more Classes of Certificates of a Series will be set forth in the
Prospectus Supplement relating to such Series.
POOL INSURANCE POLICIES; SPECIAL HAZARD INSURANCE POLICIES
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor will obtain a pool insurance policy for the
Mortgage Loans in the related Trust Fund. The pool insurance policy will cover
any loss (subject to the limitations described in a related Prospectus
Supplement) by reason of default to the extent a related Mortgage Loan is not
covered by any primary mortgage insurance policy. The amount and terms of any
such coverage will be set forth in the Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Depositor
will also obtain a special hazard insurance policy for the related Trust Fund
in the amount set forth in such Prospectus Supplement. The special hazard
insurance policy will, subject to the limitations described in the applicable
Prospectus Supplement, protect against loss by reason of damage to Mortgaged
Properties caused by certain hazards not insured against under the standard
form of hazard insurance policy for the respective states in which the
Mortgaged Properties are located. The amount and terms of any such coverage
will be set forth in the Prospectus Supplement.
SURETY BONDS
If so specified in the Prospectus Supplement relating to a Series of
Certificates, Credit Enhancement with respect to one or more Classes of
Certificates of a Series may be provided by the issuance of a surety bond
issued by a financial guarantee insurance company
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specified in the applicable Prospectus Supplement. The coverage, amount and
frequency or any reduction in coverage provided by a surety bond will be set
forth in the Prospectus Supplement relating to such Series.
FRAUD COVERAGE
If so specified in the applicable Prospectus Supplement, losses resulting from
fraud, dishonesty or misrepresentation in connection with the origination or
sale of the Mortgage Loans may be covered to a limited extent by (i)
representations and warranties to the effect that no such fraud, dishonesty or
misrepresentation had occurred, (ii) a Reserve Fund, (iii) a letter of credit
or (iv) some other method. The amount and terms of any such coverage will be
set forth in the Prospectus Supplement.
MORTGAGOR BANKRUPTCY BOND
If so specified in the applicable Prospectus Supplement, losses resulting from
a bankruptcy proceeding relating to a mortgagor or obligor affecting the
Mortgage Loans in a Trust Fund with respect to a Series of Certificates will
be covered under a mortgagor bankruptcy bond (or any other instrument that
will not result in a withdrawal, downgrading or qualification of the rating of
the Certificates of a Series by any of the Rating Agencies that rated any
Certificates of such Series). Any mortgagor bankruptcy bond or such other
instrument will provide for coverage in an amount and with such terms meeting
the criteria of the Rating Agencies rating any Certificates of the related
Series, which amount and terms will be set forth in the related Prospectus
Supplement.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because many of the legal aspects
of mortgage loans are governed by applicable state laws (which may vary
substantially), the following summaries do not purport to be complete, to
reflect the laws of any particular state, to reflect all the laws applicable
to any particular Mortgage Loan or to encompass the laws of all states in
which the properties securing the Mortgage Loans are situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the Mortgage Loans.
GENERAL
All of the Mortgage Loans are loans evidenced by (or, in the case of mortgage
pass-through certificates, supported by) a note or bond that is secured by a
lien and security interest in property created under related security
instruments, which may be mortgages, deeds of trust or deeds to secure debt,
depending upon the prevailing practice and law in the state in which the
Mortgaged Property is located. As used herein, unless the context otherwise
requires, the term "Mortgage" includes mortgages, deeds of trust and deeds to
secure debt. Any of the foregoing mortgages will create a lien upon, or grant
a title interest in, the mortgaged property, the priority of which will depend
on the terms of the mortgage, the
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existence of any separate contractual arrangements with others holding
interests in the mortgaged property, the order of recordation of the mortgage
in the appropriate public recording office and the actual or constructive
knowledge of the mortgagee as to any unrecorded liens, leases or other
interests affecting the mortgaged property, Mortgages typically do not possess
priority over governmental claims for real estate taxes, assessments and, in
some states, for reimbursement of remediation costs of certain environmental
conditions. See "Environmental Risks." In addition, the Code provides priority
to certain tax liens over the lien of the mortgage. The mortgagor is generally
responsible for maintaining the property in good condition and for paying real
estate taxes, assessments and hazard insurance premiums associated with the
property.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of an
interest in real property between two parties-a mortgagor (the borrower and
usually the owner of the subject property) and a mortgagee (the lender). A
deed of trust is a three-party instrument, wherein a trustor (the equivalent
of a mortgagor), grants the property to a trustee, in trust with a power of
sale, for the benefit of a beneficiary (the lender) as security for the
payment of the secured indebtedness. A deed to secure debt is a two party
instrument wherein the grantor (the equivalent of a mortgagor) conveys title
to, as opposed to merely creating a lien upon, the subject property to the
grantee (the lender) until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related note. As used herein, unless the context otherwise requires. the
term "mortgagor" includes a mortgagor under a mortgage, a trustor under a deed
of trust and a grantor under a deed to secure debt, and the term ,"mortgagee"
includes a mortgagee under a mortgage, a beneficiary under a deed of trust and
a grantee under a deed to secure debt. The mortgagee's authority under a
mortgage, the trustee's authority under a deed of trust and the grantee's
authority under a deed to secure debt are governed by the express provisions
of the mortgage, the law of the state in which the real property is located,
certain federal laws and, in some cases, in deed of trust transactions, the
directions of the beneficiary. The Mortgage Loans (other than Installment
Contracts) will consist of (or, in the case of mortgage pass-through
certificates, be supported by) loans secured by mortgages.
The real property covered by a mortgage is most often the fee estate in land
and improvements. However, a mortgage may encumber other interests in real
property such as a tenant's interest in a lease of land, leasehold
improvements or both, and the leasehold estate created by such lease. A
mortgage covering an interest in real property other than the fee estate
requires special provisions in the instrument creating such interest, in the
mortgage or in a separate agreement with the landlord or other party to such
instrument, to protect the mortgagee against termination of such interest
before the mortgage is paid.
PERSONALITY
Certain types of mortgaged properties, such as nursing homes, hotels, motels
and industrial plants, are likely to derive a significant part of their value
from personal property that does not constitute "fixtures" under applicable
state real property law. and hence, would not be
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subject to the lien of a mortgage. Such property is generally pledged or
assigned as security to the mortgagee under the Uniform Commercial Code
("UCC"). In order to perfect its security interest therein, the mortgagee
generally must file UCC financing statements and, to maintain perfection of
such security interest, file continuation statements generally every five
years.
INSTALLMENT CONTRACTS
The Mortgage Loans may also consist of Installment Contracts (also sometimes
called contracts for deed). Under an Installment Contract, the seller
(referred to in this Section as the "mortgagee") retains legal title to the
property and enters into an agreement with the purchaser (referred to in this
Section as the "mortgagor") for the payment of the purchase price plus
interest, over the term of such Installment Contract. Only after full
performance by the mortgagor of the Installment Contract is the mortgagee
obligated to convey title to the property to the mortgagor. As with mortgage
or deed of trust financing, during the effective period of the Installment
Contract, the mortgagor is generally responsible for maintaining the property
in good condition and for paying real estate taxes, assessments and hazard
insurance premiums associated with the property.
The method of enforcing the rights of the mortgagee under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing or able to enforce the Installment Contract strictly
according to its terms. The terms of Installment Contracts generally provide
that upon a default by the mortgagor, the mortgagor loses his or her right to
occupy the property, the entire indebtedness is accelerated and the
mortgagor's equitable interest in the property is forfeited. The mortgagee in
such a situation does not have to foreclose in order to obtain title to the
property, although in some cases both a quiet title action to clear title to
the property (if the mortgagor has recorded notice of the Installment
Contract) and an ejectment action to recover possession may be necessary. In a
few states, particularly in cases of a default during the early years of an
Installment Contract, ejectment of the mortgagor and a forfeiture of his or
her interest in the properly will be permitted. However, in most states, laws
(analogous to mortgage laws) have been enacted to protect mortgagors under
Installment Contracts from the harsh consequences of forfeiture. These laws
may require the mortgagee to pursue a judicial or nonjudicial foreclosure with
respect to the property, give the mortgagor a notice of default and some grace
period during which the Installment Contract may be reinstated upon full
payment of the default amount. Additionally, the mortgagor may have a
post-foreclosure statutory redemption right, and, in some states, a mortgagor
with a significant equity investment in the property may be permitted to share
in the proceeds of any sale of the property after the indebtedness is repaid
or may otherwise be entitled to a prohibition of the enforcement of the
forfeiture clause.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
Some of the Mortgage Loans may be secured by junior mortgages that are
subordinate to senior mortgages held by other lenders or institutional
investors. In such cases, the rights of the Trust Fund (and therefore the
Certificateholders), as mortgagee under a junior
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mortgage, will be subordinate to those of the mortgagee under the senior
mortgage, including the Prior rights of the senior mortgagee to: (i) receive
rents, hazard insurance proceeds and condemnation proceeds; and (ii) cause the
property securing the Mortgage Loan to be sold upon the occurrence of a
default under the senior mortgage, thereby extinguishing the lien of the
junior mortgage, unless the Master Servicer or Special Servicer, if
applicable, either asserts such subordinate interest in the related property
in the foreclosure of the senior mortgage or satisfies the defaulted senior
loan. As discussed more fully below, in many states a junior mortgagee 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 or
the existence of a recorded request for notice in compliance with applicable
state law (if any), no notice of default is typically required to be given to
the junior mortgagee.
The form of the mortgage used by many institutional lenders confers on the
mortgagee 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 such mortgage in such order as the mortgagee 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 (or any part thereof) is taken by
condemnation, the mortgagee under the senior mortgage will have the prior
right to collect any applicable insurance proceeds and condemnation awards and
to apply the same to the indebtedness secured by the senior mortgage. However,
the laws of certain states may provide that, unless the security of the
mortgagee has been impaired, the mortgagor must be allowed to use any
applicable insurance proceeds or partial condemnation awards to restore the
property.
The form of mortgage used by many institutional lenders also typically
contains a "future advance" clause that provides that additional amounts
advanced to or on behalf of the mortgagor by the mortgagee are to be secured
by the mortgage. Such a clause is valid under the laws of most states. In some
states, however, the priority of any advance made under the clause depends
upon whether the advance was an 'obligatory" or "optional" advance. If the
mortgagee is obligated to advance the additional amounts, the advance may be
entitled to receive the same priority as amounts initially made under the
mortgage, notwithstanding that other junior mortgages or other liens may have
encumbered the property between the date of recording of the senior mortgage
and the date of the future advance, and that the mortgagee had actual
knowledge of such intervening junior mortgages or other liens at the time of
the advance. If the mortgagee is not obligated to advance the additional
amounts and has actual knowledge of any such intervening junior mortgages or
other liens. the advance may be subordinate to such intervening junior
mortgages or other liens. In many other states, all advances under a "future
advance" clause are given the same priority as amounts initially made under
the mortgage so long as such advances do not exceed a specified "credit limit"
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage used by many
institutional lenders obligates the mortgagor: (i) to pay all taxes and
assessments affecting the property prior to delinquency; (ii) to pay, when
due, all other encumbrances. charges and liens
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affecting the property that may be prior to the lien of the mortgage; (iii) to
provide and maintain hazard insurance on the property; (iv) to maintain and
repair the property and not to commit or permit any waste thereof; and (v) to
appear in and defend any action or proceeding purporting to affect the
property or the rights of the mortgagee under the mortgage. Upon a failure of
the mortgagor to perform any of these obligations, the mortgage typically
provides the mortgagee the option to perform the obligation itself, with the
mortgagor agreeing to reimburse the mortgagee for any sums expended by. the
mortgagee in connection therewith. All sums so expended by the mortgagee also
typically become part of the indebtedness secured by the mortgage. The form of
mortgage used by many institutional lenders also typically requires the
mortgagor to obtain the consent of the mortgagee as to all actions affecting
the mortgaged property, including, without limitation, all leasing activities
(including new leases and termination or modification of existing leases), any
alterations, modifications or improvements to the buildings and other
improvements forming a part of the mortgaged property and all property
management activities affecting the mortgaged property (including new
management or leasing agreements or any termination or modification of
existing management or leasing agreements). Tenants will often refuse to
execute a lease unless the mortgagee 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 may refuse to consent to matters approved by
a junior mortgagee with the result that the value of the security for the
junior mortgage is diminished. For example, a senior mortgagee may decide not
to approve a lease or refuse to grant to a tenant such a non-disturbance
agreement. If, as a result, the lease is not executed. the value of the
mortgaged property may be diminished.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage and, by reason thereof, the
indebtedness has been accelerated, the mortgagee has the right to institute
foreclosure proceedings to sell the mortgaged property at public auction to
satisfy the indebtedness. Foreclosure procedures with respect to the
enforcement of a mortgage vary from state to state. Although there are other
foreclosure procedures available in some states that are either infrequently
used or available only in certain limited circumstances, the two primary
methods of foreclosing a mortgage are judicial foreclosure and non-judicial
foreclosure pursuant to a power of sale granted in the mortgage. In either
case, the actual foreclosure of the mortgage will be accomplished pursuant to
a public sale of the mortgaged property by a designated official or by the
trustee under a deed of trust. The purchaser at any such sale acquires only
the estate or interest in the mortgaged property encumbered by the mortgage.
For example, if the mortgage only encumbered a tenant's leasehold interest in
the property, such purchaser will only acquire such leasehold interest,
subject to the tenant's obligations under the lease to pay rent and perform
other covenants contained therein.
Judicial Foreclosure. A judicial foreclosure of a mortgage is a judicial
action initiated by the service of legal pleadings upon all necessary parties
having an interest in the real property.
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Delays in completion of foreclosure may occasionally result from difficulties
in locating the necessary parties to the action. As a judicial foreclosure is
a lawsuit, it is subject to all of procedures, delays and expenses attendant
to litigation, sometimes requiring up to several years to complete if
contested. At the completion of a judicial foreclosure, if the mortgagee
prevails, the court ordinarily issues a judgment of foreclosure and appoints a
referee or other designated official to conduct a public sale of the property.
Such sales are made in accordance with procedures that vary from state to
state.
Non-Judicial Foreclosure. In the majority of cases, foreclosure of a deed of
trust (and in some instances, other types of mortgage instruments) is
accomplished by a non-judicial trustee's sale pursuant to a provision in the
deed of trust that authorizes the trustee, generally following a request from
the beneficiary, to sell the mortgaged property at public sale upon any
default by the mortgagor under the terms of the note or deed of trust. In
addition to the specific contractual requirements set forth in the deed of
trust, a non-judicial trustee's sale is also typically subject to any
applicable judicial or statutory requirements imposed in the state where the
mortgaged property is located. The specific requirements that must be
satisfied by a trustee prior to the trustee's sale vary from state to state.
Examples of the varied requirements imposed by certain states are: (i) that
notices of both the mortgagor's default and the mortgagee's acceleration of
the debt be provided to the mortgagor; (ii) that the trustee record a notice
of default and send a copy of such notice to the mortgagor, any other person
having an interest in the real property, including any junior lienholders. any
person who has recorded a request for a copy of a notice of default and notice
of sale, any successor in interest to the mortgagor and to certain other
persons; (iii) that the mortgagor, or any other 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, in certain states,
certain allowed costs and expenses incurred by the mortgagee in connection
with the default; and (iv) the method (publication, posting, recording, etc.),
timing. content, location and other particulars as to any required public
notices of the trustee's sale. Foreclosure of a deed to secure debt is also
generally accomplished by a non-judicial sale similar to that required by a
deed of trust, except that the mortgagee or its agent, rather than a trustee,
is typically empowered to perform the sale in accordance with the terms of the
deed to secure debt and applicable law.
Limitations on Mortgagee's Rights. Because of the difficulty a potential buyer
at any foreclosure sale might have in determining the exact status of title to
the mortgaged property, the potential existence of redemption rights (see
"Rights of Redemption" below) and because the physical condition and financial
performance of the mortgaged property may have deteriorated during the
foreclosure proceedings and/or for a variety of other reasons, a third party
may be unwilling to purchase the property at the foreclosure sale. Some states
require that the mortgagee disclose all known facts materially affecting the
value of the mortgaged property to potential bidders at a trustee's sale. Such
disclosure may have an adverse affect on the trustee's ability to sell the
mortgaged property or the sale price thereof. Potential buyers may be
reluctant to purchase property at a foreclosure sale as a result of the 1980
decision of the United States Court of Appeals for the Fifth Circuit in
Durrett v. Washington National Insurance Company and other decisions that have
followed its reasoning. The court in Durrett held that even a non-collusive,
regularly conducted
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foreclosure sale was a fraudulent transfer under the federal Bankruptcy Code,
as amended from time to time (11 U.S.C.) (the "Bankruptcy Code"), and,
therefore, could be rescinded in favor of the bankrupt's estate, if, (i) the
foreclosure sale was held while the debtor was insolvent and not more than one
year prior to the filing of the bankruptcy petition; and (ii) the price paid
for the foreclosed property did not represent "fair consideration"
("reasonably equivalent value" under the Bankruptcy Code). Although the
reasoning and result of Durrett in respect of the Bankruptcy Code was rejected
by the United States Supreme Court in May 1994, the case could nonetheless be
persuasive to a court applying a state fraudulent conveyance law that has
provisions similar to those construed in Durrett. Furthermore, a bankruptcy
trustee or debtor in possession could possibly avoid a foreclosure sale by
electing to proceed under state fraudulent conveyance law, and the period of
time for which a foreclosure sale could be subject to avoidance under such law
is often greater than one year. For these reasons, it is common for the
mortgagee to purchase the property from the trustee, referee or other
designated official for an amount equal to the outstanding principal amount of
the secured indebtedness, together with accrued and unpaid interest and the
expenses of foreclosure, in which event, if the amount bid by the mortgagee
equals the full amount of such debt, interest and expenses, the secured debt
would be extinguished. Thereafter, the mortgagee assumes the burdens of
ownership and management of the property (frequently, through the employment
of a third party management company), including third party liability, paying
operating expenses and real estate taxes and making repairs, until a sale of
the property to a third party can be arranged. The costs of operating and
maintaining commercial property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties that are hotels, motels or nursing or convalescent
homes or hospitals may be particularly significant, because of the expertise,
knowledge and, with respect to nursing or convalescent homes or hospitals,
regulatory compliance required to run such operations and the effect that
foreclosure and a change in ownership may have on the public's and the
industry's (including franchisers') perception of the quality of such
operations. The mortgagee 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 mortgagee's investment in the property.
Moreover, a mortgagee commonly incurs substantial legal fees and court costs
in acquiring a mortgaged property through contested foreclosure and/or
bankruptcy proceedings. In addition, a mortgagee may be responsible under
federal or state law for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See "-Environmental Risks" below. As a result, a
mortgagee 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.
Courts may also apply general equitable principles in connection with
foreclosure proceedings to limit a mortgagee's remedies. These equitable
principles are generally designed to relieve the mortgagor from the legal
effect of his defaults under the loan documents to the extent such effect is
determined to be harsh or unfair. Examples of judicial remedies that have been
fashioned include requiring mortgagees to undertake
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affirmative and expensive actions to determine the causes of the mortgagor's
default and the likelihood that the mortgagor will be able to reinstate the
loan, requiring the mortgagees to reinstate loans or recast payment schedules
in order to accommodate mortgagors who are suffering from temporary financial
disability, and limiting the rights of mortgagees to foreclose if the default
under the mortgage instrument is not monetary, such as the mortgagor's failing
to maintain the property adequately or executing a second mortgage affecting
the property. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that mortgagors under deeds of trust or mortgages
receive notices in addition to the statutorily prescribed minimum. For the
most part, these cases have upheld the notice provisions as being reasonable
or have found that the sale by a trustee under a deed of trust, or under a
mortgage having a power of sale, does not involve sufficient state action to
afford constitutional protections to the mortgagor.
Under the REMIC Regulations and the related Agreement, the Master Servicer or
Special Servicer, if any, may be permitted (and in some cases may be required)
to hire an independent contractor to operate any REO Property. The costs of
such operation may be significantly greater than the costs of direct operation
by the Master Servicer or Special Servicer, if any. See "SERVICING OF THE
MORTGAGE LOANS Collections and Other Servicing Procedures."
Rights of Redemption. The purposes of a foreclosure are to enable the
mortgagee to realize upon its security and to bar the mortgagor, and all
persons who have an interest in the property that is subordinate to the
mortgage being foreclosed, from any exercise of their "equity of redemption."
The doctrine of equity of redemption provides that, until the property covered
by a mortgage has been sold in accordance with a properly conducted
foreclosure sale, those having an interest that is subordinate to that of the
foreclosing mortgagee have an equity of redemption and may redeem the property
by paying the entire debt with interest. In addition, in some states, when a
foreclosure action has been commenced, the redeeming party must pay certain
costs of such action. Those having an equity of redemption must generally be
made parties and joined in the foreclosure proceeding in order for their
equity of redemption to be cut off and terminated. Equity of redemption is
generally a common-law (non-statutory) right that only exists prior to
completion of the foreclosure sale is not waivable by the mortgagor and must
be exercised prior to foreclosure sale.
In contrast to the doctrine of equity of redemption, in some states, the
mortgagor and foreclosed junior lienors are given a statutory period after the
completion of a foreclosure in which to redeem the property from the
foreclosure sale by payment of a redemption price. The required redemption
price varies from state to state. Some states require the payment of the
entire principal balance of the loan, accrued interest and expenses of
foreclosure, others require the payment of the foreclosure sale price, while
other states require the payment of only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the mortgagee
to sell the foreclosed property. The exercise of a statutory right of
redemption may defeat the title of any purchaser at a foreclosure sale or any
purchaser from the mortgagee subsequent to a foreclosure sale.
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Consequently, the practical effect of the redemption right is often to force
the mortgagee to retain the property and pay the expenses of ownership until
the redemption period has run. Certain states permit a mortgagee to invalidate
an attempted exercise of a statutory redemption right by waiving its right to
any deficiency judgment. In some states, there is no right to redeem property
after a trustee's sale under a deed of trust.
Under the REMIC Regulations currently in effect, property acquired by
foreclosure generally must not be held for more than two years. 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 Trustee receives (i) an
extension from the IRS or (ii) an opinion of counsel to the effect that
holding such property for such period is permissible under the REMIC
Regulations.
Mortgagors under Installment Contracts generally do not have the benefits of
redemption periods such as those that exist in the same jurisdiction for
mortgage loans. If redemption statutes do exist under state laws for
Installment Contracts, the redemption period may be shorter than for
mortgages.
Anti-Deficiency Legislation. Some of the Mortgage Loans will be nonrecourse
loans as to which, in the event of default by a mortgagor, recourse may be had
only against the specific property pledged to secure the related Mortgage Loan
and not against the mortgagor's other assets. Even if a mortgage by its terms
provides for recourse against the mortgagor, certain states have imposed
prohibitions against or limitations upon such recourse. For example, some
state statutes limit the right of the mortgagee to obtain a deficiency
judgment against the mortgagor following foreclosure or sale under a deed of
trust. A deficiency judgment is a personal judgment against the former
mortgagor equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
mortgagee. Other statutes require the mortgagee to exhaust the security
afforded under a mortgage by foreclosure in an attempt to satisfy the full
debt before bringing a personal action against the mortgagor. In certain
states, the mortgagee has the option of bringing a personal action against the
mortgagor on the debt without first exhausting its security, however, in some
of these states, a mortgagee choosing to pursue such an action may be deemed
to have elected its remedy and may be precluded from exercising any remedies
with respect to the security. Consequently, the practical effect of the
election requirement, when applicable, is that mortgagees will usually proceed
first against the security rather than bringing personal action against the
mortgagor. Other statutory provisions limit any deficiency judgment against
the former mortgagor following a judicial sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a mortgagee
from obtaining a large deficiency judgment against the former mortgagor as a
result of low bids, or the absence of bids, at the judicial sale.
Leasehold Risks. Certain of the Mortgage Loans may be secured by a mortgage
encumbering the mortgagor's leasehold interest under a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgages
encumbering a fee ownership interest in the mortgaged property. The most
significant of these risks is that the ground
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lease creating the leasehold estate could terminate, thereby depriving the
leasehold mortgagee of its security. The ground lease may terminate if, among
other reasons, the ground lessee breaches or defaults in its obligations under
the ground lease or there is a bankruptcy of the ground lessee or the ground
lessor. Examples of protective provisions that may be included in the related
ground lease, or a separate agreement between the ground lessee, the ground
lessor and the mortgagee, in order to minimize such risk are the right of the
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 mortgagee, the right to acquire the
leasehold estate through foreclosure or otherwise prior to any termination of
the ground lease; the ability of the ground lease to be assigned to and by the
mortgagee or a purchaser at a foreclosure sale and for a release of the
assigning ground lessee's liabilities thereunder, the right of the mortgagee
to enter into a ground lease with the ground lessor on the same terms and
conditions as the old ground lease in the event of a termination thereof; and
provisions for disposition of any insurance proceeds or condemnation awards
payable upon a casualty to, or condemnation of, the mortgaged property. In
addition to the foregoing protections, the leasehold mortgage may 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, and may assign to the mortgagee the
debtor-ground lessee's right to reject a lease pursuant to Section 365 of the
Bankruptcy Code, although the enforceability of such assignment has not been
established. An additional manner in which to obtain protection against the
termination of the ground lease is to have the ground lessor enter into a
mortgage encumbering the fee estate in addition to the mortgage encumbering
the leasehold interest under the ground lease. Additional protection is
afforded to the mortgagee, because if the ground lease is terminated, the
mortgagee may nonetheless possess rights contained in the fee mortgage.
Without the protections described in this paragraph, a leasehold mortgagee may
be more likely to lose the collateral securing its leasehold mortgage. No
assurance can be given that any or all of the above described provisions will
be obtained in connection with any particular Mortgage Loan.
Bankruptcy Laws. Mortgagors often file bankruptcy to delay or prevent exercise
of remedies under loan documents. Numerous statutory and common law
provisions, including the Bankruptcy Code and state laws affording relief to
debtors, may interfere with and delay the ability of a mortgagee to obtain
payment of the loan, to realize upon collateral and/or to enforce a deficiency
judgment. For example, under the Bankruptcy Code virtually all actions
(including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition and often no
interest or principal payments are made during the course of the bankruptcy
proceeding (although "adequate protection" payments for anticipated
diminution, if any, in the value of the mortgaged property may be made). The
delay and consequences thereof caused by such automatic stay can be
significant. A particular mortgagor may become subject to the Bankruptcy Code
either by a voluntary or involuntary petition with respect to such mortgagor
or, by virtue of the doctrine of "substantive consolidation" by an affiliate
of such mortgagor becoming a debtor under the Bankruptcy Code. Additionally,
the filing of a petition in bankruptcy by or on behalf of a junior lienor or
junior mortgagee may stay the senior mortgagee from taking action to foreclose
out such junior lien.
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Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the mortgagee are met, the amount and terms of a mortgage or
deed of trust secured by property of the debtor may be modified under certain
circumstances. The outstanding amount of the loan secured by the real property
may be reduced to the then current value of the property (with a corresponding
partial reduction of the amount of the mortgagee's security interest), thus
leaving the mortgagee a general unsecured creditor for the difference between
such value and the outstanding balance of the loan. Other modifications may
include the reduction in the amount of each monthly payment, which reduction
may result from a reduction in the rate of interest and/or the alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan) and/or an extension (or acceleration) of the final maturity date.
Some bankruptcy courts have approved plans, based on the particular facts of
the reorganization case before them, that affected the curing of a mortgage
loan default by paying arrearages over a number of years. A bankruptcy court
may also permit a debtor to de-accelerate a secured loan and to reinstate the
loan even though the mortgagee had accelerated such loan and final judgment of
foreclosure had been entered in state court (provided no sale of the property
had yet occurred) prior to the filing of the debtor's petition, even if the
full amount due under the original loan is never repaid. Other types of
significant modifications to the terms of the mortgage may be acceptable to
the bankruptcy court, often depending on the particular facts and
circumstances of the specific case.
Federal bankruptcy law may also interfere with or affect the ability of a
mortgagee to enforce an assignment of rents and leases or a security interest
in hotel revenues related to the mortgaged property. In connection with a
bankruptcy proceeding involving a mortgagor, Section 362 of the Bankruptcy
Code automatically stays any attempts by the mortgagee to enforce any such
assignment or security interest. The legal proceedings necessary to resolve
such a situation can be time-consuming and may result in significant delays in
the receipt of the rents or hotel revenues. Rents or hotel revenues may also
be lost (i) if the assignment or security interest is not fully documented or
perfected under state law prior to commencement of the bankruptcy proceeding,
(ii) to the extent such rents or hotel revenues are used by the mortgagor to
maintain the mortgaged property or for other court authorized expenses; (iii)
to the extent other collateral may be substituted therefor; and (iv) if the
bankruptcy court determines that it is necessary or appropriate "based on the
equities of the case."
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may
he impaired by the commencement of a bankruptcy proceeding relating to the
lessee under such lease. Under the Bankruptcy Code, the filing of a petition
in bankruptcy by or on behalf of a lessee results in an automatic stay barring
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition.
In addition, the Bankruptcy Code generally provides that a bankruptcy trustee
or debtor in possession may, subject to approval of the bankruptcy court,
either (i) assume the lease and
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retain it or assign it to a third party or (ii) reject the lease. If the lease
is assumed, the bankruptcy trustee or debtor in possession (or assignee, if
applicable) must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, however, as the lessor may be
forced to continue under the lease with a lessee that is a poor credit risk or
an unfamiliar tenant if the lease was assigned, and any assurances provided to
the lessor may, in fact, be inadequate. Furthermore, there may be a
significant period of time between the date that a lessee files a bankruptcy
petition and the date that the lease is assumed or rejected. Although the
lessee is obligated to make all lease payments currently with respect to the
post-petition period, there is a risk that such payments will not be made due
to the lessees poor financial condition. If the lease is rejected, the lessor
will be treated as an unsecured creditor with respect to its claim for damages
for termination of the lease, and the lessor must relet the mortgaged property
before the flow of lease payments will recommence. In addition, pursuant to
Section 502(b)(6) of the Bankruptcy Code, a lessor's damages for lease
rejection are limited.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery, as a preferential transfer, of certain payments made by the
mortgagor under the related Mortgage Loan to the Trust Fund. Payments on
long-term debt may be protected from recovery as preferences if they are
payments in the ordinary course of business made on debts incurred in the
ordinary course of business. Whether any particular payment would be protected
depends upon the facts specific to a particular transaction. If a Mortgage
Loan includes any guaranty, and the guaranty waives any rights of subrogation
or contribution, then certain payments by the mortgagor to the Trust Fund also
may be avoided and recovered as fraudulent conveyances.
A trustee in bankruptcy or a debtor in possession or various creditors who
extend credit after a case is filed, in some cases, may be entitled to collect
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the mortgagee. In certain circumstances, a trustee in bankruptcy or
debtor in possession may have the power to grant liens senior to or pari passu
with the lien of a mortgage, and analogous state statutes and general
principles of equity may also provide a mortgagor with means to halt a
foreclosure proceeding or sale and enforce a restructuring of a mortgage loan
on terms a mortgagee would not otherwise accept.
A trustee in bankruptcy or a debtor in possession, in some cases, also may be
entitled to subordinate the lien created by the mortgage loan to other liens
or the claims of general unsecured creditors. Generally, this requires proof
of "unequitable conduct" by the mortgagee. However, various courts have
expanded the grounds for equitable subordination to apply to various
non-pecuniary claims for such items as penalties and fines. A court may find
that any prepayment charge, various late payment charges and other claims by
mortgagees may be subject to equitable subordination on these grounds.
A trustee in bankruptcy or a debtor in possession, in some cases, also may be
entitled to avoid all or part of any claim or lien by the mortgagee if and to
the extent a judgment creditor, or a bona fide purchaser of real estate, could
have done so outside of bankruptcy.
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Generally, this involves some defect in the language, execution or recording
of the mortgage loan documents.
ENVIRONMENTAL RISKS
Real property pledged as security to a mortgagee may be subject to
environmental risks arising from the presence of hazardous or toxic substances
on, under, adjacent to, or in such property. The environmental condition of
mortgaged properties may be affected by the actions and operations of tenants
and occupants of such properties. Of particular concern may be those mortgaged
properties that are, or have been, the site of manufacturing, industrial or
disposal activity or have been built with or contain asbestos-containing
material or other indoor pollutants. In addition, current and future
environmental laws, ordinances or regulations, including new requirements
developed by federal agencies pursuant to the mandates of the Clean Air Act
Amendments of 1990, may impose additional compliance obligations on business
operations that can he met only by significant capital expenditures.
A mortgagee may be exposed to risks related to environmental conditions such
as the following: (i) a diminution in the value of a mortgaged property; (ii)
the potential that the mortgagor may default on a mortgage loan due to the
mortgagor's inability to pay high remediation costs or difficulty in bringing
its operations into compliance with environmental laws; (iii) in certain
circumstances as more fully described below, liability for clean-up costs or
other remedial actions, which liability could exceed the value of such
mortgaged property or the unpaid balance of the related mortgage loan; or (iv)
the inability to sell the related Mortgage Loan in the secondary market. In
certain circumstances, a mortgagee may choose not to foreclose on contaminated
property rather than risk incurring liability for remedial actions.
In addition, a mortgagee may be obligated to disclose environmental conditions
on a property to government entities and/or to prospective buyers (including
prospective buyers at a foreclosure sale or following foreclosure). Such
disclosure may decrease the amount that prospective buyers are willing to pay
for the affected property, sometimes substantially, and thereby decrease the
ability of the mortgagee to recoup its investment in a loan upon foreclosure.
In certain states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. In these cases, a mortgagee that
becomes the owner of a property through foreclosure, deed in lieu of
foreclosure or otherwise, may be required to clean up the contamination before
selling or otherwise transferring the property.
Under federal and certain states' laws, the owner's failure to perform
remedial actions required under environmental laws may in certain
circumstances give rise to a lien on the mortgaged property to ensure the
reimbursement of remedial costs incurred by federal and state regulatory
agencies. In several states such lien has priority over the lien of an
existing mortgage against such property. Since the costs of remedial action
could be substantial, the value of a mortgaged property as collateral for a
mortgage loan could be adversely affected by the existence of an environmental
condition giving rise to a lien.
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Under certain circumstances, it is possible that environmental cleanup costs,
or the obligation to take remedial actions, can be imposed on a mortgagee such
as the Trust Fund with respect to each Series. Under the laws of some states
and under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), strict liability may be imposed
on present and past "owners" and "operators" of contaminated real property for
the costs of clean-up. Excluded from CERCLA's definition of "owner" or
"operator", however, is a person "who without participating in the management
of the facility, holds indicia of ownership primarily to protect his security
interest". This is known as the "secured creditor exemption." Judicial
decisions interpreting the secured creditor exemption had varied widely, and
one decision, United States v. Fleet Factors Corp., 901 F.2d 1550 (11th Cir.
1990), cert. denied, 498 U.S. 1046 (1991), had indicated that a lender's mere
power to affect and influence a borrower's operations might be sufficient to
lead to liability on the part of the lender. However, on September 30, 1996,
the Asset Conservation, Lender Liability, and Deposit Insurance Protection Act
of 1996 (the "Lender Liability Act") became law. The Lender Liability Act
clarifies the secured creditor exemption to impose liability only on a secured
lender who exercises control over operational aspects of the facility and thus
is "participating in management". A number of environmentally related
activities before the loan is made and during its pendency as well as
"workout" steps to protect a security interest, are identified as permissible
to protect a security interest without triggering liability. The Lender
Liability Act also identifies the circumstances in which foreclosure and
post-closure activities will not trigger CERCLA liability. The Lender
Liability Act also amends the Solid Waste Disposal Act to limit the liability
of lenders holding a security interest for costs of cleaning up contamination
from underground storage tanks. However, the Lender Liability Act has no
effect on state environmental laws similar to CERCLA that may impose liability
on mortgagees and other persons, and not all of those laws provide for a
secured creditor exemption. Liability under many of these federal and state
laws may exist even if the mortgagee did not cause or contribute to the
contamination and regardless of whether the mortgagee has actually taken
possession of a mortgaged property through foreclosure, deed in lieu of
foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan.
CERCLA's "innocent landowner" defense to strict liability may be available to
a mortgagee that has taken title to a mortgaged property and has performed an
appropriate environmental site assessment that does not disclose existing
contamination and that meets other requirements of the defense. However, it is
unclear whether the environmental site assessment must be conducted upon loan
origination, prior to foreclosure or both, and uncertainty exists as to what
kind of environmental site assessment must be performed in order to qualify
for the defense.
Beyond statute-based environmental liability, there exist common law causes of
action that can be asserted to redress hazardous environmental conditions on a
property (e.g., actions based on nuisance for so called toxic torts resulting
in death, personal injury or damage to property). Although it may be more
difficult to hold a mortgagee liable in such cases, unanticipated or uninsured
liabilities of the mortgagor may jeopardize the mortgagor ability to meet its
loan obligations.
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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.
The related Agreement will provide that the Master Servicer or the Special
Servicer, if any, acting on behalf of the Trust Fund, may not acquire title to
any Mortgaged Property or take over its operation unless the Master Servicer
or the Special Servicer, if any, has previously determined, based upon a phase
I or other specified environmental assessment prepared by a person who
regularly conducts such environmental assessments, that (a) the Mortgaged
Property is in compliance with applicable environmental laws or that it would
be in the best economic interest of the Trust Fund to take the actions
necessary to comply with such laws and (b) there are no circumstances or
conditions present at the Mortgaged Property relating to hazardous substances
for which some investigation, remediation or clean-up action could be required
or that it would be in the best economic interest of the Trust Fund to take
such actions with respect to such Mortgaged Property. This requirement
effectively precludes enforcement of the security for the related Note until a
satisfactory environmental assessment is obtained and/or any required remedial
action is taken. This requirement will reduce the likelihood that a given
Trust Fund will become liable for any environmental conditions affecting a
Mortgaged Property, but will make it more difficult to realize on the security
for the Mortgage Loan. There can be no assurance that any environmental
assessment obtained by the Master Servicer or the Special Servicer, if any,
will detect all possible environmental conditions or that the other
requirements of the Agreement, even if fully observed by the Master Servicer
or the Special Servicer, if any, will in fact insulate a given Trust Fund from
liability for environmental conditions.
"Hazardous Materials" are generally defined as any dangerous, toxic or
hazardous pollutants, chemicals, wastes or substances, including, without
limitation, those so identified pursuant to CERCLA or any other environmental
laws now existing. and specifically including, without limitation, asbestos
and asbestos-containing materials, polychlorinated biphenyls, radon gas,
petroleum and petroleum products, urea formaldehyde and any substances
classified as being "in inventory," "usable work in process" or similar
classification that would, if classified as unusable, be included in the
foregoing definition.
If a mortgagee is or becomes liable for clean-up costs, it may bring an action
for contribution against the current owners or operators, the owners or
operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
without substantial assets, bankrupt or otherwise judgment proof. Furthermore,
such action against the mortgagor may be adversely affected by the limitations
on recourse in the loan documents. Similarly, in some states anti-deficiency
legislation and other statutes requiring the mortgagee to exhaust its security
before bringing a personal action against the mortgagor (see "Anti-Deficiency
Legislation" above) may curtail the mortgagee's ability to recover from its
mortgagor the environmental clean-up and other related costs and liabilities
incurred by the mortgagee. Accordingly, it is possible that such costs could
become a liability of the Trust Fund and occasion a loss to the
Certificateholders. Shortfalls occurring as the result of imposition of any
clean-up costs will be addressed in the Prospectus Supplement and Agreement
for the related Series.
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Other environmental laws that may affect the value of a mortgaged property, or
impose cleanup costs or liabilities, including those related to asbestos,
radon. lead paint and underground storage tanks.
Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") in the event of the remodeling, renovation or demolition of a
building. Such laws, as well as common law standards, may impose liability for
releases of ACMs and may allow third parties to seek recovery from owners or
operators of real properties for personal injuries associated with such
releases. In addition, federal law requires that building owners inspect their
facilities for ACMs and presumed ACMs (consisting of thermal system
insulation, surfacing materials and asphalt and vinyl flooring in buildings
constructed prior to 1981) and transfer all information regarding ACMs and
presumed ACMs in their facilities to successive owners.
The United States Environmental Protection Agency (the "EPA') has concluded
that radon gas, a naturally occurring substance, is linked to increased risks
of lung cancer. Although there are no current federal or state requirements
mandating radon gas testing, the EPA and the United States Surgeon General
recommend testing residences for the presence of radon and that abatement
measures be undertaken if radon concentrations in indoor air meet or exceed
four picocuries per liter.
The Residential Lead-Based Paint Hazard Reduction Act of 1992 (the "Lead Paint
Act") requires federal agencies to promulgate regulations that will require
owners of residential housing constructed prior to 1978 to disclose to
potential residents or purchasers any known lead-paint hazards. The Lead Paint
Act creates a private right of action with treble damages available for any
failure to so notify. Federal agencies have issued regulations delineating the
scope of this disclosure obligation which became effective in September of
1996 for owners of more than four residential dwellings and [are to take
effect in December of 1996 for owners of one to four residential dwellings.]
In addition, the ingestion of lead-based paint chips or dust particles by
children can result in lead poisoning, and the owner of a property where such
circumstances exist may be held liable for such injuries. Finally, federal law
mandates that detailed worker safety standards must be complied with where
construction, alteration, repair or renovation of structures that contain
lead, or materials that contain lead, is contemplated.
Underground storage tanks ("USTs") are, and in the past have been, frequently
located at properties used for industrial, retail and other business purposes.
Federal law, as well as the laws of most states, currently require USTs used
for the storage of fuel or hazardous substances and waste to meet certain
standards designed to prevent releases from the USTs into the environment.
USTs installed prior to the implementation of these standards, or that
otherwise do not meet these standards, are potential sources of contamination
to the soil and groundwater. Land owners may be liable for the costs of
investigating and remediating soil and groundwater contamination that may
emanate from leaking USTs.
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ENFORCEABILITY OF CERTAIN PROVISIONS
Default Interest; Late Charges; and Prepayment Fees. Some of the Mortgage
Loans may contain provisions requiring the mortgagor to pay late charges or
additional interest if required payments are not timely made. In certain
states there may be limitations upon the enforceability of such provisions,
and no assurance can be given that any of such provisions related to any
Mortgage Loan will be enforceable. Some of the Mortgage Loans may also contain
provisions prohibiting any prepayment of the loan prior to maturity or
requiring the payment of a prepayment fee in connection with any such
prepayment. Even if enforceable, a requirement for such prepayment fees may
not deter mortgagors from prepaying their mortgage loans. Although certain
states will allow the enforcement of such provisions upon a voluntary
prepayment of a mortgage loan, in other states such provisions may be
unenforceable after a mortgage loan has been outstanding for a certain number
of years or if enforcement would be unconscionable, or the allowed amount of
any prepayment fee may be limited (i.e., to a specified percentage of the
original principal amount of the mortgage loan, to a specified percentage of
the outstanding principal balance of a mortgage loan or to a fixed number of
months' interest on the prepaid amount). In certain states there may be
limitations upon the enforceability of prepayment fee provisions applicable in
connection with a default by the mortgagor or an involuntary acceleration of
the secured indebtedness, and no assurance can be given that any of such
provisions related to a mortgage loan will be enforceable under such
circumstances. The applicable laws of certain states may also treat certain
prepayment fees as usurious if in excess of statutory limits. See
"Applicability of Usury Laws."
Due-on-Sale Provisions. The enforceability of due-on-sale provisions has been
the subject of legislation or litigation in many states, and in some cases,
typically involving single family residential mortgage transactions, their
enforceability has been limited or denied. In any event, the Garn-St Germain
Depository Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits mortgagees to enforce these clauses in
accordance with their terms, subject to certain exceptions. As a result,
due-on-sale clauses have become generally enforceable except in those states
whose legislatures exercised their authority to regulate the enforceability of
such clauses with respect to mortgage loans that were: (i) originated or
assumed during the "window period" under the Garn-St Germain Act, which ended
in all cases not later than October 15,1982; and (ii) originated by lenders
other than national banks, federal savings institutions or federal credit
unions. The Federal Home Loan Mortgage Corporation has taken the position in
its published mortgage servicing standards that, out of a total of eleven
"window period states," five states (Arizona, Michigan, Minnesota, New Mexico
and Utah) have enacted statutes extending, on various terms and for varying
periods, the prohibition on enforcement of due-on-sale clauses with respect to
certain categories of loans that were originated or assumed during the "window
period" applicable to such state. Also, the Gam-St Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rates.
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The Agreement for each Series generally will provide that if any Mortgage Loan
contains a provision in the nature of a "Due-on-Sale" clause, which by its
terms provides that: (i) such Mortgage Loan shall (or may at the mortgagee's
option) become due and payable upon the sale or other transfer of an interest
in the related Mortgaged Property or (ii) such Mortgage Loan may not be
assumed without the consent of the related mortgagee in connection with any
such sale or other transfer, then, for so long as such Mortgage Loan is
included in the Trust Fund, the Master Servicer or the Special Servicer, if
any, on behalf of the Trustee, shall take such actions as it deems to be in
the best interest of the Trust Fund in accordance with the servicing standard
set forth in the Agreement, and may waive or enforce any due-on-sale clause
contained in the related Note or Mortgage.
In addition, under the federal Bankruptcy Code, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
Acceleration on Default. It is expected that the Mortgage Loans will include a
"Debt-Acceleration" clause, which permits the mortgagee to accelerate the full
debt upon a monetary or nonmonetary default of the mortgagor. The courts of
all states will enforce such acceleration clauses in the event of a material
payment default if appropriate notices of default have been effectively given.
However, the equity courts of any state may refuse to foreclose a mortgage
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable. Furthermore, in
some states, the mortgagor may avoid foreclosure and reinstate an accelerated
loan by paying only the defaulted amounts and, in certain states, the costs
and attorneys' fees incurred by the mortgagee in collecting such defaulted
payments.
State courts also are known to apply various legal and equitable principles to
avoid enforcement of the forfeiture provisions of Installment Contracts. For
example, a mortgagee's practice of accepting late payments from the mortgagor
may be deemed a waiver of the forfeiture clause. State courts also may impose
equitable grace periods for payment of arrearages or otherwise permit
reinstatement of the Installment Contract following a default. Not
infrequently, if a mortgagor under an Installment Contract has significant
equity in the property, equitable principles will be applied to reform or
reinstate the Installment Contract or to permit the mortgagor to share the
proceeds upon a foreclosure sale of the property if the sale price exceeds the
debt.
SOLDIERS' AND SAILORS' RELIEF ACT
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service (including
the Army, Navy, Air Force, Marines, Coast Guard, members of the National Guard
or any Reserves who are called to active duty status after the origination of
their mortgage loan and officers of the U.S. Public Health Service assigned to
duty with the military) after the origination of such mortgagor's 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 mortgagee. Any shortfall in
interest collections
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resulting from the application of the Relief Act. to the extent not covered by
any applicable Credit Enhancement, could result in losses to the holders of
the Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the Master Servicer or the Special Servicer, if any, to
foreclose on an affected Mortgage Loan during the mortgagor's period of active
duty status and, under certain circumstances, during an additional three
months thereafter. Thus, in the event that such a Mortgage Loan goes into
default, there may be delays and losses occasioned by the inability to realize
upon the Mortgaged Property in a timely fashion. Because the Relief Act
applies to mortgagors who enter military service (including reservists who are
later called to active duty) after origination of their mortgage loan, no
information can be provided as to the number of Mortgage Loans that may be
affected by the Relief Act. The Relief Act may also be applicable if the
mortgagor is an entity owned or controlled by a person in a military service.
APPLICABILITY OF USURY LAWS
State and federal usury laws limit the interest that mortgagees are entitled
to receive on a mortgage loan. In determining whether a given transaction is
usurious, courts may include charges in the form of "points" and "fees" in the
determination of the "interest" charged in connection with a loan. If,
however, the amount charged for the use of the money loaned is found to exceed
a statutorily established maximum rate, the form employed and the degree of
overcharge are both immaterial. Statutes differ in their provision as to the
consequences of a usurious loan. One type of statute requires the mortgagee to
forfeit the interest above the applicable limit or imposes a specified
penalty. Under this statutory scheme, the mortgagor may have the recorded
mortgage or deed of trust canceled upon paying its debt with lawful interest,
or the mortgagee may foreclose, but only for the debt plus lawful interest, in
either case, subject to any applicable credit for excessive interest collected
from the mortgagor and any penalty owed by the mortgagee. A second type of
statute is more severe. A violation of this type of usury law results in the
invalidation of the transaction, thereby permitting the mortgagor to have the
recorded mortgage or deed of trust canceled without any payment and
prohibiting the mortgagee from foreclosing.
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that state usury limitations do not
apply to certain types of residential (including multifamily, but not other
commercial) first mortgage loans originated by certain lenders after March 31,
1980. A similar federal statute was in effect with respect to mortgage loans
made during the first three months of 1980. The statute authorized any state
to reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal
law. In addition, even where Title V is not so rejected, any state is
authorized by law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken action
to reimpose interest rate limits and/or to limit discount points or other
charges.
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ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage loans,
originated by nonfederally chartered lenders have historically been subjected
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 was in compliance
with applicable law. These difficulties were alleviated substantially with
respect to residential (including multifamily, but not other commercial)
mortgage loans 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: (i) state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks; (ii) state-chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration (the "NCUN') with
respect to origination of alternative mortgage instruments by federal credit
unions; and (iii) all other nonfederally chartered housing creditors,
including state-chartered savings and loan associations, 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 (now the Office, of Thrift Supervision) with
respect to origination of alternative mortgage instruments by federal savings
and loan associations. Title VIII authorized any state to 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. A mortgagee's failure to
comply with the applicable federal regulations in connection with the
origination of an alternative mortgage instrument could subject such mortgage
loan to state restrictions that would not otherwise be applicable.
LEASES AND RENTS
Some of the Mortgage Loans may be secured by an assignment of leases and
rents, either through assignment provisions incorporated in the mortgage,
through a separate assignment document or both. Under an assignment of leases
and rents, the mortgagor typically assigns to the mortgagee the mortgagor's
right, title and interest as landlord under each lease and the income derived
therefrom, while retaining a revocable license to collect the rents for so
long as there is no default under the mortgage loan documentation. In the
event of such a default, the license terminates and the mortgagee may be
entitled to collect rents. A mortgagee's failure to perfect properly its
interest in rents may result in the loss of a substantial pool of funds that
could otherwise serve as a source of repayment for the loan. Some state laws
may require that in addition to recording properly the assignment of leases
and rents, the mortgagee must also take possession of the property and/or
obtain judicial appointment of a receiver before such mortgagee is entitled to
collect rents. Although mortgagees actually taking possession of the property
may become entitled to collect the rents therefrom, such mortgagees may also
incur potentially substantial risks attendant to such possession, including
liability for environmental clean-up costs and other risks inherent to
property ownership and operation. In addition, if a bankruptcy or similar
proceeding is
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commenced by or in respect of the mortgagor, the mortgagee's ability to
collect the rents may also be adversely affected.
SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS
Some of the Mortgage Loans may not restrict secondary financing, thereby
permitting the mortgagor to use the Mortgaged Property as security for one or
more additional loans. Some of the Mortgage Loans may preclude secondary
financing (often by permitting the senior mortgagee to accelerate the maturity
of its loan if the mortgagor further encumbers the Mortgaged Property) or may
require the consent of the senior mortgagee-, however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances. The
Agreement for each Series will generally provide that if any Mortgage Loan
contains a provision in the nature of a "Due-on-Encumbrance" clause, which by
its terms: (i) provides that such Mortgage Loan will (or may at the
mortgagee's option) become due and payable upon the creation of any lien or
other encumbrance on the related Mortgaged Property, or (ii) requires the
consent of the related mortgagee to the creation of any such lien or other
encumbrance on the related Mortgaged Property; then for so long as such
Mortgage Loan is included in a given Trust Fund, the Master Servicer or, if
such Mortgage Loan is a Specially Serviced Mortgage Loan, the Special
Servicer, if any, on behalf of such Trust Fund, will exercise (or decline to
exercise) any right it may have as the mortgagee of record with respect to
such Mortgage Loan to (x) accelerate the payments thereon or (y) withhold its
consent to the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standard set forth in the Agreement.
If a mortgagor encumbers a mortgaged property with one or more junior liens,
the senior mortgagee is subjected to additional risk, such as the following.
First. the mortgagor may have difficulty servicing and repaying multiple
loans. In addition, if the junior loan permits recourse to the mortgagor and
the senior loan does not, a mortgagor may be more likely to repay sums due on
the junior loan than those due on the senior loan. Second, acts of the senior
mortgagee that prejudice the junior mortgagee or impair the junior mortgagee's
security may create a superior equity in favor of the junior mortgagee. For
example, if the mortgagor and the senior mortgagee agree to an increase in the
principal amount of, or the interest rate payable on, the senior loan, the
senior mortgagee may lose its priority to the extent an existing junior
mortgagee is prejudiced or the mortgagor is additionally burdened. Third, if
the mortgagor defaults on the senior loan and/or any junior loan or loans, the
existence of junior loans and actions taken by junior mortgagees can impair
the security available to the senior mortgagee and can interfere with, delay
and in certain circumstances even prevent the taking of action by the senior
mortgagee. Fourth, the bankruptcy of a junior mortgagee may operate to stay
foreclosure or similar proceedings by the senior mortgagee.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various federal,
state and local statutes and regulations. Failure to comply (together with an
inability to remedy any such failure) could result in material diminution in
the value of a Mortgaged Property, which
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could, together with the possibility of limited alternative uses for a
particular Mortgaged Property (e.g., a nursing or convalescent home or
hospital), result in a failure to realize the full principal amount of and
interest on the related Mortgage Loan.
TYPE OF MORTGAGED PROPERTY
A mortgagee may be subject to additional risk depending upon the type and use
of the mortgaged property in question. For instance, mortgaged properties that
are hospitals, nursing homes or convalescent homes may present special risks
to mortgagees in large part due to significant governmental regulation of the
ownership, operation, maintenance, control and financing of health care
institutions. Mortgages encumbering mortgaged properties that are owned by the
mortgagor under a condominium form of ownership are subject to the
declaration, by-laws and other rules and regulations of the condominium
association. Mortgaged properties that are hotels or motels may present
additional risk to the mortgagee in that: (i) hotels and motels are typically
operated pursuant to franchise, management and operating agreements that 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. In addition, mortgaged properties that are multifamily
residential properties or cooperatively owned multifamily properties may be
subject to rent control laws, which could impact the future cash flows of such
properties. See "RISK FACTORS-Risks Associated with Lending on Income
Producing Properties."
CRIMINAL FORFEITURES
Various federal and state laws (collectively, the "Forfeiture Laws") provide
for the civil or criminal forfeiture of certain property (including real
estate) used or intended to be used to commit or facilitate the commission of
a violation of certain laws (typically criminal laws), or purchased with the
proceeds of such violations, Even though the Forfeiture Laws were originally
intended as tools to fight organized crime and drug related crimes, the
current climate appears to be to expand the scope of such laws. Certain of the
Forfeiture Laws (i.e., the Racketeer Influenced and Corrupt Organizations law
and the Comprehensive Crime Control Act of 1984) provide for notice,
opportunity to be heard and for certain defenses for "innocent lienholders."
However, given the uncertain scope of the Forfeiture Laws and their
relationship to existing constitutional protections afforded property owners,
no assurance can be made that enforcement of a Forfeiture Law with respect to
any Mortgaged Property would not deprive the Trust Fund of its security for
the related Mortgage Loan.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA'), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove structural, architectural and communication
barriers 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
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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 mortgagee 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 mortgagee 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.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated
material federal income tax consequences of the purchase, ownership and
disposition of Certificates. The discussion below does not purport to address
all federal income tax consequences that may be applicable to particular
categories of investors, some of which may be subject to special rules. The
authorities on which this discussion is based are subject to change or
differing interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as regulations
(the "REMIC Regulations") promulgated by the U.S. Department of Treasury (the
"Treasury"). Investors should consult their own tax advisors in determining
the federal, state, local and other tax consequences to them of the purchase,
ownership and disposition of Certificates.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
General. With respect to a particular Series of Certificates,
an election may be made to treat the Trust Fund or one or more segregated
pools of assets therein as one or more REMICs within the meaning of Code
Section 860D. A Trust Fund or a portion thereof as to which a REMIC election
will be made will be referred to as a "REMIC Pool". For purposes of this
discussion, Certificates of a series as to which one or more REMIC elections
are made are referred to as "REMIC Certificates" and will consist of one or
more Classes of "Regular Certificates" and one Class of "Residual
Certificates" in the case of each REMIC Pool. Qualification as a REMIC
requires ongoing compliance with certain conditions. With respect to each
series of REMIC Certificates, O'Melveny & Myers LLP, counsel to the Depositor,
has advised the Depositor that in the firm's opinion, assuming (i) the making
of such an election, (ii) compliance with the Pooling Agreement and (iii)
compliance with any changes in the law, including any amendments to the Code
or applicable Treasury regulations thereunder, each REMIC Pool will qualify as
a REMIC. In such case, the Regular Certificates will be considered to be
"regular interests" in the REMIC Pool and generally will be treated for
federal income tax purposes as if they were newly originated debt instruments,
and the Residual Certificates will be considered to be "residual interests" in
the REMIC Pool. The Prospectus Supplement for each series of Certificates will
indicate whether one or more REMIC elections will be made with respect to the
related Trust Fund, in which event references to "REMIC" or "REMIC Pool"
herein shall be deemed to refer to each such REMIC Pool. If so specified in
the applicable Prospectus Supplement, the portion of a Trust Fund as to which
a REMIC election is not made may be treated as either a financial asset
securitization investment trust (a "FASIT") or as a grantor trust for federal
income tax purposes. See "--Federal Income Tax Consequences for FASIT
Certificates and "--Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made".
Status of REMIC Certificates. REMIC Certificates held by a
domestic building and loan association will constitute "a regular or residual
interest in a REMIC" within the meaning of Code Section 7701(a)(19)(C)(xi),
but only in the same proportion that the assets of the REMIC Pool would be
treated as "loans . . . secured by an interest in real property
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which is . . . residential real property" (such as single family or
multifamily properties, but not commercial properties) within the meaning of
Code Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C), and otherwise will not qualify for such treatment. REMIC
Certificates held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(4)(A), and interest
on the Regular Certificates and income with respect to Residual Certificates
will be considered "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Code Section
856(c)(3)(B) in the same proportion that, for both purposes, the assets of the
REMIC Pool would be so treated. If at all times 95% or more of the assets of
the REMIC Pool qualify for each of the foregoing respective treatments, the
REMIC Certificates will qualify for the corresponding status in their
entirety. For purposes of Code Section 856(c)(4)(A), payments of principal and
interest on the Mortgage Loans that are reinvested pending distribution to
holders of REMIC Certificates qualify for such treatment. Where two REMIC
Pools are a part of a tiered structure they will be treated as one REMIC for
purposes of the tests described above respecting asset ownership of more or
less than 95%. REMIC Certificates held by a regulated investment company will
not constitute "Government Securities" within the meaning of Code Section
851(b)(3)(A)(i). REMIC Certificates held certain financial institutions will
constitute an "evidence of indebtedness" within the meaning of Code Section
582(c)(1). The Small Business Job Protection Act of 1996 (the "SBJPA of 1996")
repealed the reserve method for bad debts of domestic building and loan
associations and mutual savings banks, and thus has eliminated the asset
category of "qualifying real property loans" in former Code Section 593(d) for
taxable years beginning after December 31, 1995. The requirement in the SBJPA
of 1996 that such institutions must "recapture" a portion of their existing
bad debt reserves is suspended if a certain portion of their assets are
maintained in "residential loans" under Code Section 7701(a)(19)(C)(v), but
only if such loans were made to acquire, construct or improve the related real
property and not for the purpose of refinancing. However, no effort will be
made to identify the portion of the Mortgage Loans of any Series meeting this
requirement, and no representation is made in this regard.
Qualification as a REMIC. In order for the REMIC Pool to
qualify as a REMIC, there must be ongoing compliance on the part of the REMIC
Pool with the requirements set forth in the Code. The REMIC Pool must fulfill
an asset test, which requires that no more than a de minimis portion of the
assets of the REMIC Pool, as of the close of the third calendar month
beginning after the "Startup Day" (which for purposes of this discussion is
the date of issuance of the REMIC Certificates) and at all times thereafter,
may consist of assets other than "qualified mortgages" and "permitted
investments". The REMIC Regulations provide a safe harbor pursuant to which
the de minimis requirement is met if at all times the aggregate adjusted basis
of the nonqualified assets is less than 1% of the aggregate adjusted basis of
all the REMIC Pool's assets. An entity that fails to meet the safe harbor may
nevertheless demonstrate that it holds no more than a de minimis amount of
nonqualified assets. A REMIC also must provide "reasonable arrangements" to
prevent its residual interest from being held by "disqualified organizations"
and must furnish applicable tax information to transferors or agents that
violate this requirement. The Pooling Agreement for each Series will contain a
provision designed to meet this requirement. See
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"Taxation of Residual Certificates-- Tax-Related Restrictions on Transfer of
Residual Certificates--Disqualified Organizations".
A qualified mortgage is any obligation that is principally
secured by an interest in real property and that is either transferred to the
REMIC Pool on the Startup Day in exchange for Regular Certificates or Residual
Certificates or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
certificates of beneficial interest in a grantor trust that holds mortgage
loans, regular interests in another REMIC, loans secured by timeshare
interests and loans secured by shares held by a tenant stockholder in a
cooperative housing corporation, provided, in general, (i) the fair market
value of the real property securing the mortgage (including buildings and
structural components thereof) is at least 80% of the principal balance of the
related Mortgage Loan or underlying mortgage loan either at origination of the
relevant loan or as of the Startup Day (an original loan-to-value ratio of not
more than 125% with respect to the real property securing the mortgage) or
(ii) substantially all the proceeds of the Mortgage Loan or the underlying
mortgage loan were used to acquire, improve or protect an interest in real
property that, at the origination date, was the only security for the Mortgage
Loan or underlying mortgage loan. If the Mortgage Loan has been substantially
modified other than in connection with a default or reasonably foreseeable
default, it must meet the loan-to-value test in (i) of the preceding sentence
as of the date of the last such modification or at closing. A qualified
mortgage includes a qualified replacement mortgage, which is any property that
would have been treated as a qualified mortgage if it were transferred to the
REMIC Pool on the Startup Day and that is received either (i) in exchange for
any qualified mortgage within a three-month period thereafter or (ii) in
exchange for a "defective obligation" within a two-year period thereafter. A
"defective obligation" includes (i) a mortgage in default or as to which
default is reasonably foreseeable, (ii) a mortgage as to which a customary
representation or warranty made at the time of transfer to the REMIC Pool has
been breached, (iii) a mortgage that was fraudulently procured by the
mortgagor, and (iv) a mortgage that was not in fact principally secured by
real property (but only if such mortgage is disposed of within 90 days of
discovery). A Mortgage Loan that is "defective" as described in clause (iv)
that is not sold or, if within two years of the Startup Day, exchanged, within
90 days of discovery, ceases to be a qualified mortgage after such 90-day
period. A qualified mortgage also includes any regular interest in a FASIT
transferred to the REMIC Pool on the Startup Day in exchange for Regular
Certificates or Residual Certificates, or purchased by the REMIC Pool within
three months after the Startup Day pursuant to a fixed price contract in
effect on the Startup Day, provided that at least 95% of the value of the
FASIT assets is at all times attributable to obligations principally secured
by interests in real property and which are transferred to, or purchased by, a
REMIC as provided in this sentence.
Permitted investments include cash flow investments, qualified
reserve assets, and foreclosure property. A cash flow investment is an
investment, earning a return in the nature of interest, of amounts received on
or with respect to qualified mortgages for a temporary period, not exceeding
13 months, until distributed to holders of interests in the REMIC Pool. A
qualified reserve asset is any intangible property (other than a REMIC
residual
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interest) held for investment that is part of any reasonably required reserve
maintained by the REMIC Pool to provide for payments of expenses of the REMIC
Pool or amounts due on the regular or residual interests in the event of
defaults (including delinquencies) on the qualified mortgages, lower than
expected reinvestment returns, prepayment interest shortfalls and certain
other contingencies. The reserve fund will be disqualified if more than 30% of
the gross income from the assets in such fund for the year is derived from the
sale or other disposition of property held for less than three months, unless
required to prevent a default on the regular interests caused by a default on
one or more qualified mortgages. A reserve fund must be reduced "promptly and
appropriately" as payments on the Mortgage Loans are received. Foreclosure
property is real property acquired by the REMIC Pool in connection with the
default or imminent default of a qualified mortgage and generally held beyond
the close of the third calendar year following the acquisition of the property
by REMIC Pool for not more than two years, with possible extensions granted by
the Internal Revenue Service (the "Service") of up to an additional four
years.
In addition to the foregoing requirements, the various
interests in a REMIC Pool also must meet certain requirements. All of the
interests in a REMIC Pool must be either of the following: (i) one or more
classes of regular interests or (ii) a single class of residual interests on
which distributions, if any, are made pro rata. A regular interest is an
interest in a REMIC Pool that is issued on the Startup Day with fixed terms,
is designated as a regular interest, and unconditionally entitles the holder
to receive a specified principal amount (or other similar amount), and
provides that interest payments (or other similar amounts), if any, at or
before maturity either are payable based on a fixed rate or a qualified
variable rate, or consist of a specified, nonvarying portion of the interest
payments on qualified mortgages. Such a specified portion may consist of a
fixed number of basis points, a fixed percentage of the total interest, or a
fixed or qualified variable or inverse variable rate on some or all of the
qualified mortgages minus a different fixed or qualified variable rate. The
specified principal amount of a regular interest that provides for interest
payments consisting of a specified, nonvarying portion of interest payments on
qualified mortgages may be zero. A residual interest is an interest in a REMIC
Pool other than a regular interest that is issued on the Startup Day and that
is designated as a residual interest. An interest in a REMIC Pool may be
treated as a regular interest even if payments of principal with respect to
such interest are subordinated to payments on other regular interests or the
residual interest in the REMIC Pool, and are dependent on the absence of
defaults or delinquencies on qualified mortgages or permitted investments,
lower than reasonably expected returns on permitted investments, unanticipated
expenses incurred by the REMIC Pool or prepayment interest shortfalls.
Accordingly, the Regular Certificates of a series will constitute one or more
classes of regular interests, and the Residual Certificates with respect to
that series will constitute a single class of residual interests on which
distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one
or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In this event, an entity with multiple classes
of ownership interests may be treated as a separate association taxable as a
corporation under Treasury regulations, and the Regular Certificates
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may be treated as equity interests therein. The Code, however, authorizes the
Treasury Department to issue regulations that address situations where failure
to meet one or more of the requirements for REMIC status occurs inadvertently
and in good faith, and disqualification of the REMIC Pool would occur absent
regulatory relief. Investors should be aware, however, that the Conference
Committee Report to the Tax Reform Act of 1986 (the "1986 Act") indicates that
the relief may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC Pool's income for the period of
time in which the requirements for REMIC status are not satisfied.
TAXATION OF REGULAR CERTIFICATES
General
In general, interest, original issue discount and market
discount on a Regular Certificate will be treated as ordinary income to a
holder of the Regular Certificate (the "Regular Certificateholder") as they
accrue, and principal payments on a Regular Certificate will be treated as a
return of capital to the extent of the Regular Certificateholder's basis in
the Regular Certificate allocable thereto. Regular Certificateholders must use
the accrual method of accounting with regard to Regular Certificates,
regardless of the method of accounting otherwise used by such Regular
Certificateholders.
Original Issue Discount
Certificates on which interest is not paid currently ("Compound
Interest Certificates") will be, and other Classes of Regular Certificates may
be, issued with "original issue discount" within the meaning of Code Section
1273(a). Holders of any Class of Regular Certificates having original issue
discount generally must include original issue discount in ordinary income for
federal income tax purposes as it accrues, in accordance with the constant
yield method that takes into account the compounding of interest, in advance
of receipt of the cash attributable to such income. The following discussion
is based in part on temporary and final Treasury regulations issued on
February 2, 1994, as amended on June 14, 1996, (the "OID Regulations") under
Code Sections 1271 through 1273 and 1275 and in part on the provisions of the
1986 Act. Regular Certificateholders should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the Regular Certificates. To the extent such issues are
not addressed in such regulations, the Depositor intends to apply the
methodology described in the Conference Committee Report to the 1986 Act. No
assurance can be provided that the Service will not take a different position
as to those matters not currently addressed by the OID Regulations. Moreover,
the OID Regulations include an anti-abuse rule allowing the Service to apply
or depart from the OID Regulations where necessary or appropriate to ensure a
reasonable tax result in light of the applicable statutory provisions. A tax
result will not be considered unreasonable under the anti-abuse rule in the
absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion herein and the appropriate method for reporting interest and
original issue discount with respect to the Regular Certificates.
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Each Regular Certificate will be treated as a single
installment obligation for purposes of determining the original issue discount
includible in a Regular Certificateholder's income. The total amount of
original issue discount on a Regular Certificate is the excess of the "stated
redemption price at maturity" of the Regular Certificate over its "issue
price". The issue price of a Class of Regular Certificates offered pursuant to
this Prospectus generally is the first price at which a substantial amount of
Regular Certificates of that Class is sold to the public (excluding bond
houses, brokers and underwriters). Although unclear under the OID Regulations,
the Depositor intends to treat the issue price of a Class as to which there is
no substantial sale as of the issue date or that is retained by the Depositor
as the fair market value of that Class as of the issue date. The issue price
of a Regular Certificate also includes the amount paid by an initial Regular
Certificateholder for accrued interest that relates to a period prior to the
issue date of the Regular Certificate, unless the Regular Certificateholder
elects on its federal income tax return to exclude such amount from the issue
price and to recover it on the first Distribution Date. The stated redemption
price at maturity of a Regular Certificate always includes the original
principal amount of the Regular Certificate, but generally will not include
distributions of stated interest if such interest distributions constitute
"qualified stated interest". Under the OID Regulations, qualified stated
interest generally means interest payable at a single fixed rate or a
qualified variable rate (as described below) provided that such interest
payments are unconditionally payable at intervals of one year or less during
the entire term of the Regular Certificate. Because there is no penalty or
default remedy in the case of nonpayment of interest with respect to a Regular
Certificate, it is possible that no interest on any Class of Regular
Certificates will be treated as qualified stated interest. However, except as
provided in the following three sentences or in the applicable Prospectus
Supplement, because the underlying Mortgage Loans provide for remedies in the
event of default, the Depositor intends to treat interest with respect to the
Regular Certificates as qualified stated interest. Distributions of interest
on a Compound Interest Certificate, or on other Regular Certificates with
respect to which deferred interest will accrue, will not constitute qualified
stated interest, in which case the stated redemption price at maturity of such
Regular Certificates includes all distributions of interest as well as
principal thereon. Likewise, the Depositor intends to treat an "interest only"
class, or a class on which interest is substantially disproportionate to its
principal amount (a so-called "super-premium" class) as having no qualified
stated interest. Where the interval between the issue date and the first
Distribution Date on a Regular Certificate is shorter than the interval
between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular
Certificate will be considered to be zero if such original issue discount is
less than 0.25% of the stated redemption price at maturity of the Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate. For this purpose, the weighted average maturity of the Regular
Certificate is computed as the sum of the amounts determined by multiplying
the number of full years (i.e., rounding down partial years) from the issue
date until all distributions in reduction of are scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included
in the stated redemption price at maturity of the Regular Certificate and the
denominator of which is the stated redemption price at maturity
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of the Regular Certificate. The Conference Committee Report to the 1986 Act
provides that the schedule of such distributions should be determined in
accordance with the assumed rate of prepayment of the Mortgage Loans (the
"Prepayment Assumption") and the anticipated reinvestment rate, if any,
relating to the Regular Certificates. The Prepayment Assumption with respect
to a Series of Regular Certificates will be set forth in the related
Prospectus Supplement. Holders generally must report de minimis original issue
discount pro rata as principal payments are received, and such income will be
capital gain if the Regular Certificate is held as a capital asset. However,
under the OID Regulations, Regular Certificateholders may elect to accrue all
de minimis original issue discount as well as market discount and market
premium under the constant yield method. See "Election to Treat All Interest
Under the Constant Yield Method".
A Regular Certificateholder generally must include in gross
income for any taxable year the sum of the "daily portions," as defined below,
of the original issue discount on the Regular Certificate accrued during an
accrual period for each day on which it holds the Regular Certificate,
including the date of purchase but excluding the date of disposition. The
Depositor will treat the monthly period ending on the day before each
Distribution Date as the accrual period. With respect to each Regular
Certificate, a calculation will be made of the original issue discount that
accrues during each successive full accrual period (or shorter period from the
date of original issue) that ends on the day before the related Distribution
Date on the Regular Certificate. The Conference Committee Report to the 1986
Act states that the rate of accrual of original issue discount is intended to
be based on the Prepayment Assumption. The original issue discount accruing in
a full accrual period would be the excess, if any, of (i) the sum of (a) the
present value of all of the remaining distributions to be made on the Regular
Certificate as of the end of that accrual period that are included in the
Regular Certificate's stated redemption price at maturity and (b) the
distributions made on the Regular Certificate during the accrual period that
are included in the Regular Certificate's stated redemption price at maturity,
over (ii) the adjusted issue price of the Regular Certificate at the beginning
of the accrual period. The present value of the remaining distributions
referred to in the preceding sentence is calculated based on (i) the yield to
maturity of the Regular Certificate at the issue date, (ii) events (including
actual prepayments) that have occurred prior to the end of the accrual period
and (iii) the Prepayment Assumption. For these purposes, the adjusted issue
price of a Regular Certificate at the beginning of any accrual period equals
the issue price of the Regular Certificate, increased by the aggregate amount
of original issue discount with respect to the Regular Certificate that
accrued in all prior accrual periods and reduced by the amount of
distributions included in the Regular Certificate's stated redemption price at
maturity that were made on the Regular Certificate in such prior periods. The
original issue discount accruing during any accrual period (as determined in
this paragraph) will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
period. With respect to an initial accrual period shorter than a full accrual
period, the daily portions of original issue discount must be determined
according to an appropriate allocation under any reasonable method.
Under the method described above, the daily portions of
original issue discount required to be included in income by a Regular
Certificateholder generally will increase to
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take into account prepayments on the Regular Certificates as a result of
prepayments on the Mortgage Loans that exceed the Prepayment Assumption, and
generally will decrease (but not below zero for any period) if the prepayments
are slower than the Prepayment Assumption. An increase in prepayments on the
Mortgage Loans with respect to a Series of Regular Certificates can result in
both a change in the priority of principal payments with respect to certain
Classes of Regular Certificates and either an increase or decrease in the
daily portions of original issue discount with respect to such Regular
Certificates.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than
its adjusted issue price but less than its stated redemption price at maturity
will be required to include in gross income the daily portions of the original
issue discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively,
such a subsequent purchaser may elect to treat all such acquisition premium
under the constant yield method, as described below under the heading
"Election to Treat All Interest Under the Constant Yield Method".
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a
variable rate. Under the OID Regulations, interest is treated as payable at a
variable rate if, generally, (i) the issue price does not exceed the original
principal balance by more than a specified de minimis amount and (ii) the
interest compounds or is payable at least annually at current values of (a)
one or more "qualified floating rates", (b) a single fixed rate and one or
more qualified floating rates, (c) a single "objective rate", or (d) a single
fixed rate and a single objective rate that is a "qualified inverse floating
rate". A floating rate is a qualified floating rate if variations in the rate
can reasonably be expected to measure contemporaneous variations in the cost
of newly borrowed funds, or 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. Two or more qualified
floating rates will be treated as a single qualified floating rate if all such
qualified floating rates can reasonably be expected to have approximately the
same values throughout the terms of the instrument. This requirement will be
conclusively presumed to be satisfied if the values of all such qualified
floating rates are within 0.25% of each other on the issue date. An objective
rate (other than a qualified floating rate) is a rate that is determined using
a single fixed formula and that is based on objective financial or economic
information, provided that such information is not (i) within the control of
the issuer or a related party or (ii) unique to the circumstances of the
issuer or a related party. A qualified inverse floating rate is an objective
rate that is equal to a fixed rate minus a qualified floating rate that
inversely reflects contemporaneous variations in the cost of newly borrowed
funds; an inverse floating rate that is not a qualified floating rate may
nevertheless
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be an objective rate. A Class of Regular Certificates may be issued under this
Prospectus that does not have a variable rate under the OID Regulations, for
example, a Class that bears different rates at different times during the
period it is outstanding such that it is considered significantly
"front-loaded" or "back-loaded" within the meaning of the OID Regulations. It
is possible that such a Class may be considered to bear "contingent interest"
within the meaning of the OID Regulations. The OID Regulations, as they relate
to the treatment of contingent interest, are by their terms not applicable to
Regular Certificates. However, if final regulations dealing with contingent
interest with respect to Regular Certificates apply the same principles as the
OID Regulations, such regulations may lead to different timing of income
inclusion than would be the case under the OID Regulations. Furthermore,
application of such principles could lead to the characterization of gain on
the sale of contingent interest Regular Certificates as ordinary income.
Investors should consult their tax advisors regarding the appropriate
treatment of any Regular Certificate that does not pay interest at a fixed
rate or variable rate as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing
a rate that qualifies as a variable rate under the OID Regulations that is
tied to current values of a variable rate (or the highest, lowest or average
of two or more variable rates), including a rate based on the average cost of
funds of one or more financial institutions, or a positive or negative
multiple of such a rate (plus or minus a specified number of basis points), or
that represents a weighted average of rates on some or all of the Mortgage
Loans which bear interest at a fixed rate or at a qualifying variable rate
under the REMIC Regulations, including such a rate that is subject to one or
more caps or floors, or (ii) bearing one or more such variable rates for one
or more periods or one or more fixed rates for one or more periods, and a
different variable rate or fixed rate for other periods qualifies as a regular
interest in a REMIC. Accordingly, unless otherwise indicated in the applicable
Prospectus Supplement, the Depositor intends to treat Regular Certificates
that qualify as regular interests under this rule in the same manner as
obligations bearing a variable rate for original issue discount reporting
purposes.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "Original Issue Discount" with the yield to maturity and
future payments on such Regular Certificate generally to be determined by
assuming that interest will be payable for the life of the Regular Certificate
based on the initial rate (or, if different, the value of the applicable
variable rate as of the pricing date) for the relevant Class. Unless otherwise
specified in the applicable Prospectus Supplement, the Depositor intends to
treat such variable interest as qualified stated interest, other than variable
interest on an interest-only or super-premium Class, which will be treated as
non-qualified stated interest includible in the stated redemption price at
maturity. Ordinary income reportable for any period will be adjusted based on
subsequent changes in the applicable interest rate index.
Although unclear under the OID Regulations, unless required
otherwise by applicable final regulations, the Depositor intends to treat
Regular Certificates bearing an interest rate that is a weighted average of
the net interest rates on Mortgage Loans or Mortgage Certificates having fixed
or adjustable rates, as having qualified stated interest,
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except to the extent that initial "teaser" rates cause sufficiently
"back-loaded" interest to create more than de minimis original issue discount.
The yield on such Regular Certificates for purposes of accruing original issue
discount will be a hypothetical fixed rate based on the fixed rates, in the
case of fixed rate Mortgage Loans, and initial "teaser rates" followed by
fully indexed rates, in the case of adjustable rate Mortgage Loans. In the
case of adjustable rate Mortgage Loans, the applicable index used to compute
interest on the Mortgage Loans in effect on the pricing date (or possibly the
issue date) will be deemed to be in effect beginning with the period in which
the first weighted average adjustment date occurring after the issue date
occurs. Adjustments will be made in each accrual period either increasing or
decreasing the amount of ordinary income reportable to reflect the actual
Pass-Through Rate on the Regular Certificates.
Deferred Interest
Under the OID Regulations, all interest on a Regular
Certificate as to which there may be deferred interest is includible in the
stated redemption price at maturity thereof. Accordingly, any deferred
interest that accrues with respect to a Class of Regular Certificates may
constitute income to the holders of such Regular Certificates prior to the
time distributions of cash with respect to such deferred interest are made.
Market Discount
A purchaser of a Regular Certificate also may be subject to the
market discount rules of Code Section 1276 through 1278. Under these Code
sections and the principles applied by the OID Regulations in the context of
original issue discount, "market discount" is the amount by which the
purchaser's original basis in the Regular Certificate (i) is exceeded by the
then-current principal amount of the Regular Certificate or (ii) in the case
of a Regular Certificate having original issue discount, is exceeded by the
adjusted issue price of such Regular Certificate at the time of purchase. Such
purchaser generally will be required to recognize ordinary income to the
extent of accrued market discount on such Regular Certificate as distributions
includible in the stated redemption price at maturity thereof are received, in
an amount not exceeding any such distribution. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take into
account the Prepayment Assumption. The Conference Committee Report to the 1986
Act provides that until such regulations are issued, such market discount
would accrue either (i) on the basis of a constant interest rate or (ii) in
the ratio of stated interest allocable to the relevant period to the sum of
the interest for such period plus the remaining interest as of the end of such
period, or in the case of a Regular Certificate issued with original issue
discount, in the ratio of original issue discount accrued for the relevant
period to the sum of the original issue discount accrued for such period plus
the remaining original issue discount as of the end of such period. Such
purchaser also generally will be required to treat a portion of any gain on a
sale or exchange of the Regular Certificate as ordinary income to the extent
of the market discount accrued to the date of disposition under one of the
foregoing methods, less any accrued market discount previously reported as
ordinary income as partial distributions in reduction of the stated redemption
price at maturity were received. Such purchaser will be required to defer
deduction of a portion of the excess of the interest paid
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or accrued on indebtedness incurred to purchase or carry a Regular Certificate
over the interest distributable thereon. The deferred portion of such interest
expense in any taxable year generally will not exceed the accrued market
discount on the Regular Certificate for such year. Any such deferred interest
expense is, in general, allowed as a deduction not later than the year in
which the related market discount income is recognized or the Regular
Certificate is disposed of. As an alternative to the inclusion of market
discount in income on the foregoing basis, the Regular Certificateholder may
elect to include market discount in income currently as it accrues on all
market discount instruments acquired by such Regular Certificateholder in that
taxable year or thereafter, in which case the interest deferral rule will not
apply. See "Election to Treat All Interest Under the Constant Yield Method"
below regarding an alternative manner in which such election may be deemed to
be made.
Market discount with respect to a Regular Certificate will be
considered to be zero if such market discount is less than 0.25% of the
remaining stated redemption price at maturity of such Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate
(determined as described above in the third paragraph under "Original Issue
Discount") remaining after the date of purchase. It appears that de minimis
market discount should be reported in a manner similar to de minimis original
issue discount. See "Original Issue Discount" above. Treasury regulations
implementing the market discount rules have not yet been issued, and therefore
investors should consult their own tax advisors regarding the application of
these rules. Investors should also consult Revenue Procedure 92-67 concerning
the elections to include market discount in income currently and to accrue
market discount on the basis of the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its
remaining stated redemption price at maturity generally is considered to be
purchased at a premium. If the Regular Certificateholder holds such Regular
Certificate as a "capital asset" within the meaning of Code Section 1221, the
Regular Certificateholder may elect under Code Section 171 to amortize such
premium under the constant yield method. The Conference Committee Report to
the 1986 Act indicates a Congressional intent that the same rules that will
apply to the accrual of market discount on installment obligations will also
apply to amortizing bond premium under Code Section 171 on installment
obligations such as the Regular Certificates, although it is unclear whether
the alternatives to the constant yield method described above under "Market
Discount" are available. Amortizable bond premium will be treated as an offset
to interest income on a Regular Certificate rather than as a separate
deduction item. See "Election to Treat All Interest Under the Constant Yield
Method" below regarding an alternative manner in which the Code Section 171
election may be deemed to be made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may
elect to treat all interest that accrues on the instrument using the constant
yield method, with none of the
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interest being treated as qualified stated interest. For purposes of applying
the constant yield method to a debt instrument subject to such an election,
(i) "interest" includes stated interest, original issue discount, de minimis
original issue discount, market discount and de minimis market discount, as
adjusted by any amortizable bond premium or acquisition premium and (ii) the
debt instrument is treated as if the instrument were issued on the holder's
acquisition date in the amount of the holder's adjusted basis immediately
after acquisition. It is unclear whether, for this purpose, the initial
Prepayment Assumption would continue to apply or if a new prepayment
assumption as of the date of the holder's acquisition would apply. A holder
generally may make such an election on an instrument by instrument basis or
for a class or group of debt instruments. However, if the holder makes such an
election with respect to a debt instrument with amortizable bond premium or
with market discount, the holder is deemed to have made elections to amortize
bond premium or to report market discount income currently as it accrues under
the constant yield method, respectively, for all debt instruments acquired by
the holder in the same taxable year or thereafter. The election is made on the
holder's federal income tax return for the year in which the debt instrument
is acquired and is irrevocable except with the approval of the Service.
Investors should consult their own tax advisors regarding the advisability of
making such an election.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular
Certificate, the Regular Certificateholder will recognize gain or loss equal
to the difference, if any, between the amount received and its adjusted basis
in the Regular Certificate. The adjusted basis of a Regular Certificate
generally will equal the cost of the Regular Certificate to the seller,
increased by any original issue discount or market discount previously
included in the seller's gross income with respect to the Regular Certificate
and reduced by amounts included in the stated redemption price at maturity of
the Regular Certificate that were previously received by the seller, by any
amortized premium and by previously recognized losses.
Except as described above with respect to market discount, and
except as provided in this paragraph, any gain or loss on the sale or exchange
of a Regular Certificate realized by an investor who holds the Regular
Certificate as a capital asset will be capital gain or loss and will be
long-term or short-term depending on whether the Regular Certificate has been
held for the long-term capital gain holding period (currently more than one
year). Such gain will be treated as ordinary income (i) if a Regular
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
Regular Certificateholder's net investment in the conversion transaction at
120% of the appropriate applicable Federal rate under Code Section 1274(d) in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior distribution
of property that was held as a part of such transaction, (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary rates, or (iii) to the extent that such gain does not exceed the
excess, if any, of (a) the amount that would have been includible in the gross
income of the holder if its yield on such Regular Certificate were 110% of the
applicable Federal
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rate as of the date of purchase, over (b) the amount of income actually
includible in the gross income of such holder with respect to the Regular
Certificate. In addition, gain or loss recognized from the sale of a Regular
Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c). Capital gains of
certain non-corporate taxpayers are subject to a lower maximum tax rate (28%)
than ordinary income of such taxpayers (39.6%), and still a lower maximum rate
(20%) for property held for more than 18 months. The maximum tax rate for
corporations is the same with respect to both ordinary income and capital
gains.
Treatment of Losses
Holders of Regular Certificates will be required to report
income with respect to Regular Certificates on the accrual method of
accounting, without giving effect to delays or reductions in distributions
attributable to defaults or delinquencies on the Mortgage Loans allocable to a
particular class of Regular Certificates, except to the extent it can be
established that such losses are uncollectible. Accordingly, the holder of a
Regular Certificate may have income, or may incur a diminution in cash flow as
a result of a default or delinquency, but may not be able to take a deduction
(subject to the discussion below) for the corresponding loss until a
subsequent taxable year. In this regard, investors are cautioned that while
they may generally cease to accrue interest income if it reasonably appears
that the interest will be uncollectible, the Internal Revenue Service may take
the position that original issue discount must continue to be accrued in spite
of its uncollectibility until the debt instrument is disposed of in a taxable
transaction or becomes worthless in accordance with the rules of Code Section
166. To the extent the rules of Code Section 166 regarding bad debts are
applicable, it appears that holders of Regular Certificates that are
corporations or that otherwise hold the Regular Certificates in connection
with a trade or business should in general be allowed to deduct as an ordinary
loss any such loss sustained during the taxable year on account of any such
Regular Certificates becoming wholly or partially worthless, and that, in
general, holders of Regular Certificates that are not corporations and do not
hold the Regular Certificates in connection with a trade or business will be
allowed to deduct as a short-term capital loss any loss with respect to
principal sustained during the taxable year on account of a portion of any
class or subclass of such Regular Certificates becoming wholly worthless.
Although the matter is not free from doubt, non-corporate holders of Regular
Certificates should be allowed a bad debt deduction at such time as the
principal balance of any class or subclass of such Regular Certificates is
reduced to reflect losses resulting from any liquidated Mortgage Loans. The
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect such losses only after all Mortgage
Loans remaining in the Trust Fund have been liquidated or such class of
Regular Certificates has been otherwise retired. The Service could also assert
that losses on the Regular Certificates are deductible based on some other
method that may defer such deductions for all holders, such as reducing future
cash flow for purposes of computing original issue discount. This may have the
effect of creating "negative" original issue discount which would be
deductible only against future positive original issue discount or otherwise
upon termination of the Class. Holders of Regular Certificates are urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such Regular Certificates.
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While losses attributable to interest previously reported as income should be
deductible as ordinary losses by both corporate and non-corporate holders, the
Internal Revenue Service may take the position that losses attributable to
accrued original issue discount may only be deducted as short-term capital
losses by non-corporate holders not engaged in a trade or business. Special
loss rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. Such taxpayers are advised to consult their
tax advisors regarding the treatment of losses on Regular Certificates.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net
loss will be includible as ordinary income or loss in determining the federal
taxable income of holders of Residual Certificates ("Residual
Certificateholders"), and will not be taxed separately to the REMIC Pool. The
daily portions of REMIC taxable income or net loss of a Residual
Certificateholder are determined by allocating the REMIC Pool's taxable income
or net loss for each calendar quarter ratably to each day in such quarter and
by allocating such daily portion among the Residual Certificateholders in
proportion to their respective holdings of Residual Certificates in the REMIC
Pool on such day. REMIC taxable income is generally determined in the same
manner as the taxable income of an individual using the accrual method of
accounting, except that (i) the limitations on deductibility of investment
interest expense and expenses for the production of income do not apply, (ii)
all bad loans will be deductible as business bad debts and (iii) the
limitation on the deductibility of interest and expenses related to tax-exempt
income will apply. The REMIC Pool's gross income includes interest, original
issue discount income and market discount income, if any, on the Mortgage
Loans, reduced by amortization of any premium on the Mortgage Loans, plus
income from amortization of issue premium, if any, on the Regular
Certificates, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized
losses to the Regular Certificates. The REMIC Pool's deductions include
interest and original issue discount expense on the Regular Certificates,
servicing fees on the Mortgage Loans, other administrative expenses of the
REMIC Pool and realized losses on the Mortgage Loans. The requirement that
Residual Certificateholders report their pro rata share of taxable income or
net loss of the REMIC Pool will continue until there are no Certificates of
any class of the related series outstanding.
The taxable income recognized by a Residual Certificateholder
in any taxable year will be affected by, among other factors, the relationship
between the timing of recognition of interest and original issue discount or
market discount income or amortization of premium with respect to the Mortgage
Loans, on the one hand, and the timing of deductions for interest (including
original issue discount) on the Regular Certificates or income from
amortization of issue premium on the Regular Certificates, on the other hand.
In the event that an interest in the Mortgage Loans is acquired by the REMIC
Pool at a discount, and one or more of such Mortgage Loans is prepaid, the
Residual Certificateholder may recognize taxable income without being entitled
to receive a corresponding amount of cash because (i) the prepayment may be
used in whole or in part to make distributions in
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reduction of principal on the Regular Certificates and (ii) the discount on
the Mortgage Loans which is includible in income may exceed the deduction
allowed upon such distributions on those Regular Certificates on account of
any unaccrued original issue discount relating to those Regular Certificates.
When there is more than one class of Regular Certificates that distribute
principal sequentially, this mismatching of income and deductions is
particularly likely to occur in the early years following issuance of the
Regular Certificates when distributions in reduction of principal are being
made in respect of earlier classes of Regular Certificates to the extent that
such classes are not issued with substantial discount. If taxable income
attributable to such a mismatching is realized, in general, losses would be
allowed in later years as distributions on the later classes of Regular
Certificates are made. Taxable income may also be greater in earlier years
than in later years as a result of the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of such a series
of Regular Certificates, may increase over time as distributions in reduction
of principal are made on the lower yielding classes of Regular Certificates,
whereas to the extent that the REMIC Pool includes fixed rate Mortgage Loans,
interest income with respect to any given Mortgage Loan will remain constant
over time as a percentage of the outstanding principal amount of that loan.
Consequently, Residual Certificateholders must have sufficient other sources
of cash to pay any federal, state or local income taxes due as a result of
such mismatching or unrelated deductions against which to offset such income,
subject to the discussion of "excess inclusions" below under "Limitations on
Offset or Exemption of REMIC Income." The timing of such mismatching of income
and deductions described in this paragraph, if present with respect to a
series of Certificates, may have a significant adverse effect upon the
Residual Certificateholder's after-tax rate of return. In addition, a Residual
Certificateholder's taxable income during certain periods may exceed the
income reflected by such Residual Certificateholder for such periods in
accordance with generally accepted accounting principles. Investors should
consult their own accountants concerning the accounting treatment of their
investment in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken
into account by the Residual Certificateholder is limited to the adjusted
basis of the Residual Certificate as of the close of the quarter (or time of
disposition of the Residual Certificate if earlier), determined without taking
into account the net loss for the quarter. The initial adjusted basis of a
purchaser of a Residual Certificate is the amount paid for such Residual
Certificate. Such adjusted basis will be increased by the amount of taxable
income of the REMIC Pool reportable by the Residual Certificateholder and will
be decreased (but not below zero), first, by a cash distribution from the
REMIC Pool and, second, by the amount of loss of the REMIC Pool reportable by
the Residual Certificateholder. Any loss that is disallowed on account of this
limitation may be carried over indefinitely with respect to the Residual
Certificateholder as to whom such loss was disallowed and may be used by such
Residual Certificateholder only to offset any income generated by the same
REMIC Pool.
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A Residual Certificateholder will not be permitted to amortize
directly the cost of its Residual Certificate as an offset to its share of the
taxable income of the related REMIC Pool. However, that taxable income will
not include cash received by the REMIC Pool that represents a recovery of the
REMIC Pool's basis in its assets. Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificates over their life. However, in view of the possible acceleration of
the income of Residual Certificateholders described above under "Taxation of
REMIC Income", the period of time over which such issue price is effectively
amortized may be longer than the economic life of the Residual Certificates.
A Residual Certificate may have a negative value if the net
present value of anticipated tax liabilities exceeds the present value of
anticipated cash flows. The REMIC Regulations appear to treat the issue price
of such a residual interest as zero rather than such negative amount for
purposes of determining the REMIC Pool's basis in its assets. The preamble to
the REMIC Regulations states that the Service may provide future guidance on
the proper tax treatment of payments made by a transferor of such a residual
interest to induce the transferee to acquire the interest, and Residual
Certificateholders should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a
Residual Certificateholder (other than an original holder) in the Residual
Certificate is greater that the corresponding portion of the REMIC Pool's
basis in the Mortgage Loans, the Residual Certificateholder will not recover a
portion of such basis until termination of the REMIC Pool unless future
Treasury regulations provide for periodic adjustments to the REMIC income
otherwise reportable by such holder. The REMIC Regulations currently in effect
do not so provide. See "Treatment of Certain Items of REMIC Income and
Expense--Market Discount" below regarding the basis of Mortgage Loans to the
REMIC Pool and "Sale or Exchange of a Residual Certificate" below regarding
possible treatment of a loss upon termination of the REMIC Pool as a capital
loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Depositor intends to compute REMIC income and
expense in accordance with the Code and applicable regulations, the
authorities regarding the determination of specific items of income and
expense are subject to differing interpretations. The Depositor makes no
representation as to the specific method that it will use for reporting income
with respect to the Mortgage Loans and expenses with respect to the Regular
Certificates, and different methods could result in different timing of
reporting of taxable income or net loss to Residual Certificateholders or
differences in capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC
Pool's deductions for original issue discount and income from amortization of
issue premium will be determined in the same manner as original issue discount
income on Regular Certificates as described above under "Taxation of Regular
Certificates-- Original Issue Discount" and "--Variable
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Rate Regular Certificates," without regard to the de minimis rule described
therein, and "--Acquisition Premium."
Deferred Interest. Any deferred interest that accrues with
respect to any adjustable rate Mortgage Loans held by the REMIC Pool will
constitute income to the REMIC Pool and will be treated in a manner similar to
the deferred interest that accrues with respect to Regular Certificates as
described above under "Taxation of Regular Certificates--Deferred Interest".
Market Discount. The REMIC Pool will have market discount
income in respect of Mortgage Loans if, in general, the basis of the REMIC
Pool allocable to such Mortgage Loans is exceeded by their unpaid principal
balances. The REMIC Pool's basis in such Mortgage Loans is generally the fair
market value of the Mortgage Loans immediately after the transfer thereof to
the REMIC Pool. The REMIC Regulations provide that such basis is equal in the
aggregate to the issue prices of all regular and residual interests in the
REMIC Pool (or the fair market value thereof at the Closing Date, in the case
of a retained Class). In respect of Mortgage Loans that have market discount
to which Code Section 1276 applies, the accrued portion of such market
discount would be recognized currently as an item of ordinary income in a
manner similar to original issue discount. Market discount income generally
should accrue in the manner described above under "Taxation of Regular
Certificates--Market Discount".
Premium. Generally, if the basis of the REMIC Pool in the
Mortgage Loans exceeds the unpaid principal balances thereof, the REMIC Pool
will be considered to have acquired such Mortgage Loans at a premium equal to
the amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate
of the issue prices (or the fair market value of retained Classes) of the
regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Certificates--Premium", a REMIC Pool that
holds a Mortgage Loan as a capital asset under Code Section 1221 may elect
under Code Section 171 to amortize premium on whole mortgage loans or mortgage
loans underlying mortgage backed securities ("MBS") that were originated after
September 27, 1985 or MBS that are REMIC regular interests under the constant
yield method. Amortizable bond premium will be treated as an offset to
interest income on the Mortgage Loans, rather than as a separate deduction
item. To the extent that the mortgagors with respect to the Mortgage Loans are
individuals, Code Section 171 will not be available for premium on Mortgage
Loans (including underlying mortgage loans) originated on or prior to
September 27, 1985. Premium with respect to such Mortgage Loans may be
deductible in accordance with a reasonable method regularly employed by the
holder thereof. The allocation of such premium pro rata among principal
payments should be considered a reasonable method; however, the Service may
argue that such premium should be allocated in a different manner, such as
allocating such premium entirely to the final payment of principal.
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Limitations on Offset or Exemption of REMIC Income
A portion or all of the REMIC taxable income includible in
determining the federal income tax liability of a Residual Certificateholder
will be subject to special treatment. That portion, referred to as the "excess
inclusion", is equal to the excess of REMIC taxable income for the calendar
quarter allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long-term applicable Federal rate that
would have applied to the Residual Certificate (if it were a debt instrument)
on the Startup Day under Code Section 1274(d), multiplied by (ii) the adjusted
issue price of such Residual Certificate at the beginning of such quarterly
period. For this purpose, the adjusted issue price of a Residual Certificate
at the beginning of a quarter is the issue price of the Residual Certificate,
plus the amount of such daily accruals of REMIC income described in this
paragraph for all prior quarters, decreased by any distributions made with
respect to such Residual Certificate prior to the beginning of such quarterly
period. Accordingly, the portion of the REMIC Pool's taxable income that will
be treated as excess inclusions will be a larger portion of such income as the
adjusted issue price of the Residual Certificates diminishes.
The portion of a Residual Certificateholder's REMIC taxable
income consisting of the excess inclusions generally may not be offset by
other deductions, including net operating loss carry forwards, on such
Residual Certificateholder's return. However, net operating loss carryovers
are determined without regard to excess inclusion income. Further, if the
Residual Certificateholder is an organization subject to the tax on unrelated
business income imposed by Code Section 511, the Residual Certificateholder's
excess inclusions will be treated as unrelated business taxable income of such
Residual Certificateholder for purposes of Code Section 511. In addition,
REMIC taxable income is subject to 30% withholding tax with respect to certain
persons who are not U.S. Persons (as defined below under "Tax-Related
Restrictions on Transfer of Residual Certificates--Foreign Investors"), and
the portion thereof attributable to excess inclusions is not eligible for any
reduction in the rate of withholding tax (by treaty or otherwise). See
"Taxation of Certain Foreign Investors--Residual Certificates" below. Finally,
if a real estate investment trust or a regulated investment company owns a
Residual Certificate, a portion (allocated under Treasury regulations yet to
be issued) of dividends paid by the real estate investment trust or a
regulated investment company could not be offset by net operating losses of
its shareholders, would constitute unrelated business taxable income for
tax-exempt shareholders, and would be ineligible for reduction of withholding
to certain persons who are not U.S. Persons. The SBJPA of 1996 has eliminated
the special rule permitting Section 593 institutions ("thrift institutions")
to use net operating losses and other allowable deductions to offset their
excess inclusion income from Residual Certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to Residual
Certificates continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for
determining the effect of excess inclusions on the alternative minimum taxable
income of a Residual Certificateholder. First, alternative minimum taxable
income for a Residual Certificateholder
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is determined without regard to the special rule, discussed above, that
taxable income cannot be less than excess inclusions. Second, a Residual
Certificateholder's alternative minimum taxable income for a taxable year
cannot be less than the excess inclusions for the year. Third, the amount of
any alternative minimum tax net operating loss deduction must be computed
without regard to any excess inclusions. These rules are effective for taxable
years beginning after December 31, 1996, unless a Residual Certificateholder
elects to have such rules apply only to taxable years beginning after August
20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest
in a Residual Certificate is transferred to a Disqualified Organization (as
defined below) other than in connection with the formation of a REMIC Pool, if
the Disqualified organization is required, pursuant to a binding contract, to
sell such Residual Certificate, which sale occurs within seven days after the
Startup Day, a tax would be imposed in an amount equal to the product of (i)
the present value of the total anticipated excess inclusions with respect to
such Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
Federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such a tax generally would be imposed on the transferor of
the Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a Disqualified Organization and, as of
the time of the transfer, the transferor does not have actual knowledge that
such affidavit is false. The tax also may be waived by the Treasury Department
if the Disqualified Organization promptly disposes of the residual interest
and the transferor pays income tax at the highest corporate rate on the excess
inclusions for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has
excess inclusion income with respect to a Residual Certificate during a
taxable year and a Disqualified Organization is the record holder of an equity
interest in such entity, then a tax is imposed on such entity equal to the
product of (i) the amount of excess inclusions on the Residual Certificate
that are allocable to the interest in the Pass-Through Entity during the
period such interest is held by such Disqualified Organization, and (ii) the
highest marginal federal corporate income tax rate. Such tax would be
deductible from the ordinary gross income of the Pass-Through Entity for the
taxable year. The Pass-Through Entity would not be liable for such tax if it
has received an affidavit from such record holder that it is not a
Disqualified Organization or stating such holder's taxpayer identification
number and, during the period such person is the record holder of the Residual
Certificate, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
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For these purposes, (i) "Disqualified Organization" means the
United States, any state or political subdivision thereof, any foreign
government, any international organization, any agency or instrumentality of
any of the foregoing (provided, that such term does not include an
instrumentality if all of its activities are subject to tax and, except in the
case of the Federal Home Loan Mortgage Corporation, a majority of its board of
directors is not selected by any such governmental entity), any cooperative
organization furnishing electric energy or providing telephone service to
persons in rural areas as described in Code Section 1381(a)(2)(C), and any
organization (other than a farmers' cooperative described in Code Section 521)
that is exempt from taxation under the Code unless such organization is
subject to the tax on unrelated business income imposed by Code Section 511,
and (ii) "Pass-Through Entity" means any regulated investment company, real
estate investment trust, common trust fund, partnership, trust or estate and
certain corporations operating on a cooperative basis. Except as may be
provided in Treasury regulations, any person holding an interest in a
Pass-Through Entity as a nominee for another will, with respect to such
interest, be treated as a Pass-Through Entity.
The Pooling Agreement with respect to a series of Certificates
will provide that no legal or beneficial interest in a Residual Certificate
may be transferred unless (i) the proposed transferee provides to the
transferor and the Trustee an affidavit providing its taxpayer identification
number and stating that such transferee is the beneficial owner of the
Residual Certificate, is not a Disqualified Organization and is not purchasing
such Residual Certificates on behalf of a Disqualified Organization (i.e., as
a broker, nominee or middleman thereof), and (ii) the transferor provides a
statement in writing to the Depositor and the Trustee that it has no actual
knowledge that such affidavit is false. Moreover, the Pooling Agreement will
provide that any attempted or purported transfer in violation of these
transfer restrictions will be null and void and will vest no rights in any
purported transferee. Each Residual Certificate with respect to a series will
bear a legend referring to such restrictions on transfer, and each Residual
Certificateholder will be deemed to have agreed, as a condition of ownership
thereof, to any amendments to the related Pooling Agreement required under the
Code or applicable Treasury regulations to effectuate the foregoing
restrictions. Information necessary to compute an applicable excise tax must
be furnished to the Service and to the requesting party within 60 days of the
request, and the Depositor or the Trustee may charge a fee for computing and
providing such information.
Noneconomic Residual Interests. The REMIC Regulations would
disregard certain transfers of Residual Certificates, in which case the
transferor would continue to be treated as the owner of the Residual
Certificates and thus would continue to be subject to tax on its allocable
portion of the net income of the REMIC Pool. Under the REMIC Regulations, a
transfer of a "noneconomic residual interest" (as defined below) to a Residual
Certificateholder (other than a Residual Certificateholder who is not a U.S.
Person, as defined below under "Foreign Investors") is disregarded for all
federal income tax purposes if a significant purpose of the transferor is to
impede the assessment or collection of tax. A residual interest in a REMIC
(including a residual interest with a positive value at issuance) is a
"noneconomic residual interest" unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest at
least equals the product of
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the present value of the anticipated excess inclusions and the highest
corporate income tax rate in effect for the year in which the transfer occurs,
and (ii) the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. The anticipated excess inclusions and the present value rate are
determined in the same manner as set forth above under "Disqualified
Organizations". The REMIC Regulations explain that a significant purpose to
impede the assessment or collection of tax exists if the transferor, at the
time of the transfer, either knew or should have known that the transferee
would be unwilling or unable to pay taxes due on its share of the taxable
income of the REMIC. A safe harbor is provided if (i) the transferor
conducted, at the time of the transfer, a reasonable investigation of the
financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts
as they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the noneconomic residual
interest, the transferee may incur tax liabilities in excess of cash flows
generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The Pooling
Agreement with respect to each series of Certificates will require the
transferee of a Residual Certificate to certify to the matters in the
preceding sentence as part of the affidavit described above under the heading
"Disqualified Organizations". The transferor must have no actual knowledge or
reason to know that such statements are false.
Foreign Investors. The REMIC Regulations provide that the
transfer of a Residual Certificate that has "tax avoidance potential" to a
"foreign person" will be disregarded for all federal tax purposes. This rule
appears intended to apply to a transferee who is not a "U.S. Person" (as
defined below), unless such transferee's income is effectively connected with
the conduct of a trade or business within the United States or not otherwise
subject to a withholding tax. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, (i) the future value
of expected distributions equals at least 30% of the anticipated excess
inclusions after the transfer, and (ii) the transferor reasonably expects that
the transferee will receive sufficient distributions from the REMIC Pool at or
after the time at which the excess inclusions accrue and prior to the end of
the next succeeding taxable year for the accumulated withholding tax liability
to be paid. If the non-U.S. Person transfers the Residual Certificate back to
a U.S. Person, the transfer will be disregarded and the foreign transferor
will continue to be treated as the owner unless arrangements are made so that
the transfer does not have the effect of allowing the transferor to avoid tax
on accrued excess inclusions.
The Prospectus Supplement relating to a series of Certificates
may provide that a Residual Certificate may not be purchased by or transferred
to any person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any State, an estate that is subject to United States federal
income tax regardless of the source of its income or a trust if (A) for
taxable years beginning after December 31, 1996 (or for taxable years ending
after August 20, 1996, if the trustee has
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made an applicable election), a court within the United States is able to
exercise primary supervision over the administration of such trust, and one or
more United States persons have the authority to control all substantial
decisions of such trust, or (B) for all other taxable years, such trust is
subject to United States federal income tax regardless of the source of its
income (or, to the extent provided in applicable Treasury Regulations, certain
trusts in existence on August 20, 1996 which are eligible to elect to be
treated as U.S.
Persons).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the
Residual Certificateholder will recognize gain or loss equal to the excess, if
any, of the amount realized over the adjusted basis (as described above under
"Taxation of Residual Certificates--Basis and Losses") of such Residual
Certificateholder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Certificateholder will have taxable income to the extent that any
cash distribution to it from the REMIC Pool exceeds such adjusted basis on
that Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual
Certificateholder's Residual Certificate, in which case, if the Residual
Certificateholder has an adjusted basis in such Residual Certificateholder's
Residual Certificate remaining when its interest in the REMIC Pool terminates,
and if such Residual Certificateholder holds such Residual Certificate as a
capital asset under Code Section 1221, then such Residual Certificateholder
will recognize a capital loss at that time in the amount of such remaining
adjusted basis.
Any gain on the sale of a Residual Certificate will be treated
as ordinary income (i) if a Residual Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the Residual Certificateholder's net
investment in the conversion transaction at 120% of the appropriate applicable
Federal rate in effect at the time the taxpayer entered into the transaction
minus any amount previously treated as ordinary income with respect to any
prior disposition of property that was held as a part of such transaction or
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed
as investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
The Conference Committee Report to the 1986 Act provides that,
except as provided in Treasury regulations yet to be issued, the wash sale
rules of Code Section 1091 will apply to dispositions of Residual Certificates
where the seller of the Residual Certificate, during the period beginning six
months before the sale or disposition of the Residual Certificate and ending
six months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
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Mark to Market Regulations
The Service has issued regulations (the "Mark to Market
Regulations") under Code Section 475 relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities of a dealer, except to
the extent that the dealer has specifically identified a security as held for
investment. The Mark to Market Regulations provide that, for purposes of this
mark-to-market requirement, a Residual Certificate is not treated as a
security and thus may not be marked to market. The Mark to Market Regulations
apply to all Residual Certificates acquired on or after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called
prohibited transactions, will not be part of the calculation of income or loss
includible in the federal income tax returns of Residual Certificateholders,
but rather will be taxed directly to the REMIC Pool at a 100% rate. Prohibited
transactions generally include (i) the disposition of a qualified mortgage
other than pursuant to a (a) substitution within two years of the Startup Day
for a defective (including a defaulted) obligation (or repurchase in lieu of
substitution of a defective (including a defaulted) obligation at any time) or
for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC Pool or (d) qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to hold, (iii) the
receipt of compensation for services or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a
due-on-sale or due-on-encumbrance clause or the conversion of an interest rate
by a mortgagor pursuant to the terms of a convertible adjustable rate Mortgage
Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100%
rate on the value of any property contributed to the REMIC Pool after the
Startup Day. Exceptions are provided for cash contributions to the REMIC Pool
(i) during the three months following the Startup Day, (ii) made to a
qualified reserve fund by a Residual Certificateholder, (iii) in the nature of
a guarantee, (iv) made to facilitate a qualified liquidation or clean-up call
and (v) as otherwise permitted in Treasury regulations yet to be issued.
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Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property", determined
by reference to the rules applicable to real estate investment trusts.
Generally, property acquired by deed in lieu of foreclosure would be treated
as "foreclosure property" for a period of two years, with possible extensions
of up to an additional four years. Net income from foreclosure property
generally means gain from the sale of a foreclosure property that is inventory
property and gross income from foreclosure property other than qualifying
rents and other qualifying income for a real estate investment trust.
It is not anticipated that the REMIC Pool will receive income
or contributions subject to tax under the preceding three paragraphs, except
as described in the applicable Prospectus Supplement with respect to net
income from foreclosure property on a commercial or multifamily residential
property that secured a Mortgage Loan. In addition, unless otherwise disclosed
in the applicable Prospectus Supplement, it is not anticipated that any
material state income or franchise tax will be imposed on a REMIC Pool.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within
the meaning of Code Section 860F(a)(4)(A)(i), which may be accomplished by
designating in the REMIC Pool's final tax return a date on which such adoption
is deemed to occur, and sells all of its assets (other than cash) within a
90-day period beginning on the date of the adoption of the plan of
liquidation, the REMIC Pool will not be subject to the prohibited transaction
rules on the sale of its assets, provided that the REMIC Pool credits or
distributes in liquidation all of the sale proceeds plus its cash (other than
amounts retained to meet claims) to holders of Regular Certificates and
Residual Certificateholders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a
calendar year basis and to file federal income tax returns for federal income
tax purposes in a manner similar to a partnership. The form for such income
tax return is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income
Tax Return. The Trustee will be required to sign the REMIC Pool's returns.
Treasury regulations provide that, except where there is a single Residual
Certificateholder for an entire taxable year, the REMIC Pool will be subject
to the procedural and administrative rules of the Code applicable to
partnerships, including the determination by the Service of any adjustments
to, among other things, items of REMIC income, gain, loss, deduction or credit
in a unified administrative proceeding. The Residual Certificateholder owning
the largest percentage interest in the Residual Certificates will be obligated
to act as "tax matters person", as defined in applicable Treasury regulations,
with respect to the REMIC Pool. Each Residual Certificateholder will be
deemed, by acceptance of such Residual Certificates, to have agreed (i) to the
appointment of the tax matters person as provided in the preceding sentence
and (ii) to the irrevocable designation of the Master Servicer as agent for
performing the functions of the tax matters person.
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LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be
subject to limitation with respect to certain itemized deductions described in
Code Section 67, to the extent that such itemized deductions, in the
aggregate, do not exceed 2% of the investor's adjusted gross income. In
addition, Code Section 68 provides that itemized deductions otherwise
allowable for a taxable year of an individual taxpayer will be reduced by the
lesser of (i) 3% of the excess, if any, of adjusted gross income over $124,500
for the taxable year beginning in 1998 ($62,250 in the case of a married
individual filing a separate return) (subject to adjustments for inflation in
subsequent years) or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. In the case of a REMIC Pool, such deductions may
include deductions under Code Section 212 for the servicing fee and all
administrative and other expenses relating to the REMIC Pool, or any similar
expenses allocated to the REMIC Pool with respect to a regular interest it
holds in another REMIC. Such investors who hold REMIC Certificates either
directly or indirectly through certain pass-through entities may have their
pro rata share of such expenses allocated to them as additional gross income,
but may be subject to such limitation on deductions. In addition, such
expenses are not deductible at all for purposes of computing the alternative
minimum tax, and may cause such investors to be subject to significant
additional tax liability. Temporary Treasury regulations provide that the
additional gross income and corresponding amount of expenses generally are to
be allocated entirely to the holders of Residual Certificates in the case of a
REMIC Pool that would not qualify as a fixed investment trust in the absence
of a REMIC election. However, such additional gross income and limitation on
deductions will apply to the allocable portion of such expenses to holders of
Regular Certificates, as well as holders of Residual Certificates, where such
Regular Certificates are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. In general, such allocable portion
will be determined based on the ratio that a REMIC Certificateholder's income,
determined on a daily basis, bears to the income of all holders of Regular
Certificates and Residual Certificates with respect to a REMIC Pool. As a
result, individuals, estates or trusts holding REMIC Certificates (either
directly or indirectly through a grantor trust, partnership, S corporation,
REMIC, or certain other pass-through entities described in the foregoing
temporary Treasury regulations) may have taxable income in excess of the
interest income at the pass-through rate on Regular Certificates that are
issued in a single Class or otherwise consistently with fixed investment trust
status or in excess of cash distributions for the related period on Residual
Certificates. Unless otherwise indicated in the applicable Prospectus
Supplement, all such expenses will be allocable to the Residual Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to
Regular Certificateholders who are non-resident aliens, foreign corporations,
or other Non-U.S. Persons (as defined below), will be considered "portfolio
interest" and, therefore, generally will not be subject to 30% United States
withholding tax, provided that such Non-U.S. Person (i) is not a
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"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B) or a
controlled foreign corporation described in Code Section 881(c)(3)(C) and (ii)
provides the Trustee, or the person who would otherwise be required to
withhold tax from such distributions under Code Section 1441 or 1442, with an
appropriate statement, signed under penalties of perjury, identifying the
beneficial owner and stating, among other things, that the beneficial owner of
the Regular Certificate is a Non-U.S. Person. If such statement, or any other
required statement, is not provided, 30% withholding will apply unless reduced
or eliminated pursuant to an applicable tax treaty or unless the interest on
the Regular Certificate is effectively connected with the conduct of a trade
or business within the United States by such Non-U.S. Person. In the latter
case, such Non-U.S. Person will be subject to United States federal income tax
at regular rates. Prepayment Premiums distributable to Regular
Certificateholders who are Non-U.S. Persons may be subject to 30% United
States withholding tax. Investors who are Non-U.S. Persons should consult
their own tax advisors regarding the specific tax consequences to them of
owning a Regular Certificate. The term "Non-U.S. Person" means any person who
is not a U.S. Person.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that
amounts paid to Residual Certificateholders who are Non-U.S. Persons are
treated as interest for purposes of the 30% (or lower treaty rate) United
States withholding tax. Treasury regulations provide that amounts distributed
to Residual Certificateholders may qualify as "portfolio interest", subject to
the conditions described in "Regular Certificates" above, but only to the
extent that (i) the Mortgage Loans (including mortgage loans underlying MBS)
were issued after July 18, 1984 and (ii) the Trust Fund or segregated pool of
assets therein (as to which a separate REMIC election will be made), to which
the Residual Certificate relates, consists of obligations issued in
"registered form" within the meaning of Code Section 163(f)(1). Generally,
whole mortgage loans will not be, but MBS and regular interests in another
REMIC Pool will be, considered obligations issued in registered form.
Furthermore, a Residual Certificateholder will not be entitled to any
exemption from the 30% withholding tax (or lower treaty rate) to the extent of
that portion of REMIC taxable income that constitutes an "excess inclusion".
See "Taxation of Residual Certificates--Limitations on Offset or Exemption of
REMIC Income". If the amounts paid to Residual Certificateholders who are
Non-U.S. Persons are effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Persons, 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
Non-U.S. Persons will be subject to United States federal income tax at
regular rates. If 30% (or lower treaty rate) withholding is applicable, such
amounts generally will be taken into account for purposes of withholding only
when paid or otherwise distributed (or when the Residual Certificate is
disposed of) under rules similar to withholding upon disposition of debt
instruments that have original issue discount. See "Tax-Related Restrictions
on Transfer of Residual Certificates--Foreign Investors" above concerning the
disregard of certain transfers having "tax avoidance potential". Investors who
are Non-U.S. Persons should consult their own tax advisors regarding the
specific tax consequences to them of owning Residual Certificates.
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BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds
from the sale of the Regular Certificates to or through certain brokers, may
be subject to a "backup" withholding tax under Code Section 3406 of 31% on
"reportable payments" (including interest distributions, original issue
discount, and, under certain circumstances, principal distributions) unless
the Regular Certificateholder complies with certain reporting and/or
certification procedures, including the provision of its taxpayer
identification number to the Trustee, its agent or the broker who effected the
sale of the Regular Certificate, or such Certificateholder is otherwise an
exempt recipient under applicable provisions of the Code. Any amounts to be
withheld from distribution on the Regular Certificates would be refunded by
the Service or allowed as a credit against the Regular Certificateholder's
federal income tax liability.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and
information necessary to compute the accrual of any market discount on the
Regular Certificates will be made annually to the Service and to individuals,
estates, non-exempt and non-charitable trusts, and partnerships who are either
holders of record of Regular Certificates or beneficial owners who own Regular
Certificates through a broker or middleman as nominee. All brokers, nominees
and all other non-exempt holders of record of Regular Certificates (including
corporations, non-calendar year taxpayers, securities or commodities dealers,
real estate investment trusts, investment companies, common trust funds,
thrift institutions and charitable trusts) may request such information for
any calendar quarter by telephone or in writing by contacting the person
designated in Service Publication 938 with respect to a particular Series of
Regular Certificates. Holders through nominees must request such information
from the nominee.
The Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Certificateholder by the end of the month
following the close of each calendar quarter (41 days after the end of a
quarter under proposed Treasury regulations) in which the REMIC Pool is in
existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the Service
concerning the percentage of the REMIC Pool's assets meeting the qualified
asset tests described above under "Status of REMIC Certificates".
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FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO WHICH NO REMIC ELECTION
IS MADE
STANDARD CERTIFICATES
General
In the event that no election is made to treat a Trust Fund (or
a segregated pool of assets therein) with respect to a series of Certificates
that are not designated as "Stripped Certificates", as described below, as a
REMIC (Certificates of such a series hereinafter referred to as "Standard
Certificates"), the Trust Fund will be classified as a grantor trust under
subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i). Where there is no fixed retained yield with respect to
the Mortgage Loans underlying the Standard Certificates, the holder of each
such Standard Certificate (a "Standard Certificateholder") in such series will
be treated as the owner of a pro rata undivided interest in the ordinary
income and corpus portions of the Trust Fund represented by its Standard
Certificate and will be considered the beneficial owner of a pro rata
undivided interest in each of the Mortgage Loans, subject to the discussion
below under "Recharacterization of Servicing Fees". Accordingly, the holder of
a Standard Certificate of a particular series will be required to report on
its federal income tax return its pro rata share of the entire income from the
Mortgage Loans represented by its Standard Certificate, including interest at
the coupon rate on such Mortgage Loans, original issue discount (if any),
prepayment fees, assumption fees, and late payment charges received by the
Master Servicer, in accordance with such Standard Certificateholder's method
of accounting. A Standard Certificateholder generally will be able to deduct
its share of the servicing fee and all administrative and other expenses of
the Trust Fund in accordance with its method of accounting, provided that such
amounts are reasonable compensation for services rendered to that Trust Fund.
However, investors who are individuals, estates or trusts who own Standard
Certificates, either directly or indirectly through certain pass-through
entities, will be subject to limitation with respect to certain itemized
deductions described in Code Section 67, including deductions under Code
Section 212 for the servicing fee and all such administrative and other
expenses of the Trust Fund, to the extent that such deductions, in the
aggregate, do not exceed two percent of an investor's adjusted gross income.
In addition, Code Section 68 provides that itemized deductions otherwise
allowable for a taxable year of an individual taxpayer will be reduced by the
lesser of (i) 3% of the excess, if any, of adjusted gross income over $124,500
for the taxable year beginning in 1998 ($62,250 in the case of a married
individual filing a separate return) (subject to adjustments for inflation in
subsequent years), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. As a result, such investors holding Standard
Certificates, directly or indirectly through a pass-through entity, may have
aggregate taxable income in excess of the aggregate amount of cash received on
such Standard Certificates with respect to interest at the pass-through rate
on such Standard Certificates. In addition, such expenses are not deductible
at all for purposes of computing the alternative minimum tax, and may cause
such investors to be subject to significant additional tax liability.
Moreover, where there is fixed retained yield with respect to the Mortgage
Loans underlying a series of Standard
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Certificates or where the servicing fee is in excess of reasonable servicing
compensation, the transaction will be subject to the application of the
"stripped bond" and "stripped coupon" rules of the Code, as described below
under "Stripped Certificates" and "Recharacterization of Servicing Fees",
respectively.
Tax Status
Standard Certificates will have the following status for
federal income tax purposes:
1. A Standard Certificate owned by a "domestic
building and loan association" within the meaning of Code Section 7701(a)(19)
will be considered to represent "loans ... secured by an interest in real
property which is ... residential real property" within the meaning of Code
Section 7701(a)(19)(C)(v), provided that the real property securing the
Mortgage Loans represented by that Standard Certificate is of the type
described in such section of the Code.
2. A Standard Certificate owned by a real estate
investment trust will be considered to represent "real estate assets" within
the meaning of Code Section 856(c)(4)(A) to the extent that the assets of the
related Trust Fund consist of qualified assets, and interest income on such
assets will be considered "interest on obligations secured by mortgages on
real property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Standard Certificate owned by a REMIC will be
considered to represent an "obligation . . . which is principally secured by
an interest in real property" within the meaning of Code Section 860G(a)(3)(A)
to the extent that the assets of the related Trust Fund consist of "qualified
mortgages" within the meaning of Code Section 860G(a)(3).
Premium and Discount
Standard Certificateholders are advised to consult with their
tax advisors as to the federal income tax treatment of premium and discount
arising either upon initial acquisition of Standard Certificates or
thereafter.
Premium. The treatment of premium incurred upon the purchase of
a Standard Certificate will be determined generally as described above under .
Original Issue Discount. The original issue discount rules will
be applicable to a Standard Certificateholder's interest in those Mortgage
Loans as to which the conditions for the application of those sections are
met. Rules regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984.
Under the OID Regulations, such original issue discount could arise by the
charging of points by the
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originator of the mortgages in an amount greater than a statutory de minimis
exception, including a payment of points currently deductible by the borrower
under applicable Code provisions or, under certain circumstances, by the
presence of "teaser rates" on the Mortgage Loans.
Original issue discount must generally be reported as ordinary
gross income as it accrues under a constant interest method that takes into
account the compounding of interest, in advance of the cash attributable to
such income. Unless indicated otherwise in the applicable Prospectus
Supplement, no prepayment assumption will be assumed for purposes of such
accrual. However, Code Section 1272 provides for a reduction in the amount of
original issue discount includible in the income of a holder of an obligation
that acquires the obligation after its initial issuance at a price greater
than the sum of the original issue price and the previously accrued original
issue discount, less prior payments of principal. Accordingly, if such
Mortgage Loans acquired by a Standard Certificateholder are purchased at a
price equal to the then unpaid principal amount of such Mortgage Loans, no
original issue discount attributable to the difference between the issue price
and the original principal amount of such Mortgage Loans (i.e., points) will
be includible by such holder.
Market Discount. Standard Certificateholders also
will be subject to the market discount rules to the extent that the conditions
for application of those sections are met. Market discount on the Mortgage
Loans will be determined and will be reported as ordinary income generally in
the manner described above under "Material Federal Income Tax Consequences for
REMIC Certificates--Taxation of Regular Certificates--Market Discount", except
that the ratable accrual methods described therein will not apply and it is
unclear whether a Prepayment Assumption would apply. Rather, the holder will
accrue market discount pro rata over the life of the Mortgage Loans, unless
the constant yield method is elected. Unless indicated otherwise in the
applicable Prospectus Supplement, no prepayment assumption will be assumed for
purposes of such accrual.
Recharacterization of Servicing Fees If the servicing fee paid
to the Master Servicer were deemed to exceed reasonable servicing
compensation, the amount of such excess would represent neither income nor a
deduction to Certificateholders. In this regard, there are no authoritative
guidelines for federal income tax purposes as to either the maximum amount of
servicing compensation that may be considered reasonable in the context of
this or similar transactions or whether, in the case of the Standard
Certificate, the reasonableness of servicing compensation should be determined
on a weighted average or loan-by-loan basis. If a loan-by-loan basis is
appropriate, the likelihood that such amount would exceed reasonable servicing
compensation as to some of the Mortgage Loans would be increased. Service
guidance indicates that a servicing fee in excess of reasonable compensation
("excess servicing") will cause the Mortgage Loans to be treated under the
"stripped bond" rules. Such guidance provides safe harbors for servicing
deemed to be reasonable and requires taxpayers to demonstrate that the value
of servicing fees in excess of such amounts is not greater than the value of
the services provided.
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Accordingly, if the Service's approach is upheld, a servicer
who receives a servicing fee in excess of such amounts would be viewed as
retaining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from the right to receive some or all of the principal payments on
the obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds". Subject to the de minimis rule discussed below
under "--Stripped Certificates", each stripped bond or stripped coupon could
be considered for this purpose as a non-interest bearing obligation issued on
the date of issue of the Standard Certificates, and the original issue
discount rules of the Code would apply to the holder thereof. While Standard
Certificateholders would still be treated as owners of beneficial interests in
a grantor trust for federal income tax purposes, the corpus of such trust
could be viewed as excluding the portion of the Mortgage Loans the ownership
of which is attributed to the Master Servicer, or as including such portion as
a second class of equitable interest. Applicable Treasury regulations treat
such an arrangement as a fixed investment trust, since the multiple classes of
trust interests should be treated as merely facilitating direct investments in
the trust assets and the existence of multiple classes of ownership interests
is incidental to that purpose. In general, such a recharacterization should
not have any significant effect upon the timing or amount of income reported
by a Standard Certificateholder, except that the income reported by a cash
method holder may be slightly accelerated. See "Stripped Certificates" below
for a further description of the federal income tax treatment of stripped
bonds and stripped coupons.
Sale or Exchange of Standard Certificates Upon sale or exchange
of a Standard Certificate, a Standard Certificateholder will recognize gain or
loss equal to the difference between the amount realized on the sale and its
aggregate adjusted basis in the Mortgage Loans and the other assets
represented by the Standard Certificate. In general, the aggregate adjusted
basis will equal the Standard Certificateholder's cost for the Standard
Certificate, increased by the amount of any income previously reported with
respect to the Standard Certificate and decreased by the amount of any losses
previously reported with respect to the Standard Certificate and the amount of
any distributions received thereon. Except as provided above with respect to
market discount on any Mortgage Loans, and except for certain financial
institutions subject to the provisions of Code Section 582(c), any such gain
or loss would be capital gain or loss if the Standard Certificate was held as
a capital asset. However, gain on the sale of a Standard Certificate will be
treated as ordinary income (i) if a Standard Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the Standard Certificateholder's net
investment in the conversion transaction at 120% of the appropriate applicable
Federal rate in effect at the time the taxpayer entered into the transaction
minus any amount previously treated as ordinary income with respect to any
prior disposition of property that was held as a part of such transaction or
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed
as investment income at ordinary income rates. Capital gains of certain
non-corporate taxpayers are subject to a lower maximum tax rate (28%) than
ordinary income of such taxpayers (39.6%) for property held for more than one
year but not more than 18 months, and a still lower maximum rate (20%) for
property held for
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more than 18 months. The maximum tax rate for corporations is the same with
respect to both ordinary income and capital gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of
the right to receive some or all of the principal payments on an obligation
from ownership of the right to receive some or all of the interest payments
results in the creation of "stripped bonds" with respect to principal payments
and "stripped coupons" with respect to interest payments. For purposes of this
discussion, Certificates that are subject to those rules will be referred to
as "Stripped Certificates". Stripped Certificates include "Stripped Interest
Certificates" and "Stripped Principal Certificates" (as defined in this
Prospectus) as to which no REMIC election is made.
The Certificates will be subject to those rules if (i) the
Depositor or any of its affiliates retains (for its own account or for
purposes of resale), in the form of fixed retained yield or otherwise, an
ownership interest in a portion of the payments on the Mortgage Loans, (ii)
the Master Servicer is treated as having an ownership interest in the Mortgage
Loans to the extent it is paid (or retains) servicing compensation in an
amount greater than reasonable consideration for servicing the Mortgage Loans
(see "Standard Certificates--Recharacterization of Servicing Fees" above) and
(iii) Certificates are issued in two or more classes or subclasses
representing the right to non-pro-rata percentages of the interest and
principal payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be
considered to own "stripped bonds" with respect to its pro rata share of all
or a portion of the principal payments on each Mortgage Loan and/or "stripped
coupons" with respect to its pro rata share of all or a portion of the
interest payments on each Mortgage Loan, including the Stripped Certificate's
allocable share of the servicing fees paid to the Master Servicer, to the
extent that such fees represent reasonable compensation for services rendered.
See discussion above under "Standard Certificates--Recharacterization of
Servicing Fees". Although not free from doubt, for purposes of reporting to
Stripped Certificateholders, the servicing fees will be allocated to the
Stripped Certificates in proportion to the respective entitlements to
distributions of each class (or subclass) of Stripped Certificates for the
related period or periods. The holder of a Stripped Certificate generally will
be entitled to a deduction each year in respect of the servicing fees, as
described above under "Standard Certificates--General", subject to the
limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon
as an obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects
at this time, particularly where such Stripped Certificates are issued with
respect to a Mortgage Pool containing variable-rate Mortgage Loans, the
Depositor has been advised by counsel that (i) the Trust Fund will be treated
as a grantor trust under
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subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i), and (ii) each Stripped Certificate should be treated as
a single installment obligation for purposes of calculating original issue
discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and
the OID Regulations. While under Code Section 1286 computations with respect
to Stripped Certificates arguably should be made in one of the ways described
below under "Taxation of Stripped--Certificates--Possible Alternative
Characterizations," the OID Regulations state, in general, that two or more
debt instruments issued by a single issuer to a single investor in a single
transaction should be treated as a single debt instrument for original issue
discount purposes. The Pooling Agreement requires that the Trustee make and
report all computations described below using this aggregate approach, unless
substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992
assume that a Stripped Certificate will be treated as a single debt instrument
issued on the date it is purchased for purposes of calculating any original
issue discount and that the interest component of such a Stripped Certificate
would be treated as qualified stated interest under the OID Regulations.
Further pursuant to these final regulations the purchaser of such a Stripped
Certificate will be required to account for any discount as market discount
rather than original issue discount unless either (i) the initial discount
with respect to the Stripped Certificate was treated as zero under the de
minimis rule of Code Section 1273(a)(3), or (ii) no more than 100 basis points
in excess of reasonable servicing is stripped off the related Mortgage Loans.
Any such market discount would be reportable as described under "Material
Federal Income Tax Consequences for REMIC Certificates--Taxation of Regular
Certificates--Market Discount," without regard to the de minimis rule therein,
assuming that a prepayment assumption is employed in such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character
of the Stripped Certificates, for federal income tax purposes, will be the
same as that of the Mortgage Loans. Although the issue is not free from doubt,
counsel has advised the Depositor that Stripped Certificates owned by
applicable holders should be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(4)(A), "obligation[s] principally
secured by an interest in real property" within the meaning of Code Section
860G(a)(3)(A), and "loans . . . secured by an interest in real property which
is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), and interest (including original issue discount) income
attributable to Stripped Certificates should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), provided that in each case the Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment.
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Taxation of Stripped Certificates
Original Issue Discount. Except as described above under
"General", each Stripped Certificate will be considered to have been issued at
an original issue discount for federal income tax purposes. Original issue
discount with respect to a Stripped Certificate must be included in ordinary
income as it accrues, in accordance with a constant interest method that takes
into account the compounding of interest, which may be prior to the receipt of
the cash attributable to such income. Based in part on the OID Regulations and
the amendments to the original issue discount sections of the Code made by the
1986 Act, the amount of original issue discount required to be included in the
income of a holder of a Stripped Certificate (referred to in this discussion
as a "Stripped Certificateholder") in any taxable year likely will be computed
generally as described above under "Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Original Issue Discount" and
"--Variable Rate Regular Certificates". However, with the apparent exception
of a Stripped Certificate qualifying as a market discount obligation, as
described above under "General", the issue price of a Stripped Certificate
will be the purchase price paid by each holder thereof, and the stated
redemption price at maturity will include the aggregate amount of the
payments, other than qualified stated interest to be made on the Stripped
Certificate to such Stripped Certificateholder, presumably under the
Prepayment Assumption.
If the Mortgage Loans prepay at a rate either faster or slower
than that under the Prepayment Assumption, a Stripped Certificateholder's
recognition of original issue discount will be either accelerated or
decelerated and the amount of such original issue discount will be either
increased or decreased depending on the relative interests in principal and
interest on each Mortgage Loan represented by such Stripped
Certificateholder's Stripped Certificate. While the matter is not free from
doubt, the holder of a Stripped Certificate should be entitled in the year
that it becomes certain (assuming no further prepayments) that the holder will
not recover a portion of its adjusted basis in such Stripped Certificate to
recognize an ordinary loss equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that
some or all of the interest payments with respect to the Stripped Certificates
will not be made if the Mortgage Loans are prepaid could lead to the
interpretation that such interest payments are "contingent" within the meaning
of the OID Regulations. The OID Regulations, as they relate to the treatment
of contingent interest, are by their terms not applicable to prepayable
securities such as the Stripped Certificates. However, if final regulations
dealing with contingent interest with respect to the Stripped Certificates
apply the same principles as the OID Regulations, such regulations may lead to
different timing of income inclusion that would be the case under the OID
Regulations. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Stripped
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of
a Stripped Certificate prior to its maturity will result in gain or loss equal
to the difference, if any, between the
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amount received and the Stripped Certificateholder's adjusted basis in such
Stripped Certificate, as described above under "Material Federal Income Tax
Consequences for REMIC Certificates--Taxation of Regular Certificates--Sale or
Exchange of Regular Certificates". To the extent that a subsequent purchaser's
purchase price is exceeded by the remaining payments on the Stripped
Certificates, such subsequent purchaser will be required for federal income
tax purposes to accrue and report such excess as if it were original issue
discount in the manner described above. It is not clear for this purpose
whether the assumed prepayment rate that is to be used in the case of a
Stripped Certificateholder other than an original Stripped Certificateholder
should be the Prepayment Assumption or a new rate based on the circumstances
at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where
an investor purchases more than one class of Stripped Certificates, it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of the rules described above.
Possible Alternative Characterizations. The characterizations
of the Stripped Certificates discussed above are not the only possible
interpretations of the applicable Code provisions. For example, the Stripped
Certificateholder may be treated as the owner of (i) one installment
obligation consisting of such Stripped Certificate's pro rata share of the
payments attributable to principal on each Mortgage Loan and a second
installment obligation consisting of such Stripped Certificate's pro rata
share of the payments attributable to interest on each Mortgage Loan, (ii) as
many stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Mortgage Loan or (iii) a separate
installment obligation for each Mortgage Loan, representing the Stripped
Certificate's pro rata share of payments of principal and/or interest to be
made with respect thereto. Alternatively, the holder of one or more classes of
Stripped Certificates may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Certificate, or classes of Stripped Certificates in the aggregate, represent
the same pro rata portion of principal and interest on each such Mortgage
Loan, and a stripped bond or stripped coupon (as the case may be), treated as
an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they
are premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for
aggregating stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
FEDERAL INCOME TAX CONSEQUENCES FOR FASIT CERTIFICATES
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If and to the extent set forth in the Prospectus Supplement
relating to a particular Series of Certificates, an election may be made to
treat the related Trust Fund or one or more segregated pools of assets therein
as one or more financial asset securitization investment trusts ("FASITs")
within the meaning of Code Section 860L(a). Qualification as a FASIT requires
ongoing compliance with certain conditions. With respect to each series of
FASIT Certificates, O'Melveny & Myers LLP, counsel to the Depositor, will
advise the Depositor that in the firm's opinion, assuming (i) the making of
such an election, (ii) compliance with the Pooling Agreement and (iii)
compliance with any changes in the law, including any amendments to the Code
or applicable Treasury Regulations thereunder, each FASIT Pool will qualify as
a FASIT. In such case, the Regular Certificates will be considered to be
"regular interests" in the FASIT and will be treated for federal income tax
purposes as if they were newly originated debt instruments, and the Residual
Certificate will be considered the "ownership interest" in the FASIT Pool. The
Prospectus Supplement for each series of Certificates will indicate whether
one or more FASIT elections will be made with respect to the related Trust
Fund.
FASIT treatment has become available pursuant to recently
enacted legislation, and no Treasury Regulations have as yet been issued
detailing the circumstances under which a FASIT election may be made or the
consequences of such an election. If a FASIT election is made with respect to
any Trust Fund or as to any segregated pool of assets therein, the related
Prospectus Supplement will describe the Federal income tax consequences of
such election.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Trustee will furnish, within a reasonable time after the
end of each calendar year, to each Standard Certificateholder or Stripped
Certificateholder at any time during such year, such information (prepared on
the basis described above) as the Trustee deems to be necessary or desirable
to enable such Certificateholders to prepare their federal income tax returns.
Such information will include the amount of original issue discount accrued on
Certificates held by persons other than Certificateholders exempted from the
reporting requirements. The amounts required to be reported by the Trustee may
not be equal to the proper amount of original issue discount required to be
reported as taxable income by a Certificateholder, other than an original
Certificateholder that purchased at the issue price. In particular, in the
case of Stripped Certificates, unless provided otherwise in the applicable
Prospectus Supplement, such reporting will be based upon a representative
initial offering price of each class of Stripped Certificates. The Trustee
will also file such original issue discount information with the Service. If a
Certificateholder fails to supply an accurate taxpayer identification number
or if the Secretary of the Treasury determines that a Certificateholder has
not reported all interest and dividend income required to be shown on his
federal income tax return, 31% backup withholding may be required in respect
of any reportable payments, as described above under "Material Federal Income
Tax Consequences for REMIC Certificates--Backup Withholding".
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TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in
Mortgage Loans that are issued on or before July 18, 1984, interest or
original issue discount paid by the person required to withhold tax under Code
Section 1441 or 1442 to nonresident aliens, foreign corporations, or other
Non-U.S. Persons generally will be subject to 30% United States withholding
tax, or such lower rate as may be provided for interest by an applicable tax
treaty. Accrued original issue discount recognized by the Standard
Certificateholder or Stripped Certificateholder on original issue discount
recognized by the Standard Certificateholder or Stripped Certificateholders on
the sale or exchange of such a Certificate also will be subject to federal
income tax at the same rate.
Treasury regulations provide that interest or original issue
discount paid by the Trustee or other withholding agent to a Non-U.S. Person
evidencing ownership interest in Mortgage Loans issued after July 18, 1984
will be "portfolio interest" and will be treated in the manner, and such
persons will be subject to the same certification requirements, described
above under "Material Federal Income Tax Consequences for REMIC
Certificates--Taxation of Certain Foreign Investors--Regular Certificates".
STATE AND OTHER TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Material Federal Income Tax Consequences", potential investors should
consider the state and local tax consequences of the acquisition, ownership,
and disposition of the Offered Certificates. State tax law may differ
substantially from the corresponding federal law, and the discussion above
does not purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
Offered Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA
("ERISA Plans") and prohibits certain transactions between ERISA Plans and
persons who are "parties in interest" (as defined under ERISA) with respect to
assets of such Plans. Section 4975 of the Code prohibits a similar set of
transactions between certain plans ("Code Plans," and together with ERISA
Plans, "Plans") and persons who are "disqualified persons" (as defined in the
Code) with respect to Code Plans. Certain employee benefit plans, such as
governmental plans and church plans (if no election has been made under
Section 410(d) of the Code) are not subject to the requirements of ERISA or
Section 4975 of the Code, and assets of such plans may be invested in
Certificates, subject to the provisions of other applicable federal and state
law. Any such governmental or church plan which is qualified under Section 401
(a) of the Code and exempt from taxation under Section 501(a) of the Code is,
however, subject to the prohibited transaction rules set forth in Section 503
of the Code.
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Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance
with the documents governing the ERISA Plan. Before investing in a
Certificate, an ERISA Plan fiduciary should consider, among other factors,
whether to do so is appropriate in view of the overall investment policy and
liquidity needs of the ERISA Plan. Such fiduciary should especially consider
the sensitivity of the investments to the rate of principal payments
(including prepayments) on the Mortgage Loans, as discussed in the Prospectus
Supplement related to a Series.
PROHIBITED TRANSACTIONS
Section 406 of ERISA and Section 4975 of the Code prohibit parties in interest
with respect to ERISA Plans and disqualified persons with respect to the Code
Plans from engaging in certain transactions involving such Plans or "plan
assets" of such Plans, unless a statutory or administrative exemption applies
to the transaction. Section 4975 of the Code and Sections 502(i) and 502(l) of
ERISA provide for the imposition of excise taxes and civil penalties on
certain persons that engage or participate in such prohibited transactions.
The Depositor, the Underwriter, the Master Servicer, the Special Servicer, if
any, or the Trustee or certain affiliates thereof may be considered or may
become parties in interest or disqualified persons with respect to a Plan. If
so, the acquisition or holding of Certificates by, on behalf of or with "plan
assets" of such Plan may be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and/or Section 4975 of the Code,
unless an administrative exemption described below or some other exemption is
available.
Further, if the underlying assets included in a Trust Fund were deemed to
constitute "plan assets," certain transactions involved in the operation of
the Trust Fund may be deemed to constitute prohibited transactions under ERISA
and/or the Code. Neither ERISA nor Section 4975 of the Code defines the term
"plan assets."
Special caution should be exercised before assets of a Plan are used to
purchase a Certificate if, with respect to such assets, the Depositor, the
Underwriter, the Master Servicer, the Special Servicer, if any, or the Trustee
or an affiliate thereof either (a) has discretionary authority or control with
respect to the investment or management of such assets, including the
purchasing or sale of securities or other property, or (b) has authority or
responsibility to give, or regularly gives, investment advice with respect to
such assets pursuant to an agreement or understanding that such advice will
serve as a primary basis for investment decisions with respect to such assets
and that such advice will be based on the particular needs of the Plan.
The U.S. Department of Labor (the "Department") has issued regulations (the
"Plan Asset Regulations") concerning whether a Plan's assets will be
considered to include an undivided interest in each of the underlying assets
of an entity (such as the Trust Fund) for purposes of the general fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions
of ERISA and Section 4975 of the Code, if the Plan acquires an "equity
interest" (such as a Certificate) in an entity.
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Certain exceptions are provided in the Plan Asset Regulations whereby an
investing Plan's assets would be considered merely to include its interest in
the Certificates instead of being deemed to include an undivided interest in
each of the underlying assets of the Trust Fund. However, it cannot be
predicted in advance, nor can there be a continuing assurance whether such
exceptions may be applicable, because of the factual nature of certain of the
rules set forth in the Regulations. For example, one of the exceptions in the
Plan Asset Regulations states that the underlying assets of an entity will not
be considered "plan assets" if less than 25% of the value of each class of
equity interests is held by "Benefit Plan Investors," which are defined as
ERISA Plans, Code Plans, individual retirement accounts and employee benefit
plans not subject to ERISA (for example, governmental plans). This exemption
is tested immediately after each acquisition of an equity interest in the
entity whether upon initial issuance or in the secondary market. Absent any
restricrtions on purchase or transfer, it cannot be assured that benefit plan
investors will own less than 25% of each class of Certificates.
Pursuant to the Plan Asset Regulations, if the assets of the Trust Fund were
deemed to be "plan assets" by reason of the investment of assets of a Plan in
any Certificates, the "plan assets" of such Plan would include an undivided
interest in the Mortgage Loans, the mortgages underlying the Mortgage Loans
and any other assets held in the Trust Fund. Therefore, because the Mortgage
Loans and other assets held in the Trust Fund may be deemed to be "plan
assets" of each Plan that purchases Certificates, in the absence of an
exemption, the purchase, sale or holding of Certificates of any Series or
Class by or with the assets of a Plan could result in a prohibited transaction
and the imposition of civil penalties or excise taxes. Depending on the
relevant facts and circumstances, certain prohibited transaction exemptions
may apply to the purchase, sale or holding of Certificates of any Series or
Class by a Plan--for example, Prohibited Transaction Class Exemption ("PTCE")
95-60, which exempts certain transactions between insurance company general
accounts and parties in interest; PTCE 91-38, which exempts certain
transactions between bank collective investment funds and parties in interest;
PTCE 90-1, which exempts certain transactions between insurance company pooled
separate accounts and parties in interest; or PTCE 84- 14, which exempts
certain transactions effected on behalf of a Plan by a "qualified professional
asset manager."
There can be no assurance that any of these exemptions will apply with respect
to any Plan's investment in any Certificates or, even if an exemption were
deemed to apply, that any exemption would apply to all prohibited transactions
that may occur in connection with such investment. Also, the Department has
issued individual administrative exemptions from application of certain
prohibited transaction restrictions of ERISA and the Code to most underwriters
of mortgage-backed securities (each, an "Underwriter's Exemption"). Such an
Underwriter's Exemption can only apply to mortgage-backed securities which,
among other conditions, are sold in an offering with respect to which such an
underwriter serves as the sole or a managing underwriter, or as a selling or
placement agent. If such an Underwriter's Exemption might be applicable to a
Series of Certificates, the related Prospectus Supplement will refer to such
possibility. Further, the related Prospectus Supplement may provide that
certain Classes or Series of Certificates may not be purchased by, or
transferred to, Plans or may only be purchased by, or transferred to, an
insurance
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company for its general account under circumstances that would not result in a
prohibited transaction.
ANY FIDUCIARY OR OTHER PLAN INVESTOR WHO PROPOSES TO INVEST "PLAN ASSETS" OF A
PLAN IN CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL
WITH RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE
CODE OF ANY SUCH ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
UNRELATED BUSINESS TAXABLE INCOME-RESIDUAL INTERESTS
The purchase of a Certificate evidencing an interest in the Residual Interest
in a Series that is treated as a REMIC by any employee benefit or other plan
that is exempt from taxation under Code Section 501(a), including most
varieties of Plans, may give rise to "unrelated business taxable income" as
described in Code Sections 511-515 and 860E. Further, prior to the purchase of
an interest in a Residual Interest, a prospective transferee may be required
to provide an affidavit to a transferor that it is not, nor is it purchasing
an interest in a Residual Interest on behalf of, a "Disqualified
Organization," which term as defined above includes certain tax-exempt
entities not subject to Code Section 511, such as certain governmental plans,
as discussed above under "MATERIAL FEDERAL INCOME TAX CONSEQUENCES-Taxation of
Holders of Residual Certificates" and "-Restrictions on Ownership and Transfer
of Residual Certificates."
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES IMPOSED UPON PERSONS
INVOLVED IN PROHIBITED TRANSACTIONS, IT IS PARTICULARLY IMPORTANT THAT
INDIVIDUALS RESPONSIBLE FOR INVESTMENT DECISIONS WITH RESPECT TO ERISA PLANS
AND CODE PLANS CONSULT WITH THEIR COUNSEL REGARDING THE CONSEQUENCES UNDER
ERISA AND/OR THE CODE OF THEIR ACQUISITION AND OWNERSHIP OF CERTIFICATES.
THE SALE OF CERTIFICATES TO A PLAN IS IN NO RESPECT A REPRESENTATION BY THE
DEPOSITOR, THE APPLICABLE UNDERWRITER OR ANY OTHER SERVICE PROVIDER WITH
RESPECT TO THE CERTIFICATES, SUCH AS THE TRUSTEE, THE MASTER SERVICER AND THE
SPECIAL SERVICER, IF ANY, THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL
REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY PARTICULAR
PLAN OR THAT THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR ANY
PARTICULAR PLAN.
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LEGAL INVESTMENT
The Offered Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"), only if so specified in the related Prospectus
Supplement. The appropriate characterization of those Certificates not
qualifying as "mortgage related securities" ("Non-SMMEA Certificates") under
various legal investment restriction, and thus the ability of investors
subject to these restrictions to purchase such Certificates, may be subject to
significant interpretive uncertainties. Accordingly, investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether and to what extent the Non-SMMEA
Certificates constitute legal investments for them.
Generally, only classes of Offered Certificates that (i) are
rated in one of the two highest rating categories by one or more Rating
Agencies, (ii) are part of a series evidencing interests in a Trust Fund
consisting of loans originated by certain types of Originators as specified in
SMMEA and (iii) are part of a series evidencing interests in a Trust Fund
consisting of mortgage loans each of which is secured by a first lien on (a) a
single parcel of real estate on which is located a residential and/or mixed
residential and commercial structure or (b) one or more parcels of real estate
upon which are located one or more commercial structures will be "mortgage
related securities" for purposes of SMMEA. As "mortgage related securities,"
such classes will constitute legal investments, for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities (including depository institutions, insurance companies, trustees and
pension funds) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation, to the same
extent that obligations issued by or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof constitute legal
investments for such entities under applicable law. Under SMMEA, a number
of states enacted legislation on or prior to the October 3, 1991 cut-off for
such enactments limiting to various extends 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,
states are authorized to enact legislation, on or before September 23, 2001,
prohibiting or restricting the purchase, holding or investment by state
regulated entities in certificates satisfying the rating and qualified
Originator requirements for "mortgage related securities," but evidencing
interests in a Trust Fund consisting, in whole or in part, of first liens on
one or more parcels of real estate upon which are located one or more
commercial structures. Accordingly, the investors affected by such legislation
will be authorized to invest in Offered Certificates qualifying as "mortgage
related securities" only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and
loan associations and federal savings banks may invest in, sell or otherwise
deal in "mortgage related securities" without limitation as to the percentage
of their assets represented thereby, federal credit unions may
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invest in such securities, and national banks may purchase such securities for
their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. Section 24 (Seventh), subject in
each case to such regulations as the applicable federal regulatory authority
may prescribe. In this connection, effective December 31, 1996, the Office of
the Comptroller of the Currency (the "OCC") has amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject
to compliance with certain general standards in 12 C.F.R. ss.1.5 concerning
"safety and soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. ss.1.2(1) to include certain "commercial
mortgage-related securities" and "residential mortgage-related securities." As
so defined, "commercial mortgage-related security" and "residential
mortgage-related security" mean, in relevant part, "mortgage related security"
within the meaning of SMMEA, provided that, in the case of a "commercial
mortgage-related security," it "represents ownership of a promissory note or
certificate of interest or participation that is directly secured by a first
lien on one or more parcels of real estate upon which one or more commercial
structures are located and that is fully secured by interests in a pool of
loans to numerous obligors." In the absence of any rule or administrative
interpretation by the OCC defining the term "numerous obligors," no
representation is made as to whether any class of Certificates will qualify as
"commercial mortgage-related securities," and thus as "Type IV securities,"
for investment by national banks. federal credit unions should review NCUA
Letter to Credit Unions No. 96, as modified by Letter to Credit Unions No.
108, which includes guidelines to assist federal credit unions in making
investment decisions for mortgage related securities. The NCUA has adopted
rules, codified as 12 C.F.R. ss.ss.703.5(f)-(k), which prohibit federal credit
unions from investing in certain mortgage related securities (including
securities such as certain classes of the Offered Certificates), except under
limited circumstances. Effective January 1, 1998, the NCUA has amended its
rules governing investments by federal credit unions at 12 C.F.R. Part 703;
the revised rules will permit investments in "mortgage related securities"
under certain limited circumstances, but will prohibit investments in stripped
mortgage related securities, residual interests in mortgage related
securities, and commercial mortgage related securities, unless the credit
union has obtained written approval from the NCUA to participate in the
"investment pilot program" described in 12 C.F.R. ss. 703.140.
All depository institutions considering an investment in the
Offered Certificates should review the "Supervisory Policy Statement on
Securities Activities" dated January 28, 1992, as revised April 15, 1994 (the
"Policy Statement") of the Federal Financial Institutions Examination Council
(the "FFIEC"). The Policy Statement, which has been adopted by the Board of
Governors of the Federal Reserve System, the OCC, the Federal Depository
Insurance Company and the Office of Thrift Supervision, and by the NCUA (with
certain modifications), prohibits depository institutions from investing in
certain "high-risk mortgage securities" (including securities such as certain
classes of the Offered Certificates), except under limited circumstances, and
sets forth certain investment practices deemed to be unsuitable for regulated
institutions. On September 29, 1997, the FFEIC released for public comment a
proposed "Supervisory Policy Statement on Investment Securities and End-User
Derivatives Activities" (the "1997 Statement"), which would replace the Policy
Statement. As proposed, the 1997 Statement would delete the specific
"high-risk mortgage securities"
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tests, and substitute general guidelines which depository institutions should
follow in managing risks (including market, credit, liquidity, operational
(transactional), 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
class of the Offered Certificates, as certain classes may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the
applicability of statutes, rules, regulations, orders, guidelines or
agreements generally governing investments made by a particular investor,
including, but not limited to, "prudent investor" provisions,
percentage-of-assets limits, provisions which may restrict or prohibit
investment in securities which are not "interest bearing" or "income paying,"
and, with regard to any class of the Offered Certificates issued in book-entry
form, provisions which may restrict or prohibit investments in securities
which are issued in book-entry form.
Except as to the status of certain classes of Offered
Certificates as "mortgage related securities," no representations are made as
to the proper characterization of any class of Offered Certificates for legal
investment purposes, financial institution regulatory purposes, or other
purposes, or as to the ability of particular investors to purchase any class
of Offered Certificates under applicable legal investment restrictions. These
uncertainties (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Offered
Certificates) may adversely affect the liquidity of any class of Offered
Certificates.
Accordingly, all investors whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Offered
Certificates of any class constitute legal investments or are subject to
investment, capital or other restrictions.
PLAN OF DISTRIBUTION
The Depositor may sell the Certificates offered hereby in Series either
directly or through underwriters. The related Prospectus Supplement or
Prospectus Supplements for each Series will describe the terms of the offering
for that Series and will state the public offering or purchase price of each
Class of Certificates of such Series, or the method by which such price is to
be determined, and the net proceeds to the Depositor from such sale.
If the sale of any Certificates is made pursuant to an underwriting agreement
pursuant to which one or more underwriters agree to act in such capacity, such
Certificates will be acquired by such underwriters for their own account and
may be resold from time to time
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in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices to be determined at the time of
sale or at the time of commitment therefor. Firm commitment underwriting and
public reoffering by underwriters may be done through underwriting syndicates
or through one or more firms acting alone.
The specific managing underwriter or underwriters, if any, with respect to the
offer and sale of a particular Series of Certificates will be set forth on the
cover of the Prospectus Supplement related to such Series and the members of
the underwriting syndicate, if any, will be named in such Prospectus
Supplement. The Prospectus Supplement will describe any discounts and
commissions to be allowed or paid by the Depositor to the underwriters, any
other items constituting underwriting compensation and any discounts and
commissions to be allowed or paid to the dealers. The obligations of the
underwriters will be subject to certain conditions precedent. The underwriters
with respect to a sale of any Class of Certificates will generally be
obligated to purchase all such Certificates if any are purchased. Pursuant to
each such underwriting agreement, the Depositor will indemnify the related
underwriters against certain civil liabilities, including liabilities under
the 1933 Act.
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 1933 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.
LEGAL MATTERS
Certain legal matters relating to the Certificates offered hereby will be
passed upon for the Depositor by O'Melveny & Myers LLP, New York, New York,
and for the Underwriters as specified in the related Prospectus Supplement.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of any Class of Offered Certificates that
they shall have been rated not lower than investment grade, that is. in one of
the four highest categories, by a Rating Agency.
118
<PAGE>
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates. the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition. holders of stripped interest certificates in extreme cases might
fail to recoup the initial investments.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security, rating.
119
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT...................................................... 4
ADDITIONAL INFORMATION..................................................... 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 5
REPORTS.................................................................... 6
SUMMARY OF PROSPECTUS...................................................... 7
RISK FACTORS............................................................... 14
Limited Liquidity..................................................... 14
Limited Assets........................................................ 14
Average Life of Certificates; Prepayments; Yields..................... 15
Limited Nature of Ratings............................................. 15
Risks Associated with Lending on Income Producing Properties.......... 16
Material Federal Tax Considerations Regarding Residual Certificates .. 17
Material Federal Tax Considerations Regarding Original Issue
Discount................................................ 18
Certain Tax Considerations of Variable Rate Certificates.............. 18
Nonrecourse Mortgage Loans............................................ 18
Delinquent and Non-Performing Mortgage Loans.......................... 18
Junior Mortgage Loans................................................. 19
Balloon Payments...................................................... 19
Extensions and Modifications of Defaulted Mortgage Loans; Additional
Servicing Fees.......................................... 19
Risks Related to the Mortgagor's Form of Entity and Sophistication.... 19
Credit Enhancement Limitations........................................ 20
Risks to Subordinated Certificateholders.............................. 21
Taxable Income in Excess of Distributions Received.................... 21
Due-on-Sale Clauses and Assignments of Leases and Rents............... 21
Environmental Risks................................................... 22
ERISA Considerations.................................................. 23
Control............................................................... 23
Book-Entry Registration............................................... 23
THE DEPOSITOR ............................................................ 24
USE OF PROCEEDS............................................................ 24
DESCRIPTION OF THE CERTIFICATES............................................ 25
General............................................................... 25
Distributions on Certificates......................................... 26
120
<PAGE>
Accounts.............................................................. 27
Amendment............................................................. 30
Termination........................................................... 31
Reports to Certificateholders......................................... 31
The Trustee........................................................... 32
THE MORTGAGE POOLS......................................................... 33
General............................................................... 33
Assignment of Mortgage Loans.......................................... 35
Representations and Warranties........................................ 36
SERVICING OF THE MORTGAGE LOANS............................................ 38
General............................................................... 38
Collections and Other Servicing Procedures............................ 38
Insurance............................................................. 39
Fidelity Bonds and Errors and Omissions............................... 41
Servicing Compensation and Payment of Expenses........................ 41
Advances.............................................................. 42
Modifications, Waivers and Amendments................................. 42
Evidence of Compliance................................................ 42
Certain Matters With Respect to the Master Servicer,
the Special Servicer, the Trustee and the Depositor..... 43
Events of Default..................................................... 45
Rights Upon Event of Default.......................................... 46
CREDIT ENHANCEMENT......................................................... 48
General............................................................... 48
Enhancement Limitations............................................... 48
Subordinate Certificates.............................................. 48
Reserve Funds ........................................................ 49
Cross-Support Features................................................ 50
Certificate Guarantee Insurance....................................... 50
Limited Guarantee..................................................... 51
Letter of Credit...................................................... 51
Pool Insurance Policies; Special Hazard Insurance Policies............ 51
Surety Bonds ........................................................ 51
Fraud Coverage........................................................ 52
Mortgagor Bankruptcy Bond............................................. 52
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS................................ 52
General............................................................... 52
Types of Mortgage Instruments......................................... 53
Personality........................................................... 53
Installment Contracts................................................. 54
Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries........ 54
Foreclosure........................................................... 56
121
<PAGE>
Environmental Risks................................................... 64
Enforceability of Certain Provisions.................................. 68
Soldiers' and Sailors' Relief Act..................................... 69
Applicability of Usury Laws........................................... 70
Alternative Mortgage Instruments...................................... 71
Leases and Rents...................................................... 71
Secondary Financing; Due-on-Encumbrance Provisions.................... 72
Certain Laws and Regulations.......................................... 72
Type of Mortgaged Property............................................ 73
Criminal Forfeitures.................................................. 73
Americans With Disabilities Act....................................... 73
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................... 75
Federal Income Tax Consequences for REMIC Certificates................ 75
Taxation of Regular Certificates...................................... 79
Taxation of Residual Certificates..................................... 88
Taxes that may be Imposed on the REMIC Pool........................... 97
Liquidation of the REMIC Pool......................................... 98
Administrative Matters................................................ 98
Limitations on Deduction of Certain Expenses.......................... 99
Taxation of Certain Foreign Investors................................. 99
Backup Withholding....................................................101
Reporting Requirements................................................101
Standard Certificates.................................................102
Stripped Certificates.................................................106
Federal Income Tax Consequences for FASIT Certificates................109
Reporting Requirements and Backup Withholding.........................110
Taxation of Certain Foreign Investors.................................111
STATE AND OTHER TAX CONSIDERATIONS.........................................111
ERISA CONSIDERATIONS.......................................................111
Prohibited Transactions...............................................112
Unrelated Business Taxable Income-Residual Interests..................114
LEGAL INVESTMENT...........................................................115
PLAN OF DISTRIBUTION.......................................................117
LEGAL MATTERS..............................................................118
FINANCIAL INFORMATION......................................................118
RATING.....................................................................118
122
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
1933 Act................................................................. 4
1986 Act.................................................................79
ACMs.....................................................................67
Agreement................................................................10
Bankruptcy Code..........................................................58
CERCLA...................................................................22
Certificateholders.......................................................26
Certificates............................................................. 1
Classes.................................................................. 1
Closing Date.............................................................35
Code.....................................................................12
Code Plans..............................................................111
Collection Account....................................................... 9
Commission............................................................... 4
Compound Interest Certificate............................................79
Credit Enhancement....................................................... 9
Credit Enhancement Limitations...........................................20
Cut-off Date.............................................................11
Department..............................................................112
Depositor ............................................................... 1
Disqualified Organization ...............................................94
Distribution Date........................................................11
Distribution Account..................................................... 9
Enhancement Act.........................................................115
EPA......................................................................67
ERISA....................................................................12
ERISA Plans.............................................................111
Escrow Account...........................................................38
Escrow Payments..........................................................38
Event of Default.........................................................45
FASIT....................................................................75
Fannie Mae...............................................................25
123
<PAGE>
FHLMC....................................................................25
Foreclosure..............................................................19
Forfeiture Laws..........................................................73
Form 8-K.................................................................35
Garn-St Germain Act......................................................68
GNMA.....................................................................25
Hazardous Materials......................................................66
Installment Contracts.................................................... 7
Lead Paint Act...........................................................67
Legal Investment.........................................................12
Master Servicer Remittance Date..........................................28
Master Servicer.......................................................... 7
Modifications, Waivers and Amendments....................................42
Mortgage................................................................. 7
Mortgage Loan Groups.....................................................35
Mortgage Loans........................................................... 1
Mortgage Pool ........................................................... 1
Mortgage Loan Schedule...................................................35
Mortgage Loan Seller.....................................................36
Mortgaged Property....................................................... 8
NCUN.....................................................................71
Note.....................................................................33
Offered Certificates .................................................... 1
OID......................................................................79
Pass-Through Rate........................................................ 4
Permitted Investments....................................................28
Plans...................................................................111
Policy Statement........................................................116
Prepayment Assumption....................................................81
124
<PAGE>
Property Protection Expenses................................ 27
Prospective Investors....................................... 2
Prospectus Supplement....................................... 4
Rating Agency............................................... 13
Ratings..................................................... 13
Registration Statement ..................................... 4
Regular Certificates........................................ 12
Regular Interests........................................... 12
Relief Act.................................................. 69
REMIC Regulations........................................... 75
REMIC....................................................... 2
REO Account................................................. 28
Reserve Fund................................................ 49
Reserve Account............................................. 25
Residual Certificates....................................... 12
Residual Interests.......................................... 12
Senior Certificates......................................... 49
Series...................................................... 1
Servicing Fee............................................... 41
Special Servicing Fee....................................... 42
Special Servicer............................................ 7
Specially Serviced Mortgage Loans........................... 38
Startup Day................................................. 76
Stripped Certificates....................................... 102
Subordinate Certificates.................................... 48
Tax Status of the Certificates.............................. 12
Title VIII.................................................. 71
Title V..................................................... 70
Trust Fund.................................................. 1
Trustee..................................................... 7
USTs........................................................ 67
Voting Rights............................................... 23
125
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in
connection with the issuance and distribution of the Offered Certificates,
other than underwriting discounts and commissions:
SEC Registration Fee.................................. $ 29,500
Engraving Fees........................................ $ 50,000
Legal Fees and Expenses............................... $ 200,000
Accounting Fees and Expenses.......................... $ 200,000
Trustee Fees and Expenses............................. $ 37,000
Blue Sky Qualification Fees and Expenses.............. $ 10,000
Rating Agency Fees (Two Agencies)..................... $1,420,000
Miscellaneous......................................... $ 10,000
------------
Total................................................. $1,956,000
ITEM 15 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 7 of the proposed form of Underwriting Agreement,
the Underwriters are obligated under certain circumstances to indemnify
certain controlling persons of the Registrant against certain liabilities,
including liabilities under the Securities Act of 1933.
The Registrant's By-laws provide for indemnification of directors
and officers of the Registrant to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that
II-1
<PAGE>
they are or were such directors, officers, employees or agents, against
expenses incurred in any such action, suit or proceeding.
The Pooling and Servicing Agreements may provide that no director,
officer, employee or agent of the Registrant is liable to the Trust Fund or
the Certificateholders, except for such person's own willful misfeasance, bad
faith or gross negligence in the performance of duties or reckless disregard
of obligations and duties; provided, however, that the Pooling and Servicing
Agreements may provide that such indemnification will not extend to any loss,
liability or expense (i) that such person is specifically required to bear
pursuant to the terms of such Pooling and Servicing Agreement, or is
incidental to the performance of obligations and duties thereunder and is not
otherwise reimbursable pursuant to such Pooling and Servicing Agreement; (ii)
incurred in connection with any breach of a representation, warranty or
covenant made in such Pooling and Servicing Agreement; (iii) incurred by
reason of misfeasance, bad faith or gross negligence in the performance of
obligations or duties under such Pooling and Servicing Agreement, or by reason
of reckless disregard of such obligations or duties; or (iv) incurred in
connection with any violation of any state or federal securities law.
ITEM 16 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
All financial statements, schedules and historical financial
information of the Registrant have been omitted as they are not
applicable.
(b) Exhibits:
1.1 Form of Underwriting Agreement*
4.1 Form of Pooling and Servicing Agreement
5.1 Opinion of O'Melveny & Myers LLP as to legality of the
Certificates*
8.1 Opinion of O'Melveny & Myers LLP as to certain tax matters
(included in Exhibit 5.1)*
23.1 Consent of O'Melveny & Myers LLP (included in Exhibits 5.1
and 8.1 hereto)*
24.1 Power of Attorney
99 Corporate Resolution*
* To be filed by amendment.
II-2
<PAGE>
ITEM 17 UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement.
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in the post-effective amendment is
contained in periodic reports filed by the Issuer pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described in
Item 15 above, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
II-3
<PAGE>
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
17 day of April, 1998.
PRUDENTIAL SECURITIES
SECURED FINANCING CORPORATION
/s/ Vincent T. Pica II
By: Name: Vincent T. Pica II
Title: President
KNOW ALL MEN THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Vincent T. Pica II his true and lawful
attorney-in-fact and agent, with full powers of substitution and
resubstitution, for and in his name, place and stead, in any and all
capacities to sign any or all amendments (including post-effective amendments)
to this Registration Statement and any or all other documents in connection
therewith, and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his substitute or substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Form
S-3 Registration Statement has been signed below by the following persons in
the capacities indicated:
SIGNATURE TITLE DATE
/s/ Vincent T. Pica II Director and President April 17,1998
(Principal Executive
Officer)
/s/ Alan D. Hogan Director April 17,1998
/s/ Leland B. Paton Director April 17,1998
/s/ William Horan Chief Financial Officer April 17,1998
/s/ Elizabeth W. Castagna Treasurer (Principal April 17,1998
Accounting Officer)
II-5
<PAGE>
EXHIBIT
NUMBER DESCRIPTION PAGE
1.1 Form of Underwriting Agreement*
4.1 Form of Pooling and Servicing
Agreement
24.1 Power of Attorney (included on page
II-5)
99 Corporate Resolution*
- ------------
* to be filed by amendment
II-6
<PAGE>
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
,
SERVICER
,
SPECIAL SERVICER
,
TRUSTEE
and
,
FISCAL AGENT
POOLING AND SERVICING AGREEMENT
Dated as of
Commercial Mortgage Pass-Through Certificates
Series
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms................................................................. 3
SECTION 1.2. Certain Calculations.......................................................... 39
SECTION 1.3. Certain Constructions......................................................... 40
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.1. Conveyance and Assignment of Mortgage Loans;.................................. 41
SECTION 2.2. Acceptance by the Custodian and the Trustee................................... 45
SECTION 2.3. Representations and Warranties of the Depositor............................... 47
SECTION 2.4. Representations, Warranties and Covenants of the
Servicer and the Special Servicer............................................. 51
SECTION 2.5. Execution and Delivery of Certificates; Issuance of
Lower-Tier Regular Interests.................................................. 54
SECTION 2.6. Miscellaneous REMIC Provisions................................................ 54
SECTION 2.7. Documents Not Delivered to Custodian.......................................... 55
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.1. Servicer to Act as Servicer; Special Servicer to Act as
Special Servicer; Administration of the Mortgage
Loans......................................................................... 56
SECTION 3.2. Liability of the Servicer..................................................... 59
SECTION 3.3. Collection of Certain Mortgage Loan Payments.................................. 60
SECTION 3.4. Collection of Taxes, Assessments and Similar Items............................ 60
SECTION 3.5. Collection Account; Distribution Account...................................... 62
SECTION 3.6. Permitted Withdrawals from the Collection Account............................. 63
SECTION 3.7. Investment of Funds in the Collection Account, the
Distribution Account and the Reserve Accounts................................. 65
SECTION 3.8. Maintenance of Insurance Policies and Errors and
Omissions and Fidelity Coverage............................................... 67
SECTION 3.9. Enforcement of Due-On-Sale Clauses; Assumption
Agreements.................................................................... 70
SECTION 3.10. Realization Upon Mortgage Loans............................................... 72
i
<PAGE>
PAGE
SECTION 3.11. Trustee to Cooperate; Release of Mortgage Files............................... 76
SECTION 3.12. Servicing Compensation and Trustee Fees....................................... 77
SECTION 3.13. Reports to the Trustee; Collection Account Statements......................... 79
SECTION 3.14. Annual Statement as to Compliance............................................. 79
SECTION 3.15. Annual Independent Public Accountants' Servicing
Report........................................................................ 80
SECTION 3.16. Access to Certain Documentation............................................... 80
SECTION 3.17. Title and Management of REO Properties........................................ 81
SECTION 3.18. Sale of Specially Serviced Mortgage Loans and REO
Properties.................................................................... 84
SECTION 3.19. Inspections................................................................... 86
SECTION 3.20. Available Information and Notices............................................. 86
SECTION 3.21. Reserve Accounts.............................................................. 88
SECTION 3.22. Property Advances............................................................. 88
SECTION 3.23. Appointment of Special Servicer............................................... 89
SECTION 3.24. Transfer of Servicing Between Servicer and Special
Servicer; Record Keeping...................................................... 89
SECTION 3.25. Adjustment of Servicing Compensation in Respect of
Prepayment Interest Shortfalls................................................ 91
SECTION 3.26. Extension Advisor............................................................. 92
ARTICLE IV
DISTRIBUTIONS TO CERTIFICATEHOLDERS
SECTION 4.1. Distributions................................................................. 93
SECTION 4.2. Statements to Rating Agencies and Certificateholders;
Available Information; Information Furnished to
Financial Market Publisher....................................................109
SECTION 4.3. Compliance with Withholding Requirements......................................112
SECTION 4.4. REMIC Compliance..............................................................112
SECTION 4.5. Imposition of Tax on the Trust Fund...........................................114
SECTION 4.6. Remittances; P&I Advances.....................................................115
ARTICLE V
THE CERTIFICATES
SECTION 5.1. The Certificates..............................................................118
SECTION 5.2. Registration, Transfer and Exchange of Certificates...........................119
SECTION 5.3. Book-Entry Certificates.......................................................124
SECTION 5.4. Mutilated, Destroyed, Lost or Stolen Certificates.............................125
SECTION 5.5. Appointment of Paying Agent...................................................126
ii
<PAGE>
PAGE
SECTION 5.6. Access to Certificateholders' Names and Addresses.............................126
SECTION 5.7. Actions of Certificateholders.................................................127
ARTICLE VI
THE DEPOSITOR, THE SERVICER AND THE SPECIAL SERVICER
SECTION 6.1. Liability of the Depositor, the Servicer and the Special
Servicer......................................................................128
SECTION 6.2. Merger or Consolidation of the Servicer and Special
Servicer......................................................................128
SECTION 6.3. Limitation on Liability of the Depositor, the Servicer
and Others....................................................................128
SECTION 6.4. Limitation on Resignation of the Servicer and of the
Special Servicer..............................................................129
SECTION 6.5. Rights of the Depositor and the Trustee in Respect of
the Servicer and the Special Servicer.........................................130
ARTICLE VII
DEFAULT
SECTION 7.1. Events of Default.............................................................131
SECTION 7.2. Trustee to Act; Appointment of Successor......................................133
SECTION 7.3. Notification to Certificateholders............................................134
SECTION 7.4. Other Remedies of Trustee.....................................................134
SECTION 7.5. Waiver of Past Events of Default; Termination.................................135
ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.1. Duties of Trustee.............................................................136
SECTION 8.2. Certain Matters Affecting the Trustee.........................................137
SECTION 8.3. Trustee Not Liable for Certificates or Mortgage Loans.........................139
SECTION 8.4. Trustee May Own Certificates..................................................141
SECTION 8.5. Payment of Trustee's Fees and Expenses;
Indemnification...............................................................141
SECTION 8.6. Eligibility Requirements for Trustee..........................................142
SECTION 8.7. Resignation and Removal of the Trustee........................................143
SECTION 8.8. Successor Trustee.............................................................144
SECTION 8.9. Merger or Consolidation of Trustee............................................145
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.................................145
iii
<PAGE>
PAGE
SECTION 8.11. Authenticating Agent..........................................................147
SECTION 8.12. Appointment of Custodians.....................................................147
SECTION 8.13. Fiscal Agent Appointed; Concerning the Fiscal Agent...........................148
ARTICLE IX
TERMINATION
SECTION 9.1. Termination...................................................................149
SECTION 9.2. Additional Termination Requirements...........................................153
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Counterparts..................................................................155
SECTION 10.2. Limitation on Rights of Certificateholders....................................155
SECTION 10.3. Governing Law.................................................................156
SECTION 10.4. Notices.......................................................................156
SECTION 10.5. Severability of Provisions....................................................158
SECTION 10.6. Notice to the Depositor and Each Rating Agency................................158
SECTION 10.7. Amendment.....................................................................159
SECTION 10.8. Confirmation of Intent........................................................161
iv
<PAGE>
EXHIBITS
Exhibit A-1 Form of Class Certificate
Exhibit A-2 Form of Class Certificate
Exhibit A-3 Form of Class Certificate
Exhibit A-4 Form of Class Certificate
Exhibit A-5 Form of Class Certificate
Exhibit A-6 Form of Class Certificate
Exhibit A-7 Form of Class Certificate
Exhibit A-8 Form of Class Certificate
Exhibit A-9 Form of Class Certificate
Exhibit A-10 Form of Class Certificate
Exhibit A-11 Form of Class Certificate
Exhibit A-12 Form of Class Certificate
Exhibit A-13 Form of Class Certificate
Exhibit A-14 Form of Class Certificate
Exhibit B Mortgage Loan Schedule
Exhibit C-1 Form of Transferee Affidavit
Exhibit C-2 Form of Transferor Letter
Exhibit D-1 Form of Investment Representation Letter
Exhibit D-2 Form of ERISA Representation Letter
Exhibit E Form of Request for Release
Exhibit F Form of Custodial Agreement
Exhibit G Form of Mortgage Loan Purchase and Sale Agreement
Exhibit H Privately Placed Securities Legend
v
<PAGE>
Pooling and Servicing Agreement, dated as of
among Prudential Securities Secured Financing Corporation, as
Depositor, , as Servicer, , as Special Servicer,
, as Trustee and Custodian, and , as Fiscal
Agent of the Trustee.
PRELIMINARY STATEMENT:
(Terms used but not defined in this Preliminary Statement shall have the
meanings specified in Article I hereof)
The Depositor intends to sell pass-through certificates to
be issued hereunder in multiple classes which in the aggregate will evidence
the entire beneficial ownership interest in the Trust Fund consisting
primarily of the Mortgage Loans. As provided herein, the Trustee will elect
that the Trust Fund be treated for federal income tax purposes as two separate
real estate mortgage investment conduits (each a "REMIC" or, in the
alternative, the "Lower-Tier REMIC" and the "Upper-Tier REMIC," respectively).
The Class , Class , Class , Class , Class , Class , Class
, Class , Class , Class , Class and Class
Certificates constitute "regular interests" in the Upper-Tier REMIC and
the Class __ Certificates are the sole class of "residual interest" in the
Upper-Tier REMIC for purposes of the REMIC Provisions. The Class Certificates
are the sole class of "residual interest" in the Lower-Tier REMIC for purposes
of the REMIC Provisions. There are also ten classes of uncertificated
Lower-Tier Regular Interests issued under this Agreement (the Class
Interests), each of which will constitute a regular interest in the Lower-Tier
REMIC. All such Lower-Tier Regular Interests will be held by the Trustee as
assets of the Upper-Tier REMIC.
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The following table sets forth the designation and aggregate
initial Certificate Balance (or, with respect to the Class ___ and Class ___
Certificates, the Class ___ Notional Balance and the Class ___ Notional Balance,
respectively) for each Class of Certificates comprising interests in the
Upper-Tier REMIC.
Certificate Balance
Class or Notional Balance
----- -------------------
(1) The Class __ and Class __ Certificates are not denominated in
Certificate Balance and accordingly will not receive principal
distributions. The Class __ and Class __ Certificates have an initial
Class __ Notional Balance and an initial Class __ Notional Balance,
respectively, in the amounts shown in the above table.
The initial Certificate Balance of each of the Class __ and
Class __ Certificates will be zero. The Certificate Balance of any class of
Certificates outstanding at any time represents the maximum amount which
holders thereof are entitled to receive as distributions allocable to
principal from the cash flow on the Mortgage Loans and the other assets in the
Trust Fund.
As of the Cut-off Date, the Mortgage Loans have an aggregate
Scheduled Principal Balance equal to approximately $ .
In consideration of the mutual agreements herein contained,
the Depositor, the Servicer, the Special Servicer, the Trustee and the Fiscal
Agent agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms.
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article.
"Advance": Any P&I Advance or Property Advance.
"Advance Interest Amount": The sum for all Mortgage Loans as
to which any Advance remains unreimbursed of interest at the related Advance
Rate on the amount of any P&I Advances and Property Advances for which the
Servicer, the Trustee or the Fiscal Agent, as applicable, has not been paid or
reimbursed for the number of days from the date on which such Advance was made
or, if interest has been previously paid on such Advance, from the date on
which interest was last paid, through the date of payment or reimbursement of
the related Advance (which in no event shall be later than the Determination
Date following the date on which funds are available to reimburse such Advance
with interest thereon at the Advance Rate).
"Advance Rate": A per annum rate equal to the Prime Rate (as
published in The Wall Street Journal, or, if The Wall Street Journal is no
longer published, The New York Times, from time to time).
"Affiliate": With respect to any specified Person, any other
Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used
with respect to any specified Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. The
Trustee may obtain and rely on an Officer's Certificate of the Servicer, the
Special Servicer or the Depositor to determine whether any Person is an
Affiliate of such party.
"Aggregate Certificate Balance": As defined in Section
9.1(d)(i).
"Agreement": This Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.
"Annual Debt Service": For any Mortgage Loan, the current
annual debt service (including interest allocable to payment of the Servicing
Fee) payable with respect to such Mortgage Loan during the 12-month period
commencing on the Cut-off Date (assuming no principal prepayments occur).
"Anticipated Loss": As defined in Section 4.6(c).
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"Anticipated Termination Date": Any Distribution Date on
which it is anticipated that the Trust Fund will be terminated pursuant to
Section 9.1(c) or Section 9.1(d).
"Applicable Monthly Payment": As defined in Section 4.6(a).
"Applicant": As defined in Section 5.6(a).
"Appraised Value": For each of the Mortgaged Properties, the
appraised value of such property as determined by an appraisal thereof,
conforming to MAI standards, made not more than one year prior to the
origination date of the related Mortgage Loan.
"Assignment of Leases, Rents and Profits": With respect to
any Mortgaged Property, any assignment of leases, rents and profits or similar
agreement executed by the Borrower, assigning to the mortgagee all of the
income, rents and profits derived from the ownership, operation, leasing or
disposition of all or a portion of such Mortgaged Property, in the form which
was duly executed, acknowledged and delivered by the Borrower, as amended,
modified, renewed or extended through the date hereof and from time to time
hereafter.
"Assignment of Mortgage": An assignment of mortgage without
recourse, notice of transfer or equivalent instrument, in recordable form,
which is sufficient under the laws of the jurisdiction in which the related
Mortgaged Property is located to reflect of record the sale of the related
Mortgage, which assignment, notice of transfer or equivalent instrument may be
in the form of one or more blanket assignments covering Mortgages encumbering
Mortgaged Properties located in the same jurisdiction, if permitted by law and
acceptable for recording; provided, however, that none of the Trustee, the
Custodian, the Special Servicer or the Servicer shall be responsible for
determining whether any assignment is legally sufficient or in recordable
form.
"Assumed Scheduled Payment": With respect to any Mortgage
Loan that is delinquent in respect of its Balloon Payment (including any REO
Mortgage Loan as to which the Balloon Payment would have been past due), an
amount equal to the sum of (a) the principal portion of the Monthly Payment
that would have been due on such Mortgage Loan on a Due Date that falls on or
after the date on which such Balloon Payment was due, based on the original
amortization schedule thereof, assuming such Balloon Payment had not become
due, after giving effect to any modification, and (b) interest at the
applicable Net Mortgage Rate on the principal balance that would have remained
on such Mortgage Loan after giving effect to deemed principal payments
pursuant to clause (a) hereof on prior Due Dates.
"Assumption Fees": Any fees collected by the Servicer or the
Special Servicer in connection with an assumption or modification of a
Mortgage Loan or substitution of a Borrower thereunder permitted to be
executed under the provisions of Section 3.1, Section 3.9 or Section 3.10.
"Auction Agent": An Independent financial advisory or
investment banking or investment brokerage firm nationally recognized in the
field of real estate financial analysis and auction procedures appointed by
the Trustee pursuant to Section 9.1(d).
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"Auction Fees": As defined in Section 9.1(d)(v).
"Auction Procedures": As defined in Section 9.1(d)(vi).
"Auction Proceeds Distribution Date": The third Distribution
Date following an Auction Valuation Date, or such later Distribution Date
determined by the Auction Agent.
"Auction Valuation Date": Each of (i) the Distribution Date
occurring in September of each year from and including __________ and (ii) any
Business Day on which the Trustee receives an unsolicited bona fide offer to
purchase all (but not less than all) of the Mortgage Loans.
"Authenticating Agent": Any authenticating agent appointed
by the Trustee pursuant to Section 8.11.
"Balloon Payment": With respect to each Mortgage Loan, the
scheduled payment of principal and interest due on the Maturity Date of such
Mortgage Loan which, pursuant to the related Note, is equal to the entire
remaining principal balance of such Mortgage Loan, plus accrued interest
thereon.
"Borrower": With respect to each Mortgage Loan, any obligor
on any related Note (or, in the case of the Interest, the
Certificate, to the extent applicable).
"Book-Entry Certificate": Any Certificate registered in the
name of the Securities Depository or its nominee.
"Business Day": Any day other than a Saturday, a Sunday or a
day on which banking institutions in the States of New York, Illinois or
__________ are authorized or obligated by law, executive order or governmental
decree to be closed.
"Cash Deposit": An amount equal to all cash payments of
principal and interest received by the Mortgage Loan Seller in respect of the
Mortgage Loans prior to or on the Closing Date which are due after the Cut-off
Date, which amount is to be deposited with the Trustee by the Depositor
pursuant to Section 2.1.
"Certificate": Any Class ___ Certificate issued,
authenticated and delivered hereunder.
"Certificate Balance": With respect to any Class of Regular
Certificates (other than the Class ___ and Class ___ Certificates) (a) on or
prior to the first Distribution Date, an amount equal to the aggregate initial
Certificate Balance of such Class, as specified in the Preliminary Statement
hereto, and (b) as of any date of determination after the first Distribution
Date, the Certificate Balance of such Class of Certificates on the Distribution
Date immediately prior to such date of determination, after application of the
distributions and Realized Losses made thereon on such prior Distribution Date;
and with respect to any Lower-
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Tier Regular Interest, (a) on or prior to the first Distribution Date, an
amount equal to the Certificate Balance of the Related Certificates, and (b) as
of any date of determination after the first Distribution Date, the Certificate
Balance of such Lower-Tier Regular Interest on the Distribution Date
immediately prior to such date of determination, after application of
distributions in respect of principal and Realized Losses made thereon on such
prior Distribution Date. The Class ___ and Class ___ Certificates have no
Certificate Balances.
"Certificate Owner": With respect to a Book-Entry
Certificate, the Person who is the beneficial owner of such Certificate as
reflected on the books of the Securities Depository or on the books of a
Securities Depository Participant or on the books of an indirect participating
brokerage firm for which a Securities Depository Participant acts as agent.
"Certificate Register" and "Certificate Registrar": The
register maintained and the registrar appointed pursuant to Section 5.2(a).
"Certificateholder": A Person whose name is registered in
the Certificate Register; provided, however, that any Certificate held or
beneficially owned by the Depositor, the Servicer, the Trustee, a Manager or a
Borrower or any Person known to a Responsible Officer of the Certificate
Registrar to be an Affiliate of any thereof shall be deemed not to be
outstanding and the Voting Rights to which it is entitled shall not be taken
into account in determining whether the requisite percentage of Voting Rights
necessary to effect any consent has been obtained (unless such consent is to
an action which would materially adversely affect in any material respect the
interests of the Certificateholders of any Class, while the Servicer or any
Affiliate thereof is the holder of Certificates aggregating not less than
_____% of the Percentage Interest of any such Class). All references herein to
"Holders" or "Certificateholders" shall reflect the rights of Certificate
Owners as they may indirectly exercise such rights through the Securities
Depository and the Securities Depository Participants, except as otherwise
specified herein.
"Class": With respect to Certificates or Lower-Tier Regular
Interests, all of the Certificates or Lower-Tier Regular Interests bearing the
same alphabetical and numerical class designation.
"Class ___ Certificate": Any one of the Certificates executed
and authenticated by the Trustee or the Authenticating Agent on behalf of the
Depositor in substantially the form set forth in Exhibit ___ hereto.
"Class ___ Pass-Through Rate": A per annum rate equal to
%.
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"Class ___ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating Agent on
behalf of the Depositor in substantially the form set forth in Exhibit ___
hereto.
"Class ___ Pass-Through Rate": A per annum rate equal to
%.
"Class ____ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating Agent on behalf
of the Depositor in substantially the form set forth in Exhibit ___ hereto.
"Class ____ Excess Interest": With respect to any
Distribution Date, an amount equal to the Class ___ Pass-Through Rate
multiplied by the Class ___ Notional Balance. Class ___ Excess Interest
represents a portion of the interest payments on the Interest.
"Class _____ Notional Balance": As of any date of
determination, an amount equal to the sum of (i) the Class ___ Notional
Component ___ and (ii) the Certificate Balances of the Class ___ Certificates,
the Class ___ Certificates, the Class ___ Certificates, the Class ___
Certificates, the Class ___ Certificates, the Class ___ Certificates, the
Class ___ Certificates and the Class ___ Certificates.
"Class ____ Notional Component A": As of any date of
determination, an amount equal to the sum of the Certificate Balances of the
Class _______ Certificates and the Class ___ Certificates.
"Class ____ Pass-Through Rate": With respect to any Interest
Accrual Period, a per annum rate equal to the excess of the Weighted Average
Net Mortgage Rate over the weighted averages of the Pass-Through Rates of the
P&I Certificates (weighted in each case on the basis of a fraction equal to the
Certificate Balance of each such Class of Certificates divided by the sum
_____ of the Certificate Balances of the P&I Certificates and the Class ___
Certificates as of the first day of such Interest Accrual Period) and the
Class ___ Pass-Through Rate (weighted on the basis of a fraction equal to the
Class ___ Notional Balance divided by the sum of the Certificate Balances of
the P&I Certificates and the Class ___ Certificates, each as of the first day
of such Interest Accrual Period). For purposes of this definition, the
Pass-Through Rates of the Class ___, Class ___ and Class ___ Certificates
shall be equal to the Weighted Average Net Mortgage Rate.
"Class _____ Interest": A regular interest in the Lower-Tier
REMIC entitled to monthly distributions payable thereto pursuant to Section
4.1.
"Class _____ Interest": A regular interest in the Lower-Tier
REMIC entitled to monthly distributions payable thereto pursuant to Section
4.1.
"Class ___ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating Agent on
behalf of the Depositor in substantially the form set forth in Exhibit ____
hereto.
"Class ___ Pass-Through Rate": A per annum rate equal to
%
"Class ___ Interest": A regular interest in the Lower-Tier
REMIC entitled to the monthly distributions payable thereto pursuant to
Section 4.1.
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"Class __ Certificate": Any one of the Certificates executed
and authenticated by the Trustee or the Authenticating Agent on behalf of the
Depositor in substantially the form set forth in Exhibit ___ hereto.
"Class ___ Pass-Through Rate": A per annum rate equal to
___%.
"Class ___ Interest": A regular interest in the Lower-Tier
REMIC entitled to the monthly distributions payable thereto pursuant to
Section 4.1.
"Class ___ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating Agent on
behalf of the Depositor in substantially the form set forth in Exhibit ___
hereto.
"Class __ Pass-Through Rate": A per annum rate equal to
_____%.
"Class ___ Interest": A regular interest in the Lower-Tier
REMIC entitled to the monthly distributions payable thereto pursuant to
Section 4.1.
"Class ___ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating Agent on
behalf of the Depositor in substantially the form set forth in Exhibit ___
hereto.
"Class ___ Pass-Through Rate": With respect to any Interest
Accrual Period, a per annum rate equal to ___%.
"Class ___ Interest": A regular interest in the Lower-Tier
REMIC entitled to the monthly distributions payable thereto pursuant to
Section 4.1.
"Class ___ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating Agent on
behalf of the Depositor in substantially the form set forth in Exhibit ___
hereto.
"Class ___ Pass-Through Rate": With respect to any Interest
Accrual Period, a per annum rate equal to the higher of (i) the Weighted
Average Net Mortgage Rate and (ii) ____%
"Class ___ Interest": A regular interest in the Lower-Tier
REMIC entitled to the monthly distributions payable thereto pursuant to
Section 4.1.
"Class ___ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating Agent on
behalf of the Depositor in substantially the form set forth in Exhibit hereto.
"Class ___ Pass-Through Rate": With respect to any Interest
Accrual Period, a per annum rate equal to the higher of (i) the Weighted
Average Net Mortgage Rate and (ii) ____%.
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"Class ___ Interest": A regular interest in the Lower-Tier
REMIC entitled to the monthly distributions payable thereto pursuant to
Section .
"Class ___ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or the Authenticating Agent on
behalf of the Depositor in substantially the form set forth in Exhibit hereto.
"Class ___ Pass-Through Rate": With respect to any Interest
Accrual Period, a per annum rate equal to the higher of (i) the Weighted
Average Net Mortgage Rate and (ii) .
"Class ___ Interest": A regular interest in the Lower-Tier
REMIC entitled to the monthly distributions payable thereto pursuant to
Section 4.1.
"Class Interest Distribution Amount": With respect to any
Distribution Date and any of the Class ____ Certificates, interest for the
related Interest Accrual Period at the applicable Pass-Through Rate for such
Class of Certificates for such Interest Accrual Period on the Certificate
Balance of such Class. With respect to any Distribution Date and the Class
____ Certificates, (a) for any Distribution Date occurring on or prior to the
EC Maturity Date, the Class ____ Excess Interest and, (b) thereafter, zero.
With respect to the Class ____ Certificates, zero. With respect to any
Distribution Date and the Class Certificates, an amount equal to the product
of the Class Pass-Through Rate and the Class ____ Notional Balance. The Class
Interest Distribution Amount of the Class ____ Certificates represents a
specified portion equal to ____% of the interest payments on the Class ____
Interest. For purposes of determining any Class Interest Distribution Amount,
any distributions in reduction of Certificate Balance, any reductions of
Certificate Balance (and any resulting reductions in Notional Balance) as a
result of allocations of Realized Losses on the Distribution Date occurring in
such Interest Accrual Period shall be deemed to have been made as of the first
day of such Interest Accrual Period. Notwithstanding the foregoing, the Class
Interest Distribution Amount for each Class of Certificates otherwise
calculated as described above shall be reduced by such Class pro rata share of
any Uncovered Prepayment Interest Shortfall for such Distribution Date (pro
rata according to each respective Class' Class Interest Distribution Amount
determined without regard to this sentence).
"Class Interest Shortfall": On any Distribution Date for any
Class of Certificates, the excess, if any, of the Class Interest Distribution
Amount for such Class over the amount of interest actually distributed in
respect of such Class Interest Distribution Amount to the Holders of such
Certificates pursuant to Section 4.1(b) on such Distribution Date.
"Class ___ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or Authenticating Agent on behalf of
the Depositor in substantially the form set forth in Exhibit hereto.
"Class ___ Certificate": Any one of the Certificates
executed and authenticated by the Trustee or Authenticating Agent on behalf of
the Depositor in substantially the form set forth in Exhibit hereto.
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"Class ___ Notional Balance": As of any date of
determination, an amount equal to the Certificate Principal Balance of the
Class Certificates.
"Class ___ Pass-Through Rate": With respect to any Interest
Accrual Period, a per annum rate equal to the Weighted Average Net Mortgage
Rate.
"Class ___ Interest": A regular interest in the Lower-Tier
REMIC entitled to the monthly distributions payable thereto pursuant to
Section 4.1.
"Class ___ Certificate": Any Certificate executed and
authenticated by the Trustee or the Authenticating Agent on behalf of the
Depositor in substantially the form set forth in Exhibit ____ hereto. The
Class __ Certificates have no Pass-Through Rate or Certificate Balance.
"Class ___ Certificate": Any Certificate executed and
authenticated by the Trustee or the Authenticating Agent on behalf of the
Depositor in substantially the form set forth in Exhibit ___ hereto. The Class
__ Certificates have no Pass-Through Rate or Certificate Balance.
"Closing Date": .
"Code": The Internal Revenue Code of 1986, as amended from
time to time, any successor statute thereto, and any temporary or final
regulations of the United States Department of the Treasury promulgated
pursuant thereto.
"Collection Account": The segregated account or accounts
created and maintained by the Servicer pursuant to Section 3.5(a), which shall
be entitled " ____ , as Trustee, in trust for Holders of Prudential Securities
Secured Financing Corporation, Commercial Mortgage Pass-Through Certificates,
Series __________ , Collection Account" and which shall be an Eligible Account.
"Collection Period": With respect to any Distribution Date
and any Mortgage Loan other than the ______ Interest, the period beginning on
the first day following the Determination Date in the month preceding the
month in which such Distribution Date occurs (or, in the case of the
Distribution Date occurring in _____ , on the day after the Cut-off Date) and
ending on the Determination Date in the month in which such Distribution Date
occurs, and with respect to any Distribution Date and the _____ Interest, the
period beginning on the first day following the remittance date under the
Prior Pooling and Servicing Agreement in the month preceding the month in
which such Distribution Date occurs (or, in the case of the Distribution Date
occurring in _____ , on the day after the Cut-off Date) and ending on the
remittance date under the prior Pooling and Servicing Agreement in the month
in which such Distribution Date occurs.
"Commission": The Securities and Exchange Commission of the
United States of America.
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"Condemnation Proceeds": Any amount (other than Insurance
Proceeds) received in connection with the taking of a Mortgaged Property by
exercise of the power of eminent domain or condemnation.
"Corporate Trust Office": The principal office of the
Trustee located at _________________________________________________________,
Attention: Asset Backed Securities Trust Services Dept., or the principal
trust office of any successor trustee qualified and appointed pursuant to
Section 8.8.
"Custodial Agreement": The Custodial Agreement, if any, in
effect from time to time between the Custodian named therein, the Servicer and
the Trustee, substantially in the form of Exhibit __ hereto, as the same may
be amended or modified from time to time in accordance with the terms thereof.
"Custodian": Any Custodian appointed pursuant to Section
8.12 and, unless the Trustee is Custodian, named pursuant to any Custodial
Agreement. The Custodian may (but need not) be the Trustee or the Servicer or
any Affiliate of the Trustee or the Servicer, but may not be the Depositor or
any Affiliate of the Depositor.
"Cut-off Date": _____________________ ; provided, however,
that references to the principal balance of Mortgage Loans No. _______________
and _______________ (or other terms derived in part by reference to the
principal of balance of such Mortgage Loans) as of the Cut-off Date shall refer
to the principal balance of such Mortgage Loans as of __________ references to
the principal balance of Mortgage Loans No. _________________ , ___________ and
____________________ (or other terms derived in part by reference to the
principal of balance of such Mortgage Loans) as of the Cut-off Date shall refer
to the principal balance of such Mortgage Loan as of _____________.
"Debt Service Coverage Ratio": With respect to any Mortgage
Loan, (a) the Underwritten Cash Flow for the related Mortgaged Property,
divided by (b) the Annual Debt Service for such Mortgage Loan.
"Default Interest": With respect to any Mortgage Loan,
interest accrued on such Mortgage Loan at the excess of the Default Rate over
the Mortgage Rate.
"Default Rate": With respect to each Mortgage Loan, the
annual rate at which interest accrues on such Mortgage Loan following any
event of default on such Mortgage Loan, including a default in the payment of
a Monthly Payment or a Balloon Payment, as such rate is set forth in the
Mortgage Loan Schedule.
"Deficient Auction Bid": As defined in Section 9.1(d)(iii).
"Definitive Certificate": As defined in Section 5.3(a).
"Depositor": Prudential Securities Secured Financing
Corporation, a Delaware corporation and its successors and assigns.
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"Determination Date": The ___ day of any month, or if such
____ day is not a Business Day, the Business Day immediately following such
____ day, commencing .
"Directly Operate": With respect to any REO Property, the
furnishing or rendering of services to the tenants thereof that are not
customarily provided to tenants in connection with the rental of space for
occupancy only within the meaning of Treasury Regulations Section
1.512(h)-1(c)(5), the management or operation of such REO Property, the
holding of such REO Property primarily for sale to customers or any use of
such REO Property in a trade or business conducted by the Trust Fund other
than through an Independent Contractor; provided, however, that the Servicer,
on behalf of the Trust Fund (or the Special Servicer on behalf of the Trust
Fund), shall not be considered to Directly Operate an REO Property solely
because the Servicer, on behalf of the Trust Fund (or the Special Servicer on
behalf of the Trust Fund), establishes rental terms, chooses tenants, enters
into or renews leases, deals with taxes and insurance, or makes decisions as
to repairs or capital expenditures with respect to such REO Property.
"Discount Rate": The rate determined by the Trustee in
connection with distributions pursuant to Section 4.1(c)(I) to be the rate
(interpolated and rounded to the nearest one-thousandth of a percent, if
necessary) in the secondary market on the United States Treasury security with
a maturity equal to the then-computed weighted average life of the related
Class of Certificates (rounded to the nearest month) (without taking into
account the related prepayment and assuming (i) no further prepayments on the
Mortgage Loans and (ii) no delinquencies or defaults with respect to payments
on the Mortgage Loans) plus ____% per annum.
"Disposition Fee": With respect to any Specially Serviced
Mortgage Loan or REO Property which is sold or transferred or otherwise
liquidated, an amount equal to the product of (I) the excess, if any of (a)
the Liquidation Proceeds of such Specially Serviced Mortgage Loan or REO
Property minus (b) any broker's commission and related brokerage referral
fees, times (II) (a) ___%, if such sale or liquidation occurs prior to ___
months following the date on which the related Mortgage Loan initially became
a Specially Serviced Mortgage Loan, or (b) ___%, if such sale or liquidation
occurs upon or after the expiration of such ___ -month period.
"Disqualified Non-U.S. Person": With respect to a Class ___
or Class ___ Certificate, any Non-U.S. Person or agent thereof other than (i)
a Non-U.S. Person that holds the Class ___ or Class ___ Certificate in
connection with the conduct of a trade or business within the United States
and has furnished the transferor and the Certificate Registrar with an
effective IRS Form 4224 or (ii) a Non-U.S. Person that has delivered to both
the transferor and the Certificate Registrar an Opinion of Counsel to the
effect that the transfer of the Class ___ or Class ___ Certificate to it is in
accordance with the requirements of the Code and the regulations promulgated
thereunder and that such transfer of the Class ___ or Class ___ Certificate
will not be disregarded for federal income tax purposes.
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"Disqualified Organization": Either (a) the United States, a
State or any political subdivision thereof, any possession of the United
States, or any agency or instrumentality of any of the foregoing (other than
an instrumentality that is a corporation if all of its activities are subject
to tax and a majority of its board of directors is not selected by any such
governmental unit), (b) a foreign government, International Organization or
agency or instrumentality of either of the foregoing, (c) an organization that
is exempt from tax imposed by Chapter 1 of the Code (including the tax imposed
by Code Section 511 on unrelated business taxable income) on any excess
inclusions (as defined in Code Section 860E(c)(1)) with respect to the Class
__ or Class __ Certificates (except certain farmers' cooperatives described in
Code Section 521), (d) rural electric and telephone cooperatives described in
Code Section 1381(a)(2), or (e) any other Person so designated by the
Certificate Registrar based upon an Opinion of Counsel to the effect that any
Transfer to such Person may cause the Upper-Tier REMIC or Lower-Tier REMIC to
fail to qualify as a REMIC at any time that the Certificates are outstanding.
The terms "United States," "State" and "International Organization" shall have
the meanings set forth in Code Section 7701 or successor provisions.
"Distribution Account": The segregated account or accounts
created and maintained as a separate trust account or accounts by the Trustee
pursuant to Section 3.5(b), which shall be entitled " , as Trustee, in trust
for Holders of Prudential Securities Secured Financing Corporation Commercial
Mortgage Pass-Through Certificates, Series _________ Distribution Account" and
which shall be an Eligible Account.
"Distribution Date": The ___ day of any month, or if such
___ day is not a Business Day, the Business Day immediately following such ___
day, commencing on .
"Due Date": With respect to any Collection Period and any
Mortgage Loan, the date on which scheduled payments are due on such Mortgage
Loan (without regard to grace periods), such date being for all Mortgage Loans
other than Mortgage Loan No. - ______________________and _____________________
the_____________________Interest the ____ day of each month, and for Mortgage
Loan No._______________________the ____ day of the month, and for the
Interest, the remittance date under Prior Pooling and Servicing Agreement.
" _________ ": Credit Rating Co., or its successor in
interest.
"Early Termination Notice Date": Any date as of which the
aggregate Scheduled Principal Balance of the Mortgage Loans remaining in the
__________ Trust Fund is less than __% of the aggregate Scheduled Principal
Balance of the Mortgage Loans as of the Cut-off Date.
"EC Maturity Date": __________________________ .
"Eligible Account": Either (i) a segregated account or
accounts maintained with a federally or state-chartered depository institution
or trust company, the long term unsecured debt obligations of which (or of
such institution's parent holding company) are assigned a rating by each
Rating Agency that is greater than or equal to the rating then assigned to the
Class of Certificates outstanding at the time of any deposit therein which has
the highest rating then
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assigned of any such outstanding Class or (ii) a segregated trust account or
accounts maintained with a federally or state-chartered depository institution
or trust company acting in its fiduciary capacity, having, in either case, a
combined capital and surplus of at least $______ and subject to supervision or
examination by federal or state authority, or otherwise confirmed in writing
by each of the Rating Agencies that the maintenance of such account, which may
be an account maintained with the Trustee or the Servicer, shall not, in and
of itself, result in a downgrading, withdrawal or qualification of the rating
then assigned by such Rating Agency to any Class of Certificates. Eligible
Accounts may bear interest.
"Eligible Investor": (i) A Qualified Institutional Buyer
that is purchasing Privately Placed Certificates for its own account or for
the account of a Qualified Institutional Buyer to whom notice is given that
the offer, sale or transfer is being made in reliance on Rule 144A promulgated
under the 1933 Act or (ii) with respect to Privately Placed Certificates other
than the Class __ and Class __ Certificates, an Institutional Accredited
Investor.
"Environmental Report": With respect to each Mortgaged
Property, the environmental audit report or reports delivered to the Mortgage
Loan Seller in connection with the purchase of the related Mortgage Loan from
the Originator of such Mortgage Loan.
"ERISA": The Employee Retirement Income Security Act of
1974, as it may be amended from time to time.
"Escrow Account": As defined in Section 3.4(b).
"Escrow Payment": Any payment made by any Borrower to the
Servicer for the account of such Borrower for application toward the payment
of taxes, insurance premiums, assessments and similar items in respect of the
related Mortgaged Property and the payment of the Financial and Lease
Reporting Fee.
"Event of Default": As defined in Section 7.1.
"Extension Advisor": The Person who has the right to approve
the actions of the Special Servicer in granting extensions as set forth in
Section 3.26. shall serve as the initial Extension Advisor.
"Extension Advisory Fee": With respect to each Mortgage Loan
as to which an extension is requested after three successive extensions have
been granted in accordance with Section 3.10(a), _____% of the Scheduled
Principal Balance of such Mortgage Loan; provided that so long as the
____________ is the Extension Advisor the Extension Advisory Fee will be zero.
"FDIC": The Federal Deposit Insurance Corporation, or any
successor thereto.
"FHA": The Federal Housing Administration.
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"FHLMC": The Federal Home Loan Mortgage Corporation, or any
successor thereto.
"Final Recovery Determination": With respect to any REO
Mortgage Loan, Specially Serviced Mortgage Loan or Mortgage Loan subject to
repurchase by ________ or the Mortgage Loan Seller pursuant to Section 2.3(d)
or 2.3(e), the recovery of all Insurance Proceeds, Condemnation Proceeds,
Liquidation Proceeds, the related Repurchase Price and other payments or
recoveries (including proceeds of the final sale of any related REO Property)
which the Servicer, in its reasonable judgment as evidenced by a certificate
of a Servicing Officer delivered to the Trustee and the Custodian, expects to
be finally recoverable. The Servicer shall maintain records, prepared by a
Servicing Officer, of each Final Recovery Determination until the earlier of
(i) its termination as Servicer hereunder and the transfer of such records to
a successor servicer and (ii) five years following the termination of the
Trust Fund.
"Financial and Lease Reporting Fee": Any payment made by any
Borrower under the related Note as a deposit to ensure that such Borrower
furnishes to the mortgagee the required financial and leasing information on a
timely basis during the term of the related Mortgage Loan.
"Financial Market Publisher": Bloomberg Financial Service.
"Fiscal Agent":__________________, in its capacity as fiscal
agent of the Trustee, or its successor in interest, or any successor fiscal
agent appointed as herein provided.
" ": Investors Service, L.P., or its successor in
interest.
"FNMA": The Federal National Mortgage Association, or any
successor thereto.
"Hazardous Materials": Any dangerous, toxic or hazardous
pollutants, chemicals, wastes, or substances, including, without limitation,
those so identified pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., or any other
environmental laws now existing, and specifically including, without
limitation, asbestos and asbestos-containing materials, polychlorinated
biphenyls, radon gas, petroleum and petroleum products, urea formaldehyde and
any substances classified as being "in inventory", "usable work in process" or
similar classification which would, if classified as unusable, be included in
the foregoing definition.
"Holder": With respect to any Certificate, a
Certificateholder; with respect to any Lower-Tier Regular Interest, the
Trustee.
"Indemnified Party": As defined in Section 8.5(c).
"Independent": When used with respect to any specified
Person, any other Person who (i) does not have any direct financial interest,
or any material indirect financial interest, in any of the Manager, the
Depositor, the Servicer, the Special Servicer, any Borrower or any Affiliate
thereof, and (ii) is not connected with any such specified Person as an
officer,
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employee, promoter, underwriter, trustee, partner, director or Person performing
similar functions.
"Independent Contractor": Either (i) any Person that would
be an "independent contractor" with respect to the Trust Fund within the
meaning of Section 856(d)(3) of the Code if the Trust Fund were a real estate
investment trust (except that the ownership tests set forth in that section
shall be considered to be met by any Person that owns, directly or indirectly,
__% or more of any Class or __% or more of the aggregate value of all Classes
of Certificates), provided that the Trust Fund does not receive or derive any
income from such Person and the relationship between such Person and the Trust
Fund is at arm's length, all within the meaning of Treasury Regulations
Section 1.856-4(b)(5) (except that the Servicer shall not be considered to be
an Independent Contractor under the definition in this clause (i) unless an
Opinion of Counsel (obtained at the expense of the Servicer) addressed to the
Servicer and the Trustee has been delivered to the Trustee to the effect that
the Servicer meets the requirements of such definition) or (ii) any other
Person (including the Servicer) if the Servicer, on behalf of itself and the
Trustee, has received an Opinion of Counsel (obtained at the expense of the
party seeking to be deemed an Independent Contractor) to the effect that the
taking of any action in respect of any REO Property by such Person, subject to
any conditions therein specified, that is otherwise herein contemplated to be
taken by an Independent Contractor will not cause such REO Property to cease
to qualify as "foreclosure property" within the meaning of Section 860G(a)(8)
of the Code (determined without regard to the exception applicable for
purposes of Section 860D(a) of the Code) or cause any income realized with
respect of such REO Property to fail to qualify as Rents from Real Property
(provided that such income would otherwise so qualify).
"Individual Certificate": Any Certificate in definitive,
fully registered form without interest coupons.
"Institutional Accredited Investor": An entity meeting the
requirements of Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated
under the 1933 Act and which is not otherwise a Qualified Institutional Buyer.
"Insurance Proceeds": Proceeds of any fire and hazard
insurance policy, title policy or other insurance policy relating to a
Mortgage Loan and/or the Mortgaged Property securing any Mortgage Loan
(including any amounts paid by the Servicer or the Special Servicer pursuant
to Section 3.8), to the extent such proceeds are not to be applied to the
restoration of the related Mortgaged Property or released to the Borrower in
accordance with the express requirements of the related Mortgage or Note or
other documents including in the related Mortgage File or in accordance with
prudent and customary servicing practices.
"Interest Accrual Period": With respect to any Distribution
Date, the calendar month preceding the month in which such Distribution Date
occurs. Interest for each Interest Accrual Period shall be calculated based on
a ___-day year consisting of ______ __-day months.
"Interest Distribution Amount": With respect to any
Lower-Tier Regular Interest and any Distribution Date, interest for the
related Interest Accrual Period at the Lower-Tier
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Pass-Through Rate for such Interest Accrual Period on the Certificate Balance
of such Lower-Tier Regular Interest, provided that, for such purpose, any
distributions in reduction of the Certificate Balance and reductions of the
Certificate Balance as a result of allocations of Realized Losses on the
Distribution Date occurring in such Interest Accrual Period shall be deemed to
have been made as of the _____ day of such Interest Accrual Period.
"Interest Shortfall": With respect to any Distribution Date
for any Lower-Tier Regular Interest, the excess, if any, of the Interest
Distribution Amount of such Lower-Tier Regular Interest on such Distribution
Date over the amount actually distributed to such Lower-Tier Regular Interest
in respect of its Interest Distribution Amount on such Distribution Date.
"Interested Person": As of any date of determination, the
Depositor, the Servicer, the Special Servicer, the Trustee, any Borrower, any
Manager of a Mortgaged Property, any Independent Contractor engaged by the
Special Servicer pursuant to Section 3.17, or any Person known to a
Responsible Officer of the Trustee to be an Affiliate of any of them.
"Investment Account": As defined in Section 3.7(a).
"Investment Representation Letter": As defined in Section
5.2(c)(i).
"IRS": The Internal Revenue Service.
"Liquidation Expenses": Expenses incurred by the Special
Servicer and the Trustee in connection with the liquidation of any Specially
Serviced Mortgage Loan or property acquired in respect thereof (including,
without limitation, legal fees and expenses, committee or referee fees, and,
if applicable, brokerage commissions, and conveyance taxes) and any Property
Protection Expenses incurred with respect to such Specially Serviced Mortgage
Loan or such property not previously reimbursed from collections or other
proceeds therefrom.
"Liquidation Proceeds": The amount (other than Insurance
Proceeds) received in connection with (i) the taking of a Mortgaged Property
by exercise of the power of eminent domain or condemnation, (ii) the
liquidation of a Specially Serviced Mortgage Loan through a trustee's sale,
foreclosure sale or otherwise, (iii) the sale of a Specially Serviced Mortgage
Loan or an REO Property in accordance with Section 3.18 or (iv) the sale of
all of the Mortgage Loans in accordance with Section 9.1.
"Loan Agreement": With respect to any Mortgage Loan, the
loan agreement, if any, between the Originator and the Borrower, pursuant to
which such Mortgage Loan was made.
"Loan Number": With respect to any Mortgage Loan, the loan
number by which such Mortgage Loan was identified on the books and records of
the Servicer or any subservicer for the Servicer, as set forth in the Mortgage
Loan Schedule.
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"Loan-to-Value Ratio": With respect to any Mortgage Loan,
(a) the principal balance of such Mortgage Loan as of the Cut-off Date,
divided by (b) the Appraised Value of the related Mortgaged Property.
"Lower-Tier Pass-Through Rate": With respect to any
Distribution Date on or prior to the EC Maturity Date and any Class of
Lower-Tier Regular Interests other than the Class __________ Interests, a per
annum rate equal to the Weighted Average Net Mortgage Rate for the related
Interest Accrual Period, and with respect to the Class
________________________ ______________________ Interests, a per annum rate
equal to the higher of the Weighted Average Net Mortgage Rate for the related
Interest Accrual Period and __________ %. For each Distribution Date following
the EC Maturity Date and each of the Class _______________ and Interests, a
rate equal to the Pass-Through Rate of the Related Certificate. For each
Distribution Date following the EC Maturity Date and the Class ___________
Interests, a per annum rate equal to the higher of the Weighted Average Net
Mortgage Rate for the related Interest Accrual Period and for each
Distribution Date following the EC Maturity Date and the Class ____________
Interest, a per annum rate equal to the Weighted Average Net Mortgage Rate for
the related Interest Accrual Period.
"Lower-Tier Regular Interests": The Class __________
Interests.
"Lower-Tier REMIC": A segregated asset pool within the Trust
Fund consisting of the Mortgage Loans, collections thereon, any REO Property
acquired in respect thereof and amounts held from time to time in the
Collection Account.
"MAI": Member of the Appraisal Institute.
"Management Agreement": With respect to any Mortgage Loan,
the Management Agreement, if any, by and between the Manager and the related
Borrower, or any successor Management Agreement between such parties.
"Manager": With respect to any Mortgage Loan, any property
manager for the related Mortgaged Property.
"Maturity Date": With respect to each Mortgage Loan, the
maturity date as set forth in the Mortgage Loan Schedule.
" __________________ ": ________________ , together with its
successor and assigns.
"Monthly Payment": With respect to any Mortgage Loan (other
than any REO Mortgage Loan) and any Due Date, the scheduled monthly payment of
principal and interest, excluding any Balloon Payment, on such Mortgage Loan
which is payable by the related Borrower on such Due Date under the related
Note (after giving effect to any extension or modification permitted
hereunder). With respect to any REO Mortgage Loan, the monthly payment which
would otherwise have been payable on such Due Date had the related Note not
been discharged (after giving effect to any extension or other modification),
determined as set
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forth in the preceding sentence and on the assumption that all other amounts,
if any, due thereunder are paid when due.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first lien on or first priority ownership interest in a Mortgaged
Property securing the related Note.
"Mortgage File": With respect to any Mortgage Loan, the
mortgage documents required to be maintained in either the Trustee Mortgage
File or the Servicer Mortgage File.
"Mortgage Loan": Each of (i) the mortgage loans transferred
and assigned to the Trustee pursuant to Section 2.1 and from time to time held
in the Trust Fund, such mortgage loans originally so transferred, assigned and
held being identified on the Mortgage Loan Schedule as of the Cut-off Date and
(ii) the __________ Interest. Such term shall include any REO Mortgage Loan.
"Mortgage Loan Documents": Any and all documents contained
in the Trustee Mortgage File and the Servicer Mortgage File.
"Mortgage Loan Purchase and Sale Agreement": The Mortgage
Loan Purchase and Sale Agreement, dated as of the Cut-off Date, by and among
the Depositor, the Mortgage Loan Seller and ___________, substantially in the
form attached hereto as Exhibit G.
"Mortgage Loan Schedule": As of any date, the list of
Mortgage Loans included in the Trust Fund on such date, such list as of the
Closing Date being attached hereto as Exhibit B, which list shall set forth
the following information with respect to each Mortgage Loan:
(a) the Loan Number;
(b) the property name of the related Mortgaged Property
and the city and state where such Mortgaged
Property is located;
(c) the Monthly Payment in effect as of the Cut-off Date;
(d) the Mortgage Rate and the Default Rate;
(e) the Maturity Date;
(f) the period over which scheduled principal payments
on such Mortgage Loan would amortize the principal
balance thereof;
(g) the Debt Service Coverage Ratio and Loan to Value
Ratio.
(h) the Scheduled Principal Balance as of the Cut-off
Date and, as applicable, the allocation of such
balance to each related Mortgaged Property;
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(i) if applicable, the name of the Manager for the
related Mortgaged Property;
(j) whether such Mortgage Loan permits Non-Premium
Prepayments;
(k) a description of the Prepayment Premium payable
with respect to such Mortgage Loan;
(l) the Loan Number of any Mortgage Loan with which
such Mortgage Loan is cross-collateralized or
cross-defaulted;
(m) whether such Mortgage Loan is secured by a fee
simple interest or a leasehold interest in the
related Mortgaged Property or both;
(n) the property type of the Mortgaged Property
securing such Mortgage Loan; and
(o) the originator of such Mortgage Loan.
The Mortgage Loan Schedule shall also set forth the total of the amounts
described under clause (c) and (g) above for all of the Mortgage Loans. The
Mortgage Loan Schedule may be in the form of more than one list, collectively
setting forth all of the information required.
"Mortgage Loan Seller": ____________________ , a _________
corporation, and its successors in interest.
"Mortgage Rate": With respect to each Mortgage Loan, the
annual rate at which interest accrues on such Mortgage Loan (in the absence of
a default), as set forth in the Mortgage Loan Schedule.
"Mortgaged Property": The underlying property securing a
Mortgage Loan (other than the _________ Interest), including any REO Property,
consisting of a fee simple or leasehold estate in a parcel of land improved by
a commercial property, together with any personal property, fixtures, leases
and other property or rights pertaining thereto.
"Net Liquidation Proceeds": The excess of Liquidation
Proceeds received with respect to any Mortgage Loan over the amount of
Liquidation Expenses incurred with respect thereto.
"Net Mortgage Rate": With respect to any Mortgage Loan, the
Mortgage Rate for such Mortgage Loan minus the Servicing Fee Rate.
"Net REO Proceeds": With respect to each REO Property, REO
Proceeds with respect to such REO Property net of any insurance premiums,
taxes, assessments and other costs and expenses permitted to be paid therefrom
pursuant to Section 3.17(b).
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"New Lease": Any lease of REO Property entered into on
behalf of the Trust Fund, including any lease renewed or extended on behalf of
the Trust Fund if the Trust Fund has the right to renegotiate the terms of
such lease.
"1933 Act ": The Securities Act of 1933, as it may be
amended from time to time.
"1934 Act": The Securities Exchange Act of 1934, as it may
be amended from time to time.
"Non-Premium Prepayment": Any Principal Prepayment received
that is not required to be accompanied by a Prepayment Premium.
"Nonrecoverable Advance ": Any portion of an Advance
proposed to be made or previously made which has not been previously
reimbursed to the Servicer, the Trustee or the Fiscal Agent, as applicable,
and which the Servicer, the Trustee or the Fiscal Agent has determined, based
on an internal or external appraisal conducted in accordance with MAI
standards and methodologies (which appraisal shall have been conducted within
the ___ months preceding any such determination) or, in the event that a Phase
I or Phase II environmental report has been conducted which leads the Servicer
to determine that foreclosing upon or otherwise obtaining title to the related
Mortgaged Property would be prohibited in accordance with the provisions of
Section 3.10(f), based on such environmental report, will not or, in the case
of a proposed Advance, would not, be ultimately recoverable by the Servicer,
the Trustee or the Fiscal Agent, as applicable, from late payments, Insurance
Proceeds, Condemnation Proceeds, Liquidation Proceeds and other collections on
or in respect of the related Mortgage Loan. To the extent that any Borrower is
not obligated under the related Mortgage Loan Documents to pay or reimburse
any portion of any Advances that are outstanding with respect to the related
Mortgage Loan as a result of a modification of such Mortgage Loan by the
Special Servicer which forgives unpaid Monthly Payments or other amounts which
the Servicer had previously advanced, and the Servicer determines that no
other source of payment or reimbursement for such advances is available to it,
such Advances shall be deemed to be nonrecoverable; provided, however, that in
connection with the foregoing the Servicer shall provide an Officer's
Certificate as described below. The determination by the Servicer, the Trustee
or the Fiscal Agent, as applicable, that it has made a Nonrecoverable Advance
or that any proposed Advance, if made, would constitute a Nonrecoverable
Advance shall be evidenced by a certificate of a Servicing Officer,
Responsible Officer or Vice President or equivalent or senior officer of the
Fiscal Agent, as appropriate, delivered to the Trustee, the Special Servicer
and the Depositor setting forth such determination and the procedures and
considerations of the Servicer, the Trustee or Fiscal Agent, as applicable,
forming the basis of such determination (including a copy of the appraisal or
environmental report which was the basis for such determination).
Notwithstanding the above, the Trustee and the Fiscal Agent shall be entitled
to rely upon any determination by the Servicer that any Advance previously
made is a Nonrecoverable Advance or that any proposed Advance, if made, would
constitute a Nonrecoverable Advance.
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"Non-U.S. Person": A person that is not a citizen or
resident of the United States; a corporation, partnership, or other entity
created or organized in or under the laws of the United States or any
political subdivision thereof; or an estate or trust whose income is subject
to United States federal income tax regardless of its source.
"Note": With respect to any Mortgage Loan (other than the
___________ Certificate) as of any date of determination, the note or other
evidence of indebtedness and/or agreements evidencing the indebtedness of the
related Borrower or obligor under such Mortgage Loan, and in the case of the
_______________ Interest, to the extent applicable, the ____________
Certificate, in each case, including any amendments or modifications, or any
renewal or substitution notes, as of such date.
"Notice of Termination": Any of (i) the notices given to the
Trustee by the Servicer or any Holder of a Class __ Certificate pursuant to
Section 9.1(c) and (ii) the notice given by the Trustee to each Holder
pursuant to Section 9.1(d)(iv).
"Officer's Certificate": A certificate signed by the
Chairman of the Board, the Vice Chairman of the Board, the President, a Vice
President (however denominated), the Treasurer, the Secretary, one of the
Assistant Treasurers or Assistant Secretaries or any other officer of the
general partner of the Servicer, Special Servicer or the Auction Agent
customarily performing functions similar to those performed by any of the
above designated officers and also with respect to a particular matter, any
other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject, or an authorized
officer of the Depositor, and delivered to the Depositor, the Trustee, the
Special Servicer or the Servicer, as the case may be.
"Opinion of Counsel": A written opinion of counsel, who may,
without limitation, be counsel for the Depositor, the Special Servicer or the
Servicer, as the case may be, acceptable to the Trustee, except that any
opinion of counsel relating to (a) qualification of the Upper-Tier REMIC or
Lower-Tier REMIC as a REMIC or the imposition of tax under the REMIC
Provisions on any income or property of either REMIC, (b) compliance with the
REMIC Provisions (including application of the definition of "Independent
Contractor") or (c) a resignation of the Servicer or the Special Servicer
pursuant to Section 6.4, must be an opinion of counsel who is Independent of
the Depositor, the Special Servicer and the Servicer.
"Originator": With respect to a Mortgage Loan, the
originator of such Mortgage Loan, as identified in the Mortgage Loan Schedule.
"Ownership Interest": As to any Certificate, any ownership
or security interest in such Certificate as the Holder thereof and any other
interest therein, whether direct or indirect, legal or beneficial, as owner or
as pledgee.
"P&I Advance": As to any Mortgage Loan, any advance made by
the Servicer, the Trustee, or the Fiscal Agent pursuant to Section
4.6(b)(iii).
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"P&I Certificates": The Class ___, Class ___, Class __,
Class ___, Class ___, Class ___, Class ___, Class ___ and Class ___
Certificates.
"Pass-Through Rate": Any one of the Class ___, Class ___,
Class ____, Class _, Class _, Class _, Class _, Class _, Class _, Class _ or
Class ___ Pass-Through Rates.
"Paying Agent": The paying agent appointed pursuant to
Section 5.5.
"Percentage Interest": As to any Certificate, the percentage
interest evidenced thereby in distributions required to be made with respect
to the related Class. With respect to any Certificate (except the Class __ and
Class ___ Certificates), the percentage interest is derived by dividing the
denomination of such Certificate by the initial Certificate Balance or
notional amount of such Class of Certificates. With respect to any Class ___
or Class ___ Certificate, the percentage interest is set forth on the face
thereof.
"Permitted Investments": Any one or more of the following
obligations or securities payable on demand or having a scheduled maturity on
or before the Business Day preceding the date on which such funds are required
to be drawn, regardless of whether issued by the Depositor, the Servicer, the
Special Servicer, the Trustee or any of their respective Affiliates, and
having at all times the required ratings, if any, provided for in this
definition (provided that no Permitted Investment, if downgraded, shall be
required to be sold at a loss), unless each Rating Agency shall have confirmed
in writing to the Servicer or the Special Servicer, as applicable, that a
lower rating will not result in the withdrawal, downgrading or qualification
of the ratings then assigned to the Certificates:
(i) direct obligations of, or obligations guaranteed as to full
and timely payment of principal and interest by, the United
States or any agency or instrumentality thereof, provided
that such obligations are backed by the full faith and
credit of the United States of America, including, without
limitation, U.S. Treasury Obligations, Farmers Home
Administration certificates of beneficial interest, General
Services Administration participation certificates and Small
Business Administration guaranteed participation
certificates or guaranteed pool certificates;
(ii) Federal Housing Administration debentures;
(iii) direct obligations of, or guaranteed as to timely payment of
principal and interest by, FHLMC (debt obligations only),
FNMA (debt obligations only), the Federal Farm Credit System
(consolidated systemwide bonds and notes only), the Federal
Home Loan Banks (consolidated debt obligations only), the
Student Loan Marketing Association, the Financing Corp.
(consolidated debt obligations only), and the Resolution
Funding Corp.;
(iv) Federal funds time deposits in, or uncertificated
certificates of deposit of, or bankers' acceptances, or
repurchase obligations, all having maturities of not more
than ___ days issued by, any bank or trust company, savings
and loan association or savings bank, depository institution
or trust company having a short term debt
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obligation rating from S&P of "A-1+" and that is in the
highest short-term rating category of each Rating Agency
unless each of the Rating Agencies has confirmed in writing
that a lower rating shall not result, in and of itself, in a
downgrading, withdrawal or qualification of the rating then
assigned by such Rating Agency to any Class of the
Certificates;
(v) commercial paper having a maturity of ___ days or less
(including (A) 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 and (B) demand notes that
constitute vehicles for investment in commercial paper) that
is rated by each Rating Agency in its highest short-term
unsecured rating category;
(vi) units of taxable money market funds rated "AAAm" or "AAAg"
by S&P or mutual funds, which funds seek to maintain a
constant asset value and have been rated by each Rating
Agency in its highest rating category or which have been
designated in writing by each Rating Agency as Permitted
Investments with respect to this definition;
(vii) any other demand, money market or time deposit, demand
obligation or any other obligation, security or investment, as may be
acceptable to each Rating Agency as a permitted investment of funds
backing securities having ratings equivalent to its initial rating of
the Class ___, Class ___ and Class ___ Certificates if each of the
Rating Agencies has previously confirmed in writing that the holding
of such demand, money market or time deposit, demand obligation or
any other obligation, security or investment shall not result, in and
of itself, in a downgrading, withdrawal or qualification of the
rating then assigned by such Rating Agency to any Class of
Certificates; and
(viii) such other obligations confirmed in writing by each of the
Rating Agencies that such obligations are acceptable as Permitted
Investments and the holding of such obligations by the Servicer or
the Special Servicer, as applicable, shall not result, in and of
itself, in a downgrading, withdrawal or qualification of the rating
then assigned by such Rating Agency to any Class of Certificates;
provided, however, that (a) none of such obligations or
securities listed above shall have an "r" highlighter affixed to its rating if
rated by S&P; (b) each such obligation or security shall have a fixed dollar
amount of principal due at maturity which cannot vary or change; (c) if any
such obligation or security provides for a variable rate of interest, interest
shall be tied to a single interest rate index plus a single fixed spread (if
any) and move proportionately with that index; and (d) if any of the
obligations or securities listed in paragraphs (iii) - (ix) above are not
rated by _____________ , such investment shall be rated by ___________, as
appropriate, and if such obligations or securities are not rated by , such
investment shall be rated by S&P and one other nationally recognized
statistical rating organization; and provided, further, however, that such
instrument continues to qualify as a "cash flow investment" pursuant to Code
Section 860G(a)(6) earning a passive return in the nature of interest and that
no instrument
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or security shall be a Permitted Investment if (i) such instrument or security
evidences a right to receive only interest payments or (ii) the right to
receive principal and interest payments derived from the underlying investment
provides a yield to maturity in excess of ___% of the yield to maturity at par
of such underlying investment.
"Permitted Transferee": With respect to a Class __ or Class
__ Certificate, any Person or agent thereof that is a Qualified Institutional
Buyer other than (a) a Disqualified Organization, (b) any other Person
designated by the Certificate Registrar based upon an Opinion of Counsel
(provided at the expense of such Person or the Person requesting the Transfer)
to the effect that the Transfer of an Ownership Interest in any Class __ or
Class __ Certificate to such Person may cause the Upper-Tier REMIC or Lower-
Tier REMIC to fail to qualify as a REMIC at any time that the Certificates are
outstanding, or (c) a Person that is a Disqualified Non-U.S. Person.
"Person": Any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
estate, unincorporated organization or government or any agency or political
subdivision thereof.
"Placement Agent": Prudential Securities Incorporated.
"Plan": As defined in Section 5.2(i).
"Pooled Available Funds": For each Distribution Date, the
sum of all previously undistributed Monthly Payments or other receipts on
account of principal and interest (including Unscheduled Payments and any Net
REO Proceeds transferred from an REO Account to the Collection Account
pursuant to Section 3.17(b)) on or in respect of the Mortgage Loans received
by the Servicer in the Collection Period relating to such Distribution Date,
plus all other amounts received by the Servicer during such Collection Period
and required to be placed in the Collection Account by the Servicer pursuant
to Section 3.5(a) allocable to such Mortgage Loans, and including all P&I
Advances made by the Servicer, the Trustee or the Fiscal Agent in respect of
such Distribution Date and deposits made by the Servicer pursuant to Section
3.25 with respect to such Distribution Date, but excluding the following:
(a) amounts permitted to be used to reimburse the
Servicer, the Trustee or the Fiscal Agent for
previously unreimbursed Advances and interest
thereon as described in Section 3.6(ii) and (iii);
(b) those portions of each payment of interest which
represent the applicable Servicing Compensation;
(c) all amounts in the nature of late fees, late
charges and similar fees, loan modification fees,
extension fees, loan service transaction fees,
demand fees, beneficiary statement charges,
Assumption Fees and similar fees;
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(d) all amounts representing scheduled Monthly Payments
due after the Due Date in the related Collection
Period (such amounts to be treated as received on
the Due Date when due);
(e) that portion of Liquidation Proceeds, Condemnation
Proceeds or Insurance Proceeds with respect to a
Mortgage Loan which represents any unpaid Servicing
Compensation to which the Servicer is entitled;
(f) all amounts representing certain expenses
reimbursable to the Servicer, the Special Servicer,
the Trustee or the Fiscal Agent and other amounts
permitted to be retained by the Servicer or the
Special Servicer or withdrawn by the Servicer from
the Collection Account (including, without
limitation, as provided in Section 3.6) pursuant to
the terms hereof;
(g) with respect to Distribution Dates after the EC
Maturity Date, Prepayment Premiums received in the
related Collection Period;
(h) any interest or investment income on funds on
deposit in the Collection Account or in Permitted
Investments in which such fund may be invested.
"Pooled Principal Distribution Amount": For any Distribution
Date, an amount equal to the sum of:
(i) the principal component of all scheduled Monthly
Payments (other than Balloon Payments) which become
due (regardless of whether received) on the
Mortgage Loans during the related Collection
Period;
(ii) to the extent not included elsewhere in this
definition, the principal component of all Assumed
Scheduled Payments, as applicable, deemed to become
due (regardless of whether received) during the
related Collection Period with respect to any
Mortgage Loan that is delinquent in respect of its
Balloon Payment;
(iii) to the extent not included elsewhere in this
definition, the Scheduled Principal Balance of each
Mortgage Loan that was repurchased from the Trust
Fund in connection with the breach of a
representation or warranty or purchased from the
Trust Fund pursuant to Section 9.1, in either case,
during the related Collection Period;
(iv) to the extent not included elsewhere in this
definition, the portion of Unscheduled Payments
allocable to principal of any Mortgage Loan that
was liquidated during the related Collection
Period;
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<PAGE>
(v) to the extent not included elsewhere in this
definition, the principal component of all Balloon
Payments received during the related Collection
Period;
(vi) to the extent not included elsewhere in this
definition, all other Principal Prepayments
received in the related Collection Period; and
(vii) to the extent not included elsewhere in this
definition, any other full or partial recoveries in
respect of principal, including Insurance Proceeds,
Condemnation Proceeds, Liquidation Proceeds and Net
REO Proceeds.
"Prepayment Assumption": The assumption identified as
"Scenario 3" in Exhibit A to the Private Placement Memorandum dated _________
,relating to the Privately Placed Certificates and identified as "Scenario 3"
in the Prospectus Supplement, dated _________ , relating to the Publicly
Offered Certificates.
"Prepayment Interest Shortfall": With respect to any
Distribution Date and any Mortgage Loan as to which a Principal Prepayment was
made by the related Borrower during the related Collection Period, the amount
by which (i) __ full days of interest at the related Net Mortgage Rate on the
Scheduled Principal Balance of such Mortgage Loan in respect of which interest
would have been due in the absence of such Principal Prepayment on the Due
Date next succeeding the date of such Principal Prepayment exceeds (ii) the
amount of interest received from the related Borrower in respect of such
Principal Prepayment.
"Prepayment Interest Surplus": With respect to any
Distribution Date and any Mortgage Loan as to which a Principal Prepayment was
made by the related Borrower during the related Collection Period, the amount
by which (i) the amount of interest received from the related Borrower in
respect of such Principal Prepayment exceeds (ii) __ full days of interest at
the related Net Mortgage Rate on the Scheduled Principal Balance of such
Mortgage Loan in respect of which interest would have been due in the absence
of such Principal Prepayment on the Due Date next succeeding the date of such
Principal Prepayment.
"Prepayment Premium": Payments received on a Mortgage Loan
as the result of a Principal Prepayment thereon, not otherwise due thereon in
respect of principal or interest, which are intended to be a disincentive to
prepayment.
"Principal Prepayment": With respect to any Mortgage Loan,
any payment of principal made by the related Borrower which is received in
advance of its scheduled Due Date and which is not accompanied by an amount of
interest representing the full amount of scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment.
"Prior Pooling and Servicing Agreement": The Amended and
Restated Pooling and Servicing Agreement, dated as of _____________________ ,
by and among Prudential Securities Secured Financing Corporation, as
depositor, _________________ as servicer, ___ as special servicer, ________ ,
as trustee and _______, as fiscal agent, with respect to the
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<PAGE>
Prudential Securities Secured Financing Corporation, Commercial Mortgage
Pass-Through Certificates, Series _____________.
"Privately Placed Certificates": The Class ___ Certificates,
the Class ____ Certificates, the Class __ Certificates, the Class __
Certificates, the Class __ Certificates, the Class __ Certificates, the Class
___ Certificates, the Class ___ Certificates, the Class __ Certificates and
the Class ___ Certificates.
"Property Advance": As to any Mortgage Loan, any advance
made by the Servicer, the Trustee or the Fiscal Agent in respect of Property
Protection Expenses or any expenses incurred to protect and preserve the
security for such Mortgage Loan or taxes and assessments or insurance
premiums, pursuant to Section 3.4, 3.8 or Section 3.22, as applicable.
"Property Protection Expenses": Any costs and expenses
incurred pursuant to Sections 3.10(c), 3.10(g), 3.10(j), 3.17(b), 3.17(c),
3.18(a) and 3.18(b).
"Publicly Offered Certificates": The Class ___ Certificates,
the Class __ Certificates, the Class __ Certificates and the Class __
Certificates.
"Qualified Institutional Buyer": A qualified institutional
buyer within the meaning of Rule 144A.
"Qualified Insurer": An insurance company or security or
bonding company qualified to write the related insurance policy in the
relevant jurisdiction, which (i) except as provided in clauses (ii) or (iii)
below, shall have a claims paying ability of "AA" or better by each Rating
Agency (or, if such company is not rated by ___________ , and if such company
is not rated by either __________ , by _______ and one other nationally
recognized statistical rating organization), (ii) in the case of public
liability insurance policies required to be maintained with respect to REO
Properties in accordance with Section 3.8(a), shall have a claims paying
ability of "A" or better by each Rating Agency (or, if such company is not
rated by _____________ , by S&P and one other nationally recognized
statistical rating organization) or (iii) in the case of the fidelity bond and
errors and omissions insurance required to be maintained pursuant to Section
3.8(c), shall have a claims paying ability rated by each Rating Agency (or if
such company is not rated by , and if such company is not rated by either
____________, by S&P and one other nationally recognized statistical rating
organization) no lower than two ratings categories lower than the highest
rating of any outstanding Class of Certificates from time to time, but in no
event lower than "BBB", unless in any such case each of the Rating Agencies
has confirmed in writing that an insurance company with a lower claims paying
ability shall not result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by such Rating Agency to any Class
of Certificates.
"Qualified Mortgage": A Mortgage Loan that is a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code (but without
regard to the rule in Treasury Regulations 1.860G-2(f)(2) that treats a
defective obligation as a qualified mortgage), or any substantially similar
successor provision.
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"Qualified Offeror": A prospective purchaser of the Mortgage
Loans in an auction pursuant to Section 9.1(d) whom the Auction Agent has
reasonably determined possesses the financial ability and is otherwise
qualified to purchase all of the Mortgage Loans.
"Rating Agency": Each of . References
herein to the highest long-term unsecured debt rating category of each Rating
Agency shall mean "AAA."
"Real Property": Land or improvements thereon such as
buildings or other inherently permanent structures (including items that are
structural components of such buildings or structures), in each such case as
such terms are used in the REMIC Provisions.
"Realized Loss": With respect to any Distribution Date, the
amount, if any, by which the aggregate of the Certificate Balances of the
Lower-Tier Regular Interests, after giving effect to distributions made on
such Distribution Date, exceeds the aggregate of the
Scheduled Principal Balances of the Mortgage Loans as of the Due Date in the
month in which such Distribution Date occurs.
"Record Date": With respect to each Distribution Date, the
_____ business day of the month preceding the month in which such Distribution
Date occurs.
"Regular Certificates": The Class ___, Class ___, Class
____, Class __, Class __, Class __, Class __, Class __, Class __, Class __,
Class ___ and Class ___ Certificates.
"Regular Servicing Period": Any Interest Accrual Period
other than a Special Servicing Period.
"Regulation D": Regulation D under the Act.
"Related Certificates" and "Related Lower-Tier Regular
Interest": For any Lower-Tier Regular Interest, the related Certificates set
forth below and for any Certificates, the related Lower-Tier Regular Interest
set forth below:
Related Lower-Tier
Related Certificates Regular Interest
- -------------------- ----------------
Class Class
Class Class
Class N/A
Class Class
Class Class
Class Class
Class Class
Class Class
Class Class
Class Class
Class Class
Class N/A
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<PAGE>
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Section
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations (including any applicable proposed regulations)
and rulings promulgated thereunder, as the foregoing may be in effect from
time to time.
"Remittance Date": The Business Day preceding each
Distribution Date.
"Rents from Real Property": With respect to any REO
Property, gross income of the character described in Section 856(d) of the
Code, which income, subject to the terms and conditions of that Section of the
Code in its present form, does not include:
(i) except as provided in Section 856(d)(4) or (6) of
the Code, any amount received or accrued, directly
or indirectly, with respect to such REO Property,
if the determination of such amount depends in
whole or in part on the income of profits derived
by any Person from such property (unless such
amount is a fixed percentage or percentages of
receipts or sales and otherwise constitutes Rents
from Real Property);
(ii) any amount received or accrued, directly or
indirectly, from any Person if the Trust Fund owns
directly or indirectly (including by attribution) a
ten percent or greater interest in such Person
determined in accordance with Sections 856(d)(2)(B)
and (d)(5) of the Code;
(iii) any amount received or accrued, directly or
indirectly, with respect to such REO Property if
any Person Directly Operates such REO Property;
(iv) any amount charged for services that are not
customarily furnished in connection with the rental
of property to tenants in buildings of a similar
class in the same geographic market as such REO
Property within the meaning of Treasury Regulations
Section 1.856-4(b)(1) (whether or not such charges
are separately stated); and
(v) rent attributable to personal property unless such
personal property is leased under, or in connection
with, the lease of such REO Property and, for any
taxable year of the Trust Fund, such rent is no
greater than 15 percent of the total rent received
or accrued under, or in connection with, the lease.
"REO Account": As defined in Section 3.17(b).
"REO Mortgage Loan": Any Mortgage Loan (other than the
_____________ Interest) as to which the related Mortgaged Property has become
an REO Property.
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"REO Proceeds": With respect to any REO Property and the
related REO Mortgage Loan, all revenues received by the Servicer with respect
to such REO Property or REO Mortgage Loan that do not constitute Liquidation
Proceeds.
"REO Property": A Mortgaged Property title to which has been
acquired by the Servicer on behalf of the Trust Fund through foreclosure, deed
in lieu of foreclosure or otherwise.
"Repurchase Price": With respect to any Mortgage Loan to be
repurchased pursuant to Section 2.3(d) or 2.3(e) or any Specially Serviced
Mortgage Loan or any REO Property to be sold or repurchased pursuant to
Section 3.18, an amount, calculated by the Servicer, equal to:
(i) the unpaid principal balance of such Mortgage Loan,
Specially Serviced Mortgage Loan or REO Mortgage
Loan related to any REO Property as of the Due Date
as to which a payment was last made by the related
Borrower or was advanced by the Servicer; plus
(ii) unpaid accrued interest from the Due Date as to
which interest was last paid by such Borrower or
was advanced by the Servicer up to the Due Date in
the month following the month in which the purchase
or repurchase occurred at a rate equal to the
related Mortgage Rate on the unpaid principal
balance of such Mortgage Loan, Specially Serviced
Mortgage Loan or REO Mortgage Loan related to any
REO Property; plus
(iii) any unreimbursed Advances, together with
interest thereon at the Advance Rate, and
unpaid Servicing Compensation allocable to
such Mortgage Loan; and plus
(iv) in the event that such Mortgage Loan is required to
be repurchased pursuant to Section 2.3(d) or
2.3(e), expenses reasonably incurred or to be
incurred by the Servicer or the Trustee in respect
of the breach or defect giving rise to the
repurchase obligation, including any expenses
arising out of the enforcement of the repurchase
obligation.
"Request for Release": A request for release signed by a
Servicing Officer, substantially in the form of Exhibit __ hereto.
"Reserve Accounts": With respect to any Mortgage Loan,
reserve or escrow accounts, if any, established pursuant to the related
Mortgage Loan Documents and any Escrow Account. Each Reserve Account shall be
an Eligible Account, except with respect to Mortgage Loans No. 95-0903263 and
95-0903264. Any Reserve Account shall be beneficially owned for federal income
tax purposes by the Person who is entitled to receive the reinvestment income
or gain thereon in accordance with the related Mortgage Loan Documents and
Section 3.7.
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"Responsible Officer": Any officer or any employee with
responsibilities similar to those of an officer of the Asset-Backed Trust
Services Department of the Trustee (and, in the event that the Trustee is the
Certificate Registrar or the Paying Agent, of the Certificate Registrar or the
Paying Agent, as applicable) assigned to the Corporate Trust Office with
direct responsibility for the administration of this Agreement and also, with
respect to a particular matter, any other officer or any employee with
responsibilities similar to those of an officer of the Asset-Backed Trust
Services Department of the Trustee to whom such matter is referred because of
such officer's or employee's knowledge of and familiarity with the particular
subject, and, in the case of any certification required to be signed by a
Responsible Officer, such an officer or employee whose name and specimen
signature appears on a list of corporate trust officers and employees
furnished to the Servicer by the Trustee, as such list may from time to time
be amended.
"Rule 144A": Rule 144A, under the 1933 Act.
" ": __________________ Rating Services, or its successor in
interest.
"Scheduled Final Distribution Date": ____________________
"Scheduled Principal Balance": With respect to any Mortgage
Loan, as of any Due Date, the principal balance of such Mortgage Loan as of
such Due Date, after giving effect to (a) any Principal Prepayments,
Non-Premium Prepayments or other unscheduled recoveries of principal and any
Balloon Payments received during the related Collection Period, and (b) any
payment in respect of principal, if any, due on or before such Due Date (other
than a Balloon Payment, but including the principal portion of any Assumed
Scheduled Payment, if applicable), irrespective of any delinquency in payment
by the Borrower. The Scheduled Principal Balance of any REO Mortgage Loan as
of any Due Date is equal to the principal balance thereof outstanding on the
date that the related Mortgaged Property became an REO Property minus any Net
REO Proceeds allocated to principal on such REO Mortgage Loan and reduced by
Monthly Payments due thereon on or before such Due Date. With respect to any
Mortgage Loan, from and after the date on which the Servicer makes a Final
Recovery Determination, the Scheduled Principal Balance thereof shall be zero.
" ________________ ": A mortgage loan originated by
___________________ and identified in the ___________________ Agreement.
" __________________ Agreement": The Participation Agreement,
dated as of ___________________ , by and between ____________________ (in its
capacity as trustee under the Prior Pooling and Servicing Agreement), as seller,
and the Mortgage Loan Seller, as participant, substantially in the form
attached hereto as Exhibit I.
" __________________ Certificate": The certificate issued by
the trustee under the Prior Pooling and Servicing Agreement in the name of the
Trustee, evidencing the _________ Interest.
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" ___________________ Interest ": The ___% participation
interest in the __________ Loan evidenced by the ___________________
Certificate.
"Securities Depository": The Depository Trust Company, or
any successor Securities Depository hereafter named. The nominee of the
initial Securities Depository, for purposes of registering those Certificates
that are to be Book-Entry Certificates, is Cede & Co. The Securities
Depository shall at all times be a "clearing corporation" as defined in
Section 8-102(3) of the Uniform Commercial Code of the State of New York and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended.
"Securities Depository Participant": A broker, dealer, bank
or other financial institution or other Person for whom from time to time the
Securities Depository effects book-entry transfers and pledges of securities
deposited with the Securities Depository.
"Securities Legend": With respect to each Residual
Certificate and any Individual Certificate (other than a Residual Certificate)
that is a Privately Placed Certificate the legend set forth in, and
substantially in the form of, Exhibit __ hereto.
"Senior Principal Distribution Cross-Over Date": The first
Distribution Date as of which the aggregate Certificate Balance of the Class
___ Certificates and of the Class ___ Certificates outstanding immediately
prior thereto exceeds the sum of (a) the aggregate Scheduled Principal Balance
of the Mortgage Loans that will be outstanding immediately following such
Distribution Date and (b) the portion of the Available Distribution Amount for
such Distribution Date that will remain after the distribution of interest has
been made on the Class ___ and Class ___ Certificates on such Distribution
Date.
"Seriously Delinquent Loan": With respect to any Remittance
Date, any Mortgage Loan that (i) is __ days or more delinquent (without regard
to any grace period) or (ii) was __ days or more delinquent (without regard to
any grace period) and as to which the related Borrower has not made, since the
most recent date on which such Mortgage Loan was so delinquent, __ consecutive
Monthly Payments.
"Servicer ": ________________, a _______________, or its
successor in interest, or any successor Servicer appointed as herein provided.
"Servicer Mortgage File": With respect to any Mortgage Loan,
all Mortgage Loan Documents related to such Mortgage Loan that are not
required to be delivered to the Custodian pursuant to Section 2.1 or to be
maintained as part of the Trustee Mortgage File, including without limitation:
(i) a copy of the Management Agreement, if any, for the
related Mortgaged Property;
(ii) a copy of the related ground lease, as amended, if
any, for such Mortgaged Property;
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<PAGE>
(iii) any and all amendments, modifications and
supplements to, and waivers related to, any of the
foregoing;
(iv) copies of the related appraisals, surveys,
environmental reports and other similar documents;
and
(v) any other written agreements related to such
Mortgage Loan.
"Servicer Remittance Report": A report prepared by the
Servicer in such media as may be agreed upon by the Servicer and the Trustee
containing such information regarding the Mortgage Loans as will permit the
Trustee to calculate the amounts to be distributed pursuant to Section 4.1 and
to furnish statements to Certificateholders pursuant to Section 4.2 and
containing such additional information as the Servicer and the Trustee may
from time to time agree.
"Servicing Compensation": With respect to each Mortgage
Loan, the Servicing Fee and the Special Servicing Fee which shall be due to
the Servicer and the Special Servicer, as applicable, and such other
compensation of the Servicer and Special Servicer specified in Section 3.12,
as adjusted pursuant to Section 3.25.
"Servicing Fee": With respect to each Mortgage Loan and for
any Distribution Date, an amount per calendar month equal to the product of
(i) one-twelfth of the related Servicing Fee Rate and (ii) the Scheduled
Principal Balance of such Mortgage Loan as of the Due Date in the month
preceding the month in which such Distribution Date occurs.
"Servicing Fee Rate": With respect to Mortgage Loan No.
______ , a rate equal to __________ % per annum. With respect to Mortgage
Loans No. ____________ , ______ , ____________ , ____________ , ____________ ,
_____________ and _________________ , a rate equal to ____% per annum. With
respect to each other Mortgage Loan, a rate equal to _________ %
per annum.
"Servicing Officer": Any officer or employee of the Servicer
or the Special Servicer involved in, or responsible for, the administration
and servicing of the Mortgage Loans or this Agreement and also, with respect
to a particular matter, any other officer or employee to whom such matter is
referred because of such officer's or employee's knowledge of and familiarity
with the particular subject, and, in the case of any certification required to
be signed by a Servicing Officer, such an officer or employee whose name and
specimen signature appears on a list of servicing officers furnished to the
Trustee by the Servicer or the Special Servicer, as applicable, as such list
may from time to time be amended, together with, in the case of a certificate
or other writing executed by an employee who constitutes a Servicing Officer
because of such employee's knowledge and familiarity with a particular
subject, a countersignature of an officer of the general partner of the
Servicer or of an officer of the Special Servicer, as appropriate.
"Servicing Standard": The standards for the conduct of the
Servicer and the Special Servicer in the performance of their obligations
under this Agreement set forth in Section 3.1(a).
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"Similar Law": As defined in Section 5.2(i).
"Special Servicer": _________ a ____________ _______, or its
successor in interest, or any successor Special Servicer appointed as herein
provided.
"Special Servicing Fee": With respect to any Specially
Serviced Mortgage Loan or REO Mortgage Loan and for any Distribution Date, an
amount per calendar month equal to the product of (i) one-twelfth of the
Special Servicing Fee Rate and (ii) the Scheduled Principal Balance of such
Specially Serviced Mortgage Loan or REO Mortgage Loan, as applicable, as of
the Due Date in the month preceding the month in which such Distribution Date
occurs.
"Special Servicing Fee Rate": A rate equal to % per
annum.
"Special Servicing Period": Any Interest Accrual Period
during which a Mortgage Loan is at any time a Specially Serviced Mortgage Loan.
"Specially Serviced Mortgage Loan": Subject to Section 3.24,
any Mortgage Loan (other than the Interest) with respect to
which:
(i) the related Borrower is __ or more days delinquent
(without giving effect to any grace period
permitted by the related Note) in the payment of a
Monthly Payment (regardless of whether, in respect
thereof, P&I Advances have been reimbursed);
(ii) such Borrower has expressed to the Servicer an
inability to pay or a hardship in paying such
Mortgage Loan in accordance with its terms;
(iii) the Servicer has received notice that such Borrower
has become the subject of any bankruptcy,
insolvency or similar proceeding, admitted in
writing the inability to pay its debts as they come
due or made an assignment for the benefit of
creditors;
(iv) the Servicer has received notice of a foreclosure
or threatened foreclosure of any lien on the
related Mortgaged Property;
(v) a default of which the Servicer has notice (other
than a failure by such Borrower to pay principal or
interest) and which materially and adversely
affects the interests of the Certificateholders has
occurred and remained unremedied for the applicable
grace period specified in such Mortgage Loan (or,
if no grace period is specified, __ days);
provided, however, that a default requiring a
Property Advance shall be deemed to materially and
adversely affect the interests of the
Certificateholders;
(vi) such Borrower has failed to make a Balloon Payment
as and when due; or
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(vii) the Servicer proposes to commence foreclosure or
other workout arrangements;
provided, however, that a Mortgage Loan will cease
to be a Specially Serviced Mortgage Loan:
(a) with respect to the circumstances
described in clause (i) and (vi) above,
when the related Borrower has brought such
Mortgage Loan current (with respect to the
circumstances described in clause (vi),
pursuant to any workout implemented by the
Special Servicer) and thereafter made
three consecutive full and timely Monthly
Payments;
(b) with respect to the circumstances
described in clauses (ii) and (iv) above,
when such circumstances cease to exist in
the good faith judgment of the Special
Servicer and with respect to the
circumstances described in clauses (iii)
and (vii), when such circumstances cease
to exist; or
(c) with respect to the circumstances
described in clause (v) above, when such
default is cured;
provided, however, that at the time no circumstance identified in clauses (i)
through (vii) above exists that would cause the Mortgage Loan to continue to
be characterized as a Specially Serviced Mortgage Loan.
"Startup Day": The day designated as such pursuant to
Section 2.6(a) hereof.
"Subordinate Certificates": Any one or more of the Class
___________ Certificates.
"Tax Returns": The federal income tax return on IRS Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return,
including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of
REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be
filed on behalf of each of the Upper-Tier REMIC and Lower-Tier REMIC under the
REMIC Provisions, together with any and all other information, reports or
returns that may be required to be furnished to the Certificateholders or
filed with the IRS or any other governmental taxing authority under any
applicable provisions of federal, state or local tax laws.
"Termination Date": The Distribution Date on which the Trust
Fund is terminated pursuant to Section 9.1.
"Transfer": Any direct or indirect transfer or other form of
assignment of any Ownership Interest in a Class __ or Class __ Certificate.
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"Transferee Affidavit": As defined in Section 5.2(j).
"Transferor Letter": As defined in Section 5.2(j).
"Trust Fund": The corpus of the trust created hereby and to
be _________ administered hereunder, consisting of: (i) such Mortgage Loans
(other than the Interest) as from time to time are subject to this Agreement,
together with the Mortgage Files relating thereto; (ii) the ________ Interest,
(iii) all payments on or collections in respect of such Mortgage Loans due
after the Cut-off Date; (iv) any REO Property; (v) all revenues received in
respect of REO Property; (vi) the Servicer's, the Special Servicer's and the
Trustee's rights under the insurance policies with respect to such Mortgage
Loans required to be maintained pursuant to this Agreement and any proceeds
thereof; (vii) any Assignments of Leases, Rents and Profits and any security
agreements; (viii) any indemnities or guaranties given as additional security
for such Mortgage Loans; (ix) the Trustee's right, title and interest in and
to the Reserve Accounts; (x) the Collection Account; (xi) the Distribution
Account and the REO Account, including reinvestment income, if any, thereon;
(xii) any environmental indemnity agreements relating to such Mortgaged
Properties; (xiii) the rights and remedies under the Mortgage Loan Purchase
and Sale Agreement; and (xiv) the proceeds of any of the foregoing (other than
any interest earned on deposits in any Reserve Account, to the extent such
interest belongs to the related Borrower).
"Trust REMICs": The Lower-Tier REMIC and the Upper-Tier
REMIC.
"Trustee": ____________________ , in its capacity as trustee,
or its successor in interest, or any successor trustee appointed as herein
provided.
"Trustee Fee": With respect to each Mortgage Loan and for
any Distribution Date, an amount per calendar month equal to the product of
(i) one-twelfth of the Trustee Fee Rate and (ii) the Scheduled Principal
Balance of such Mortgage Loan as of the Due Date in the month preceding the
month in which such Distribution Date occurs. The Trustee Fee shall be paid by
the Servicer on each Distribution Date.
"Trustee Fee Rate": A rate equal to ___________ % per annum.
"Trustee Mortgage File": With respect to any Mortgage Loan,
the mortgage documents listed in Section 2.1(i) through (xii) pertaining to
such Mortgage Loan, the documents listed in the third paragraph of Section 2.1
and any additional documents required to be deposited with the Trustee
pursuant to the express provisions of this Agreement.
"ULLICO": The Union Labor Life Insurance Company, a Maryland
corporation, as the Originator of seven of the Mortgage Loans.
"Uncovered Prepayment Interest Shortfall": For any
Distribution Date, any Prepayment Interest Shortfall not covered by the
Servicing Fee or the Special Servicing Fee pursuant to Section 3.25.
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"Underwritten Cash Flow": With respect to any Mortgage Loan,
the cash flow available for debt service on the related Mortgage Loan for a
__-month period, as determined by _________ in accordance with the standards of
a prudent commercial mortgage lender based upon recent information supplied by
the related Borrower prior to the origination of such Mortgage Loan, and
adjusted, if determined appropriate by
, to: (a) deduct any non-cash items such as depreciation or
amortization; (b) deduct capital expenditures; (c) reflect a more appropriate
occupancy rate; (d) reflect replacement, capital expenditure and other
reserves required by the related Mortgage Loan Documents; (e) reflect a market
rate management fee; (f) exclude certain percentage rent, delinquent rents and
non-recurring income; (g) reflect an allowance for tenant improvements and
leasing commissions; and (h) reflect such other adjustments determined
appropriate by
"Unscheduled Payments": With respect to a Mortgage Loan and
a Collection Period, all Liquidation Proceeds, Condemnation Proceeds and
Insurance Proceeds payable under such Mortgage Loan, the Repurchase Price of
such Mortgage Loan if it is repurchased or purchased pursuant to Sections
2.3(d) or 2.3(e) and the price specified in Section 9.1 if such Mortgage Loan
is purchased or repurchased pursuant thereto, draws on any letters of credit
issued with respect to such Mortgage Loan and any other payments under or with
respect to such Mortgage Loan not scheduled to be made, including Principal
Prepayments (but excluding Prepayment Premiums) received during such
Collection Period.
"Updated Appraisal": As defined in Section 3.10(a).
"Upper-Tier REMIC": A segregated asset pool within the Trust
Fund consisting of the Lower-Tier Regular Interests and amounts held from time
to time in the Distribution Account.
"Voting Right": The portion of the voting rights of all of
the Certificates that is allocated to any Certificate or Class of
Certificates. At all times during the term of this Agreement, the percentage
of the Voting Rights assigned to each Class shall be (a) __%, in the case of
the _____ and _____ Certificates, (b) in the case of any of the Class ___,
Class ___, Class __, Class __, Class __, Class __, Class __, Class __ and
Class __ Certificates, a percentage equal to the product of (x) __% on and
prior to the EC Maturity Date and __% thereafter and (y) a fraction, the
numerator of which is equal to the aggregate outstanding Certificate Balance
of such Class of Certificates and the denominator of which is equal to the
aggregate outstanding Certificate Balances of all Classes of Certificates, (c)
in the case of the Class ___ Certificates, a percentage equal to __% on and
prior to the EC Maturity Date and __% thereafter, (d) in the case of the Class
___ Certificates, a percentage equal to __% and (e) in the case of the Class
___ Certificates, a percentage equal to __%. The Voting Rights of any Class of
Certificates shall be allocated among Holders of Certificates of such Class in
proportion to their respective Percentage Interests, except that any
Certificate registered in the name of the Depositor, the Servicer, any
Borrower, the Trustee, a Manager or any of their respective Affiliates shall
be deemed not to be outstanding for purposes of giving any consent (unless
such consent is to an action which would materially adversely affect in any
material respect the interests of the Certificateholders of any Class, while
the Servicer or any Affiliate thereof is the holder of Certificates
aggregating not less than _____% of the Percentage Interest of any such
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Class). The aggregate Voting Rights of Holders of more than one Class of
Certificates shall be equal to the sum of the products of each such Holder's
Voting Rights and the percentage of Voting Rights allocated to the related
Class of Certificates.
"Weighted Average Net Mortgage Rate": With respect to any
Interest Accrual Period, a per annum rate equal to the weighted average of the
Net Mortgage Rates, as of the related Due Date (weighted on the basis of the
Scheduled Principal Balance of each Mortgage Loan).
"Yield Maintenance Loan": Any Mortgage Loan as to which the
related Note requires the payment of Prepayment Premiums calculated with
reference to a yield maintenance formula.
"Yield Maintenance Period": With respect to each Yield
Maintenance Loan, the period following the origination thereof during which
the related Note requires the payment of Prepayment Premiums calculated with
reference to a yield maintenance formula.
SECTION 1.2. Certain Calculations.
Unless otherwise specified herein, the following provisions
shall apply:
(a) All calculations of interest (including interest on the
Mortgage Loans) provided for herein shall be made on the basis of a ___-day
year consisting of _____ __-day months.
(b) The portion of any Insurance Proceeds, Condemnation
Proceeds, Liquidation Proceeds or Net REO Proceeds in respect of a Mortgage
Loan allocable to principal and Prepayment Premiums shall equal the total
amount of such proceeds minus (a) first any portion thereof payable to the
Servicer, the Special Servicer, the Trustee or the Fiscal Agent pursuant to
the provisions of this Agreement and (b) second any portion thereof equal to
interest on the unpaid principal balance of such Mortgage Loan at the related
Mortgage Rate less the related Servicing Fee from the Due Date as to which
interest was last paid by the related Borrower up to but not including the Due
Date in the Collection Period in which such proceeds are received. Allocation
of such amount between principal and Prepayment Premium shall be made first to
principal and second to Prepayment Premium.
(c) Any Mortgage Loan payment is deemed to be received on
the date such payment is actually received by the Servicer, the Special
Servicer or the Trustee; provided, however, that for purposes of calculating
distributions on the Certificates, Principal Prepayments with respect to any
Mortgage Loan are deemed to be received on the date they are applied in
accordance with Section 3.1(b) to reduce the outstanding principal balance of
such Mortgage Loan on which interest accrues.
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SECTION 1.3. Certain Constructions.
For purposes of Section 3.10, Section 3.23 and Section
4.6(c), references to the most or next most subordinate Class of Certificates
outstanding at any time shall mean the most or next most subordinate Class of
Certificates then outstanding as among the Class
Certificates shall be considered to be one Class), and
references to the next most subordinate Class of Lower-Tier Regular Interests
outstanding at any time shall mean the most or next most subordinate Class of
Lower-Tier Regular Interests then outstanding as among the Class interests,
subject in each case to the rules of construction set forth in the following
sentences of this Section 1.3. Each Class of Certificates, shall be deemed to
be outstanding only to the extent its respective Certificate Balance has not
been reduced to zero or, with respect to the Class ___ Certificates, to the
extent that the EC Maturity Date has not occurred or with respect to the Class
___ Certificates, to the extent the Class ___ Notional Balance has not been
reduced to zero.
Unless the context clearly indicates otherwise, references
to section numbers are to sections of this Agreement.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.1. Conveyance and Assignment of Mortgage Loans;.
The Depositor, concurrently with the execution and delivery
hereof, does hereby sell, transfer, assign, set over and otherwise convey to
the Trustee without recourse (except to the extent herein provided) all the
right, title and interest of the Depositor in and to the Mortgage Loans,
including all rights to payment in respect thereof, except as set forth below,
and any security interest thereunder (whether in real or personal property and
whether tangible or intangible) in favor of the Depositor, and all Reserve
Accounts and all other assets included or to be included in the Trust Fund for
the benefit of the Certificateholders. Such transfer and assignment includes
all scheduled payments of interest and principal due after the Cut-off Date
(whether or not received) and all payments of interest and principal received
by the Depositor or the Servicer on or with respect to the Mortgage Loans
after the Cut-off Date. In connection with such transfer and assignment of all
interest and principal due with respect to the Mortgage Loans after the
Cut-off Date, the Depositor shall make a cash deposit to the Collection
Account on the Closing Date in an amount equal to the Cash Deposit. The
Depositor, concurrently with the execution and delivery hereof, does also
hereby sell, transfer, assign, set over and otherwise convey to the Trustee
without recourse (except to the extent provided herein) all the right, title
and interest of the Depositor in, to and under the Mortgage Loan Purchase and
Sale Agreement (other than its rights to indemnification pursuant to Section 4
thereof and rights to recovery of costs under Section 7 thereof). The
Depositor shall cause the Reserve Accounts to be transferred to and held in
the name of the Servicer on behalf of the Trustee as successor to the Mortgage
Loan Seller and ____________________
In connection with the transfer and assignment of Mortgage
Loans other than the ___________ Interest, the Depositor does hereby deliver
to, and deposit with, the Trustee, with a copy to the Servicer, the following
documents or instruments with respect to each Mortgage Loan so assigned:
(i) the original of the related Note, endorsed by the
Mortgage Loan Seller (or in the case of the seven
Mortgage Loans originated by ULLICO, by ULLICO) in
blank in the following form: "Pay to the order of
________________, without recourse" which the
Trustee or its designee is authorized to complete
and which Note and all endorsements thereof shall
show a complete chain of endorsement from the
Originator to the Mortgage Loan Seller;
(ii) the related original recorded Mortgage or a copy
thereof certified by the related title insurance
company, public recording office or closing agent
to be in the form in which executed or submitted
for recording, the related original recorded
Assignment of Mortgage from ________________
________ to the Mortgage Loan Seller or a copy
thereof certified by the related title
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insurance company, public recording office or closing
agent to be in the form in which executed or
submitted for recording and the related original
Assignment of Mortgage executed by the Mortgage Loan
Seller in blank which the Trustee or its designee is
authorized to complete (and but for the insertion
of the name of the assignee and any related
recording information which is not yet available to
the Mortgage Loan Seller, is in suitable form for
recordation in the jurisdiction in which the
related Mortgaged Property is located); provided,
that with respect to each of the seven Mortgage
Loans originated by ULLICO, there will be the
related original Assignment of Mortgage executed by
ULLICO in blank which the Trustee or its designee
is authorized to complete (and but for the
insertion of the name of the assignee and any
related recording information which is not yet
available to the Mortgage Loan Seller, is in
suitable form for recordation in the jurisdiction
in which the related Mortgaged Property is
located);
(iii) if the related security agreement is separate from
the Mortgage, the original security agreement or a
counterpart thereof, and if the security agreement
is not assigned under the Assignments of Mortgage
described in clause (ii) above, the related
original assignment of such security agreement from
____________________ to the Mortgage Loan Seller or
a counterpart thereof and the related original
assignment of such security agreement executed by
the Mortgage Loan Seller in blank which the Trustee
or its designee is authorized to complete;
(iv) a copy of each Form UCC-1 financing statement, if
any, filed with respect to personal property
constituting a part of the related Mortgaged
Property, together with a copy of each Form UCC-2
or UCC-3 assignment, if any, of such financing
statement to the Mortgage Loan Seller from
____________________ and a copy of each Form UCC-2
or UCC-3 assignment, if any, of such financing
statement executed by the Mortgage Loan Seller in
blank which the Trustee or its designee is
authorized to complete (and but for the insertion
of the name of the assignee and any related filing
information which is not yet available to the
Mortgage Loan Seller, is in suitable form for
filing in the filing office in which such financing
statement was filed); provided, that with respect
to each of the seven Mortgage Loans originated by
ULLICO, there will be a copy of each Form UCC-2 or
UCC-3 Assignment, if any, of such financing
statement executed by ULLICO in blank which the
Trustee or its designee is authorized to complete
(and but for the insertion of the name of assignee
and any related filing information which is not yet
available to the Mortgage Loan Seller, is in
suitable form for filing in the filing office in
which such financing statement was filed);
(v) the related original of the Loan Agreement, if any,
relating to such Mortgage Loan or a counterpart
thereof;
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(vi) the related original lender's title insurance
policy (or the original pro forma title insurance
policy), together with any endorsements thereto;
(vii) if any related Assignment of Leases, Rents and
Profits is separate from the Mortgage, the original
recorded Assignment of Leases, Rents and Profits or
a copy thereof certified by the related title
insurance company, public recording office or
closing agent to be in the form in which executed
or submitted for recording, the related original
recorded reassignment of such instrument, if any,
from _________ to the Mortgage Loan Seller or a
copy thereof certified by the related title
insurance company, public recording office or
closing agent to be in the form in which executed
or submitted for recording and the related original
reassignment of such instrument, if any, executed
by the Mortgage Loan Seller in blank which the
Trustee or its designee is authorized to complete
(and but for the insertion of the name of the
assignee and any related recording information
which is not yet available to the Mortgage Loan
Seller, is in suitable form for recordation in the
jurisdiction in which the related Mortgaged
Property is located) (any of which reassignments,
however, may be included in a related Assignment of
Mortgage and need not be a separate instrument);
(viii) copies of the original Environmental Reports with
respect to the Mortgaged Property made in
connection with origination of such Mortgage Loan;
(ix) if any related assignment of contracts is separate
from the Mortgage, the original assignment of
contracts or a counterpart thereof, and if the
assignment of contracts is not assigned under the
Assignments of Mortgage described in clause (ii)
above, the related original reassignment of such
instrument from ____________________ to the
Mortgage Loan Seller or a counterpart thereof and
the related original reassignment of such
instrument executed by the Mortgage Loan Seller in
blank which the Trustee or its designee is
authorized to complete;
(x) with respect to the related Reserve Accounts, if
any, a copy of the original of any separate
agreement with respect thereto between the related
Borrower and the Originator;
(xi) the original letter of credit, if any, with respect
thereto, together with any and all amendments
thereto, including, without limitation, any
amendment which entitles the Servicer to draw upon
such letter of credit on behalf of the Trustee for
the benefit of the Certificateholders,
and the original of each instrument or other item
of personal property given as security for a
Mortgage Loan possession of which by a secured
party is necessary to a secured party's valid,
perfected, first priority security interest
therein, together with all assignments or
endorsements thereof necessary to entitle
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the Servicer to enforce a valid, perfected, first
priority security interest therein on behalf of the
Trustee for the benefit of the Certificateholders;
(xii) with respect to the related Reserve Accounts, if
any, a copy of the UCC-1 financing statements, if
any, submitted for filing with respect to the
Mortgage Loan Seller's security interest in such
Reserve Accounts and all funds contained therein,
together with a copy of each Form UCC-2 or UCC-3
assignment, if any, of such financing statement to
the Mortgage Loan Seller from ____________________
and a copy of each Form UCC-2 or UCC-3 assignment,
if any, of such financing statement executed by the
Mortgage Loan Seller in blank which the Trustee or
its designee is authorized to complete (and but for
the insertion of the name of the assignee and any
related filing information which is not yet
available to the Mortgage Loan Seller is in
suitable form for filing in the filing office in
which such financing statement was filed);
provided, that with respect to any Mortgage Loan
originated by ULLICO, there will be a copy of each
Form UCC-2 or UCC-3 Assignment, if any, of such
financing statement executed by ULLICO in blank
which the Trustee or its designee is authorized to
complete (and but for the insertion of the name of
the assignee and any related filing information
which is not yet available to the Mortgage Loan
Seller, is in suitable form for filing in the
filing office in which such financing statement was
filed); and
(xiii) copies of any and all amendments, modifications and
supplements to, and waivers related to, any of the
foregoing.
In connection with the transfer and assignment of the
___________ Interest, the Depositor does hereby deliver to the Trustee, with a
copy to the Servicer, with respect to the Interest, (i) the
_________________ Certificate, (ii) a copy of the Agreement and (iii) copies
of all releases of security interests relating to the Interest, such that the
Trustee shall hold good and valid title to the ________ Interest,
free and clear of any and all liens, encumbrances, pledges, charges or security
interests of any nature.
On or promptly following the Closing Date, the Trustee or
Custodian, as applicable, shall, to the extent possession thereof has been
delivered to it, complete any Assignment of Mortgage delivered pursuant to
clause (ii) above, any assignment of security agreement delivered pursuant to
clause (iii) above, any Form UCC-2 or UCC-3 assignment delivered pursuant to
clause (iv) and (xii) above, any reassignment of Assignment of Leases, Rents
and Profits delivered pursuant to clause (vii) above and any reassignment of
assignment of contracts delivered pursuant to clause (ix) above, in each case,
by inserting the name of the Trustee as assignee and delivering to the
Servicer (1) for recordation, (a) each Assignment of Mortgage referred to in
Section 2.1(ii) which has not yet been submitted for recordation and (b) each
reassignment of Assignment of Leases, Rents and Profits referred to in Section
2.1(vii) (if not otherwise included in the related Assignment of Mortgage)
which has not yet been submitted for recordation; and (2) for filing, each
UCC-2 or UCC-3 financing statement assignment
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referred to in Section 2.1(iv) and (xii) which has not yet been submitted for
filing. On or promptly following the Closing Date, the Trustee or Custodian,
as applicable, shall, to the extent possession thereof has been delivered to
it, complete the endorsement of the Note by inserting the name of the Trustee
as endorsee. The Servicer shall, upon delivery, promptly submit for recording
or filing, as the case may be, in the appropriate public recording or filing
office, each such document. In the event that any such document is lost or
returned unrecorded because of a defect therein, the Servicer shall use its
best efforts to promptly prepare a substitute document for signature by the
Depositor, Mortgage Loan Seller or ULLICO, as applicable, and thereafter the
Servicer shall cause each such document to be duly recorded. The Servicer
shall, promptly upon receipt of the original of each such recorded document
(and in no event later than _____ Business Days following such receipt),
deliver such original to the Custodian. Notwithstanding anything to the
contrary contained in this Section 2.1, in those instances where the public
recording office retains the original Assignment of Mortgage or reassignment
of Assignment of Leases, Rents and Profits, if applicable, after any such
document has been recorded, the obligations hereunder of the Depositor shall
be deemed to have been satisfied upon delivery to the Custodian of a copy of
such Assignment of Mortgage or reassignment of Assignment of Leases, Rents and
Profits, if applicable, certified by the public recording office to be a true
and complete copy of the recorded original thereof. If a pro forma title
insurance policy has been delivered to the Custodian in lieu of an original
title insurance policy, the Depositor or the Servicer will promptly deliver to
the Custodian the related original title insurance policy upon receipt
thereof. The Depositor or the Servicer shall promptly cause the UCC-1s, UCC-2s
and UCC-3s referred to in Section 2.1(iv) and (xii) to be filed in the
applicable public recording or filing office and upon filing will promptly
deliver to the Custodian the related UCC-1, UCC-2 or UCC-3 with evidence of
filing thereon.
All original documents relating to the Mortgage Loans which
are not delivered to the Custodian are and shall be held by the Trustee or the
Servicer, as the case may be, in trust for the benefit of the
Certificateholders. In the event that any such original document is required
pursuant to the terms of this Section to be a part of a Trustee Mortgage File,
such document shall be delivered promptly to the Custodian.
If the Depositor cannot deliver any original or certified recorded document
described in Section 2.1 on the Closing Date, the Depositor shall use its best
efforts, promptly upon receipt thereof and in any case not later than __ days
from the Closing Date, to deliver or cause to be delivered such original or
certified recorded documents to the Custodian (unless the Depositor is delayed
in making such delivery by reason of the fact that such documents shall not
have been returned by the appropriate recording office, in which case the
Depositor or the Servicer shall notify the Custodian and the Trustee in
writing of such delay and shall deliver such documents to the Custodian
promptly upon the Depositor's or the Servicer's receipt thereof).
SECTION 2.2. Acceptance by the Custodian and the Trustee.
By its execution and delivery of this Agreement, the Trustee
acknowledges the assignment to it of the Mortgage Loans in good faith without
notice of adverse claims and declares that the Custodian holds and will hold
such documents and all others delivered to it
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constituting the Trustee Mortgage File (to the extent the documents
constituting the Trustee Mortgage File are actually delivered to the
Custodian) for any Mortgage Loan assigned to the Trustee hereunder in trust,
upon the conditions herein set forth, for the use and benefit of all present
and future Certificateholders. The Trustee agrees to review each Trustee
Mortgage File within __ days after the later of (a) the Trustee's receipt of
such Trustee Mortgage File or (b) execution and delivery of this Agreement, to
ascertain that all documents referred to in Section 2.1 above (as identified
to it in writing by the Depositor or the Servicer) and any original recorded
documents referred to in the last sentence of Section 2.1 to be included in
the delivery of a Trustee Mortgage File, have been received, have been
executed, appear on their face to be what they purport to be, purport to be
recorded or filed (as applicable) and have not been torn, mutilated or
otherwise defaced, and that such documents relate to the Mortgage Loans
identified in the Mortgage Loan Schedule. In so doing, the Trustee may rely on
the purported due execution and genuineness of any such document and on the
purported genuineness of any signature thereon. If, at the conclusion of such
review, any document or documents constituting a part of a Trustee Mortgage
File have not been executed or received, have not been recorded or filed (if
required), are unrelated to the Mortgage Loans identified in the Mortgage Loan
Schedule, appear on their face not to be what they purport to be or have been
torn, mutilated or otherwise defaced, the Trustee shall promptly so notify the
Depositor and the Mortgage Loan Seller by providing a written report, setting
forth, for each affected Mortgage Loan, with particularity, the nature of the
defective or missing document. Neither the Servicer nor the Trustee shall be
responsible for any loss, cost, damage or expense to the Trust Fund resulting
from any failure to receive any document constituting a portion of a Trustee
Mortgage File noted on such a report or for any failure by the Depositor to
use its best efforts to deliver any such document.
In reviewing any Trustee Mortgage File pursuant to the
preceding paragraph or Section 2.1, the Trustee will have no responsibility to
determine whether any document or opinion is legal, valid, binding or
enforceable, whether the text of any assignment or endorsement is in proper or
recordable form (except, if applicable, to determine whether the Trustee is
the assignee or endorsee), whether any document has been recorded in
accordance with the requirements of any applicable jurisdiction, whether a
blanket assignment is permitted in any applicable jurisdiction, or whether any
Person executing any document or rendering any opinion is authorized to do so
or whether any signature thereon is genuine.
The Trustee shall hold that portion of the Trust Fund
delivered to the Trustee consisting of "instruments"(as such term is defined
in Section 9-105(i) of the Uniform Commercial Code as in effect in Illinois on
the date hereof) in Illinois and, except as set forth in Section 3.11 or as
otherwise specifically provided in this Agreement, shall not remove such
instruments from Illinois unless it receives an Opinion of Counsel (obtained
and delivered at the expense of the Person requesting the removal of such
instruments from Illinois) that in the event the transfer of the Mortgage
Loans to the Trustee is deemed not to be a sale, after such removal, the
Trustee will possess a first priority perfected security interest in such
instruments.
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SECTION 2.3. Representations and Warranties of the Depositor.
(a) The Depositor hereby represents and warrants that:
(i) The Depositor is a corporation duly organized
validly existing and in good standing under the
laws of the State of Delaware;
(ii) The Depositor has taken all necessary action to
authorize the execution, delivery and performance
of this Agreement by it, and has the power and
authority to execute, deliver and perform this
Agreement and all the transactions contemplated
hereby, including, but not limited to, the power
and authority to sell, assign and transfer the
Mortgage Loans in accordance with this Agreement;
(iii) This Agreement has been duly and validly
authorized, executed and delivered by the Depositor
and assuming the due authorization, execution and
delivery of this Agreement by each other party
hereto, this Agreement and all of the obligations
of the Depositor hereunder are the legal, valid and
binding obligations of the Depositor, enforceable
in accordance with the terms of this Agreement,
except as such enforcement may be limited by
bankruptcy, insolvency, reorganization,
liquidation, receivership, moratorium or other laws
relating to or affecting creditors' rights
generally, or by general principles of equity
(regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(iv) The execution and delivery of this Agreement and
the performance of its obligations hereunder by the
Depositor will not conflict with any provision of
its certificate of incorporation or bylaws, or any
law or regulation to which the Depositor is
subject, or conflict with, result in a breach of or
constitute a default under (or an event which, with
notice or lapse of time or both, would constitute a
default under) any of the terms, conditions or
provisions of any agreement or instrument to which
the Depositor is a party or by which it is bound,
or any order or decree applicable to the Depositor,
or result in the creation or imposition of any lien
on any of the Depositor's assets or property which
would materially and adversely affect the ability
of the Depositor to carry out the transactions
contemplated by this Agreement. The Depositor has
obtained any consent, approval, authorization or
order of any court or governmental agency or body
required for the execution, delivery and
performance by the Depositor of this Agreement;
(v) The certificate of incorporation of the Depositor
provides that the Depositor is permitted to engage
in only the following activities:
(A) to acquire, own, hold, sell, transfer,
assign, pledge, finance, refinance and
otherwise deal with (I) loans secured by
first or
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second mortgages, deeds of trust or
similar liens on residential, commercial
or mixed commercial and residential
properties or shares issued by private
non-profit housing corporations, (II) any
participation interest in or security
based on or backed by any of the foregoing
(the loans described in clause (A)(I) and
the participation interests described in
clause (A)(II), collectively, "mortgage
loans"), or (III) various receivables
including, but not limited to, retail
automotive installment sale contracts or
loans or automotive leases, consumer or
commercial loans or leases, credit card
accounts, mobile home loans or insurance
policy loans ( "receivables");
(B) to authorize and issue one or more series
(each, a "series ") of pass-through
securities ( "certificates") pursuant to
pooling and servicing agreements (each, a
"pooling and servicing agreement"), each
of which series (I) represents ownership
interests in mortgage loans or
receivables, related property and/or
collections in respect thereof, and (II)
may be structured to contain one or more
classes or certificates, each class having
the characteristics specified in the
related pooling and servicing agreement,
and to acquire, own, hold, sell, transfer,
assign, pledge, finance or refinance one
or more certificates or classes of
certificates of any series; and
(C) to engage in any acts and activities and
exercise any powers permitted to
corporations under the laws of the State
of Delaware which are incidental to, or
connected with, the foregoing, and
necessary, suitable or convenient to
accomplish any of the foregoing;
(vi) There is no action, suit or proceeding pending
against the Depositor in any court or by or before
any other governmental agency or instrumentality
which would materially and adversely affect the
ability of the Depositor to carry out its
obligations under this Agreement; and
(vii) The Trustee, if not the owner of the Mortgage
Loans, will have a valid and perfected security
interest of first priority in each of the Mortgage
Loans and any proceeds thereof.
(b) The Depositor hereby represents and warrants with
respect to each Mortgage Loan that:
(i) Immediately prior to the transfer and assignment to
the Trustee, the related Note and the related
Mortgage and the ___________ Certificate were not
subject to an assignment or pledge, and the Depositor
had good title to, and was the sole owner of, such
Mortgage Loan and had full right
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to transfer and sell such Mortgage Loan to the
Trustee free and clear of any encumbrance, lien,
pledge, charge, claim or security interest;
(ii) The Depositor is transferring such Mortgage Loan
free and clear of any and all liens, pledges,
charges or security interests of any nature
encumbering such Mortgage Loan ;
(iii) The related Assignment of Mortgage constitutes the
legal, valid and binding assignment of the related
Mortgage from the Depositor to the Trustee, and any
related reassignment of Assignment of Leases, Rents
and Profits constitutes the legal, valid and
binding assignment of any related Assignment of
Leases, Rents and Profits from the Depositor to the
Trustee;
(iv) No claims have been made by the Depositor under the
related lender's title insurance policy, and the
Depositor has not done, by act or omission,
anything which would impair the coverage of such
lender's title insurance policy; and
(v) To the best of the Depositor's knowledge, all of
the representations and warranties of ___________ or
the Mortgage Loan Seller, as applicable, contained
in the Mortgage Loan Purchase and Sale Agreement are
true and correct as of the date made.
(c) It is understood and agreed that the representations and
warranties set forth in this Section 2.3 shall survive delivery of the
respective Trustee Mortgage Files to the Trustee until the termination of this
Agreement, and shall inure to the benefit of the Certificateholders, the
Servicer and the Special Servicer.
(d) Upon discovery by the Custodian, the Servicer, the
Special Servicer or the Trustee of a breach of the representation and warranty
set forth in Section 2(c)(xli) of the Mortgage Loan Purchase and Sale
Agreement or that any Mortgage Loan otherwise fails to constitute a Qualified
Mortgage, such Person shall give prompt notice thereof to the Mortgage Loan
Seller and ___________ , and the Mortgage Loan Seller or _____________ , as
applicable, shall correct such condition or repurchase such Mortgage Loan at
the Repurchase Price within __ days of discovery of such failure; it being
understood and agreed that none of such Persons has an obligation to conduct
any investigation with respect to such matters.
(e) Upon discovery by the Custodian, the Servicer, the
Special Servicer or the Trustee of a breach of any representation or warranty
of the Mortgage Loan Seller or in the Mortgage Loan Purchase and Sale
Agreement (other than the representation set forth in Section 2(c)(xli)
thereof, but including without limitation the representation as to
Loan-to-Value Ratio and Debt Service Coverage Ratio set forth in Section
2(c)xxiii thereof), with respect to any Mortgage Loan, or that any document
required to be included in the Trustee Mortgage File with respect to a
Mortgage Loan does not conform to the requirements of Section 2.1, such Person
shall give prompt notice thereof to the Mortgage Loan Seller and
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_____, and the Mortgage Loan Seller or __________, as applicable, shall, to
the extent the Mortgage Loan Seller or ___________ is obligated to cure such
breach or repurchase the related Mortgage Loan under the terms of the Mortgage
Loan Purchase and Sale Agreement, either cure such breach or repurchase such
Mortgage Loan at the Repurchase Price within __ days of the receipt of notice
of such breach, as the same may be extended, all pursuant to and as more
particularly described in the Mortgage Loan Purchase and Sale Agreement; it
being understood and agreed that none of the Custodian, the Servicer, the
Special Servicer and the Trustee has an obligation to conduct any
investigation with respect to such matters (except, in the case of the Trustee
Mortgage Files, to the extent provided in Sections 2.1 and 2.2).
(f) Upon receipt by the Servicer from the Depositor,
____________________ or the Mortgage Loan Seller of the Repurchase Price for a
repurchased Mortgage Loan, the Servicer shall deposit such amount in the
Collection Account, and the Trustee, pursuant to Section 3.11, shall, upon
receipt of a certificate of a Servicing Officer certifying as to the receipt
by the Servicer of the Repurchase Price and the deposit of the Repurchase
Price into the Collection Account pursuant to this Section 2.3(f), release or
cause to be released to the Depositor, ____________________ or the Mortgage
Loan Seller, as applicable, the related Trustee Mortgage File and shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, representation or warranty, as shall be prepared by the
Servicer to vest in the Depositor, ____________________ or the Mortgage Loan
Seller, as applicable, any Mortgage Loan released pursuant hereto, and any
rights of the Depositor in, to and under the Mortgage Loan Purchase and Sale
Agreement as it related to such Mortgage Loan that were initially transferred
to the Trust Fund under Section 2.1, and the Trustee and the Servicer shall
have no further responsibility with regard to such Trustee Mortgage File or
the related Mortgage Loan.
(g) In the event that the Mortgage Loan Seller incurs any
expense in connection with curing a breach of a representation or warranty
pursuant to Section 2.3(d) and (e) which also constitutes a default under the
related Mortgage Loan, the Mortgage Loan Seller shall have a right, and the
Mortgage Loan Seller shall be subrogated to the rights of the Trustee, as
successor to the mortgagee, to recover the amount of such expenses from the
related Borrower. The Servicer shall use reasonable efforts in recovering, or
assisting the Mortgage Loan Seller in recovering, from such Borrower the
amount of any such expenses.
(h) In the event that any litigation is commenced which
alleges facts which, in the judgment of the Depositor, could constitute a
breach of any of the Depositor's representations and warranties relating to
the Mortgage Loans, the Depositor hereby reserves the right to conduct the
defense of such litigation at its expense.
(i) The Servicer shall use its best efforts, in accordance
with the Servicing Standard, to enforce the obligations of the Mortgage Loan
Seller and __________ to cure or repurchase any Mortgage Loan which is
discovered to be a "Defective Mortgage Loan" (as such term is defined in the
Mortgage Loan Purchase and Sale Agreement) under the terms of the Mortgage
Loan Purchase and Sale Agreement.
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SECTION 2.4. Representations, Warranties and Covenants of
the Servicer and the Special Servicer.
(a) The Servicer hereby represents, warrants and covenants
that as of the Closing Date, or as of such date specifically provided herein:
(i) The Servicer is a _______________, duly organized,
validly existing and in good standing under the
laws of the State of and has all licenses necessary
to carry on its business as now being conducted or
is in compliance with the laws of each state in
which any Mortgaged Property is located to the
extent necessary to ensure the enforceability of
each Mortgage Loan in accordance with the terms of
this Agreement;
(ii) The Servicer has the full partnership power,
authority and legal right to execute and deliver
this Agreement and to perform in accordance
herewith; the execution and delivery of this
Agreement by the Servicer and its performance and
compliance with the terms of this Agreement do not
violate the Servicer's certificate of
__________________ or constitute a default (or an
event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the
breach of, any material contract, agreement or
other instrument to which the Servicer is a party
or which may be applicable to the Servicer or any
of its assets, which default or breach would have
consequences that would materially and adversely
affect the financial condition or operations of the
Servicer or its properties taken as a whole or
impair the ability of the Trust Fund to realize on
the Mortgage Loans;
(iii) This Agreement has been duly and validly
authorized, executed and delivered by the Servicer
and, assuming due authorization, execution and
delivery by the other parties hereto, constitutes a
legal, valid and binding obligation of the
Servicer, enforceable against it in accordance with
the terms of this Agreement, except as such
enforcement may be limited by bankruptcy,
insolvency, reorganization, liquidation,
receivership, moratorium or other laws relating to
or affecting creditors' rights generally, or by
general principles of equity (regardless of whether
such enforceability is considered in a proceeding
in equity or at law);
(iv) The Servicer is not in violation of, and the
execution and delivery of this Agreement by the
Servicer and its performance and compliance with
the terms of this Agreement will not constitute a
violation with respect to, any order or decree of
any court or any order or regulation of any
federal, state, municipal or governmental agency
having jurisdiction, or result in the creation or
imposition of any lien, charge or encumbrance
which, in any such event, would have consequences
that would materially and adversely affect the
financial condition or operations of the Servicer
or its
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properties taken as a whole or impair the ability of
the Trust Fund to realize on the Mortgage Loans;
(v) There is no action, suit or proceeding pending or,
to the knowledge of the Servicer, threatened,
against the Servicer which, either in any one
instance or in the aggregate, would result in any
material adverse change in the business, operations
or financial condition of the Servicer or would, if
adversely determined, materially impair the ability
of the Servicer to perform under the terms of this
Agreement or which would draw into question the
validity of this Agreement or the Mortgage Loans or
of any action taken or to be taken in connection
with the obligations of the Servicer contemplated
herein;
(vi) No consent, approval, authorization or order of, or
registration or filing with, or notice to any court
or governmental agency or body is required for the
execution, delivery and performance by the Servicer
of, or compliance by the Servicer with, this
Agreement or, if required, such approval has been
obtained prior to the Cut-off Date, except to the
extent that the failure of the Servicer to be
qualified as a ____________ __________ or licensed
in one or more states is not necessary for the
enforcement of the Mortgage Loans; and
(vii) The Servicer is maintaining a fidelity bond and
errors and omissions coverage in accordance with
the requirements of Section 3.8(c) hereof.
(b) The Special Servicer hereby represents, warrants and
covenants that as of the Closing Date, or as of such date specifically
provided herein:
(i) The Special Servicer is a corporation, duly
organized, validly existing and in good standing
under the laws of the State of Florida and has all
licenses necessary to carry on its business as now
being conducted or is in compliance with the laws
of each state in which any Mortgaged Property is
located to the extent necessary to ensure the
enforceability of each Specially Serviced Mortgage
Loan in accordance with the terms of this
Agreement;
(ii) The Special Servicer has the full corporate power,
authority and legal right to execute and deliver
this Agreement and to perform in accordance
herewith; the execution and delivery of this
Agreement by the Special Servicer and its
performance and compliance with the terms of this
Agreement do not violate the Special Servicer's
certificate of incorporation or constitute a
default (or an event which, with notice or lapse of
time, or both, would constitute a default) under,
or result in the breach of, any material contract,
agreement or other instrument to which the Special
Servicer is a party or which may be applicable to
the Special Servicer or any of its assets, which
default or breach would have consequences that
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would materially and adversely affect the condition
(financial or otherwise) or operations of the
Special Servicer or its properties, taken as a
whole, or impair the ability of the Trust Fund to
realize on the Specially Serviced Mortgage Loans;
(iii) This Agreement has been duly and validly
authorized, executed and delivered by the Special
Servicer and, assuming due authorization, execution
and delivery by the other parties hereto,
constitutes a legal, valid and binding obligation
of the Special Servicer, enforceable against it in
accordance with the terms of this Agreement, except
as such enforcement may be limited by bankruptcy,
insolvency, reorganization, liquidation,
receivership, moratorium or other laws relating to
or affecting creditors' rights generally, or by
general principles of equity (regardless of whether
such enforceability is considered in a proceeding
in equity or at law);
(iv) The Special Servicer is not in violation of, and
the execution and delivery of this Agreement by the
Special Servicer and its performance and compliance
with the terms of this Agreement will not
constitute a violation with respect to, any order
or decree of any court or any order or regulation
of any federal, state, municipal or governmental
agency having jurisdiction, or result in the
creation or imposition of any lien, charge or
encumbrance which, in any such event, would have
consequences that would materially and adversely
affect the condition (financial or otherwise) or
operations of the Special Servicer or its
properties taken as a whole or impair the ability
of the Trust Fund to realize on the Specially
Serviced Mortgage Loans;
(v) There is no action, suit or proceeding pending or,
to the knowledge of the Special Servicer,
threatened, against the Special Servicer which,
either in any one instance or in the aggregate,
would result in any material adverse change in the
business, operations or financial condition of the
Special Servicer or would, if adversely determined,
materially impair the ability of the Special
Servicer to perform under the terms of this
Agreement or which would draw into question the
validity of this Agreement or the Specially
Serviced Mortgage Loans or of any action taken or
to be taken in connection with the obligations of
the Special Servicer contemplated herein;
(vi) No consent, approval, authorization or order of, or
registration or filing with, or notice to any court
or governmental agency or body is required for the
execution, delivery and performance by the Special
Servicer of, or compliance by the Special Servicer
with, this Agreement or, if required, such approval
has been obtained prior to the Cut-off Date, except
to the extent that the failure of the Special
Servicer to be qualified as a __________
___________ or licensed in one or more states is
not
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necessary for the enforcement of the Specially
Serviced Mortgage Loans; and
(vii) The Special Servicer is maintaining a fidelity bond
and errors and omissions coverage in accordance
with the requirements of Section 3.8(c) hereof.
(c) It is understood and agreed that the representations and
warranties set forth in this Section shall survive delivery of the Trustee
Mortgage Files to the Trustee or the Custodian on behalf of the Trustee until
the termination of this Agreement, and shall inure to the benefit of the
Trustee and the Depositor. Upon discovery by the Depositor, the Servicer, the
Special Servicer or a Responsible Officer of the Trustee (or upon written
notice thereof from any Certificateholder) of a breach of any of the
representations and warranties set forth in this Section which materially and
adversely affects the interests of the Certificateholders, the Servicer, the
Special Servicer or the Trustee with respect to any Mortgage Loan, the party
discovering such breach shall give prompt written notice to the other parties
hereto.
SECTION 2.5. Execution and Delivery of Certificates;
Issuance of Lower-Tier Regular Interests.
The Trustee acknowledges the assignment to it of the
Mortgage Loans and the delivery to it of the Trustee Mortgage Files to the
Custodian (to the extent the documents constituting the Trustee Mortgage Files
are actually delivered to the Custodian), subject to the provisions of Section
2.1 and Section 2.2 and, concurrently with such delivery, (i) acknowledges the
issuance of and hereby declares that it holds the Lower-Tier Regular Interests
on behalf of the Upper-Tier REMIC and the Holders of the Regular Certificates
and the Class __ Certificates and (ii) has caused to be executed and caused to
be authenticated and delivered to or upon the order of the Depositor, or as
directed by the terms of this Agreement, Class Certificates in authorized
denominations, in each case registered in the names set forth in such order of
the Depositor or as so directed in this Agreement and duly authenticated by
the Authenticating Agent, which Certificates (described in the preceding
clause (ii)) evidence ownership of the entire Trust Fund.
SECTION 2.6. Miscellaneous REMIC Provisions.
(a) The Class ___, Class ___, Class ___, Class ___, Class
___, Class ___, Class ___, Class ___, Class ___ and Class ___ Interests are
hereby designated as "regular interests" in the Lower-Tier REMIC within the
meaning of Section 860G(a)(1) of the Code, and the Class __ Certificates are
hereby designated as the sole class of "residual interests" in the Lower-Tier
REMIC within the meaning of Section 860G(a)(2) of the Code. The Class ___,
Class ___, Class ___, Class __, Class __, Class __, Class __, Class __, Class
__, Class __, Class ___ and Class ___ Certificates are hereby designated as
"regular interests" in the Upper-Tier REMIC within
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the meaning of Section 860G(a)(1) of the Code and the Class __ Certificates
are hereby designated as the sole class of "residual interests" in the
Upper-Tier REMIC within the meaning of Section 860G(a)(2) of the Code. The
Closing Date is hereby designated as the "Startup Day" of the Lower-Tier REMIC
and the Upper-Tier REMIC within the meaning of Section 860G(a)(9) of the Code.
The "latest possible maturity date" of the Lower-Tier Regular Interests and
the Regular Certificates for purposes of Code Section 860G(a)(1) is the
Scheduled Final Distribution Date. The initial Certificate Balance of each
Class of Lower-Tier Regular Interests is equal to the Certificate Balance of
the Related Class of Certificates. The pass-through rate of each Class of
Lower- Tier Regular Interests is a per annum rate equal to the Lower-Tier
Pass-Through Rate.
(b) None of the Mortgage Loan Seller, Depositor, Trustee or
Servicer shall enter into any arrangement by which the Trust Fund will receive
a fee or other compensation for services other than as specifically
contemplated herein.
SECTION 2.7. Documents Not Delivered to Custodian.
All original documents relating to the Mortgage Loans which
are part of the Servicer Mortgage File are and shall be held by the Servicer,
in trust for the benefit of the Trustee on behalf of the Certificateholders.
The legal ownership of all records and documents with respect to each Mortgage
Loan prepared by or which come into the possession of the Servicer shall
immediately vest in the Trustee, in trust for the benefit of the
Certificateholders.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.1. Servicer to Act as Servicer; Special Servicer
to Act as Special Servicer; Administration of
the Mortgage Loans.
(a) The Servicer and the Special Servicer, each as an
independent contractor, shall service and administer the Mortgage Loans (or in
the case of the Special Servicer, the Specially Serviced Mortgaged Loans and
the REO Mortgage Loans) on behalf of the Trust Fund solely in the best
interests of, and for the benefit of, all of the Certificateholders and the
Trustee (as trustee for the Certificateholders) in accordance with the terms
of this Agreement and the respective Mortgage Loans. In furtherance of, and to
the extent consistent with, the foregoing, and except to the extent that this
Agreement provides for a contrary specific course of action, each of the
Servicer and the Special Servicer shall service and administer each Mortgage
Loan in the same manner in which, and with the same care, skill, prudence and
diligence with which, it services and administers similar mortgage loans for
other third-party portfolios, giving due consideration to customary and usual
standards of practice of prudent institutional commercial mortgage loan
servicers used with respect to loans comparable to the Mortgage Loans, and
taking into account its other obligations hereunder, but without regard to:
(i) any other relationship that the Servicer, the
Special Servicer, any sub-servicer or any Affiliate
of the Servicer, the Special Servicer or any
subservicer may have with the related Borrower or
any Affiliate of such Borrower;
(ii) the ownership of any Certificate by the Servicer,
the Special Servicer or any Affiliate of either;
(iii) the Servicer's, the Trustee's or the Fiscal Agent's
obligation to make P&I Advances or Property
Advances or to incur servicing expenses with
respect to such Mortgage Loan;
(iv) the Servicer's, the Special Servicer's or any
sub-servicer's right to receive compensation for
its services hereunder or with respect to any
particular transaction; or
(v) the ownership or servicing or management for others
by the Servicer, the Special Servicer or any
sub-servicer, of any other mortgage loans or
property.
The standards set forth above with respect to the conduct of
the Servicer and the Special Servicer in the performance of their obligations
under this Agreement is herein referred to as the "Servicing Standard."
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The Servicer's or the Special Servicer's liability for
actions and omissions in its capacity as Servicer or Special Servicer, as the
case may be, hereunder is limited as provided herein (including, without
limitation, pursuant to Section 6.3 hereof). To the extent consistent with the
foregoing and subject to any express limitations set forth in this Agreement,
the Servicer and the Special Servicer shall seek to maximize the timely and
complete recovery of principal and interest on the Notes; provided, however,
that nothing herein contained shall be construed as an express or implied
guarantee by the Servicer or the Special Servicer of the collectability of the
Mortgage Loans. Subject only to the above-described Servicing Standard and
the terms of this Agreement and of the respective Mortgage Loans, the Servicer
and the Special Servicer shall have full power and authority, acting alone or
through sub-servicers (subject to paragraph (c) of this Section 3.1 and to
Section 3.2), to do or cause to be done any and all things in connection with
such servicing and administration which they may deem necessary or desirable.
Without limiting the generality of the foregoing, the Servicer and the Special
Servicer shall, and each is hereby authorized and empowered by the Trustee to,
with respect to each Mortgage Loan and the related Mortgaged Property,
prepare, execute and deliver, on behalf of the Certificateholders and the
Trustee or any of them, any and all financing statements, continuation
statements and other documents or instruments necessary to maintain the lien
on the related Mortgaged Property and related collateral; any modifications,
waivers, consents or amendments to or with respect to any Mortgage Loan or any
documents contained in the related Mortgage File; and any and all instruments
of satisfaction or cancellation, or of partial or full release or discharge,
and all other comparable instruments, if, in its reasonable judgment, such
action is in the best interests of the Certificateholders and is in accordance
with, or is required by, this Agreement. Notwithstanding the foregoing,
neither the Servicer nor the Special Servicer shall modify, amend, waive or
otherwise consent to the change of the stated Maturity Date of any Mortgage
Loan, the payment of principal of, or interest or Default Interest on, any
Mortgage Loan, or any other term of a Mortgage Loan, unless (a) such
modification, amendment, waiver or consent is not a "significant modification"
under Section 1001 of the Code, including proposed, temporary or final
Treasury regulations thereunder, or Treasury Regulations Section
1.860G-2(b)(3) (other than clause (i) thereof), (b) to the extent such
modification, amendment, waiver or consent would constitute a "significant
modification" under the preceding clause (a), such Mortgage Loan is in default
or a default with respect thereto is reasonably foreseeable or (c) permitted
by Section 3.10 hereof. The Servicer and the Special Servicer shall service
and administer the Mortgage Loans in accordance with applicable state and
federal law and shall provide to the Borrowers any reports required to be
provided to them thereby. Subject to Section 3.11, the Trustee shall, upon the
receipt of a written request of a Servicing Officer, execute and deliver to
the Servicer and the Special Servicer any powers of attorney and other
documents prepared by the Servicer or the Special Servicer and necessary or
appropriate (as certified in such written request) to enable the Servicer and
the Special Servicer to carry out their servicing and administrative duties
hereunder; provided, however, that the Trustee shall not be liable for any
actions of the Servicer or Special Servicer under any such powers of attorney.
(b) Unless otherwise provided in the related Note, the
Servicer shall apply any partial Principal Prepayment received on a Mortgage
Loan on a date other than a Due Date to the principal balance of such Mortgage
Loan as of the Due Date immediately following the date of receipt of such
partial Principal Prepayment.
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(c) With respect to each Mortgage Loan that provides for
prepayment at the option of the mortgagee, the Servicer or the Special
Servicer, as applicable, shall exercise such option at the earliest possible
date as provided in the related Note and Mortgage Loan Documents.
(d) The Servicer or the Special Servicer may enter into
sub-servicing agreements with third parties with respect to any of its
respective obligations hereunder, provided that (1) any such agreement shall
be consistent with the provisions of this Agreement and (2) no sub-servicer
retained by the Servicer or the Special Servicer shall grant any modification,
waiver or amendment to any Mortgage Loan without the approval of the Servicer
or the Special Servicer, as applicable, which approval shall be given or
withheld in accordance with the procedures set forth in Section 3.10(a), and
(3) such agreement shall be consistent with the standards set forth in Section
3.1(a). Any such sub-servicing agreement may permit the sub-servicer to
delegate its duties to agents or subcontractors so long as the related
agreements or arrangements with such agents or subcontractors are consistent
with the provisions of this Section 3.1(c).
Any sub-servicing agreement entered into by the Servicer or
the Special Servicer, shall provide that it may be assumed or terminated by
the Trustee if the Trustee or a successor Servicer or Special Servicer has
assumed the duties of the Servicer or the Special Servicer, as applicable,
without cost or obligation to the assuming or terminating party or the Trust
Fund, upon the assumption by the Trustee or a successor Servicer or Special
Servicer of the obligations of the Servicer or the Special Servicer, as
applicable, pursuant to Section 7.2.
Any sub-servicing agreement, and any other transactions or
services relating to the Mortgage Loans involving a sub-servicer, shall be
deemed to be between the Servicer or the Special Servicer, as applicable, and
such sub-servicer alone, and the Trustee and the Certificateholders shall not
be deemed parties thereto and shall have no claims, rights, obligations,
duties or liabilities with respect to the sub-servicer, including the
Depositor acting in such capacity, except as set forth in Section 3.1(d).
(e) If the Trustee or any successor Servicer or Special
Servicer assumes the obligations of the Servicer or the Special Servicer, as
applicable, in accordance with Section 7.2, the Trustee or such successor
Servicer or Special Servicer, to the extent necessary to permit the Trustee or
such successor Servicer or Special Servicer to carry out the provisions of
Section 7.2, shall, without act or deed on the part of the Trustee or such
successor Servicer or Special Servicer, succeed to all of the rights and
obligations of the Servicer or Special Servicer under any sub-servicing
agreement entered into by the Servicer or Special Servicer pursuant to Section
3.1(c), subject to the right of termination by the Trustee set forth in
Section 3.1(c). In such event, the Trustee or such successor Servicer or
Special Servicer shall be deemed to have assumed all of the Servicer's or
Special Servicer's interest therein (but not any liabilities or obligations in
respect of acts or omissions of the Servicer or Special Servicer prior to such
deemed assumption) and to have replaced the Servicer or the Special Servicer,
as applicable, as a party to such sub-servicing agreement to the same extent
as if such sub-servicing agreement had been assigned to the Trustee or such
successor Servicer, except that the Servicer or the Special Servicer shall not
thereby be relieved of any liability or obligations under such
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sub-servicing agreement that accrued prior to the assumption of duties hereunder
by the Trustee or such successor Servicer or Special Servicer.
In the event that the Trustee or any successor Servicer or
Special Servicer assumes the servicing obligations of the Servicer or the
Special Servicer, as the case may be, upon request of the Trustee or such
successor Servicer or Special Servicer, as the case may be, the Servicer or
Special Servicer shall, at its own expense, deliver to the Trustee or such
successor Servicer or Special Servicer (as the case may be) all documents and
records relating to any sub-servicing agreement and the Mortgage Loans then
being serviced thereunder and an accounting of amounts collected and held by
it, if any, and the Servicer will otherwise use its best efforts to effect the
orderly and efficient transfer of any sub-servicing agreement to the Trustee
or such successor Servicer.
(f) Notwithstanding anything herein to the contrary, the
Servicer shall service the ___________ Interest in accordance with the
__________ Agreement, and in connection therewith, the Servicer shall (i)
receive the payments due and payable with respect to the ___________ Interest
and deposit such payments into the Collection Account in accordance with
Section 3.5 of this Agreement, (ii) enforce _________ the Agreement and all
other documentation with respect thereto in accordance with the ____________
Agreement and this Agreement and (iii) take such other actions with respect
thereto as shall be required in accordance with the Servicing Standard and
this Agreement (including, without limitation, making Advances with respect to
the Trust Fund's participation interest in the ____________ Loan as evidenced
by the _____________ Certificate) to the extent and in the manner provided
herein with respect to the making of Advances for other Mortgage Loans.
Pursuant to the ___________ Agreement, the Servicer shall pay as an expense of
the Trust Fund (i) to the special servicer under the Prior Pooling and
Servicing Agreement a proportionate share of any special servicing fee that
becomes due with respect to the _________ Loan if and when the
________________ Loan becomes a specially serviced mortgage loan under the
Prior Pooling and Servicing Agreement and (ii) to the servicer under the Prior
Pooling and Servicing Agreement a proportionate share of (x) the amount of any
property advances made under the Prior Pooling and Servicing Agreement deemed
to be nonrecoverable advances thereunder and (y) the advance interest amount
which has accrued on any reimbursed property advances incurred with respect to
the ___________ Loan under the Prior Pooling and Servicing Agreement.
SECTION 3.2. Liability of the Servicer.
Notwithstanding any sub-servicing agreement, any of the
provisions of this Agreement relating to agreements or arrangements between
the Servicer or Special Servicer and any Person acting as sub-servicer (or its
agents or subcontractors) or any reference to actions taken through any Person
acting as sub-servicer or otherwise, the Servicer or the Special Servicer, as
applicable, shall remain obligated and primarily liable to the Trustee and
Certificateholders for the servicing and administering of the Mortgage Loans
in accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such sub-servicing agreements or
arrangements or by virtue of indemnification from the Depositor or any Person
acting as sub-servicer (or its agents or subcontractors) to the same
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extent and under the same terms and conditions as if the Servicer or Special
Servicer, as applicable, were servicing and administering the Mortgage Loans
alone. The Servicer or the Special Servicer, as applicable, shall be entitled
to enter into an agreement with any sub-servicer providing for indemnification
of the Servicer or the Special Servicer, as applicable, by such sub-servicer,
and nothing contained in this Agreement shall be deemed to limit or modify
such indemnification, but no such agreement for indemnification shall be
deemed to limit or modify this Agreement.
SECTION 3.3. Collection of Certain Mortgage Loan Payments.
The Servicer and the Special Servicer shall make reasonable
efforts to collect all payments called for under the terms and provisions of
the Mortgage Loans when the same shall be due and payable, and shall follow
such collection procedures as it would follow with respect to mortgage loans
comparable to the Mortgage Loans and held for other third-party portfolios,
including using its best efforts in accordance with the Servicing Standard to
collect income statements and rent rolls from the related Borrowers as
required by the related Mortgage Loan Documents and providing (in the case of
the Servicer only) reasonable advance notice to such Borrowers of Balloon
Payments due with respect to such Mortgage Loans. Consistent with the
foregoing, the Servicer or the Special Servicer, as applicable, may in its
discretion waive any late payment charge or penalty fees in connection with
any delinquent Monthly Payment or Balloon Payment with respect to any Mortgage
Loan.
SECTION 3.4. Collection of Taxes, Assessments and Similar
Items.
(a) With respect to each Mortgage Loan (other than REO
Mortgage Loans), the Servicer shall maintain accurate records with respect to
each related Mortgaged Property reflecting the status of taxes, assessments
and other similar items that are or may become a lien on such related
Mortgaged Property, the status of insurance premiums payable with respect
thereto and the amounts of Escrow Payments, if any, required in respect
thereof. From time to time, the Servicer shall (i) obtain all bills for the
payment of such items (including renewal premiums), and (ii) effect payment of
all such bills with respect to each such Mortgaged Property prior to the
applicable penalty or termination date, in each case employing for such
purpose Escrow Payments as allowed under the terms of such Mortgage Loan. If a
Borrower fails to make any such Escrow Payment on a timely basis or
collections from such Borrower are insufficient to pay any such item before
the applicable penalty or termination date, the Servicer shall (in accordance
with Section 3.8 with respect to the payment of insurance premiums) advance
the amount necessary to effect payment of any such item, unless the Servicer,
in its good faith business judgment, determines that such Advance would be a
Nonrecoverable Advance. With respect to any Mortgage Loan as to which the
related Borrower is not required to make Escrow Payments, if such Borrower
fails to effect payment of any such bill, then, the Servicer shall (in
accordance with Section 3.8 with respect to the payment of insurance premiums)
advance the amount necessary to effect payment of any such bill on or before
the applicable penalty or termination date unless, with respect to the payment
of taxes and assessments, (x) the Servicer reasonably anticipates that such
bill will be paid by the Borrower by the close of business on or before the
penalty date, but in any event the Servicer shall make such advance (subject
to clause (y) below) within __ days after such date or within ____
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Business Days after the Servicer has received confirmation that such item has
not been paid, whichever is earlier, or (y) the Servicer determines, in its
good faith business judgment, that such Property Advance would be a
Nonrecoverable Advance. The Servicer shall be entitled to reimbursement of
Property Advances that it makes pursuant to the preceding sentence, with
interest thereon at the Advance Rate, from amounts received on or in respect
of the Mortgage Loan respecting which such Property Advance was made or if
such Property Advance has become a Nonrecoverable Advance, to the extent
permitted by Section 3.6 of this Agreement. No costs incurred by the Servicer
in effecting the payment of taxes and assessments on the Mortgaged Properties
shall, for the purpose of calculating distributions to Certificateholders, be
added to the amount owing under the related Mortgage Loans, notwithstanding
that the terms of such Mortgage Loans so permit.
(b) The Servicer shall segregate and hold all funds
collected and received pursuant to any Mortgage Loan constituting Escrow
Payments separate and apart from any of its own funds and general assets and
shall establish and maintain one or more segregated custodial accounts (each,
an "Escrow Account") into which all Escrow Payments shall be deposited within
______ Business Day after receipt. The Servicer shall also deposit into each
Escrow Account any amounts representing losses on Permitted Investments in
which amounts on deposit in such Escrow Account have been invested pursuant to
Section 3.7(b) and any Insurance Proceeds, Condemnation Proceeds or
Liquidation Proceeds which are required to be applied to the restoration or
repair of the related Mortgaged Property pursuant to the related Mortgage
Loan. Escrow Accounts shall be Eligible Accounts and shall be entitled, " , as
Servicer, in trust for , as Trustee in trust for Holders of Prudential
Securities Secured Financing Corporation, Commercial Mortgage Pass-Through
Certificates, Series , and Various Borrowers." Withdrawals from an Escrow
Account may be made by the Servicer only:
(i) to effect timely payments of items with respect to
which Escrow Payments are required pursuant to the
related Mortgage;
(ii) to transfer funds to the Collection Account to
reimburse the Servicer, the Trustee or the Fiscal
Agent, as applicable, for any Advance relating to
Escrow Payments, but only from amounts received
with respect to the related Mortgage Loan which
represent late collections of Escrow Payments
thereunder;
(iii) for application to the restoration or repair of the
related Mortgaged Property in accordance with the
related Mortgage Loan and the Servicing Standard;
(iv) to clear and terminate such Escrow Account upon the
termination of this Agreement;
(v) to pay from time to time to the Servicer any
interest or investment income earned on funds
deposited in such Escrow Account pursuant to
Section 3.7(b) to the extent (a) permitted by law
and (b) not required to be paid
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to the related Borrower under the terms of the
related Mortgage Loan or by law, or to pay such
interest or income to the related Borrower if such
income is required to paid to the related Borrower
under law or by the terms of the related Mortgage
Loan;
(vi) to remit to the related Borrower the Financial and
Lease Reporting Fee as and when required pursuant
to the related Mortgage; and
(vii) to remove any funds deposited in such Escrow
Account that were not required to be deposited
therein.
SECTION 3.5. Collection Account; Distribution Account.
(a) The Servicer shall establish and maintain the Collection
Account in the Trustee's name, for the benefit of the Certificateholders and
the Trustee as the Holder of the Lower-Tier Regular Interests. The Collection
Account shall be established and maintained as an Eligible Account. The
Servicer shall deposit or cause to be deposited in the Collection Account
within ___ Business Day following receipt the following payments and
collections received or made by it on or with respect to the Mortgage Loans:
(i) all payments on account of principal on the
Mortgage Loans, including the principal component
of Unscheduled Payments on the Mortgage Loans;
(ii) all payments on account of interest and Default
Interest on the Mortgage Loans and the interest
portion of all Unscheduled Payments and all
Prepayment Premiums;
(iii) any amounts required to be deposited pursuant to
Section 3.7(b) in connection with losses realized
on Permitted Investments with respect to funds held
in the Collection Account and pursuant to Section
3.25 in connection with Prepayment Interest
Shortfalls;
(iv) (x) all Net REO Proceeds transferred from an REO
Account pursuant to Section 3.17(b) and (y) all
Condemnation Proceeds, Insurance Proceeds and Net
Liquidation Proceeds not required to be applied to
the restoration or repair of the related Mortgaged
Property;
(v) any amounts received from Borrowers which represent
recoveries of Property Protection Expenses or
Property Advances made pursuant to Section 3.4;
(vi) any other amounts required by the provisions of
this Agreement to be deposited into the Collection
Account by the Servicer or the Special Servicer,
including, without limitation, proceeds of any
purchase or repurchase of a Mortgage Loan pursuant
to Section 2.3(d) or (e), Section 3.18 or Section
9.1 hereof; and
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(vii) all amounts collected in respect of the ___________
Interest.
The foregoing requirements for deposits in the Collection
Account shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, payments in the nature of late
payment charges, late fees, Assumption Fees, loan modification fees, loan
service transaction fees, extension fees, demand fees, beneficiary statement
charges and similar fees need not be deposited in the Collection Account by
the Servicer and, to the extent permitted by applicable law, the Servicer or
the Special Servicer, as applicable, shall be entitled to retain any such
charges and fees received with respect to the Mortgage Loans. In the event
that the Servicer deposits in the Collection Account any amount not required
to be deposited therein, the Servicer may at any time withdraw such amount
from the Collection Account, any provision herein to the contrary
notwithstanding.
(b) The Trustee shall establish and maintain the
Distribution Account in the name of the Trustee, in trust for the benefit of
the Certificateholders. The Distribution Account shall be established and
maintained as an Eligible Account.
(c) Funds in the Collection Account and the Distribution
Account may be invested in Permitted Investments in accordance with the
provisions of Section 3.7. The Servicer shall give written notice to the
Trustee of the location and account number of the Collection Account and shall
notify the Trustee in writing prior to any subsequent change thereof.
SECTION 3.6. Permitted Withdrawals from the Collection
Account.
The Servicer may make withdrawals from the Collection
Account only as described below (the order set forth below not constituting an
order of priority for such withdrawals):
(i) to remit to the Trustee, for deposit in the
Distribution Account, the amounts required to be
deposited in the Distribution Account pursuant to
Section 4.6;
(ii) to pay or reimburse the Servicer, the Trustee or
the Fiscal Agent for Advances, the right of the
Servicer, the Trustee or the Fiscal Agent to
reimburse itself pursuant to this clause (ii) being
limited to either (x) any collections on or in
respect of the particular Mortgage Loan or REO
Property respecting which each such Advance was
made, or (y) any other amounts in the Collection
Account in the event that such Advances have been
deemed to be Nonrecoverable Advances or are not
recovered from recoveries in respect of the related
Mortgage Loan or REO Property after a Final
Recovery Determination;
(iii) to pay to the Servicer, the Trustee or the Fiscal
Agent the Advance Interest Amount;
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(iv) to pay on or before each Remittance Date to the
Servicer and the Special Servicer, as applicable,
as compensation, the unpaid Servicing Fee and
Special Servicing Fee, respectively, in respect of
the related Distribution Date (in each case,
reduced up to the amount of any Prepayment Interest
Shortfalls with respect to such Distribution Date,
in accordance with Section 3.25), to be paid, in
the case of the Servicing Fee, from interest
received on the related Mortgage Loans, and to pay
from time to time, to the Servicer any interest or
investment income earned on funds deposited in the
Collection Account, and to pay to the Servicer as
additional Servicing Compensation any Prepayment
Interest Surplus received in the preceding
Collection Period and to pay to the Servicer or the
Special Servicer, as applicable, any other amounts
constituting Servicing Compensation;
(v) to pay on or before each Distribution Date to the
Depositor, the Mortgage Loan Seller,
____________________ or the purchaser of any
Specially Serviced Mortgage Loan or REO Property,
as the case may be, with respect to each Mortgage
Loan or REO Property that has previously been
purchased or repurchased by it pursuant to Section
2.3(d), 2.3(e), Section 3.18 or Section 9.1, all
amounts received thereon during the related
Collection Period and subsequent to the date as of
which the amount required to effect such purchase
or repurchase was determined;
(vi) to the extent not reimbursed or paid pursuant to
any other clause of this Section 3.6, to reimburse
or pay the Servicer, the Special Servicer, the
Trustee, the Depositor and/or the Fiscal Agent for
unpaid items incurred by or on behalf of such
Person pursuant to the second sentence of Section
3.1(f), the second sentence of Section 3.7(c),
Section 3.8(a), Section 3.10, Section 3.12(d),
Section 3.17(a), (b) and (c), Section 3.18(a), 6.3,
7.4, 8.5(d), 9.1(d) or Section 10.7, or any other
provision of this Agreement pursuant to which such
Person is entitled to reimbursement or payment from
the Trust Fund, in each case only to the extent
reimbursable under such Section, it being
acknowledged that this clause (vi) shall not be
deemed to modify the substance of any such Section,
including the provisions of such Section that set
forth the extent to which one of the foregoing
Persons is or is not entitled to payment or
reimbursement;
(vii) to deposit in one or more separate, non-interest
bearing accounts any amount reasonably determined
by the Trustee to be necessary to pay any
applicable federal, state or local taxes imposed on
the Lower-Tier REMIC under the circumstances and to
the extent described in Section 4.5;
(viii) to withdraw any amount deposited into the
Collection Account that was not required to be
deposited therein; and
(ix) to clear and terminate the Collection Account
pursuant to Section 9.1.
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The Servicer shall keep and maintain separate accounting, on
a Mortgage Loan-by-Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account pursuant to subclauses (ii) - (viii)
above.
The Servicer shall pay to the Trustee or the Special
Servicer from the Collection Account (to the extent permitted by clauses
(i)-(viii) above) amounts permitted to be paid to the Trustee or the Special
Servicer therefrom, promptly upon receipt of a certificate of a Responsible
Officer of the Trustee or a Servicing Officer of the Special Servicer, as
applicable, describing the item and amount to which the Trustee or the Special
Servicer is entitled. The Servicer may rely conclusively on any such
certificate and shall have no duty to recalculate the amounts stated therein.
The Trustee, the Special Servicer and the Servicer shall in
all cases have a right prior to the Certificateholders to any funds on deposit
in the Collection Account from time to time for the reimbursement or payment
of Servicing Compensation, Advances (subject to the limitation set forth in
Section 3.6(ii)) and their respective expenses (including Advance Interest
Amounts) hereunder to the extent such expenses are to be reimbursed or paid
from amounts on deposit in the Collection Account pursuant to this Agreement.
SECTION 3.7. Investment of Funds in the Collection Account,
the Distribution Account and the Reserve
Accounts.
(a) The Servicer (or with respect to any REO Account, the
Special Servicer) may direct (or, with respect to the Distribution Account,
cause the Trustee to direct) any depository institution maintaining the
Collection Account, the Distribution Account, any REO Account or (subject to
applicable laws and the related Mortgage Loan Documents) any Reserve Accounts
(each, for purposes of this Section 3.7, an "Investment Account") to invest
the funds in such Investment Account in one or more Permitted Investments that
bear interest or are sold at a discount, and that mature, unless payable on
demand, no later than the Business Day preceding the date on which such funds
are requited to be withdrawn from such Investment Account pursuant to this
Agreement; provided, however, that all investments in the Distribution
Account, including those payable on demand, shall mature no later than the
Business Day prior to the next Distribution Date. Any direction by the
Servicer (or with respect to an REO Account, the Special Servicer) to invest
funds on deposit in an Investment Account shall be in writing and shall
certify that the requested investment is a Permitted Investment which matures
at or prior to the time required hereby or is payable on demand. In the case
of any Reserve Account, the Servicer shall act upon the written request of the
related Borrower or Manager to the extent the Servicer is required to do so
under the terms of the related Mortgage Loan, provided that in the absence of
appropriate written instructions from such Borrower or Manager meeting the
requirements of this Section 3.7, the Servicer shall have no obligation to,
but will be entitled to, direct the investment of funds in such Reserve
Accounts. All such Permitted Investments shall be held to maturity, unless
payable on demand. Any investment of funds in an Investment Account shall be
made in the name of the Trustee (in its capacity as such) or in the name of a
nominee of the Trustee. The Trustee shall have sole control (except with
respect to investment direction which shall be in the sole control of the
Servicer or the Special Servicer, as applicable, as an independent contractor
to the Trust Fund) over each such investment and
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any certificate or other instrument evidencing any such investment shall be
delivered directly to the Trustee or its agent (which shall initially be the
Servicer), together with any document of transfer, if any, necessary to
transfer title to such investment to the Trustee or its nominee. The Trustee
shall have no responsibility or liability with respect to the investment
directions of the Servicer or the Special Servicer or any losses resulting
therefrom, whether from Permitted Investments or otherwise. In the event
amounts on deposit in an Investment Account are at any time invested in a
Permitted Investment payable on demand, the Servicer or the Special Servicer,
as applicable, shall:
(x) consistent with any notice required to be
given thereunder, demand that payment
thereon be made on the _____ day such
Permitted Investment may otherwise mature
hereunder in an amount equal to the lesser
of (1) all amounts then payable thereunder
and (2) the amount required to be
withdrawn on such date; and
(y) demand payment of all amounts due
thereunder promptly upon determination by
the Servicer or the Special Servicer, as
applicable, that such Permitted Investment
would not constitute a Permitted
Investment in respect of funds thereafter
on deposit in the related Investment
Account.
(b) All income and gain realized from investment of funds
deposited in the Collection Account, the Distribution Account and any Reserve
Account as to which the related Borrower is not entitled to interest thereon
shall be for the benefit of the Servicer (other than income or gain realized
from investment of funds on deposit in the Distribution Account made by the
Trustee on the Business Day prior to any Distribution Date that matures on
such Distribution Date) and all income and gain realized from investment of
funds deposited in any REO Account shall be for the benefit of the Special
Servicer and, other than with respect to the Distribution Account, may be
withdrawn by the Servicer or the Special Servicer, as applicable, from time to
time in accordance with Section 3.6 and Section 3.17(b), as applicable. The
Servicer may request that the Trustee withdraw and remit to the Servicer all
amounts due to it with respect to the Distribution Account pursuant to the
preceding sentence. The Servicer shall deposit from its own funds in the
Collection Account and the Distribution Account, as the case may be, the
amount of any loss incurred in respect of any such Permitted Investment
immediately upon realization of such loss and the Special Servicer shall
deposit from its own funds in any REO Account the amount of any loss incurred
in respect of any such Permitted Investment immediately upon realization of
such loss. The Servicer shall also deposit into each Reserve Account any
amounts representing losses on Permitted Investments in which such Reserve
Accounts have been invested, except to the extent that amounts are invested
for the benefit of the Borrower under applicable law or the terms of the
related Mortgage Loan. The income and gain realized from investment of funds
deposited in any Reserve Account shall be paid from time to time to the
related Borrower to the extent required under the Mortgage Loan or applicable
law.
(c) Except as otherwise expressly provided in this
Agreement, if any default occurs in the making of a payment due under any
Permitted Investment, or if a default occurs
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in any other performance required under any Permitted Investment, the Trustee
may, and upon the request of Holders of Certificates representing at least __%
of the aggregate Voting Rights of any Class shall, take such action as may be
appropriate to enforce such payment or performance, including the institution
and prosecution of appropriate proceedings. In the event the Trustee takes any
such action, the Trust Fund shall pay or reimburse the Trustee for all
reasonable out-of-pocket expenses, disbursements and advances incurred or made
by the Trustee in connection therewith. In the event that the Trustee does not
take any such action, the Servicer may take such action at its own cost and
expense.
SECTION 3.8. Maintenance of Insurance Policies and Errors
and Omissions and Fidelity Coverage.
(a) The Servicer on behalf of the Trustee, as mortgagee,
shall use its best efforts in accordance with the Servicing Standard to cause
the related Borrower to maintain for each Mortgage Loan (other than REO
Mortgage Loans), and if the Borrower does not so maintain, shall itself
maintain (subject to the provisions of this Agreement concerning
Nonrecoverable Advances) to the extent the Trustee as mortgagee has an
insurable interest and to the extent available at commercially reasonable
rates, (A) fire and hazard insurance with extended coverage on the related
Mortgaged Property in an amount which is at least equal to the lesser of (i)
___________ percent (___%) of the then "full replacement cost" of the
improvements and equipment (excluding foundations, footings and excavation
costs), without deduction for physical depreciation, and (ii) the outstanding
principal balance of the related Mortgage Loan or such other amount as is
necessary to prevent any reduction in such policy by reason of the application
of co-insurance and to prevent the Trustee thereunder from being deemed to be
a co-insurer, (B) insurance providing coverage against ___ months of rent
interruptions and (C) such other insurance (including public liability
insurance) as provided in the related Mortgage Loan. The Special Servicer
shall maintain, to the extent available at commercially reasonable rates, fire
and hazard insurance from a Qualified Insurer with extended coverage on each
REO Property in an amount which is at least equal to ___________ percent
(___%) of the then "full replacement cost" of the improvements and equipment
(excluding foundations, footings and excavation costs), without deduction for
physical depreciation. The Special Servicer shall maintain (subject to the
provisions of this Agreement regarding Nonrecoverable Advances), to the extent
available at commercially reasonable rates, with respect to each REO Property
(A) public liability insurance providing such coverage against such risks as
the Servicer or the Special Servicer, as applicable, determines, consistent
with the related Mortgage and the Servicing Standard, to be in the best
interests of the Trust Fund, and shall cause to be maintained with respect to
each REO Property (B) insurance providing coverage against ___ months of rent
interruptions, and (C) such other insurance as provided in the related
Mortgage Loan to the extent available at commercially reasonable rates and in
the case of each of (A), (B), and (C) from a Qualified Insurer. In the case of
any insurance otherwise required to be maintained pursuant to this section
that is not being so maintained because the Servicer or the Special Servicer,
as applicable, has deemed that it is not available at commercially reasonable
rates, the Servicer or the Special Servicer, as applicable, shall deliver an
Officer's Certificate to the Trustee detailing the steps that the Servicer or
the Special Servicer, as applicable, took in seeking such insurance and the
factors which led to its determination that such insurance is not so
available. Any amounts collected by the Servicer or the Special
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Servicer, as applicable, under any such policies (other than amounts to be
applied to the restoration or repair of the related Mortgaged Property or
amounts to be released to the Borrower in accordance with the terms of the
related Mortgage) shall be deposited into the Collection Account pursuant to
Section 3.5, subject to withdrawal pursuant to Section 3.6. Any cost incurred
by the Servicer in maintaining any such insurance shall not, for the purpose
of calculating distributions to Certificateholders, be added to the unpaid
principal balance of the related Mortgage Loan, notwithstanding that the terms
of such Mortgage Loan so permit. It is understood and agreed that no
earthquake or other additional insurance other than flood insurance is to be
required of any Borrower or to be maintained by the Servicer other than
pursuant to the terms of the related Mortgage Loan Documents and pursuant to
such applicable laws and regulations as shall at any time be in force and as
shall require such additional insurance; provided, however, that each of the
Servicer and the Special Servicer may maintain earthquake insurance. If the
Mortgaged Property is located in a federally designated special flood hazard
area, the Servicer will use its best efforts in accordance with the Servicing
Standard to cause the related Borrower to maintain or will itself obtain
(subject to the provisions of this Agreement concerning Nonrecoverable
Advances) flood insurance in respect thereof to the extent available at
commercially reasonable rates. Such flood insurance shall be in an amount
equal to the lesser of (i) the unpaid principal balance of the related
Mortgage Loan and (ii) the maximum amount of such insurance required by the
terms of the related Mortgage and as is available for the related property
under the national flood insurance program (assuming that the area in which
such property is located is participating in such program). If an REO Property
is located in a federally designated special flood hazard area, the Special
Servicer will obtain (subject to the provisions of this Agreement concerning
Nonrecoverable Advances) flood insurance in respect thereof providing
substantially the same coverage as described in the preceding sentences. If at
any time during the term of this Agreement a recovery under a flood or fire
and hazard insurance policy in respect of an REO Property is not available but
would have been available if such insurance were maintained thereon in
accordance with the standards applied to Mortgaged Properties described
herein, the Special Servicer shall (subject to the provisions of this
Agreement concerning Nonrecoverable Advances) either (i) immediately deposit
into the Collection Account from its own funds the amount that would have been
recovered or (ii) apply to the restoration and repair of the property from its
own funds the amount that would have been recovered, if such application would
be consistent with the servicing standard set forth in Section 3.1(a);
provided, however, that the Special Servicer shall not be responsible for any
shortfall in insurance proceeds resulting from an insurer's refusal or
inability to pay a claim. Costs to the Servicer of maintaining insurance
policies pursuant to this Section 3.8 shall be paid by the Servicer as a
Property Advance and shall be reimbursable to the Servicer with interest at
the Advance Rate, which reimbursement may be effected under Section 3.6(vi);
and costs to the Special Servicer of maintaining insurance policies pursuant
to this Section 3.8 shall be paid and reimbursed in accordance with Section
3.17(b).
The Servicer and the Special Servicer agree to prepare and
present, on behalf of itself, the Trustee and the Certificateholders, claims
under each related insurance policy maintained pursuant to this Section 3.8(a)
in a timely fashion in accordance with the terms of such policy and to take
such reasonable steps as are necessary to receive payment or to permit
recovery thereunder.
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The Servicer (or with respect to any REO Property, the
Special Servicer) shall require that all insurance policies required hereunder
shall name the Trustee or the Servicer (or with respect to any REO Property,
the Special Servicer), on behalf of the Trustee as the mortgagee, as loss
payee and that all such insurance policies require that ___ days' notice be
given to the Servicer before termination to the extent required by the related
Mortgage Loan Documents.
(b) (I) If the Servicer or Special Servicer, as applicable,
obtains and maintains a blanket insurance policy with a Qualified Insurer at
its own expense insuring against fire and hazard losses, ___-month rent
interruptions or other required insurance on all of the Mortgage Loans, it
shall conclusively be deemed to have satisfied its obligations concerning the
maintenance of such insurance coverage set forth in Section 3.8(a), it being
understood and agreed that such policy may contain a deductible clause, in
which case the Servicer or Special Servicer, as applicable, shall, in the
event that (i) there shall not have been maintained on one or more of the
related Mortgaged Properties a policy otherwise complying with the provisions
of Section 3.8(a), and (ii) there shall have been one or more losses which
would have been covered by such a policy had it been maintained, immediately
deposit into the Collection Account from its own funds the amount not
otherwise payable under the blanket policy because of such deductible clause
to the extent that any such deductible exceeds the deductible limitation that
pertained to the related Mortgage Loan, or, in the absence of such deductible
limitation, the deductible limitation which is consistent with the Servicing
Standard. In connection with its activities as Servicer or Special Servicer
hereunder, as applicable, the Servicer and the Special Servicer each agrees to
prepare and present, on behalf of itself, the Trustee and Certificateholders,
claims under any such blanket policy which it maintains in a timely fashion in
accordance with the terms of such policy and to take such reasonable steps as
are necessary to receive payment or permit recovery thereunder.
(II) If the Servicer or the Special Servicer, as applicable,
causes any Mortgaged Property or REO Property to be covered by a master force
placed insurance policy, which policy is issued by a Qualified Insurer and
provides no less coverage in scope and amount for such Mortgaged Property or
REO Property than the insurance required to be maintained pursuant to Section
3.8(a), the Servicer or Special Servicer shall conclusively be deemed to have
satisfied its obligations to maintain insurance pursuant to Section 3.8(a).
Such policy may contain a deductible clause, in which case the Servicer or
Special Servicer, as applicable, shall, in the event that (i) there shall not
have been maintained on the related Mortgaged Property or REO Property a
policy otherwise complying with the provisions of Section 3.8(a), and (ii)
there shall have been one or more losses which would have been covered by such
a policy had it been maintained, immediately deposit into the Collection
Account from its own funds the amount not otherwise payable under such policy
because of such deductible to the extent that any such deductible exceeds the
deductible limitation that pertained to the related Mortgage Loan, or, in the
absence of any such deductible limitation, the deductible limitation which is
consistent with the Servicing Standard.
(c) Each of the Servicer and the Special Servicer shall
maintain a fidelity bond in the form and amount that would meet the servicing
requirements of prudent institutional commercial mortgage loan servicers. The
Servicer or the Special Servicer, as applicable, shall
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be deemed to have complied with this provision if one of its respective
Affiliates has such fidelity bond coverage and, by the terms of such fidelity
bond, the coverage afforded thereunder extends to the Servicer or the Special
Servicer, as applicable. In addition, each of the Servicer and the Special
Servicer shall keep in force during the term of this Agreement a policy or
policies of insurance covering loss occasioned by the errors and omissions of
its officers and employees in connection with its obligations to service the
Mortgage Loans hereunder in the form and amount that would meet the servicing
requirements of prudent institutional commercial mortgage loan servicers. Each
of the Servicer and the Special Servicer shall cause each and every
sub-servicer for it to maintain, or cause to be maintained by any agent or
contractor servicing any Mortgage Loan on behalf of such subservicer, a
fidelity bond and an errors and omissions insurance policy which satisfy the
requirements for the fidelity bond and the errors and omissions policy to be
maintained by the Servicer or the Special Servicer pursuant to this Section
3.8(c). All fidelity bonds and policies of errors and omissions insurance
obtained under this Section 3.8(c) shall be issued by a Qualified Insurer.
SECTION 3.9. Enforcement of Due-On-Sale Clauses; Assumption
Agreements.
(a) If any Mortgage Loan contains a provision in the nature
of a "due-on-sale" clause, which, by its terms:
(i) provides that such Mortgage Loan shall (or may at
the related mortgagee's option) become due and
payable upon the sale or other transfer of an
interest in the related Mortgaged Property, or
(ii) provides that such Mortgage Loan may not be assumed
without the consent of the related mortgagee in
connection with any such sale or other transfer,
then, for so long as such Mortgage Loan is included in the Trust Fund, the
Servicer or the Special Servicer, as applicable, on behalf of the Trust Fund,
shall enforce such provision to the extent permitted under the terms of such
Mortgage Loan, applicable law and governmental regulations, unless such
provision is not enforceable under applicable law or enforcement thereof would
result in a loss of insurance coverage under any related insurance policy or
such enforcement is reasonably likely to result in meritorious legal action by
the related Borrower or except to the extent that the Servicer or the Special
Servicer, as applicable, acting in accordance with the Servicing Standard,
determines that such enforcement would not be in the best interests of the
Trust Fund. Subject to the foregoing, the Servicer or the Special Servicer, as
applicable, 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, or to release the original related Borrower from liability upon such
Mortgage Loan and substitute the new Borrower as obligor thereon. To the
extent permitted by law, the Servicer or the Special Servicer, as applicable,
shall enter into an assumption or substitution agreement only if the credit
status of the prospective new Borrower is in compliance with the Servicer's or
the Special Servicer's, as applicable, regular commercial mortgage origination
or servicing standards and criteria and the terms of the related Mortgage. The
Servicer or the Special Servicer, as applicable, shall notify
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the Trustee that any such assumption or substitution agreement has been
completed by forwarding to the Trustee the original of such agreement, which
document shall be added to the related Mortgage File and shall, for all
purposes, be considered a part of such Mortgage File to the same extent as all
other documents and instruments constituting a part thereof. In connection
with any such assumption or substitution agreement, the Mortgage Rate,
principal amount and other material payment terms (including any
cross-collateralization and cross-default provisions) of such Mortgage Loan
pursuant to the related Note and Mortgage shall not be changed, other than in
connection with a default or reasonably foreseeable default with respect to
the Mortgage Loan. Assumption Fees collected by the Servicer or the Special
Servicer, as applicable, for entering into an assumption or substitution
agreement will be retained by the Servicer or the Special Servicer, as
applicable, as additional servicing compensation. Notwithstanding the
foregoing, the Servicer or Special Servicer may consent to the assumption of a
Mortgage Loan by a prospective new Borrower in a bankruptcy proceeding
involving the related Mortgaged Property.
(b) If any Mortgage Loan contains a provision in the nature
of a "due-on-encumbrance" clause, which, by its terms:
(i) provides that such Mortgage Loan shall (or may at
the related mortgagee's option) become due and
payable upon the creation of any lien or other
encumbrance on such Mortgaged Property, or
(ii) requires the consent of the related mortgagee to
the creation of any such lien or other encumbrance
on such Mortgaged Property,
then, for so long as such Mortgage Loan is included in the Trust Fund, the
Servicer or the Special Servicer, as applicable, on behalf of the Trust Fund,
shall enforce such provision and in connection therewith shall (x) accelerate
the payments due on such Mortgage Loan, or (y) withhold its consent to the
creation of any such lien or other encumbrance, as applicable, except, in each
case, to the extent that the Servicer or the Special Servicer, as applicable,
acting in accordance with the Servicing Standard, determines that such
enforcement would not be in the best interests of the Trust Fund and receives
written confirmation from ____________ that forbearance to enforce such
provision shall not result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by to any Class of Certificates.
Notwithstanding the foregoing, the Servicer or the Special Servicer, as
applicable, may forbear from enforcing any due-on-encumbrance provision in
connection with any junior or senior lien on the Mortgaged Property imposed in
connection with any bankruptcy proceeding involving the Mortgaged Property.
(c) Nothing in this Section 3.9 shall constitute a waiver of
the Trustee's right, as the mortgagee of record, to receive notice of any
assumption of a Mortgage Loan, any sale or other transfer of the related
Mortgaged Property or the creation of any lien or other encumbrance with
respect to such Mortgaged Property.
(d) In connection with the taking of, or the failure to
take, any action pursuant to this Section 3.9, the Servicer or the Special
Servicer, as applicable, shall not agree to modify,
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waive or amend, and no assumption or substitution agreement entered into
pursuant to Section 3.9(a) shall contain any terms that are different from,
any term of any Mortgage Loan or the related Note or Mortgage.
SECTION 3.10. Realization Upon Mortgage Loans.
(a) With respect to any Specially Serviced Mortgage Loan,
the Special Servicer shall determine, in accordance with the Servicing
Standard, whether to grant a modification, waiver or amendment of the terms of
such Specially Serviced Mortgage Loan, commence foreclosure proceedings or
attempt to sell such Specially Serviced Mortgage Loan with reference to which
course of action is reasonably likely to produce a greater recovery on a
present value basis with respect to such Specially Serviced Mortgage Loan.
Contemporaneously with the earliest of (i) the effective date of any
modification, amendment, waiver or consent to a change of the stated maturity,
Mortgage Rate, principal balance or amortization terms of any Specially
Serviced Mortgage Loan, or any other term of a Mortgage Loan to the extent
such modification, amendment, waiver or consent would constitute a
"significant" modification under Section 1001 of the Code, including proposed
Treasury regulations thereunder, as to which Mortgage Loan a default has
occurred or is reasonably foreseeable, (ii) ___ days after the occurrence of
any uncured payment delinquency, (iii) the date ____ days after a receiver is
appointed in respect of a Mortgaged Property, or (iv) the date a Mortgaged
Property becomes an REO Property, the Special Servicer shall obtain an
appraisal of the Mortgaged Property securing any Mortgage Loan referred to in
clause (i) or (ii) or such Mortgaged Property or REO Property, as the case may
be, from an independent appraiser who is a member of the American Institute of
Real Estate Appraisers (an "Updated Appraisal"), which appraisal shall be
conducted in accordance with MAI standards.
Following a default by a Borrower in the payment of a
Balloon Payment, the Special Servicer may grant successive extensions of up to
___ months each of the related Specially Serviced Mortgage Loan; provided that
the Special Servicer shall not grant any such successive extension if, during
the previous ___-month period (or the period since the beginning of the first
such extension, if shorter), such Borrower was __ days or more delinquent in
the payment of any principal or interest required to be paid in any month; and
provided further that if any extension is requested after the third successive
extension has been granted, such further extension shall only be granted with
the consent of the Extension Advisor in accordance with Section 3.26. The
Special Servicer shall consider, among all relevant factors, any appraisal
obtained in accordance with the preceding paragraph in determining whether to
grant any such extension. The Special Servicer shall not grant any extension
that permits such Borrower to make payments of interest only for a period, in
the aggregate, of greater than ___ months.
(b) In connection with any foreclosure or other acquisition,
the Servicer shall, at the direction of the Special Servicer, pay the costs
and expenses in any such proceedings as an Advance unless the Servicer
determines, in its good faith judgment, that such Advance would constitute a
Nonrecoverable Advance. The Servicer shall be entitled to reimbursement of
Advances (with interest at the Advance Rate) made pursuant to the preceding
sentence to the extent permitted by Section 3.6(ii) (or Section 3.6(iii), in
the case of interest at the Advance Rate).
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If the Special Servicer elects to proceed with a
non-judicial foreclosure in accordance with the laws of the state where the
related Mortgaged Property is located, the Special Servicer shall not be
required to pursue a deficiency judgment against the related Borrower or any
other liable party if the laws of such state do not permit such a deficiency
judgment after a non-judicial foreclosure or if the Special Servicer
determines, in its best judgment, that the likely recovery if a deficiency
judgment is obtained will not be sufficient to warrant the cost, time, expense
and/or exposure of pursuing such a deficiency judgment and such determination
is evidenced by an Officer's Certificate delivered to the Trustee.
In the event that title to any Mortgaged Property is
acquired in foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale shall be issued to the Trustee, or to its nominee (which
shall not include the Servicer) or a separate trustee or co-trustee on behalf
of the Trustee as holder of the Lower-Tier Regular Interests and
Certificateholders. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such Mortgage Loan shall (except
for purposes of Section 9.1) be considered to be a Mortgage Loan held in the
Trust Fund until such time as the related REO Property shall be sold by the
Trust Fund and the Scheduled Principal Balance of each REO Mortgage Loan shall
be reduced by any Net REO Proceeds allocated to principal. Consistent with the
foregoing, for purposes of all calculations hereunder, so long as such
Mortgage Loan shall be considered to be an outstanding Mortgage Loan:
(i) it shall be assumed that, notwithstanding that the
indebtedness evidenced by the related Note shall
have been discharged, such Note and, for purposes
of determining the Scheduled Principal Balance
thereof, the related amortization schedule in
effect at the time of any such acquisition of
title, remain in effect; and
(ii) Net REO Proceeds received in any month shall be
applied to amounts that would have been payable
under the related Note in accordance with the terms
of such Note. In the absence of such terms, Net REO
Proceeds shall be deemed to have been received
first in payment of the accrued interest that
remained unpaid on the date that the related REO
Property was acquired by the Trust Fund; in
respect of the delinquent principal installments
that remained unpaid on such date; and thereafter,
Net REO Proceeds received in any month shall be
applied to the payment of installments of principal
and accrued interest on such Mortgage Loan deemed
to be due and payable in accordance with the terms
of such Note and such amortization schedule. If
such Net REO Proceeds exceed the Monthly Payment
then payable, the excess shall be treated as a
Principal Prepayment received in respect of such
Mortgage Loan.
(c) Notwithstanding any provision to the contrary, the
Special Servicer shall not acquire for the benefit of the Trust Fund any
personal property pursuant to this Section 3.10 unless either:
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(i) such personal property is incident to real property
(within the meaning of Section 856(e)(1) of the
Code) so acquired by the Special Servicer for the
benefit of the Trust Fund; or
(ii) the Special Servicer shall have requested and
received an Opinion of Counsel (which opinion shall
be an expense of the Trust Fund) to the effect that
the holding of such personal property by the
Lower-Tier REMIC will not cause the imposition of a
tax on the Lower-Tier REMIC or the Upper-Tier REMIC
under the REMIC Provisions or
cause the Lower-Tier REMIC or the Upper-Tier REMIC
to fail to qualify as a REMIC at any time that any
Certificate is outstanding.
(d) Notwithstanding any provision to the contrary in this
Agreement, the Special Servicer shall not, on behalf of the Trust Fund, obtain
title to any direct or indirect partnership interest or other equity interest
in any Borrower pledged pursuant to any pledge agreement unless the Special
Servicer shall have requested and received an Opinion of Counsel (which
opinion shall be an expense of the Trust Fund) to the effect that the holding
of such partnership or other equity interest by the Trust Fund will not cause
the imposition of a tax on the Lower-Tier REMIC or the Upper-Tier REMIC under
the REMIC Provisions or cause the Lower-Tier REMIC or the Upper-Tier REMIC to
fail to qualify as a REMIC at any time that any Certificate is outstanding.
(e) Notwithstanding any provision to the contrary contained
in this Agreement, the Special Servicer shall not, on behalf of the Trust
Fund, obtain title to a Mortgaged Property as a result of or in lieu of
foreclosure or otherwise obtain title to any direct or indirect partnership
interest or other equity interest in any Borrower pledged pursuant to a pledge
agreement and thereby be the beneficial owner of a Mortgaged Property, and
shall not otherwise acquire possession of, or take any other action with
respect to, any Mortgaged Property if, as a result of any such action, the
Trustee, for the Trust Fund or the Certificateholders, would be considered to
hold title to, to be a "mortgagee-in-possession" of, or to be an "owner" or
"operator" of such Mortgaged Property within the meaning of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
from time to time, or any comparable law, unless the Special Servicer has
previously determined in accordance with the Servicing Standard, based on an
updated environmental assessment report prepared by an Independent Person who
regularly conducts environmental audits, that:
(A) such Mortgaged Property is in compliance with
applicable environmental laws or, if not after consultation with an
environmental consultant, that it would be in the best economic
interest of the Trust Fund to take such actions as are necessary to
bring such Mortgaged Property in compliance therewith, and
(B) there are no circumstances present at such
Mortgaged Property relating to the use, management or disposal of any
Hazardous Materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any
currently effective federal, state or local law or regulation, or
that, if any such Hazardous Materials are present for which such
action could be required, after
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consultation with an environmental consultant, it would be in the
best economic interest of the Trust Fund to take such actions with
respect to such Mortgaged Property.
In the event that the environmental assessment list obtained
by the Special Servicer with respect to a Mortgaged Property indicates that
such Mortgaged Property may not be in compliance with applicable environmental
laws or that Hazardous Materials may be present but does not definitively
establish such fact, the Special Servicer shall cause such further
environmental tests as the Special Servicer shall deem prudent to protect the
interests of Certificateholders to be conducted by an Independent Person who
regularly conducts such tests. Any such tests shall be deemed part of the
environmental assessment obtained by the Special Servicer for purposes of this
Section 3.10.
(f) The environmental assessment contemplated by Section
3.10(f) shall be prepared by any Independent Person who regularly conducts
environmental audits for purchasers of commercial properties located in the
same general area as the Mortgaged Property with respect to which the Special
Servicer is ordering such environmental assessment, as determined by the
Special Servicer in a manner consistent with the Servicing Standard. The
Servicer shall at the direction of the Special Servicer advance the cost of
preparation of such environmental assessments unless the Servicer determines,
in its good faith judgment, that such Advance would be a Nonrecoverable
Advance. The Servicer shall be entitled to reimbursement of Advances (with
interest at the Advance Rate) made pursuant to the preceding sentence to the
extent permitted pursuant to Section 3.6.
(g) If the Special Servicer determines pursuant to Section
3.10(f)(A) that a Mortgaged Property is not in compliance with applicable
environmental laws but that it is in the best economic interest of the Trust
Fund to take such actions as are necessary to bring such Mortgaged Property
into compliance therewith, or if the Special Servicer determines pursuant to
Section 3.10(f)(B) that the circumstances referred to therein relating to
Hazardous Materials are present but that it is in the best economic interest
of the Trust Fund to take such action with respect to the containment,
clean-up or remediation of Hazardous Materials affecting such Mortgaged
Property as is required by law or regulation, the Special Servicer shall take
such action as it deems to be in the best economic interest of the Trust Fund
(with due consideration to the avoidance of "mortgagee-in-possession," "owner"
or "operator" status, as set forth in Section 3.10(f)), but only if the
Trustee has mailed notice to the Holders of the Regular Certificates of such
proposed action, which notice shall be prepared by the Special Servicer, and
only if the Trustee does not receive, within __ days of such notification,
instructions from the Holders of at least __% of the aggregate Voting Rights
of such Classes directing the Special Servicer not to take such action. None
of the Trustee, the Servicer or the Special Servicer shall be obligated to
take any action or not take any action pursuant to this Section 3.10(h) at the
direction of the Certificateholders unless the Certificateholders agree to
indemnify the Trustee, the Servicer and the Special Servicer with respect to
such action or inaction. None of the Special Servicer, Servicer or the Trustee
shall be required to advance the cost of any such compliance, containment,
clean-up or remediation and such expense shall be an expense of the Trust
Fund.
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(h) The Special Servicer shall report to the IRS and to the
related Borrower, in the manner required by applicable law, the information
required to be reported regarding any Mortgaged Property which is abandoned or
foreclosed. The Special Servicer shall deliver a copy of any such report to
the Trustee.
(i) The costs of any appraisal obtained pursuant to this
Section 3.10 shall be paid by the Servicer as an Advance and shall be
reimbursable (with interest thereon at the Advance Rate) from the Collection
Account.
SECTION 3.11. Trustee to Cooperate; Release of Mortgage
Files.
Upon the payment in full of any Mortgage Loan, or the
receipt by the Servicer of a notification that payment in full has been
escrowed in a manner customary for such purposes, the Servicer shall
immediately notify the Trustee and the Custodian by a certification (which
certification shall include a statement to the effect that all amounts
received or to be received in connection with such payment which are required
to be deposited in the Collection Account pursuant to Section 3.5(a) have been
or will be so deposited) of a Servicing Officer and shall request delivery to
it of the Mortgage File. No expenses incurred in connection with any
instrument of satisfaction or deed of reconveyance shall be chargeable to the
Trust Fund.
From time to time upon request of the Servicer or the
Special Servicer, and delivery to the Trustee and the Custodian of a Request
for Release, the Trustee shall promptly cause the Custodian to release the
Mortgage File (or any portion thereof) designated in such Request for Release
to the Servicer or the Special Servicer, as applicable. Upon receipt of (a)
such Mortgage File (or portion thereof) by the Custodian from the Servicer or
the Special Servicer, as applicable, or (b) in the event of a liquidation or
conversion of the related Mortgage Loan into an REO Property, a certificate of
a Servicing Officer stating that such Mortgage Loan was liquidated and that
all amounts received or to be received in connection with such liquidation
which are required to be deposited into the Collection Account or Distribution
Account have been so deposited, or that such Mortgage Loan has become an REO
Property, the Custodian shall return the Request for Release to the Servicer
or the Special Servicer, as applicable.
Upon written certification of a Servicing Officer, the
Trustee shall execute and deliver to the Special Servicer any court pleadings,
requests for trustee's sale or other documents prepared by the Special
Servicer, its agents or attorneys, necessary to the foreclosure or trustee's
sale in respect of the Mortgaged Property or to any legal action brought to
obtain judgment against any Borrower on the related Note or Mortgage or to
obtain a deficiency judgment, or to enforce any other remedies or rights
provided by such Note or Mortgage or otherwise available at law or in equity.
Each such certification shall include a request that such pleadings or
documents be executed by the Trustee and a statement as to the reason such
documents or pleadings are required and that the execution and delivery
thereof by the Trustee will not invalidate or otherwise affect the lien of the
related Mortgage, except for the termination of such a lien upon completion of
the foreclosure or trustee's sale.
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SECTION 3.12. Servicing Compensation and Trustee Fees.
(a) As compensation for its activities hereunder, the
Servicer shall be entitled to the Servicing Fee, which shall be payable solely
from receipts on the related Mortgage Loans, and may be withheld from payments
on account of interest prior to deposit in the Collection Account, or may be
withdrawn from amounts on deposit in the Collection Account as set forth in
Section 3.6(iv). The Servicer's rights to the Servicing Fee may not be
transferred in whole or in part except in connection with the transfer of all
of the Servicer's responsibilities and obligations under this Agreement. In
addition, the Servicer shall be entitled to receive, as additional servicing
compensation, any Prepayment Interest Surplus (subject to Section 3.25) and,
to the extent permitted by applicable law and the related Notes and Mortgages,
any late payment charges, late fees, Assumption Fees, loan modification fees,
extension fees, Financial and Lease Reporting Fees (to the extent such fees
are not required to be remitted to the related Borrower pursuant to the
related Note), loan service transaction fees, beneficiary statement charges,
or similar items (but not including any Default Interest or Prepayment
Premiums), in each case to the extent received, with respect to any Mortgage
Loan that is not a Specially Serviced Mortgage Loan and not required to be
deposited or retained in the Collection Account pursuant to Section 3.5. The
Servicer shall also be entitled pursuant to, and to the extent provided in,
Section 3.7(b) to withdraw from the Collection Account and to receive from the
Reserve Accounts (to the extent not required to be paid to the related
Borrower pursuant to the related Mortgage Loan Documents or applicable law)
any interest or other income earned on deposits therein.
As compensation for its activities hereunder, the Trustee
shall be entitled to the Trustee Fee with respect to each Mortgage Loan, which
shall be paid by the Servicer from its own funds without reimbursement
therefor. The Trustee shall pay the routine fees and expenses of the
Certificate Registrar, the Paying Agent, the Custodian and the Authenticating
Agent. The Trustee's rights to the Trustee Fee may not be transferred in whole
or in part except in connection with the transfer of all of the Trustee's
responsibilities and obligations under this Agreement.
Except as otherwise provided herein, the Servicer shall pay
all expenses incurred by it in connection with its servicing activities
hereunder and the Trustee shall pay all expenses incurred by it in connection
with its activities hereunder.
(b) As compensation for its activities hereunder, the
Special Servicer shall be entitled to the Special Servicing Fee with respect
to each Specially Serviced Mortgage Loan, which shall be payable from amounts
on deposit in the Collection Account as set forth in Section 3.6(iv). The
Special Servicer's rights to the Special Servicing Fee may not be transferred
in whole or in part except in connection with the transfer of all of the
Special Servicer's responsibilities and obligations under this Agreement. The
Special Servicer shall also be entitled pursuant to, and to the extent
provided in, Section 3.7(b) to withdraw from any REO Account any interest or
other income earned on deposits therein.
In addition, the Special Servicer shall be entitled to
receive, as additional Servicing Compensation, to the extent permitted by
applicable law and the related Notes and
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Mortgages, any late payment charges, late fees, Assumption Fees, loan
modification fees, extension fees, Financial and Lease Reporting Fees (to the
extent such fees are not required to be remitted to the related Borrower
pursuant to the related Note), loan service transaction fees, beneficiary
statement charges, or similar items (but not including any Default Interest or
Prepayment Premiums), in each case to the extent received with respect to any
Specially Serviced Mortgage Loan and not required to be deposited or retained
in the Collection Account pursuant to Section 3.5.
Except as otherwise provided herein, the Special Servicer
shall pay all expenses incurred by it in connection with its servicing
activities hereunder.
(c) In addition to other Special Servicer compensation
provided for in this Agreement, and not in lieu thereof, the Special Servicer
shall be entitled to the Disposition Fee payable out of the Liquidation
Proceeds prior to the deposit of the related Net Liquidation Proceeds in the
Collection Account.
(d) The Servicer, the Special Servicer and the Trustee shall
be entitled to reimbursement from the Trust Fund for the unanticipated costs
and expenses incurred by them in the performance of their duties under this
Agreement which are "unanticipated expenses incurred by the REMIC" within the
meaning of Treasury Regulations Section 1.860G-1(b)(3)(ii). Such expenses
shall include, by way of example and not by way of limitation, environmental
assessments, appraisals in connection with foreclosure, the fees and expenses
of any administrative or judicial proceeding and expenses expressly identified
as reimbursable in Section 3.6(vi).
(e) No provision of this Agreement or of the Certificates
shall require the Servicer, the Special Servicer, the Trustee or the Fiscal
Agent to expend or risk their own funds or otherwise incur any financial
liability in the performance of any of their duties hereunder or thereunder,
or in the exercise of any of their rights or powers, if, in the good faith
business judgment of the Servicer, Special Servicer, Trustee or the Fiscal
Agent, as the case may be, repayment of such funds would not be ultimately
recoverable from late payments, Insurance Proceeds, Condemnation Proceeds, Net
Liquidation Proceeds and other collections on or in respect of the Mortgage
Loans, or from adequate indemnity from other assets comprising the Trust Fund
against such risk or liability.
If the Servicer, the Special Servicer or the Trustee
receives a request or inquiry from a Borrower, any Certificateholder or any
other Person the response to which would, in the Servicer's, the Special
Servicer's or the Trustee's good faith business judgment, require the
assistance of Independent legal counsel or other consultant to the Servicer,
the Special Servicer or the Trustee, the cost of which would not be an expense
of the Trust Fund hereunder, then the Servicer, the Special Servicer or the
Trustee, as the case may be, shall not be required to take any action in
response to such request or inquiry unless such Borrower or such
Certificateholder or such other Person, as applicable, makes arrangements for
the payment of the Servicer's, the Special Servicer's or Trustee's expenses
associated with such counsel or other consultant (including, without
limitation, posting an advance payment for such expenses) satisfactory to the
Servicer, the Special Servicer or the Trustee, as the case may be, in its sole
discretion. Unless
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such arrangements have been made, the Servicer, the Special Servicer or the
Trustee, as the case may be, shall have no liability to any Person for the
failure to respond to such request or inquiry.
SECTION 3.13. Reports to the Trustee; Collection
Account Statements.
(a) The Servicer shall deliver to the Paying Agent, with a
copy to the Trustee, the Fiscal Agent and each Rating Agency, no later than
the ____ Business Day following each Determination Date, but in any event no
later than the ______ Business Day prior to the related Distribution Date, (i)
the Servicer Remittance Report with respect to such Determination Date (which
shall include, without limitation, the amount of Pooled Available Funds for
the related Distribution Date) and (ii) a written statement of required P&I
Advances for the related Determination Date together with the certificate and
documentation required by the definition of Nonrecoverable Advance related to
any determination that any such P&I Advance would constitute a Nonrecoverable
Advance made as of such Determination Date.
(b) For so long as the Servicer makes deposits into and
withdrawals from the Collection Account, not later than ______ days after each
Distribution Date, the Servicer shall forward to the Trustee a statement
prepared by the Servicer setting forth the status of the Collection Account as
of the close of business on the ____ Business Day of the related Collection
Period showing the aggregate amount of deposits into and withdrawals from the
Collection Account for each category of deposit specified in Section 3.5 and
each category of withdrawal specified in Section 3.6 for such Collection
Period. The Trustee and its agents and attorneys may at any time during normal
business hours, upon reasonable notice, inspect and copy the books, records
and accounts of the Servicer with respect to the Mortgage Loans and the
performance of its duties hereunder.
(c) The Trustee shall be entitled to rely conclusively on
and shall not be responsible for the content or accuracy of any information
provided to it by the Servicer or the Special Servicer pursuant to this
Agreement.
SECTION 3.14. Annual Statement as to Compliance.
The Servicer and the Special Servicer shall deliver to the
Trustee and to the Depositor on or before March 31 of each year, beginning
_________ with , an Officer's Certificate stating, as to each signatory
thereof, (i) that a review of the activities of the Servicer or the Special
Servicer, as applicable, during the preceding calendar year (or such shorter
period from the Closing Date to the end of the related calendar year) and of
its performance under this Agreement has been made under such officer's
supervision, (ii) that, to the best of such officer's knowledge, based on such
review, it has fulfilled all of its obligations under this Agreement
throughout such year (or such shorter period), or, if there has been a default
in the fulfillment of any such obligation, specifying each such default known
to such officer, the nature and status thereof and what action it proposes to
take with respect thereto, (iii) that, to the best of such officer's
knowledge, each sub-servicer has fulfilled its obligations under its
sub-servicing agreement in all material respects, or, if there has been a
material default in the fulfillment of such obligations, specifying each such
default known to such officer and the nature and status
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thereof, and (iv) whether it has received any notice regarding qualification,
or challenging the status, of the Upper-Tier REMIC or Lower-Tier REMIC as a
REMIC from the IRS or any other governmental agency or body.
SECTION 3.15. Annual Independent Public Accountants'
Servicing Report.
On or before March 31 of each year, beginning with _________
, the Servicer and the Special Servicer at its expense shall cause a firm of
nationally recognized Independent public accountants (who may also render
other services to the Servicer or the Special Servicer, as applicable) which
is a member of the American Institute of Certified Public Accountants to
furnish a statement to the Trustee and to the Depositor, to the effect that
such firm has examined certain documents and records relating to the servicing
of the Mortgage Loans under this Agreement and that, on the basis of such
examination conducted substantially in compliance with generally accepted
auditing standards and the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for FHLMC, such servicing
has been conducted in compliance with this Agreement except for such
significant exceptions or errors in records that, in the opinion of such firm,
generally accepted auditing standards and the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC require it to report, in which case such exceptions and errors shall be
so reported.
SECTION 3.16. Access to Certain Documentation.
(a) The Servicer and the Special Servicer shall provide to
any Certificateholders that are federally insured financial institutions, the
Federal Reserve Board, the FDIC and the OTS and the supervisory agents and
examiners of such boards and such corporations, and any other governmental or
regulatory body to the jurisdiction of which any Certificateholder is subject,
access to the documentation regarding the Mortgage Loans required by
applicable regulations of the Federal Reserve Board, FDIC, OTS or any such
governmental or regulatory body, such access being afforded without charge but
only upon reasonable request and during normal business hours at the offices
of the Servicer or the Special Servicer, as applicable.
(b) In connection with the solicitation of bids to purchase
the Mortgage Loans pursuant to Section 9.1(d), the Servicer and the Special
Servicer shall provide each Qualified Offeror who has paid the non-refundable
deposit required pursuant to Section 9.1(d)(vi) with access to all documents
that the Auction Agent considers material to prospective purchasers in
connection with their evaluation of the purchase of the Mortgage Loans and
shall cooperate with the Auction Agent in order to facilitate prospective
purchasers' due diligence in accordance with the Auction Procedures, including
without limitation the provision of facilities in which copies of each
Mortgage File may be reviewed, provision of facilities for the photocopying of
documents relating to Mortgages in return for payment of expenses of such
photocopying, cooperation in arranging access to Mortgaged Properties and such
other matters as the Auction Agent may reasonably request; provided, however,
that the Servicer or the Special Servicer, as applicable, shall be entitled to
be compensated by Qualified Offerors for its costs of providing such access,
cooperation and facilities.
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(c) Nothing in this Section 3.16 shall detract from the
obligation of the Servicer or the Special Servicer to observe any applicable
law prohibiting disclosure of information with respect to the Borrowers or the
Mortgage Loans, and the failure of the Servicer or the Special Servicer, as
applicable, to provide access as provided in this Section 3.16 as a result of
such obligation shall not constitute a breach of this Section 3.16.
SECTION 3.17. Title and Management of REO Properties.
(a) In the event that title to any Mortgaged Property is
acquired for the benefit of Certificateholders in foreclosure, by deed in lieu
of foreclosure or upon abandonment or reclamation from bankruptcy, the deed or
certificate of sale shall be taken in the name of the Trustee, or its nominee
(which shall not include the Servicer), or a separate trustee or co-trustee,
on behalf of the Trust Fund. The Special Servicer shall maintain accurate
records with respect to each related REO Property reflecting the status of
taxes, assessments and other similar items that are or may become a lien on
such REO Property and the status of insurance premiums payable with respect
thereto. The Special Servicer, on behalf of the Trust Fund, shall dispose of
any REO Property within two years after the Trust Fund acquires ownership of
such REO Property for purposes of Section 860G(a)(8) of the Code, unless (i)
the Special Servicer, on behalf of the Lower-Tier REMIC, has applied for and
received an extension of such two-year period pursuant to Sections 856(e)(3)
and 860G(a)(8)(A) of the Code, in which case the Special Servicer shall sell
such REO Property within the applicable extension period or (ii) the Special
Servicer seeks and subsequently receives an Opinion of Counsel (which opinion
shall be an expense of the Trust Fund), addressed to the Special Servicer and
the Trustee, to the effect that the holding by the Trust Fund of such REO
Property for an additional specified period will not cause such REO Property
to fail to qualify as "foreclosure property" within the meaning of Section
860G(a)(8) of the Code (determined without regard to the exception applicable
for purposes of Section 860D(a) of the Code) at any time that any Certificate
is outstanding, in which case the Special Servicer shall sell such REO
Property within such two-year period as extended by such additional specified
period subject to any conditions set forth in such Opinion of Counsel. The
Special Servicer, on behalf of the Trust Fund, shall dispose of any REO
Property held by the Trust Fund prior to the ____ day of the period (taking
into account extensions) within which such REO Property is required to be
disposed of pursuant to the provisions of the immediately preceding sentence
in a manner provided under Section 3.18 hereof. The Special Servicer shall
manage, conserve, protect and operate each REO Property for the
Certificateholders solely for the purpose of its disposition and sale in a
manner which does not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a)).
(b) The Special Servicer shall have full power and
authority, subject only to the specific requirements and prohibitions of this
Agreement, to do any and all things in connection with any REO Property as are
consistent with the manner in which the Special Servicer manages and operates
similar property owned or managed by the Special Servicer or any of its
Affiliates, all on such terms and for such period as the Special Servicer
deems to be in the best interests of Certificateholders, and, in connection
therewith, the Special Servicer shall agree to the payment of management fees
that are consistent with general market standards. The
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Special Servicer shall segregate and hold all revenues received by it with
respect to any REO Property separate and apart from its own funds and general
assets and shall establish and maintain with respect to any REO Property a
segregated custodial account (each, an "REO Account"), each of which shall be
an Eligible Account and shall be entitled " __________ , as Trustee, in trust
for Holders of Prudential Securities Secured Financing Corporation, Commercial
Mortgage Pass-Through Certificates, Series __________ , REO Account." The
Special Servicer shall be entitled to any interest or investment income earned
on funds deposited in an REO Account to the extent provided in Section 3.7(b).
The Special Servicer shall deposit or cause to be deposited in the related REO
Account within ___ Business Day after receipt all REO Proceeds received by it
with respect to any REO Property (other than Liquidation Proceeds), and shall
withdraw therefrom funds necessary for the proper operation, management and
maintenance of such REO Property and for other Property Protection Expenses
with respect to such REO Property, including:
(i) all insurance premiums due and payable in respect
of such REO Property;
(ii) all real estate taxes and assessments in respect of
such REO Property that may result in the imposition
of a lien thereon; and
(iii) all costs and expenses reasonable and necessary to
protect, maintain, manage, operate, repair and
restore such REO Property, including any property
management fees.
To the extent that such REO Proceeds are insufficient for
the purposes set forth in clauses (i) through (iii) above, the Servicer (or,
in the event the Servicer is unable to perform, the Trustee or Fiscal Agent)
shall make an Advance equal to the amount of such shortfall unless the
Servicer determines, in its good faith judgment, that such Advance would be a
Nonrecoverable Advance. The Servicer shall be entitled to reimbursement of
such Advances (with interest at the Advance Rate) made pursuant to the
preceding sentence, to the extent permitted pursuant to Section 3.6. The
Special Servicer shall remit to the Servicer from each REO Account for deposit
in the Collection Account on a monthly basis prior to the related Remittance
Date the Net REO Proceeds received or collected from the related REO Property,
except that in determining the amount of such Net REO Proceeds, the Special
Servicer may retain in such REO Account reasonable reserves for repairs,
replacements and necessary capital improvements and other related expenses.
Notwithstanding the foregoing, the Special Servicer shall not:
(i) permit the Trust Fund to enter into, renew or
extend any New Lease if the New Lease, by its
terms, will give rise to any income that does not
constitute Rents from Real Property;
(ii) permit any amount to be received or accrued under
any New Lease other than amounts that will
constitute Rents from Real Property;
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(iii) authorize or permit any construction on any REO
Property, other than the repair or maintenance
thereof or the completion of a building or other
improvement thereon, and then only if more than ten
percent of the construction of such building or
other improvement was completed before default on
the related Mortgage Loan became imminent, all
within the meaning of Section 856(e)(4)(B) of the
Code; or
(iv) Directly Operate or perform any construction work
on, or allow any Person (other than an Independent
Contractor) to Directly Operate or perform any
construction work on, any REO Property on, any date
more than __ days after its date of acquisition by
the Trust Fund;
unless, in any such case, the Special Servicer has requested and received an
Opinion of Counsel addressed to the Special Servicer and the Trustee (which
opinion shall be an expense of the Trust Fund) to the effect that such action
will not cause such REO Property to fail to qualify as "foreclosure property"
within the meaning of Section 860G(a)(8) of the Code (determined without
regard to the exception applicable for purposes of Section 860D(a) of the
Code) at any time that it is held by the Trust Fund, in which case the Special
Servicer may take such actions as are specified in such Opinion of Counsel.
The Special Servicer shall be required to contract with an
Independent Contractor for the operation and management of any REO Property
within __ days of the Trust Fund's acquisition thereof (unless the Special
Servicer shall have provided the Trustee with an Opinion of Counsel that the
operation and management of such REO Property other than through an
Independent Contractor shall not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Code Section 860G(a)(8)) (which
opinion shall be an expense of the Trust Fund), provided that:
(i) the terms and conditions of any such contract shall
be reasonable and customary for the area and type
of property and shall not be inconsistent herewith;
(ii) any such contract shall require, or shall be
administered to require, that the Independent
Contractor pay all costs and expenses incurred in
connection with the operation and management of
such REO Property, including those listed above,
and remit all related revenues (net of such costs
and expenses) to the Special Servicer as soon as
practicable, but in no event later than _____ days
following the receipt thereof by such Independent
Contractor;
(iii) none of the provisions of this Section 3.17(b)
relating to any such contract or to actions taken
through any such Independent Contractor shall be
deemed to relieve the Special Servicer of any of
its duties and obligations to the Trust Fund or the
Trustee on behalf of the Certificateholders with
respect to the operation and management of any such
REO Property; and
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(iv) the Special Servicer shall be obligated with
respect thereto to the same extent as if it alone
were performing all duties and obligations in
connection with the operation and management of
such REO Property.
The Special Servicer shall be entitled to enter into any
agreement with any Independent Contractor performing services for it related
to its duties and obligations hereunder for indemnification of the Special
Servicer by such Independent Contractor, and nothing in this Agreement shall
be deemed to limit or modify such indemnification.
(c) Promptly following any acquisition by the Trust Fund of
an REO Property, the Special Servicer shall obtain (i) an update of any
appraisal performed pursuant to Section 3.10 which is more than ___ months
old, or (ii) to the extent that an appraisal has not been obtained pursuant to
such Section, an appraisal of such REO Property by an Independent appraiser
familiar with the area in which such REO Property is located in order to
determine the fair market value of such REO Property and shall notify the
Depositor and the Trustee of the results of such appraisal. Any such appraisal
shall be conducted in accordance with MAI standards and the cost thereof shall
be an expense of the Trust Fund.
(d) When and as necessary, the Special Servicer shall send
to the Trustee a statement prepared by the Special Servicer setting forth the
amount of net income or net loss, as determined for federal income tax
purposes, resulting from the operation and management of a trade or business
on, the furnishing or rendering of a non-customary service to the tenants of,
or the receipt of any other amount not constituting Rents from Real Property
in respect of, any REO Property in accordance with Section 3.17(b).
SECTION 3.18. Sale of Specially Serviced Mortgage Loans
and REO Properties.
(a) With respect to any Specially Serviced Mortgage Loan or
REO Property which the Special Servicer has determined to sell in accordance
with Section 3.10 or otherwise, the Special Servicer shall deliver to the
Trustee an Officer's Certificate to the effect that the Special Servicer has
determined to sell such Specially Serviced Mortgage Loan or REO Property in
accordance with this Section 3.18. The Special Servicer may then offer to sell
to any Person such Specially Serviced Mortgage Loan or such REO Property but
shall, in any event, so offer to sell such REO Property no later than the time
determined by the Special Servicer to be sufficient to result in the sale of
such REO Property within the period specified in Section 3.17(a). The Special
Servicer shall deliver such Officer's Certificate and give the Trustee not
less than __ Business Days prior written notice of its
intention to sell such Specially Serviced Mortgage Loan or REO Property, in
which case the Special Servicer shall accept any offer received from any
Person that is determined by the Special Servicer to be a fair price, as
determined in accordance with Section 3.18(b), for such Specially Serviced
Mortgage Loan or REO Property if the offeror is a Person other than an
Interested Person, or is determined to be such a price by the Trustee if the
offeror is an Interested Person; provided, however, that the Trustee shall be
entitled to engage at the expense of the Trust Fund, an Independent appraiser
to determine whether the offer is a fair price. Notwithstanding anything to
the contrary herein,
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neither the Trustee in its individual capacity nor any of its Affiliates, may
make an offer or purchase any Specially Serviced Mortgage Loan or any REO
Property pursuant hereto.
In addition, in the event that the Special Servicer receives
more than one fair offer with respect to any Specially Serviced Mortgage Loan
or REO Property, the Special Servicer may accept an offer that is not the
highest fair offer if it determines, in accordance with the Servicing
Standard, that acceptance of such offer would be in the best interests of the
Certificateholders (for example, if the prospective buyer making the lower
offer is more likely to perform its obligations, or the terms offered by the
prospective buyer making the lower offer are more favorable). In the event
that the Special Servicer determines with respect to any REO Property that the
offers being made with respect thereto are not in the best interests of the
Certificateholders and that the end of the two-year period referred to in
Section 3.17(a) with respect to such REO Property is approaching, the Special
Servicer shall seek an extension of such two-year period in the manner
described in Section 3.17(a); provided, however, that the Special Servicer
shall use its best efforts in accordance with the Servicing Standard, to sell
any REO Property no later than the day prior to the Determination Date
immediately prior to the Scheduled Final Distribution Date.
(b) In determining whether any offer received represents a
fair price for any Specially Serviced Mortgage Loan or any REO Property, the
Special Servicer or the Trustee may conclusively rely on the opinion of an
Independent appraiser or other expert in real estate matters retained by the
Special Servicer or the Trustee at the expense of the Trust Fund. In
determining whether any offer constitutes a fair price for any Specially
Serviced Mortgage Loan or any REO Property, the Special Servicer or the
Trustee (or, if applicable, such appraiser) shall take into account, and any
appraiser or other expert in real estate matters shall be instructed to take
into account, the appraisal obtained pursuant to Section 3.10(a) and, as
applicable, among other factors, the period and amount of any delinquency on
such Specially Serviced Mortgage Loan, the physical (including environmental)
condition of the related Mortgaged Property or such REO Property, the state of
the local economy and the Trust Fund's obligation to dispose of any REO
Property within the time period specified in Section 3.17(a).
(c) Subject to the provisions of Section 3.17, the Special
Servicer shall act on behalf of the Trust Fund in negotiating and taking any
other action necessary or appropriate in connection with the sale of any
Specially Serviced Mortgage Loan or REO Property, including the collection of
all amounts payable in connection therewith. Any sale of a Specially Serviced
Mortgage Loan or any REO Property shall be without recourse to, or
representation or warranty by, the Trustee, the Depositor, the Servicer, the
Special Servicer or the Trust Fund (except that any contract of sale and
assignment and conveyance documents may contain customary warranties of title,
so long as the only recourse for breach thereof is to the Trust Fund), and, if
such sale is consummated in accordance with the duties of the Special
Servicer, the Servicer, the Depositor and the Trustee pursuant to the terms of
this Agreement, no such Person who so performed shall have any liability to
the Trust Fund or any Certificateholder with respect to the purchase price
therefor accepted by the Special Servicer or the Trustee.
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(d) Net Liquidation Proceeds related to any such sale shall
be promptly, and in any event within ___ Business Day following receipt
thereof, deposited in the Collection Account in accordance with Section
3.5(a)(iv).
SECTION 3.19. Inspections.
The Servicer (or, with respect to Specially Serviced
Mortgage Loans and REO Properties, the Special Servicer) shall inspect or
cause to be inspected (at its own expense) each Mortgaged Property at such
times and in such manner as are consistent with the Servicing Standard, but in
any event (i) ____________ inspect each Mortgaged Property at least once every
___ months commencing in unless each of the Rating Agencies has confirmed in
writing that a longer period between inspections shall not result, in and of
itself, in a downgrading, withdrawal or qualification of the rating then
assigned by such Rating Agency to any Class of the Certificates; (ii) if the
Servicer or the Special Servicer retains any Financial and Lease Reporting
Fees pursuant to Section 3.12, each related Mortgaged Property shall be
inspected by the Servicer or the Special Servicer, as applicable, as soon as
practicable thereafter, except to the extent such Mortgaged Property has been
inspected by the Servicer or the Special Servicer within the immediately
preceding ___ days; and (iii) if any Monthly Payment becomes more than __ days
delinquent (without giving effect to any grace period permitted under the
related Note or Mortgage), each related Mortgaged Property shall be inspected
by the Special Servicer (at its own expense) as soon as practicable
thereafter.
SECTION 3.20. Available Information and Notices.
The Servicer or the Special Servicer, if applicable, shall
promptly give notice to the Trustee, who will copy each Certificateholder,
each Rating Agency, the Depositor and the Mortgage Loan Seller of (a) any
notice from a Borrower or insurance company regarding an upcoming voluntary or
involuntary prepayment (including that resulting from a casualty or
condemnation) of all or part of the related Mortgage Loan (provided that a
request by a Borrower or other party for a quotation of the amount necessary
to satisfy all obligations with respect to a Mortgage Loan shall not, in and
of itself, be deemed to be such notice); and (b) of any other occurrence known
to it with respect to a Mortgage Loan or REO Property that the Servicer or the
Special Servicer determines, in accordance with the Servicing Standard, would
have a material effect on such Mortgage Loan or REO Property, which notice
shall include an explanation as to the reason for such material effect
(provided that any extension of the term of any Mortgage Loan shall be deemed
to have a material effect).
Neither the Servicer nor the Special Servicer shall be
responsible for the accuracy or completeness of any information supplied to it
by a Borrower or otherwise for inclusion in any such notice, and the Servicer,
the Special Servicer and the Trustee shall be indemnified and held harmless by
the Trust Fund against any loss, liability or expense incurred in connection
with any legal action relating to any statement or omission or alleged
statement or omission therein, including any liability related to the
inclusion of such information in any report filed with the Commission.
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In addition to the other reports and information made
available and distributed to the Depositor, the Trustee or the
Certificateholders pursuant to other provisions of this Agreement, the
Servicer and the Special Servicer shall, in accordance with such reasonable
rules and procedures as it may adopt (which may include the requirement that
an agreement governing the availability, use and disclosure of such
information be executed to the extent the Servicer or the Special Servicer, as
applicable, deems such action to be necessary or appropriate), also make
available any information relating to the Mortgage Loans, the Mortgaged
properties or the Borrower for review by the Depositor, the Trustee, the
Certificateholders and any other Persons to whom the Servicer or the Special
Servicer, as the case may be, believes such disclosure is appropriate, in each
case except to the extent doing so is prohibited by applicable law or by any
documents related to a Mortgage Loan.
The Trustee shall also make available at its offices
primarily responsible for administration of the Trust Fund, during normal
business hours, for review by the Depositor, any Certificateholder, any Person
identified to the Trustee by a Certificateholder as a prospective transferee
of a Certificate and any other Persons to whom the Trustee believes such
disclosure is appropriate, the following items: (i) this Agreement, (ii) all
monthly statements to Certificateholders delivered since the Closing Date
pursuant to Section 4.2(a), (iii) all annual statements as to compliance
delivered to the Trustee and the Depositor pursuant to Section 3.14 and (iv)
all annual Independent accountants' reports delivered to the Trustee and the
Depositor pursuant to Section 3.15. The Servicer or the Special Servicer, as
appropriate, shall make available at its offices during normal business hours,
for review by the Depositor, the Trustee, any Certificateholder, any Person
identified to the Servicer or the Special Servicer, as applicable, by a
Certificateholder as a prospective transferee of a Certificate and any other
Persons to whom the Servicer or the Special Servicer, as applicable, believes
such disclosure is appropriate, the following items: (i) the inspection
reports prepared by or on behalf of the Servicer or the Special Servicer, as
applicable, in connection with the property inspections conducted by the
Servicer or the Special Servicer, as applicable, pursuant to Section 3.19,
(ii) any and all modifications, waivers and amendments of the terms of a
Mortgage Loan entered into by the Servicer or the Special Servicer and (iii)
any and all Officer's Certificates and other evidence delivered to the Trustee
and the Depositor to support the Servicer's determination that any Advance
was, or if made would be, a Nonrecoverable Advance, in each case except to the
extent doing so is prohibited by applicable laws or by any documents related
to a Mortgage Loan. Copies of any and all of the foregoing items shall be
available from the Servicer, the Special Servicer or the Trustee, as
applicable, upon request. The Servicer, the Special Servicer and the Trustee
shall be permitted to require payment (other than from any Rating Agency) of
a sum sufficient to cover the reasonable costs and expenses incurred by it in
providing copies of or access to any information requested in accordance with
the previous sentence.
The Servicer shall, on behalf of the Trust Fund, prepare,
sign and file with the Commission any and all reports, statements and
information respecting the Trust Fund which the Servicer or the Trustee
determines are required to be filed with the Commission pursuant to Sections
13(a) or 15(d) of the 1934 Act, each such report, statement and information to
be filed on or prior to the required filing date for such report, statement or
information. Notwithstanding the foregoing, the Depositor shall file with the
Commission, within ______ days of the Closing Date, a Current Report on Form
8-K together with this Agreement.
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Neither the Servicer not the Trustee shall be responsible
for the accuracy or completeness of any information supplied to it by a
Borrower or a third party that is included in any report, statement or
information filed with the Commission, and both the Servicer and the Trustee
shall be indemnified and held harmless by the Trust Fund against any loss,
liability or expense incurred in connection with any legal action relating to
any statement or omission or alleged statement or omission therein resulting
from such information.
SECTION 3.21. Reserve Accounts.
The Servicer shall administer each Reserve Account in
accordance with the related Note, Mortgage and Loan Agreement.
SECTION 3.22. Property Advances.
(a) The Servicer (or, to the extent provided in Section
3.22(b), the Trustee or the Fiscal Agent) shall make any Property Advances as
and to the extent otherwise required pursuant to the terms hereof. For purpose
of calculating distributions to the Certificateholders, Property Advances
shall not be considered to increase the principal balance of any Mortgage
Loan, notwithstanding that the terms of such Mortgage Loan so provide.
(b) The Servicer shall notify the Trustee and the Fiscal
Agent in writing promptly upon, and in any event within ___ Business Day
after, becoming aware that it will be financially unable to make any Property
Advance required to be made pursuant to the terms hereof, and in connection
therewith, shall set forth in such notice the amount of such Property Advance,
the Person to whom it should be paid, and the circumstances and purpose of
such Property Advance, and shall set forth therein information and
instructions for the payment of such Property Advance, and, on the date
specified in such notice for the payment of such Property Advance, or, if no
such date is specified, then within ___ Business Day following such notice,
the Trustee shall pay the amount of such Property Advance in accordance with
such information and instructions. If the Trustee fails to make any Property
Advance required to be made under this Section 3.22, the Fiscal Agent shall
make such Advance on the same day the Trustee was required to make such Property
Advance and, thereby, the Trustee shall not be in default under this Agreement.
(c) Notwithstanding anything herein to the contrary, none of
the Servicer, the Trustee or the Fiscal Agent shall be obligated to make a
Property Advance as to any Mortgage Loan or REO Property if the Servicer, the
Trustee or the Fiscal Agent as applicable, determines that such Property
Advance, if made, would be a Nonrecoverable Advance. The Trustee and the
Fiscal Agent shall be entitled to rely, conclusively, on any determination by
the Servicer that a Property Advance, if made, would be a Nonrecoverable
Advance. The Trustee and the Fiscal Agent, in determining whether or not a
Property Advance previously made is, or a proposed Property Advance, if made,
would be, a Nonrecoverable Advance shall be subject to the standards
applicable to the Servicer hereunder.
(d) The Servicer, the Trustee and/or the Fiscal Agent, as
applicable, shall be entitled to, and the Servicer hereby covenants and agrees
to promptly seek and effect, the
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reimbursement of Property Advances to the extent permitted pursuant to Section
3.6(ii) of this Agreement, together with any related Advance Interest Amount in
respect of such Property Advances.
(e) The Servicer, the Trustee and/or the Fiscal Agent shall
not be required to make a Property Advance for any amounts required to cure
any failure of any Mortgaged Property to comply with the Americans with
Disabilities Act of 1990, as amended, and all rules and regulations
promulgated pursuant thereto, and, in the case of an REO Property, such
amounts shall be an expense of the Trust Fund.
SECTION 3.23. Appointment of Special Servicer.
(a) ___________ is hereby appointed as the initial Special
Servicer to service each Specially Serviced Mortgage Loan.
(b) Certificateholders representing greater than __% of the
Voting Rights of the most subordinate Class of Regular Certificates
outstanding at any time shall be entitled to remove the Special Servicer with
or without cause and to appoint a successor Special Servicer, provided that
each Rating Agency confirms to the Trustee in writing that such appointment
shall not, in and of itself, cause a withdrawal, downgrading or qualification
of the then-current ratings assigned to any Class of Certificates.
(c) The appointment of any such successor Special Servicer
shall not relieve the Servicer, the Trustee or the Fiscal Agent of their
respective obligations to make Advances as set forth herein. Any termination
fee payable to the terminated Special Servicer (and it is hereby acknowledged
that there is no such fee payable in the event of a termination of ________ as
Special Servicer) shall be paid by the Certificateholders so terminating the
Special Servicer and shall not in any event be an expense of the Trust Fund.
(d) No termination of the Special Servicer and appointment
of a successor Special Servicer shall be effective until the successor Special
Servicer has assumed all of its responsibilities, duties and liabilities
hereunder pursuant to a writing satisfactory to the Trustee and each of the
Rating Agencies confirms to the Trustee in writing that such assumption shall
not result, in and of itself, in a downgrading, withdrawal or qualification of
the rating then assigned by such Rating Agency to any Class of the
Certificates.
SECTION 3.24. Transfer of Servicing Between Servicer and
Special Servicer; Record Keeping.
(a) Upon determining that any Mortgage Loan has become a
Specially Serviced Mortgage Loan, the Servicer shall immediately give notice
thereof, together with a copy of the related Mortgage File, to the Special
Servicer and shall use its best efforts to provide the Special Servicer with
all information, documents (but excluding the original documents constituting
such Mortgage File) and records (including records stored electronically on
computer tapes, magnetic discs and the like) relating to such Mortgage Loan
and reasonably requested by the Special Servicer to enable it to assume its
duties hereunder with respect thereto
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without acting through a sub-servicer. The Servicer shall use its best efforts
to comply with the preceding sentence within ____ Business Days of the date
such Mortgage Loan became a Specially Serviced Mortgage Loan and in any event
shall continue to act as Servicer and administrator of such Mortgage Loan
until the Special Servicer has commenced the servicing of such Mortgage Loan,
which shall occur upon the receipt by the Special Servicer of the information,
documents and records referred to in the preceding sentence. With respect to
each Mortgage Loan that becomes a Specially Serviced Mortgage Loan, the
Servicer shall instruct the related Borrower to continue to remit all payments
in respect of such Mortgage Loan to the Servicer. If ceases to be the Servicer
or ceases to be the Special Servicer, the remaining party of the two and the
successor Servicer or Special Servicer, as applicable, may agree that,
notwithstanding the preceding sentence, with respect to each Mortgage Loan
that became a Specially Serviced Mortgage Loan, the Servicer shall instruct
the related Borrower to remit all payments in respect of such Mortgage Loan to
the Special Servicer, provided that the payee in respect of such payments
shall remain the Servicer.
Upon determining that no event has occurred and is
continuing with respect to a Mortgage Loan that causes such Mortgage Loan to
be a Specially Serviced Mortgage Loan, the Special Servicer shall immediately
give notice thereof to the Servicer and upon giving such notice, such Mortgage
Loan shall cease to be a Specially Serviced Mortgage Loan pursuant to the
proviso to the definition of Specially Serviced Mortgage Loan, the Special
Servicer's obligation to service such Mortgage Loan shall terminate and the
obligations of the Servicer to service and administer such Mortgage Loan as a
Mortgage Loan that is not a Specially Serviced Mortgage Loan shall resume. In
addition, if the related Borrower has been instructed, pursuant to the last
sentence of the preceding paragraph, to make payments to the Special Servicer,
upon such determination, the Special Servicer shall instruct such Borrower to
remit all payments in respect of such Mortgage Loan that is no longer a
Specially Serviced Mortgage Loan directly to the Servicer.
(b) In servicing any Specially Serviced Mortgage Loan, the
Special Servicer shall provide to the Trustee originals of documents included
within the definition of "Mortgage File" for inclusion in the related Mortgage
File (to the extent such documents are in the possession of the Special
Servicer) and copies of any additional related Mortgage Loan information,
including correspondence with the related Borrower, and the Special Servicer
shall provide copies of all of the foregoing to the Servicer.
(c) Not later than the Business Day preceding each date on
which the Servicer is required to furnish a report under Section 3.13 to the
Trustee, the Special Servicer shall deliver to the Servicer a written
statement describing, on a Mortgage Loan-by-Mortgage Loan basis, (1) the
amount of all payments on account of interest received on each Specially
Serviced Mortgage Loan; the amount of all payments on account of principal,
including Principal Prepayments, on each Specially Serviced Mortgage Loan; the
amount of Insurance Proceeds and Liquidation Proceeds received with respect to
each Specially Serviced Mortgage Loan; and the amount of net income or net
loss, as determined for management of a trade or business on, or the
furnishing or rendering of a non-customary service to the tenants of, each REO
Property that previously secured a Specially Serviced Mortgage Loan, in each
case in accordance with Section
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3.17 and (2) such additional information relating to the Specially Serviced
Mortgage Loans as the Servicer reasonably requests to enable it to perform its
duties under this Agreement.
(d) Notwithstanding the provisions of the preceding
subsection (c), the Servicer shall maintain ongoing payment records with
respect to each of the Specially Serviced Mortgage Loans and shall provide the
Special Servicer with any information reasonably required by the Special
Servicer to perform its duties under this Agreement. The Special Servicer
shall provide the Servicer with any information reasonably required by the
Servicer to perform its duties under this Agreement.
SECTION 3.25. Adjustment of Servicing Compensation in Respect
of Prepayment Interest Shortfalls.
(a) The aggregate amount of the Prepayment Interest Surplus
and Servicing Fees (in that order) that the Servicer shall be entitled to
receive with respect to all of the Mortgage Loans on each Distribution Date
shall be offset on such Distribution Date by an amount equal to the aggregate
of the Prepayment Interest Shortfalls for such Distribution Date with respect
to all Mortgage Loans. The Servicer shall include the amount by which the
aggregate Servicing Fees and Prepayment Interest Surplus is offset pursuant to
this Section 3.25 as part of the Pooled Available Funds on such Distribution
Date. The amount of any offset against the aggregate Servicing Fees and
Prepayment Interest Surplus with respect to any Distribution Date under this
Section 3.25 shall be limited to the aggregate amount of the Servicing Fees
and Prepayment Interest Surplus otherwise payable to the Servicer on such
Distribution Date (without adjustment on account of Prepayment Interest
Shortfalls) and the rights of the Certificateholders to offset of the
aggregate Prepayment Interest Shortfalls shall not be cumulative. To the
extent the Servicer shall already have withdrawn or withheld Servicing
Compensation required to pay Prepayment Interest Shortfalls, the Servicer
shall promptly deposit in the Collection Amount such amounts to the extent
required to pay Prepayment Interest Shortfalls hereunder.
(b) To the extent that the Servicer and the Special Servicer
are the same Person, the aggregate amount of the Special Servicing Fees that
the Special Servicer shall be entitled to receive with respect to all of the
Specially Serviced Mortgage Loans on each Distribution Date shall be offset on
such Distribution Date by an amount equal to the excess of (X) the aggregate
of the Prepayment Interest Shortfalls for such Distribution Date with respect
to all Mortgage Loans over (Y) the amount of Servicing Fees offset against
such Prepayment Interest Shortfalls in accordance with Section 3.25(a). The
Servicer shall include the amount by which the aggregate Special Servicing Fee
is offset pursuant to this Section 3.25 as part of the Pooled Available Funds
on such Distribution Date. The amount of any offset against the aggregate
Special Servicing Fee with respect to any Distribution Date under this Section
3.25 shall be limited to the aggregate amount of the Special Servicing Fees
otherwise payable to the Special Servicer on such Distribution Date (without
adjustment on account of Prepayment Interest Shortfalls) and the rights of the
Certificateholders to offset of the aggregate Prepayment Interest Shortfalls
shall not be cumulative.
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SECTION 3.26. Extension Advisor.
The Special Servicer shall obtain the prior written approval
of the Extension Advisor in respect of any proposed modification of a Mortgage
Loan pursuant to Section 3.10(a) with respect to which three successive
extensions shall have already been granted. The Special Servicer shall advise
the Extension Advisor in a written report (in reasonable detail) if any such
modification after the third successive previous extension of such Mortgage
Loan with respect to a Specially Serviced Mortgage Loan is proposed and the
Special Servicer shall grant such extension only if the Extension Advisor
approves such extension in writing.
The Extension Advisory Fee shall be paid to the Extension
Advisor, first from loan modification fees paid by the Borrower under the
related Mortgage Loan as to which an extension was requested, and, to the
extent that such loan modification fees are insufficient to pay the Extension
Advisory Fee, any such shortfall shall be paid from the Servicing
Compensation; provided that the reduction in Servicing Compensation shall be
allocated equally between the Servicer and the Special Servicer.
The Extension Advisor may be replaced at any time by the
Holders of____% of the Voting Rights allocated to each Class of Regular
Certificates, other than the most subordinate such Class of Regular
Certificates, by written notice to the Extension Advisor, the Trustee and the
Special Servicer. Notwithstanding anything to the contrary contained herein,
in no event shall the Special Servicer be the Extension Advisor.
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ARTICLE IV
DISTRIBUTIONS TO CERTIFICATEHOLDERS
SECTION 4.1. Distributions.
(a) (I) On each Remittance Date, to the extent of Pooled
Available Funds, amounts held in the Collection Account shall be withdrawn and
remitted to the Trustee for deposit in the Distribution Account in the
following amounts:
(i) First, pro rata (A) to the Class ___ Interest in
respect of interest, (1) the Interest Distribution
Amount therefor, and (2) the aggregate unpaid
Interest Shortfalls allocated to the Class
____________ Interest on any prior Distribution
Date; (B) to the Class ________________ Interest in
respect of interest, (1) the Interest Distribution
Amount therefor, and (2) the aggregate unpaid
Interest Shortfalls allocated to the Class
_____________ Interest on any prior Distribution
Date; (C) to the Class ___________ Interest in
respect of interest, (1) the portion of the
Interest Distribution Amount therefor that is in
excess of interest thereon at the Class _________
Pass-Through Rate and (2) a proportionate amount of
any unpaid Interest Shortfalls allocated to the
Class ___________ Interest on any prior
Distribution Date; (D) to the Class __ Interest in
respect of interest, (1) the portion of the
Interest Distribution Amount therefor that is in
excess of interest thereon at the Class ________
Through Rate and (2) a proportionate amount of any
unpaid Interest Shortfalls allocated to the Class
___ Interest on any prior Distribution Date; (E) to
the Class ___ Interest in respect of interest, (1)
the portion of the Interest Distribution Amount
therefor that is in excess of interest thereon at
the Class __ Pass-Through Rate and (2) a
proportionate amount of any unpaid Interest
Shortfalls allocated to the Class ___ Interest on
any prior Distribution Date; and (F) to the Class
___ Interest in respect of interest, (1) the
portion of the Interest Distribution Amount
therefor that is in excess of interest thereon at
the Class __ Pass-Through Rate and (2) a
proportionate amount of any unpaid Interest
Shortfalls allocated to the Class ___ Interest on
any prior Distribution Date;
(ii) Second, to the Class ___ Interest, in reduction of
the Certificate Balance thereof, the Pooled
Principal Distribution Amount for such Distribution
Date, until the Certificate Balance thereof is
reduced to zero;
(iii) Third, to the Class _________ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ___% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the
date on which interest was last paid) to, but not
including, the Distribution Date following the
Remittance Date on which distributions in respect
of such unreimbursed Realized Loss are
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made pursuant to this subparagraph, up to an amount
equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such
Lower-Tier Regular Interest and interest thereon,
provided that any distribution pursuant to this
subparagraph shall be deemed to be distributed
first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(iv) Fourth, to the Class ________ Interest, in
reduction of the Certificate Balance thereof, the
Pooled Principal Distribution Amount for such
Distribution Date, until the Certificate Balance
thereof is reduced to zero;
(v) Fifth, to the Class _________ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ___% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the
date on which interest was last paid) to, but not
including, the Distribution Date following the
Remittance Date on which distributions in respect
of such unreimbursed Realized Loss are made
pursuant to this subparagraph, up to an amount
equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such
Lower-Tier Regular Interest and interest thereon,
provided that any distribution pursuant to this
subparagraph shall be deemed to be distributed
first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(vi) Sixth, to the Class ___ Interest, in respect of
interest, (A) the portion of the Interest
Distribution Amount therefor that is equal to
interest thereon at the Class ___ Pass-Through Rate
and (B) a proportionate amount of the aggregate
unpaid Interest Shortfalls allocated to the Class
___ Interest on any prior Distribution Date;
(vii) Seventh, after the Certificate Balance of the Class
___ Interest has been reduced to zero, to the Class
___ Interest, in reduction of the Certificate
Balance thereof, the Pooled Principal Distribution
Amount less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause,
until the Certificate Balance of the Class ___
Interest is reduced to zero;
(viii) Eighth, to the Class ___ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ___% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the
date on which interest was last paid) to, but not
including, the Distribution Date following the
Remittance Date on which distributions in respect
of such unreimbursed Realized Loss are made
pursuant to this subparagraph, up to an amount
equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such
Lower-Tier Regular Interest and interest thereon,
provided that any
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distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any
such interest and then in respect of any such
unreimbursed Realized Loss;
(ix) Ninth, to the Class ___ Interest, in respect of
interest, (A) the portion of the Interest
Distribution Amount therefor that is equal to
interest thereon at the Class __ Pass-Through Rate
and (B) a proportionate amount of the aggregate
unpaid Interest Shortfalls allocated to the Class
__ Interest on any prior Distribution Date;
(x) Tenth, after the Certificate Balance of the Class
___ Interest has been reduced to zero, to the Class
___ Interest, in reduction of the Certificate
Balance thereof, the Pooled Principal Distribution
Amount less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause,
until the Certificate Balance of the Class ___
Interest is reduced to zero;
(xi) Eleventh, to the Class ___ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ____% per annum from the date on which
such unreimbursed Realized Loss was allocated (or
the date on which interest was last paid) to, but
not including, the Distribution Date following the
Remittance Date on which distributions in respect
of such unreimbursed Realized Loss are made
pursuant to this subparagraph, up to an amount
equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such
Lower-Tier Regular Interest and interest thereon,
provided that any distribution pursuant to this
subparagraph shall be deemed to be distributed
first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xii) Twelfth, to the Class ___ Interest, in respect of
interest, (A) the portion of the Interest
Distribution Amount therefor that is equal to
interest thereon at the Class ___ Pass-Through Rate
and (B) a proportionate amount of the aggregate
unpaid Interest Shortfalls allocated to the Class
___ Interest on any prior Distribution Date;
(xiii) Thirteenth, after the Certificate Balance of the
Class ___ Interest has been reduced to zero, to the
Class ___ Interest, in reduction of the Certificate
Balance thereof, the Pooled Principal Distribution
Amount less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause,
until the Certificate Balance of the Class ___
Interest is reduced to zero;
(xiv) Fourteenth, to the Class ___ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ___% per annum from the date on which such
unreimbursed
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Realized Loss was allocated (or the date on which
interest was last paid) to, but not including, the
Distribution Date following the Remittance Date on
which distributions in respect of such unreimbursed
Realized Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized Losses
previously allocated to such Lower-Tier Regular
Interest and interest thereon, provided that any
distribution pursuant to this subparagraph shall be
deemed to be distributed first in respect of any
such interest and then in respect of any such
unreimbursed Realized Loss;
(xv) Fifteenth, to the Class ___ Interest, in respect of
interest, (A) the portion of the Interest
Distribution Amount therefor that is equal to
interest thereon at the Class __ Pass-Through Rate
and (B) a proportionate amount of the aggregate
unpaid Interest Shortfalls allocated to the Class
___ Interest on any prior Distribution Date;
(xvi) Sixteenth, after the Certificate Balance of the
Class ___ Interest has been reduced to zero, to the
Class ___ Interest, in reduction of the Certificate
Balance thereof, the Pooled Principal Distribution
Amount less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause,
until the Certificate Balance of the Class ___
Interest is reduced to zero;
(xvii) Seventeenth, to the Class ___ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ___% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the
date on which interest was last paid) to, but not
including, the Distribution Date following the
Remittance Date on which distributions in respect
of such unreimbursed Realized Loss are made
pursuant to this subparagraph, up to an amount
equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such
Lower-Tier Regular Interest and interest thereon,
provided that any distribution pursuant to this
subparagraph shall be deemed to be distributed
first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xviii) Eighteenth, to the Class ___ Interest, in respect
of interest, (A) the Interest Distribution Amount
therefor and (B) the aggregate unpaid Interest
Shortfalls allocated to the Class ___ Interest on
any prior Distribution Date;
(xix) Nineteenth, after the Certificate Balance of the
Class ___ Interest has been reduced to zero, to the
Class ___ Interest, in reduction of the Certificate
Balance thereof, the Pooled Principal Distribution
Amount less the portion thereof distributed on such
Distribution Date pursuant to any preceding
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clause, until the Certificate Balance of the Class
___ Interest is reduced to zero;
(xx) Twentieth, to the Class ___ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ___% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the
date on which interest was last paid) to, but not
including, the Distribution Date following the
Remittance Date on which distributions in respect
of such unreimbursed Realized Loss are made
pursuant to this subparagraph, up to an amount
equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such
Lower-Tier Regular Interest and interest thereon,
provided that any distribution pursuant to this
subparagraph shall be deemed to be distributed
first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xxi) Twenty-First, to the Class ___ Interest, in respect
of interest, (A) the Interest Distribution Amount
therefor and (B) the aggregate unpaid Interest
Shortfalls allocated to the Class ___ Interest on
any prior Distribution Date;
(xxii) Twenty-Second, after the Certificate Balance of the
Class ___ Interest has been reduced to zero, to the
Class ___ Interest, in reduction of the Certificate
Balance thereof, the Pooled Principal Distribution
Amount less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause,
until the Certificate Balance of the Class ___
Interest is reduced to zero;
(xxiii) Twenty-Third, to the Class ___ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ___% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the
date on which interest was last paid) to, but not
including, the Distribution Date following the
Remittance Date on which distributions in respect
of such unreimbursed Realized Loss are made
pursuant to this subparagraph, up to an amount
equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such
Lower-Tier Regular Interest and interest thereon,
provided that any distribution pursuant to this
subparagraph shall be deemed to be distributed
first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xxiv) Twenty-Fourth, to the Class ___ Interest, in
respect of interest, (A) the Interest Distribution
Amount therefor and (B) the aggregate unpaid
Interest Shortfalls allocated to the Class ___
Interest on any prior Distribution Date;
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(xxv) Twenty-Fifth, after the Certificate Balance of the
Class ___ Interest has been reduced to zero, to the
Class ___ Interest, in reduction of the Certificate
Balance thereof, the Pooled Principal Distribution
Amount less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause,
until the Certificate Balance of the Class ___
Interest is reduced to zero;
(xxvi) Twenty-Sixth, to the Class __ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ___% per annum from the date on which such
unreimbursed Realized Loss was allocated (or the
date on which interest was last paid) to, but not
including, the Distribution Date following the
Remittance Date on which distributions in respect
of such unreimbursed Realized Loss are made
pursuant to this subparagraph, up to an amount
equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such
Lower-Tier Regular Interest and interest thereon,
provided that any distribution pursuant to this
subparagraph shall be deemed to be distributed
first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss;
(xxvii) Twenty-Seventh, to the Class ___ Interest, in
respect of interest, (A) the Interest Distribution
Amount therefor and (B) the aggregate unpaid
Interest Shortfalls allocated to the Class ___
Interest on any prior Distribution Date;
(xxviii) Twenty-Eighth, after the Certificate Balance of the
Class ___ Interest has been reduced to zero, to the
Class ___ Interest, in reduction of the Certificate
Balance thereof, the Pooled Principal Distribution
Amount less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause,
until the Certificate Balance of the Class ___
Interest is reduced to zero;
(xxix) Twenty-Ninth, if such Remittance Date occurs after
the EC Maturity Date, to (i)the Class _______
Interest, (ii) the Class ______ Interest, (iii) the
Class ___________ Interest, (iv) the Class ________
Interest, (v) the Class ________ Interest, (vi) the
Class _________ Interest, (vii) the Class
__________ Interest, (viii) the Class _______
Interest, (ix) the Class _________ Interest, and
(x) the Class ________ Interest, in that order, in
reduction of the Certificate Balance of each
thereof, any remaining portion of Pooled Available
Funds in the Collection Account, until the
Certificate Balance of each has been reduced to
zero; and
(xxx) Thirtieth, to the Class _________ Interest, for the
unreimbursed amounts of Realized Losses, if any,
together with simple interest thereon at a rate
equal to ___________ % per annum from the date on
which such unreimbursed Realized Loss was allocated
(or the date on which interest was last paid)
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to, but not including, the Distribution Date
following the Remittance Date on which distributions
in respect of such unreimbursed Realized Loss are
made pursuant to this subparagraph, up to an amount
equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such
Lower-Tier Regular Interests and interest thereon,
provided that any distribution pursuant to this
subparagraph shall be deemed to be distributed
first in respect of any such interest and then in
respect of any such unreimbursed Realized Loss; and
(xxxi) Thirty-First, to the Class _______ Certificates,
any Pooled Available Funds remaining in the
Collection Account.
(II) On each Remittance Date, the Trustee shall receive for
deposit into the Distribution Account in respect of each Lower-Tier Regular
Interest, distributions from amounts on deposit in the Collection Account in
respect of Prepayment Premiums, if any, distributable to its Related
Certificate (or (i) in the case of the Class __________ Interest, amounts
distributable to the Class __________ Certificates and (ii) in the case of the
Class _____________ Interest, amounts distributable to the Class __________
Certificates) pursuant to Section .
(b) (I) On each Distribution Date, to the extent of amounts
remitted to the Distribution Account pursuant to Section ___________, Holders
of each Class of Certificates (other than the Class ___________ Certificates)
shall receive distributions from amounts on deposit in the Distribution
Account, up to the Pooled Available Funds for such Distribution Date, in the
amounts and in the order of priority set forth below:
(i) First, to the Class _______ Certificates,
Class Certificates and Class ________
Certificates, pro rata in accordance with
the Class Interest Distribution Amount of
each, up to an amount equal to the Class
Interest Distribution Amount of each such
Class for such Distribution Date;
(ii) Second, to the Class ________ Certificates,
Class __________ Certificates and
Class __________ Certificates, pro rata
in accordance with the Class Interest
Shortfall of each, up to an amount equal
to the aggregate unpaid Class Interest
Shortfalls previously allocated to such
Class on any previous Distribution Dates
and not paid;
(iii) Third, to the Class ________ Certificates,
in reduction of the Certificate Balance
thereof, the Pooled Principal Distribution
Amount for such Distribution Date, until
the Certificate Balance thereof is reduced
to zero;
(iv) Fourth, after the Certificate Balance of
the Class __________ Certificates has been
reduced to zero, to the Class _________
Certificates, in reduction of the
Certificate Balance thereof, the
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Pooled Principal Distribution Amount for
such Distribution Date, until the
Certificate Balance thereof is reduced to
zero;
(v) Fifth, to the Class ________ Certificates
and the Class _______ Certificates, pro
rata, for the unreimbursed amounts of
Realized Losses, if any, together with
simple interest thereon at a rate equal to
_________ % per annum from the date on
which such unreimbursed Realized Loss was
allocated (or the date on which interest
was last paid) to, but not including, the
Distribution Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized
Losses previously allocated to the Class
_________ Certificates and the Class
_________ Class Certificates and interest
thereon, provided that any distribution
pursuant to this subparagraph shall be
deemed to be distributed first in respect
of any such interest and then in respect
of any such unreimbursed Realized Loss;
(vi) Sixth, to the Class __________
Certificates, up to an amount equal to the
Class Interest Distribution Amount of such
Class for such Distribution Date;
(vii) Seventh, to the Class __________
Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls
previously allocated to such Class on any
previous Distribution Dates and not paid;
(viii) Eighth, after the Certificate Balance of
the Class ____ Certificates has been
reduced to zero, to the Class ________
Certificates, in reduction of the
Certificate Balance thereof, the Pooled
Principal Distribution Amount for such
Distribution Date less the portion thereof
distributed on such Distribution Date
pursuant to any preceding clause, until
the Certificate Balance thereof is reduced
to zero;
(ix) Ninth, to the Class _____ Certificates,
for the unreimbursed amounts of Realized
Losses, if any, together with simple
interest thereon at a rate equal to ___%
per annum from the date on which such
unreimbursed Realized Loss was allocated
(or the date on which interest was last
paid) to, but not including, the
Distribution Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized
Losses previously allocated to the Class
_______ Certificates and interest thereon,
provided that any distribution pursuant to
this subparagraph shall be deemed to be
distributed first in respect of
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any such interest and then in respect of
any such unreimbursed Realized Loss;
(x) Tenth, to the Class _______ Certificates,
up to an amount equal to the Class
Interest Distribution Amount of such Class
for such Distribution Date;
(xi) Eleventh, to the Class _______
Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls
previously allocated to such Class on any
previous Distribution Dates and not paid;
(xii) Twelfth, after the Certificate Balance of
the Class _______ Certificates has been
reduced to zero, to the Class __________
Certificates, in reduction of the
Certificate Balance thereof, the Pooled
Principal Distribution Amount for such
Distribution Date less the portion thereof
distributed on such Distribution Date
pursuant to any preceding clause, until
the Certificate Balance thereof is reduced
to zero;
(xiii) Thirteenth, to the Class ___ Certificates,
for the unreimbursed amounts of Realized
Losses, if any, together with simple
interest thereon at a rate equal to ____%
per annum from the date on which such
unreimbursed Realized Loss was allocated
(or the date on which interest was last
paid) to, but not including, the
Distribution Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized
Losses previously allocated to the Class
____ Certificates and interest thereon,
provided that any distribution pursuant to
this subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss;
(xiv) Fourteenth, to the Class _______
Certificates, up to an amount equal to the
Class Interest Distribution Amount of such
Class for such Distribution Date;
(xv) Fifteenth, to the Class _______
Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls
previously allocated to such Class on any
previous Distribution Dates and not paid;
(xvi) Sixteenth, after the Certificate Balance
of the Class ______ Certificates has been
reduced to zero, to the Class _____
Certificates, in reduction of the
Certificate Balance thereof, the Pooled
Principal Distribution Amount for such
Distribution Date less the portion thereof
distributed on such Distribution Date
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pursuant to any preceding clause, until
the Certificate Balance thereof is reduced
to zero;
(xvii) Seventeenth, to the Class _______
Certificates, for the unreimbursed amounts
of Realized Losses, if any, together with
simple interest thereon at a rate equal to
___% per annum from the date on which such
unreimbursed Realized Loss was allocated
(or the date on which interest was last
paid) to, but not including, the
Distribution Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized
Losses previously allocated to the Class
______ Certificates and interest thereon,
provided that any distribution pursuant to
this subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss;
(xviii) Eighteenth, to the Class _______
Certificates, up to an amount equal to the
Class Interest Distribution Amount of such
Class for such Distribution Date;
(xix) Nineteenth, to the Class _______
Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls
previously allocated to such Class on any
previous Distribution Dates and not paid;
(xx) Twentieth, after the Certificate Balance
of the Class _______ Certificates has been
reduced to zero, to the Class ________
Certificates, in reduction of the
Certificate Balance thereof, the Pooled
Principal Distribution Amount for such
Distribution Date less the portion thereof
distributed on such Distribution Date
pursuant to any preceding clause, until
the Certificate Balance thereof is reduced
to zero;
(xxi) Twenty-First, to the Class _____
Certificates, for the unreimbursed amounts
of Realized Losses, if any, together with
simple interest thereon at a rate equal to
____% per annum from the date on which
such unreimbursed Realized Loss was
allocated (or the date on which interest
was last paid) to, but not including, the
Distribution Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized
Losses previously allocated to the Class
_______ Certificates and interest thereon,
provided that any distribution pursuant to
this subparagraph shall be deemed to be
distributed
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first in respect of any such interest and
then in respect of any such unreimbursed
Realized Loss;
(xxii) Twenty-Second, to the Class ______
Certificates, up to an amount equal to the
Class Interest Distribution Amount of such
Class for such Distribution Date;
(xxiii) Twenty-Third, to the Class ________
Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls
previously allocated to such Class on any
previous Distribution Dates and not paid;
(xxiv) Twenty-Fourth, after the Certificate
Balance of the Class __ Certificates has
been reduced to zero, to the Class __
Certificates, in reduction of the
Certificate Balance thereof, the Pooled
Principal Distribution Amount for such
Distribution Date less the portion thereof
distributed on such Distribution Date
pursuant to any preceding clause, until
the Certificate Balance thereof is reduced
to zero;
(xxv) Twenty-Fifth, to the Class _______
Certificates, for the unreimbursed amounts
of Realized Losses, if any, together with
simple interest thereon at a rate equal to
_________ % per annum from the date on
which such unreimbursed Realized Loss was
allocated (or the date on which interest
was last paid) to, but not including, the
Distribution Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized
Losses previously allocated to the Class
_______ Certificates and interest thereon,
provided that any distribution pursuant to
this subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss;
(xxvi) Twenty-Sixth, to the Class _______
Certificates, up to an amount equal to the
Class Interest Distribution Amount of such
Class for such Distribution Date;
(xxvii) Twenty-Seventh, to the Class __________
Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls
previously allocated to such Class on any
previous Distribution Dates and not paid;
(xxviii) Twenty-Eighth, after the Certificate
Balance of the Class ______ Certificates
has been reduced to zero, to the Class
_________ Certificates, in reduction of
the Certificate Balance thereof, the
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Pooled Principal Distribution Amount for
such Distribution Date less the portion
thereof distributed on such Distribution
Date pursuant to any preceding clause,
until the Certificate Balance thereof is
reduced to zero;
(xxix) Twenty-Ninth, to the Class ____
Certificates, for the unreimbursed amounts
of Realized Losses, if any, together with
simple interest thereon at a rate equal to
___% per annum from the date on which such
unreimbursed Realized Loss was allocated
(or the date on which interest was last
paid) to, but not including, the
Distribution Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized
Losses previously allocated to the Class
______ Certificates and interest thereon,
provided that any distribution pursuant to
this subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss;
(xxx) Thirtieth, to the Class ____ Certificates,
up to an amount equal to the Class
Interest Distribution Amount of such Class
for such Distribution Date;
(xxxi) Thirty-First, to the Class ______
Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls
previously allocated to such Class on any
previous Distribution Dates and not paid;
(xxxii) Thirty-Second, after the Certificate
Balance of the Class ____ Certificates has
been reduced to zero, to the Class ______
Certificates, in reduction of the
Certificate Balance thereof, the Pooled
Principal Distribution Amount for such
Distribution Date less the portion thereof
distributed on such Distribution Date
pursuant to any preceding clause, until
the Certificate Balance thereof is reduced
to zero;
(xxxiii) Thirty-Third, to the Class ____
Certificates, for the unreimbursed amounts
of Realized Losses, if any, together with
simple interest thereon at a rate equal to
___% per annum from the date on which such
unreimbursed Realized Loss was allocated
(or the date on which interest was last
paid) to, but not including, the
Distribution Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized
Losses previously allocated to the Class
___________ Certificates and interest
thereon, provided that
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any distribution pursuant to this
subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss;
(xxxiv) Thirty-Fourth, to the Class ______
Certificates, up to an amount equal to the
Class Interest Distribution Amount of such
Class for such Distribution Date;
(xxxv) Thirty-Fifth, to the Class _______
Certificates, up to an amount equal to the
aggregate unpaid Class Interest Shortfalls
previously allocated to such Class on any
previous Distribution Dates and not paid;
(xxxvi) Thirty-Sixth, after the Certificate
Balance of the Class Certificates has been
reduced to zero, to the Class
Certificates, in reduction of the
Certificate Balance thereof, the Pooled
Principal Distribution Amount for such
Distribution Date less the portion thereof
distributed on such Distribution Date
pursuant to any preceding clause, until
the Certificate Balance thereof is reduced
to zero;
(xxxvii) Thirty-Seventh, if such Distribution Date
occurs after the EC Maturity Date, to (i)
the Class ______ Certificates, (ii) the
Class _________ Certificates, (iii) the
Class ______ Certificates, (iv) the Class
______ Certificates, (v) the Class
________ Certificates, (vi) the Class
_________ Certificates, (vii) the Class
_________ Certificates, (viii) the Class
______________ Certificates and the Class
_______ Certificates, pro rata, and (x)
the Class _________ Certificates, in that
order, in reduction of the Certificate
Balance of each thereof, any remaining
portion of Pooled Available Funds in the
Distribution Account, until the
Certificate Balance of each has been
reduced to zero; and
(xxxviii) Thirty-Eighth, to the Class ____
Certificates, for the unreimbursed amounts
of Realized Losses, if any, together with
simple interest thereon at a rate equal to
___% per annum from the date on which such
unreimbursed Realized Loss was allocated
(or the date on which interest was last
paid) to, but not including, the
Distribution Date on which distributions
in respect of such unreimbursed Realized
Loss are made pursuant to this
subparagraph, up to an amount equal to the
aggregate of such unreimbursed Realized
Losses previously allocated to the Class
___ Certificates and interest thereon,
provided that any distribution pursuant to
this subparagraph shall be deemed to be
distributed first in respect of any such
interest and then in respect of any such
unreimbursed Realized Loss.
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All references to pro rata in the preceding clauses shall mean pro rata based
on the amount distributable pursuant to such clause.
Notwithstanding anything to the contrary in this Agreement,
on each Distribution Date prior to the earlier of (i) the Senior Principal
Distribution Cross-Over Date and (ii) the final Distribution Date in
connection with the termination of the Trust Fund, all distributions of
principal to the Class ______ Certificates and the Class _____ Certificates
will be paid, first, to holders of the Class _____ Certificates until the
Certificate Balance of such Certificates is reduced to zero, and thereafter,
to holders of the Class ______ Certificates, until the Certificate Balance of
such Certificates is reduced to zero. On each Distribution Date on and after
the Senior Principal Distribution Cross-Over Date, and in any event on the
final Distribution Date in connection with the termination of the Trust Fund,
distributions of principal on the Class ______ Certificates and the Class
_____ Certificates will be paid to holders of such two Class of Certificates,
pro rata in accordance with their respective Certificate Balances outstanding
immediately prior to such Distribution Date, until the Certificate Balance of
each such Class of Certificates is reduced to zero.
(II) On each Distribution Date, amounts remaining in the
Distribution Account following the distributions to the Certificates pursuant
to Section 4.1(b) and (c) shall be distributed to the Class _______
Certificates.
(c) On each Distribution Date, following the distribution
from the Collection Account to the Distribution Account pursuant to Section
4.1(a)(II), the Paying Agent shall make distributions of Prepayment Premiums
with respect to any Principal Prepayments received in the related Collection
Period from amounts deposited in the Distribution Account pursuant to Section
4.6(b)(i) as follows:
(I) On each Distribution Date up to and including the EC
Maturity Date, Prepayment Premiums received with respect to Yield Maintenance
Loans during the Yield Maintenance Period for such Yield Maintenance Loans,
shall be distributed to the Holders of the Certificates outstanding on such
Distribution Date, in the following amounts and order of priority:
(i) First, to the Class of Certificates which is
entitled to distributions in respect of principal on such
Distribution Date (other than pursuant to clause thirty-seventh of
Section 4.1(b)(I)), an amount equal to (A) the present value
(discounted at the Discount Rate) of the principal and interest
distributions that would have been paid in respect of such Class of
Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of such Class of Certificates
would have been reduced to zero had the related prepayment not
occurred (and assuming no other prepayments were made), less (B) the
present value (discounted at the Discount Rate) of the principal and
interest distributions that will be paid in respect of such Class of
Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of such Class of Certificates is
reduced to zero following such prepayment (assuming no further
prepayments are made and no delinquencies or defaults occur) less (C)
the amount of such prepayment; provided that if more than one Class
of
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Certificates is entitled to distributions in respect of principal
on such Distribution Date (other than pursuant to clause thirty-seventh
of Section 4.1(b)(I)), the amount set forth herein shall be calculated
for each such Class, and the amount of Prepayment Premiums shall be
allocated among such Classes, pro rata in accordance with the amounts
so calculated, up to an amount equal to the sum of such amounts so
calculated; and
(ii) Second, any remaining Prepayment Premiums
following the distribution in clause First above, to the Class ______
Certificates.
(II) With respect to each Distribution Date up to and
including the EC Maturity Date, any Prepayment Premiums received with respect
to any Mortgage Loan that is not a Yield Maintenance Loan and any Prepayment
Premiums received with respect to any Yield Maintenance Loan after the related
Yield Maintenance Period will be allocated solely to the Class ________
Certificates.
(III) The Servicer will be entitled to receive as additional
Servicing Compensation amount of any Prepayment Premiums received in any
Collection Period subsequent to the Collection Period related to the EC
Maturity Date.
(IV) Notwithstanding the foregoing, Prepayment Premiums
shall be distributed on any Distribution Date only to the extent they are
received in respect of the Mortgage Loans in the related Collection Period.
(d) The Certificate Balances of the Lower-Tier Regular
Interests will be reduced without distribution on any Distribution Date as a
write-off to the extent of any Realized Losses with respect to such date. Any
such write-offs will be applied to the Lower Tier Regular Interests: first, to
the Class Interest; second, to the Class ________ Interest; third, to the
Class ________ Interest; fourth, to the Class _________ Interest; fifth, to
the Class ___________ Interest; sixth, to the Class __________ Interest;
seventh, to the Class _______ Interest; eighth, to the Class _______ Interest;
and ninth, to the Class _______ Interest and the Class _______ Interest,
pro rata.
The Certificate Balances of the Certificates (other than the Class ______ ,
Class _______ , Class _____ and Class _______ Certificates) will be reduced
without distribution on any Distribution Date, as a write-off, to the extent
that, after allocation of Realized Losses in accordance with the preceding
sentence, the Certificate Balance of any Class of Certificates exceeds the
Certificate Balance of its Related Lower-Tier Regular Interest.
(e) All amounts distributable to a Class of Certificates
pursuant to this Section 4.1 on each Distribution Date shall be allocated pro
rata among the outstanding Certificates in each such Class based on their
respective Percentage Interests. Such distributions shall be made on each
Distribution Date other than the Termination Date to each Certificateholder of
record on the related Record Date by check mailed by first class mail to the
address set forth therefor in the Certificate Register or, provided that such
Certificateholder holds Certificates with an aggregate initial Certificate
Balance, Class ________ Notional Balance or Class _________ Notional Balance
in excess of $________, and shall have provided the Paying Agent with wire
instructions in writing at least ____ Business Days prior to the related
Record Date, by wire
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transfer of immediately available funds to the account of such
Certificateholder at a bank or other entity located in the United States and
having appropriate facilities therefor. The final distribution on each
Certificate shall be made in like manner, but only upon presentment and
surrender of such Certificate at the office of the Trustee or its agent (which
may be the Paying Agent or the Certificate Registrar acting as such agent)
maintained in the Borough of Manhattan that is specified in the notice to
Certificateholders of such final distribution.
(f) Except as otherwise provided in Section 9.1 with respect
to an Anticipated Termination Date, the Trustee shall, no later than the
__________ day of the month in the month preceding the Distribution Date on
which the final distribution with respect to any Class of Certificates is
expected to be made or such later day as the Trustee becomes aware that the
final distribution with respect to any Class of Certificates is expected to be
made on the succeeding Distribution Date, mail to each Holder of such Class of
Certificates, on such day a notice to the effect that:
(A) the Trustee reasonably expects, based upon
information previously provided to it, that the
final distribution with respect to such Class of
Certificates will be made on such Distribution
Date, but only upon presentation and surrender of
such Certificates at the office of the Trustee
therein specified; and
(B) if such final distribution is made on such
Distribution Date, no interest shall accrue on such
Certificates from and after such Distribution Date;
provided, however, that the Class ____ and Class _______ Certificates shall
remain outstanding until there is no other Class of Certificates or Lower-Tier
Regular Interests outstanding.
Any funds not distributed to any Holder or Holders of
Certificates of such Class on such Distribution Date because of the failure of
such Holder or Holders to tender their Certificates shall, on such
Distribution Date, be set aside and held in trust for the benefit of the
appropriate non-tendering Holder or Holders. If any Certificates as to which
notice has been given pursuant to this Section 4.1(f) shall not have been
surrendered for cancellation within ___ months after the time specified in
such notice, the Trustee shall mail a second notice to the remaining
non-tendering Certificateholders, at their last addresses shown in the
Certificate Register, to surrender their Certificates for cancellation in
order to receive from such funds held the final distribution with respect
thereto. If, within one year after the second notice, any of such Certificates
shall not have been surrendered for cancellation, the Trustee may, directly or
through an agent, take appropriate steps to contact the remaining nontendering
Certificateholders concerning surrender of their Certificates. The costs and
expenses of maintaining such funds in trust and of contacting such
Certificateholders shall be paid out of such funds. If, within two years after
the second notice, any such Certificates shall not have been surrendered for
cancellation, the Paying Agent shall pay to the Trustee all amounts
distributable to the Holders thereof, and the Trustee shall thereafter hold
such amounts for the benefit of such Holders until the earlier of (i) its
termination as Trustee hereunder and the transfer of such amounts to a
successor Trustee and (ii) the termination of the Trust Fund and distribution
of such amounts to the Class __ Certificateholders. No interest shall accrue
or be payable to any
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Certificateholder on any amount held in trust hereunder or by the Trustee as a
result of such Certificateholder's failure to surrender its Certificate(s) for
final payment thereof in accordance with this Section 4.1(f). Any such amounts
transferred to the Trustee may be invested in Permitted Investments and all
income and gain realized from investment of such funds shall be for the
benefit of the Trustee. In the event the Trustee is permitted or required to
invest any amounts in Permitted Investments under this Agreement, whether in
its capacity as Trustee or in the event of its assumption of the duties of, or
becoming the successor to, the Servicer in accordance with the terms of this
Agreement, it shall invest such amounts in the following Permitted Investments
and priority, in each case only for so long as any such investment shall
continue to be a Permitted Investment: (1) (2) , (3) and (4) if none of
(1)-(3) above are available, Permitted Investments under clause (i) of the
definition of Permitted Investments. The Trustee shall indemnify the related
Certificateholders against any loss incurred in respect of any such Permitted
Investment immediately upon realization of such loss.
(g) Notwithstanding any provision in this Agreement to the
contrary, the aggregate amount distributable to each Class pursuant to this
Section 4.1 shall be reduced by the aggregate amount paid to any Person
pursuant to Section 6.3 or Section 8.5(d), such reduction to be allocated
among such Classes pro rata, based upon the respective amounts so
distributable without taking into account the provision of this Section
4.1(g). Such reduction of amounts otherwise distributable to a Class shall be
allocated first in respect of interest and second in respect of principal. For
purposes of determining Interest Shortfalls and Certificate Balances, the
amount of any such reduction so allocated to a Class shall be deemed to have
been distributed to such Class.
SECTION 4.2. Statements to Rating Agencies and
Certificateholders; Available Information;
Information Furnished to Financial Market
Publisher.
(a) On each Distribution Date, the Trustee shall prepare and
forward by mail to each Rating Agency and each Holder of a Certificate, with
copies to the Depositor, Paying Agent, Servicer and Special Servicer, a
statement as to such distribution setting forth for each Class, as applicable:
(i) Principal Distribution Amount and the amount
allocable to principal included in Pooled Available
Funds;
(ii) The Class Interest Distribution Amount
distributable to such Class and the amount of
Pooled Available Funds allocable thereto, together
with any Class Interest Shortfall allocable to such
Class;
(iii) The amount of any P&I Advances by the Servicer, the
Trustee or the Fiscal Agent included in the amounts
distributed to such Certificateholder;
(iv) The Certificate Balance of each Class of
Certificates after giving effect to the
distribution of amounts in respect of the Pooled
Principal Distribution Amount on such Distribution
Date;
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(v) Realized Losses and their allocation to the
Certificate Balance of any Class of Certificates;
(vi) The Scheduled Principal Balance of the Mortgage
Loans as of the Due Date preceding such
Distribution Date;
(vii) The number and aggregate principal balance of
Mortgage Loans (A) delinquent ____ month, (B)
delinquent ___ months, (C) delinquent _____ or more
months, (D) as to which foreclosure proceedings
have been commenced and (E) that otherwise
constitute Specially Serviced Mortgage Loans, and,
with respect to each Specially Serviced Mortgage
Loan, the amount of Property Advances made during
the related Collection Period, the amount of the
P&I Advance made on such Distribution Date, the
aggregate amount of Property Advances theretofore
made that remain unreimbursed and the aggregate
amount of P&I Advances theretofore made that remain
unreimbursed;
(viii) With respect to any Mortgage Loan that became an
REO Mortgage Loan during the preceding calendar
month, the principal balance of such Mortgage Loan
as of the date it became an REO Mortgage Loan;
(ix) As of the Due Date preceding such Distribution
Date, as to any REO Property sold during the
related Collection Period, the date on which the
Special Servicer made a Final Recovery
Determination and the amount of the proceeds of
such sale deposited into the Collection Account,
and the aggregate amount of REO Proceeds and Net
REO Proceeds (in each case other than Liquidation
Proceeds) and other revenues collected by the
Special Servicer with respect to each REO Property
during the related Collection Period and credited
to the Collection Account, in each case identifying
such REO Property by name;
(x) The outstanding principal balance of each REO
Mortgage Loan as of the close of business on the
immediately preceding Due Date and the appraised
value of the related REO Property per the most
recent Updated Appraisal obtained;
(xi) The amount of the Servicing Compensation paid to
the Servicer with respect to such Distribution
Date, and the amount of the additional servicing
compensation described in Section 3.12(a) that was
paid to the Servicer with respect to such
Distribution Date;
(xii) The amount of any Special Servicing Fee or
Disposition Fee paid to the Special Servicer with
respect to such Distribution Date; and
(xiii) (A) The amount of Prepayment Premiums, if any,
received during the related Collection Period, and
(B) the amount of Default Interest received
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during the related Collection Period and the Net
Default Interest for such Distribution Date.
In the case of information furnished pursuant to subclauses
(i), (ii), (iii) and (xiii)(A) above, the amounts shall be expressed as a
dollar amount in the aggregate for all Certificates of each applicable Class
and for each Class of Certificates for a denomination of $______ initial
Certificate Balance or Notional Balance.
Within a reasonable period of time after the end of each
calendar year, the Trustee shall furnish to each Person who at any time during
the calendar year was a Holder of a Certificate (except for a Class or Class
Certificate) and to each Rating Agency a statement containing the information
set forth in subclauses (i) and (ii) above, aggregated for such calendar year
or applicable portion thereof during which such Person was a
Certificateholder. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that it provided substantially comparable information
pursuant to any requirements of the Code as from time to time in force.
On each Distribution Date, the Trustee shall forward to each
Holder of a Class ____ or Class _____ Certificate a copy of the reports
forwarded to the other Certificateholders on such Distribution Date and a
statement setting forth the amounts, if any, actually distributed with respect
to the Class ______ or Class Certificates ______ on such Distribution Date.
Within a reasonable period of time after the end of each
calendar year, the Trustee shall furnish to each Person who at any time during
the calendar year was a Holder of a Class _____ or Class ______ Certificate a
statement containing the information provided pursuant to the previous
paragraph aggregated for such calendar year or applicable portion thereof
during which such Person was a Certificateholder. Such obligation of the
Trustee shall be deemed to have been satisfied to the extent that it provided
substantially comparable information pursuant to any requirements of the Code
as from time to time in force.
In addition to the reports required to be delivered pursuant
to this Section 4.2(a), the Trustee shall make available upon request to each
proposed transferee of a Privately Placed Certificate such additional
information, if any, in its possession as may be required to permit the
proposed transfer to be effected pursuant to Rule 144A.
(b) On or within ___ Business Days following each
Distribution Date, the Trustee shall prepare and furnish to the Financial
Market Publisher and the Placement Agent, using the format and media mutually
agreed upon by the Trustee, the Financial Market Publisher and the Placement
Agent, the following information regarding each Mortgage Loan and any other
information reasonably requested by the Placement Agent and available to the
Trustee:
(i) an identifying loan number;
(ii) the Mortgage Rate; and
(iii) the principal balance as of such Distribution Date.
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The Trustee shall only be obligated to deliver the statements, reports and
information contemplated by Section 4.2(a) and 4.2(b) to the extent it
receives the necessary underlying information from the Servicer and shall not
be liable for any failure to deliver any thereof on the prescribed Due Dates,
to the extent such failure is caused by the Servicer's failure to deliver such
underlying information in a timely manner. Nothing herein shall obligate the
Trustee, the Servicer or the Special Servicer to violate (in the reasonable
judgment of the Servicer, the Special Servicer or the Trustee, as appropriate)
any applicable law or provision of any Mortgage Loan document prohibiting
disclosure of information with respect to any Borrower and the failure of the
Trustee, the Servicer or the Special Servicer to disseminate information for
such reason shall not be a breach hereof.
SECTION 4.3. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the
Paying Agent shall comply with all federal withholding requirements with
respect to payments to Certificateholders of interest or original issue
discount that the Paying Agent reasonably believes are applicable under the
Code. The consent of Certificateholders shall not be required for any such
withholding. The Paying Agent agrees that it will not withhold with respect to
payments of interest or original issue discount in the case of a
Certificateholder that is a non-U.S. Person that has furnished or caused to be
furnished (i) an effective Form W-8 or Form W-9 or an acceptable substitute
form or a successor form and who has informed the Trustee in writing that it
is not a "10-percent shareholder" within the meaning of Code Section
871(h)(3)(B) or a "controlled foreign corporation" described in Code Section
881(c)(3)(C) with respect to the Trust Fund or the Depositor, or (ii) an
effective Form 4224 or an acceptable substitute form or a successor form. In
the event the Paying Agent or its agent withholds any amount from interest or
original issue discount payments or advances thereof to any Certificateholder
pursuant to federal withholding requirements, the Paying Agent shall indicate
the amount withheld to such Certificateholder. Any amount so withheld shall be
treated as having been distributed to such Certificateholder for all purposes
of this Agreement.
SECTION 4.4. REMIC Compliance.
(a) The parties intend that each of the Upper-Tier REMIC and
the Lower- Tier REMIC shall constitute, and that the affairs of each of the
Upper-Tier REMIC and the Lower-Tier REMIC shall be conducted so as to qualify
it as, a "real estate mortgage investment conduit" as defined in, and in
accordance with, the REMIC Provisions, and the provisions hereof shall be
interpreted consistently with this intention. In furtherance of such
intention, the Trustee shall, to the extent permitted by applicable law, act
as agent, and is hereby appointed to act as agent, of each of the Upper-Tier
REMIC and the Lower-Tier REMIC and shall on behalf of each of the Upper-Tier
REMIC and the Lower-Tier REMIC: (i) prepare, sign and file, or cause to be
prepared and filed, all required Tax Returns for each of the Upper-Tier REMIC
and the Lower-Tier REMIC, using a calendar year as the taxable year for each
of the Upper-Tier REMIC and the Lower-Tier REMIC, when and as required by the
REMIC Provisions and other applicable federal, state or local income tax laws;
(ii) make an election, on behalf of each of the Upper-Tier REMIC and the
Lower-Tier REMIC, to be treated as a REMIC on Form 1066 for its first taxable
year, in accordance with the REMIC Provisions; (iii) prepare
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and forward, or cause to be prepared and forwarded, to the Certificateholders
and the Internal Revenue Service and applicable state and local tax
authorities all information reports as and when required to be provided to
them in accordance with the REMIC Provisions; (iv) if the filing or
distribution of any documents of an administrative nature not addressed in
clauses (i) through (iii) of this Section 4.4 is then required by the REMIC
Provisions in order to maintain the status of the Upper-Tier REMIC or the
Lower-Tier REMIC as a REMIC or is otherwise required by the Code, prepare,
sign and file or distribute, or cause to be prepared and signed and filed or
distributed, such documents with or to such Persons when and as required by
the REMIC Provisions or the Code or comparable provisions of state and local
law; (v) within _____ days of the Closing Date, furnish or cause to be
furnished to the Internal Revenue Service, on Form 8811 or as otherwise may be
required by the Code, the name, title and address of the Person that the
holders of the Certificates may contact for tax information relating thereto
(and the Trustee shall act as the representative of each of the Upper-Tier
REMIC and the Lower-Tier REMIC for this purpose), together with such
additional information as may be required by such Form, and shall update such
information at the time or times and in the manner required by the Code (and
the Depositor agrees within ___ Business Days of the Closing Date, to provide
any information reasonably requested by the Trustee and necessary to make such
filing); and (vi) maintain such records relating to each of the Upper-Tier
REMIC and the Lower-Tier REMIC as may be necessary to prepare the foregoing
returns, schedules, statements or information, such records, for federal
income tax purposes, to be maintained on a calendar year and on an accrual
basis. The Holder of the largest Percentage Interest in the Class _______ or
Class _______ Certificates shall be the tax matters person of the Upper-Tier
REMIC or the Lower-Tier REMIC, respectively, pursuant to Treasury Regulations
Section 1.860F-4(d). If more than one Holder should hold an equal Percentage
Interest in the Class ________ or Class _________ Certificates larger than
that held by any other Holder, the first such Holder to have acquired such
Class _______ or Class ________ Certificates shall be such tax matters person.
The Trustee shall act as attorney-in-fact and agent for the tax matters person
of each of the Upper-Tier REMIC and the Lower-Tier REMIC, and each Holder of a
Percentage Interest in the Class _______ or Class ________ Certificates, by
acceptance thereof, is deemed to have consented to the Trustee's appointment
in such capacity and agrees to execute any documents required to give effect
thereto, and any fees and expenses incurred by the Trustee in connection with
any audit or administrative or judicial proceeding shall be paid by the Trust
Fund. The Trustee shall not intentionally take any action or intentionally
omit to take any action if, in taking or omitting to take such action, the
Trustee knows that such action or omission (as the case may be) would cause
the termination of the REMIC status of the Upper-Tier REMIC or the Lower- Tier
REMIC or the imposition of tax on the Upper-Tier REMIC or the Lower-Tier REMIC
(other than a tax on income expressly permitted or contemplated to be received
by the terms of this Agreement). Notwithstanding any provision of this
paragraph to the contrary, the Trustee shall not be required to take any
action that the Trustee in good faith believes to be inconsistent with any
other provision of this Agreement, nor shall the Trustee be deemed in
violation of this paragraph if it takes any action expressly required or
authorized by any other provision of this Agreement, and the Trustee shall
have no responsibility or liability with respect to any act or omission of the
Depositor or the Servicer or the Special Servicer which causes the Trustee to
be unable to comply with any of clauses (i) through (vi) of the fifth
preceding sentence or which results in any action contemplated by clauses (i)
or (ii) of the next succeeding sentence. In this regard the Trustee shall (i)
exercise reasonable care not to allow the occurrence of any "prohibited
transactions"
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with the meaning of Code Section 860F(a), unless the party seeking such action
shall have delivered to the Trustee an Opinion of Counsel (at such party's
expense) that such occurrence would not (A) result in a taxable gain, (B)
otherwise subject the Upper-Tier REMIC or the Lower-Tier REMIC to tax (other
than a tax at the highest marginal corporate tax rate on net income from
foreclosure property), or (C) cause either the Upper-Tier REMIC or the
Lower-Tier REMIC to fail to qualify as a REMIC; and (ii) exercise reasonable
care not to allow the Trust Fund to receive income from the performance of
services or from assets not permitted under the REMIC Provisions to be held by
a REMIC (provided, however, that the receipt of any income expressly permitted
or contemplated by the terms of this Agreement shall not be deemed to violate
this clause). Neither the Servicer, the Special Servicer nor the Depositor
shall be responsible or liable (except in connection with any act or omission
referred to in the two preceding sentences) for any failure by the Trustee to
comply with the provisions of this Section 4.4. The Depositor, the Special
Servicer and the Servicer shall cooperate in a timely manner with the Trustee
in supplying any information within the Depositor's, the Special Servicer's or
the Servicer's control (other than any confidential information) that is
reasonably necessary to enable the Trustee to perform its duties under this
Section 4.4.
(b) The following assumptions are to be used for purposes of
determining the anticipated payments of principal and interest for calculating
the original yield to maturity and original issue discount with respect to the
Regular Certificates: (i) each Mortgage Loan will pay principal and interest
in accordance with its terms and scheduled payments will be timely received on
their Due Dates, provided that the Mortgage Loans in the aggregate will prepay
in accordance with the Prepayment Assumption; (ii) none of the Servicer, the
Depositor and the Class Certificateholders will exercise the right described
in Section 9.1 of this Agreement to cause early termination of the Trust Fund;
and (iii) no Mortgage Loan is repurchased by the Depositor.
SECTION 4.5. Imposition of Tax on the Trust Fund.
In the event that any tax, including interest, penalties or
assessments, additional amounts or additions to tax, is imposed on the
Upper-Tier REMIC or the Lower- Tier REMIC, such tax shall be charged against
amounts otherwise distributable to the Holders of the Certificates; provided,
that any taxes imposed on any net income from foreclosure property pursuant to
Code Section 860G(d) or any similar tax imposed by a state or local
jurisdiction shall instead be treated as an expense of the related REO
Property in determining Net REO Proceeds with respect to such REO Property
(and until such taxes are paid, the Servicer from time to time shall withdraw
from the Collection Account amounts reasonably determined by the Servicer to
be necessary to pay such taxes, which the Servicer shall maintain in a
separate, non-interest-bearing account, and the Servicer shall deposit in the
Collection Account the excess determined by the Servicer from time to time of
the amount in such account over the amount necessary to pay such taxes) and
shall be paid therefrom. Except as provided in the preceding sentence, the
Trustee is hereby authorized to and shall retain or cause to be retained from
Pooled Available Funds sufficient funds to pay or provide for the payment of,
and to actually pay, such tax as is legally owed by the Upper-Tier REMIC or
the Lower-Tier REMIC (but such authorization shall not prevent the Trustee
from contesting, at the expense of the Trust Fund, any such tax in appropriate
proceedings, and withholding payment of such tax, if permitted by
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law, pending the outcome of such proceedings). The Trustee is hereby
authorized to and shall segregate or cause to be segregated, in a separate
non-interest bearing account, (i) the net income from any "prohibited
transaction" under Code Section 860F(a) or (ii) the amount of any contribution
to the Upper-Tier REMIC or the Lower-Tier REMIC after the Startup Day that is
subject to tax under Code Section 860G(d) and use such income or amount, to
the extent necessary, to pay such tax, such amounts to be segregated from the
Collection Account with respect to any such net income of or contribution to
the Lower-Tier REMIC and from the Distribution Account with respect to any
such net income of or contribution to the Upper-Tier REMIC (and return the
balance thereof, if any, to the Collection Account or the Distribution
Account, as the case may be). To the extent that any such tax is paid to the
Internal Revenue Service, the Trustee shall retain an equal amount from future
amounts otherwise distributable to the Holders of the Class _____ or the Class
_______ Certificates as the case may be, and shall distribute such retained
amounts to the Holders of Regular Certificates or Lower-Tier Regular
Interests, as applicable, until they are fully reimbursed and then to the
Holders of the Class _____ Certificates or the Class ________ Certificates, as
applicable. Neither the Servicer, the Special Servicer nor the Trustee shall
be responsible for any taxes imposed on the Upper-Tier REMIC or the Lower-Tier
REMIC, in either case, except to the extent such tax is attributable to a
breach of a representation or warranty of the Servicer or the Special Servicer
or an act or omission of the Servicer, the Special Servicer or the Trustee in
contravention of this Agreement, provided, further, that such breach, act or
omission could result in liability under Section 6.3 in the case of the
Servicer or Special Servicer or Section 4.4 or 8.1, in the case of the
Trustee. Notwithstanding anything in this Agreement to the contrary, in each
such case, the Servicer and the Special Servicer shall not be responsible for
the Trustee's breaches, acts or omissions, and the Trustee shall not be
responsible for the breaches, acts or omissions of the Servicer or the Special
Servicer.
SECTION 4.6. Remittances; P&I Advances.
(a) For purposes of this Section 4.6, "Applicable Monthly
Payment" shall mean, for any Mortgage Loan with respect to any month, (A) if
such Mortgage Loan is delinquent as to its Balloon Payment (including any
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property and for any month after the related Balloon Payment would have been
due), the related Assumed Scheduled Payment and (B) if such Mortgage Loan is
not described by the preceding clause (including any such Mortgage Loan as to
which the related Mortgaged Property has become an REO Property), the Monthly
Payment.
(b) On the Remittance Date immediately preceding each
Distribution Date, the Servicer shall:
(i) remit to the Trustee from the Collection
Account for deposit in the Distribution Account an amount
equal to the Prepayment Premiums received by the Servicer in
the Collection Period preceding such Remittance Date;
(ii) remit to the Trustee from the Collection
Account for deposit in the Distribution Account an amount
equal to the Pooled Available Funds for such Distribution
Date (excluding P&I Advances); and
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(iii) make an advance, by deposit into the
Collection Account, and remit such amount to the
Distribution Account in an amount equal to the sum of the
Applicable Monthly Payment for each Mortgage Loan, to the
extent such amounts were not received on such Mortgage Loans
as of the close of business on the Business Day immediately
preceding the Remittance Date.
(c) With respect to each Remittance Date, the Servicer shall
determine (a) with respect to each Seriously Delinquent Loan, the excess, if
any, of (x) the sum of the following amounts with respect to such Seriously
Delinquent Loan: (i) the outstanding principal balance thereof that is due and
payable; (ii) the interest portion of any unreimbursed P&I Advances with
respect thereto; (iii) any unreimbursed Property Advances with respect
thereto; and (iv) any currently due and payable or delinquent property taxes
with respect thereto over (y) the appraised value (as reflected in the related
Updated Appraisal) thereof and (b) the sum of all amounts described in clause
(a) (such sum, the "Anticipated Loss"). Notwithstanding Section 4.6(b)(iii),
with respect to any Remittance Date, the Servicer shall make a P&I Advance
with respect to any Seriously Delinquent Loan only to the extent that Pooled
Available Funds for the related Distribution Date (exclusive of any P&I
Advance with respect to any Seriously Delinquent Loans) are insufficient to
make distributions to all Classes of Lower-Tier Regular Interests and all
Classes of Certificates pursuant to Section 4.1(a)(I) and Section 4.1(b)(I),
respectively, other than, in each case, the most subordinate Class then
outstanding and any other Class as to which the aggregate of the Certificate
Balances of all Classes subordinate to such Class does not equal or exceed the
Anticipated Loss. In the event that, with respect to any Remittance Date, more
than one Mortgage Loan is a Seriously Delinquent Loan, the Servicer shall
designate on its records the specific Seriously Delinquent Loans as to which
any P&I Advance shall be deemed to have been made. Any such designation of P&I
Advances to specific Seriously Delinquent Loans shall be made, first, among
Seriously Delinquent Loans (excluding any REO Mortgage Loans) as to which the
related Borrower is delinquent only in the payment of Monthly Payments;
second, among Seriously Delinquent Loans (excluding REO Mortgage Loans) as to
which the related Borrower is delinquent in the payment of a Balloon Payment;
and third, among Seriously Delinquent Loans that are REO Mortgage Loans;
provided, however, that any such designation shall be made first to those
Seriously Delinquent Loans in respect of which the Servicer reasonably
determines that such P&I Advance is most likely to be recoverable.
(d) Any amount advanced by the Servicer pursuant to Section
4.6(b)(iii) shall constitute a P&I Advance for all purposes of this Agreement
and the Servicer shall be entitled to reimbursement thereof pursuant to
3.6(ii). The Servicer shall further be entitled to Advance Interest Amounts
accrued on the amount of any such P&I Advance at the Advance Rate and shall be
entitled to payment or reimbursement thereof pursuant to 3.6(iii).
(e) If, as of 5:00 p.m., New York City time, on any
Remittance Date the Servicer shall not (i) have made the P&I Advance required
to have been made on such date pursuant to Section 4.6(b)(iii) or (ii)
delivered the certificate and documentation related to a determination of
nonrecoverability, the Trustee shall immediately notify the Fiscal Agent by
telephone promptly confirmed in writing, and the Trustee shall no later than
10:00 a.m., New York City time, on such Distribution Date deposit into the
Distribution Account in immediately
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available funds an amount equal to the P&I Advances otherwise required to have
been made by the Servicer. If the Trustee fails to make any P&I Advance
required to be made under this Section 4.6, the Fiscal Agent shall make such
P&I Advance not later than 11:00 a.m., New York City time, on such
Distribution Date and, thereby, the Trustee shall not be in default under this
Agreement.
(f) Anything to the contrary in this Agreement
notwithstanding, none of the Servicer, the Trustee or the Fiscal Agent shall
be obligated to make a P&I Advance as to any Monthly Payment or Assumed
Scheduled Payment on any date on which a P&I Advance is otherwise required to
be made by this Section 4.6 if the Servicer, the Trustee or the Fiscal Agent,
as applicable, determines that such advance will be a Nonrecoverable Advance.
The Trustee and the Fiscal Agent shall be entitled to rely, conclusively, on
any determination by the Servicer that a P&I Advance, if made, would be a
Nonrecoverable Advance. The Trustee and the Fiscal Agent, in determining
whether or not a P&I Advance previously made is, or a proposed P&I Advance, if
made, would be, a Nonrecoverable Advance shall be subject to the standards
applicable to the Servicer hereunder.
(g) The Servicer, the Trustee or the Fiscal Agent, as
applicable, shall be entitled to, and hereby covenants and agrees to promptly
seek and effect, the reimbursement of P&I Advances it makes to the extent
permitted pursuant to Section 3.6(ii) of this Agreement together with any
related Advance Interest Amount in respect of such P&I Advances to the extent
permitted pursuant to Section 3.6(iii).
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ARTICLE V
THE CERTIFICATES
SECTION 5.1. The Certificates.
The Certificates consist of the Class Certificates,
[The Certificates of each Class will be issuable in
definitive physical form only, registered in the name of the holders thereof;
provided, however, that in accordance with Section 5.3 beneficial ownership
interests in the Certificates shall initially be represented by Book-Entry
Certificates held and transferred through the book-entry facilities of the
Securities Depository, in minimum denominations of authorized initial
Certificate Balance or notional amount (except with respect to the Class
________ and Class ______ Certificates), as described in the succeeding table.
The Book-Entry Certificates shall be in minimum denominations of $ _______ and
multiples of $ in excess thereof and the Certificates other than Book-Entry
Certificates shall be in minimum denominations of $ __________________ and
multiples of $ ______________ in excess thereof, except one Certificate of
each such Class may be issued which represents a different initial Certificate
Balance or Notional Balance to accommodate the remainder of the initial
Certificate Balance or related Notional amount. Each Certificate will share
ratably in all rights of the related Class. The Class ________ and ________
Certificates shall each be issuable in one or more registered, definitive
physical certificates in minimum denominations of __% Percentage Interests and
integral multiples of a __% Percentage Interest in excess thereof and together
aggregating the entire ___% Percentage Interest in each such Class.
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Aggregate Denominations
of all Certificates of Class
Minimum (in initial Certificate Balance or
Class Denomination initial Notional Balance)
Any of the Certificates may be issued with appropriate
insertions, omissions, substitutions and variations, and may have imprinted or
otherwise reproduced thereon such legend or legends, not inconsistent with the
provisions of this Agreement, as may be required to comply with any law or
with rules or regulations pursuant thereto, or with the rules of any
securities market in which the Certificates are admitted to trading, or to
conform to general usage.
Each Certificate may be printed or in typewritten or similar
form, and each Certificate shall, upon original issue, be executed and
authenticated by the Trustee or the Authenticating Agent and delivered to the
Depositor. All Certificates shall be executed by manual or facsimile signature
on behalf of the Trustee or Authenticating Agent by an authorized officer or
signatory. Certificates bearing the signature of an individual who was at any
time the proper officer or signatory of the Trustee or Authenticating Agent
shall bind the Trustee or Authenticating Agent, notwithstanding that such
individual has ceased to hold such office or position prior to the delivery of
such Certificates or did not hold such office or position at the date of such
Certificates. No Certificate shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless there appears on such
Certificate a certificate of authentication in the form set forth in Exhibits
A-1 through A-14 executed by the Authenticating Agent by manual signature, and
such certificate of authentication upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the
date of their authentication.
SECTION 5.2. Registration, Transfer and Exchange of
Certificates.
(a) The Trustee shall keep or cause to be kept at the
Corporate Trust Office books (the "Certificate Register") for the
registration, transfer and exchange of Certificates (the Trustee, in such
capacity, being the "Certificate Registrar"). The names and addresses of all
Certificateholders and the names and addresses of the transferees of any
Certificates shall be registered in the Certificate Register. The Person in
whose name any Certificate is so registered shall be deemed and treated as the
sole owner and Holder thereof for all purposes of this Agreement and the
Certificate Registrar, the Servicer, the Special Servicer, the Trustee, any
Paying Agent and any agent of any of them shall not be affected by any notice
or knowledge to the contrary. An Individual Certificate is transferable or
exchangeable only upon the surrender of such Certificate to the Certificate
Registrar at the Corporate Trust Office together with an assignment and
transfer (executed by the Holder or his duly authorized attorney), subject to
the
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requirements of Section 5.2(c), (d), (e) and (f). Upon request of the Trustee,
the Certificate Registrar shall provide the Trustee with the names, addresses
and Percentage Interests of the Holders.
(b) Upon surrender for registration of transfer of any
Individual Certificate, subject to the requirements of Section 5.2(c), (d),
(e) and (f), the Trustee shall execute and the Authenticating Agent shall duly
authenticate in the name of the designated transferee or transferees, one or
more new Certificates in authorized denominations of a like aggregate
Certificate Balance. Such Certificates shall be delivered by the Certificate
Registrar in accordance with Section 5.2(e). Each Certificate surrendered for
registration of transfer shall be cancelled and subsequently destroyed by the
Certificate Registrar. Each new Certificate issued pursuant to this Section
5.2 shall be registered in the name of any Person as the transferring Holder
may request, subject to the provisions of Section 5.2(c), (d), (e) and (f).
(c) The exchange, transfer and registration of transfer of
Individual Certificates that are Privately Placed Certificates shall be
subject to the restrictions set forth below (in addition to the provisions of
Section 5.2(d), (e) and (f)):
(i) The Certificate Registrar shall register the
transfer of an Individual Certificate that is a
Privately Placed Certificate if the requested
transfer is being made to a transferee who has
provided the Certificate Registrar with an
Investment Representation Letter substantially in
the form of Exhibit D-1 hereto (an "Investment
Representation Letter"), to the effect that the
transfer is being made to a Qualified Institutional
Buyer in accordance with Rule 144A; or
(ii) The Certificate Registrar shall register the
transfer of an Individual Certificate that is a
Privately Placed Certificate (other than a Class
or Class Certificate), if prior to the transfer,
the transferee furnishes to the Certificate
Registrar (1) an Investment Representation Letter
to the effect that the transfer is being made to an
Institutional Accredited Investor in accordance
with an applicable exemption under the Act, (2) an
Opinion of Counsel acceptable to the Certificate
Registrar that such transfer is in compliance with
the Act, and (3) a written undertaking by the
transferor to reimburse the Trust for any costs
incurred by it in connection with the proposed
transfer. In addition, the Certificate Registrar
may, as a condition of the registration of any such
transfer, require the transferor to furnish such
other certificates, legal opinions or other
information (at the transferor's expense) as the
Certificate Registrar may reasonably require to
confirm that the proposed transfer is being made
pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of
the Act and other applicable laws.
(d) Subject to the restrictions on transfer and exchange set
forth in this Section 5.2, the Holder of one or more Certificates may transfer
or exchange the same in whole or in part (with a Certificate Balance equal to
any authorized denomination) by surrendering such
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Certificate at the Corporate Trust Office or at the office of any transfer
agent appointed as provided under this Agreement, together with an instrument
of assignment or transfer (executed by the Holder or its duly authorized
attorney), in the case of transfer, and a written request for exchange in the
case of exchange. Subject to the restrictions on transfer set forth in this
Section 5.2, following a proper request for transfer or exchange, the
Certificate Registrar shall, within ____ Business Days of such request if made
at the Corporate Trust Office, or within ___ Business Days if made at the
office of a transfer agent (other than the Certificate Registrar), execute and
deliver at the Corporate Trust Office or at the office of such transfer agent,
as the case may be, to the transferee (in the case of transfer) or the Holder
(in the case of exchange) or send by first class mail (at the risk of the
transferee in the case of transfer or the Holder in the case of exchange) to
such address as the transferee or the Holder, as applicable, may request, an
Individual Certificate or Certificates, as the case may require, for a like
aggregate Certificate Balance and in such authorized denomination or
denominations as may be requested. The presentation for transfer or exchange
of any Individual Certificate shall not be valid unless made at the Corporate
Trust Office or at the office of a transfer agent by the registered Holder in
person, or by a duly authorized attorney-in-fact. The Certificate Registrar
may decline to accept any request for an exchange or registration of transfer
of any Certificate during the period of ___ days preceding any Distribution
Date.
(e) Individual Certificates may only be transferred to
Eligible Investors as described herein. In the event the Certificate Registrar
shall determine that an Individual Certificate is being held by or for the
benefit of a Person who is not an Eligible Investor, or that such holding is
unlawful under the laws of a relevant jurisdiction, then the Certificate
Registrar shall void such transfer, if permitted under applicable law.
(f) No fee or service charge shall be imposed by the
Certificate Registrar for its services in respect of any registration of
transfer or exchange referred to in this Section 5.2 other than for transfers
to Institutional Accredited Investors, as provided herein. In connection with
any transfer to an Institutional Accredited Investor, the transferor shall
reimburse the Trust for any costs (including the cost of the Certificate
Registrar's counsel's review of the documents and any legal opinions submitted
by the transferor or transferee to the Certificate Registrar as provided
herein) incurred by the Certificate Registrar in connection with such
transfer. The Certificate Registrar may require payment by each transferor of
a sum sufficient to cover any tax, expense or other governmental charge
payable in connection with any such transfer.
(g) Subject to Section 5.2(d), transfers of the Class _______
and Class _______ Certificates may be made only in accordance with this Section
5.2(g). The Certificate Registrar shall register the transfer of a Class
______ or Class __________ Certificate if (x) the transferor has advised the
Certificate Registrar in writing that the Certificate is being transferred to
a Qualified Institutional Buyer; and (y) prior to transfer the transferor
furnishes to the Certificate Registrar an Investment Representation Letter. In
addition, the Certificate Registrar may, as a condition of the registration of
any such transfer, require the transferor to furnish such other
certifications, legal opinions or other information (at the transferor's
expense) as they may reasonably be required to confirm that the proposed
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Act and other applicable
laws.
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(h) Neither the Depositor, the Servicer, the Special
Servicer, the Trustee nor the Certificate Registrar is obligated to register
or qualify any Class of Certificates under the Act or any other securities law
or to take any action not otherwise required under this Agreement to permit
the transfer of such Certificates without registration or qualification. Any
Certificateholder desiring to effect such transfer shall, and does hereby
agree to, indemnify the Depositor, the Servicer, the Special Servicer, the
Trustee and the Certificate Registrar, against any loss, liability or expense
that may result if the transfer is not exempt from the registration
requirements of the Act or is not made in accordance with such federal and
state laws.
(i) No transfer of any Ownership Interest in a Subordinate
Certificate shall be made to (i) an employee benefit plan subject to the
fiduciary responsibility provisions of ERISA, or Section 4975 of the Code, or
a governmental plan subject to any federal, state or local law ("Similar
Law"), which is to a material extent, similar to the foregoing provisions of
ERISA or the Code (collectively, a "Plan") or (ii) an insurance company that
is using the assets of any insurance company separate account or general
account in which the assets of any such Plan are invested (or which are deemed
pursuant to ERISA or any Similar Law to include assets of Plans) to acquire
any such Subordinate Certificates, other than using assets of its general
account in circumstances whereby such transfer and the subsequent holding of
the Certificate would not constitute or result in a prohibited transaction
within the meaning of Section 406 or 407 of ERISA, Section 4975 of the Code,
or any Similar Law. Each prospective transferee of a Subordinate Certificate
is shall deliver to the Depositor, the Certificate Registrar and the Trustee,
(a) a transfer or representation letter, substantially in the form of Exhibit
D-2 hereto, stating that the prospective transferee is not a Person referred
to in (i) or (ii) above, or (b) an Opinion of Counsel which establishes to the
satisfaction of the Depositor, the Trustee and the Certificate Registrar that
the purchase or holding of the Subordinate Certificate will not result in the
assets of the Trust Fund being deemed to be "plan assets" and subject to the
fiduciary responsibility or prohibited transaction provisions of ERISA, the
Code, or any Similar Law will not constitute or result in a prohibited
transaction within the meaning of Section 406 or Section 407 of ERISA or
Section 4975 of the Code, and will not subject the Servicer, the Special
Servicer, the Depositor, the Trustee or the Certificate Registrar to any
obligation or liability (including obligations or liabilities under ERISA or
Section 4975 of the Code), which Opinion of Counsel shall not be an expense of
the Trustee, the Trust Fund, the Servicer, the Special Servicer, Certificate
Registrar or the Depositor. Neither the Trustee, the Servicer, the Special
Servicer, nor the Certificate Registrar will register a Class __ or Class __
Certificate in any Person's name unless such Person has provided the letter
referred to in clause (a) above. Any transfer of a Subordinate Certificate
that would violate, or result in a prohibited transaction under, ERISA or
Section 4975 of the Code shall be deemed absolutely null and void ab initio.
(j) Each Person who has or acquires any Ownership Interest in a Class ________
Certificate or a Class _________ Certificate shall be deemed by the acceptance
or acquisition of such Ownership Interest to have agreed to be bound by the
following provisions, and the rights of each Person acquiring any Ownership
Interest in a Class __ Certificate or a Class __ Certificate are expressly
subject to the following provisions:
(i) Each Person acquiring or holding any Ownership
Interest in a Class Certificate or a Class
Certificate shall be a Permitted Transferee and
shall not acquire or hold such Ownership Interest as
agent (including as
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a broker, nominee or other middleman) on behalf of
any Person that is not a Permitted Transferee. Any
such Person shall promptly notify the Certificate
Registrar of any change or impending change in its
status (or the status of the beneficial owner of
such Ownership Interest) as a Permitted Transferee.
Any acquisition described in the first sentence of
this Section 5.2(j)(i) by a Person who is not a
Permitted Transferee or by a Person who is acting
as an agent of a Person who is not a Permitted
Transferee shall be void and of no effect, and the
immediately preceding owner who was a Permitted
Transferee shall be restored to registered and
beneficial ownership of the Ownership Interest as
fully as possible.
(ii) No Ownership Interest in a Class _____ Certificate
or a Class ____ Certificate may be transferred, and
no such Transfer shall be registered in the
Certificate Register, without the express written
consent of the Certificate Registrar, and the
Certificate Registrar shall not recognize a
proposed Transfer, and such proposed Transfer shall
not be effective, without such consent with respect
thereto. In connection with any proposed Transfer
of any Ownership Interest in a Class ___
Certificate or a Class _____ Certificate, the
Certificate Registrar shall, as a condition to such
consent, (x) require delivery to it in form and
substance satisfactory to it, and the proposed
transferee shall deliver to the Certificate
Registrar and to the proposed transferor, an
affidavit in substantially the form attached as
Exhibit ____ (a "Transferee Affidavit ") (A) that
such proposed transferee is a Permitted Transferee
and (B) stating that (i) the proposed transferee
historically has paid its debts as they have come
due and intends to do so in the future, (ii) the
proposed transferee understands that, as the holder
of an Ownership Interest in a Class ____
Certificate or a Class _____ Certificate, as
applicable , it may incur liabilities in excess of
cash flows generated by the residual interest,
(iii) the proposed transferee intends to pay taxes
associated with holding the Ownership Interest as
they become due, (iv) the proposed transferee will
not transfer the Ownership Interest to any Person
that does not provide a Transferee Affidavit or as
to which the proposed transferee has actual
knowledge that such Person is not a Permitted
Transferee or is acting as an agent (including as a
broker, nominee or other middleman) for a Person
that is not a Permitted Transferee, and (v) the
proposed transferee expressly agrees to be bound by
and to abide by the provisions of this Section
5.2(j) and (y) other than in connection with the
initial issuance of the Class _____ and Class
_________ Certificates, require a statement from
the proposed transferor substantially in the form
attached as Exhibit (the "Transferor Letter"), that
the proposed transferor has no actual knowledge
that the proposed transferee is not a Permitted
Transferee and has no actual knowledge or reason to
know that the proposed transferee's statements in
the preceding clauses (x)(B)(i) or (iii) are false.
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(iii) Notwithstanding the delivery of a Transferee
Affidavit by a proposed transferee under clause
(ii) above, if a Responsible Officer of the
Certificate Registrar has actual knowledge that the
proposed transferee is not a Permitted Transferee,
no Transfer to such proposed transferee shall be
effected and such proposed Transfer shall not be
registered on the Certificate Register; provided,
however, that the Certificate Registrar shall not
be required to conduct any independent
investigation to determine whether a proposed
transferee is a Permitted Transferee.
Upon notice to the Certificate Registrar that there has
occurred a Transfer to any Person that is a Disqualified Organization or an
agent thereof (including a broker, nominee, or middleman) in contravention of
the foregoing restrictions, and in any event not later than ___ days after a
request for information from the transferor of such Ownership Interest in a
Class Certificate or a Class Certificate, or such agent thereof, the
Certificate Registrar and the Trustee agree to furnish to the IRS and the
transferor of such Ownership Interest or such agent thereof such information
necessary to the application of Section 860E(e) of the Code as may be required
by the Code, including, but not limited to, the present value of the total
anticipated excess inclusions with respect to such Class
or Class Certificate (or portion thereof) for periods after such Transfer.
At the election of the Certificate Registrar and the Trustee, the Certificate
Registrar and the Trustee may charge a reasonable fee for computing and
furnishing such information to the transferor or to such agent thereof
referred to above; provided, however, that such Persons shall in no event be
excused from furnishing such information.
SECTION 5.3.
Book-Entry Certificates.
(a) The Class ________ Certificates, the Class _______
Certificates, the Class ________ Certificates, the Class B Certificates, the
Class _________ Certificates, the Class ________ Certificates, the Class
_________ Certificates and the Class _______ Certificates shall, in the case of
each such Class, initially be issued as one or more Book-Entry Certificates
registered in the name of the Securities Depository or its nominees and,
except as provided in subsection (c) below, transfer of such Certificates may
not be registered by the Certificate Registrar unless such transfer is to a
successor Securities Depository that agrees to hold such Certificates for the
respective Certificate Owners with Ownership Interests therein. Such
Certificate Owners shall hold and transfer their respective Ownership Interest
in and to such Certificates through the book-entry facilities of the
Securities Depository and, except as provided in subsection (c) below, shall
not be entitled to definitive, fully registered Certificates ("Definitive
Certificates") in respect of such Ownership Interests. All transfers by
Certificate Owners of their respective Ownership Interests in the Book-Entry
Certificates shall be made in accordance with the procedures established by
the Securities Depository Participant or brokerage firm representing each such
Certificate Owner. Each Securities Depository Participant shall only transfer
the Ownership Interests in the Book-Entry Certificates of Certificate Owners
it represents or of brokerage firms for which it acts as agent in accordance
with the Securities Depository's normal procedures. Neither the Certificate
Registrar nor the Trustee shall have any responsibility to monitor or restrict
the transfer of
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Ownership Interests in Book-Entry Certificates through the book-entry facilities
of the Securities Depository.
(b) The Trustee, the Servicer, the Special Servicer, the
Fiscal Agent and the Certificate Registrar may for all purposes, including the
making of payments due on the Book-Entry Certificates, deal with the
Securities Depository as the authorized representative of the Certificate
Owners with respect to such Certificates for the purposes of exercising the
rights of Certificateholders hereunder. The rights of Certificate Owners with
respect to the Book-Entry Certificates shall be limited to those established
by law and agreements between such Certificate Owners and the Securities
Depository Participants and brokerage firms representing such Certificate
Owners. Multiple requests and directions from, and votes of, the Securities
Depository as Holder of the Book-Entry Certificates with respect to any
particular matter shall not be deemed inconsistent if they are made with
respect to different Certificate Owners. The Trustee may establish a
reasonable record date in connection with solicitations of consents from or
voting by Certificateholders and shall give notice to the Securities
Depository of such record date.
(c) If (i)(A) the Depositor advises the Trustee and the
Certificate Registrar in writing that the Securities Depository is no longer
willing or able to properly discharge its responsibilities with respect to any
Class of the Book-Entry Certificates, and (B) the Depositor is unable to
locate a qualified successor, or (ii) the Depositor at its option advises the
Trustee and the Certificate Registrar in writing that it elects to terminate
the book-entry system through the Securities Depository with respect to any
Class of the Book-Entry Certificates, the Certificate Registrar shall notify
all affected Certificate Owners, through the Securities Depository, of the
occurrence of any such event and of the availability of Definitive
Certificates to such Certificate Owners requesting the same. Upon surrender to
the Certificate Registrar of any Class of the Book-Entry Certificates by the
Securities Depository, accompanied by registration instructions from the
Securities Depository for registration of transfer, the Trustee shall execute,
and the Certificate Registrar shall authenticate and deliver, the Definitive
Certificates to the Certificate Owners identified in such instructions. None
of the Depositor, the Servicer, the Special Servicer, the Trustee, the Fiscal
Agent or the Certificate Registrar shall be liable for any delay in delivery
of such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Certificates
for purposes of evidencing ownership of any of the Class _____ Certificates,
the Class Certificates, the Class ______ Certificates, the Class ______
Certificates, the Class _______ Certificates, the Class ________ Certificates,
the Class ______ Certificates and the Class __________ Certificates, the
registered holders of such Definitive Certificates shall be recognized as
Certificateholders hereunder and, accordingly, shall be entitled directly to
receive payments on, to exercise Voting Rights with respect to, and to
transfer and exchange such Definitive Certificates.
SECTION 5.4. Mutilated, Destroyed, Lost or Stolen
Certificates.
If (i) any mutilated Certificate is surrendered to the
Certificate Registrar, or the Certificate Registrar receives evidence to its
satisfaction of the destruction, loss or theft of any Certificate, and (ii)
there is delivered to the Certificate Registrar such security or indemnity as
may be requited by it to save it, be Trustee and the Servicer harmless, then,
in the absence of
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actual knowledge by a Responsible Officer of the Certificate
Registrar that such Certificate has been acquired by a bona fide purchaser,
the Trustee or the Authenticating Agent shall execute and authenticate and the
Certificate Registrar shall deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of the
same Class and of like tenor and Percentage Interest. Upon the issuance of any
new Certificate under this Section 5.4, the Certificate Registrar may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses (including the
fees and expenses of the Certificate Registrar) connected therewith. Any
replacement Certificate issued pursuant to this Section 5.4 shall constitute
complete and indefeasible evidence of ownership of the corresponding interest
in the Trust Fund, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
SECTION 5.5. Appointment of Paying Agent.
The Trustee may appoint a paying agent for the purpose of
making distributions to Certificateholders pursuant to Section 4.1. The
Trustee shall cause such Paying Agent, if other than the Trustee or the
Servicer, to execute and deliver to the Servicer and the Trustee an instrument
in which such Paying Agent shall agree with the Servicer and the Trustee that
such Paying Agent will hold all sums held by it for payment to
Certificateholders in trust for the benefit of the Certificateholders entitled
thereto until such sums have been paid to such Certificateholders or disposed
of as otherwise provided herein. The initial Paying Agent shall be the
Trustee. The Paying Agent shall at all times be an entity having a long-term
unsecured debt rating of at least "BBB" by each Rating Agency, unless each of
the Rating Agencies has confirmed in writing that a lower rating shall not
result, in and of itself, in a downgrading, withdrawal or qualification of the
rating then assigned by such Rating Agency to any Class of the Certificates.
SECTION 5.6. Access to Certificateholders' Names and
Addresses.
(a) If any Certificateholder (for purposes of this Section
5.6, an "Applicant") applies in writing to the Certificate Registrar, and such
application states that the Applicant desires to communicate with other
Certificateholders with respect to their rights under this Agreement or under
the Certificates and is accompanied by a copy of the communication which such
Applicant proposes to transmit, then the Certificate Registrar shall, at the
expense of such Applicant, within ___ Business Days after the receipt of such
application, transmit such communication to the Certificateholders as of the
most recent Record Date; provided, however, if such communication relates to
performance by the Servicer, the Special Servicer or the Trustee of its duties
hereunder, the Certificate Registrar shall furnish or cause to be furnished to
such Applicant a list of the names and addresses of the Certificateholders as
of the most recent Record Date.
(b) Every Certificateholder, by receiving and holding its
Certificate, agrees with the Trustee that the Trustee and the Certificate
Registrar shall not be held accountable in any way by reason of the disclosure
of any information as to the names and addresses of the Certificateholders
hereunder, regardless of the source from which such information was derived.
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SECTION 5.7. Actions of Certificateholders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement to be given or
taken by Certificateholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Certificateholders
in person or by an agent duly appointed in writing; and except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and, when required, to
the Depositor, the Special Servicer or the Servicer. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Agreement and conclusive in favor of the Trustee, the
Depositor, the Special Servicer and the Servicer, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any
Certificateholder of any such instrument or writing may be proved in any
reasonable manner which the Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Certificateholder shall bind every Holder of
every Certificate issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, or omitted
to be done, by the Trustee, the Depositor, the Special Servicer or the
Servicer in reliance thereon, whether or not notation of such action is made
upon such Certificate.
(d) The Trustee or Certificate Registrar may require such
additional proof of any matter referred to in this Section 5.7 as it shall
deem necessary.
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ARTICLE VI
THE DEPOSITOR, THE SERVICER AND THE SPECIAL SERVICER
SECTION 6.1. Liability of the Depositor, the Servicer and
the Special Servicer.
The Depositor, the Servicer and the Special Servicer each
shall be liable in accordance herewith only to the extent of the obligations
specifically imposed by this Agreement.
SECTION 6.2. Merger or Consolidation of the Servicer and
Special Servicer.
Subject to the third paragraph of this Section 6.2, the
Servicer will keep in full effect its existence, rights and good standing as a
____________ ___________ under the laws of the State of __________ and will not
jeopardize its ability to do business in each jurisdiction in which one or
more of the Mortgaged Properties are located or to protect the validity and
enforceability of this Agreement, the Certificates or any of the Mortgage
Loans and to perform its respective duties under this Agreement.
Subject to the following paragraph, the Special Servicer
will keep in full effect its existence, rights and good standing as a
corporation under the laws of the State of Florida and will not jeopardize its
ability to do business in each jurisdiction in which one or more of the
Mortgaged Properties are located or to protect the validity and enforceability
of this Agreement, the Certificates or any of the Specially Serviced Mortgage
Loans and to perform its respective duties under this Agreement.
Each of the Servicer and the Special Servicer may be merged
or consolidated with or into any Person, or transfer all or substantially all
of its assets to any Person, in which case any Person resulting from any
merger or consolidation to which it shall be a party, or any Person succeeding
to its business, shall be the successor of the Servicer or the Special
Servicer, as applicable hereunder, and shall be deemed to have assumed all of
the liabilities of the Servicer or the Special Servicer, as applicable
hereunder, if each of the Rating Agencies has confirmed in writing that such
merger, consolidation or transfer and succession shall not result, in and of
itself, in a downgrading, withdrawal or qualification of the rating then
assigned by such Rating Agency to any Class of Certificates.
SECTION 6.3. Limitation on Liability of the Depositor,
the Servicer and Others.
Neither the Depositor, the Servicer, the Special Servicer,
the Extension Advisor nor any of the directors, officers, employees or agents
of the Depositor or the Servicer or the Special Servicer or the Extension
Advisor (or any general partner of the Servicer or, if applicable, the Special
Servicer or the Extension Advisor) shall be under any liability to the Trust
Fund or the Certificateholders for any action taken, or for refraining
from the taking of any action, in good faith pursuant to this Agreement, or
for errors in judgment; provided, however, that this provision shall not
protect the Depositor or the Servicer or the Special
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Servicer or any Extension Advisor or any such Person against any breach of
warranties or representations made herein, or against any specific liability
imposed on the Servicer or the Special Servicer or any Extension Advisor for a
breach of the Servicing Standard, or against any liability which would
otherwise be imposed by reason of its respective willful misfeasance, bad
faith, fraud or negligence in the performance of its duties or by reason of
reckless disregard of its respective obligations or duties hereunder. The
Depositor, the Servicer, the Special Servicer and any Extension Advisor and
any director, officer, employee or agent of the Depositor, the Servicer, the
Special Servicer and any Extension Advisor (or the general partner of the
Servicer or, if applicable, the Special Servicer or any Extension Advisor) may
rely in good faith on any document of any kind which, prima facie, is properly
executed and submitted by any appropriate Person with respect to any matters
arising hereunder. The Depositor, the Servicer, the Special Servicer and any
Extension Advisor and any director, officer, employee or agent of the
Depositor, the Servicer or the Special Servicer or any Extension Advisor (or
the general partner of the Servicer or, if applicable, the Special Servicer or
any Extension Advisor) shall be indemnified and held harmless by the Trust
Fund against any loss, liability or expense incurred in connection with any
legal action relating to this Agreement or the Certificates, other than any
loss, liability or expense (i) incurred by reason of its respective willful
misfeasance, bad faith, fraud or negligence or (in the case of the Servicer or
Special Servicer or any Extension Advisor) a breach of the Servicing Standard
in the performance of its respective duties or by reason of reckless disregard
of its respective obligations or duties hereunder; or (ii) imposed by any
taxing authority which loss, liability or expense is not specifically
reimbursable pursuant to the terms of this Agreement or which results from a
breach (other than a breach with respect to which the Servicer or Special
Servicer or any Extension Advisor, as applicable, would have no liability
under the standard set forth in the first sentence of this paragraph) by the
Servicer, the Special Servicer, the Extension Advisor or the agents of any of
them of its obligations hereunder. Neither the Depositor nor the Servicer nor
the Special Servicer shall be under any obligation to appear in, prosecute or
defend any legal action unless such action is related to its respective duties
under this Agreement and in its opinion does not expose it to any expense or
liability; provided, however, that the Depositor or the Servicer or the
Special Servicer or any Extension Advisor may in its discretion undertake any
action related to its obligations hereunder which it may deem necessary or
desirable with respect to this Agreement and the rights and duties of the
parties hereto and the interests of the Certificateholders hereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom (except any liability related to the Servicer's or the Special
Servicer's obligations under Section 3.1(a)) shall be expenses, costs and
liabilities of the Trust Fund, and the Depositor, the Servicer and the Special
Servicer shall be entitled to be reimbursed therefor from the Collection
Account as provided in Section 3.6(vi) of this Agreement.
SECTION 6.4. Limitation on Resignation of the Servicer and
of the Special Servicer.
Each of the Servicer and the Special Servicer may assign its
respective rights and delegate its respective duties and obligations under
this Agreement in connection with the sale or transfer of a substantial
portion of its mortgage servicing or asset management portfolio, provided
that: (i) the purchaser or transferee accepting such assignment and delegation
(A) shall be satisfactory to the Trustee, (B) shall be (I) an established
mortgage finance institution, bank
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or mortgage servicing institution, organized and doing business under the laws
of any state of the United States or the District of Columbia, authorized
under such laws to perform the duties of a servicer of mortgage loans or (II)
a Person resulting from a merger, consolidation or succession that is
permitted under Section 6.2, and (C) shall execute and deliver to the Trustee
an agreement, in form and substance reasonably satisfactory to the Trustee,
which contains an assumption by such Person of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by the Servicer or the Special Servicer, as applicable, under this
Agreement from and after the date of such agreement; (ii) as evidenced by a
letter from each Rating Agency delivered to the Trustee, each Rating Agency's
rating or ratings of the Regular Certificates in effect immediately prior to
such assignment and delegation will not be qualified, downgraded or withdrawn
as a result of such assignment and delegation; (iii) the Servicer or the
Special Servicer, as applicable, shall not be released from its obligations
under this Agreement that arose prior to the effective date of such assignment
and delegation under this Section 6.4; and (iv) the rate at which the
Servicing Fee (or any component thereof) is calculated shall not exceed the
rate in effect prior to such assignment and delegation. Upon acceptance of
such assignment and delegation, the purchaser or transferee shall be the
successor Servicer or Special Servicer hereunder, as applicable.
Except as provided in this Section 6.4, neither the Servicer
nor the Special Servicer shall resign from the obligations and duties hereby
imposed on it except upon determination that its duties hereunder are no
longer permissible under applicable law. Any such determination permitting the
resignation of the Servicer or the Special Servicer, as applicable, shall be
evidenced by an Opinion of Counsel (obtained at the resigning Servicer's
expense) to such effect delivered to the Trustee.
No resignation or removal of the Servicer or the Special
Servicer, as applicable, as contemplated by the preceding paragraphs shall
become effective until the Trustee or a successor Servicer or the Special
Servicer, as applicable, shall have assumed the Servicer's or the Special
Servicer's responsibilities, duties, liabilities and obligations hereunder.
SECTION 6.5. Rights of the Depositor and the Trustee in
Respect of the Servicer and the Special
Servicer.
Each of the Servicer and the Special Servicer shall afford
the Depositor and the Trustee, upon reasonable notice, during normal business
hours access to all records maintained by it in respect of its rights and
obligations hereunder and access to its officers responsible for such
obligations. Upon request, each of the Servicer and the Special Servicer shall
furnish to the Depositor and the Trustee its most recent financial statements
and such other information in its possession regarding its business, affairs,
property and condition, financial or otherwise, as the party requesting such
information, in its reasonable judgment, determines to be relevant to the
performance of the obligations hereunder of the Servicer or the Special
Servicer. Neither the Depositor nor the Trustee shall have any responsibility
or liability for any action or failure to act by the Servicer or the Special
Servicer and neither such Person is obligated to supervise the performance of
the Servicer or the Special Servicer under this Agreement or otherwise.
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ARTICLE VII
DEFAULT
SECTION 7.1. Events of Default.
"Event of Default", wherever used herein, means any one of
the following events:
(i) any failure by the Servicer to remit to the
Collection Account or any failure by the Servicer
to remit to the Trustee for deposit into the
Distribution Account any amount required to be so
remitted by the Servicer pursuant to and in
accordance with the terms of this Agreement; or
(ii) any failure on the part of the Servicer or Special
Servicer duly to observe or perform in any material
respect any other of the covenants or agreements,
or the breach of any representations or warranties
provided herein on the part of the Servicer or the
Special Servicer which materially and adversely
affects the interests of the Certificateholders,
the Servicer, the Special Servicer or the Trustee
with respect to any Mortgage Loan and which, in
either event, continues unremedied for a period of
___ days after the date on which written notice of
such failure or breach, requiring the same to be
remedied, shall have been given to the Servicer or
Special Servicer by the Depositor or the Trustee,
or to the Servicer or Special Servicer, the
Depositor and the Trustee by the Holders of
Certificates entitled to at least __% of the
aggregate Voting Rights of any Class affected
thereby; or
(iii) confirmation in writing by any of the Rating
Agencies that the then-current rating assigned to
any Class of Certificates will be withdrawn,
downgraded or qualified if the Servicer or Special
Servicer is not removed as Servicer or Special
Servicer hereunder; or
(iv) a decree or order of a court or agency or
supervisory authority having jurisdiction in the
premises in an involuntary case under any present
or future federal or state bankruptcy, insolvency
or similar law for the appointment of a conservator
or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall
have been entered against the Servicer or Special
Servicer and such decree or order shall have
remained in force, undischarged or unstayed, for a
period of ___ days; or
(v) the Servicer or Special Servicer shall consent to
the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of
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debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Servicer
or the Special Servicer, or of or relating to all
or substantially all of the property of either the
Servicer or the Special Servicer; or
(vi) the Servicer or Special Servicer shall admit in
writing its inability to pay its debts generally as
they become due, file a petition to take advantage
of any applicable insolvency or reorganization
statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its
obligations; or
(vii) the Servicer shall fail to make any Advance
required to be made by the Servicer hereunder
(whether or not the Trustee or the Fiscal Agent
makes such Advance);
then, and in each and every such case, so long as an Event of Default shall
not have been remedied, the Trustee may, and at the written direction of the
Holders of at least __% of the aggregate Voting Rights of all Certificates,
the Trustee shall, by notice in writing to the Servicer or the Special
Servicer, as the case may be, terminate all of its respective rights and
obligations under this Agreement and in and to the Mortgage Loans and the
proceeds thereof, other than any rights it may have hereunder as a
Certificateholder and any rights or obligations that accrued prior to the date
of such termination (including the right to receive all amounts accrued or
owing to it under this Agreement, plus interest at the Advance Rate on such
amounts until received to the extent such amounts bear interest as provided in
this Agreement, with respect to periods prior to the date of such termination,
and the right to the benefits of Section 6.3 notwithstanding any such
termination); provided, however, that in the event the Servicer and the
Special Servicer is the same Person, any termination of the Servicer shall
constitute a termination of the Special Servicer and vice versa. On or after
the receipt by the Servicer or the Special Servicer, as the case may be, of
such written notice, all of its authority and power under this Agreement,
whether with respect to the Certificates or the Mortgage Loans or otherwise,
shall pass to and be vested in the Trustee pursuant to and under this Section
(notwithstanding any failure of the Trustee to satisfy the criterion set forth
in Section 6.4) and, without limitation, the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of and at the expense of the
defaulting Servicer or Special Servicer, as the case may be, as
attorney-in-fact or otherwise, any and all documents and other instruments,
and to do or accomplish all other acts or things necessary or appropriate to
effect the purposes of such notice of termination, whether to complete the
transfer and endorsement or assignment of the Mortgage Loans and related
documents, or otherwise. Each of the Servicer and the Special Servicer, on
behalf of itself, agrees in the event it is terminated pursuant to this
Section 7.1 promptly (and in any event no later than ___ Business Days
subsequent to such notice) to provide, at its own expense, the Trustee with
all documents and records requested by the Trustee to enable the Trustee to
assume its functions hereunder, and to cooperate with the Trustee and the
successor to its responsibilities hereunder in effecting the termination of
its responsibilities and rights hereunder, including, without limitation, the
transfer to the successor Servicer or Special Servicer or the Trustee, as
applicable, for administration by it of all cash amounts which shall at the
time be or should have been credited by the Servicer or the Special Servicer
to the Collection Account and any REO
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Account or Reserve Account or thereafter be received with respect to the
Mortgage Loans, and shall promptly provide the Trustee or such successor
Servicer or Special Servicer (which may include the Trustee), as applicable,
all documents and records reasonably requested by it, such documents and
records to be provided in such form as the Trustee or such successor Servicer
or Special Servicer shall reasonably request (including electromagnetic form),
to enable it to assume the Servicer's or Special Servicer's function
hereunder. All reasonable costs and expenses of the successor Servicer or
successor Special Servicer incurred in connection with transferring the
Mortgage Files to the successor Servicer (or copies of the Mortgage Files
relating to Specially Serviced Mortgage Loans to the Successor Special
Servicer) and amending this Agreement to reflect such succession as Servicer
or successor Special Servicer pursuant to this Section 7.1 shall be paid by
the predecessor Servicer or Special Servicer upon presentation of reasonable
documentation of such costs and expenses; provided, however, that if any such
costs and expenses remain unpaid by the predecessor Servicer or Special
Servicer within a reasonable time after presentation of such documentation,
the Trustee may be reimbursed from the Collection Account for such unpaid
costs and expenses, which shall be deemed to be expenses of the Trust Fund.
SECTION 7.2. Trustee to Act; Appointment of Successor.
On and after the time the Servicer or the Special Servicer
receives a notice of termination pursuant to Section 7.1, the Trustee shall be
its successor in such capacity in all respects under this Agreement and the
transactions set forth or provided for herein and, except as provided herein,
shall be subject to all the responsibilities, duties, limitations on liability
and liabilities relating thereto and arising thereafter placed on the Servicer
or Special Servicer by the terms and provisions hereof; provided, however,
that (i) the Trustee shall have no responsibilities, duties, liabilities or
obligations with respect to any act or omission of the Servicer or of the
Special Servicer and (ii) any failure to perform, or delay in performing, such
duties or responsibilities caused by the terminated party's failure to
provide, or delay in providing, records, tapes, disks, information or monies
shall not be considered a default by any successor hereunder. The appointment
of a successor Servicer or Special Servicer shall not affect any liability of
the predecessor Servicer or Special Servicer, as applicable, which may have
arisen prior to its termination as Servicer or Special Servicer. The Trustee
shall not be liable for any of the representations and warranties of the
Servicer or of the Special Servicer herein or in any related document or
agreement, for any acts or omissions of the predecessor Servicer or Special
Servicer, as applicable, or for any losses incurred in respect of any
Permitted Investment by the Servicer pursuant to Section 3.7 hereunder nor
shall the Trustee be required to purchase any Mortgage Loan hereunder. As
compensation therefor, the Trustee as successor Servicer or Special Servicer
shall be entitled to all Servicing Compensation relating to the Mortgage Loans
that accrue after the date of the Trustee's succession to which the Servicer
or Special Servicer would have been entitled if the Servicer or Special
Servicer, as applicable, had continued to act hereunder. In the event any
Advances made by the Servicer or the Trustee shall at any time be outstanding,
or any amounts of interest thereon shall be accrued and unpaid, all amounts
available to repay Advances and interest hereunder shall be applied entirely
to the Advances made by the Trustee (and the accrued and unpaid interest
thereon), until such Advances made by the Trustee (and accrued and unpaid
interest thereon) shall have been repaid in full. Notwithstanding the above,
the Trustee may, if it shall be unwilling to so act, or shall,
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if it is unable to so act, or if the Holders of Certificates entitled to at
least __% of the aggregate Voting Rights so request in writing to the Trustee,
or if (x) neither the Trustee nor the Fiscal Agent is rated by each Rating
Agency in one of its two highest long-term debt rating categories or (y) the
Trustee is not listed on S&P's list of approved servicers, promptly appoint,
or petition a court of competent jurisdiction to appoint, any established
mortgage loan servicing institution, the appointment of which will not result
in the downgrading, withdrawal or qualification of the rating or ratings then
assigned to any Class of Certificates as evidenced in writing by each Rating
Agency, as the successor to the Servicer or Special Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities
of the Servicer or Special Servicer hereunder. No appointment of a successor
to the Servicer or Special Servicer hereunder shall be effective until the
assumption by such successor of all the Servicer's or Special Servicer's
responsibilities, duties and liabilities hereunder. Pending appointment of a
successor to the Servicer or Special Servicer hereunder, unless the Trustee
shall be prohibited by law from so acting, the Trustee shall act in such
capacity as herein above provided. In connection with such appointment and
assumption described herein, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and
such successor shall agree; provided, however, that no such compensation shall
be in excess of that permitted the terminated party hereunder. The Depositor,
the Trustee, the Servicer or Special Servicer and such successor shall take
such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
SECTION 7.3. Notification to Certificateholders.
(a) Upon any termination pursuant to Section 7.1 above or
appointment of a successor to the Servicer or the Special Servicer, the
Trustee shall give prompt written notice thereof to Certificateholders at
their respective addresses appearing in the Certificate Register and to each
Rating Agency.
(b) Within ___ days after the occurrence of any Event of
Default of which a Responsible Officer of the Trustee has actual knowledge,
the Trustee shall transmit by mail to all Holders of Certificates and to each
Rating Agency notice of such Event of Default, unless such Event of Default
shall have been cured or waived.
SECTION 7.4. Other Remedies of Trustee.
During the continuance of any Event of Default, so long as
such Event of Default shall not have been remedied, the Trustee, in addition
to the rights specified in Section 7.1, shall have the right, in its own name
as trustee of an express trust, to take all actions now or hereafter existing
at law, in equity or by statute to enforce its rights and remedies and to
protect the interests, and enforce the rights and remedies, of the
Certificateholders (including the institution and prosecution of all judicial,
administrative and other proceedings and the filing of proofs of claim and
debt in connection therewith). In such event, the legal fees, expenses and
costs of such action and any liability resulting therefrom shall be expenses,
costs and liabilities of the Trust Fund, and the Trustee shall be entitled to
be reimbursed therefor from the Collection Account as provided in Section
3.6(vi). Except as otherwise expressly provided in this Agreement, no remedy
provided for by this Agreement shall be exclusive of any other remedy,
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and each and every remedy shall be cumulative and in addition to any other
remedy and no delay or omission to exercise any right or remedy shall impair
any such right or remedy or shall be deemed to be a waiver of any Event of
Default.
SECTION 7.5. Waiver of Past Events of Default;
Termination.
The Holders of Certificates evidencing not less than _____%
of the aggregate Voting Rights of the Certificates may, on behalf of all
Holders of Certificates, waive any default by the Servicer or Special Servicer
in the performance of its obligations hereunder and its consequences, except a
default in making any required deposits to (including P&I Advances) or
payments from the Collection Account or the Distribution Account or in
remitting payments as received, in each case in accordance with this
Agreement. Upon any such waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.1. Duties of Trustee.
(a) The Trustee, prior to the occurrence of an Event of
Default of which a Responsible Officer of the Trustee has actual knowledge and
after the curing or waiver of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement and no permissive right of the Trustee shall be
construed as a duty. During the continuance of an Event of Default of which a
Responsible Officer of the Trustee has actual knowledge, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) The Trustee, upon receipt of any resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Trustee which are specifically required to be
furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they conform on their face to the requirements of this
Agreement; provided, however, that, the Trustee shall not be responsible for
the accuracy or content of any such resolution, certificate, statement,
opinion, report, document, order or other instrument provided to it hereunder
by the Servicer, the Special Servicer, the Depositor, the Paying Agent or the
Auction Agent. If any such instrument is found not to conform on its face to
the requirements of this Agreement in a material manner, the Trustee shall
take action as it deems appropriate to have the instrument corrected.
(c) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct; provided, however,
that the foregoing shall be subject to Section 8.2; and provided, further,
that:
(i) Prior to the occurrence of an Event of Default of
which a Responsible Officer of the Trustee has
actual knowledge, and after the curing or waiver of
all such Events of Default which may have occurred,
the duties and obligations of the Trustee shall be
determined solely by the express provisions of this
Agreement, the Trustee shall not be liable except
for the performance of such duties and obligations
as are specifically set forth in this Agreement, no
implied covenants or obligations shall be read into
this Agreement against the Trustee and, in the
absence of bad faith on the part of the Trustee,
the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the
opinions expressed therein, upon any resolutions,
certificates, statements, reports, opinions,
documents, orders or other instruments furnished to
the Trustee that conform on their face to the
requirements of this Agreement without
responsibility for investigating the contents
thereof;
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(ii) The Trustee shall not be personally liable for an
error of judgment made in good faith by a
Responsible Officer or Responsible Officers, unless
it shall be proven that the Trustee was negligent
in ascertaining the pertinent facts;
(iii) The Trustee shall 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 Holders of Certificates entitled to at
least __% of the aggregate Voting Rights (or such
other percentage as is specified herein) of each
affected Class, or of the aggregate Voting Rights
of the Certificates, relating to the time, method
and place of conducting any proceeding for any
remedy available to the Trustee, or exercising or
omitting to exercise any trust or power conferred
upon the Trustee, under this Agreement; and
(iv) The Trustee shall not be charged with knowledge of
any failure by the Servicer or the Special Servicer
to comply with the obligations of the Servicer or
the Special Servicer referred to in clause (i) or
(ii) of Section 7.1, or of any breach or occurrence
referred to in clause (iii) through (viii) of
Section 7.1, unless a Responsible Officer of the
Trustee obtains actual knowledge of such failure,
breach or occurrence. The Trustee shall be deemed
to have actual knowledge of the Servicer's or the
Special Servicer's failure to comply with its
obligations listed in clause (i) of Section 7.1 or
to provide scheduled reports, certificates and
statements when and as required to be delivered to
the Trustee pursuant to this Agreement.
The Trustee, in its capacity as Trustee, shall not be
required to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if in the Trustee's opinion the
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it, and none of the provisions contained in this
Agreement shall in any event require the Trustee to perform, or be responsible
for the manner of performance of, any of the obligations of the Servicer or
the Special Servicer under this Agreement, except pursuant to Sections 4.6 or
6.4 during such time, if any, as the Trustee shall be the successor to, and be
vested with the rights, duties, powers and privileges of, the Servicer or the
Special Servicer in accordance with the terms of this Agreement. The Trustee
shall not be required to post any surety or bond of any kind in connection
with its performance of its obligations under this Agreement.
SECTION 8.2. Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 8.1:
(i) The Trustee may request and/or rely upon and shall
be protected in acting or refraining from acting
upon any resolution, Officer's Certificate,
certificate of auditors or any other certificate,
statement, instrument,
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opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document
reasonably believed by it to be genuine and to have
been signed or presented by the proper party or
parties and the Trustee shall have no
responsibility to ascertain or confirm the
genuineness of any such party or parties;
(ii) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete
authorization and protection in respect of any
action taken or suffered or omitted by it hereunder
in good faith and in accordance with such Opinion
of Counsel;
(iii) (A) The Trustee shall be under no obligation to
institute, conduct or defend any litigation
hereunder or in relation hereto at the request,
order or direction of any of the
Certificateholders, pursuant to the provisions of
this Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses
and liabilities which may be incurred therein or
thereby; (B) the right of the Trustee to perform
any discretionary act enumerated in this Agreement
shall not be construed as a duty, and the Trustee
shall not be answerable for other than its
negligence or willful misconduct in the performance
of any such act; provided, however, that subject to
the foregoing clause (A), nothing contained herein
shall relieve the Trustee of the obligations, upon
the occurrence of an Event of Default (which has
not been cured or waived) of which a Responsible
Officer of the Trustee has actual knowledge, to
exercise such of the rights and powers vested in it
by this Agreement, and to use the same degree of
care and skill in their exercise, as a prudent
person would exercise or use under the
circumstances in the conduct of such person's own
affairs;
(iv) The Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good
faith and reasonably believed by it to be
authorized or within the discretion or rights or
powers conferred upon it by this Agreement;
(v) The Trustee shall not be bound to make any
investigation into the facts or matters stated in
any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order,
approval bond or other paper or document, unless
requested in writing to do so by Holders of
Certificates entitled to at least __% (or such
other percentage as is specified herein) of the
aggregate Voting Rights of any affected Class;
provided, however, that if the payment within a
reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it
in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to it by the
terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or
liability as a condition to taking any such action.
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The reasonable expense of every such investigation
shall be paid by the Servicer or the Special
Servicer if an Event of Default shall have occurred
and be continuing relating to the Servicer, or the
Special Servicer, respectively, and otherwise by
the Certificateholders requesting the
investigation; and
(vi) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either
directly or by or through agents or attorneys. The
Trustee shall not be liable or responsible for the
misconduct or negligence of any of the Trustee's
agents or attorneys appointed with due care by the
Trustee hereunder.
(b) Following the Start-up Day, the Trustee shall not,
except as expressly required by any provision of this Agreement, accept any
contribution of assets to the Trust Fund unless the Trustee shall have
received an Opinion of Counsel (the costs of obtaining such opinion to be
borne by the Person requesting such contribution) to the effect that the
inclusion of such assets in the Trust Fund will not cause either the
Upper-Tier REMIC or the Lower-Tier REMIC to fail to qualify as a REMIC at any
time that any Certificates are outstanding or subject either the Upper-Tier
REMIC or the Lower-Tier REMIC to any tax under the REMIC Provisions or other
applicable provisions of federal, state and local law or ordinances.
(c) All rights of action under this Agreement or under any
of the Certificates, enforceable by the Trustee, may be enforced by it without
the possession of any of the Certificates, or the production thereof at the
trial or other proceeding relating thereto, and any such suit, action or
proceeding instituted by the Trustee shall be brought in its name for the
benefit of all the Holders of such Certificates, subject to the provisions of
this Agreement.
The Trustee shall have no duty to conduct any affirmative
investigation as to the occurrence of any condition requiring the repurchase
of any Mortgage Loan by the Depositor pursuant to this Agreement or the
eligibility of any Mortgage Loan for purposes of this Agreement.
SECTION 8.3. Trustee Not Liable for Certificates or
Mortgage Loans.
The recitals contained herein and in the Certificates shall
not be taken as the statements of the Trustee, the Fiscal Agent, the Servicer
or the Special Servicer and the Trustee, the Fiscal Agent, the Special
Servicer and the Servicer assume no responsibility for their correctness. The
Trustee, the Fiscal Agent, the Servicer and the Special Servicer make no
representations or warranties as to the validity or sufficiency of this
Agreement, of the Certificates, or any private placement memorandum or
prospectus used to offer the Certificates for sale or the validity,
enforceability or sufficiency of any Mortgage Loan or related document. The
Trustee and the Fiscal Agent shall at no time have any responsibility or
liability for or with respect to the legality, validity and enforceability of
any Mortgage or any Mortgage Loan, or the perfection and priority of any
Mortgage or the maintenance of any such perfection and priority, or for or
with respect to the sufficiency of the Trust Fund or its ability to generate
the payments to be distributed to Certificateholders under this Agreement.
Without limiting the
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foregoing, neither the Trustee nor the Fiscal Agent shall be liable or
responsible for: the existence, condition and ownership of any Mortgaged
Property; the existence of any hazard or other insurance thereon (other than,
with respect to the Trustee only, if the Trustee shall assume the duties of
the Servicer pursuant to Section 7.2) or the enforceability thereof; the
existence of any Mortgage Loan or the contents of the related Mortgage File on
any computer or other record thereof (other than, with respect to the Trustee
only, if the Trustee shall assume the duties of the Servicer or the Special
Servicer pursuant to Section 7.2); the validity of the assignment of any
Mortgage Loan to the Trust Fund or of any intervening assignment; the
completeness of any Mortgage File; the performance or enforcement of any
Mortgage Loan (other than, with respect to the Trustee only, if the Trustee
shall assume the duties of the Servicer or the Special Servicer pursuant to
Section 7.2); the compliance by the Depositor, the Servicer or the Special
Servicer with any warranty or representation made under this Agreement or in
any related document or the accuracy of any such warranty or representation
prior to the Trustee's receipt of notice or other discovery of any
non-compliance therewith or any breach thereof; any investment of monies by or
at the direction of the Servicer or the Special Servicer or any loss resulting
therefrom, it being understood that the Trustee only shall remain responsible
for any Trust Fund property that it may hold in its individual capacity; the
acts or omissions of any of the Depositor, the Servicer or the Special
Servicer (other than, with respect to the Trustee only, if the Trustee shall
assume the duties of the Servicer or the Special Servicer pursuant to Section
7.2) or any subservicer or any Borrower; any action of the Servicer or the
Special Servicer (other than, with respect to the Trustee only, if the Trustee
shall assume the duties of the Servicer or the Special Servicer pursuant to
Section 7.2) or any subservicer taken in the name of the Trustee, except with
respect to the Trustee, to the extent such action is taken at the express
written direction of the Trustee; the failure of the Servicer or the Special
Servicer or any subservicer to act or perform any duties required of it on
behalf of the Trust Fund or the Trustee hereunder; or any action by or
omission of the Trustee taken at the instruction of the Servicer or the
Special Servicer (other than in each case, with respect to the Trustee only,
if the Trustee shall assume the duties of the Servicer or the Special Servicer
pursuant to Section 7.2) unless the taking of such action is not permitted by
the express terms of this Agreement; provided, however, that the foregoing
shall not relieve the Trustee or the Fiscal Agent of its obligation to perform
its duties as specifically set forth in this Agreement. Under no circumstances
shall the Fiscal Agent be liable under any of the circumstances described in
the preceding sentence. The Trustee and the Fiscal Agent shall not be
accountable for the use or application by the Depositor, the Servicer or the
Special Servicer of any of the Certificates or of the proceeds of such
Certificates, or for the use or application of any funds paid to the
Depositor, the Servicer or the Special Servicer in respect of the Mortgage
Loans or deposited in or withdrawn from the Collection Account, or the
Distribution Account by the Depositor, the Servicer or the Special Servicer,
other than in each case, with respect to the Trustee only, any funds held by
the Trustee. The Trustee (unless the Trustee shall have become the successor
Servicer) or the Fiscal Agent shall have no responsibility for (A) filing any
financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to record this Agreement, (B) seeing to any
insurance, (C) seeing to the payment or discharge of any tax, assessment, or
other governmental charge or any lien or encumbrance of any kind owing with
respect to, assessed or levied against any part of the Trust Fund, or (D)
confirming or verifying the contents of any reports or certificates of the
Servicer delivered to the Trustee pursuant to this Agreement believed by the
Trustee to be
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genuine and to have been signed or presented by the proper party or parties.
In making any calculation hereunder which includes as a component thereof the
payment or distribution of interest for a stated period at a stated rate "to
the extent permitted by applicable law," the Trustee shall assume that such
payment is so permitted unless a Responsible Officer of the Trustee has actual
knowledge, or receives an Opinion of Counsel (at the expense of the Person
asserting the impermissibility) to the effect, that such payment is not
permitted by applicable law.
SECTION 8.4. Trustee May Own Certificates.
The Trustee and the Fiscal Agent in their individual
capacities or any other capacity may become the owner or pledgee of
Certificates, and may deal with the Depositor, the Servicer and the Special
Servicer in banking transactions, with the same rights each would have if it
were not Trustee or Fiscal Agent.
SECTION 8.5. Payment of Trustee's Fees and Expenses;
Indemnification.
(a) The Servicer covenants and agrees to pay to the Trustee
or any successor Trustee from time to time, and the Trustee or any successor
Trustee shall be entitled to receive from the Servicer the Trustee Fee (which
shall not be limited by any provision of law in regard to the compensation of
a trustee of an express trust) for all services rendered by the Trustee in the
execution of the trusts hereby created and in the exercise and performance of
any of the powers and duties hereunder of the Trustee.
(b) To the extent specifically permitted by Section 3.12(d),
the Trustee shall be paid or reimbursed from the Trust Fund upon its request
for expenses, disbursements and advances incurred or made by the Trustee
pursuant to and in accordance with any of the provisions of this Agreement
except any such expense, disbursement or advance as may arise from its
negligence or bad faith; provided, however, that the Trustee shall not refuse
to perform any of its duties hereunder solely as a result of the failure to be
paid the Trustee Fee and the Trustee's expenses.
The Servicer and the Special Servicer covenant and agree to
pay or reimburse the Trustee for the reasonable expenses, disbursements and
advances incurred or made by the Trustee in connection with any transfer of
the servicing responsibilities of the Servicer or the Special Servicer, as
applicable hereunder, pursuant to or otherwise arising from the resignation or
removal of the Servicer or the Special Servicer, as applicable, in accordance
with any of the provisions of this Agreement (and including the reasonable
fees and expenses and disbursements of its counsel and all other persons not
regularly in its employ), except any such expense, disbursement or advance as
may arise from the negligence or bad faith of the Trustee.
(c) Each of the Paying Agent, the Certificate Registrar, the
Custodian, the Servicer and the Special Servicer shall indemnify the Trustee
and the Fiscal Agent and their respective Affiliates and each of the
directors, officers, employees and agents of the Trustee, the Fiscal Agent and
their respective Affiliates (each, an "Indemnified Party"), and hold each of
them harmless against any, and all claims, losses, damages, penalties, fines,
forfeitures,
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reasonable and necessary legal fees and related costs, judgments, and any
other costs, fees and expenses that the Indemnified Party may sustain in
connection with this Agreement related to each such party's respective willful
misconduct, bad faith, fraud and/or negligence in the performance of its
respective duties hereunder or by reason of reckless disregard of its
respective obligations and duties hereunder (including in the case of the
Servicer or the Special Servicer, any agent of the Servicer or the Special
Servicer).
(d) The Trust Fund shall indemnify each Indemnified Party
from, and hold it harmless against, any and all losses, liabilities, damages,
claims or expenses (including reasonable attorneys' fees) arising in respect
of this Agreement or the Certificates, in each case to the extent, and only to
the extent, such payments are expressly reimbursable under this Agreement or
are "unanticipated expenses incurred by the REMIC" within the meaning of
Treasury Regulations Section 1.860G-1(b)(3)(ii), other than (i) those
resulting from the negligence, fraud, bad faith or willful misconduct of the
Trustee and (ii) those as to which such Indemnified Party is entitled to
indemnification pursuant to Section 8.5(c). The term "unanticipated expenses
incurred by a REMIC" shall include any fees, expenses and disbursements of any
separate trustee or co-trustee appointed hereunder, only to the extent such
fees, expenses and disbursements were not reasonably anticipated as of the
Closing Date and the losses, liabilities, damages, claims or expenses
(including reasonable attorneys' fees) incurred or advanced by an Indemnified
Party in connection with any litigation arising out of this Agreement,
including, without limitation, under Section 2.3, Section 3.10, the third
paragraph of Section 3.11, Section 8.11, Section 4.5, Section 5.1, and Section
7.1. The right of reimbursement of the Indemnified Parties under this Section
8.5(d) shall be senior to the rights of all Certificateholders.
(e) Notwithstanding anything herein to the contrary, this
Section 8.5 shall survive the termination or maturity of this Agreement or the
resignation or removal of the Trustee as regards rights accrued prior to such
resignation or removal and (with respect to any acts or omissions during their
respective tenures) the resignation, removal or termination of the Servicer,
the Special Servicer, the Paying Agent, the Certificate Registrar or the
Custodian.
(f) This Section 8.5 shall be expressly construed to
include, but not be limited to, such indemnities, compensation, expenses,
disbursements, advances, losses, liabilities, damages and the like, as may
pertain or relate to any environmental law or environmental matter.
SECTION 8.6. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or
association organized and doing business under the laws of any state or the
United States of America, authorized under such laws to exercise corporate
trust powers and to accept the trust conferred under this Agreement, having a
combined capital and surplus of at least $_________ and a rating on its
unsecured long-term debt of at least "BBB" (or "AA" at any time when there is
no Fiscal Agent appointed and acting hereunder or any such Fiscal Agent so
appointed has a rating on its long-term unsecured debt that is lower than "AA"
(without regard to any plus or minus), unless each of the Rating Agencies has
confirmed in writing the appointment of such Fiscal Agent shall
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not result, in and of itself, in a downgrading, withdrawal or qualification of
the ratings then assigned by such Rating Agency to any Class of the
Certificates) from each Rating Agency, unless each of the Rating Agencies has
confirmed in writing that a lower rating shall not result, in and of itself,
in a downgrading, withdrawal or qualification of the rating then assigned by
such Rating Agency to any Class of the Certificates and subject to supervision
or examination by federal or state authority and shall not be an Affiliate of
the Servicer or the Special Servicer (except during any period when the
Trustee has assumed the duties of the Servicer or the Special Servicer, as
applicable, pursuant to Section 7.2). If a corporation or association
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for
purposes of this Section the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published. In the event that the place of
business from which the Trustee administers the Trust Fund is a state or local
jurisdiction that imposes a tax on the Trust Fund or the net income of a REMIC
(other than a tax corresponding to a tax imposed under the REMIC Provisions)
the Trustee shall elect, at its sole discretion, either to (i) resign
immediately in the manner and with the effect specified in Section 8.7, (ii)
pay such tax and continue as Trustee or (iii) administer the Trust Fund from a
state and local jurisdiction that does not impose such a tax. In case at any
time the Trustee shall cease to be eligible in accordance with the provisions
of this Section, the Trustee shall resign immediately in the manner and with
the effect specified in Section 8.7.
SECTION 8.7. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from
the trusts hereby created by giving written notice thereof to the Depositor,
the Servicer, the Special Servicer and each Rating Agency. Upon such notice of
resignation, the Fiscal Agent shall also be deemed to have been removed and,
accordingly, the Servicer shall promptly appoint a successor Trustee, which
appointment of successor Trustee shall not result, in and of itself, in a
downgrading, withdrawal or qualification of the rating then assigned by the
Rating Agencies to any Class of the Certificates as confirmed in writing by
each of the Rating Agencies, and successor Fiscal Agent, which, if the
successor Trustee is not rated by each Rating Agency in one of its two highest
long-term debt rating categories, shall be confirmed in writing by each of the
Rating Agencies that such appointment of successor Fiscal Agent shall not
result, in and of itself, in a downgrading, withdrawal or qualification of the
rating then assigned by such Rating Agency to any Class of the Certificates by
written instrument, in triplicate, which instrument shall be delivered to the
resigning Trustee, with a copy to the fiscal agent deemed removed, and the
successor Trustee and successor Fiscal Agent. Notwithstanding the foregoing,
if no successor Trustee and Fiscal Agent shall have been so appointed and have
accepted appointment within ___ days after the giving of such notice of
resignation, the resigning Trustee and departing Fiscal Agent may petition any
court of competent jurisdiction for the appointment of a successor Trustee and
successor Fiscal Agent.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.6 and shall fail to resign after
written request therefor by the Depositor or Servicer, or if at any time the
Trustee or the Fiscal Agent shall become incapable of acting, or shall be
adjudged bankrupt or insolvent, or a receiver of the Trustee or the Fiscal
Agent or
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of its property shall be appointed, or any public officer shall take charge or
control of the Trustee or the Fiscal Agent or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
or the Servicer may remove the Trustee and the Fiscal Agent and shall promptly
appoint a successor Trustee and successor Fiscal Agent by written instrument,
which shall be delivered to the Trustee and the Fiscal Agent so removed and to
the successor Trustee and successor Fiscal Agent.
The Holders of Certificates entitled to at least __% of the
Voting Rights may at any time remove the Trustee and the Fiscal Agent (and any
removal of the Trustee shall be deemed to be a removal also of the Fiscal
Agent) and appoint a successor Trustee and successor Fiscal Agent (each
meeting the requirements of Section 8.8) by written instrument or instruments,
in eight originals, signed by such Holders or their attorneys-in-fact duly
authorized, one complete set of which instruments shall be delivered to the
Depositor, one complete set to the Servicer, one complete set to the Special
Servicer, one complete set to the Trustee so removed, one complete set to the
Fiscal Agent deemed removed, one complete set to the successor Trustee so
appointed and one complete set to the successor Fiscal Agent so appointed.
In the event of the resignation or removal of the Trustee,
the Fiscal Agent shall be entitled to resign, it being understood that the
initial Fiscal Agent shall not be obligated to act in such capacity hereunder
at any time that is not the Trustee.
Any resignation or removal of the Trustee and Fiscal Agent
and appointment of a successor Trustee and, if such trustee is not rated by
each Rating Agency in one of its two highest long-term debt rating categories,
a successor Fiscal Agent pursuant to any of the provisions of this Section 8.7
shall not become effective until acceptance of appointment by the successor
Trustee and, if necessary, Fiscal Agent as provided in Section 8.8.
SECTION 8.8. Successor Trustee.
Any successor Trustee and any successor Fiscal Agent
appointed as provided in Section 8.7 shall execute, acknowledge and deliver to
the Depositor and to the predecessor Trustee and predecessor Fiscal Agent, as
the case may be, instruments accepting their appointment hereunder, and
thereupon the resignation or removal of the predecessor Trustee and
predecessor Fiscal Agent shall become effective and such successor Trustee and
successor Fiscal Agent, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as Trustee
herein, provided that each Rating Agency shall have confirmed in writing that
the appointment of such successor Trustee and successor Fiscal Agent shall not
result, in and of itself, in a downgrading, withdrawal or qualification of the
rating then assigned by such Rating Agency to any Class of the Certificates.
The predecessor Trustee shall deliver to the successor Trustee all Mortgage
Files and related documents and statements held by it hereunder, and the
Depositor, the predecessor Trustee and predecessor Fiscal Agent shall execute
and deliver such instruments and do such other things as may reasonably be
required for more fully and certainly vesting and confirming in the successor
Trustee and successor Fiscal Agent all such rights, powers, duties and
obligations. No successor Trustee or successor Fiscal Agent shall accept
appointment as provided in this Section 8.8 unless at the time of such
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acceptance such successor Trustee or successor Fiscal Agent shall be eligible
under the provisions of Section 8.6.
Upon acceptance of appointment by a successor Trustee or
successor Fiscal Agent as provided in this Section 8.8, the successor Trustee
shall mail notice of the succession of such Trustee and Fiscal Agent hereunder
to all Holders of Certificates at their addresses as shown in the Certificate
Register.
SECTION 8.9. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided that such corporation shall be eligible under the
provisions of Section 8.6, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. Any Person into which the Fiscal Agent may be merged
or converted or with which it may be consolidated or any corporation or bank
resulting from any merger, conversion or consolidation to which the Fiscal
Agent shall be a party, or any corporation or banking association succeeding
to all or substantially all of the corporate trust business of the Fiscal
Agent shall be the successor of the Fiscal Agent hereunder, provided that such
corporation or bank shall be eligible under the provisions of Section 8.6
without the execution or filing of any paper or any farther act on the part of
any of the parties hereto, anything to the contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or
Separate Trustee.
Notwithstanding any other provisions hereof, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Fund or property securing the same may at the time be
located, the Depositor and the Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Trustee to act (at the expense of the Trustee) as co-trustee
or co-trustees, jointly with the Trustee, or separate trustee or separate
trustees, of all or any part of the Trust Fund, and to vest in such Person or
Persons, in such capacity, such title to the Trust Fund, or any part thereof,
and, subject to the other provisions of this Section 8.10, such powers,
duties, obligations, rights and trusts as the Depositor and the Trustee may
consider necessary or desirable. If the Depositor shall no longer be in
existence or shall not have joined in such appointment within __ days after
the receipt by it of a request so to do, or in case an Event of Default shall
have occurred and be continuing, the Trustee alone shall have the power to
make such appointment. Except as required by applicable law, the appointment
of a co-trustee or separate trustee shall not relieve the Trustee of its
responsibilities hereunder. No co-trustee or separate trustee hereunder shall
be required to meet the terms of eligibility as a successor Trustee under
Section 8.6 hereunder and no notice to Holders of Certificates of the
appointment of co-trustee(s) or separate trustee(s) shall be required under
Section 8.8 hereof.
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In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10, all rights, powers, duties and
obligations conferred or imposed upon the Trustee shall be conferred or
imposed upon and exercised or performed by the Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate trustee
or co-trustee is not authorized to act separately without the Trustee joining
in such act), except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed (whether as Trustee
hereunder or as successor to the Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Trust Fund or any portion thereof in any such jurisdiction) shall be exercised
and performed by such separate trustee or co-trustee solely at the direction
of the Trustee.
No trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under this Agreement.
The Depositor and the Trustee acting jointly may at any time accept the
resignation of or remove any separate trustee or co-trustee, except that if
the Depositor is no longer in existence, or if the separate trustee or
co-trustee is an employee of the Trustee, the Trustee acting alone may accept
the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article VIII. Every such instrument shall be filed
with the Trustee. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating
to the conduct of, affecting the liability of, or affording protection to, the
Trustee. In no event shall any such separate trustee or co-trustee be entitled
to any provision relating to the conduct of, affecting the liability of, or
affording protection to such separate trustee or co-trustee that imposes a
standard of conduct less stringent than that imposed on the Trustee hereunder,
affording greater protection than that afforded to the Trustee hereunder or
providing a greater limit on liability than that provided to the Trustee
hereunder.
Any separate trustee or co-trustee may, at any time,
constitute the Trustee its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Agreement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts hereunder
shall vest in and be exercised by the Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
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SECTION 8.11. Authenticating Agent.
The Trustee may appoint an Authenticating Agent to execute
and to authenticate Certificates. The Authenticating Agent must be acceptable
to the Depositor and the Servicer and must be a corporation organized and
doing business under the laws of the United States of America or any state,
having a principal office and place of business in a state and city acceptable
to the Depositor and the Servicer, having a combined capital and surplus of at
least $_________, authorized under such laws to do a trust business and
subject to supervision or examination by federal or state authorities. The
Trustee shall serve as the initial Authenticating Agent and the Trustee hereby
accepts such appointment.
Any corporation into which the Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the
Authenticating Agent shall be party, or any corporation succeeding to the
corporate agency business of the Authenticating Agent, shall be the
Authenticating Agent without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
The Authenticating Agent may at any time resign by giving at
least ___ days' advance written notice of resignation to the Trustee, the
Depositor, the Special Servicer and the Servicer. The Trustee may at any time
terminate the agency of the Authenticating Agent by giving written notice of
termination to the Authenticating Agent, the Depositor, the Special Servicer
and the Servicer. Upon receiving a notice of resignation or upon such a
termination, or in case at any time the Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section 8.11, the Trustee
promptly shall appoint a successor Authenticating Agent, which shall be
acceptable to the Servicer and the Depositor, and shall mail notice of such
appointment to all Certificateholders. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all the
rights, powers, duties and responsibilities of its predecessor hereunder, with
like effect as if originally named as Authenticating Agent herein. No
successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section 8.11.
The Authenticating Agent shall have no responsibility or
liability for any action taken by it as such at the direction of the Trustee.
The Trustee shall pay the Authenticating Agent reasonable compensation from
its own funds.
SECTION 8.12. Appointment of Custodians.
The Trustee may appoint one or more Custodians to hold all
or a portion of the Mortgage Files as agent for the Trustee, by entering into
a Custodial Agreement. The Trustee agrees to comply with the terms of each
Custodial Agreement and to enforce the terms and provisions thereof against
the Custodian for the benefit of the Certificateholders. Each Custodian shall
be a depository institution subject to supervision by federal or state
authority, shall have a combined capital and surplus of at least $_________,
shall have a long-term debt rating of at least "BBB" from each Rating Agency,
unless each of the Rating Agencies has confirmed in writing that a lower
rating shall not result, in and of itself, in a downgrading,
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withdrawal or qualification of the rating then assigned by such Rating Agency
to any Class of the Certificates, and shall be qualified to do business in the
jurisdiction in which it holds any Mortgage File. Each Custodial Agreement may
be amended only as provided in Section 10.7. The Trustee shall pay the
Custodian reasonable compensation from its own funds. The Trustee shall serve
as the initial Custodian.
SECTION 8.13. Fiscal Agent Appointed; Concerning
the Fiscal Agent.
(a) The Trustee hereby appoints as the initial Fiscal Agent
hereunder for the purposes of exercising and performing the obligations and
duties imposed upon the Fiscal Agent by Sections 3.22, 4.6 and 7.2.
(b) The Fiscal Agent undertakes to perform such duties and
only such duties as are specifically set forth in Sections 3.22, 4.6 and 7.2.
(c) No provision of this Agreement shall be construed to
relieve the Fiscal Agent from liability for its own negligent failure to act,
bad faith or its own willful misfeasance; provided, however, that (i) the
duties and obligations of the Fiscal Agent shall be determined solely by the
express provisions of Sections 3.22, 4.6 and 7.2, the Fiscal Agent shall not
be liable except for the performance of such duties and obligations, no
implied covenants or obligations shall be read into this Agreement against the
Fiscal Agent and, in the absence of bad faith on the part of the Fiscal Agent,
the Fiscal Agent may conclusively rely, as to the truth and correctness of the
statements or conclusions expressed therein, upon any resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Fiscal Agent by the Depositor, the Servicer, the
Special Servicer or the Trustee and which on their face do not contradict the
requirements of this Agreement, and (ii) the provisions of clause (ii) of
Section 8.1(c) shall apply to the Fiscal Agent.
(d) Except as otherwise provided in Section 8.1(c), the
Fiscal Agent also shall have the benefit of provisions of clauses (i), (ii),
(iii) (other than the proviso thereto), (iv), (v) (other than the proviso
thereto) and (vi) of Section 8.2(a).
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ARTICLE IX
TERMINATION
SECTION 9.1. Termination.
(a) The respective obligations and responsibilities of the
Servicer, the Special Servicer, the Depositor, the Trustee and the Fiscal
Agent created hereby with respect to the Certificates (other than the
obligation to make certain payments and to send certain notices to
Certificateholders as hereinafter set forth) shall terminate immediately
following the occurrence of the last action required to be taken by the
Trustee pursuant to this Article IX on the Termination Date; provided,
however, that in no event shall the trust created hereby continue beyond the
expiration of twenty-one years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the United Kingdom, living on the date hereof.
(b) The Trust Fund, the Upper-Tier REMIC and the Lower-Tier
REMIC shall be terminated and the assets of the Trust Fund shall be sold or
otherwise disposed of in connection therewith, only pursuant to a "plan of
complete liquidation" within the meaning of Code Section 860F(a)(4)(A)
providing for the actions contemplated by the provisions hereof pursuant to
which the applicable Notice of Termination is given and requiring that the
Trust Fund, the Upper-Tier REMIC and the Lower-Tier REMIC shall terminate on a
Distribution Date occurring not more than ___ days following the date of
adoption of the plan of complete liquidation. For purposes of this Section
9.1(b), the Notice of Termination given pursuant to Section 9.1(c) shall
constitute the adoption of the plan of complete liquidation as of the date
such notice is given, which date shall be specified by the Trustee in the
final federal income tax returns of the Upper-Tier REMIC and the Lower- Tier
REMIC.
(c) If the Trust Fund has not been previously terminated
pursuant to subsection (d) of this Section 9.1, the Special Servicer may
effect an early termination of the Trust Fund, upon not less than ___ days'
prior Notice of Termination given to the Trustee and the Servicer any time on
or after the Early Termination Notice Date specifying the Anticipated
Termination Date, by purchasing on such date all, but not less than all, of
the Mortgage Loans then included in the Trust Fund, and all property acquired
in respect of any Mortgage Loan, at a purchase price, payable in cash, equal
to not less than the greater of:
(i) the sum of
(A) ___% of the unpaid principal balance of
each Mortgage Loan included in the Trust
Fund as of the ___ day of the month
preceding such Distribution Date;
(B) the fair market value of all other
property included in the Trust Fund as of
the ____ day of the month preceding such
Distribution Date, as determined by an
Independent appraiser acceptable to the
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Servicer as of the date not more than __
days prior to the ____ day of the month
preceding such Distribution Date;
(C) all unpaid interest accrued on such
principal balance of each such Mortgage
Loan (including for this purpose any
Mortgage Loan as to which title to the
related Mortgaged Property has been
acquired) at the Mortgage Rate to the ____
day of the month preceding such
Distribution Date;
(D) the aggregate amount of unreimbursed
Advances (with interest thereon at the
Advance Rate) and unpaid Trust Fund
expenses; or
(ii) the aggregate fair market value of the Mortgage
Loans, and all other property acquired in respect
of any Mortgage Loan in the Trust Fund, on the ____
day of the month preceding such Distribution Date,
as determined by an Independent appraiser
acceptable to the Servicer as of a date not more
than ___ days prior to the _____ day of the month
preceding such Distribution Date, together with
____ month's interest thereon at the Mortgage Rate
and disposition expenses.
Any Holder of a Class Certificate representing greater than
a __% Percentage Interest in such Class, the Servicer or the Depositor may
also effect such termination as provided above if it first notifies the
Special Servicer through the Trustee of its intention to do so in writing at
least __ days prior to the Early Termination Notice Date and the Special
Servicer does not terminate the Trust Fund as described above within such __
day period. All costs and expenses incurred by any party to this Agreement or
by the Trust Fund in connection with the purchase of the Mortgage Loans and
other assets of the Trust Fund pursuant to this Section 9.1(c) shall be borne
by the party exercising its purchase rights hereunder. The Trustee shall be
entitled to rely conclusively on any determination made by an Independent
appraiser pursuant to this subsection (c).
(d) If the Trust Fund has not been previously terminated
pursuant to subsection (c) of this Section 9.1, on or after the Auction
Valuation Date, the Trustee shall conduct an auction of the Mortgage Loans in
accordance with the following principles:
(i) The Trustee shall request that four Independent
financial advisory or investment banking or
investment brokerage firms nationally recognized in
the field of real estate analysis and reasonably
acceptable to the Servicer and the Special Servicer
provide the Trustee with an estimated value at
which the Mortgage Loans and all other property in
respect of any Mortgage Loan in the Trust Fund
could be sold at an auction. If the aggregate value
of the Mortgage Loans and such property, as
determined by the average of the three highest such
estimates, equals or exceeds the aggregate amount
of the Certificate Balances of all Certificates
outstanding as of the close of business on the
Auction Valuation Date (the "Aggregate Certificate
Balance") plus the Auction Fees, Servicing Fees,
Trustee Fees
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and all other incidental expenses, the Trustee
shall (A) adopt a "plan of complete liquidation",
as required by Section 9.1(b) hereof, and (B)
appoint an Auction Agent to solicit offers from
Qualified Offerors to purchase all (but not less
than all) of the Mortgage Loans and such property
in accordance with the Auction Procedures for a
price that is not less than the Aggregate
Certificate Balance plus the Auction Fees,
Servicing Fees, Trustee Fees and all other
incidental expenses. In the event that there is an
auction of the Mortgage Loans and such property the
Auction Agent shall be authorized to employ
Independent attorneys and other Independent
professional consultants (including, without
limitation, appraisers and environmental
consultants) as reasonably required to conduct such
sale.
(ii) In determining the Aggregate Certificate Balance,
there shall be included all Certificates owned by
or on behalf of the Depositor, the Servicer, the
Trustee, a Manager or a Borrower or any Affiliate
thereof, notwithstanding the proviso in the first
sentence of the definition of the term
"Certificateholder."
(iii) The Trustee shall reject every bid that the Auction
Agent advises the Trustee in writing (a) is from a
Person other than a Qualified Offeror, (b) provides
for a purchase price that is less than the
Aggregate Certificate Balance plus the Auction
Fees, Servicing Fees, Trustee Fees and all other
incidental expenses, (c) provides for purchase on
terms other than all-cash or (d) is contingent on
the occurrence or non-occurrence of any event
(each, a "Deficient Auction Bid"). If all bids
received by the Trustee are Deficient Auction Bids,
as advised by the Auction Agent, the Mortgage Loans
and such property shall not be sold and there shall
be no termination of the Trust Fund pursuant to
this Section 9.1(d).
(iv) The Trustee shall accept the highest bid that is
not a Deficient Auction Bid and shall deliver a
Notice of Termination to the Servicer, the Special
Servicer and the Certificateholders specifying the
Anticipated Termination Date (which shall be first
Distribution Date following the date of closing of
the sale of the Mortgage Loans and such property).
The Trustee shall sell the Mortgage Loans and such
property to the successful bidder at a closing to
be held no later than the Remittance Date
immediately preceding the Auction Proceeds
Distribution Date.
(v) The Trustee shall be entitled to be reimbursed from
the Collection Account for expenses (which shall be
deemed to be expenses of the Trust Fund) that it or
the Auction Agent on its behalf incurs pursuant to
this Section 9.1(d) in connection with the
valuation and sale of the Mortgage Loans and such
property (collectively, the "Auction Fees"),
including all fees and reasonable expenses of legal
counsel and other professional consultants retained
by either of the Trustee or the Auction Agent. The
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Trustee shall not be personally liable for any act
or omission of the Auction Agent hereunder or any
Independent attorneys and other Independent
professional consultants appointed by the Auction
Agent.
(vi) Any auction shall be conducted in accordance with
auction procedures to be developed by the auction
agent in connection with such auction (the "Auction
Procedures"), provided that such procedures shall
include at a minimum provisions substantially to
the effect that: (i) no due diligence of the
Servicer's, the Special Servicer's or the Trustee's
records with respect to the Mortgage Loans may be
conducted by any bidder prior to being notified
that it has submitted the highest bid; (ii) the
Auction Agent is entitled to require that the
highest bidder provide a non-refundable good faith
deposit sufficient to reimburse the Trustee and the
Auction Agent for all expenses in connection with
the evaluation of such bid and in connection with
such highest bidder's due diligence, (iii) each
bidder may be required to enter into a
confidentiality agreement with the Servicer, the
Special Servicer, the Auction Agent and the Trustee
prior to being permitted to conduct due diligence,
(iv) Borrowers on any of the Mortgage Loans shall
be prohibited from submitting bids, and (v) in the
event that the highest bidder withdraws, the next
highest bidder shall be permitted to conduct due
diligence as if it were the highest bidder.
(e) If the Trust Fund has not been previously terminated
pursuant to subsection (c) or (d) of this Section 9.1, the Trustee shall
determine as soon as practicable the Distribution Date on which the Trustee
reasonably anticipates, based on information with respect to the Mortgage
Loans previously provided to it, that the final distribution will be made (i)
to the Holders of outstanding Regular Certificates, and to the Trustee in
respect of the Lower-Tier Regular Interests notwithstanding that such
distribution may be insufficient to distribute in full the Certificate Balance
of each Certificate or Lower-Tier Regular Interest, together with amounts
required to be distributed on such Distribution Date pursuant to Section
4.1(a) or (ii) if no such Classes of Certificates are then outstanding, to the
Holders of the Class Certificates of any amount remaining in the Collection
Account and to the Holders of the Class Certificates of any amount remaining
in the Distribution Account, in either case, following the later to occur of
(A) the receipt or collection of the last payment due on any Mortgage Loan
included in the Trust Fund or (B) the liquidation or disposition pursuant to
Section 3.18 of the last asset held by the Trust Fund.
(f) Notice of any termination of the Trust Fund pursuant to
this Section 9.1 shall be mailed by the Trustee to affected Certificateholders
with a copy to the Servicer and each Rating Agency at their addresses shown in
the Certificate Registrar as soon as practicable after the Trustee shall have
received, given or been deemed to have received a Notice of Termination but in
any event not more than ____ days, and not less than ____ days, prior to the
Anticipated Termination Date. The notice mailed by the Trustee to affected
Certificateholders shall:
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(i) specify the Anticipated Termination Date on which
the final distribution is anticipated to be made to
Holders of Certificates of the Classes specified
therein;
(ii) specify the amount of any such final distribution,
if known; and
(iii) state that the final distribution to
Certificateholders will be made only upon
presentation and surrender of Certificates at the
office of the Paying Agent therein specified.
If the Trust Fund is not terminated on any Anticipated Termination Date for
any reason, the Trustee shall promptly mail notice thereof to each affected
Certificateholder.
(g) Any funds not distributed on the Termination Date
because of the failure of any Certificateholders to tender their Certificates
shall be set aside and held in trust for the account of the appropriate
non-tendering Certificateholders, whereupon the Trust Fund shall terminate. If
any Certificates as to which notice of the Termination Date has been given
pursuant to this Section 9.1 shall not have been surrendered for cancellation
within ___ months after the time specified in such notice, the Trustee shall
mail a second notice to the remaining Certificateholders, at their last
addresses shown in the Certificate Register, to surrender their Certificates
for cancellation in order to receive, from such funds held, the final
distribution with respect thereto. If within one year after the second notice
any Certificate shall not have been surrendered for cancellation, the Trustee
may, directly or through an agent, take appropriate steps to contact the
remaining Certificateholders concerning surrender of their Certificates. The
costs and expenses of maintaining such funds in trust and of contacting
Certificateholders shall be paid out of such funds. If within two years after
the second notice, any such Certificates shall not have been surrendered for
cancellation, the Paying Agent shall pay to the Servicer all amounts
distributable to the Holders thereof, at which time the obligations of the
Trustee to such Holders with respect to such amounts shall terminate, and the
Servicer shall thereafter hold such amounts for the benefit of such Holders.
No interest shall accrue or be payable to any Certificateholder on any amount
held as a result of such Certificateholder's failure to surrender its
Certificate(s) for final payment thereof in accordance with this Section 9.1.
Such funds held by the Servicer shall not be invested.
SECTION 9.2. Additional Termination Requirements.
In the event that (a) the holder of a Class Certificate
representing greater than a __% Percentage Interest in such Class, the
Servicer or the Depositor exercises its purchase option as provided in Section
9.1(c) or (b) the procedures for sale of all Mortgage Loans as provided in
Section 9.1(d) are initiated, the Trust Fund shall be terminated in accordance
with the following additional requirements: provided that the Trustee has
received an Opinion of Counsel or other evidence to the effect that the
termination of the Trust Fund (i) will constitute a "qualified liquidation" of
each of the Upper-Tier REMIC and the Lower-Tier REMIC within the meaning of
Code Section 860F(a)(4)(A-3) and (ii) will not subject either the Upper-Tier
REMIC or the Lower-Tier REMIC to tax or cause either the Upper-Tier REMIC or
the Lower-Tier REMIC to fail to qualify as a REMIC at any time that any
Certificates are outstanding:
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(a) The notice given by the holder of a Class ______
Certificate representing greater than a __% Percentage Interest in such Class,
under Section 9.1 shall provide that such notice constitutes the adoption of a
plan of complete liquidation of the Trust Fund as of the date of such notice
(or, if earlier, the date on which the first such notice is mailed to the
Trustee and the Servicer). The Trustee shall also specify such date in a
statement attached to the final tax returns of each of the Upper-Tier REMIC
and the Lower-Tier REMIC; and
(b) At or after the time of adoption of such a plan of
complete liquidation and at or prior to the Final Distribution Date, the
Trustee shall sell all of the assets of the Trust Fund to the holder of such
Class ______ Certificates, the Servicer or the Depositor (or otherwise
pursuant to the provisions of Section 9.1(d)) for cash at the purchase price
specified in Section 9.1 and shall distribute such cash in the manner
specified in Section 9.1.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Counterparts.
This Agreement may be executed simultaneously in any number
of counterparts, each of which counterparts shall be deemed to be an original,
and such counterparts shall constitute but one and the same instrument.
SECTION 10.2. Limitation on Rights of
Certificateholders.
The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or
to take any action or proceeding in any court for a partition or winding up of
the Trust Fund, nor otherwise affect the rights, obligations and liabilities
of the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the
operation and management of the Trust Fund, or the obligations of the parties
hereto, nor shall anything herein set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from
time to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision
hereof.
No Certificateholder shall have any right to institute any
suit, action or proceeding in equity or at law upon or under or with respect
to this Agreement or the Mortgage Loans, unless, with respect to this
Agreement, such Holder previously shall have given to the Trustee a written
notice of default and of the continuance thereof, as hereinbefore provided,
and unless also the Holders of Certificates representing at least __% of the
aggregate Voting Rights allocated to each affected Class of Certificates shall
have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and the Trustee,
for ___ days after its receipt of such notice, request and offer of indemnity,
shall have neglected or refused to institute any such action, suit or
proceeding. It is understood and intended, and expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that no
one or more Holders of Certificates of any Class shall have any right in any
manner whatever by virtue of any provision of this Agreement to affect,
disturb or prejudice the rights of the Holders of any other of such
Certificates, or to obtain or seek to obtain priority over or preference to
any other such Holder, or to enforce any right under this Agreement, except in
the manner herein provided and for the equal, ratable and common benefit of
all Holders of Certificates of such Class. For the protection and enforcement
of the provisions of this Section, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
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SECTION 10.3. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES)
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 10.4. Notices.
All demands, notices and communications hereunder shall be
in writing, shall be deemed to have been given upon receipt (or, in the case
of notice by telecopy, upon confirmation of receipt) as follows:
If to the Trustee or the Fiscal Agent, to:
____________ or ______________
Attention:
With copies to:
If to the Depositor, to:
Prudential Securities Secured Financing
Corporation
One New York Plaza
New York, New York 10292
Attention: Head of Commercial Mortgage
Group
With copies to:
O'Melveny & Myers
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Laurence G. Preble, Esq.
Telecopy No.: (212) 326-2061
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If to the Servicer, to:
----------------------------
-----------------------------
Attention: _________________
Telecopy No.: (___) ________
With copies to:
------------------------
-----------------
___________, __________
Attention: _______________________
Telecopy No.: (___) ________
If to the Special Servicer, to:
---------------------
-----, ------- ------
Attention: ________________
Telecopy No.: (___) ________
With copies to:
---------------------------------
---------------------------------
-----, ------- -----
Attention: _______________
Telecopy No.: (___) ________
If to the Mortgage Loan Seller, to:
----------------------------
---------------, ------ -----
Attention: _________________
Telecopy No.: (___) ________
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With copies to:
------------------------
-------------------
___________, __________
Attention: _______________________
Telecopy No.: (___) ________
If to any Certificateholder, to:
the address set forth in the
Certificate Register,
or, in the case of the parties to this Agreement, to such other address as
such party shall specify by written notice to the other parties hereto.
SECTION 10.5. Severability of Provisions.
If any one or more of the covenants, agreements, provisions
or terms of this Agreement shall be for any reason whatsoever held invalid,
then, to the extent permitted by applicable law, such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement or of
the Certificates or the rights of the Holders thereof.
SECTION 10.6. Notice to the Depositor and Each
Rating Agency.
(a) The Trustee shall use its best efforts to promptly
provide written notice to the Depositor and each Rating Agency with respect to
each of the following of which a Responsible Officer of the Trustee has actual
knowledge:
(i) any material change or amendment to this Agreement;
(ii) the occurrence of any Event of Default that has not
been cured;
(iii) the merger, consolidation, resignation or
termination of the Servicer, Special Servicer,
Trustee or Fiscal Agent;
(iv) the repurchase of Mortgage Loans pursuant to
Section 2.3(d) or 2.3(e);
(v) the final payment to any Class of
Certificateholders;
(vi) each report to Certificateholders described in
Section 4.2;
(b) The Servicer shall promptly furnish to each Rating
Agency copies of the following:
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(i) each of its annual statements as to compliance
described in Section 3.14;
(ii) each of its annual independent public accountants'
servicing reports described in Section 3.15.
(iii) annual reports of each Borrower with respect to the
net operating income and occupancy rates required
to be delivered by the related Mortgage and
actually received by the Servicer pursuant thereto
to the extent consistent with applicable law and
the related Mortgage Loan Documents.
(c) The Special Servicer, shall furnish each Rating Agency
with such information with respect to any Specially Serviced Mortgage Loan as
such Rating Agency shall request and which the Special Servicer can obtain to
the extent consistent with applicable law and the related Mortgage Loan
Documents.
(d) Notices to each Rating Agency shall be addressed as
follows:
or in each case to such other address as any Rating Agency shall specify by
written notice to the parties hereto.
SECTION 10.7. Amendment.
This Agreement or any Custodial Agreement may be amended
from time to time by the Depositor, the Servicer, the Special Servicer, the
Trustee and the Fiscal Agent, without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provisions herein or therein that may be inconsistent with any other
provisions herein or therein, (iii) to amend any provision hereof to the
extent necessary or desirable to maintain the rating or ratings assigned to
each of the Classes of Regular Certificates by each Rating Agency, or (iv) to
make any other provisions with respect to matters or questions arising under
this Agreement, which shall not be inconsistent with the provisions of this
Agreement and will not result in the downgrading, withdrawal or qualification
of the rating or ratings then assigned to any outstanding Class of
Certificates, as confirmed by each Rating Agency in writing and, in all cases,
which, as evidenced by an Opinion of Counsel at the expense of the party
(other than the Trustee, unless such amendment modifies or otherwise relates
solely to the
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obligations, duties or rights of the Trustee) requesting such amendment, shall
not adversely affect in any material respect the interests of any
Certificateholder.
This Agreement or any Custodial Agreement may also be
amended from time to time by the Depositor, the Servicer, the Special
Servicer, the Trustee and the Fiscal Agent with the consent of the Holders of
each of the Classes of Regular Certificates representing not less than ___% of
the aggregate Voting Rights allocated to each Class of Certificates affected
by the amendment for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall:
(i) reduce in any manner the amount of, or delay the
timing of, payments received on Mortgage Loans
which are required to be distributed on any
Certificate without the consent of each affected
Certificateholder;
(ii) change the percentages of Voting Rights of Holders
of Certificates which are required to consent to
any action or inaction under this Agreement,
without the consent of the Holders of all
Certificates then outstanding; or
(iii) alter the servicing standard set forth in Section
3.1 or the obligations of the Servicer, the Trustee
or the Fiscal Agent to make a P&I Advance or
Property Advance without the consent of the Holders
of all Certificates representing all of the Voting
Rights of the Class or Classes affected thereby.
Further, the Depositor, the Servicer, the Special Servicer,
the Trustee and the Fiscal Agent, at any time and from time to time, without
the consent of the Certificateholders, may amend this Agreement or any
Custodial Agreement to modify, eliminate or add to any of its provisions to
such extent as shall be necessary to maintain the qualification of the Trust
REMICs as two separate REMICs, or to prevent the imposition of any additional
material state or local taxes, at all times that any Certificates are
outstanding; provided, however, that such action, as evidenced by an Opinion
of Counsel (obtained at the expense of the Trust Fund), is necessary or
helpful to maintain such qualification or to prevent the imposition of any
such taxes, and would not adversely affect in any material respect the
interest of any Certificateholder.
In the event that neither the Depositor nor the successor
thereto, if any, is in existence, any amendment under this Section 10.7 shall
be effective with the consent in writing of the Trustee, the Fiscal Agent, the
Servicer, the Special Servicer, and, to the extent required by this Section,
the Certificateholders and each Rating Agency.
Promptly after the execution of any amendment, the Servicer
shall furnish written notification of the substance of such amendment to each
Certificateholder and each Rating Agency.
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It shall not be necessary for the consent of
Certificateholders under this Section 10.7 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall
approve the substance thereof. The method of obtaining such consents and of
evidencing the authorization of the execution thereof by Certificateholders
shall be subject to such reasonable regulations as the Trustee may prescribe;
provided, however, that such method shall always be by affirmation and in
writing.
Notwithstanding any contrary provision of this Agreement, no
amendment shall be made to this Agreement or any Custodial Agreement unless
the Servicer and the Trustee shall have received an Opinion of Counsel, at the
expense of the party requesting such amendment (or, if such amendment is
required by any Rating Agency to maintain the rating issued by it or requested
by the Trustee for any purpose described in clause (i) or (ii) of the first
sentence of this Section, then at the expense of the Trust Fund), to the
effect that such amendment will not cause either the Upper-Tier REMIC or
Lower-Tier REMIC to fail to qualify as a REMIC at any time that any
Certificates are outstanding or cause a tax to be imposed on the Trust Fund
under the REMIC Provisions (other than a tax at the highest marginal corporate
tax rate on net income from foreclosure property).
Prior to the execution of any amendment to this Agreement or
any Custodial Agreement, the Trustee, the Fiscal Agent, the Special Servicer
and the Servicer shall be entitled to receive and rely conclusively upon an
Opinion of Counsel, at the expense of the party requesting such amendment (or,
if such amendment is required by any Rating Agency to maintain the rating
issued by it or requested by the Trustee for any purpose described in clause
(i), (ii) or (iv) (which do not modify or otherwise relate solely to the
obligations, duties or rights of the Trustee) of the first sentence of this
Section, then at the expense of the Trust Fund) stating that the execution of
such amendment is authorized or permitted by this Agreement. The Trustee may,
but shall not be obligated to, enter into any such amendment which affects the
Trustee's own rights, duties or immunities under this Agreement.
SECTION 10.8. Confirmation of Intent.
It is the express intent of the parties hereto that the
conveyance of the Trust Fund (including the Mortgage Loans) by the Depositor
to the Trustee on behalf of Certificateholders as contemplated by this
Agreement and the sale by the Depositor of the Certificates be, and be treated
for all purposes as, a sale by the Depositor of the undivided portion of the
beneficial interest in the Trust Fund represented by the Certificates. It is,
further, not the intention of the parties that such conveyance be deemed a
pledge of the Trust Fund by the Depositor to the Trustee to secure a debt or
other obligation of the Depositor. However, in the event that, notwithstanding
the intent of the parties, the Trust Fund is held to continue to be property
of the Depositor then (a) this Agreement shall also be deemed to be a security
agreement under applicable law; (b) the transfer of the Trust
Fund provided for herein shall be deemed to be a grant by the Depositor to the
Trustee on behalf of Certificateholders of a first priority security interest
in all of the Depositor's right, title and interest in and to the Trust Fund
and all amounts payable to the holders of the Mortgage Loans in accordance
with the terms thereof and all proceeds of the conversion, voluntary or
involuntary, of the foregoing into cash, instruments, securities or other
property, including, without limitation, all amounts from time to time held
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or invested in the Collection Account and the Distribution Account, whether in
the form of cash, instruments, securities or other property; (c) the
possession by the Trustee (or the Custodian on its behalf) of Notes and such
other items of property as constitute instruments, money, negotiable documents
or chattel paper shall be deemed to be "possession by the secured party" for
purposes of perfecting the security interest pursuant to Section 9-305 of the
and ________ Uniform Commercial Codes; and (d) notifications to Persons
holding such property, and acknowledgments, receipts or confirmations from
Persons holding such property, shall be deemed notifications to, or
acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Trustee for the purpose of perfecting
such security interest under applicable law. Any assignment of the interest of
the Trustee pursuant to any provision hereof shall also be deemed to be an
assignment of any security interest created hereby. The Depositor shall, and
upon the request of the Servicer, the Trustee shall, to the extent consistent
with this Agreement (and at the expense of the Trust Fund), take such actions
as may be necessary to ensure that, if this Agreement were deemed to create a
security interest in the Mortgage Loans, such security interest would be
deemed to be a perfected security interest of first priority under applicable
law and will be maintained as such throughout the term of this Agreement. It
is the intent of the parties that such a security interest would be effective
whether any of the Certificates are sold, pledged or assigned.
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IN WITNESS WHEREOF, the Depositor, the Servicer, the Special
Servicer, the Trustee and the Fiscal Agent have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.
Signed and acknowledged PRUDENTIAL SECURITIES SECURED
in the presence of: FINANCING CORPORATION
as Depositor
- ------------------------------
Print Name:
- ------------------------------- By: ___________________________
Print Name: Name:
Title
Signed and acknowledged --------------
in the presence of: as Servicer
- -----------------------------
Print Name: By: ___________________
its General Partner
- ----------------------------- By: _________________________
Print Name: Name:
Title:
Signed and acknowledged ----------------------
in the presence of: as Special Servicer
- ------------------------------- By: _________________________
Print Name: Name:
Title:
- -------------------------------
Print Name:
------------------------------
Signed and acknowledged as Trustee, Custodian, Certificate
in the presence of: Registrar and Paying Agent
- -------------------------------
Print Name:
- ------------------------------- By: __________________________
Print Name: Name:
Title: Vice President
<PAGE>
Signed and acknowledged -----------------
in the presence of: as Fiscal Agent of the Trustee
- -------------------------------
Print Name:
- ------------------------------- By: __________________________
Print Name: Name:
Title:
NY1-585655.V1 04/09/98
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ___th day of _________ , before me appeared
_____________________ to me personally known, who being by me duly sworn did
say that he is a ______________ of PRUDENTIAL SECURITIES SECURED FINANCING
CORPORATION, a Delaware corporation and that he signed his name thereto under
authority of the board of directors of said corporation and on behalf of such
corporation.
WITNESS my hand and seal hereto affixed the day and year
first above written.
NOTARY PUBLIC in and for said
County and State
My Commission expires:
(stamp)
(seal)
<PAGE>
STATE OF _______ )
) ss.:
COUNTY OF _______ )
On this ___th day of _________ , before me appeared
____________________, to me personally known, who being by me duly sworn did
say that he is a [Title] of _________, a ________ corporation, the general
partner of _________, a _______________________, and that the seal affixed to
the foregoing instrument is the corporate seal of said corporation, and that
said instrument was signed and sealed on behalf of said corporation by
authority of its board of directors as the general partner of said
___________________, and said __________________ acknowledged said instrument
to be the free act and deed of said corporation as the general partner of said
_________________ and the free act and deed of said ________________.
WITNESS my hand and seal hereto affixed the day and year
first above written.
------------------------------
NOTARY PUBLIC in and for said
County and State
My Commission expires:
(stamp)
(seal)
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ___th day of _______ , before me appeared
____________________, to me personally known, who being by me duly sworn did
say that he is a [Title] of the _______ a corporation, and that the seal
affixed to the foregoing instrument is the corporate seal of said corporation,
and that said instrument was signed and sealed on behalf of said corporation
by authority of its board of directors, and said __________________
acknowledged said instrument to be the free act and deed of said corporation
and the free act and deed of said corporation.
WITNESS my hand and seal hereto affixed the day and year
first above written.
-------------------------------
NOTARY PUBLIC in and for said
County and State
My Commission expires:
(stamp)
(seal)
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On this ___th day of ________ , before me, the undersigned,
a Notary Public in and for the State of ________, duly commissioned and sworn,
personally appeared _____________________, to me known who, by me duly sworn,
did depose and acknowledge before me and say that he resides at _____________;
that he is the _____________________ of ____________ , a nationally chartered
bank, the corporation described in and that executed the foregoing instrument;
and that he signed his name thereto under authority of the board of directors
of said corporation and on behalf of such corporation.
WITNESS my hand and seal hereto affixed the day and year
first above written.
----------------------------
NOTARY PUBLIC in and for the
State of New York.
My Commission expires:
(stamp)
(seal)
This instrument prepared by:
- ----------------------------
Name:
-------------
Address:
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF _______ )
On the ___th day of , before me, ________________, a Notary
Public in and for said State, personally appeared _____________________,
___________________ and __________________, _____________________, personally
known to me or proved to me on the basis of satisfactory evidence to be the
persons whose names are subscribed to the within instrument and acknowledged
to me that they executed the same in their authorized capacity, and that by
their signatures on the instrument the corporation upon behalf of which the
person acted executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed
my official seal the day and year in this certificate first above written.
-----------------------------
NOTARY PUBLIC
My commission expires ___________________
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