<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
__________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from ______________ to ______________
Commission file number 1-11314
LTC PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
Maryland 71-0720518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
(Address of principal executive offices)
(805) 981-8655
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
Shares of Registrant's common stock, $.01 par value,
outstanding at April 30, 1996 - 18,620,949
================================================================================
<PAGE>
LTC PROPERTIES, INC.
FORM 10-Q
MARCH 31, 1996
INDEX
PART I -- FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets....................... 3
Condensed Consolidated Statements of Income................. 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations... 10
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 13
2
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Real Estate Investments:
Mortgage loans receivable, net of
allowance for doubtful accounts
1996 - $1,000; 1995 - $997 $116,792 $161,059
Mortgage-backed securities 92,917 67,384
Land 9,086 7,236
Buildings and improvements,
net of accumulated
depreciation and amortization:
1996 - $6,733; 1995 - $5,487 142,534 104,546
-------- --------
Real estate investments, net 361,329 340,225
Other Assets:
Cash and cash equivalents 2,597 1,434
Restricted cash 5,338 8,300
Debt issue costs, net 3,967 3,331
Interest receivable 2,377 2,093
Prepaid expenses and other assets 2,820 1,779
-------- --------
17,099 16,937
-------- --------
Total assets $378,428 $357,162
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible subordinated debentures
due 1999 - 2004 $120,434 $ 94,641
Bank borrowings - 48,470
Mortgage loans payable 53,303 16,707
Bonds payable and capital lease
obligations 14,225 14,265
Accrued interest 2,596 3,196
Accrued expenses and other liabilities 3,676 2,415
Distributions payable 5,917 5,764
-------- --------
Total liabilities 200,151 185,458
Minority interest 3,911 1,098
Commitments
Stockholders' equity:
Preferred stock $0.01 par value:
10,000,000 shares authorized;
none issued and outstanding - -
Common stock $0.01 par value;
40,000,000 shares authorized;
shares issued and outstanding:
1996 - 18,620,949; 1995 - 18,297,254 186 183
Capital in excess of par value 182,672 178,453
Cumulative net income 48,443 42,988
Cumulative distributions (56,935) (51,018)
-------- --------
Total stockholders' equity 174,366 170,606
-------- --------
Total liabilities and stockholders'
equity $378,428 $357,162
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------- --------
<S> <C> <C>
Revenues:
Rental income $ 4,134 $ 2,075
Interest income from mortgage loans 5,164 2,178
Interest income from mortgage-backed 2,798 3,118
securities
Interest and other income 267 134
-------- --------
Total revenues 12,363 7,505
Expenses:
Interest expense 4,654 1,508
Depreciation and amortization 1,267 669
Amortization of Founders' stock 38 73
Minority interest 155 -
Operating and other expenses 794 537
-------- --------
Total expenses 6,908 2,787
-------- --------
Net income $ 5,455 $ 4,718
======== ========
Net income per share $0.29 $0.26
======== ========
Weighted average shares outstanding 18,840 18,014
======== ========
</TABLE>
See accompanying notes
4
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,455 $ 4,718
Depreciation on real estate 1,257 659
Amortization and non-cash charges 370 410
Amortization of Founders' stock 38 73
-------- --------
Cash flow from operating activities
available for distribution or reinvestment 7,120 5,860
Net change in other assets and liabilities (206) (1,855)
-------- --------
Net cash provided by operating activities 6,914 4,005
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of convertible
debentures, net 28,953 -
Distributions paid (5,764) (5,121)
Borrowings, net (48,470) 29,500
Repurchase of common stock - (4,079)
Other 105 (225)
-------- --------
Net cash provided by (used in)
financing activities (25,176) 20,075
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Investment in real estate mortgages (36,900) (33,120)
Acquisitions of real estate properties, net (33,244) (4,031)
Proceeds from sale of mortgage-backed
securities, net 86,874 -
Principal payments on mortgage loans
payable and capital lease obligations (75) -
Restricted cash 2,962 -
Principal payments on real estate mortgages 297 109
Deferred facility fee, net 661 72
Other (1,150) 100
-------- --------
Net cash provided by (used in)
investing activities 19,425 (36,870)
-------- --------
Increase (decrease) in cash and cash equivalents 1,163 (12,790)
Cash and cash equivalents, beginning of period 1,434 14,266
-------- --------
Cash and cash equivalents, end of period $ 2,597 $ 1,476
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 5,052 $ 1,970
======== ========
Non-cash investing and financing transactions:
Conversion of debentures into common stock $ 4,207 $ 5,665
Assumption of mortgage loans payable
relating to acquisitions of real
estate properties 5,106 -
Exchange of mortgage loans for
mortgage-backed securities 80,962 -
Issuance of mortgage loans payable
for mortgage-backed securities 31,525 -
Minority interest related to
acquisitions of real estate properties 2,735 -
</TABLE>
See accompanying notes
5
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(i) The condensed consolidated financial statements included herein have
been prepared by LTC Properties, Inc. (the "Company"), without audit, and
include all adjustments which are, in the opinion of management, necessary for a
fair presentation of the results of operations for the three-month periods ended
March 31, 1996 and 1995 pursuant to the rules and regulations of the Securities
and Exchange Commission. The accompanying consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiaries and
controlled partnerships. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures in the accompanying financial statements are adequate to make the
information presented not misleading. The results of operations for the three-
month periods ended March 31, 1996 and 1995 are not necessarily indicative of
the results for a full year.
(ii) No provision has been made for federal income taxes. The Company
qualifies as a real estate investment trust ("REIT") under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended. As such, the Company is
not taxed on its income provided that at least 95 percent of its taxable income
is distributed to its stockholders.
(iii) During the three-month period ended March 31, 1996, the Company
invested in mortgage loans totaling $36,900,000 secured by, among other things,
16 skilled nursing facilities located in seven states with a total of 1,613 beds
and certain guarantees. The mortgage loans, which individually range from
$1,200,000 to $11,250,000 in principal amount, have stated maturities of 7 to 15
years, generally have 25-year amortization schedules, have an initial weighted
average interest rate of 10.78%, generally provide for increases in the interest
rate and contain certain facility fees.
During the first quarter of 1996, the Company provided loans to three of its
wholly owned subsidiaries and to certain partnerships in which the Company was a
general partner totaling $31,525,000. The mortgage loans provided to the wholly
owned subsidiaries and partnerships are non-recourse to the Company. Concurrent
with the closing of the loans, the Company completed a real estate mortgage
investment conduit ("REMIC") transaction in which loans totaling $112,487,000,
including the $31,525,000 originated in 1996, were exchanged for mortgage pass-
through certificates for an equal amount. See note (iv).
In addition to the mortgage loans, the Company acquired for approximately
$14,380,000 eight assisted living residences ("ALFs) in Texas and Washington
with a total of 279 units. These residences have been leased to Assisted Living
Concepts, Inc. ("ALC") for a total annual rent of approximately $1,390,000
(subject to increases) pursuant to long-term non-cancelable agreements. Included
in the above purchases were two ALFs in Washington which had been financed by
the Company through the issuance of multi-family tax-exempt revenue bonds in
December 1995. As of May 1, 1996, the Company has acquired three of the
Washington ALFs generating an initial annual rent of approximately $514,100. See
note (ix). The remaining two
6
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Washington ALFs, whose bond funds are currently restricted, are presently in
various stages of development and/or construction and will be acquired by the
Company and leased to ALC as construction is completed, which is expected to
happen prior to June 30, 1996.
In addition, the Company acquired 11 skilled nursing facilities in Alabama,
Iowa and Texas for a total of approximately $26,705,000. These skilled nursing
facilities were acquired by three newly formed limited partnerships of which the
Company is the general partner. These facilities were purchased subject to
mortgage loans of approximately $5,106,000. Under the partnership agreements,
the Company has guaranteed payment of a 10% preferred return to the holders of
the $2,735,000 limited partnership interests. Under certain circumstances, the
limited partnership interests can be exchanged, at the option of the holder,
into 210,386 shares of the Company's common stock commencing in July 1997. The
mortgage loans of $5,106,000 assumed by the Company have an initial average
interest rate of 11.49% due in 2003 and 2005 and are currently owned by REMICs
formed by the Company in 1993 and 1994. In conjunction with these REMICs, the
Company sold senior certificates to third parties in 1993 and 1994 at a blended
interest rate of approximately 7.1% and 8.9%, respectively.
(iv) On March 29, 1996, the Company securitized approximately $112,487,000
of loans by creating a REMIC which, in turn, issued mortgage pass-through
certificates for the same amount in the form of various classes of certificates
(the "Certificates"). As part of the securitization, the Company sold
approximately $90,552,000 of Certificates to third parties at an effective
interest rate of 7.19%. The Company retained the remaining $21,935,000 face
amount of such Certificates which are effectively subordinated in right of
payment to the Certificates sold to third parties. The net proceeds from the
REMIC transaction were used to repay borrowings outstanding under the Company's
lines of credit. The mortgage loans represented by the Certificates consists of
34 mortgage loans, including the loans provided to the Company's wholly owned
subsidiaries and to the limited partnerships totaling $31,525,000, secured by 55
skilled nursing facilities in 17 states. The mortgage loans in the REMIC pool
have an initial weighted average mortgage interest rate of 10.69% and a weighted
average remaining term to stated maturity of approximately 107 months.
Concurrently with the closing of the REMIC transaction, the Company's swap
agreement entered into in May 1995 was terminated at a cost of approximately
$1,500,000. Because the purpose of the interest rate swap was to hedge the
interest rate spread on the mortgages underlying a portion of the Certificates
sold to third parties, the costs of terminating the swap, along with other costs
of the transaction are reflected in the carrying value of the retained
Certificates. As of March 31, 1996, the Certificates retained by the Company
have a weighted average effective yield of approximately 18.0%.
(v) On February 5, 1996, the Company sold, through a public offering,
$30,000,000 aggregate principal amount of 7.75% Convertible Subordinated
Debentures due January 1, 2002. The debentures are convertible at any time prior
to maturity into shares of the Company's common stock at a conversion price of
$16.50 per share, subject to adjustments under certain
7
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
circumstances. Interest on the debentures is payable semi-annually on January 1
and July 1 each year, commencing on July 1, 1996. The net proceeds were used to
repay borrowings outstanding under the Company's lines of credit.
(vi) During the three-month period ended March 31, 1996, holders of
$1,223,000 in principal amount of 9.75% Convertible Subordinated Debentures due
2004 elected to convert the debentures into 122,300 shares of common stock at
$10.00 per share. During the first quarter, holders of $2,734,000 in principal
amount of 8.5% Convertible Subordinated Debentures due 2000 elected to convert
into 182,266 shares of common stock at $15.00 per share. In addition, holders of
$250,000 in principal amount of 8.5% Convertible Subordinated Debentures due
2001 elected to convert the debentures into 16,129 shares of common stock at
$15.50 per share. The conversions during the first quarter of 1996 resulted in
an additional equity of approximately $4,082,000, net of unamortized issuance
costs of approximately $125,000. In addition, there was approximately $65,000 of
non-cash interest expense that was accrued but was not required to be paid as a
result of the conversions of the debentures.
(vii) On March 15, 1996, the Company filed a shelf-registration statement
with the Securities and Exchange Commission covering up to $125,000,000 of debt
and equity securities to be sold from time to time in the future. The
registration statement was declared effective on April 4, 1996.
(viii) During the first quarter of 1996, the Company's board of directors
approved the issuance of 160,000 shares of restricted stock to certain employees
and non-employee directors pursuant to the Company's option plan. The restricted
shares will vest over seven years, beginning January 1998. Dividends are payable
on the restricted shares to the extent and on the same date as dividends are
paid on all of the Company's common stock.
(ix) Subsequent to March 31, 1996, the Company repurchased and retired
120,000 shares of common stock for an aggregate purchase price of approximately
$1,830,800.
Subsequent to March 31, 1996, the Company invested in additional mortgage
loans totaling $10,200,000. These mortgage loans are secured by, among other
things, three skilled nursing facilities with a total of 521 beds. The loans
have an average initial interest rate of 10.17%, generally have maturities of 10
to 15 years and provide for increases in the interest rate. In addition, the
Company purchased and leased to ALC three assisted living facilities (one of
which was in Washington) with a total of 125 units for an aggregate purchase
price of approximately $6,640,000. These three ALFs will generate initial annual
rents of approximately $662,000 (excluding rent increases).
As of May 1, 1996, the Company had outstanding commitments to provide
mortgage loans totaling approximately $17,560,000. The mortgage loans, the
closings of which are
8
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
subject to completion of certain conditions, will be secured by five skilled
nursing facilities with a total of 591 beds. In addition, the Company has
commitments to acquire seven ALFs (including the two remaining Washington ALFs)
with a total of 271 units and four skilled nursing facilities with a total of
496 beds for an aggregate purchase price of approximately $29,735,000.
(x) A quarterly dividend of $0.315 per share aggregating approximately
$5,917,000 was declared by the Board of Directors payable on April 15, 1996 to
stockholders of record on March 31, 1996. The dividend has been reflected as
distributions payable in the accompanying financial statements as of March 31,
1996.
(xi) In 1996, the Company's Board of Directors authorized an increase in the
Company's investment in assisted living facilities ("ALFs") from 10% to 20% of
its adjusted gross real estate investment portfolio (adjusted to include the
mortgage loans to third parties underlying the $92,917,000 investment in
mortgage-backed securities). In addition, the Board of Directors also authorized
an increase in the Company's investment in properties operated by Assisted
Living Concepts, Inc. ("ALC"), an owner, operator and developer of ALFs whose
securities are listed on the American Stock Exchange, from 5% to 10% of its
adjusted gross real estate investment portfolio (which was approximately
$540,401,000 as of March 31, 1996). Currently, two of the Company's executive
officers serve as members of the Board of Directors of ALC. As of May 1, 1996,
three executive officers of the Company own approximately 16% of ALC's common
stock. As of March 31, 1996, the Company had investments in ALFs and properties
operated by ALC of approximately 5.4% and 3.3%, respectively of the Company's
total adjusted gross real estate investment portfolio. Since March 31, 1996, the
Company acquired and leased to ALC three additional ALFs in Texas and
Washington. See note (ix).
9
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Three months 1996 Compared to Three months 1995
During the three-months ended March 31, 1996, cash flow from operating
activities available for distribution or reinvestment was $7,120,000 versus
$5,860,000 for the comparable period in 1995. Revenues for the three months
ended March 31, 1996 were $12,363,000 versus $7,505,000 for the same period in
1995. Revenues increased $4,858,000 primarily as a result of increased interest
income on mortgage loans of $2,986,000 and increased rental income of $2,059,000
attributable to investments of approximately $186,000,000 in long-term care
facilities the Company completed since March 31, 1995. These increases were
offset by a decrease in interest income from mortgage-backed securities of
approximately $320,000 primarily due to the sale of a portion of the Company's
mortgage-backed securities in 1995. The remaining increase of $133,000 was
primarily due to a fee received by the Company in 1996 for the prepayment of one
mortgage loan.
Total expenses for the three months ended March 31, 1996 were $6,908,000
versus $2,787,000 for the same period in 1995. The increase of $4,121,000 is due
in large part to an increase of $3,146,000 in interest expense. Interest expense
increased by $1,817,000 due to the issuance of convertible subordinated
debentures in September 1995 and in February 1996. Interest expense also
increased by $1,025,000 as a result of interest on borrowings under the
Company's lines of credit which was offset by a decrease of $396,000 as a result
of the conversions of the 9.75% Convertible Subordinated Debentures since March
31, 1995. The remaining increase in interest expense of $700,000 is largely due
to the interest expense on mortgage loans assumed by the Company. Depreciation
and amortization expense increased by $598,000 primarily due to the acquisition
of additional skilled nursing and assisted living facilities in the past year.
Operating and other expenses increased by $257,000 principally due to higher
administrative costs. The remaining increase in total expenses of $120,000
related primarily to the payments made to the holders of the limited partnership
interests.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company's net real estate investment
portfolio consisted of approximately $116,792,000 invested in mortgage loans,
approximately $92,917,000 invested in mortgage-backed securities and
approximately $158,353,000 before accumulated depreciation of $6,733,000
invested in skilled nursing and assisted living facilities owned by the Company.
The Company's owned skilled nursing and assisted living facilities are leased to
operators pursuant to non-cancelable long-term net leases.
10
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
During the three-month period ended March 31, 1996, the Company completed
investments totaling approximately $77,985,000 which consisted of purchases of
19 long-term care facilities for approximately $41,085,000 and mortgage loans
for approximately $36,900,000. The Company financed its investments through the
sale of $30,000,000 aggregate principal amount of 7.75% Convertible Subordinated
Debentures in February 1996, the sale of mortgage-backed securities in March
1996, the assumption of non-recourse mortgage loans totaling $5,106,000, short-
term borrowings and cash on hand.
The Company has the option to redeem, without penalty, its currently
outstanding $1,918,000 aggregate principal amount of 9.75% Convertible
Subordinated Debentures at any time. Since such debentures are convertible into
common stock of the Company at a conversion price of $10.00 per share, the
Company anticipates that substantially all of such debentures will be converted
if it elects to redeem the debentures.
Subsequent to March 31, 1996, the Company invested in additional mortgage
loans totaling $10,200,000. These mortgage loans are secured by, among other
things, three skilled nursing facilities with a total of 521 beds. The loans
have an average initial interest rate of 10.17%, generally have maturities of 15
years and provide for increases in the interest rate. In addition, the Company
purchased and leased to ALC three assisted living facilities (one of which was
in Washington) with a total of 125 units for an aggregate purchase price of
approximately $6,640,000. These three ALFs will generate total annual lease
payments of approximately $662,000 (excluding rent increases).
As of May 1, 1996, the Company had outstanding commitments to provide
mortgage loans totaling approximately $17,560,000. The mortgage loans, the
closings of which are subject to completion of certain conditions, will be
secured by five skilled nursing facilities with a total of 591 beds. In
addition, the Company has commitments to acquire seven ALFs (including the two
remaining Washington ALFs) with a total of 271 units and four skilled nursing
facilities with a total of 496 beds for an aggregate purchase price of
approximately $29,735,000.
As of May 1, 1996, the Company has available approximately $59,741,000 under
its lines of credit. In addition, the Company anticipates completing a
securitization transaction within the next year, the proceeds of which will be
used to repay borrowings outstanding under its repurchase agreement and its
unsecured line of credit. In connection with such securitization, the Company,
in September 1995, entered into a seven-year forward interest rate swap
agreement (the "September 1995 Agreement"), which effectively locked-in the net
interest margin on $60,000,000 principal amount of senior certificates that will
be sold. The September 1995 Agreement will be terminated at the earlier of (i)
the completion of the securitization or (ii) February 28, 1997 and has been
accounted for as a hedging transaction. The effect of any
11
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
change in the interest rate will be accounted for as an adjustment to the
carrying value of any retained interest in the mortgage-backed securities. As of
April 30, 1996, the Company had an unrealized gain of approximately $1,154,000
resulting from the transaction covered by the September 1995 Agreement.
The Company believes that its current cash from operations available for
distribution or reinvestment and its borrowing capacity are sufficient to
provide for payment of its operating costs, provide funds for distribution to
its stockholders and to fund additional investments.
12
<PAGE>
PART II
LTC PROPERTIES, INC.
OTHER INFORMATION
March 31, 1996
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Pooling and Servicing Agreement dated as of March 1, 1996,
among LTC REMIC Corporation, as depositor, GMAC
Commercial Mortgage Corporation, as Master Servicer,
LTC Properties, Inc., as Special Servicer and Originator,
LaSalle National Bank, as Trustee and ABN AMRO Bank
N.V., as fiscal agent
10.2 Transfer and Repurchase Agreement by and between
LTC Properties, Inc. and LTC REMIC Corporation dated
as of March 1, 1996
11.1 Computation of Net Income per share for the quarters ended
March 31, 1996 and 1995.
27 Financial Data Schedule
In accordance with Item 601(b)(4)(iii) of Regulation S-K, certain
instruments pertaining to Registrant's long-term debt have not
been filed; copies thereof will be furnished to the Securities and
Exchange Commission upon request.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the three
months ended March 31, 1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LTC PROPERTIES, INC.
Registrant
Dated: May 14, 1996 By: JAMES J. PIECZYNSKI
--------------------
James J. Pieczynski
Senior Vice President and
Chief Financial Officer
14
<PAGE>
EXHIBIT 10.1
- - --------------------------------------------------------------------------------
LTC REMIC CORPORATION,
DEPOSITOR
GMAC COMMERCIAL MORTGAGE CORPORATION,
MASTER SERVICER
LTC PROPERTIES, INC.,
SPECIAL SERVICER AND ORIGINATOR
LASALLE NATIONAL BANK,
TRUSTEE
and
ABN AMRO BANK N.V.,
FISCAL AGENT
________________________________________________
POOLING AND SERVICING AGREEMENT
Dated as of March 1, 1996
________________________________________________
LTC Commercial Mortgage Pass-Through Certificates
Series 1996-1
<PAGE>
TABLE OF CONTENTS
__________________
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C>
SECTION 1.1. Defined Terms............................................. I-1
SECTION 1.2. Certain Calculations...................................... I-52
SECTION 1.3. Business Day Certificate.................................. I-54
ARTICLE II
DECLARATION OF TRUST FUND;
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.1. Creation and Declaration of Trust Fund; Conveyance of
Mortgage Loans, Conveyance of Other Collateral........... II-1
SECTION 2.2. Acceptance by Custodian and Trustee; Repurchase or
Substitution for Defective Documentation or Other
Failure to Validly Assign Mortgage Loans................. II-9
SECTION 2.3. Representations and Warranties and Covenants of the
Depositor................................................ II-14
SECTION 2.4. Execution and Delivery of Certificates; Issuance of
Uncertificated Lower-Tier Interests...................... II-17
SECTION 2.5. Representations, Warranties and Covenants of the
Master Servicer.......................................... II-18
SECTION 2.6. Representations, Warranties and Covenants of the
Special Servicer......................................... II-21
SECTION 2.7. [RESERVED]................................................ II-23
SECTION 2.8. Miscellaneous REMIC Provisions............................ II-23
SECTION 2.9. Transfer Agreement........................................ II-24
</TABLE>
<PAGE>
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
<TABLE>
<S> <C>
SECTION 3.1. Master Servicer to Act as Master Servicer; Special
Servicer to Act as Special Servicer; Administration of
the Mortgage Loans........................................ III-1
SECTION 3.2. Liability of the Master Servicer and the Special
Servicer.................................................. III-8
SECTION 3.3. Collection of Certain Mortgage Loan Payments............... III-10
SECTION 3.4. Payment of Taxes, Assessments and Similar Items............ III-11
SECTION 3.5. Collection Account, Distribution Account and Upper-
Tier Distribution Account................................. III-12
SECTION 3.6. Permitted Withdrawals from the Collection Account.......... III-15
SECTION 3.7. Investment of Funds in the Collection Account, REO
Account, the Distribution Account and the Upper-Tier
Distribution Account...................................... III-18
SECTION 3.8. Maintenance of Insurance Policies and Errors and Omissions
and Fidelity Coverage..................................... III-20
SECTION 3.9. Enforcement of Due-On-Sale Clauses; Assumption Agreements.. III-24
SECTION 3.10. Realization Upon Defaulted Mortgage Loans.................. III-27
SECTION 3.11. Trustee to Cooperate; Release of Mortgage Files............ III-31
SECTION 3.12. Servicing Compensation..................................... III-33
SECTION 3.13. Reports to the Trustee; Collection Account Statements...... III-34
SECTION 3.14. Annual Statement as to Compliance.......................... III-35
SECTION 3.15. Annual Independent Public Accountants' Servicing Report.... III-36
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 3.16. [Reserved].................................................. III-37
SECTION 3.17. Title and Management of REO Properties and REO Account
Properties................................................. III-37
SECTION 3.18. Sale of Defaulted Mortgage Loans and REO Properties......... III-42
SECTION 3.19. Inspections................................................. III-44
SECTION 3.20. Modifications, Waivers, Amendments and Consents............. III-44
SECTION 3.21. Transfer of Servicing Between Master Servicer and
Special Servicer; Record-Keeping........................... III-50
SECTION 3.22. P&I Advances................................................ III-52
SECTION 3.23. Access to Certain Documentation............................. III-55
SECTION 3.24. Authenticating Agent........................................ III-55
SECTION 3.25. Appointment of Custodians................................... III-56
ARTICLE IV
DISTRIBUTIONS TO CERTIFICATEHOLDERS
SECTION 4.1. Distributions from Lower-Tier REMIC......................... IV-1
SECTION 4.2. Distributions from Upper-Tier REMIC......................... IV-12
SECTION 4.3. Statements to Certificate holders........................... IV-22
SECTION 4.4. Compliance with Withholding Requirements.................... IV-26
SECTION 4.5. REMIC Compliance............................................ IV-26
SECTION 4.6. Imposition of Tax on the Upper-Tier REMIC or Lower-
Tier REMIC................................................. IV-30
SECTION 4.7. Appraisal Subordinate Entitlement Reductions................ IV-31
SECTION 4.8. Adjustment of Servicing Fees................................ IV-32
ARTICLE V
THE CERTIFICATES
SECTION 5.1. The Certificates............................................ V-1
SECTION 5.2. Certificate Registrar....................................... V-4
SECTION 5.3. Registration of Transfer and Exchange of Certificates....... V-4
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 5.4. Mutilated, Destroyed, Lost or Stolen Certificates.......... V-11
SECTION 5.5. Persons Deemed Owners...................................... V-12
SECTION 5.6. Appointment of Paying Agent................................ V-12
SECTION 5.7. Access to Certificateholders' Names and Addresses.......... V-12
SECTION 5.8. Actions of Certificateholders.............................. V-13
ARTICLE VI
THE DEPOSITOR, THE MASTER SERVICER
AND THE SPECIAL SERVICER
SECTION 6.1. Liability of the Depositor, the Master Servicer and
the Special Servicer....................................... VI-1
SECTION 6.2. Merger or Consolidation of the Special Servicer or
the Master Servicer........................................ VI-1
SECTION 6.3. Limitation on Liability of the Depositor, the Master
Servicer, the Special Servicer and Others.................. VI-2
SECTION 6.4. Limitation on Resignation of the Master Servicer and
the Special Servicer....................................... VI-3
SECTION 6.5. Rights of the Depositor and the Trustee in Respect of
the Master Servicer and the Special Servicer............... VI-5
SECTION 6.6. Certain Rights of the Master Servicer and Special
Servicer................................................... VI-6
SECTION 6.7. Not Responsible for Recitals or Issuance of Certificates.... VI-7
SECTION 6.8. Depositor, Special Servicer, Master Servicer, and
Trustee to Cooperate....................................... VI-7
ARTICLE VII
DEFAULT
SECTION 7.1. Events of Default.......................................... VII-1
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
SECTION 7.2. Trustee and Master Servicer to Act; Appointment of
Successor................................................. VII-5
SECTION 7.3. Notification to Certificate holders........................ VII-7
SECTION 7.4. Other Remedies of Trustee.................................. VII-7
SECTION 7.5. Waiver of Past Events of Default........................... VII-7
SECTION 7.6. Effects of Transfer........................................ VII-8
SECTION 7.7. Fiscal Agent or Trustee as Maker of Advances............... VII-8
ARTICLE VIII
CONCERNING THE TRUSTEE AND THE FISCAL AGENT
SECTION 8.1. Duties of Trustee.......................................... VIII-1
SECTION 8.2. Certain Matters Affecting the Trustee...................... VIII-3
SECTION 8.3. Trustee Not Liable for Certificates, Mortgage Loans........ VIII-6
SECTION 8.4. Trustee and Fiscal Agent May Own Certificates.............. VIII-9
SECTION 8.5. Limitation on Liability.................................... VIII-9
SECTION 8.6. Eligibility Requirements for Trustee....................... VIII-10
SECTION 8.7. Resignation and Removal of the Trustee and Fiscal
Agent..................................................... VIII-11
SECTION 8.8. Representations and Warranties of Trustee and Fiscal
Agent..................................................... VIII-12
SECTION 8.9. Successor Trustee and Fiscal Agent......................... VIII-15
SECTION 8.10. Merger or Consolidation of Trustee or Fiscal Agent......... VIII-16
SECTION 8.11. Appointment of Co-Trustee or Separate Trustee.............. VIII-16
SECTION 8.12. Fiscal Agent Appointed; Concerning the Fiscal Agent........ VIII-18
ARTICLE IX
TERMINATION
SECTION 9.1. Termination................................................ IX-1
</TABLE>
v
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
<TABLE>
<S> <C>
SECTION 10.1. Counterparts.............................................. X-1
SECTION 10.2. Limitation on Rights of Certificateholders................ X-1
SECTION 10.3. Governing Law............................................. X-2
SECTION 10.4. Notices................................................... X-2
SECTION 10.5. Severability of Provisions................................ X-4
SECTION 10.6. Notice to Rating Agencies................................. X-4
SECTION 10.7. Amendment................................................. X-6
SECTION 10.8. Limitation of Liability of Certain Persons................ X-9
SECTION 10.9. Streit Act................................................ X-10
</TABLE>
EXHIBITS
Exhibit A-1 Form of Class A Certificate
Exhibit A-2 Form of Class B Certificate
Exhibit A-3 Form of Class C Certificate
Exhibit A-4 Form of Class D Certificate
Exhibit A-5 Form of Class E Certificate
Exhibit A-6 Form of Class F Certificate
Exhibit A-7 Form of Class G Certificate
Exhibit A-8 Form of Class X-1 Certificate
Exhibit A-9 Form of Class X-2 Certificate
Exhibit A-10 Form of Class R Certificate
Exhibit A-11 Form of Class LR Certificate
Exhibit B Mortgage Loan Schedule
Exhibit C Fees and Expenses of Trust Fund
Exhibit D Form of Custodial Agreement
Exhibit E Form of Subservicing Agreement
Exhibit F Form of Memorandum Regarding Mortgage Loan Modifications
Exhibit G Form of Memorandum Regarding Foreclosure and REO Properties
Exhibit H-1 Form of ERISA Transfer Affidavit
Exhibit H-2 Form of Transfer Affidavit for Residual Certificate(s)
Exhibit H-3 Form of Transferor Acknowledgement for Residual Certificate(s)
Exhibit I Form of Request for Release
Exhibit J Form of Custodian's Exception Report
Exhibit K Form of Quarterly Mortgage Loan Characteristics Summary
Exhibit L Form of Investment Letter
vi
<PAGE>
This POOLING AND SERVICING AGREEMENT, dated and effective as of March
1, 1996 among LTC REMIC Corporation, a Delaware corporation, as Depositor (the
"Depositor"), GMAC Commercial Mortgage Corporation, a California corporation, as
Master Servicer (the "Master Servicer"), LTC Properties, Inc. ("LTC"), a
Maryland corporation, as a Special Servicer (a "Special Servicer") and
Originator, LaSalle National Bank, a nationally chartered bank, as Trustee (the
"Trustee") and ABN AMRO Bank N.V., a Netherlands banking corporation, as Fiscal
Agent (the "Fiscal Agent").
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 within the meaning of the Code. The Class A, Class B, Class
C, Class D, Class E, Class F, Class G, Class X-1 and Class X-2 Certificates will
be designated as the "regular interests," and the R Certificate will be
designated as the "residual interest," in the Upper-Tier REMIC for purposes of
the REMIC Provisions under federal income tax law. The Class AL, Class BL,
Class CL, Class DL, Class EL, Class FL, Class GL, Class AR-L and Class X-1L
Interests will be designated as the "regular interests" in the Lower-Tier REMIC
and the Class LR Certificate will be designated as the "residual interest" in
the Lower-Tier REMIC for purposes of the REMIC Provisions under federal income
tax law.
The following table sets forth, to the extent applicable, the Class
designation, initial Certificate Principal Amount and Pass-Through Rate for each
Class of Certificates comprising the interests in the Trust Fund created
hereunder.
<PAGE>
<TABLE>
<CAPTION>
Initial
Certificate Pass-Through
Designation Principal Amount Rate
----------------- ----------------- --------------
<S> <C> <C>
Class A $69,177,000 7.06%
Class B $ 8,718,000 7.44%
Class C $ 7,593,000 7.56%
Class D $ 5,062,000 7.97%
Class E $11,811,000 9.16%
Class F $ 4,500,000 9.16%
Class G $ 5,624,255 9.16%
Class R $ 1,000 9.16%
Class X-1 (1) (2)
Class X-2 (1) (3)
</TABLE>
(1) The Class X-1 and X-2 Certificates do not have, and are not
denominated in, a Certificate Principal Amount, but rather have Notional Amounts
and are entitled to interest distributions as provided herein.
(2) Class X-1 Accrued Interest.
(3) Class X-2 Accrued Interest.
The following table sets forth the designation, initial Certificate
Principal Amount and Pass-Through Rate for each Class of Lower-Tier Interests.
<TABLE>
<CAPTION>
Initial
Certificate Pass-Through
Designation Principal Amount Rate
- - ----------------- ----------------- --------------
<S> <C> <C>
Class AL $69,177,000 7.06%
Class BL $ 8,718,000 7.44%
Class CL $ 7,593,000 7.56%
Class DL $ 5,062,000 7.97%
Class EL $11,811,000 9.16%
Class FL $ 4,500,000 9.16%
Class GL $ 5,624,255 9.16%
Class AR-L $ 1,000 9.16%
Class X-1L (1) (2)
Class LR $ 1,000 9.16%
</TABLE>
(1) The Class X-1L Certificates do not have, and are not denominated
in, Certificate Principal Amounts, but
2
<PAGE>
rather have Notional Amounts and are entitled to interest distributions as
provided herein.
(2) Class X-1L Accrued Interest.
As of the Cut-Off Date, the Mortgage Loans have an aggregate Scheduled
Principal Balance equal to $112,487,255.
In consideration of the mutual agreements herein contained, the
Depositor, the Master Servicer, the Special Servicer, the Trustee and the Fiscal
Agent agree as follows:
3
<PAGE>
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.
"Accredited Investor": As defined in Section 5.3(c).
-------------------
"Accrued Certificate Interest": With respect to each Distribution
----------------------------
Date for any Class of Regular Certificates, other than the Class X Certificates,
and the Class R and Class LR Certificates, interest for the related Interest
Accrual Period, calculated on the basis of a 360-day year consisting of twelve
30-day months, at the applicable Pass-Through Rate for such Class on the
Certificate Principal Amount of such Class, provided that solely for such
purpose any distribution to be made in reduction of the Certificate Principal
Amount of such Class of Certificates shall be deemed to have been made as of the
end of the preceding Interest Accrual Period rather than on the Distribution
Date when it is actually so made. With respect to each Distribution Date for
the Class X-1L Interests, the Class X-1 Certificates, and Class X-2
Certificates, the "Accrued Certificate Interest" shall mean the Class X-1L
Accrued Interest, the Class X-1 Accrued Interest, or the Class X-2 Accrued
Interest, as applicable.
"Acquisition Date": The date as of which beneficial ownership of a
----------------
Mortgaged Property has been acquired by the Special Servicer or the Trustee on
behalf of the Trust Fund through foreclosure, deed in lieu of foreclosure or
otherwise.
"Act": The Securities Act of 1933, as it may be amended from time
---
to time.
"Advance": A P&I Advance or a Servicing Advance.
-------
"Advance Interest": Interest accrued and unpaid on any Advance, at a
----------------
rate per annum equal to the Advance Rate.
I-1
<PAGE>
"Advance Rate": An annual rate, as such rate may be adjusted from
------------
time to time during the term of the advance, equal to the Prime Rate per annum.
"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 Master Servicer, the Special
Servicer or the Depositor to determine whether any Person is an Affiliate of
such party.
"Agreement": This Pooling and Servicing Agreement and all amendments
---------
hereof and supplements hereto.
"Amount Held for Future Distribution": With respect to any
-----------------------------------
Distribution Date, the portion of any amount in the Collection Account
consisting of (a) all Monthly Payments deposited in the Collection Account on or
prior to the related Determination Date but due during any Due Period relating
to a subsequent Distribution Date, but excluding a Monthly Payment if the
principal portion thereof is distributable on such Distribution Date in
connection with the payment of a Balloon Payment or a Principal Prepayment and
(b) any Principal Prepayment received after the end of the related Prepayment
Period.
"Anticipated Termination Date": The Distribution Date on which it is
----------------------------
anticipated that the Trust Fund, the Upper-Tier REMIC and the Lower-Tier REMIC
will be terminated pursuant to Section 9.1(b), Section 9.1(c) or Section 9.1(d).
"Appraisal Reduction" means for any Mortgage Loan with respect to
-------------------
which an appraisal or internal valuation is performed pursuant to Section 4.7,
an amount equal to the excess of (a) the sum as of the beginning of the Due
Period in which an appraisal (which shall be updated annually after the initial
appraisal) or internal valuation is received, of (i) the Scheduled Principal
Balance of such Mortgage Loan or the related REO Property, as the case may
I-2
<PAGE>
be, as of the beginning of the related Due Period, plus, (ii) to the extent not
previously advanced by the Master Servicer, the Trustee or the Fiscal Agent, all
unpaid interest on such Mortgage Loan at a per annum rate equal to the Mortgage
Interest Rate to the extent not advanced, (iii) all unreimbursed Servicing
Advances, and all outstanding Advance Interest at the Advance Rate with respect
to such Mortgage Loan and (iv) all currently due but unpaid real estate taxes
and assessments, insurance premiums and, if applicable, ground rents in respect
of the related Mortgaged Property or REO Property, as the case may be, over (b)
80% of the Appraised Value of the Mortgaged Property securing such Mortgage Loan
or REO Property as determined by such appraisal or internal valuation, as the
case may be (provided, that if the Scheduled Principal Balance of the Mortgage
--------
Loan or REO Loan, as the case may be, is less than or equal to $1,000,000, the
Special Servicer may, at its option, rely on an internal valuation of such
Mortgaged Property rather than on its Appraised Value) as determined as of the
date 60 days (or 30 days as the case may be) after the date of the commencement
of such delinquency, the date one year after the date of appointment of such
receiver or the date such Mortgaged Property becomes an REO Property, as
applicable. For Mortgage Loans with a Scheduled Principal Balance equal to or
less than $1,000,000, the Appraisal Reduction will be the greater of that
calculated above or 40% of the Scheduled Principal Balance of such Mortgage
Loan. The Appraisal Reduction shall be allocated in reverse alphabetical order
to the Certificates, as provided in Section 4.7 in an amount not to exceed the
principal amount of each such Class. The aggregate Appraisal Reduction related
to a Mortgage Loan will be reduced to zero as of the date such Mortgage Loan (i)
is paid in full, liquidated, repurchased or otherwise disposed of, or (ii) in
the case of a Specially Serviced Mortgage Loan, when such Mortgage Loan is no
longer a Specially Serviced Mortgage Loan; provided that this exception does not
--------
apply in the case of a Modified Mortgage Loan the payment terms of which have
been modified more than once since the Cut-Off Date.
"Appraisal Reduction Amount" means, with respect to any Distribution
--------------------------
Date for any Class of Certificates an amount equal to the interest that accrued
for the related Interest Accrual Period at the applicable Pass-Through Rate on
the portion, if any, of any Appraisal Reduction allocated to such Class as of
such Distribution Date.
I-3
<PAGE>
"Appraised Value" means, with respect to any Mortgaged Property, the
---------------
appraised value thereof determined by an Independent MAI appraisal of the
Mortgaged Property securing such Mortgage Loan made by an Independent appraiser
selected by the Master Servicer or the Special Servicer, as applicable.
"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 related 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, 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 from the related Borrower, 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
Mortgage; provided, however, that the Trustee or the Custodian shall not be
-------- -------
responsible for determining whether any assignment is legally sufficient or in
recordable form.
"Assumed Scheduled Payment": With respect to any Balloon Mortgage
-------------------------
Loan that is delinquent in respect of its Balloon Payment (including any REO
Mortgage Loan for which the related Note provided for a Balloon Payment), an
amount deemed to be due for such Mortgage Loan with respect to each Due Period
ending on or after the Due Date for the Balloon Payment, which will be equal to
the Monthly Payment (or Modified Monthly Payment, in the case of a Modified
Mortgage Loan) that would otherwise have been due on such Mortgage Loan during
such Due Period had such Balloon Payment not become due, but instead such
Mortgage Loan had been restructured to provide for amortization of its Scheduled
Principal Balance immediately prior to the Due Date such Balloon Payment was due
(without taking into account any payment due on such Due Date) on a monthly
level payment basis beginning on the Due Date such Balloon Payment was due and
ending on the last day of the original amortization period for such Balloon
Mortgage Loan. The original amortization period for a Balloon Mortgage Loan is
I-4
<PAGE>
the period over which the Mortgage Loan would have been fully amortized,
assuming that no Balloon Payment was due and that the Borrower continued to make
monthly payments equal to the Monthly Payment (or Modified Monthly Payment, in
the case of a Modified Mortgage Loan) in effect immediately prior to the Due
Date of the Balloon Payment.
"Authenticating Agent": As defined in Section 3.24.
--------------------
"Available Distribution Amount": With respect to any Distribution
-----------------------------
Date, Available Funds with respect to such Distribution Date plus all P&I
Advances actually made for such Distribution Date.
"Available Funds": With respect to any Distribution Date, an amount
---------------
equal to (a) the sum of (i) the amount on deposit in the Collection Account as
of the close of business on the related Determination Date (after giving effect
to any withdrawals therefrom on such Determination Date pursuant to Section 3.6)
and (ii) the portion of the Net REO Proceeds deposited in the Collection Account
by the Special Servicer pursuant to Section 3.17(d) for such Distribution Date
minus (b) the sum of (i) the portion of the amount described in clause (a)
- - -----
hereof that represents the Amount Held for Future Distribution, (ii) to the
extent not previously withdrawn, all other amounts not required to be deposited
by the Master Servicer in the Collection Account, (iii) any other amounts the
Master Servicer is permitted to withdraw from the Collection Account pursuant to
this Agreement and (iv) Prepayment Premiums (which are distributed pursuant to
Section 4.2(h)).
"Balloon Mortgage Loan": A Mortgage Loan which will not fully
---------------------
amortize itself based on the fixed Monthly Payments by its original Maturity
Date.
"Balloon Payment": With respect to any Balloon Mortgage Loan, a final
---------------
scheduled monthly payment of principal and interest which is due under the terms
of the related Note.
"Bankruptcy Code": The Bankruptcy Code, 11 U.S.C. (S) 101 et seq., as
---------------
amended from time to time and any successor statute thereto.
I-5
<PAGE>
"Basic Fee": With respect to each Mortgage Loan and for any Due
---------
Period, an amount equal to the product of one-twelfth of the Basic Fee Rate and
the Scheduled Principal Balance on each such Mortgage Loan outstanding
immediately prior to the application of the Monthly Payment due on the Due Date
occurring in such Due Period.
"Basic Fee Rate": With respect to each Mortgage Loan, a per annum
--------------
rate equal to .01%.
"Beneficial Owner": With respect to a Class A, Class B, Class C or
----------------
Class D Certificate maintained on the book-entry records of the Depository, the
Person who is the beneficial owner of such Certificate as reflected on the books
of the Depository or on the books of a Person maintaining an account with such
Depository (directly as a Depository Participant or indirectly through a
Depository Participant, in accordance with the rules of such Depository).
"Benefit Plan Investor": As defined in Section 5.3(b).
---------------------
"Borrower": Any obligor on a Note.
--------
"Business Day": Any day other than a Saturday, a Sunday or a day on
------------
which banking institutions in the city of Chicago, Illinois (for so long as
LaSalle National Bank is the Trustee) or Philadelphia, Pennsylvania or New York
City, New York (so long as GMAC Commercial Mortgage Corporation is the Master
Servicer) are authorized or obligated by law, executive order or governmental
decree to be closed, or LTC Properties, Inc., the Master Servicer or the
Trustee is closed.
"Certificate": Any Class A Certificate, Class B Certificate, Class C
-----------
Certificate, Class D Certificate, Class E Certificate, Class F Certificate,
Class G Certificate, Class X-1 Certificate, Class X-2 Certificate, Class R
Certificate or Class LR Certificate issued, authenticated and delivered
hereunder, and, unless the context clearly requires otherwise, any Class AL,
Class BL, Class CL, Class DL, Class EL, Class FL, Class GL, Class AR-L or Class
X-1L Interest.
"Certificate Factor": With respect to each Class of Certificates
------------------
(other than the Class X Certificates) and
I-6
<PAGE>
as of any Distribution Date, a fraction, expressed as a decimal carried to eight
places, the numerator of which is the Certificate Principal Amount of such Class
of Certificates on such Distribution Date (less any distributions or allocations
of Realized Losses in reduction of the Certificate Principal Amount of such
Class of Certificates made on such Distribution Date) and the denominator of
which is the initial Certificate Principal Amount of such Class of Certificates
set forth in the Preliminary Statement hereto.
"Certificate Principal Amount": With respect to any Class of
----------------------------
Certificates (other than any Class X-1 and Class X-2 Certificates), or any Class
of Lower-Tier Interests (other than the Class X-1L Interest) (i) on or prior to
the first Distribution Date, an amount equal to the initial Certificate
Principal Amount of the related Class of Certificates, as specified in the
Preliminary Statement hereto, and (ii) thereafter as of any date of
determination, the Certificate Principal Amount of such Class at the beginning
of the Distribution Date immediately prior to such date of determination, after
giving effect to (x) the distributions of principal made thereon on such prior
Distribution Date and (y) any reductions made in connection with a Realized Loss
allocable on such prior Distribution Date to such Class. The Class X-1L
Interest, the Class X-1 Certificates, and Class X-2 Certificates do not have a
Certificate Principal Amount.
"Certificate Register" and "Certificate Registrar": The register
-------------------- ---------------------
maintained and the registrar appointed pursuant to Sections 5.2 and 5.3.
"Certificateholder" or "Holder": The Person in whose name an
----------------- ------
Outstanding Certificate is registered in the Certificate Register.
"Class": All of the Certificates bearing the same alphabetical and
-----
numerical class designation.
"Class A Certificate": A certificate designated as "Class A" on the
-------------------
face thereof, in the form of Exhibit A-1 hereto.
"Class A Pass-Through Rate": With respect to any Interest Accrual
-------------------------
Period, a per annum rate equal to 7.06%.
I-7
<PAGE>
"Class A Spread Rate": With respect to each Interest Accrual Period,
-------------------
a per annum rate equal to the difference between (i) 9.16% and (ii) the Class A
Pass-Through Rate.
"Class AL Interest": An uncertificated Lower-Tier Interest having an
-----------------
initial Certificate Principal Amount and Pass-Through Rate set forth in the
Preliminary Statement hereto, and which will be designated as a regular interest
in the Lower-Tier REMIC.
"Class AR-L Interest": An uncertificated Lower-Tier Interest having
--------------------
an initial Certificate Principal Amount and Pass-Through Rate set forth in the
Preliminary Statement hereto, and which will be designated as a regular interest
in the Lower-Tier REMIC.
"Class AR-L Principal Distribution Amount": With respect to any
----------------------------------------
Distribution Date, an amount equal to the product of (a) the Principal
Distribution Amount for such Distribution Date reduced by the Class LR Principal
Distribution Amount for such Distribution Date and (b) a fraction, the numerator
of which is the Certificate Principal Amount on the Class AR-L Interest on the
first day of the related Interest Accrual Period and the denominator of which is
the Certificate Principal Amount of all Classes of Certificates (other than the
Class LR Certificates) on the first day of the related Interest Accrual Period.
"Class ASER Amount": With respect to each of the Class B, Class C,
-----------------
Class D, Class E, Class F and Class G Certificates for any Distribution Date, an
amount equal to the portion of the amount of interest that would accrue, at the
related Pass-Through Rate of such Class of Certificates, on the portion of the
Certificate Principal Amount of such Class equal to the aggregate Appraisal
Reductions allocated to such Class through such Distribution Date pursuant to
Section 4.7(b) (and remaining allocated on such Distribution Date), for the
related Interest Accrual Period.
"Class B Certificate": A Certificate designated as "Class B" on the
-------------------
face thereof, in the form of Exhibit A-2 hereto.
"Class B Pass-Through Rate": With respect to any Interest Accrual
-------------------------
Period, a per annum rate equal to 7.44%.
I-8
<PAGE>
"Class B Spread Rate": With respect to each Interest Accrual Period,
-------------------
a per annum rate equal to the difference between (i) 9.16% and (ii) the Class B
Pass-Through Rate.
"Class BL Interest": An uncertificated Lower-Tier Interest having an
-----------------
initial Certificate Principal Amount and Pass-Through Rate set forth in the
Preliminary Statement hereto, and which will be designated as a regular interest
in the Lower-Tier REMIC.
"Class C Certificate": A Certificate designated as "Class C" on the
-------------------
face thereof, in the form of Exhibit A-3 hereto.
"Class C Pass-Through Rate": With respect to any Interest Accrual
-------------------------
Period, a per annum rate equal to 7.56%.
"Class C Spread Rate": With respect to each Interest Accrual Period,
-------------------
a per annum rate equal to the difference between (i) 9.16% and (ii) the Class C
Pass-Through Rate.
"Class CL Interest": An uncertificated Lower-Tier Interest having an
-----------------
initial Certificate Principal Amount and Pass-Through Rate set forth in the
Preliminary Statement hereto, and which will be designated as a regular interest
in the Lower-Tier REMIC.
"Class D Certificate": A Certificate designated as "Class D" on the
-------------------
face thereof, in the form of Exhibit A-4 hereto.
"Class D Pass-Through Rate": With respect to any Interest Accrual
-------------------------
Period, a per annum rate equal to 7.97%.
"Class D Spread Rate": With respect to each Interest Accrual Period,
-------------------
a per annum rate equal to the difference between (i) 9.16% and (ii) the Class D
Pass-Through Rate.
"Class DL Interest": An uncertificated Lower-Tier Interest having an
-----------------
initial Certificate Principal Amount and Pass-Through Rate set forth in the
Preliminary Statement hereto, and which will be designated as a regular interest
in the Lower-Tier REMIC.
I-9
<PAGE>
"Class E Certificate": A Certificate designated as "Class E" on the
-------------------
face thereof, in the form of Exhibit A-5 hereto.
"Class E Pass-Through Rate": With respect to any Interest Accrual
-------------------------
Period, a per annum rate equal to 9.16%.
"Class EL Interest": An uncertificated Lower-Tier Interest having an
-----------------
initial Certificate Principal Amount and Pass-Through Rate set forth in the
Preliminary Statement hereto, and which will be designated as a regular interest
in the Lower-Tier REMIC.
"Class F Certificate": A Certificate designated as "Class F" on the
-------------------
face thereof, in the form of Exhibit A-6 hereto.
"Class F Pass-Through Rate": With respect to any Interest Accrual
-------------------------
Period, a per annum rate equal to 9.16%.
"Class FL Interest": An uncertificated Lower-Tier Interest having an
-----------------
initial Certificate Principal Amount and Pass-Through Rate set forth in the
Preliminary Statement hereto, and which will be designated as a regular interest
in the Lower-Tier REMIC.
"Class G Certificate": A Certificate designated as "Class G" on the
-------------------
face thereof, in the form of Exhibit A-7 hereto.
"Class G Pass-Through Rate": With respect to any Interest Accrual
-------------------------
Period, a per annum rate equal to 9.16%.
"Class GL Interest": An uncertificated Lower-Tier Interest having an
-----------------
initial Certificate Principal Amount and Pass-Through Rate set forth in the
Preliminary Statement hereto, and which will be designated as a regular interest
in the Lower-Tier REMIC.
"Class LR Certificate": The residual interest in the Lower-Tier
--------------------
REMIC, represented by a Certificate designated as "Class LR" on the face
thereof, in the form of Exhibit A-10 hereto.
"Class LR Pass-Through Rate": With respect to any Interest Accrual
--------------------------
Period, a per annum rate equal to 9.16%.
I-10
<PAGE>
"Class LR Principal Distribution": With respect to any Distribution
-------------------------------
Date, an amount equal to the product of (a) the Principal Distribution Amount
for such Distribution Date and (b) a fraction, the numerator of which is the
Certificate Principal Amount of the Class LR Certificates on the first day of
the related Interest Accrual Period and the denominator of which is the
Certificate Principal Amount of all Classes of Certificates on the first day of
the related Interest Accrual Period.
"Class R Certificate": The residual interest in the Upper-Tier REMIC,
-------------------
which shall be represented by a certificate designated as "Class R" on the face
thereof, in the form of Exhibit A-9 hereto.
"Class R Pass-Through Rate": With respect to any Interest Accrual
-------------------------
Period, a per annum rate equal to 9.16%.
"Class R Principal Distribution": With respect to any Distribution
------------------------------
Date, an amount equal to the Class AR-L Principal Distribution for such
Distribution Date.
"Class X Certificates": Collectively, the Class X-1L Interest, the
--------------------
Class X-1 Certificates and the Class X-2 Certificates.
"Class X-1 Accrued Interest": With respect to each Interest Accrual
--------------------------
Period, 100% of the interest accrued on the Class X-1L Interest.
"Class X-1 Certificate": A Certificate designated as "Class X-1" on
---------------------
the face thereof, in the form of Exhibit A-7 hereto.
"Class X-1L Accrued Interest": With respect to each Distribution Date
---------------------------
and each Mortgage Loan, a portion of the interest accrued on such Mortgage Loan
during the related Mortgage Loan Due Period equal to interest accrued on such
Mortgage Loan during such period at a rate per annum equal to the excess of the
Net Mortgage Interest Rate of such Mortgage Loan over 9.16% (the "Class X-1L
Strip Rate"), calculated on the basis of the actual number of days for which
interest accrues on such Mortgage Loan during the related Mortgage Loan Due
Period according to the terms of such Mortgage Loan and a 360-day year.
I-11
<PAGE>
"Class X-1L Interest": An uncertificated Lower-Tier Interest having a
-------------------
Pass-Through Rate equal to the aggregate Class X-1L Accrued Interest, and which
will be designated as a regular interest in the Lower-Tier REMIC.
"Class X-2 Accrued Interest": With respect to each Interest Accrual
--------------------------
Period, an amount equal to the aggregate of the interest accrued, (on the basis
of a 360-day year consisting of twelve 30-day months), on the Certificate
Principal Amount of the Class AL Interest at the Class A Spread Rate, on the
Certificate Principal Amount of the Class BL Interest at the Class B Spread
Rate, on the Certificate Principal Amount of the Class CL Interest at the Class
C Spread Rate and on the Certificate Principal Amount of the Class DL Interest
at the Class D Spread Rate.
"Class X-2 Certificate": A Certificate designated as "Class X-2" on
---------------------
the face thereof, in the form of Exhibit A-8 hereto.
"Closing Date": March 29, 1996.
------------
"Code": The Internal Revenue Code of 1986, as amended.
----
"Collection Account": The trust account or accounts created and
------------------
maintained by the Master Servicer pursuant to Section 3.5(a), which shall be
entitled "LaSalle National Bank, as Trustee, in trust for Holders of LTC
Commercial Mortgage Pass-Through Certificates, Series 1996-1," and which must be
an Eligible Account.
"Corporate Trust Office": The corporate trust office of the Trustee
----------------------
at which at any particular time its corporate trust business relating to the
Certificates shall be administered, which office at the date of the execution of
this Agreement is located at 135 South LaSalle Street, 17th Floor, Chicago,
Illinois 60674, Attention: Asset-Backed Securities Trust Services -- LTC
Commercial Mortgage Pass-Through Certificates, Series 1996-1.
"Corresponding Upper-Tier Class": As to each of the following Lower-
------------------------------
Tier Interests, the corresponding Upper-Tier Certificates, are as follows:
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<PAGE>
Uncertificated Lower-Tier Corresponding Upper-Tier
Interest Class
------------------------- ------------------------
Class AL Interest Class A Certificates
Class BL Interest Class B Certificates
Class CL Interest Class C Certificates
Class DL Interest Class D Certificates
Class EL Interest Class E Certificates
Class FL Interest Class F Certificates
Class GL Interest Class G Certificates
Class AR-L Interest Class R Certificates
Class X-1L Interest Class X-1 Certificates
In addition, to the extent of the applicable Spread Rate on each of the Class
AL, Class BL, Class CL, Class DL, Class EL, Class FL and Class GL Interests, the
Class X-2 Certificates are a Corresponding Upper-Tier Class; however, the Class
X-2 Certificates do not have a Certificate Principal Amount and shall not be
taken into consideration when comparing the Certificate Principal Amount of the
Lower-Tier Interests and the Corresponding Upper-Tier Certificates.
"Current Loan Balance-to-Original Value Ratio": With respect to any
--------------------------------------------
Mortgage Loan, as of any date of determination, the fraction, expressed as a
percentage, the numerator of which is the outstanding principal balance of such
Mortgage Loan at such date and the denominator of which is the Value of the
related Mortgaged Property, provided, however, that for purposes of any such
-------- -------
calculation relating to the REMIC Provisions of the Code, the value of the
related Mortgaged Property shall not include any non-real property assets within
the meaning of such REMIC Provisions.
"Custodial Agreement": An agreement that may be entered into among
-------------------
the Trustee, the Master Servicer and a Custodian, substantially in the form of
Exhibit D hereto.
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<PAGE>
"Custodian": A custodian, which shall not be the Originator, the
---------
Depositor or any Affiliate of any of the foregoing, appointed by the Trustee.
The initial Custodian shall be the Trustee.
"Custodian's Exception Report": As defined in Section 2.2.
----------------------------
"Cut-Off Date": March 1, 1996. In the case of each Mortgage Loan,
------------
references to outstanding principal balance "as of the Cut-Off Date" of such
Mortgage Loan will mean its principal balance at the close of business on the
Cut-Off Date.
"Debt Service Coverage Ratio": With respect to any Mortgage Loan, as
---------------------------
of any date of determination and for any period, the ratio of the Net Operating
Income with respect to the related Mortgaged Property or Properties for the
previous twelve months, as set forth in the most recent available operating
statements of the Borrower for the Mortgaged Property delivered to the Master
Servicer pursuant to Section 3.1(e), to the aggregate Monthly Payments on the
Mortgage Loan for such period. Solely for purposes of Section 3.20(c) hereof,
Debt Service Coverage Ratio shall mean, with respect to any Mortgage Loan, the
ratio of Net Operating Income for the twelve months ended on the date of
extension of a Mortgage Loan pursuant to Section 3.20(c) to the amount of
principal and interest to become due and payable on the related Note during the
twelve month period following such extension.
"Debt Service Reduction": With respect to any Mortgage Loan and any
----------------------
Due Date, the amount of any reduction (other than a reduction resulting from a
Deficient Valuation) in the Monthly Payment for such Mortgage Loan which the
Borrower is obligated to pay on such Due Date as a result of any proceeding
under bankruptcy law or any similar proceeding; provided, however, that in the
-------- -------
case of an amount that is deferred, but not forgiven, such reduction will
include only the net present value of the reduction (calculated at the Mortgage
Interest Rate).
"Defaulted Mortgage Loan": As of any Determination Date, a Mortgage
-----------------------
Loan as to which a material default has occurred under the terms thereof;
provided, however, that a Mortgage Loan shall be deemed not to be a Defaulted
- - -------- -------
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<PAGE>
Mortgage Loan unless an amount equal to at least two Monthly Payments, or any
Balloon Payment, are past due.
"Deficient Valuation": With respect to any Mortgage Loan, the excess
-------------------
of (a) the then outstanding principal balance of the Mortgage Loan over (b) the
outstanding principal balance of such Mortgage Loan after a valuation by a court
of competent jurisdiction of the Mortgaged Property which reduces the amount due
on such Mortgage Loan to an amount less than the then outstanding principal
balance of and accrued interest on the Mortgage Loan plus expenses reimbursable
under the terms of the related Note, which valuation results from a proceeding
initiated under the Bankruptcy Code. If the terms of a court order in respect
of any Deficient Valuation are retroactive and provide for a reduction in the
indebtedness of a Mortgage Loan and the earlier maturity thereof, the term
Deficient Valuation shall include an additional amount equal to the excess, if
any, of (a) the amount of principal that was due on such Mortgage Loan for each
month retroactively affected (i.e., each month occurring after the effective
date of such Deficient Valuation but before the distribution of amounts in
respect of such Deficient Valuation to Certificateholders pursuant to this
Agreement), based on the original payment terms and amortization schedule of
such Mortgage Loan, over (b) the amount of principal due on such Mortgage Loan
for each such retroactive month (assuming the effect of such retroactive
application according to such Mortgage Loan's revised amortization schedule).
"Depositor": LTC REMIC Corporation and its successors in interest
---------
and assigns.
"Depository": The Depository Trust Company or a successor appointed
----------
by the Depositor. Any successor to the Depository shall be an organization
registered as a "clearing agency" pursuant to Section 17A of the Securities
Exchange Act of 1934, as amended, and the regulations of the Securities and
Exchange Commission thereunder, and any such successor must be treated as
maintaining a book entry system for purposes of Section 163(f) of the Code.
"Determination Date": With respect to any Distribution Date, the
------------------
eighth day of the month in which such Distribution Date occurs (or if such
eighth day is not
I-15
<PAGE>
a Business Day, the immediately preceding Business Day), commencing in April
1996.
"Directly Operate": With respect to any REO Property, the furnishing
----------------
or rendering of services to the tenants thereof, the management or operation of
such REO Property, the holding of such REO Property primarily for sale to
customers, or the performance of any construction work thereon or any use of
such REO Property in a trade or business conducted by the Trust Fund, in each
case, other than through an Independent Contractor; provided, however, that the
-------- -------
Trustee (or the Special Servicer on behalf of the Trust Fund) shall not be
considered to Directly Operate an REO Property solely because the Trustee (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 or undertakes any ministerial action incidental thereto.
"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 (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), (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 R
or Class LR Certificates (except certain farmers' cooperatives described in Code
Section 521), (d) rural electric and telephone cooperatives described in Code
Section 1381(a)(2)(c), or (e) any other Person so designated by the Certificate
Registrar based upon relevant legislation amending the REMIC Provisions or an
Opinion of Counsel to the effect that any Transfer to such Person may cause
either 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
I-16
<PAGE>
have the meanings set forth in Code Section 7701 or any successor provisions.
"Disqualifying Condition": A condition or circumstance existing as a
-----------------------
result of, or arising from, the presence of Hazardous Materials on a Mortgaged
Property such that the Mortgage Loan secured by the affected Mortgaged Property
would be ineligible, solely by reason of such condition, for purchase by FNMA
under the terms of Section 501.04 of the Guide (assuming such Mortgage Loan were
secured by multifamily residential property), including a condition or
circumstance that would constitute, solely by reason of such condition or
circumstance, a material violation of applicable federal, state or local law in
effect as of the Closing Date.
"Distribution Account": The separate Eligible Account or Eligible
--------------------
Accounts created and maintained by the Paying Agent pursuant to Section 3.5(b),
which shall be entitled "LaSalle National Bank, as Trustee, in trust for
registered Holders of LTC Commercial Mortgage Pass-Through Certificates, Series
1996-1".
"Distribution Date": The fifteenth day of any month, or if such
-----------------
fifteenth day is not a Business Day, the following Business Day, commencing in
April 1996.
"Due Date": With respect to any Distribution Date and any Mortgage
--------
Loan, as the case may be, the date during the related Due Period on which the
related Monthly Payment or Balloon Payment is first due (without giving effect
to any grace period).
"Due Period": With respect to any Distribution Date or Determination
----------
Date, the period beginning on and including the second day of the preceding
calendar month and ending on and including the first day of the calendar month
in which such Distribution Date or Determination Date occurs.
"Early Termination Determination Date": The Determination Date in the
------------------------------------
month in which the Anticipated Termination Date is expected to occur.
"Early Termination Notice Date": Any date as of which the aggregate
-----------------------------
Certificate Principal Amount of the
I-17
<PAGE>
Certificates is less than 10% of the initial aggregate Certificate Principal
Amount of the Certificates.
"Eligible Account": Either (i) an account or accounts maintained with
----------------
a depository institution or trust company whose short-term unsecured debt
obligations are rated F-1+ by Fitch and A-1+ by S&P for deposits held thirty
days or less and whose long-term debt obligations are rated AA- by S&P at the
time of any deposit therein; provided, however, that if such debt obligation is
-------- -------
not rated by Fitch, such debt obligation need only be rated by S&P, or (ii) a
segregated trust account or accounts maintained with a federal depository
institution, a state chartered depository institution subject to regulations
regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section
9.10(b) or a trust company acting in its fiduciary capacity, which may be an
account maintained with the Trustee or the Master Servicer. Eligible Accounts
may bear interest.
"Environmental Assessment": A "Phase I assessment" as described in,
------------------------
and meeting the criteria of, Chapter 5 of the Guide.
"ERISA": The Employee Retirement Income Security Act of 1974, as it
-----
may be amended from time to time.
"ERISA Transfer Affidavit": As defined in Section 5.3(b).
------------------------
"Event of Default": As defined in Section 7.1.
----------------
"FDIC": The Federal Deposit Insurance Corporation, or any successor
----
thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, or any
-----
successor thereto.
"Final Recovery Determination": With respect to any Defaulted
----------------------------
Mortgage Loan, as evidenced by a certificate of a Special Servicer Officer
delivered to the Master Servicer and the Trustee, (i) the actual recovery of the
full amount of all Insurance Proceeds, Liquidation Proceeds and other payments
due or collectible in respect of such Defaulted Mortgage Loan or (ii) all
recoveries (including proceeds of the final sale of any REO Property) which the
Special Servicer, in its reasonable judgment, expects to be
I-18
<PAGE>
finally recoverable, without regard to any obligation of the Special Servicer or
the Master Servicer to make payments from its own funds pursuant to Section
3.8(a) or 3.8(b). The Special Servicer shall maintain records, prepared by a
Special Servicer Officer, of each Final Recovery Determination until the earlier
of (i) its termination as Special Servicer hereunder and the transfer of such
records to a successor special servicer and (ii) five years following the
termination of the Trust Fund.
"Final Scheduled Distribution Date": April 15, 2028.
---------------------------------
"Fiscal Agent": ABN AMRO Bank N.V., a Netherlands banking
------------
corporation, in its capacity as Fiscal Agent, or its successor in interest, or
any successor fiscal agent as appointed herein.
"Fitch": Fitch Investors Service, L.P., or any successor thereto.
-----
"FNMA": The Federal National Mortgage Association, or any successor
----
thereto.
"Guide": The FNMA Multifamily Seller/Servicer Guide (i) in effect as
-----
of the Closing Date, for purposes of the definition of "Disqualifying Condition"
and (ii) as amended from time to time, for all other purposes of this Agreement.
"Hazardous Materials": Any dangerous, toxic or hazardous pollutants,
-------------------
chemicals, wastes, medical 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 or regulations now existing, and specifically including,
without limitation, asbestos and asbestos-containing materials, polychlorinated
biphenyls ("PCBs"), 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": A Certificateholder.
------
I-19
<PAGE>
"Independent": When used with respect to any specified Person, any
-----------
such Person who (i) does not have any direct financial interest, or any material
indirect financial interest, in any of the Originator, the Depositor, the Master
Servicer, the Special Servicer or any Affiliate thereof, and (ii) is not
connected with the Originator, the Depositor, the Master Servicer, the Special
Servicer or any Affiliate thereof as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of the
- - -------- -------
Originator, the Depositor, the Master Servicer, the Special Servicer or any
Affiliate thereof merely because such Person is the beneficial owner of 5% or
less of any Class of securities issued by the Originator, the Depositor, the
Master Servicer, the Special Servicer or any Affiliate thereof, as the case may
be.
"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, 35% or
more of any Class of Certificates or 35% 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 Regulation
Section 1.856-4(b)(5) (except that the Master Servicer, the Trustee, or the
Special Servicer shall not be considered to be an Independent Contractor under
the definition in this clause (i) unless an Opinion of Counsel has been
delivered to the Master Servicer and the Trustee to that effect) or (ii) any
other Person (including the Master Servicer, the Trustee, and the Special
Servicer) if the Master Servicer on behalf of itself and the Trustee has
received an Opinion of Counsel 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
I-20
<PAGE>
cause any income realized in respect of such REO Property to fail to qualify as
Rents from Real Property.
"Initial Purchaser": Goldman, Sachs & Co.
-----------------
"Insurance Proceeds": Proceeds of any fire and hazard insurance
------------------
policy, title policy or other insurance policy relating to a Mortgage Loan or
the related Mortgaged Property (including any amounts paid by the Master
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 included in the related
Mortgage File or in accordance with prudent and customary servicing practices.
"Interest Accrual Period": With respect to any Distribution Date, and
-----------------------
any Class of Certificates other than the Class X-1L Interests and the Class X-1
Certificates, the one-month period from and including the first day of the month
preceding the month in which such Distribution Date occurs, to and including the
last day of such month. With respect to the Class X-1L Interests and the Class
X-1 Certificates, the Mortgage Loan Due Period for each Mortgage Loan. Interest
payable for an Interest Accrual Period for each Class of Certificates shall be
calculated on the basis of twelve 30-day months (other than the Class X-1
Certificates which shall be calculated on the same basis as the underlying
Mortgage Loans) and a 360-day year.
"Interested Person": As of any date of determination, the Master
-----------------
Servicer, the Special Servicer, 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).
------------------
"IO Reinvestment Yield": Will be equal to the yield on the U.S.
---------------------
treasury issue (primary issue) with a maturity date, as determined by the
Trustee in its good faith, closest to the stated maturity date of the Mortgage
Loan on which a prepayment of principal is received.
I-21
<PAGE>
"Liquidation Expenses": Expenses incurred by the Special Servicer in
--------------------
connection with the liquidation of, enforcement of or as a result of the default
of any Defaulted 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
Servicing Advances (and interest thereon) incurred with respect to such 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
Defaulted Mortgage Loan through a trustee's sale, foreclosure sale or otherwise
or (iii) a purchase or sale of a Mortgage Loan or an REO Property in accordance
with Section 3.18 or 9.1.
"Loan Number": With respect to any Mortgage Loan, the loan number by
-----------
which such Mortgage Loan is identified on the books and records of the Master
Servicer as set forth in the Mortgage Loan Schedule.
"Loan-to-Value Ratio": With respect to any Mortgage Loan, the
-------------------
fraction, expressed as a percentage, the numerator of which is the outstanding
principal balance of such Mortgage Loan at the time of origination and the
denominator of which is the Value of the related Mortgaged Property, provided,
--------
however, that for purposes of any such calculation relating to the REMIC
- - -------
Provisions of the Code the value of the related Mortgaged Property shall not
include any non-real property assets within the meaning of such REMIC
Provisions.
"Lower-Tier Interest": Any of the Class AL, Class BL, Class CL, Class
-------------------
DL, Class EL, Class FL, Class GL, Class AR-L and Class X-1L Interests and the
Class LR Certificates.
"Lower-Tier REMIC": One of two segregated pools of assets for which a
----------------
REMIC election has been made comprising the Trust Fund which shall consist of
(i) such Mortgage Loans as from time to time are subject to this Agreement,
together with the Mortgage Files relating thereto; (ii) all
I-22
<PAGE>
payments due on or collections in respect of the Mortgage Loans due after the
dates specified in Section 2.1; (iii) any REO Property; (iv) all revenues
received in respect of any REO Property; (v) the rights of the Trustee, Master
Servicer, and the Special Servicer under the insurance policies with respect to
the Mortgage Loans required to be maintained pursuant to this Agreement and any
proceeds thereof; (vi) any Assignments of Leases, Rents and Profits and any
security agreements and assignments thereof; (vii) all Assignments of Mortgages
and assignments thereof; (viii) any guaranties given as additional security for
any Mortgage Loans and any real or personal property acquired by foreclosure or
deed in lieu of foreclosure upon enforcement thereof; (ix) such amounts as shall
from time to time be held in the Collection Account, the Distribution Account
and the REO Account including reinvestment income; and (x) the proceeds of any
of the foregoing (including the cash proceeds of the sale or other disposition
of any real or personal property excluded in the foregoing clause (iv)).
However, any environmental indemnity agreements relating to the Mortgaged
Properties shall not be part of the Trust Fund or the Lower-Tier REMIC. Any
such environmental indemnity shall be held by the Custodian as security for the
related Mortgage Loan on behalf of the Certificateholders and for the benefit of
the Master Servicer and the Trustee, provided that the Master Servicer,
consistent with accepted servicing practices, shall enforce any such
environmental indemnities on behalf of the Trustee and the Certificateholders.
"LTC": LTC Properties, Inc., the Originator and Special Servicer under
---
this Agreement.
"Master Servicer": GMAC Commercial Mortgage Corporation, a California
---------------
corporation, or any successor master servicer approved as herein provided.
"Master Servicer Remittance Date": With respect to any Distribution
-------------------------------
Date, the Business Day preceding such date.
"Maturity Date": With respect to any Mortgage Loan, the date on which
-------------
the last payment of principal including optional extensions exercisable by the
related Borrower is due and payable under the related Note (including any such
date which shall have been extended by the Special Servicer), as set forth in
the Mortgage Loan Sched-
I-23
<PAGE>
ule, but without giving effect to (i) any acceleration of the principal of such
Mortgage Loan or (ii) any grace period permitted by the related Note or any
other document in the Mortgage File.
"Medicaid": Title XIX of the Social Security Act.
--------
"Medicare": Title XVIII of the Social Security Act.
--------
"Modified Mortgage Loan": Any Mortgage Loan the terms of which have
----------------------
been modified, waived, or amended in accordance with the provisions hereof.
"Modified Monthly Payment": The Monthly Payment due under the modified
------------------------
terms of any Modified Mortgage Loan.
"Monthly Payment": With respect to any Mortgage Loan and any Due
---------------
Period, the scheduled monthly payment of principal and interest at the Mortgage
Interest Rate, excluding any Balloon Payment, on such Mortgage Loan that is
payable by a Borrower in such Due Period under the related Note; provided, that
--------
with respect to an REO Mortgage Loan, the Monthly Payment is the scheduled
monthly payment of principal and interest that would otherwise have been payable
in the related Due Period had the related Note not been discharged, determined
as set forth above and on the assumption that all other amounts, if any, due
thereunder are paid when due; and, provided, further, that in the case of a
-------- -------
Mortgage Loan the terms of which have been modified in accordance herewith, the
Monthly Payment shall be the Modified Monthly Payment.
"Mortgage": The mortgage, deed of trust or other instrument creating
--------
a first lien on, or first priority security interest in, one or more Mortgaged
Properties securing a Note, together with any rider, addendum or amendment
thereto, as amended from time to time.
"Mortgage File": With respect to any Mortgage Loan, the mortgage
-------------
documents listed in Section 2.1(i)-(ix), (xi)-(xvi), (xviii) and (xix)
pertaining to such particular Mortgage Loan and any additional documents
required to be added to such Mortgage File pursuant to this Agreement.
I-24
<PAGE>
"Mortgage Interest Rate": With respect to any Mortgage Loan, for any
----------------------
Interest Accrual Period, the per annum rate at which interest accrues on such
Mortgage Loan for such period, as determined pursuant to the related Note.
"Mortgage Loan": Any of the commercial mortgage loans transferred and
-------------
assigned to the Trustee pursuant to Section 2.1 to the extent set forth in such
Section 2.1 and from time to time held in the Trust Fund, the Mortgage Loans
originally so transferred, assigned and held being identified on the Mortgage
Loan Schedule as of the Closing Date. Such term shall also include any Mortgage
Loan so transferred after it becomes a REO Mortgage Loan and any related REO
Account Mortgage Loan.
"Mortgage Loan Due Period": For any Mortgage Loan, the period for
------------------------
which interest included in each Monthly Payment accrues.
"Mortgage Loan Schedule": As of any date, the list of Mortgage Loans
----------------------
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 name of the Borrower;
(b) the Loan Number;
(c) the street address, city, state and zip code in which the related
Mortgaged Property or Properties are located;
(d) the type of underlying Mortgaged Properties;
(e) the Mortgage Interest Rate as of the Cut-Off Date, and in the
event such Mortgage Loan provides for one or more resets of such
rate, the date or dates of such reset and such reset rate or
rates;
(f) the date of origination;
(g) the original term and the original amortization term;
I-25
<PAGE>
(h) the Maturity Date;
(i) the original principal balance;
(j) the current loan balance per Mortgaged Property;
(k) the Due Date of each Monthly Payment;
(l) the Monthly Payment;
(m) the Scheduled Principal Balance as of the Cut-Off Date;
(n) the Loan-to-Value Ratio in effect as of the Cut-Off Date;
(o) the rate of occupancy of the related Mortgaged Properties as of
the date of the most recent year end financial statements of the
related Borrower;
(p) the percentage of occupancy, as of the date of the most recent
year end financial statements of the related Borrower, the
payment for which is not provided through Medicare or Medicaid,
with respect to the related Mortgaged Properties;
(q) the Debt Service Coverage Ratio;
(r) the Net Debt Service Coverage Ratio;
(s) the result of a fraction, the numerator of which is the
outstanding principal balance of such Mortgage Loan as of the
Cut-Off Date and the denominator of which is the number of beds
available in the related Mortgaged Properties; and
(t) the periods during which optional prepayment is not permitted.
The Mortgage Loan Schedule shall also set forth the total of the
amounts described under clause (j) above for all 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. The Mortgage Loan Schedule shall
be amended from time to time in accordance with the provisions of this
Agreement.
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<PAGE>
"Mortgaged Property" or "Mortgaged Properties": An underlying
--------------------------------------------
property or properties securing a Mortgage Loan, including any REO Property or
REO Account Property, consisting of a fee simple estate in a parcel of land,
together with all improvements thereon, each of which operates as a facility
that offers long-term nursing home care together with any personal property,
fixtures, leases, and other property or rights pertaining thereto.
"Net Debt Service Coverage Ratio": With respect to any Mortgage Loan,
-------------------------------
as of any date of determination and for any period, the ratio of Net Operating
Income produced by the related Mortgaged Property or Properties for such period
(annualized if such period is less than one year) minus an assumed management
-----
fee equal to 5% of the gross revenues of the related facility, divided by the
aggregate Monthly Payments on the Mortgage Loan for such period.
"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 Interest Rate": With respect to any Mortgage Loan for
--------------------------
any Due Period, the Mortgage Interest Rate for such Mortgage Loan less the
Servicing Fee Rate, the Trustee Fee Rate and the Basic Fee Rate.
"Net Operating Income": The revenue derived from the use and
--------------------
operation of a Mortgaged Property less operating expenses (such as utilities,
administrative expenses, repairs, maintenance and, if applicable, labor and
food, medical and laundry supplies) other than fixed expenses (defined as
interest, depreciation, amortization, rent and management fees).
"Net Prepayment Interest Shortfall": With respect to any Due Period,
---------------------------------
the excess of the aggregate Prepayment Interest Shortfalls for such Due Period
over the sum of the aggregate Prepayment Interest Excesses for such Due Period
and the portion of the Servicing Fee available to offset such Prepayment
Interest Shortfalls.
"Net REO Proceeds": Subject to Section 1.2 (iii)(B) and 1.2(v), with
----------------
respect to each REO Account Property and any Prepayment Period, any amount
withdrawn from the REO Account and deposited into the Collection Account
pursuant to Section 3.17(d) with respect to such REO Account Property and such
Prepayment Period.
I-27
<PAGE>
"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.
"Nonrecoverable Advance": Any Servicing Advance or P&I Advance, plus
----------------------
interest accrued thereon at the Advance Rate, made or proposed to be made in
respect of a Mortgage Loan, which, if made, in the reasonable business judgment
of the Master Servicer, the Trustee or the Fiscal Agent, as applicable, will not
or would not, as applicable, be ultimately recoverable, together with all
unreimbursed Advances (plus interest accrued thereon at the Advance Rate) made
prior to such date with respect to the related Mortgage Loan (or the related REO
Property) from future payments and collections on the related Mortgage Loan or
from proceeds from the operation or sale of the related Mortgaged Property or
REO Property. The determination by the Master Servicer, the Trustee or the
Fiscal Agent, as applicable, that an Advance is a Nonrecoverable Advance shall
be evidenced by an Officer's Certificate to that effect delivered to the Trustee
and Fiscal Agent no later than the second Business Day preceding each
Distribution Date in the case of the Master Servicer and delivered to the
Depositor in the case of the Trustee or the Fiscal Agent, setting forth such
determination of nonrecoverability and the procedure and considerations of the
Master Servicer or any subservicer, as applicable, forming the basis of such
determination (which may include but shall not be limited to information, to the
extent available, such as related income and expense statements, rent rolls,
occupancy status property inspections, Master Servicer or Special Servicer
inquiries, and may include an internal or external appraisal performed in
accordance with MAI standards and methodologies on the related Mortgage Loan or
Mortgaged Property, and which may include, without limitation, considerations
relating to any environmental conditions with respect to the related Mortgaged
Property).
"Non-U.S. Person": A Person that is not (i) a citizen or resident of
---------------
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof or (iii) an estate or trust whose income from sources without the United
States is includable in gross income for United States federal income tax
purposes regardless of the source of its income.
I-28
<PAGE>
"Note": With respect to any Mortgage Loan as of any date of
----
determination, the note or other evidence of indebtedness of a Borrower under
such Mortgage Loan, including any amendments or modifications, or any renewal or
substitution notes, as of such date.
"Notice of Termination": Any of the notices given to the Trustee by
---------------------
the Master Servicer or any Holder of a Class LR Certificate pursuant to Section
9.1(b), 9.1(c) or 9.1(d).
"Notional Amount": For purposes of the definition of the term
---------------
"Outstanding" with respect to the Class X-1L Interest and the Class X-1
Certificates, an amount equal to the then aggregate Scheduled Principal Balance
of the Mortgage Loans and with respect to the Class X-2 Certificates, an amount
equal to the sum of the Certificate Principal Amounts of the Class AL, Class BL,
Class CL and the Class DL Interests.
"Officer's Certificate": A certificate signed by the Chairman of the
---------------------
Board, the Vice Chairman of the Board, the President, a Vice President, an
Assistant Vice President, the Treasurer, the Secretary, one of the Assistant
Treasurers or Assistant Secretaries, any Trust Officer or other officer of the
Master Servicer, the Trustee, the Fiscal Agent or the Special Servicer, as the
case may be, 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
Fiscal Agent, the Master Servicer and/or the Special Servicer, as the case may
be.
"Opinion of Counsel": A written opinion of counsel, who may, without
------------------
limitation, be counsel for the Depositor, the Master Servicer or the Special
Servicer, as the case may be, acceptable to the Trustee, except that any opinion
of counsel relating to (a) qualification of the Lower-Tier REMIC and the Upper-
Tier REMIC as two separate REMICs or the imposition of tax under the REMIC
Provisions on any income or property of the Upper-Tier REMIC or Lower-Tier
REMIC, (b) compliance with the REMIC Provisions (including application of the
definition of "Independent Contractor") or (c) a resignation of the Master
Servicer or the Special Servicer pursuant to Section 6.4 must be an opinion of
counsel who is Independent of the Originator, the Depositor, the Master Servicer
and the Special Servicer
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<PAGE>
(without giving effect to the proviso to the definition of the term
"Independent").
"Optimal Wind-Down Date": As to any Mortgage Loan, two years prior to
----------------------
the Final Scheduled Distribution Date.
"Originator": LTC and its successors in interests and assigns.
----------
"Outstanding": A Class of Certificates (other than the Class X, Class
-----------
R and Class LR Certificates), for which the Certificate Principal Amount thereof
is greater than zero. Each Class of Class X Certificates is "Outstanding" when
the Notional Amount thereof is greater than zero. The Class R and Class LR
Certificates will be "Outstanding" until the Trust Fund is terminated pursuant
to this Agreement. Solely for the purpose of giving any consent or taking any
action pursuant to this Agreement, any Certificate registered in the name of the
Depositor, the Master Servicer, or the Special Servicer or any Person known to a
Responsible Officer of the Trustee 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 such consent or take any such action
has been obtained, except that any such Certificates shall be deemed to be
Outstanding and shall have Voting Rights with respect to any matter requiring
consent or action on a Class-by-Class basis if and to the extent that all of the
Certificates of the particular Class are registered in the name of any such
Person or Persons.
"Outstanding Class Interest Shortfall": As to any Distribution Date
------------------------------------
subsequent to the initial Distribution Date and any Class of Certificates, the
sum of (a) the excess, if any, of (i) the sum of (A) the Accrued Certificate
Interest in respect of such Class for the preceding Distribution Date and (B)
the Outstanding Class Interest Shortfall of such Class as of such preceding
Distribution Date (in both cases before giving effect to any distributions made
thereon on such Distribution Date) over (ii) the aggregate amount in respect of
interest distributed to such Class on such preceding Distribution Date, and (b)
one month's interest accrued on the amount of such excess at the then applicable
Pass-Through Rate of such Class (except in the case of the Class X-1L Interest,
the Class X-1 Certificates or the Class X-2 Certificates), to the extent
permitted by applicable law. The Outstanding Class
I-30
<PAGE>
Interest Shortfall with respect to any Class of Certificates as of the initial
Distribution Date is zero.
"Ownership Interest": Any record or beneficial interest in a Class R
------------------
or Class LR Certificate.
"P&I Advance": With respect to any Mortgage Loan, any amount required
-----------
to be advanced by the Master Servicer, the Trustee or the Fiscal Agent pursuant
to Section 3.22 in respect thereof.
"Pass-Through Rate" or "Pass-Through Rates": The rate identified in
-----------------------------------------
the Preliminary Statement hereto as the "Pass-Through Rate" for any Class of
Lower-Tier Interests or Certificates except that in the case of the Class X-1L
Interest, the Class X-1 Certificates and the Class X-2 Certificates, the Pass-
Through Rate shall refer to the Class X-1L Accrued Interest, the Class X-1
Accrued Interest or the Class X-2 Accrued Interest, as the case may be.
"Paying Agent": Initially the Trustee, and any other paying agent
------------
appointed pursuant to Section 5.6.
"Percentage Interest": With respect to a Class A, Class B, Class C,
-------------------
Class D, Class E, Class F, Class G, Class R or Class LR Certificate, the
fraction of the Class evidenced by such Certificate, expressed as a percentage
(carried to thousandths of a percent, if necessary), the numerator of which is
the initial Certificate Principal Amount represented by such Certificate and the
denominator of which is the aggregate initial Certificate Principal Amount of
all of the Certificates of such Class. With respect to a Class X-1 or Class X-2
Certificate, the fraction of the Class evidenced thereby, expressed as a
percentage (carried to thousandths of a percent, if necessary), as stated on the
face of such Certificate.
"Permitted Investments": Any one or more of the following obligations
---------------------
or securities, regardless of whether issued by the Depositor, the Master
Servicer, the Special Servicer, the Trustee, the Fiscal Agent or any of their
respective Affiliates and having at the time of purchase, or at such other time
as may be specified, the required ratings, if any, provided for in this
definition:
(i) direct obligations of, or guaranteed as to timely payment of
principal and interest by, the United States or any agency or
instrumentality thereof, provided that such obli-
I-31
<PAGE>
gations are backed by the full faith and credit of the United
States of America;
(ii) direct obligations of, or guaranteed as to timely payment of
principal and interest by, FHLMC, FNMA or the Federal Farm Credit
System, provided that any such obligation is qualified by each
Rating Agency as an investment of funds backing securities having
a rating equal to the highest long-term debt ratings, or such
lower rating as will not result in the downgrading or withdrawal
of the rating or ratings then assigned by any Rating Agency to the
then rated classes of Certificates, as evidenced in writing by the
Rating Agencies;
(iii) demand and time deposits in or certificates of deposit of, or
bankers' acceptances issued by, any bank or trust company, savings
and loan association or savings bank, provided that, in the case
of obligations that are not fully FDIC-insured deposits, the
commercial paper and/or long-term unsecured debt obligations of
such depository institution or trust company (or in the case of
the principal depository institution in a holding company system,
the commercial paper or long-term unsecured debt obligations of
such holding company) is rated by each Rating Agency in its
highest long-term rating categories (or, in the case of demand and
time deposits, a rating of F-1+ by Fitch and A-1+ by S&P), or such
lower rating as will not result in the downgrading or withdrawal
of the rating or ratings then assigned by any Rating Agency to the
then-rated Classes of Certificates, as evidenced in writing by the
Rating Agencies;
(iv) general obligations of or obligations guaranteed by any state of
the United States or the District of Columbia receiving the
highest long-term debt ratings by each Rating Agency, or such
lower rating as will not result in the downgrading or withdrawal
of the rating or ratings then assigned by any Rating Agency to the
then-rated Classes of Certificates, as evidenced in writing by the
Rating Agencies;
I-32
<PAGE>
(v) commercial or finance company paper (including both non-interest-
bearing discount obligations and interest-bearing obligations
payable on demand or on a specified date not more than one year
after the date of issuance thereof) that is rated by each Rating
Agency in its highest short-term unsecured rating category and is
issued by a corporation the outstanding senior long-term debt
obligations of which are then rated by each Rating Agency in its
highest long-term unsecured rating categories or such lower rating
as will not result in the downgrading or withdrawal of the rating
or ratings then assigned by any Rating Agency to the then rated
Classes of Certificates as evidenced in writing by the Rating
Agencies;
(vi) certain qualified guaranteed investment contracts which are
obligations of an insurance company or other corporation having an
insurance claims paying ability or long-term unsecured debt rating
in the highest categories for such securities by each Rating
Agency or such lower rating as will not result in the downgrading
or withdrawal of any rating or ratings then assigned by any Rating
Agency to the then-rated Classes of Certificates as evidenced in
writing by the Rating Agencies;
(vii) repurchase obligations with respect to any security described in
clause (i) or (ii) above entered into with a depository
institution or trust company (acting as principal) meeting the
rating standards described in clause (iii) above;
(viii) securities bearing interest or sold at a discount that are issued
by any corporation incorporated under the laws of the United
States of America or any state thereof and rated by each Rating
Agency in its highest long-term unsecured rating categories;
provided, however, that securities issued by any such corporation
-------- -------
will not be Permitted Investments to the extent that investment
therein would cause the then outstanding principal amount of
securities issued by such corporation that are then held as part
I-33
<PAGE>
of the Collection Account, the Distribution Account or the REO
Account to exceed 20% of the aggregate principal amount of all
Permitted Investments then held in the Collection Account, the
Distribution Account and the REO Account;
(ix) units of taxable money market funds which funds are regulated
investment companies, seek to maintain a constant net asset value
per share and have either been rated "AAA" by Fitch and "AAAm" by
S&P or have been designated in writing by each Rating Agency as
Permitted Investments with respect to this definition; provided
--------
however, that if such taxable money market fund is not rated by
-------
Fitch, the Master Servicer will receive the prior written
confirmation from Fitch that the investment of trust funds in such
taxable money market fund will not result in the downgrade or
withdrawal of the ratings then assigned to the Certificates;
(x) if previously confirmed in writing to the Master Servicer by each
Rating Agency, any other demand, money market or time deposit, or
any other obligation, security or investment that will not result
in a downgrade or withdrawal of the rating then assigned to the
Certificates, provided that such investment is a "cash flow
investment" for purposes of the REMIC Provisions of the Code (as
evidenced by an Opinion of Counsel); and
(xi) such other obligations as are acceptable as Permitted Investments
to each Rating Agency as confirmed in writing to the Master
Servicer by each Rating Agency, that will not result in a
downgrade or withdrawal of rating or ratings then assigned to the
Certificates and is a "cash flow investment" as evidenced by an
Opinion of Counsel pursuant to the REMIC Provisions of the Code
(as evidenced by an Opinion of Counsel delivered to the Trustee by
the Master Servicer at the Master Servicer's expense);
provided, however, that if such obligation is not rated by Fitch, such
- - -------- -------
obligation need only be rated by S&P; provided, further, that (A) such
-------- -------
obligation or security qualifies as
I-34
<PAGE>
a "cash flow investment" pursuant to Code Section 860G(a) (6); and (B) no
obligation or security shall be a Permitted Investment if (i) such instrument or
security evidences a right to receive only interest payments or (ii) for
instruments which are prepayable or callable, the stated interest rate on such
investment is in excess of 120% of the yield to maturity produced by the price
at which such investment was purchased (iii) such investment shall not be
purchased at a price greater than par; provided, further, if rated, the
-------- -------
obligation should not have an "r" highlighter affixed to its rating and its
terms should include a predetermined fixed dollar amount of principal due at
maturity that cannot vary or change. Interest may either be fixed or variable.
Interest should be tied to a single interest rate index plus a single fixed
spread (if any), and move proportionately with that index.
"Permitted Transferee": With respect to a Class R Certificate or Class
--------------------
LR Certificate, any Person or agent thereof other than (a) a Disqualified
Organization, (b) any other Person so designated by the Certificate Registrar
based upon an Opinion of Counsel to the effect that the Transfer of an Ownership
Interest 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 or uncertifi cated
Lower-Tier Interests are outstanding, and (c) a Person that is a Non-U.S.
Person, unless such Non-U.S. Person (i) holds the Class R Certificate or Class
LR 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 Internal Revenue Service Form 4224 or (ii) has delivered to
both the transferor and the Certificate Registrar an opinion of a nationally
recognized tax counsel to the effect that the Transfer of the Class R
Certificate or Class LR Certificate to it is in accordance with the requirements
of the Code and the regulations promulgated thereunder and that such Transfer of
the Class R Certificate or Class LR Certificate will not be disregarded for
federal income tax purposes.
"Person": Any individual, corporation, limited liability company,
------
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Prepayment Interest Excess": With respect to any Mortgage Loan that
--------------------------
was subject to a full or partial Principal Prepayment during any Prepayment
Period, which Principal Prepayment was applied to such Mortgage Loan
I-35
<PAGE>
following the Due Date for such Mortgage Loan occurring during such Prepayment
Period, the amount of interest received on such Principal Prepayment at the
Mortgage Interest Rate for such Mortgage Loan from such Due Date, to the extent
collected.
"Prepayment Interest Shortfall": With respect to any Mortgage Loan
-----------------------------
that was subject to a Principal Prepayment during any Prepayment Period, which
Principal Prepayment was applied to such Mortgage Loan prior to the Due Date for
such Mortgage Loan occurring during such Prepayment Period, the amount of such
interest that would have accrued at the Mortgage Interest Rate then in effect
for such Mortgage Loan on the amount of such Principal Prepayment during the
period from and including the date as of which such Principal Prepayment was
applied to such Mortgage Loan to and excluding such Due Date.
"Prepayment Period": With respect to any Distribution Date or
-----------------
Determination Date, the period beginning on and including the first day of the
preceding calendar month and ending on and including the last day of such
calendar month.
"Prepayment Premium": With respect to any Mortgage Loan, any premium
------------------
or yield maintenance payment paid or payable, as the context requires, by the
related Borrower in connection with any Principal Prepayment.
"Prime Rate": With respect to any applicable Distribution Date, the
----------
prime lending rate in effect from time to time and published in the Wall Street
Journal on such Distribution Date.
"Principal Balance": At the time of any determination, the principal
-----------------
balance of a Mortgage Loan remaining to be paid at the close of business on the
Cut-Off Date after deduction of all principal payments due on or before the Cut-
Off Date whether or not paid (or, in the case of a Substitute Mortgage Loan
included in the Trust Fund pursuant to Section 2.2(b), at the close of business
as of the date of substitution) reduced by all amounts previously distributed to
Certificateholders that are allocable to payments of principal on such Mortgage
Loan (including the principal portion of Advances).
"Principal Distribution Amount": For any Distribution Date, the sum,
-----------------------------
for all the Mortgage Loans, of:
I-36
<PAGE>
(i) the principal component of all Monthly Payments (other than
Balloon Payments) and Assumed Scheduled Payments which become due
during the related Due Period on the Mortgage Loans,
(ii) to the extent not included in the preceding clause, the Scheduled
Principal Balance of any Mortgage Loan that, as of the Due Date in
the month preceding the month in which such Distribution Date
occurs, except in the case of Mortgage Loans having a Due Date on
the first day of a month, in which case the relevant date shall be
the Due Date in the month in which the Distribution Date occurs
(or as of the Cut-Off Date, in the case of the first Distribution
Date), either was purchased or repurchased from the Trust Fund
pursuant to Section 2.2, 2.3(d), 4.5(b) or 9.1, or as to which a
Final Recovery Determination was made during the related
Prepayment Period, reduced by the amount of Realized Losses
realized in the related Prepayment Period,
(iii) to the extent not included in the preceding clauses, the principal
component of all Balloon Payments on any Mortgage Loan, to the
extent received during the related Prepayment Period (reduced by
the principal component of all Assumed Scheduled Payments
previously advanced with respect to such Mortgage Loan),
(iv) to the extent not included in the preceding clauses, all other
Principal Prepayments received during the related Prepayment
Period on any Mortgage Loan, net of any portion thereof required
to reimburse a P&I Advance, and
(v) the aggregate Class ASER Amounts for such Distribution Date.
"Principal Prepayment": With respect to any Mortgage Loan (other
--------------------
than an REO Mortgage Loan) (i) any payment of principal made by or on behalf of
the Borrower on such Mortgage Loan 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 sched-
I-37
<PAGE>
uled interest due on any date or dates in any month or months subsequent to the
month of prepayment, (ii) the principal component of any Insurance Proceeds or
Liquidation Proceeds received with respect to such Mortgage Loan as to which a
Final Recovery Determination has not been made to the extent not applied to pay
amounts payable pursuant to Sections 1.2(ii)(a) and 1.2(ii)(b) and (iii) the
principal component of the Repurchase Price of any Mortgage Loan that is
purchased or repurchased pursuant to Section 2.2, 2.3(d), 4.5 or 9.1, but in no
case in excess of the Scheduled Principal Balance thereof (except to the extent
that advances were made for the difference between the actual Principal Balance
and the Scheduled Principal Balance of a Mortgage Loan). With respect to any
REO Mortgage Loan, the Net REO Proceeds received in any prepayment period to the
extent not applied to pay amounts payable pursuant to Sections 1.2(iii)(B)(a)
and 1.2(iii)(B)(b) to the extent such amount is in excess of the sum of the
scheduled Monthly Payments or Assumed Scheduled Payments on the related REO
Mortgage Loan and the applicable Workout Fee but in no case in excess of the
Scheduled Principal Balance thereof.
"Property Protection Expenses": Any costs and expenses incurred
----------------------------
pursuant to Sections 3.1(d), 3.10(a), 3.10(d), 3.10(e) and 3.17(c).
"PV Yield Loss Amount": (i) With respect to the Class A Certificates,
--------------------
as calculated on any Distribution Date in respect of any prepayment of principal
of a Mortgage Loan received during the related Prepayment Period, will equal the
present value of a series of monthly payments each equal to the Interest Payment
Adjustment (as defined below) for the Class A Certificates in connection with
such prepayment and payable on each subsequent Distribution Date to and
including the earlier to occur of (a) the Assumed Final Distribution Date for
the Class A Certificates or (b) the stated maturity date for such Mortgage Loan,
discounted at the applicable Reinvestment Yield (monthly compounding) for the
number of months remaining from the current Distribution Date to each such
subsequent Distribution Date to and including the earlier to occur of (a) the
Assumed Final Distribution Date for the Class A Certificates or (b) the stated
maturity date for such Mortgage Loan. The "Interest Payment Adjustment" in
respect of the Class A Certificates in connection with a prepayment of principal
of a Mortgage Loan during any Prepayment Period is equal to one-twelfth of the
product of (a) the amount, if any, by which (i) the Pass-Through Rate for the
Class A Certificates for the related Distribution
I-38
<PAGE>
Date exceeds (ii) the applicable Reinvestment Yield plus 0.50%, multiplied by
(b) the amount of such prepayment. Thus, if the Reinvestment Yield plus 0.50%
is greater than the Class A Pass-Through Rate, then the Class A Certificates
will not receive any Prepayment Premium. The "Assumed Final Distribution Date"
for the Class A Certificates is the Distribution Date on which the remaining
Class A Principal Amount would be reduced to zero at a 3% CPR (March 15, 2005);
(ii) With respect to the Class X-1 and Class X-2 Certificates, as calculated on
any Distribution Date in respect of any prepayment of principal of a Mortgage
Loan received during the related Prepayment Period, will equal the present value
of a series of monthly payments each equal to the IO Interest Payment Adjustment
(as defined below) for such Class of Certificates in connection with such
prepayment and payable on each subsequent Distribution Date to and including the
stated maturity for such Mortgage Loan, discounted at the applicable IO
Reinvestment Yield (as defined below) (monthly compounding) for the number of
months remaining from the current Distribution Date to each such subsequent
Distribution Date to and including the stated maturity date for such Mortgage
Loan. The "IO Interest Payment Adjustment" in respect of the Class X-1 and
Class X-2 Certificates in connection with a prepayment of principal of a
Mortgage Loan during any Prepayment Period is equal to one-twelfth of the
product of the excess of the Net Mortgage Interest Rate (after reduction of
related Servicing Fees and Trustee Fees) of the related Mortgage Loan over the
Class A Pass-Through Rate, multiplied by the amount of such prepayment. Such
payment calculation for the Class X Certificates will be allocated 50% to the
Class X-1 Certificates and 50% to the Class X-2 Certificates. Any Prepayment
Premium in excess of the amount due to the Class A Certificates will be
distributed to the Class X-1 and Class X-2 Certificates; and (iii) With respect
to the Class B, Class C, Class D, Class E, Class F and Class G Certificates the
PV Yield Loss Amount will at all times be zero.
"Qualified Institutional Buyer": The meaning given by Rule 144A under
-----------------------------
the Act.
"Qualified Insurer": An insurance company or security or bonding
-----------------
company qualified to write the related insurance policy in the relevant
jurisdiction which, in the case of a hazard or flood insurance policy, shall
either have a "Claims Paying Rating" no less than the lower of (i) "AA" or (ii)
the highest rating then assigned to the most senior Class of Certificates
outstanding at the time by either Rating Agency or otherwise be acceptable as a
Quali-
I-39
<PAGE>
fied Insurer to each Rating Agency; provided however that at no time shall such
-------- -------
rating be less than "BBB"; provided further that if such company has no "Claims
-------- -------
Paying Rating" from Fitch, such company need only be rated by, or be acceptable,
to S&P.
"Qualified Mortgage": A Mortgage Loan that is a "qualified mortgage"
------------------
within the meaning of Code Section 860G(a)(3) (but without regard to the rule in
Treasury Regulation (S) 1.860G-2(f)(2) that treats a defective obligation as a
qualified mortgage, or any substantially similar successor provision) and
applicable Treasury Regulations promulgated pursuant thereto.
"Quarterly Mortgage Loan Characteristics Summary": A quarterly report
-----------------------------------------------
substantially in the form of Exhibit K hereto to be provided by the Master
Servicer.
"Rating Agency": Each of Fitch and S&P. If such agencies or
-------------
successors thereto are no longer in existence, "Rating Agency" shall be such
nationally recognized statistical rating agency or other comparable Person
designated by the Trustee, notice of which designation shall be given to the
Depositor, Master Servicer and Special Servicer. References herein to the
second highest rating category of a Rating Agency shall mean AA or better in the
case of Fitch, AA or better in the case of S&P and in the case of any other
Rating Agency shall mean such second highest rating category or better without
regard to any plus or minus or any numerical qualifier.
"Real Property": Land or improvements thereon such as buildings or
-------------
other inherently permanent structures thereon (including items that are
structural components of the buildings or structures), in each such case as such
terms are used in the REMIC Provisions.
"Realized Loss": With respect to each Mortgage Loan as to which a
-------------
Final Recovery Determination has been made during a Prepayment Period, an amount
(not less than zero) equal to:
(i) the unpaid principal balance of such Mortgage Loan; plus
----
(ii) unpaid accrued interest (exclusive of interest included in such
principal balance) at the Mortgage Interest Rate from time to time
applicable, from the Due Date as to which interest was last paid
by the Borrower up to
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<PAGE>
the Due Date occurring in such Prepayment Period, on the unpaid
principal balance of such Mortgage Loan; plus
----
(iii) any outstanding Servicing Advances and Advance Interest payable
with respect to such Mortgage Loan; minus
-----
(iv) any Net REO Proceeds from the operation of any related REO
Property and the Net Liquidation Proceeds or Insurance Proceeds,
if any, received during the Prepayment Period in which such Final
Recovery Determination was made and applied to reduce the amounts
specified in clauses (i) to (iii) above pursuant to Section 1.2.
Realized Losses on a Mortgage Loan will be allocated first to the principal
balance of that Mortgage Loan and then to interest.
"Reassignment of Assignment of Leases, Profits and Rents": As defined
-------------------------------------------------------
in Section 2.1.
"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.
"Regular Certificates": Collectively, the Class AL, Class BL, Class CL,
--------------------
Class DL, Class EL, Class FL, Class GL, Class AR-L and Class X-1L Interests and
the Class A, Class B, Class C, Class D, Class E, Class F, Class G, Class X-1 and
Class X-2 Certificates.
"Reinvestment Yield": Will be equal to the yield on the U.S. Treasury
------------------
issue (primary issue) with a maturity date, as determined by the Trustee in its
good faith, equal to the stated maturity date of the related Mortgage Loan which
is the date closest to the Assumed Final Distribution Date for the Class A
Certificates.
"Remaining Principal Distribution Amount": For any Distribution Date,
---------------------------------------
the Principal Distribution Amount for such Distribution Date, minus the Class LR
-----
Principal Distribution and the Class R Principal Distribution for such
Distribution Date.
"REMIC": A "real estate mortgage investment conduit" within the meaning
-----
of Section 860D of the Code.
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<PAGE>
"REMIC Provisions": Provisions of the federal income tax law relating
----------------
to real estate mortgage investment conduits, which appear at Sections 860A
through 860G of Subchapter M of Chapter 1 of the Code, and related provisions,
and temporary, final (or, when consistent with market practice, proposed)
regulations promulgated thereunder, as the foregoing are in effect (or, in the
case of proposed regulations, are proposed to be in effect) from time to time.
"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 or 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 10% 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, other than by providing services that are not
considered to be rendered to the occupants of such REO Property
within the meaning of Treasury Regulation Section 1.512(b)-
1(c)(5);
(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 (whether or not such charges are separately stated); and
I-42
<PAGE>
(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 or the
Upper-Tier REMIC or Lower-Tier REMIC, 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 Account Mortgage Loan": A Mortgage Loan as to which the related
-------------------------
Mortgaged Property is an REO Account Property.
"REO Account Property": An REO Property or a property of which the
--------------------
Special Servicer has acquired possession or is operating or that has been
abandoned by the Borrower under the related Mortgage Loan.
"REO Mortgage Loan": A Mortgage Loan as to which the related Mortgaged
-----------------
Property is an REO Property.
"REO Property": A Mortgaged Property as to which an Acquisition Date
------------
has occurred.
"Repurchase Price": With respect to any Mortgage Loan to be purchased
----------------
or repurchased during any Prepayment Period pursuant to Section 2.2, 2.3(d) 4.5
or 9.1, or any Defaulted Mortgage Loan or any Mortgage Loan related to an REO
Property to be sold or repurchased during any Prepayment Period pursuant to
Section 3.18, an amount, calculated by the Master Servicer, or, with respect to
any REO Property, an amount, calculated by the Special Servicer, equal to:
(i) the unpaid Principal Balance of such Mortgage Loan as of the Due
Date as to which a payment of principal was last made by the
Borrower; plus
----
(ii) unpaid accrued interest from the Due Date as to which interest was
last paid by the Borrower up to the Due Date in the Due Period
related to the same Determination Date as the Prepayment Period in
which the purchase or repurchase is to occur at a rate equal to
the Mortgage Interest Rate applicable from
I-43
<PAGE>
time to time on the unpaid Principal Balance of such Mortgage
Loan; plus
----
(iii) any unreimbursed Advances on such Mortgage Loan, plus interest
thereon at the Advance Rate; plus
----
(iv) expenses reasonably incurred or to be incurred by the Master
Servicer, the Special 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 release signed by a Servicing Officer or a
-------------------
Special Servicer Officer, as the case may be, substantially in the form of
Exhibit I hereto, which shall refer to the Loan Number of the applicable
Mortgage Loan as set forth in the Mortgage Loan Schedule.
"Responsible Officer": Any officer of the Trustee assigned to the
-------------------
corporate trust department with direct responsibility for the administration of
this Agreement 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, and, in the case of any certification
required to be signed by a Responsible Officer, such an officer whose name and
specimen signature appears on a list of corporate trust officers furnished to
the Master Servicer and the Special Servicer by the Trustee, as such list may
from time to time be amended.
"Rule 144A": Rule 144A promulgated under the Act.
---------
"S&P": Standard & Poor's Ratings Services or any successor nationally
---
recognized rating organization.
"Scheduled Principal Balance": The Scheduled Principal Balance of any
---------------------------
Mortgage Loan as of the Cut-Off Date means the principal balance of such
Mortgage Loan as of the Cut-Off Date, after giving effect to any payment in
respect of principal due on or before the Cut-Off Date, irrespective of any
delinquency in payment by the related Borrower and after giving effect to any
Principal Prepayments received on or before the Cut-Off Date. For any
Determination Date, with respect to any Mortgage Loan, the Scheduled Principal
Balance of such Mortgage Loan as of the
I-44
<PAGE>
Cut-Off Date reduced by (a) any Principal Prepayments and/or other unscheduled
recoveries of principal and Balloon Payments received after the Cut-Off Date and
on or prior to the last day of the related Prepayment Period, (b) any payment in
respect of principal, if any, due after the Cut-Off Date and on or before the
last day of the related Due Period, to the extent paid by the Borrower or
advanced by the Master Servicer (other than a Balloon Payment, but including the
principal portion of any Assumed Scheduled Payment that actually was advanced),
irrespective of any delinquency in payment by the Borrower, and (c) any
adjustment thereto in the amount of a Deficient Valuation (if allocable to
principal) occurring on or before the last day of the related Prepayment Period
resulting from any bankruptcy or similar proceeding. In the event that a Final
Recovery Determination with respect to a Mortgage Loan has been made during a
Prepayment Period, the Scheduled Principal Balance of such Mortgage Loan with
respect to the immediately succeeding Determination Date shall be zero.
"Servicing Advances": Advances, other than P&I Advances, with respect
------------------
to the Mortgage Loans made by the Master Servicer, the Trustee or the Fiscal
Agent, as applicable with respect to taxes, insurance premiums and certain other
expenses to the extent required by this Agreement to be advanced and identified
herein as a "Servicing Advance."
"Servicing Fee": With respect to each Mortgage Loan and for any Due
-------------
Period, an amount equal to the product of one-twelfth the Servicing Fee Rate and
the Scheduled Principal Balance on each Mortgage Loan outstanding immediately
prior to the application of the Monthly Payment due on the Due Date in such Due
Period.
"Servicing Fee Adjustment" means, for any Due Period, the sum of the
------------------------
differences (each of which may be a negative number), one for each Mortgage Loan
listed on Exhibit B hereto, of (i) the interest that accrued on such Mortgage
Loan at the applicable Mortgage Interest Rate (net of the Class X-1L Strip Rate)
for the related Mortgage Loan Due Period and (ii) the interest that would have
accrued on such Mortgage Loan for such Mortgage Loan Due Period if interest had
accrued on such Mortgage Loan at the applicable Mortgage Interest Rate (net of
the Class X-1L Strip Rate) based on a year consisting of twelve thirty-day
months.
I-45
<PAGE>
"Servicing Fee Rate": With respect to each Mortgage Loan, a rate equal
------------------
to .065% per annum.
"Servicing Officer": Any officer or employee of the Master Servicer
-----------------
involved in, or responsible for, the administration and servicing of the
Mortgage Loans whose name and specimen signature appear on a list of servicing
officers or employees of the Master Servicer furnished to the Trustee and the
Special Servicer on the Closing Date by the Master Servicer as such list may
from time to time be amended.
"Servicing Transfer Event": With respect to any Mortgage Loan, the
------------------------
occurrence of any of the following events:
(i) (a) a Balloon Payment with respect to such Mortgage Loan becomes
or has become past due (taking into account any grace period), or
(b) at least two monthly payments become past due, or (c) during
the three month period ending on the Maturity Date of the Mortgage
Loan, the Borrower notifies the Master Servicer that it will not
pay the Balloon Payment on or prior to the Maturity Date and the
Master Servicer determines, in its reasonable business judgment,
as evidenced by an Officer's Certificate, that a payment default
on the Mortgage Loan is imminent (and will not be cured within 60
days); or
(ii) 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 (A) for the appointment of a trustee, conservator or
receiver or liquidator in any bankruptcy, insolvency, readjustment
of debt, marshalling of assets and liabilities or similar
proceedings or (B) for the winding-up or liquidation of its
affairs, shall have been entered against the related Borrower and
such decree or order shall have remained in force undischarged or
unstayed for a period of 60 days; or
(iii) the related Borrower consents to the appointment of a trustee,
conservator or re-
I-46
<PAGE>
ceiver or liquidator in any similar insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Borrower or of or relating to all or
substantially all of its property; or
(iv) the related Borrower admits in writing its inability to pay its
debts generally as they become due, files a petition to take
advantage of any applicable bankruptcy, insolvency or
reorganization statute, makes an assignment for the benefit of its
creditors, or voluntarily suspends payment of its obligations; or
(v) the Master Servicer receives notice of the foreclosure or proposed
foreclosure of any other lien on the related Mortgaged Property;
or
(vi) the related Mortgaged Property becomes an REO Account Property; or
(vii) (1) the license or certificate of need to operate the related
Mortgaged Property as a nursing home, (2) the certificate of the
related Mortgaged Property to participate as a nursing home
provider in Medicare or Medicaid (and their successor programs) or
(3) the right to admit patients under Medicare or Medicaid (and
their successor programs) has been terminated, revoked,
surrendered, limited or suspended, and the Master Servicer
determines, in its reasonable business judgment as evidenced by an
Officer's Certificate, that a payment default on such Mortgage
Loan is imminent; or
(viii) the related Mortgaged Property has been cited for a material
deficiency for which its license or certification can be revoked
and which is not cured within the earlier of the time permitted by
the applicable regulatory authority or 60 days and in connection
therewith, the Master Servicer determines, in its reasonable
business judgment as evidenced by an Officer's Certificate, that a
payment default on such Mortgage Loan is imminent; or
I-47
<PAGE>
(ix) the first mortgage lien and security interest granted in the
related Mortgaged Property by the related Mortgage becomes junior
to an intervening lien that is not removed or bonded-off within 30
days after written notice to the related Borrower; or
(x) the related Borrower has entered into any merger, consolidation or
similar transaction, or has sold all or substantially all of its
assets (whether now or hereinafter acquired) in violation of the
related Mortgage Loan documents; or
(xi) any of the events or conditions described in clauses (ii), (iii)
and (x) above shall have occurred with respect to the lessee of
any lease or the manager under any management contract of the
related Mortgaged Property, and in connection therewith, the
Master Servicer determines, in its reasonable business judgment as
evidenced by an Officer's Certificate, that a payment default on
such Mortgage Loan is imminent;
(xii) the Master Servicer determines that events or conditions exist
that (A) impair the ability of the Borrower to make timely
payments under such Mortgage Loan when due, (B) impair the first
lien and security interest granted by the related Mortgage (except
for the second lien in the case of the Roswell Mortgage Loan (Loan
#118), (C) impair the use of the related Mortgaged Property for
the use intended, and in the case of each of (A), (B), or (C), the
Master Servicer determines, in its reasonable business judgment as
evidenced by an Officer's Certificate, that a payment default on
such Mortgage Loan is imminent.
With respect to Loans #95, #135, #136, #137, #138 and #139 only, in the event
that any of the above listed conditions exist, the Mortgage Loans shall not be
transferred to the Special Servicer, but shall be specially serviced by the
Master Servicer. With respect to items (vii), (viii), (ix), (x) and (xi) above,
the Depositor shall notify the Master Servicer of the occurrence of such event.
I-48
<PAGE>
"Special Servicer": LTC, except with respect to Mortgage Loans #95,
----------------
#135, #136, #137, #138 and #139, with respect to which the Special Servicer
shall be the Master Servicer or an eligible Special Servicer appointed by the
Master Servicer in compliance with Section 6.4, or any successor special
servicer as herein provided.
"Special Servicer Fee": With respect to any Due Period, an amount
--------------------
equal to the sum of the aggregate Basic Fees and the aggregate Workout Fees, if
any, with respect to such Due Period.
"Special Servicer Officer": Any officer of the Special Servicer
------------------------
involved in, or responsible for, the administration and servicing of the
Mortgage Loans whose name and specimen signature appear on a list of officers of
the Special Servicer furnished to the Trustee and the Master Servicer by the
Special Servicer on the Closing Date, as such list may from time to time be
amended.
"Specially Serviced Mortgage Loan": As defined in Section 3.1(a).
--------------------------------
"Spread Rate": Any of the Class A Spread Rate, the Class B Spread Rate,
-----------
the Class C Spread Rate or the Class D Spread Rate.
"Startup Day": The day designated as such pursuant to Section 2.8(a)
-----------
hereof.
"Subservicer": Any entity entering into a subservicing agreement with
-----------
the Master Servicer, pursuant to which such subservicer shall perform the Master
Servicer's obligations under this Agreement, as specified in such subservicing
agreement.
"Substitute Mortgage Loan": As defined in Section 2.2(b).
------------------------
"Tax Returns": The federal income tax return on Internal Revenue
-----------
Service 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 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 Internal Revenue Service or any other governmental taxing authority
under
I-49
<PAGE>
any applicable provisions of federal, state or local tax laws.
"Termination Date": The Distribution Date on which the Upper-Tier
----------------
REMIC and Lower-Tier REMIC are terminated pursuant to Section 9.1.
"Termination Price": As defined in Section 9.1(c).
-----------------
"Transfer": Any direct or indirect transfer or other form of
--------
assignment of any Ownership Interest.
"Transfer Affidavit": As defined in Section 5.3(d).
------------------
"Transfer Agreement": The Transfer and Repurchase Agreement dated as
------------------
of March 1, 1996 between the Originator and the Depositor, pursuant to which the
Originator has sold the Mortgage Loans and other related property to the
Depositor.
"Treasury Regulations": Temporary or final (or, when consistent with
--------------------
market practice, proposed) regulations of the United States Department of the
Treasury.
"Trust Fund": The corpus of the trust created hereby and to be
----------
administered hereunder, consisting of the Lower-Tier REMIC and the Upper-Tier
REMIC.
"Trustee": LaSalle National Bank, a nationally chartered bank, 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 Due
-----------
Period, an amount equal to the product of one-twelfth of the Trustee Fee Rate
and the Scheduled Principal Balance on each Mortgage Loan outstanding
immediately prior to the application of the Monthly Payment due on the Due Date
in such Due Period.
"Trustee Fee Rate": With respect to each Mortgage Loan, a rate equal
----------------
to .015% per annum.
"Upper-Tier Certificate": Any of the Class A, Class B, Class C, Class
----------------------
D, Class E, Class F, Class G, Class X-1, Class X-2 or Class R Certificates.
I-50
<PAGE>
"Upper-Tier Distribution Account": The separate Eligible Account
-------------------------------
established and maintained by the Paying Agent pursuant to Section 3.5(b) which
shall be entitled "LaSalle National Bank, as Trustee, in trust for registered
Holders of LTC Commercial Mortgage Pass-Through Certificates, Series 1996-1."
"Upper-Tier REMIC": One of two segregated pools of assets for which a
----------------
REMIC election has been made comprising the Trust Fund, which shall consist of
the Lower-Tier Interests (other than the Class LR Certificate) and such amounts
as shall from time to time be held in the Upper-Tier Distribution Account.
"Value": With respect to any Mortgaged Property, the appraised value
-----
thereof as determined by the appraisal made for the Originator in connection
with the origination of the related Mortgage Loan.
"Voting Rights": With respect to any provisions hereof providing for
-------------
the action, consent or approval of the Holders of all Certificates evidencing
specified Voting Rights in the Trust Fund, (a) the aggregate Voting Rights of
the Class A, Class B, Class C, Class D and Class E, Class F, Class G, Class R
and Class LR Certificates shall be equal to 94% of the aggregate Voting Rights,
(b) the aggregate Voting Rights of each of the Class A, Class B, Class C, Class
D, Class E, Class F, Class G, Class R and Class LR Certificates shall be equal
to the product of (i) 94% and (ii) the fraction obtained by dividing the
Certificate Principal Amount of such Class by the aggregate Certificate
Principal Amounts of the Class A, Class B, Class C, Class D, Class E, Class F,
Class G, Class R and Class LR Certificates, (c) the aggregate Voting Rights of
the Class X-1 and Class X-2 Certificates shall be 5% and (d) the aggregate
Voting Rights of each of the Class X-1 and Class X-2 Certificates shall be equal
to 2 1/2% for each such class. With respect to any provisions hereof providing
for action, consent or approval of each Class of Certificates or specified
Classes of Certificates, each Holder of an Outstanding Certificate of a Class
will have Voting Rights in such Class equal to such Holder's Percentage Interest
in such Class.
"Workout Fee": With respect to any Due Period and any Mortgage Loan
-----------
that is, at the beginning of the related Prepayment Period, or at any time
during such Prepayment Period became, a Specially Serviced Mortgage Loan (other
than a Specially Serviced Mortgage Loan purchased by the Originator by reason of
breach of repre-
I-51
<PAGE>
sentation or defective documentation which has a material adverse effect on
Certificateholders), an amount equal to (a) in the case of each such Mortgage
Loan with respect to which a Final Recovery Determination has been made or in
the case of a Specially Serviced Mortgage Loan or related REO Property that is
sold or repurchased pursuant to any provision of this Agreement during the
related Prepayment Period, the product of the Workout Fee Rate and the Net
Liquidation Proceeds (reduced by the amount of unpaid accrued interest on such
Mortgage Loan) received on such Mortgage Loan during such Prepayment Period
times a fraction, the numerator of which is such Net Liquidation Proceeds and
the denominator of which is the Scheduled Principal Balance of such Mortgage
Loan at the time of liquidation, (b) in the case of each other Specially
Serviced Mortgage Loan, the product of the Workout Fee Rate and the amount of
collections and proceeds (including Net REO Proceeds) received with respect to
such Mortgage Loan during such Prepayment Period, less the aggregate amount of
Liquidation Expenses incurred with respect thereto and not deducted from
collections or proceeds received in a previous Prepayment Period pursuant to
this clause (b).
"Workout Fee Rate" As to any Mortgage Loan for which a Workout Fee is
----------------
payable with respect to any Due Period pursuant to the definition of "Workout
Fee," a per annum rate of 1.5%.
SECTION 1.2 Certain Calculations.
-----------------------------------
Unless otherwise specified herein, the following provisions shall
apply:
(i) All calculations of interest on the Certificates, Lower-Tier
Interests and servicing fees provided for herein shall be made on
the basis of a 360-day year consisting of twelve 30-day months,
except to the extent specified otherwise. All calculations of
interest with respect to any Mortgage Loan provided for herein
shall be made in accordance with the terms of the related Note and
Mortgage or, if such documents do not specify the basis upon which
interest accrues thereon, on the basis of a 360-day year
consisting of twelve 30-day months.
(ii) For purposes of this Agreement, as set forth in the applicable
Mortgage Loan, Insurance Proceeds and Liquidation Proceeds in
respect
I-52
<PAGE>
of a Mortgage Loan shall be applied as follows: (a) first, to the
reimbursement of Servicing Advances with respect to the related
Mortgage Loan, plus Advance Interest thereon, (b) second, to cover
past due Monthly Payments (and, in the case of Monthly Payments
with respect to which a P&I Advance was made, Advance Interest
thereon), (c) third, to the Monthly Payment or Assumed Scheduled
Payment, as applicable, for the Due Date occurring in the
Prepayment Period in which such proceeds are received, and (d)
fourth, after deduction of any applicable Workout Fee, as a
Principal Prepayment on the related Mortgage Loan.
(iii) Notwithstanding the occurrence of the Acquisition Date by or on
behalf of the Trust Fund with respect to any REO Property and
cancellation of the related Mortgage Loan, such Mortgage Loan
shall (for purposes of all calculations hereunder, including,
without limitation, the calculation of the Servicing Fee, 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
is sold by the Trust Fund. Consistent with the foregoing, for
purposes of all calculations hereunder, so long as such Mortgage
Loan is considered to be a Mortgage Loan held in the Trust Fund:
(A) It shall be assumed that, notwithstand ing that the
indebtedness evidenced by the related Note shall have been
discharged, such Note remains outstanding and, for purposes
of determining the Scheduled Principal Balance thereof and,
in connection with the calculation of any servicing
compensation, the unpaid principal balance thereof, the
Mortgage Interest Rate and related amortization schedule in
effect at the time of any such acquisition of title remain in
effect, except that such schedule shall be adjusted to
reflect the application of Net REO Proceeds received in any
amount pursuant to clause (B) below; and
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<PAGE>
(B) Net REO Proceeds with respect to a Specially Serviced
Mortgage Loan received in any Prepayment Period shall be
applied except as set forth in the applicable Mortgage Loan
as follows: (a) first, to pay any taxes due on such Net REO
Proceeds under the REMIC Provisions, and (b) second, in the
manner set forth in clause 1.2(ii) above;
(iv) In calculating Net REO Proceeds with respect to any REO Account
Property for any Prepayment Period, the aggregate amount of
expenses not allocable to particular REO Account Properties
charged against amounts on deposit in the REO Account by the
Special Servicer, as permitted by the provisions of this
Agreement, since the last date on which amounts were remitted from
the REO Account to the Collection Account shall be allocated to
reduce the proceeds and collections received in respect of
particular REO Account Properties on a pro rata basis based upon
the respective Monthly Payments of the related REO Account
Mortgage Loans.
SECTION 1.3 Business Day Certificate.
-------------------------
On the Closing Date (with respect to the remainder of calendar year
1996) and thereafter, within 30 days prior to the end of each calendar year
while this Agreement remains in effect (with respect to the succeeding calendar
years), the Master Servicer and the Special Servicer shall provide an Officer's
Certificate and the Trustee shall provide a certificate of a Responsible
Officer, specifying the days on which banking institutions in the city of
Chicago, Illinois (for as long as LaSalle National Bank is the Trustee) or in
the case of the Master Servicer Philadelphia, Pennsylvania or New York City, New
York (for so long as GMAC Commercial Mortgage Corporation is the Master
Servicer) are authorized or obligated by law, executive order or governmental
decree to be closed, or the Master Servicer, the Trustee or LTC is closed.
I-54
<PAGE>
ARTICLE II
DECLARATION OF TRUST FUND;
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.1 Creation and Declaration of Trust Fund; Conveyance of
Mortgage Loans, Conveyance of Other Collateral.
-----------------------------------------------------
The Depositor, concurrently with the execution and delivery hereof,
does hereby irrevocably sell, transfer, assign, set over and otherwise convey to
the Trustee, without recourse, all of the right, title and interest of the
Depositor in and to the Trust Fund, to have and to hold, in trust, and the
Trustee declares that, subject to the review provided for in Section 2.2, the
Custodian on its behalf has received and shall hold the Trust Fund, as Trustee,
in trust, for the benefit and use of the Holders of the Certificates which
indirectly through the Lower-Tier Interests (or, in the case of the Holders of
the Class LR Certificates, directly) represent the entire beneficial interest in
the Trust Fund and for the purposes and subject to the terms and conditions set
forth in this Agreement, and, concurrently with such receipt, the Trustee has
caused to be authenticated and delivered to or upon the order of the Depositor,
Certificates in the authorized denominations evidencing the entire ownership of
the Lower-Tier Interests, which in turn represent the entire ownership of the
Trust Fund. The Depositor also hereby assigns to the Trustee all of its right,
title and interest in the Transfer Agreement and the Mortgage Loans identified
on the Mortgage Loan Schedule, including all rights to payment in respect
thereof under the Notes and any and all related agreements, except as set forth
below, and any security interest thereunder (whether in real or personal
property and whether tangible or intangible), any guaranty relating thereto, any
environmental indemnity agreement relating to a Mortgaged Property and all the
right, title and interest of the Depositor in, to and under the Transfer
Agreement, and all other assets included or to be included in the Trust Fund for
the benefit of the Certificateholders, all without recourse and without warranty
of any kind except as specifically set forth herein. Such assignment includes
all interest and principal received or receivable by the Depositor, the Master
Servicer or the Special Servicer on or with respect to the Mortgage Loans other
than (i) scheduled payments of principal and interest due on the Mortgage Loans
on or prior to the Cut-Off Date, (ii) Principal
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Prepayments received on or prior to the Cut-Off Date and reflected in the
initial Scheduled Principal Balance of the related Mortgage Loan and (iii) any
Prepayment Premiums, late fees and any other penalties or charges.
In connection with such transfer and assignment, the Depositor does
hereby deliver to, and deposit with, the Custodian as the agent of the Trustee,
(except in the case of items (x), (xiii), (xvi), (xvii) and (xviii) below which
are delivered to the Master Servicer) the following documents or instruments
with respect to each Mortgage Loan so assigned:
(i) the original Note showing a complete chain of endorsement
from the Originator to the Depositor, and endorsed by the
Depositor without recourse and without warranty of any kind
except as specifically set forth herein to the order of the
Trustee in the following form: "Pay to the order of LaSalle
National Bank, a nationally chartered bank, as Trustee under
that certain Pooling and Servicing Agreement dated as of
March 1, 1996 for LTC Commercial Mortgage Pass-Through
Certificates, Series 1996-1, without recourse and without
warranty of any kind, except for those warranties made by LTC
REMIC Corporation and set forth in that certain Pooling and
Servicing Agreement, dated as of March 1, 1996, by and among
LTC REMIC Corporation, a Delaware corporation, GMAC
Commercial Mortgage Corporation, a California corporation,
LTC Properties, Inc., a Maryland corporation, LaSalle
National Bank, a nationally chartered bank and ABN AMRO Bank
N.V., a Netherlands banking corporation;
(ii) the original recorded Mortgage showing the Depositor as
mortgagee or accompanied by original recorded assignments
showing a complete chain of assignment from the Originator to
the Depositor or, if any such original Mortgage or assignment
has not been returned from the applicable public recording
office, a copy thereof certified by the Deposi-
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<PAGE>
tor to be a true and complete copy of the original thereof
submitted or, in the case of assignments to the Depositor, to
be submitted, for recording;
(iii) an executed Assignment of each Mortgage in form suitable for
recordation in the jurisdiction in which the Mortgaged
Property is located from (a) Bankers Trust Company of
California, as custodian for Goldman Sachs Mortgage Company
under that certain Custodial Agreement dated December 15,
1993, to the Originator, if applicable, (b) Originator to the
Depositor, and (c) the Depositor to "LaSalle National Bank,
as Trustee under that certain Pooling and Servicing
Agreement, dated as of March 1, 1996, for LTC Commercial
Mortgage Pass-Through Certificates, Series 1996-1";
(iv) if the related security agreement is separate from the
related Mortgage, the original executed version of such
security agreement and any intervening assignments thereof,
including the assignment thereof to the Depositor and the
Trustee;
(v) a copy of the UCC-l financing statement or statements and
related continuation statements, if any, relating to such
Mortgage Loan each with evidence of filing thereon, together
with an original executed form UCC-2 or UCC-3, in a form
suitable for filing in the jurisdiction in which the related
Mortgaged Property is located, disclosing the assignment from
(a) the Originator to the Depositor and (b) the Depositor to
the Trustee of the Depositor's security interest in the
personal property (if any) constituting security for
repayment of such Mortgage Loan;
(vi) a copy, certified as a true and complete copy by the
Originator, of each Notice Pursuant to Section 9-302 of the
Uniform Commercial Code, signed by the
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<PAGE>
Trustee and the Originator, to be delivered to the bank in
which a deposit account, if any, securing such Mortgage Loan
is maintained;
(vii) an Assignment of the escrow deposit, if any, and a copy,
certified as a true and complete copy by the Originator, of
each notice of each escrow deposit and the assignment of the
Mortgage Loan to be delivered to the escrow agent;
(viii) the original or copy of each assumption, modification,
written assurance or substitution agreement, if any, relating
to such Mortgage Loan;
(ix) the original lender's title insurance policy, together with
any endorsements thereto (the "Title Policy") or, with
------------
respect to each Mortgage Loan as to which a title insurance
policy has not yet been issued, a lender's title insurance
commitment with a letter from the issuer of the policy
stating that all conditions to the issuance of the policy
have been satisfied;
(x) the original survey, or if the original is not available, a
copy thereof certified by the Depositor to be a true copy
thereof;
(xi) the original of any guaranty relating to such Mortgage Loan;
(xii) if any related Assignment of Leases, Rents and Profits is
separate from the related Mortgage, the original executed
version thereof, together with an executed reassignment of
such instrument (a "Reassignment of Assignment of Leases,
Rents and Profits") in suitable form for recordation in the
jurisdiction in which the related Mortgaged Property is
located from the Depositor to the Trustee (which
reassignment, however, may be included in the Assignment of
Mortgage and need not be a separate instrument);
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<PAGE>
(xiii) a copy, certified as a true and complete copy by the
Originator or, where available, an original of, each lease
and each management agreement affecting the related Mortgaged
Property and of any intervening assignments thereof, and
evidence of any recordings thereof and any guarantees
relating thereto, if applicable;
(xiv) any subordination agreements relating to the Mortgage Loan;
(xv) any and all amendments, modifications and supplements to, and
waivers related to, any of the foregoing;
(xvi) evidence of insurance with respect to the related Mortgaged
Property as described in Section 3.8;
(xvii) all Phase I and Phase II environmental assessments,
engineering assessments, certificates of occupancy and
appraisals of the related Mortgaged Property in the
possession or prepared on behalf of the Originator or its
agents or on which the Originator is entitled to rely;
(xviii) all estoppel letters, financial statements and opinions
received from the related Borrower or tenant under the
related lease in the possession of such Seller or its agents;
and
(xix) any other written agreements related to such Mortgage Loan.
No later than ten (10) days following the Closing Date, the Depositor shall
cause each of the notices described in items (vi) and (vii) above to be
delivered to the addressee on such notice. No later than sixty (60) days
following the Closing Date, the Depositor shall cause to be issued (a) an
endorsement to be issued to each Title Policy, substantially in the form of a
CLTA Form 104.1 or a "Mortgage Assignment Add-On Endorsement" naming Trustee as
endorsee and, (b) with respect to any Mortgage Loan for which a Title Policy has
not yet been issued, a supplement to the
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<PAGE>
lender's title insurance commitment pursuant to which the issuer thereof commits
to issue the Title Policy with such an endorsement.
The Depositor hereby agrees that it shall take such further action as
is reasonably required to complete the conveyance of the Mortgage Loans as
contemplated by this Section 2.1. With respect to the Mortgage Loans, the
Depositor also hereby delivers to the Custodian as the agent of the Trustee a
list (the "Assignments of Mortgage List") that has been prepared by the
Depositor or its agent for each Mortgage Loan, by Loan Number, indicating the
jurisdiction in which the related Assignment of Mortgage will be submitted for
recording and escrow instructions to the title companies that will be issuing
the endorsements described above,instructing each such title company to (1)
record each Assignment of Mortgage, Reassignment of Assignment of Leases and
Rents (if not otherwise included in the related Assignment of Mortgage), UCC-2
or UCC-3 and (2) issue the endorsements to the Title Policies.
No later than 45 days following the Closing Date, the Trustee or
Custodian, as applicable, shall, to the extent possession thereof has been
delivered to the Trustee or to the Custodian, deliver to the Depositor who shall
record or cause to be recorded,(1)(a) each original Assignment of Mortgage
referred to in Section 2.1 (iii) which has not yet been submitted for recording
and, (b) each Reassignment of Assignment of Leases, Rents and Profits referred
to in Section 2.1(xii) (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 referred to in Section 2.1(v) which has not yet been
submitted for filing. The Depositor shall promptly (and in no event later than
five Business Days following the date the related document is received from the
Depositor, in the case of clause 1(a) above and 30 days following the date the
related document is received in the case of clauses 1(b) and 2 above) submit or
cause to be submitted for recording or filing, as the case may be, at the
expense of the Depositor, in the appropriate public recording office, each such
document. In the event that any such document is lost or returned unrecorded
because of a defect therein, the Depositor shall promptly prepare a substitute
document, and thereafter direct Chicago Title Insurance Company or the Trustee
or Custodian to cause each such document to be duly recorded. Notwithstanding
anything to the contrary contained in this Section 2.1, in those instances where
the public recording office retains the original Mortgage, Assignment of
Mortgage or Reassignment
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<PAGE>
of Assignment of Leases, Rents and Profits, if applicable, after any has been
recorded, the obligations hereunder of the Depositor, Trustee or Custodian, as
applicable, shall be deemed to have been satisfied upon delivery to the Trustee
or the Custodian of a copy of such Mortgage, 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.
All original documents relating to the Mortgage Loans which are not
delivered to the Custodian are and shall be held by the Depositor, the Master
Servicer or the Special Servicer, as the case may be, in trust for the benefit
of the Trustee on behalf 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 Mortgage File, such document shall be delivered promptly to the Custodian.
Any original document delivered to or held by the Depositor that is not required
pursuant to the terms of this Section to be a part of a Mortgage File shall be
delivered promptly to the Master Servicer.
It is intended that the conveyance of the Depositor's right, title and
interest in and to the Trust Fund pursuant to this Agreement shall constitute,
and shall be construed as, a purchase and sale and not a loan. However, if such
conveyance is deemed to be a loan, it is intended that the rights and
obligations of the parties to such loan shall be established pursuant to the
terms of this Agreement. The Depositor hereby grants to the Trustee a first
priority security interest in all of the Depositor's right, title and interest
in, to and under the Mortgage Loans, together with any related Mortgages and
Assignments of Leases, Rents and Profits, other Trust Fund property and the
other property so conveyed, whether now existing or hereafter acquired, and the
accounts and funds established by the Master Servicer and the Trustee pursuant
hereto, all payments of principal of or interest on the Mortgage Loans, all
other payments made in respect of the Mortgage Loans and all proceeds thereof
for the benefit of the Certificateholders, to secure payment of the Certificates
and authorizes the Trustee to make the REMIC Elections with respect to the Trust
Fund required hereunder; and this Agreement shall constitute a security
agreement under applicable law. If such conveyance is deemed to be a loan and
the trust created by this Agreement terminates prior to the satisfaction of the
claims of any Person holding any Certificates, the security interest created
hereby shall continue in full force and effect and the
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<PAGE>
Trustee shall be the collateral agent for the benefit of such Person, and all
proceeds shall be distributed as herein provided. The Depositor shall take such
actions as may be necessary to ensure that, if this Agreement were deemed to
create a security interest in the Mortgage Loans, together with any related
Mortgages and Assignments of Leases, Rents and Profits, 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.
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<PAGE>
SECTION 2.2 Acceptance by Custodian and Trustee; Repurchase or
Substitution for Defective Documentation or other Failure
to Validly Assign Mortgage Loans.
---------------------------------------------------------
(a) If the Depositor cannot deliver or shall otherwise be unable to
assign (as set forth in an Officer's Certificate of the Depositor) validly any
Mortgage Loan to the Trustee pursuant to Section 2.1 or any other original or
certified recorded document described in Section 2.1 on the Closing Date (or
take such other action as is required in the aforesaid Officer's Certificate of
the Depositor) to the Custodian, the Depositor shall use its best efforts,
promptly upon receipt thereof and in any case not later than 45 days from the
Closing Date, to deliver such original or certified recorded documents to the
Custodian on behalf of the Trustee (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 it 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 receipt thereof). By
its execution and delivery of this Agreement, the Trustee acknowledges the
assignment to it of the Mortgage Loans in good faith without actual notice or
actual knowledge of adverse claims, liens, charges, encumbrances or other
security interests and declares that the Custodian holds and will hold such
documents and all others delivered to it constituting the Mortgage File (to the
extent the documents constituting the Mortgage File are actually delivered to
it) for any Mortgage Loan assigned to it as Trustee hereunder in trust, upon the
conditions herein set forth, for the use and benefit of all present and future
Certificateholders. The Custodian agrees, for the benefit of the
Certificateholders, to review each Mortgage File within 45 days after the later
of (a) the Custodian's receipt of such Mortgage File or (b) the execution and
delivery of this Agreement, to ascertain that all documents referred to in
Section 2.1 above (in the case of the documents referred to in Sections 2.1
(iv), (v), (vi), (vii), (viii), (ix) (in the case of any endorsement thereto),
(xi)-(xvi), (xviii) and (xix), as identified to it in writing by the Depositor,
which the Depositor hereby agrees to do promptly after the Closing Date) and any
original recorded documents referred to in the first sentence of this Section
included in the delivery of a Mortgage File have been received, have been
executed, appear to be what they purport to be, purport to be recorded or filed
(as applicable) and appear regular on their face, and that such documents relate
to the Mortgage
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<PAGE>
Loans identified in the Mortgage Loan Schedule. In so doing, the Custodian may
rely on the purported due execution and genuineness of any such document and on
the purported genuineness of any signature thereon. At the conclusion of such
review, the Custodian shall promptly notify the Depositor, with a copy to the
Trustee, the Master Servicer and the Special Servicer, by providing a written
report in the form attached as Exhibit J (the "Custodian's Exception Report")
and, if the Custodian finds that any document or documents constituting a part
of a 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 not to be regular on their face, such report
shall set forth for each affected Mortgage Loan, with particularity, the nature
of the defective or missing document or the lack of evidence of recordation.
The provisions of Section 2.3(c) shall apply to each document so identified.
The Trustee and the Master Servicer shall not 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 Mortgage File noted on the Custodian's
Exception Report or for any failure by the Depositor to use its best efforts to
deliver any such document.
The Custodian shall have no responsibility for reviewing any Mortgage
File except as expressly provided above and in Section 2.1 hereof. Without
limiting the effect of the preceding sentence, in reviewing any Mortgage File
pursuant to the preceding paragraph or Section 2.1, the Custodian shall have no
responsibility for determining whether any document or opinion is valid and
binding, whether the text of any deed, assignment or endorsement is in proper or
recordable form (except, if applicable, to determine if the Trustee is the
grantee, 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 Custodian holds that portion of the Trust Fund delivered to the
Trustee consisting of "instruments" in the case of the Mortgage Loans (as such
term is defined in Section 9-105(i) of the Uniform Commercial Code as in effect
in Illinois on the date hereof), and, except as otherwise specifically provided
in this Agreement, shall not remove such instruments from Illinois unless it
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<PAGE>
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 Custodian is deemed not to be a
sale, after such removal, the Custodian on behalf of the Trustee will possess a
first priority perfected security interest in such instruments.
The Trustee may enter into a Custodial Agreement pursuant to which the
Trustee will appoint a Custodian to hold the Mortgage Files in trust for the
benefit of all present and future Certificateholders; provided, however, that
-------- -------
the Custodian so appointed shall in no event be the Originator, the Depositor or
any Person known to a Responsible Officer of the Trustee to be an Affiliate of
any of them; provided, further that the Trustee need not enter into a Custodial
-------- -------
Agreement for so long as the Trustee is the Custodian. Prior to appointing a
Custodian, the Trustee shall cause a Responsible Officer of the Trustee to make
a reasonable inquiry of appropriate officers of the Custodian as to whether such
prospective Custodian is an Affiliate of the Originator or the Depositor. The
Trustee appoints itself as the initial Custodian hereunder.
(b) Upon discovery by the Depositor, the Master Servicer, the Special
Servicer, the Custodian (if any) or a Responsible Officer of the Trustee that
any documentation described in Section 2.1 hereof is missing or defective in any
respect and such defect has a material adverse effect on the Mortgage Loans,
then pursuant to the Transfer Agreement, the Originator shall cure such omission
or defect identified on the Custodian's Exception Report as provided in the
Transfer Agreement. The Depositor shall enforce such obligation of the
Originator. In the event the Originator fails to effect such cure within the
allotted period, and such omission or defect has materially and adversely
affected the interests of the Certificateholders, the Originator shall, as
required under the Transfer Agreement, within 90 days of discovery of the
omission or defect, at its option, either (i) repurchase the related Mortgage
Loan at a price equal to the Repurchase Price upon the terms and conditions and
in the manner described in the Transfer Agreement or (ii) if within two years of
the Startup Day, or such other period as may be permitted by the REMIC
Provisions, substitute for any Mortgage Loan to which such omission or defect
relates, a new mortgage loan (a "Substitute Mortgage Loan") having such
characteristics so that no repurchase or substitution event set forth in Section
3.2 of the Transfer Agreement (other than Section 3.2(xii)) would have existed
had such Substitute Mortgage
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<PAGE>
Loan originally been a Mortgage Loan. The Originator shall effect any such
substitution pursuant to the Transfer Agreement; provided, however, that no such
-------- -------
substitution will be permitted (and accordingly a repurchase will be required)
unless the Originator receives written confirmation from the Rating Agencies
that the substitution will not result in the downgrading or withdrawal of the
rating or ratings then assigned by any Rating Agency to the then-rated Classes
of Certificates as evidenced in writing by the Rating Agencies. Any such
substitution shall be effected only if the Originator shall have furnished the
Trustee and the Custodian, if any, with an Opinion of Counsel, at the expense of
the Originator, that such substitution shall not (i) cause a loss of the REMIC
status with respect to either the Upper-Tier REMIC or the Lower-Tier REMIC, (ii)
result in the imposition of any tax on "prohibited transactions" (imposed by
Section 860F(a)(1) of the Code) or on prohibited contributions (imposed by
Section 860G(d) of the Code) upon either the Upper-Tier REMIC or the Lower-Tier
REMIC, or (iii) otherwise subject either the Upper-Tier REMIC or Lower-Tier
REMIC to any federal tax, and that the Substitute Mortgage Loan is a "qualified
replacement mortgage" within the meaning of Section 860G(a)(4) of the Code. In
no event shall any Substitute Mortgage Loan have an unpaid principal balance, as
of the date of substitution, greater than the Scheduled Principal Balance
(reduced by the scheduled payment of principal due on the Due Date in the month
of substitution) of the Mortgage Loan for which it is substituted. In addition,
such Substitute Mortgage Loan shall (i) have a Loan-to-Value Ratio less than or
equal to, that of the Mortgage Loan for which it is substituted, (ii) have a
Mortgage Interest Rate no less than, and no more than, 1% percent per annum
above or below, as the case may be, the Mortgage Interest Rate for the Mortgage
Loan for which it is substituted, (iii) have a remaining term to stated maturity
not later than, and not more than one year less than, the remaining term to
stated maturity of the substituted Mortgage Loan and (iv) be, in the reasonable
determination of the Originator, of the same type, quality and character as the
substituted Mortgage Loan as if the documentation was not defective or missing
in any material respect. If the Substitute Mortgage Loan has an unpaid
principal balance, as of the date of substitution, lower than the Scheduled
Principal Balance (reduced by the scheduled payment of principal due on the Due
Date in the month of substitution) of the Mortgage Loan for which it is
substituted, the Originator shall concurrently with such substitution deposit in
the Collection Account the amount of such difference, plus interest on such
amount at the
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Mortgage Interest Rate of the Mortgage Loan being replaced from the substitution
date through the last day of the Interest Accrual Period in which such
substitution date occurs.
In the case of a repurchased Mortgage Loan or property pursuant to the
preceding paragraph, the Repurchase Price shall be deposited by the Originator
in the Collection Account pursuant to the Transfer Agreement. In the case of a
Substitute Mortgage Loan, the Mortgage File relating thereto shall be delivered
to the Custodian. The Monthly Payment on the Substitute Mortgage Loan for the
Due Date in the month of substitution shall not be part of the Trust Fund. Upon
receipt by the Custodian and the Trustee of written notification of any required
deposit into the Collection Account signed by an officer of the Originator, and,
in the case of a Substitute Mortgage Loan, upon receipt of the new Mortgage File
and required payment, as the case may be, the Custodian shall release to the
Originator the related Mortgage File and the Trustee shall execute and deliver
or cause to be executed and delivered such instrument of transfer or assignment
furnished to it by the Originator, in each case without recourse, as shall be
necessary to vest in the Originator legal and beneficial ownership of such
substituted or repurchased Mortgage Loan or property. It is understood and
agreed that the obligation of the Originator to substitute a new Mortgage Loan
for or repurchase any Mortgage Loan or property as to which such a material
omission or defect in a constituent document exists shall constitute the sole
remedy respecting such omission or defect available to the Certificateholders or
the Trustee on behalf of the Certificateholders. The failure of the Custodian
or the Trustee to give any notice contemplated herein shall not affect or
relieve the Originator's obligation to repurchase any Mortgage Loan or property
pursuant to this Section 2.2 and the Transfer Agreement. Pursuant to the
Transfer Agreement, in the case of a Substitute Mortgage Loan, the Originator
shall provide the Rating Agencies with substantially the same environmental
information the Originator provided with respect to the Mortgaged Properties
securing the Mortgage Loans originally deposited into the Trust Fund on the
Closing Date. The Custodian shall review the Mortgage File delivered to it
relating to the Substitute Mortgage Loan, within the time period and in the
manner and with the remedies specified in this Section 2.2.
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<PAGE>
SECTION 2.3 Representations and Warranties and Covenants of the
Depositor.
---------------------------------------------------
(a) The Depositor hereby represents and warrants to the Master
Servicer and the Trustee on behalf of itself and the
Certificateholders that as of the Cut-Off Date:
(i) the Depositor is duly organized, validly existing and in
good standing in the jurisdiction of its incorporation and
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;
(ii) 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, fraudulent conveyance, insolvency,
reorganization, receivership, moratorium or other laws
relating to or affecting the rights of creditors
generally, or by general principles of equity (regardless
of whether such enforceability is considered in a
proceeding in equity or at law);
(iii) the execution and delivery of this Agreement and the
performance of its obligations hereunder by the Depositor
will not conflict with the charter or bylaws of the
Depositor, any
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<PAGE>
provision of any law or regulation to which the Depositor
is subject, or conflict with, result in a breach of or
constitute a default under any of the terms, conditions or
provisions of any material 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 other than the lien created
pursuant to 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;
(iv) there is no action, suit or proceeding pending or, to the
best of the Depositor's knowledge, threatened 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 the transactions contemplated by
this Agreement; and
(v) upon the transfer of the Mortgage Loans by the Depositor
to the Trustee, the Trustee shall either be the owner of
the Mortgage Loans or shall have a valid and perfected
security interest of first priority in all of the
Depositor's right, title and interest in the Mortgage
Loans and any proceeds thereof.
(b) The Depositor hereby covenants that:
(i) it will maintain books and records separate from any other
Person or entity;
(ii) it will not commingle assets with those of any other
person or entity;
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<PAGE>
(iii) it will conduct its own business in its own name;
(iv) it will maintain separate financial statements;
(v) it will pay its own liabilities out of its own funds;
(vi) it will observe all corporate formalities;
(vii) it will maintain an arm's length relationship with its
Affiliates;
(viii) it will pay the salaries of its own
employees;
(ix) it will not guarantee or become obligated for the debts of
any other Person or entity or hold out its credit as being
available to satisfy the obligations of others;
(x) it will allocate fairly and reasonably any overhead for
shared office space;
(xi) it will use separate stationery, invoices, and checks
from any other Person or entity;
(xii) it will not pledge its assets for the benefit of any other
Person or entity; and
(xiii) it will hold itself out as a separ-
ate entity.
(c) It is understood and agreed that the representations and
warranties set forth in this Section 2.3 shall survive delivery of the
respective Mortgage Files to the Trustee or to the Custodian, as the case may
be, until the termination of this Agreement, and shall inure to the benefit of
the Trustee. Upon discovery by the Depositor, the Master Servicer, the Special
Servicer, the Custodian 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 2.3 that materially and
adversely affects the
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Certificateholders, the Master Servicer, the Special Servicer, the Custodian,
the Trustee or the party discovering such breach shall give prompt written
notice to the other parties.
(d) Pursuant to Section 2.1, the Depositor has hereby assigned,
transferred and conveyed to the Trustee the Depositor's rights under the
Transfer Agreement, including without limitation, the representations,
warranties and covenants of the Originator therein, together with all rights of
the Depositor to require the Originator to cure any breach thereof or, at its
option, either (i) to repurchase any affected Mortgage Loan or (ii) if within
two years of the Startup Day, or such other period permitted by the REMIC
Provisions, substitute a new mortgage loan for such Mortgage Loan, in either
case, in the manner described in the Transfer Agreement. The Master Servicer
shall enforce such obligation of the Originator. Any such cure, repurchase or
substitution shall be made in a manner consistent with the REMIC Provisions and
shall not result in the imposition of any tax upon either the Upper-Tier or
Lower-Tier REMIC. The Repurchase Price with respect to any repurchase described
in this paragraph and the substitute principal balance, if any, plus accrued
interest thereon and the other amounts referred to in Section 2.2(d), shall be
deposited in the Collection Account. It is understood and agreed that the
obligation of the Originator to repurchase or substitute for any Mortgage Loan
or property as to which a repurchase or substitution event has occurred and is
continuing shall constitute the sole remedy respecting such event available to
Certificateholders, or to the Trustee on behalf of Certificateholders, and such
obligation shall survive until termination of the Trust Fund hereunder.
SECTION 2.4 Execution and Delivery of Certificates; Issuance of
Uncertified Lower-Tier Interests.
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The Trustee acknowledges the assignment to it of the Mortgage Loans
and the delivery of the Mortgage Files to the Custodian on its behalf, subject
to the provisions of Section 2.1 and Section 2.2, and, concurrently with such
delivery, (i) acknowledges the issuance of the uncertificated Lower-Tier
Interests to the Depositor in exchange for the Mortgage Loans and all other
assets included in the definition of the "Lower-Tier REMIC," receipt of which is
hereby acknowledged, and hereby declares that it holds the Lower-Tier Interests
(other than the Class LR Certificates) on behalf of the Upper-Tier
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REMIC and Certificateholders (other than the holders of Class LR Certificates),
and (ii) has executed and delivered to or upon the order of the Depositor, in
exchange for the Lower-Tier Interests (other than the Class LR Certificates),
the Certificates (other than the Class LR Certificates) in authorized
denominations which, together with the Class LR Certificates, evidence ownership
of the entire Trust Fund.
SECTION 2.5 Representations, Warranties and Covenants of the Master
Servicer.
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(a) The Master Servicer hereby represents, warrants and covenants
that as of the Closing Date:
(i) the Master Servicer (A) is a corporation duly organized,
validly existing and in good standing under the laws of
the State of California and (B) is or will be in
compliance with the laws of each state in which any
Mortgaged Property is located to the extent necessary to
perform its obligations under this Agreement;
(ii) the execution and delivery of this Agreement by the Master
Servicer and its performance and compliance with the terms
of this Agreement will not violate the Master Servicer's
articles of incorporation or by-laws or constitute a
material default (or an event which, with notice or lapse
of time, or both, would constitute a material default)
under, or result in the material breach of, any material
contract, agreement or other instrument to which the
Master Servicer is a party or which may be applicable to
the Master Servicer or any of its material assets;
(iii) this Agreement, assuming due authorization, execution and
delivery by each other party hereto, constitutes a legal,
valid and binding obligation of the Master Servicer,
enforceable against it in accordance with the terms of
this Agreement, except as such enforcement may be
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limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, receivership, moratorium or other laws
relating to or affecting the rights of creditors generally
or of creditors of savings or banking institutions the
accounts of which are insured by the FDIC and by general
principles of equity including principles of commercial
reasonableness, good faith, independence and fair dealing
(regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(iv) the Master Servicer is not in violation of, and the
execution and delivery of this Agreement by the Master
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, which violation
could reasonably be expected to have consequences that
would materially adversely affect the performance of its
duties hereunder;
(v) no litigation is pending or, to the best of the Master
Servicer's knowledge, threatened against the Master
Servicer which would prohibit its entering into or
performing its obligations in any material respect under
this Agreement; and
(vi) the Master Servicer has examined each existing, and will
examine each future, subservicing agreement to which it is
or becomes a party and is, or will be, familiar with the
terms thereof; the Master Servicer will require each
designated subservicer and the terms of each subservicing
agreement to which it is a party to comply with the
provisions of this Agreement; and the
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terms of any such subservicing agreement will not be
inconsistent in any material respect with any of the
provisions of this Agreement.
(b) It is understood and agreed that the representations and
warranties set forth in this Section 2.5 shall survive delivery of the
respective Mortgage Files to the Trustee or to the Custodian, as the case may
be, until the termination of this Agreement, and shall inure to the benefit of
the Trustee and the Depositor. Upon discovery by the Depositor, the Master
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 2.5, the party
discovering such breach, unless such breach is susceptible to cure with no
adverse effects on the Certificateholders, shall give prompt written notice to
the other parties.
(c) Within 90 days of the earlier of its discovery or its receipt of
notice of breach of the representation and warranty contained in clause
(a)(i)(B) above, the Master Servicer shall cure such breach in all material
respects; provided, however, that if the Master Servicer is diligently
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attempting to cure such breach and is unable to do so within 90 days for reasons
beyond its control, the 90-day period shall be extended for so long as the
Master Servicer is diligently attempting to cure such breach in accordance with
the provisions of this Section but, in no event, shall such extended period
exceed an additional 90 days or have a material adverse effect on
Certificateholders. If the Master Servicer does not or cannot cure such breach
within the applicable period, it shall, consistent with Section 3.1, appoint a
subservicer that is in compliance with the laws of the requisite states and vest
in such entity such rights, powers, duties or obligations as are necessary under
this Agreement to permit enforcement of each affected Mortgage Loan. In the
event of any such extension, on or before the expiration of the initial 90-day
period, the Master Servicer shall provide an Officer's Certificate to the
Trustee setting forth the efforts being taken to cure such breach. If the
Master Servicer fails to cure a breach of the representation and warranty
contained in clause (a)(i)(B) above or appoint a subservicer within the
applicable cure period, as such period may be extended pursuant to this
paragraph, such failure shall constitute an Event of Default under Section 7.1
hereof.
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SECTION 2.6 Representations, Warranties and Covenants of the Special
Servicer.
--------------------------------------------------------
(a) Each Special Servicer, hereby represents, warrants and covenants
that as of the Closing Date or by the date it is appointed Special
Servicer, as the case may be:
(i) it (A) is a corporation organized, validly existing and in
good standing under the laws of the state of its
incorporation and (B) is or will be in compliance with the
laws of each state in which any Mortgaged Property is
located to the extent necessary to perform its obligations
under this Agreement;
(ii) the execution and delivery of this Agreement by it and its
performance and compliance with the terms of this
Agreement will not violate its charter or by-laws 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 it is a party or
which may be applicable to it or any of its assets;
(iii) this Agreement, assuming due authorization, execution and
delivery by each other party hereto, constitutes its
legal, valid and binding obligation, enforceable against
it in accordance with the terms of this Agreement, except
as such enforcement may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization,
receivership, moratorium or other laws relating to or
affecting the rights of creditors generally or of
creditors of savings or banking institutions the accounts
of which are insured by the FDIC and by general principles
of equity including principles of commercial
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reasonableness, good faith, independence and fair dealing
(regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(iv) it is not in violation of, and its execution and delivery
of this Agreement 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,
which violation could reasonably be expected to have
consequences that would materially affect the performance
of its duties hereunder;
(v) no litigation is pending or, to the best of its knowledge,
threatened against it which would prohibit its entering
into or performing its obligations under this Agreement;
and
(vi) it has examined and will examine each subservicing
agreement to which it becomes a party and will be familiar
with the terms thereof; it will require each designated
subservicer and the terms of each subservicing agreement
to which it becomes a party to comply with the provisions
of Section 3.1; and the terms of any such subservicing
agreement will not be inconsistent with any of the
provisions of this Agreement.
(b) It is understood and agreed that the representations and
warranties set forth in this Section shall survive delivery of the respective
Mortgage Files to the Trustee or to the Custodian until the termination of this
Agreement, and shall inure to the benefit of the Trustee and the Depositor.
Upon discovery by the Depositor, the Master Servicer, the Special Servicer or a
Responsible Officer of the Trustee (or, if earlier, upon written notice
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thereof from any Certificateholder) of a breach of any of the representations
and warranties set forth in this Section 2.6, the party discovering such breach
shall give prompt written notice to the other parties.
(c) Within 90 days of the earlier of its discovery or its receipt of
notice of breach of the representation and warranty contained in clause
(a)(i)(B) above, the Special Servicer shall cure such breach in all material
respects; provided, however, that if the Special Servicer is diligently
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attempting to cure such breach and is unable to do so within 90 days for reasons
beyond its control, the 90-day period shall be extended for so long as the
Special Servicer is diligently attempting to cure such breach in accordance with
the provisions of this Section but, in no event, shall such extended period
exceed an additional 90 days or have a material adverse effect on
Certificateholders. If the Special Servicer does not or cannot cure such breach
within the applicable period, it shall, consistent with Section 3.1, appoint a
subservicer that is in compliance with the laws of the requisite states and vest
in such entity such rights, powers, duties or obligations as are necessary under
this Agreement to permit enforcement of each affected Mortgage Loan. In the
event of any such extension, on or before the expiration of the initial 90-day
period, the Special Servicer shall provide an Officer's Certificate to the
Trustee and the Master Servicer setting forth the efforts being taken to cure
such breach. If the Special Servicer fails to cure a breach of the
representation and warranty contained in clause (a)(i)(B) above or appoint a
subservicer within the applicable cure period, as such period may be extended
pursuant to this paragraph, such failure shall constitute an Event of Default
under Section 7.1 hereof.
SECTION 2.7 [RESERVED]
----------
SECTION 2.8 Miscellaneous REMIC Provisions.
-------------------------------
(a) The Class A, Class B, Class C, Class D, Class E, Class F, Class G,
Class X-1 and Class X-2 Certificates are hereby designated "regular interests"
in the Upper-Tier REMIC within the meaning of Section 860G(a)(1) of the Code,
and the Class R Certificates are hereby designated the single class of "residual
interest" in the Upper-Tier REMIC within the meaning of Section 860G(a)(2) of
the Code. The Class AL Interest, Class BL Interest, Class CL Interest, Class DL
Interest, Class EL Interest, Class FL Interest, Class GL Interest, Class AR-L
Interest and Class X-1L Interest are hereby designated "regular interests" in
the
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Lower-Tier REMIC within the meaning of Section 860G(a)(l) of the Code and the
Class LR Certificates are hereby designated the single class of "residual
interest" in the Lower-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
Upper-Tier REMIC and Lower-Tier REMIC within the meaning of Section 860G(a)(9)
of the Code. The "latest possible maturity date" of the Class A, Class B, Class
C, Class D, Class E, Class F, Class G, Class X-1 and Class X-2 Certificates and
the Class AL Interest, Class BL Interest, Class CL Interest, Class DL Interest,
Class EL Interest, Class FL Interest, Class GL Interest, Class AR-L Interest and
Class X-1L Interest for purposes of Code Section 860G(a)(1) is two (2) years
following the Final Scheduled Distribution Date. If not previously paid, all
amounts owing on the Certificates shall be due and payable on the "latest
possible maturity date."
(b) The Trustee shall, for federal income tax purposes, maintain
books and records with respect to each of the Upper-Tier REMIC and Lower-Tier
REMIC on a calendar year and on an accrual basis.
(c) None of the Originator, the Depositor, the Trustee, the Special
Servicer, nor the Master Servicer shall enter into any arrangement by which the
Upper-Tier REMIC or Lower-Tier REMIC will receive a fee or other compensation
for services other than as specifically contemplated herein.
SECTION 2.9 Transfer Agreement.
---------------------------------
Concurrently with the execution and delivery of this Agreement, the
Depositor and the Originator have entered into the Transfer Agreement. The
rights of the Depositor under the Transfer Agreement have been assigned by the
Depositor to the Trustee pursuant to Section 2.1 hereof.
In the event that the Originator fails to perform its obligations
under the Transfer Agreement, the Trustee shall enforce its rights, as assignee
of the Depositor, against the Originator under the terms of the Transfer
Agreement to require the repurchase or replacement of the applicable Mortgage
Loan. There shall be no recourse to the Depositor for any such failure by the
Originator.
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ARTICLE III
ADMINISTRATION AND SERVICING OF THE
MORTGAGE LOANS
SECTION 3.1 Master Servicer to Act as Master Servicer; Special
Servicer to Act as Special Servicer; Administration of
the Mortgage Loans.
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(a) Each of the Master Servicer and the Special Servicer, as
independent contract servicers, shall service and administer the Mortgage Loans
and REO Properties it is obligated to service pursuant to this Agreement on
behalf of the Trust Fund solely in the best interests of and for the benefit of
the Certificateholders (as determined by each of the Master Servicer or the
Special Servicer, as the case may be, in its reasonable judgment, without taking
into account any differing payment priorities among the Classes of Certificates)
in accordance with the terms of this Agreement and the respective Mortgage Loans
and, to the extent consistent with such terms, in the case of the Master
Servicer, in the same manner in which, and with the same care, skill, prudence
and diligence with which, it generally services and administers similar
mortgage loans for other portfolios or held in its own portfolios, whichever
servicing procedure is of a higher standard, and, in the case of the Special
Servicer, in the same manner in which, and with the same care, skill, prudence
and diligence with which, it generally manages similar assets for other
portfolios or held in its own portfolios, whichever servicing procedure is of a
higher standard, and, in each case, taking into account its other obligations
hereunder, but without regard to:
(i) any relationship that the Master Servicer, or the Special
Servicer, any other subservicer or any Affiliate of the Master
Servicer or the Special Servicer or any subservicer may have with
the related Borrower;
(ii) the ownership of any Certificate by the Master Servicer, the
Special Servicer or any subservicer or any Affiliate of the
Master Servicer, the Special Servicer or any other subservicer;
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(iii) the Master Servicer's, the Special Servicer's or any
subservicer's right to receive compensation for its services
hereunder or with respect to any particular transaction; or
(iv) the ownership, or servicing or management for others, by the
Master Servicer or the Special Servicer or any other
subservicer, of any other mortgage loans or property.
Notwithstanding the foregoing, the Master Servicer shall be responsible to
perform all obligations of any subservicer to the extent not performed by such
subservicer. In addition, the Trustee shall have the power to remove and
replace the Special Servicer in the event of a breach by the Special Servicer of
any of its related obligations hereunder. In the event that the Master Servicer
or the Special Servicer believes that it is unable to comply with the
requirements of this Section 3.1(a) with respect to any particular Mortgage Loan
or REO Property as a result of one or more of the factors described in the
foregoing clauses (i) through (iv), it may enter into a subservicing agreement
pursuant to Section 3.1(b) pursuant to which a subservicer shall perform its
duties with respect to such Mortgage Loan or REO Property. In such event, so
long as such subservicer performs such duties on behalf of the Master Servicer
or Special Servicer, as applicable, in accordance with the requirements of this
Section 3.1(a), then the Master Servicer or Special Servicer shall be deemed to
be in compliance therewith.
Without limiting the foregoing, subject to Section 3.21, the applicable
Special Servicer shall only be obligated to service and administer those
Mortgage Loans or REO Account Properties, as the case may be, as to which a
Servicing Transfer Event has occurred and is continuing (collectively, the
"Specially Serviced Mortgage Loans"), including any REO Properties related
thereto, but the Master Servicer shall be required to continue to make all
calculations and prepare all reports required hereunder with respect to such
Specially Serviced Mortgage Loans as if no Servicing Transfer Event had occurred
and to render such incidental services with respect to such Specially Serviced
Mortgage Loans as are specifically provided for herein; provided however, the
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Master Servicer shall be required to do so only if the Special Servicer provides
the
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Master Servicer with such information and assistance as is required by the
Master Servicer to enable it to perform its obligations pursuant to this
sentence. The Special Servicer hereby agrees to furnish such information and
assistance to the Master Servicer. Each Mortgage Loan that becomes a Specially
Serviced Mortgage Loan shall continue as such until satisfaction of the
conditions specified in Section 3.21(a). The Master Servicer shall not be
required to initiate extraordinary collection procedures or legal proceedings
with respect to any Mortgage Loan or to undertake any pre-foreclosure procedures
(including, without limitation, ordering an Environmental Assessment with
respect to any Mortgage Loan). To the extent consistent with the foregoing and
subject to any express limitations set forth in this Agreement, the Master
Servicer and the Special Servicer shall also seek to maximize the timely and
complete recovery of principal and interest on the Notes; provided, however,
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that nothing herein contained shall be construed as an express or implied
guarantee by the Master Servicer or the Special Servicer of the collectibility
of the Mortgage Loans. Subject only to the above-described servicing standards
and the terms of this Agreement and of the respective Mortgage Loans, the Master
Servicer and the Special Servicer shall have full power and authority, acting
alone or through subservicers (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 it may deem necessary or desirable.
Without limiting the generality of the foregoing, the Master Servicer and the
Special Servicer may, and each is hereby authorized and empowered by the Trustee
to, with respect to each Mortgage Loan it is obligated to service pursuant to
this Agreement, prepare, execute and deliver, on behalf of the
Certificateholders and the Trustee or any of them, at the expense of the Trust
Fund, any and all financing statements, continuation statements and other
documents or instruments necessary to maintain the lien on each Mortgaged
Property and related collateral; and subject to Section 3.20 and the REMIC
Provisions, modifications, waivers, consents, amendments or consents to or with
respect to any documents contained in the related Mortgage File; substitutions
of collateral and any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable instruments, with
respect to the Mortgage Loans and the Mortgaged Properties if, in its reasonable
judgment, such action is in the best interests of the Certificateholders
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in accordance with, or is required by, this Agreement. The Master Servicer
shall service and administer the Mortgage Loans it is obligated to service
pursuant to this Agreement and the applicable Special Servicer shall service and
administer the Mortgage Loans it is obligated to service pursuant to this
Agreement, in accordance with applicable 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
of the Master Servicer or a Special Servicer Officer, execute and deliver to the
Master Servicer or the Special Servicer any powers of attorney and other
documents prepared by the Master Servicer or the Special Servicer and necessary
or appropriate (as certified in such written request) to enable the Master
Servicer or the Special Servicer to carry out its servicing and administrative
duties hereunder.
Prior to the institution of any proceeding or undertaking of any other
action by the Master Servicer or Special Servicer in the name of the Trustee in
any state, the Master Servicer or Special Servicer, as the case may be, shall
notify the Trustee in writing and not undertake any such action or institute any
such proceeding until being notified in writing by the Trustee that such action
or undertaking will not adversely affect the Trustee under such state's "doing
business" or tax laws. If the Trustee is so adversely affected, the Trustee
will appoint a co-trustee in whose name such action or undertaking will be
taken, and the cost of such co-trustee will be an expense of the Trust Fund to
the extent such cost is an "unanticipated expense" as such term is defined in
Section 1.860 G-1(b)(3)(ii) of the Code, and in all other situations shall be
paid by the Trustee out of its own funds.
(b) The Trustee hereby acknowledges and accepts that the Master
Servicer and the Special Servicer may each enter into subservicing agreements
with third parties with respect to any of their respective obligations
hereunder, provided that (1) any such agreement shall be consistent with the
provisions of this Agreement in all material respects, (2) no subservicer
retained by the Master Servicer or the Special Servicer shall grant any material
modification, waiver, consent or amendment to any Mortgage Loan unless such
modification, waiver, consent, or amendment would be permitted by this Agreement
to be made by the Special Servicer pursuant to Section 3.20 and the REMIC
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Provisions and the subservicer obtains the approval of the Special Servicer or
such modification waiver, consent or amendment of any Mortgage Loan would not
have a material adverse effect on the Certificateholders and (3) any subservicer
retained by the Special Servicer shall be subject to the approval of the Master
Servicer, which approval shall not be unreasonably withheld.
Any subservicing agreement entered into by the Master Servicer or the
Special Servicer shall provide (1) that it may be assumed or terminated by the
Trustee if it has assumed the duties of the Master Servicer or the Special
Servicer or any successor Master Servicer or successor Special Servicer, as the
case may be, without cost or obligation to the assuming or terminating party or
the Trust Fund, upon the assumption by such party of the obligations of the
Master Servicer or the Special Servicer, as the case may be, pursuant to Section
7.2 and (2) in the case of an agreement entered into by the Special Servicer,
that it shall relate to Mortgage Loans only for so long as they are Specially
Serviced Mortgage Loans.
Any subservicing agreement, and any other transactions or services
relating to the Mortgage Loans involving a subservicer, shall be deemed to be
between the Master Servicer or the Special Servicer, as applicable, and such
subservicer 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 subservicer; and no such agreement shall relieve
the Master Servicer or the Special Servicer of any of its obligations pursuant
to this Agreement. Any subservicing agreement entered into by the Master
Servicer or the Special Servicer after the Closing Date shall require, in
addition to the provisions contained in this subsection (b), that:
(1) the subservicer deposit to the Collection Account only those amounts
which are monies collected by the subservicer with respect to the Mortgage Loans
serviced under the subservicing agreement and any investment earnings on such
deposited amounts;
(2) the subservicer remit to the Master Servicer, or Special Servicer,
as applicable, not later than three Business Days after receipt thereof if such
funds are held in an Eligible Account and one Business Day
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after receipt thereof if such funds are not held in an Eligible Account, but in
no case later than two Business Days before the Master Servicer Remittance Date
of all Principal Prepayments, Balloon Prepayments and all other collections
required to be submitted pursuant to this Agreement, to the Collection Account
and all other collections described above; and
(3) if any subservicer fails to remit to the Master Servicer or Special
Servicer, as applicable, any collection required to be remitted, such
subservicer shall pay interest at the Advance Rate on the amounts not remitted.
(c) If the Trustee or any successor Master Servicer or Special Servicer
assumes the obligations of the Master Servicer or the Special Servicer in
accordance with Section 7.2, the Trustee or such successor, to the extent
necessary to permit the Trustee or such successor to carry out the provisions of
Section 7.2, shall, without act or deed on the part of the Trustee or such
successor, succeed to all of the rights and obligations of the Master Servicer
or the Special Servicer, as applicable, under any subservicing agreement entered
into pursuant to Section 3.1(b). In such event, the Trustee or the successor
Master Servicer or Special Servicer shall be deemed to have assumed all of the
Master Servicer's or the Special Servicer's interest therein and to have
replaced the Master Servicer or the Special Servicer, as applicable, as a party
to such subservicing agreement to the same extent as if such subservicing
agreement had been assigned to the Trustee or such successor Master Servicer or
Special Servicer, except that the Master Servicer or the Special Servicer, as
applicable, shall not have any liability or obligation under such subservicing
agreement in respect of events that occur after such succession unless so
provided in such subservicing agreement or unless such events arise out of
actions or events that occurred prior to such succession.
In the event that the Trustee or any successor Master Servicer or
Special Servicer assumes the servicing obligations of the Master Servicer or the
Special Servicer, upon request of the Trustee or such successor, the Master
Servicer or the Special Servicer, as applicable, shall at its own expense
deliver to the Trustee or such successor (as the case may be) all documents and
records relating to
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any subservicing agreement and the Mortgage Loans and REO Properties then being
serviced thereunder and an accounting of amounts collected and held by it, if
any, and will otherwise use its best efforts to effect the orderly and efficient
transfer of any subservicing agreement to the Trustee or the successor Master
Servicer or Special Servicer, as applicable.
(d) If the Master Servicer or Special Servicer, as the case may be,
determines with respect to any Mortgaged Property that the expenditure of funds
by the Borrower for repair or replacement costs with respect thereto is
reasonably likely to cause a payment default under the related Mortgage Loan,
the Master Servicer may (but is not obligated to) advance the cost of such
repair or replacement to or for the benefit of the Borrower on terms determined
to be reasonable under the circumstances by the Master Servicer if, prior to
making any such advance, the Master Servicer (i) determines that such advance is
not a Nonrecoverable Advance and is reasonably likely to produce a greater
recovery on a present value basis than a modification, amendment or waiver with
respect to the terms of such Mortgage Loan or the liquidation of such Mortgage
Loan in the event of such a payment default and (ii) delivers to the Trustee an
Opinion of Counsel, which shall be obtained at the expense of the Master
Servicer, and may be applicable to more than one transaction or generally to a
class or classes of transactions described therein, to the effect that such
advance will not cause (A) a loss of REMIC status with respect to either the
Upper-Tier REMIC or Lower-Tier REMIC or (B) the Upper-Tier REMIC or Lower-Tier
REMIC to be subject to any tax under the REMIC Provisions or equivalent
provisions of federal, state, local law or ordinance. Any such advance shall be
a Servicing Advance. Any such advance by the Master Servicer plus interest
thereon at the Advance Rate shall be reimbursed from (1) future payments and
collections on the related Mortgage Loan (or the related Mortgaged Property) and
(2) upon a determination that any such advance is a Nonrecoverable Advance, from
any amounts on deposit in the Collection Account. The Master Servicer shall
have no liability to the Trust Fund, the Certificateholders or any other Person
if its analysis and determination that such advance is reasonably likely to
produce a greater recovery on a present value basis than a modification, waiver
or amendment or liquidation proves to be wrong or incorrect,
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so long as such analysis and determination was made in the reasonable business
judgment of the Master Servicer.
(e) The Special Servicer shall use its best efforts to collect
operating statements with respect to each Mortgaged Property on an annual basis
(to the extent required to be delivered pursuant to the terms of the related
Mortgage Loan documents). In addition, in the event of the existence of a
transfer and repurchase event set forth in Section 4.1(b) of the Transfer
Agreement relating to Disqualifying Conditions, the Special Servicer shall
deliver an Environmental Assessment at the expense of the Trust Fund and the
Master Servicer and the Special Servicer shall deliver such certifications as
are required under the Transfer Agreement.
(f) The Master Servicer, on behalf of the Trustee, shall not accept any
Principal Prepayment from a Borrower, if pursuant to the terms of the related
Mortgage Loan, the mortgagee's prior consent to such Principal Prepayment is a
prerequisite for the acceptance of such Principal Prepayment.
SECTION 3.2 Liability of the Master Servicer and the Special Servicer.
----------------------------------------------------------
Notwithstanding any subservicing agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Master
Servicer or the Special Servicer, as applicable, and any other Person acting as
subservicer (or its agents or subcontractors) or any reference to actions taken
through the Depositor or any other Person acting as subservicer or otherwise,
each of the Master 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 it is obligated to service and
administer pursuant to this Agreement in accordance with the provisions of
Section 3.1 without diminution of such obligation or liability by virtue of such
subservicing agreements or arrangements or by virtue of indemnification from the
Depositor or any other Person acting as subservicer (or its agents or
subcontractors) to the same extent and under the same terms and conditions as if
the Master Servicer or the Special Servicer, as applicable, alone were servicing
and administering such Mortgage Loans; provided, however, that neither the
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Master Servicer nor the
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Special Servicer shall be liable for any action taken that is not solely in the
best interests of the Certificateholders as a result of the existence or
occurrence of one or more of the factors described in clauses (i) through (iv)
of the first paragraph of Section 3.1(a) if (1) such action is taken by a
subservicer appointed by it with due care pursuant to the last sentence of such
first paragraph and in accordance with the requirements of Section 3.1(c) and
(2) each Rating Agency shall have confirmed in writing that the appointment of
such subservicer will not result in the downgrading or withdrawal of the ratings
then assigned to the Certificates. The Master Servicer and the Special Servicer
shall each be entitled to enter into an agreement with any subservicer providing
for indemnification of the Master Servicer or the Special Servicer, as
applicable, by such subservicer, 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 and no such
indemnification shall be payable from amounts collected with respect to the
assets of the Trust Fund being subserviced thereunder. For purposes of this
section, payments made to and collections received by subservicers with respect
to a Mortgage Loan or a REO Property shall be deemed to be received by the
Master Servicer and the Special Servicer, as applicable, when such payments and
collections are received by the related subservicer and the Master Servicer or
the Special Servicer, as applicable, shall remain liable for such payments and
collections, notwithstanding the fact that such payments and collections are not
remitted to the Master Servicer or the Special Servicer, as applicable.
It is acknowledged by the parties hereto that the Master Servicer has
been retained as contract servicer only, that the Master Servicer did not
originate or re-underwrite the Mortgage Loans, and that all information
available to the Master Servicer regarding the Mortgage Loans has been supplied
by the Originator or by others at the direction of the Originator. As a
consequence of the foregoing, the Master Servicer shall not be liable to the
Trust, the Depositor, or any Certificateholder for any loss resulting from any
deficiency or inaccuracies in the Mortgage Files as of the Cut-Off Date or in
any other information supplied to the Master Servicer.
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SECTION 3.3 Collection of Certain Mortgage Loan Payments.
---------------------------------------------
Each of the Master Servicer and the Special Servicer shall, in
accordance with the servicing standard set forth in Section 3.1(a), collect all
payments called for under the terms and provisions of the Mortgage Loans that it
is obligated to service hereunder, and shall follow such collection procedures
as it generally would follow with respect to mortgage loans comparable to the
Mortgage Loans and held in other portfolios or in its own portfolio, whichever
servicing procedure is of a higher standard, so long as such collection
procedures are in accordance with commercially reasonable standards and the
applicable Mortgage Loan documents, including with respect to the Special
Servicer using its best efforts to collect income statements and rent rolls from
Borrowers. Consistent with the foregoing, the Master Servicer and the Special
Servicer may each in its discretion waive any late payment or assumption or
modification charge or penalty interest in connection with any delinquent
Monthly Payment or Balloon Payment with respect to any Mortgage Loan which the
Master Servicer or Special Servicer, respectively, is obligated to service
hereunder, but only to the extent that such waiver would not adversely affect
the REMIC status of the Upper-Tier REMIC or the Lower-Tier REMIC, or result in
the imposition of any tax upon either the Upper-Tier or Lower-Tier REMIC under
the REMIC Provisions or any similar provisions of federal, state or local tax
laws, as evidenced by an Opinion of Counsel obtained at the expense of the
Borrower requesting such waiver. All payments actually made shall be applied
first to the Monthly Payment and any overdue Monthly Payments. The Master
Servicer, on behalf of the Trustee, shall withhold any consent required to be
obtained by a Borrower from the mortgagee pursuant to the related Mortgage Loan
prior to making any partial or full Principal Prepayment thereunder.
In the event that, during the three month period ending on the Maturity
Date, the related Borrower indicates an inability to pay such Balloon Payment on
or before the Maturity Date thereof, the Master Servicer may determine that a
Servicing Transfer Event as described in clause (i) of the definition thereof
has occurred if, in connection with such determination, the Master Servicer
determines, in
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its reasonable business judgment, that a payment default on the Mortgage Loan is
imminent.
SECTION 3.4 Payment of Taxes, Assessments and Similar Items.
------------------------------------------------
(a) With respect to each Mortgage Loan other than an REO Account
Mortgage Loan, the Master 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 the related Mortgaged
Property and the status of insurance premiums payable with respect thereto.
With respect to each REO Account Mortgage Loan, the Special Servicer shall
maintain accurate records reflecting the status of taxes, assessments and other
similar items that are or may become a lien on the related REO Account Property
and the status of insurance premiums payable with respect thereto (and copies of
such items shall be forwarded to the Master Servicer). From time to time, the
Master Servicer (with respect to Mortgaged Properties other than REO Account
Properties) or the Special Servicer (with respect to REO Account Properties)
shall use its best efforts to (i) obtain all bills for the payment of such items
(including renewal premiums) and (ii) effect payment of all such bills with
respect to such Mortgaged Properties prior to the applicable penalty or
termination date. With respect to any Mortgage Loans other than REO Account
Mortgage Loans, the Master Servicer shall promptly notify the Special Servicer
of any failure by the related Borrower to make such payments as they first
become due. If a Borrower fails to make any such payment on a timely basis the
Master Servicer shall make a Servicing Advance in the amount of such shortfall
unless the Master Servicer makes a determination, in its reasonable business
judgment, that such advance, if made, would be a Nonrecoverable Advance. The
Master Servicer shall be entitled to reimbursement of the Advances made pursuant
to the preceding sentence plus Advance Interest thereon. Such Servicing Advance
shall be recovered (i) from future payments and collections with respect to the
related Mortgage Loan or REO Account Property or (ii) upon a determination that
any such advance is a Nonrecoverable Advance, from any amounts on deposit in the
Collection Account.
No costs incurred by the Special Servicer in effecting the payment of
taxes, insurance premiums and
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assessments on the Mortgaged Properties shall be included in the Principal
Amount of the related Mortgage Loan for purposes of calculating distributions to
Certificateholders.
SECTION 3.5 Collection Account, Distribution Account and Upper-Tier
Distribution Account.
-------------------------------------------------------
(a) The Master Servicer shall establish and maintain the Collection
Account in the name of the Trustee in trust for the benefit of the
Certificateholders. The Collection Account shall be established and maintained
as an Eligible Account. The Master Servicer shall deposit into the Collection
Account, on a daily basis, or as otherwise required hereunder, and as and when
received, the following payments and collections received or made by it on or
with respect to the Mortgage Loans, other than payments, if any, in respect of
principal and interest on the Mortgage Loans that are not assigned to the
Trustee pursuant to Section 2.1:
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans other
than amounts payable to the Master Servicer or Special Servicer
pursuant to Section 3.12 hereof;
(iii) all Insurance Proceeds and Liquidation Proceeds;
(iv) any amounts required to be deposited pursuant to Section
3.17(d) in connection with any REO Account Property or other
Mortgaged Property;
(v) any amounts received upon the sale or other disposition of any
real or personal property acquired upon the enforcement of the
rights of the Trustee relating to a Mortgage Loan or under any
guaranty relating to a Mortgage Loan;
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<PAGE>
(vi) any amounts received from Borrowers which represent recoveries
of (x) Servicing Advances and Advance Interest or (y) payments
of taxes, insurance premiums, assessments and other payments
made pursuant to Section 3.4;
(vii) all Prepayment Premiums; and
(viii) all Prepayment Interest Excess.
All such amounts shall be transferred by the Master Servicer in
immediately available funds to the Collection Account not later than the earlier
of (i) one Business Day after receipt by the Master Servicer and (ii) the day
preceding each Master Servicer Remittance Date. 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 assumption or substitution fees and modification fees with respect to
all Mortgage Loans shall not be deposited in the Collection Account by the
Master Servicer and shall not be deposited in the REO Account by the Special
Servicer, and, in each case to the extent permitted by applicable law and
Section 3.12, the Master Servicer and the Special Servicer shall be entitled to
retain any such charges and fees received with respect to such Mortgage Loans.
In the event that the Master Servicer deposits in the Collection Account any
amount not required to be deposited therein, it may at any time withdraw such
amount from the Collection Account, any provision herein to the contrary
notwithstanding.
Upon receipt of any of the foregoing amounts with respect to any
Specially Serviced Mortgage Loans other than REO Account Mortgage Loans, the
Special Servicer shall immediately remit such amounts to the Master Servicer for
deposit into the Collection Account in accordance with the second preceding
paragraph. Such amounts received with respect to any REO Account Mortgage Loans
will be deposited by the Special Servicer into the REO Account and remitted to
the Master Servicer for deposit into the Collection Account pursuant to Section
3.17.
With respect to any such amounts required to be remitted to the Master
Servicer that are paid by check to the order of the Special Servicer, the
Special Servicer
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<PAGE>
shall endorse such check to the order of the Master Servicer and shall promptly
deliver any such check to the Master Servicer by overnight courier or comply
with other reasonable instructions of the Master Servicer with respect thereto.
(b) The Paying Agent shall establish and maintain the Distribution
Account in the name of the Trustee in trust for the benefit of the Lower-Tier
Certificateholders. The Paying Agent shall also establish and maintain the
Upper-Tier Distribution Account in the name of the Trustee in trust for the
benefit of the Certificateholders, which shall be a separate trust account. The
Distribution Account and the Upper-Tier Distribution Account shall be
established and maintained as Eligible Accounts. With respect to each
Distribution Date, the Master Servicer shall deposit into the Distribution
Account on or before the related Master Servicer Remittance Date an aggregate
amount of immediately available funds equal to the Available Funds for such
Distribution Date. In addition, on or prior to the related Master Servicer
Remittance Date, the Master Servicer shall deposit in the Distribution Account
any P&I Advances required pursuant to Section 3.22 to be so deposited prior to
the related Distribution Date. The Trustee shall notify the Master Servicer by
5:00pm Central time on the Master Servicer Remittance Date in the event the
Trustee has not yet received such available funds and/or P&I Advances. The
Paying Agent shall make deposits and withdrawals from the Upper-Tier
Distribution Account pursuant to Section 4.2(b). In the event that the Master
Servicer or the Special Servicer, as applicable, fails to deliver such amounts
as required, the Master Servicer or the Special Servicer, as applicable, shall
deliver to the Trustee and the Fiscal Agent (and the Master Servicer in the case
of the Special Servicer) a written statement describing, on a Mortgage Loan by
Mortgage Loan basis, the amounts required pursuant to Section 3.22 to be so
delivered.
(c) Funds in the Collection Account, Distribution Account or Upper-Tier
Distribution Account may be invested in Permitted Investments in accordance with
the provisions of Section 3.7. The Master Servicer shall give written notice to
the Trustee and the Special Servicer of the location and account number of the
Collection Account and shall notify the Trustee in writing prior to any
subsequent change thereof.
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<PAGE>
SECTION 3.6 Permitted Withdrawals from the Collection Account.
--------------------------------------------------
The Master 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 pay to the Trustee, the Trustee's Fee;
(ii) to transfer on or before each Master Servicer Remittance Date to
the Lower-Tier Distribution Account, the amount required to be
deposited in the Distribution Account pursuant to Section 3.5(a);
(iii) to pay or reimburse (a) the Trustee, the Fiscal Agent or the
Master Servicer, for Advances other than P&I Advances, together
with Advance Interest thereon, to the extent and at the time
payable or reimbursable pursuant to this Agreement and (b) the
Trustee for expenses, disbursements and advances pursuant to
Section 8.5(b) of this Agreement;
(iv) on each Determination Date to reimburse the Trustee, the Fiscal
Agent or the Master Servicer, for unreimbursed P&I Advances in
accordance with the provisions of Section 3.22 together with
interest thereon at the Advance Rate to the extent provided in
that Section;
(v) to pay on each Determination Date (a) to the Master Servicer, the
aggregate unpaid Servicing Fees in respect of the immediately
preceding Due Period; (b) to the Special Servicer, the Basic Fee
and the aggregate unpaid Workout Fee in respect of such Due
Period (but only out of collections on and proceeds of the
related Mortgage Loans and REO Properties); and (c) to the Master
Servicer and the Special Servicer, any unpaid Servicing Fees,
Workout Fees in respect of any prior Due Period plus interest
thereon at the Advance Rate;
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<PAGE>
(vi) to pay on or before each Determination Date to the Originator,
the Master Servicer or the Special Servicer, as the case may be,
with respect to each Mortgage Loan or REO Property that has
previously been purchased or repurchased from the Trust Fund
pursuant to Section 2.2, 2.3(d), 3.18, 4.6(b) or 9.1, all amounts
received thereon during the immediately preceding Prepayment
Period and subsequent to the date as of which the amount required
to effect such purchase or repurchase was determined;
(vii) at the direction of the Trustee to pay the expenses of the
Trust Fund as specified herein and not otherwise provided for in
this Section 3.6 and to pay, only from amounts otherwise
distributable to Holders of Class R or Class LR Certificates, as
the case may be, any federal, state or local taxes imposed on the
Upper-Tier REMIC or Lower-Tier REMIC, respectively, pursuant to
Section 4.6;
(viii) to withdraw any amount deposited into the Collection Account
that was not required to be deposited therein, including
Prepayment Premiums, late fees and any other penalties or charges
to be retained by the Depositor;
(ix) to the extent not reimbursed pursuant to any other clause of this
Section 3.6, to reimburse the Trustee, the Fiscal Agent, the
Master Servicer and the Special Servicer for any expenses or
other amounts reimbursable or payable to them under this
Agreement, together with interest thereon to the extent provided
in this Agreement;
(x) to clear and terminate the Collection Account pursuant to Section
9.1.; and
(xi) to make other payments authorized by this Agreement.
The Master Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan
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<PAGE>
basis, for the purpose of justifying any withdrawal from the Collection Account
pursuant to subclauses (ii), (iii), (v) and (viii) above.
The Master Servicer shall pay to the Special Servicer (or to third party
contractors at the direction of the Special Servicer) or the Trustee from the
Collection Account amounts permitted to be paid to the Special Servicer or the
Trustee therefrom promptly upon receipt of a certificate of a Special Servicer
Officer or a Responsible Officer of the Trustee, as the case may be, describing
the item and amount to which the Special Servicer or the Trustee, as the case
may be, is entitled. The Master Servicer may rely conclusively on any such
certificate and shall have no duty to re-calculate the amounts stated therein.
Each of the Special Servicer and the Master Servicer shall keep and maintain
separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose
of justifying any request made by it for any withdrawal from the Collection
Account.
The Trustee, the Fiscal Agent, the Master Servicer and the Special
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 payment of
the Servicing Fee, the Trustee Fee, the Basic Fee `and the Workout Fee, for the
reimbursement of P&I Advances and Servicing Advances plus interest thereon at
the Advance Rate, in each case to the extent such advances are determined to be
Nonrecoverable Advances, and for reimbursement of their respective expenses
hereunder (plus interest thereon to the extent provided in this Agreement) to
the extent such expenses are to be reimbursed from amounts on deposit in the
Collection Account pursuant to this Agreement (and to have such amounts paid
directly to third party contractors for any invoices approved by the Trustee,
the Master Servicer or the Special Servicer, as applicable).
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<PAGE>
SECTION 3.7 Investment of Funds in the Collection Account, REO Account,
the Distribution Account and the Upper-Tier Distribution
Account.
-----------------------------------------------------------
(a) The Master Servicer may direct any depository institution
maintaining the Collection Account, REO Account, the Distribution Account or the
Upper-Tier Distribution Account (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 mature no later than the Business Day preceding
the date on which such funds are required to be withdrawn from such Investment
Account pursuant to this Agreement. Any direction by the Master 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. All such Permitted Investments shall be
held to maturity, unless payable, without penalty, 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 or its
agent, initially LaSalle National Bank, shall have sole control (except with
respect to investment direction) over each such investment and, subject to
Section 3.7(b), the income thereon, and any certificate or other instrument
evidencing any such investment shall be delivered directly to the Trustee or its
agent, initially LaSalle National Bank together with any document of transfer,
if any, necessary to transfer title to such investment to the Trustee or its
nominee. In the event amounts on deposit in an Investment Account are at any
time invested in a Permitted Investment payable on demand, the Paying Agent (in
the case of the Distribution Account and the Upper-Tier Distribution Account),
the Master Servicer (in the case of the Collection Account) or the Special
Servicer (in the case of the REO Account) shall:
(x) consistent with any notice required to be given thereunder,
demand that payment thereon be made on the last 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
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in order to make the distributions required by this Agreement; and
(y) consistent with any notice requirements thereunder, demand
payment of all amounts due thereunder promptly upon determination by the
Paying Agent (in the case of the Distribution Account and the Upper-Tier
Distribution Account) or the Master Servicer (in the case of the Collection
Account) or the Special Servicer (in the case of the REO Account) that such
Permitted Investment no longer constitutes a Permitted Investment.
(b) All net income and gain realized from investment of funds in
Permitted Investments deposited in the REO Account, the Distribution Account,
the Upper-Tier Distribution Account and the Collection Account shall be for the
benefit of the Trust Fund, and all losses from any such investments shall be
borne by the Trust Fund.
(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 in any other performance required under any Permitted
Investment, the Trustee may (and, subject to Sections 8.1 and 8.2(a)(iii), upon
the request of Holders of Certificates representing at least 51% of the 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; provided, however, that if such default occurs in
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respect of a Permitted Investment under which the Trustee, in its corporate
capacity, is the obligor, the Trustee shall take no such action and the Master
Servicer shall be entitled to take such action as the Trustee would otherwise be
entitled to take pursuant to this Section 3.7(c). The Trustee or the Master
Servicer, as applicable, shall be entitled to reimbursement from the Trust Fund
for all costs and expenses incurred by it in the performance of its duties under
this subsection (c) promptly following its request therefor in the form of a
certificate of a Responsible Officer or Servicing Officer, as applicable,
describing such cost or expense and the amount thereof.
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<PAGE>
SECTION 3.8 Maintenance of Insurance Policies and Errors and Omissions
and Fidelity Coverage.
----------------------------------------------------------
(a) The Master Servicer on behalf of the Trust Fund shall maintain or
cause the related Borrower to maintain for each Mortgage Loan (other than REO
Mortgage Loans) fire and hazard insurance with extended coverage on the related
Mortgaged Property with a Qualified Insurer in an amount which is at least equal
to the lesser of the then current Principal Balance of such Mortgage Loan and
the replacement cost of the improvements which are a part of such property, but
only to the extent such insurance is required to be maintained by the Borrower
pursuant to the terms of such Mortgage Loan or such Mortgage Loan permits the
mortgagee to require the Borrower to maintain such insurance. The cost of any
such insurance (as well as the amount of any deductible, to the extent that the
Trust Fund incurs a loss as a result thereof), if not borne by the Borrower,
shall be an expense of the Trust Fund payable out of the Collection Account
pursuant to Section 3.6 to the extent such Borrower defaulted on its obligation
to maintain such insurance or pay such deductible. If any insurance required to
be maintained by the Master Servicer pursuant to this Section 3.8 is available
(whether or not at commercially reasonable rates) and is not maintained as
required and any loss which is of a type which is or which would have been
covered under any such policy occurs, (other than a loss occasioned by the
termination of an insurance policy (except at the maturity of such policy) on
which the Master Servicer, on behalf of the Trust Fund, is named as a loss payee
and with respect to which the insurer failed to notify the Master Servicer of
such termination in sufficient time prior to such termination to enable the
Master Servicer to obtain insurance conforming to such requirements), the Master
Servicer will deposit in the Collection Account from its own funds, without
right of reimbursement therefor, an amount equal to the amount of such loss
occasioned by the failure to maintain the required coverage. Any cost incurred
by the Master Servicer in maintaining the insurance required by this paragraph
to the extent that the Borrower defaults in its obligation to do so shall be a
Servicing Advance.
(b) The Special Servicer on behalf of the Trust Fund shall cause to be
maintained fire and hazard insurance
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<PAGE>
with a Qualified Insurer with extended coverage on each related REO Property in
an amount which is at least equal to the replacement cost of the improvements
which are a part of such property having a deductible not in excess of
$200,000,000 per property. The Special Servicer shall cause to be maintained
with respect to each REO Property public liability insurance with a Qualified
Insurer providing such coverage against such risks as the Special Servicer
determines, consistent with the servicing standard set forth in Section 3.1(a),
to be in the best interests of the Trust Fund. The cost of any such insurance
with respect to an REO Property (as well as the amount of any deductible) shall
be an expense of the Trust Fund payable out of the REO Account pursuant to
Section 3.17(c) or, if the amount on deposit therein is insufficient therefor,
out of the Collection Account pursuant to Section 3.6. Any Insurance Proceeds
received by the Special Servicer shall be deposited into the REO Account, and
any Insurance Proceeds received by the Master Servicer shall be deposited in the
Collection Account pursuant to Section 3.5, subject to withdrawal pursuant to
Section 3.6. Any cost incurred by the Special Servicer in maintaining the
insurance required by this paragraph shall be a Servicing Advance. 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 Master Servicer or the Special Servicer, as applicable, other than pursuant
to the terms of the related Note or Mortgage and pursuant to such applicable
laws and regulations as shall at any time be in force and as shall require such
additional insurance. If permitted by the related Note or Mortgage, the Master
Servicer may maintain, if available, or may require the related Borrower to
maintain other forms of insurance including but not limited to, loss of rents,
endorsements, business interruption insurance and comprehensive public liability
insurance.
If the Mortgaged Property was located at the time of origination of the
Mortgage Loan in a federally designated special flood hazard area, the Master
Servicer will cause the related Borrower to maintain or will itself obtain flood
insurance in respect thereof to the extent available and to the extent the
related Mortgage Loan requires the Borrower, or permits the mortgagee to require
the Borrower, to maintain such insurance. Such flood insurance shall be in an
amount equal to the lesser of (i) the unpaid principal balance of the related
Mortgage Loan
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<PAGE>
and (ii) the greater of (a) the maximum amount of such insurance required by the
terms of the related Note or Mortgage and (b) the maximum amount of such
insurance 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). The cost of any insurance described above (as
well as the amount of any deductible), if not borne by the Borrower, shall be an
expense of the Trust Fund payable out of the Collection Account pursuant to
Section 3.6. If an REO Property was located at the time of origination of the
related Mortgage Loan in a federally designated special flood hazard area, the
Special Servicer will obtain and maintain, or shall cause to be obtained and
maintained, flood insurance in respect thereof providing substantially the same
coverage as described in the second preceding sentence. If a recovery under a
flood, fire and hazard or public liability insurance policy in respect of an REO
Property would have been available if such insurance were available (whether or
not at commercially reasonable rates) and were maintained thereon in accordance
with the standards applied to Mortgaged Properties described herein, the Special
Servicer shall either (i) immediately remit to the Master Servicer for deposit
into the Collection Account from its own funds, without any right of
reimbursement therefor, the amount that would have been recovered or (ii) apply
to the restoration and repair of the property from its own funds, without any
right of reimbursement therefor, the amount that would have been recovered, if
such application would be consistent with the servicing standard set forth in
Section 3.1(a).
Subject to customary servicing practices, each Special Servicer agrees,
with respect to the related Specially Serviced Mortgage Loans and the Master
Servicer agrees, with respect to other Mortgage Loans, to prepare and present,
on behalf of itself, the Trustee and the Certificateholders, claims under each
related insurance policy maintained pursuant to Sections 3.8(a) and (b) 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. Notwithstanding anything contained herein to the contrary, the
Master Servicer and each Special Servicer shall be obligated to present such
claims only if they become aware that a claim has not been presented by a
Borrower and such insurance policies permit the Master Servicer or the Special
Servicer to present such claims.
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All policies required hereunder shall name the mortgagee as loss payee.
(c) If the Master Servicer or the Special Servicer obtains and maintains
a blanket policy with a Qualified Insurer insuring against fire and hazard
losses on all or a significant portion of the Mortgaged Properties which the
Master Servicer or the Special Servicer, as applicable, services, which blanket
policy shall be maintained at the expense of the Master Servicer or the Special
Servicer, as the case may be, it shall conclusively be deemed to have satisfied
its obligations concerning the maintenance of insurance coverage set forth in
Sections 3.8(a) and (b) with respect to the Mortgage Loans covered by such
blanket policy, it being understood and agreed that such policy may contain a
deductible clause, in which case the Master Servicer or the Special Servicer, as
applicable, shall, in the event that there shall not have been maintained on the
related Mortgaged Property a policy otherwise complying with the provisions of
Sections 3.8(a) and (b), and 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, without any right of
reimbursement therefor, the amount not otherwise payable under the blanket
policy because of such deductible clause. In connection with their respective
activities as Master Servicer and Special Servicer hereunder, each of the Master
Servicer and the Special Servicer 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.
(d) The Master Servicer and the Special Servicer shall each maintain a
fidelity bond in the form and amount that would meet, in the case of the Master
Servicer, the servicing requirements of prudent institutional commercial
mortgage lenders and loan servicers and, in the case of the Special Servicer,
the requirements of prudent asset managers. Each of the Master Servicer and the
Special Servicer shall 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 Master
Servicer or the Special Servicer, respectively. The Master Servicer and Special
Servicer, as the case may be, shall notify the
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Trustee as soon as practical of any cancellation of such fidelity bond. In
addition, the Master Servicer and the Special Servicer shall each 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, employees and
agents in connection with its obligations to service the Mortgage Loans
hereunder. The Master Servicer shall cause each and every subservicer for it,
and the Special Servicer shall cause each and every subservicer for it, to
maintain a policy of insurance covering errors and omissions and a fidelity bond
which would meet such requirements. Each such fidelity bond and errors and
omissions policy shall be issued by an insurer having a claims-paying ability
rating of at least "A" by S&P and "A" by Fitch or otherwise acceptable to the
Rating Agencies; provided, however, that so long as the long term debt or
-------- -------
deposit obligations of the Master Servicer or the Special Servicer are rated at
least "A" by S&P and Fitch, the Master Servicer or the Special Servicer, as
applicable, shall be allowed to provide self-insurance with respect to an errors
and omissions insurance policy; provided further that if such long term debt or
deposit obligation is at the time of such investment not rated by Fitch, such
long term debt or deposit need only be rated by S&P.
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 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
Master Servicer or, if such Mortgage Loan is a Specially Serviced Mortgage Loan,
the Special Servicer, on behalf of the Trust Fund, in a manner consistent with
the servicing standards set out in Section
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3.1(a), may waive or enforce any due-on-sale clause contained in the related
Note or Mortgage in a manner consistent with the servicing standards set out in
Section 3.1(a) and shall provide the Rating Agencies with written notice of such
waiver or enforcement. The Master Servicer or the Special Servicer, as
applicable, is also authorized to take or enter into an assumption agreement
from or with the Person to whom such property has been or is about to be
conveyed, or to release the original Borrower from liability upon the Mortgage
Loan and substitute the new Borrower as obligor thereon; provided however that
-------- -------
(i) if a new Borrower is substituted for Mortgage Loans #95, #135, #136, #137,
#138 or #139, or (ii) if the Originator or any of its affiliates becomes the
Borrower for any other Mortgage Loan by assuming the obligations for such
Mortgage Loan, the Master Servicer or Special Servicer, as applicable, shall
receive written confirmation from the Rating Agencies that such substitution or
assumption shall not result in a downgrade or withdrawal or qualification of the
rating then assigned to any Class of Certificates; provided, further, that
-------- -------
except as otherwise permitted by Section 3.20 and the REMIC Provisions, the
terms of any such assumption or substitution agreement shall not be materially
different from those in the original Note or Mortgage. To the extent permitted
by law, the Master 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 servicing standards set forth
in Section 3.1. The Master Servicer or the Special Servicer, as applicable,
shall notify the Trustee that any such assumption or substitution agreement has
been completed and forward to the Custodian the original of such agreement,
which original shall be added by the Custodian 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
Interest Rate, principal amount and other material payment terms of the Mortgage
Loan pursuant to the related Note shall not be changed, except as otherwise
permitted by Section 3.20. Any fee collected by the Master Servicer or Special
Servicer for entering into an assumption or substitution agreement will be
retained by the Master Servicer or the Special Servicer, as applicable, pursuant
to Section 3.12 hereof.
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(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 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 the Trust Fund, the
Master Servicer or, if such Mortgage Loan is a Specially Serviced Mortgage Loan,
the Special Servicer, on behalf of the Trust Fund, shall exercise (or decline to
exercise) any right the Trustee may have as the mortgagee of record with respect
to such Mortgage Loan (x) to accelerate the payments thereon, or (y) to withhold
its consent to the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standards set forth in Section 3.1(a). If the
Special Servicer decides to not exercise any right the Trustee may have under
this Section, it shall provide the Rating Agencies with written notice of such
decision.
(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) Except as otherwise permitted by Section 3.20 and the REMIC
Provisions, in connection with the taking of, or the failure to take, any action
pursuant to this Section 3.9, the Master Servicer and the Special Servicer shall
not agree to modify, 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.
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SECTION 3.10 Realization Upon Defaulted Mortgage Loans.
-----------------------------------------
(a) Subject to Section 3.18(a), the related Special Servicer shall
foreclose upon or otherwise comparably convert (which may include acquisition of
an REO Property) the ownership of properties securing such of the Mortgage Loans
as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Sections 3.3 or 3.20, and which are not released from the Trust Fund pursuant to
any other provision hereof, if the Special Servicer determines, in a manner
consistent with the servicing standard set forth in Section 3.1(a), that such
action would be in the best economic interest of the Trust Fund. The Master
Servicer shall advance the costs and expenses of any such proceeding as a
Servicing Advance unless the Master Servicer makes a determination, in its
reasonable business judgment, that such advance, if made, would be a
Nonrecoverable Advance. The Master Servicer shall be entitled to reimbursement
of advances made pursuant to the preceding sentence plus interest thereon at the
Advance Rate from (i) future payments and collections with respect to the
related Mortgage Loan (or the related Mortgaged Property) and, (ii) upon a
determination that such advance is a Nonrecoverable Advance, from amounts on
deposit in the Collection Account.
If the Special Servicer elects to proceed with a foreclosure in
accordance with the laws of the state where the 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 the state
do not permit such a deficiency judgment after such 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 the deficiency judgment.
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 on behalf of
Certificateholders. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, the provisions
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of Section 1.2 shall apply with respect to such Mortgage Loan.
(b) The Special Servicer shall not acquire for the benefit of the Trust
Fund any personal property pursuant to this Section 3.10 unless either:
(i) such personal property is incidental 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 (obtained at the expense of the Trust Fund) to the
effect that the holding of such personal property by the Trust
Fund will not cause the imposition of a tax on the Upper-Tier
REMIC or Lower-Tier REMIC under the REMIC Provisions or cause
either the Upper-Tier REMIC or Lower-Tier REMIC to fail to
qualify as a REMIC at any time that any Certificate or
uncertificated Lower-Tier Interest is outstanding.
(c) 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, 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, the Master Servicer, the Depositor, the Originator 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 set forth in Section 3.1(a), based on an Environmental
Assessment report prepared by an Independent Person satisfying the requirements
set forth in the first sentence of Section 3.10(d), that:
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(A) such Mortgaged Property is in compliance with applicable
environmental laws (in the reasonable judgment of such Independent Person
based upon all available information) or, if not, that it would be in the
best economic interest of the Trust Fund and there would be no adverse
effect on the Master Servicer, Special Servicer, Trustee, Depositor, or
Originator 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 (in the reasonable judgment of such Independent
Person based upon all available information), or that, if any such
Hazardous Materials are present for which such action could be required, it
would be in the best economic interest of the Trust Fund and there would be
no adverse effect on the Master Servicer, Special Servicer, Trustee, Fiscal
Agent, Depositor, or Originator, to take such actions with respect to the
affected Mortgaged Property.
In the event that the Environmental Assessment first 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 to
be conducted by an Independent Person who regularly conducts such tests as the
Special Servicer shall deem prudent to protect the interests of
Certificateholders. Any such tests shall be deemed part of the Environmental
Assessment obtained by the Special Servicer for purposes of this Section 3.10.
(d) The Environmental Assessment contemplated by Section 3.10(c) shall
be prepared by any Independent Person who regularly conducts environmental
audits for purchasers of commercial property, as determined by the Special
Servicer in a manner consistent with the servicing standard set forth in Section
3.01(a). The Special Servicer shall advise the Master Servicer by delivery of a
certificate of a Special Servicer Officer of the cost of preparation of an
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Environmental Assessment, and the Master Servicer shall pay such cost from
amounts on deposit in the Collection Account. The Master Servicer may rely
conclusively on such certificate and shall have no duty or obligation to re-
calculate the amounts stated therein. To the extent that amounts on deposit in
the Collection Account are insufficient, the Master Servicer shall advance the
amount of such insufficiency as a Servicing Advance unless the Master Servicer
makes a determination, in its reasonable business judgment, that such advance
would be a Nonrecoverable Advance. In the event that the Master Servicer fails
to make any Servicing Advance referred to in this Section 3.10(d) other than due
to a determination that such advance would be a Nonrecoverable Advance), the
Trustee (or if the Trustee fails, the Fiscal Agent) shall make such advance to
the extent provided in Section 7.7.
(e) If the applicable Special Servicer determines pursuant to Section
3.10(c)(A) that a Mortgaged Property securing a Defaulted Mortgage Loan 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 in compliance therewith, or if the applicable
Special Servicer determines pursuant to Section 3.10(c)(B) that the
circumstances referred to therein relating to Hazardous Materials are present on
a Mortgaged Property securing a Defaulted Mortgage Loan 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, such Special Servicer
shall take such action as it deems to be in the best economic interest of the
Trust Fund and that would not have an adverse effect on the Master Servicer,
Special Servicer, Depositor, Trustee, Fiscal Agent, or Originator, but only if
the Trustee has obtained an Opinion of Counsel (at the expense of the applicable
Special Servicer) to the effect that such proposed action will not cause (A) a
loss of REMIC status with respect to either the Upper-Tier REMIC or the Lower-
Tier REMIC or (B) the Upper-Tier REMIC or the Lower-Tier REMIC to be subject to
any tax under the REMIC Provisions or equivalent provisions of federal, state,
local law or ordinance, and if the Trustee has mailed notice to the
Certificateholders of such proposed action, which notice shall be prepared by
the Special Servicer, and has not received, within 30 days of such notification,
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instructions from the Holders of at least 25% of the aggregate Voting Rights of
such Certificates directing such Special Servicer not to take such action. Such
Special Servicer shall advise the Master Servicer by delivery of a certificate
of a Special Servicer Officer of the cost of any such compliance, containment,
clean-up or remediation, and the Master Servicer shall pay such cost from
amounts on deposit in the Collection Account. To the extent that amounts on
deposit in the Collection Account are insufficient, the Master Servicer shall
advance the amount of such shortfall unless the Master Servicer makes a
determination, in its reasonable business judgment, that such advance, if made,
would be a Nonrecoverable Advance. Such Servicing Advance shall be made on the
Master Servicer Remittance Date. The Master Servicer shall be entitled to
reimbursement of Servicing Advances made pursuant to the preceding sentence plus
interest thereon at the Advance Rate until paid, from amounts subsequently
deposited in the Collection Account.
(f) The Master Servicer shall report to the Internal Revenue Service and
to the related Borrower, in the manner required by applicable law, the
information required to be reported regarding any Mortgaged Property or any
mortgagor including, without limitation, regarding any Mortgaged Property that
is abandoned or foreclosed. The Master Servicer shall concurrently deliver a
copy of any such report to the Trustee. The Special Servicer, on a timely
basis, shall provide the Master Servicer with such information as to any
Specially Serviced Mortgage Loan as is necessary to enable the Master Servicer
to comply with this Section 3.10(f).
SECTION 3.11 Trustee to Cooperate; Release of Mortgage Files.
-----------------------------------------------
Upon the payment in full of any Mortgage Loan, or the receipt by the
Master Servicer or the Special Servicer, as the case may be, of a notification
that payment in full has been escrowed in a manner customary for such purposes,
the Master Servicer or the Special Servicer, as the case may be, shall
immediately notify the Trustee or 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
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to Section 3.5 have been remitted for deposit in the Collection Account) and
shall request delivery to it of the related Mortgage File. Upon receipt of such
certification and request, the Trustee shall promptly release or cause the
Custodian to release the related Mortgage File to the Master Servicer or the
Special Servicer, as the case may be. If the Master Servicer, the Special
Servicer or the Trustee incurs any expenses in connection with any instrument of
satisfaction, assignment or deed of reconveyance and is unable after reasonable
attempts to obtain repayment for such expenses from the related Borrower, it
shall be entitled to reimbursement for such expenses from the Collection Account
upon certification of the amount thereof.
From time to time upon request of the Master Servicer or the Special
Servicer and delivery to the Trustee of a Request for Release, the Trustee shall
promptly release or cause the Custodian to promptly release the related Mortgage
File (or any portion thereof) designated in such Request for Release to the
Master Servicer or the Special Servicer, as applicable. Upon (a) the return of
such Mortgage File (or portion thereof) from the Master Servicer or the Special
Servicer, as applicable, or (b) the receipt, in the event of a liquidation or
the loan becoming an REO Property, of a certificate of a Special Servicer
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 remitted to the Master Servicer for such deposit or that such Mortgage
Loan has become an REO Property, the Trustee shall release, or cause the
Custodian to release, a true and correct copy of the Request for Release to the
Master Servicer or the Special Servicer, as applicable, with a notation thereon
acknowledging receipt of the related Mortgage File or the certificate of the
Special Servicer specified in clause (b) above.
Upon written request of either the Master Servicer or the Special
Servicer, the Custodian shall timely furnish to the requesting Person copies of
any documents in any Mortgage File in the Custodian's possession, at the expense
of the Trust Fund.
Upon written certification of a Special Servicer Officer, the Trustee
shall, at the expense of the Trust
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Fund, execute and deliver to the Special Servicer, or the Special Servicer may,
pursuant to its powers and obligations hereunder, execute and file, 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 a 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 the related 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 lien upon completion of the
foreclosure or trustee's sale.
SECTION 3.12 Servicing Compensation.
----------------------
As compensation for its activities hereunder, the Master Servicer shall
be entitled to the Servicing Fee, which shall be payable from amounts on deposit
in the Collection Account as set forth in Section 3.6(v) or, in the alternative,
the Master Servicer may retain the Servicing Fee from proceeds or collections on
or with respect to Mortgage Loans prior to deposit of such proceeds in the
Collection Account. In addition, the Master Servicer shall retain any late
payment charges, penalty interest, substitution, assumption or modification fees
and other similar fees. The Master Servicer's rights to the Servicing Fees
(except for fees paid to the Subservicer pursuant to a Subservicing Agreement)
may not be transferred in whole or in part except in connection with the
permitted transfer of all of the Master Servicer's responsibilities and
obligations under this Agreement.
As compensation for its activities hereunder, the Special Servicer shall
be entitled to the Special Servicer Fee, and any late payment charges, penalty
interest, substitution, assumption or modification fees and similar items with
respect to Specially Serviced Mortgaged Loans. The Special Servicer's rights to
the Special Servicer Fee may not be transferred in whole or in part except in
connection with the permitted transfer of all of the
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Special Servicer's responsibilities and obligations under this Agreement.
The Master Servicer shall pay out of its Servicing Fee any subservicing
fee payable to any subservicer, and fees payable to any other person retained by
the Master Servicer. The Master Servicer and the Special Servicer shall each be
entitled to be reimbursed from the Collection Account for all fees and expenses
of third parties incurred by it, plus interest thereon at the Advance Rate to
the date of reimbursement (including recording fees and expenses related to
financing statements, continuation statements and other documents and
instruments necessary to maintain the lien on each Mortgaged Property) in
connection with its servicing activities hereunder (other than any subservicing
fee payable to any subservicer and fees and expenses set forth in Exhibit C,
which shall be paid by the Subservicer as long as the Subservicer is LTC, or the
Depositor if any other party is the Subservicer) including, without limitation,
fees and expenses of attorneys, appraisers, Environmental Assessment firms,
third party property managers and others (who shall have been retained by the
Master Servicer or the Special Servicer, as applicable, in accordance with the
servicing standard set forth in Section 3.1(a)) in connection with enforcement,
collection, foreclosure, management and operation of assets of the Trust Fund
and fees and expenses incurred in prosecuting and defending any litigation or
adverse claims against the Trust Fund or the assets thereof, subject to the
provisions of Section 6.3.
The Trustee, Fiscal Agent and Master Servicer, as applicable, shall be
entitled to receive reimbursement of all P&I Advances and Servicing Advances, in
each case plus interest thereon at the Advance Rate from the date such advance
is made until the date of reimbursement.
SECTION 3.13 Reports to the Trustee; Collection Account Statements.
-----------------------------------------------------
(a) No later than twenty days following the month in which such
Distribution Date occurs the Master Servicer shall forward to the Trustee and
the Special Servicer a statement prepared by the Master Servicer setting forth
the status of the Collection Account as of the close of business on the last day
of the month related to such distribution for the preceding calendar month, with
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(i) a memorandum in substantially the form of Exhibit F attached hereto
describing Mortgage Loan modifications in the related Due Period and (ii) a
memorandum substantially in the form of Exhibit G attached hereto describing
Mortgaged Properties for which a foreclosure or similar action has been
commenced or was in progress during the related Due Period; provided, however,
-------- -------
that to the extent that the preparation of such reports and memoranda is
dependent upon information to be provided by the Special Servicer (if other than
the Master Servicer), the Master Servicer will be obligated to prepare such
reports and memoranda only to the extent that the Special Servicer provides the
Master Servicer with the information necessary to do so. The Special Servicer
hereby agrees to furnish such information to the Master Servicer. The Trustee
and the Fiscal Agent 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 Master Servicer with respect to the Mortgage Loans and the
performance of its duties hereunder.
(b) At or prior to 12:00 noon, New York time, on the third Business Day
prior to each Distribution Date, the Master Servicer shall deliver to the
Trustee, in electronic media and hard copy, a report containing information
necessary to make the distributions described in Section 4.
SECTION 3.14 Annual Statement as to Compliance.
---------------------------------
Each of the Master Servicer and the Special Servicer shall deliver to
the Trustee, to the Depositor and to each other on or before April 30 of each
year, beginning April 30, 1997, an Officer's Certificate stating, as to each
signatory thereof, (i) that a review of the activities of the Master Servicer or
the Special Servicer, as the case may be, during the preceding calendar year (or
such longer period from the Closing Date to the end of the subsequent 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 in
all material respects throughout such year (or such longer period), or, if there
has been a default in the fulfillment of any such obligation in any material
respect, specifying each such default known to such officer, the nature and
status thereof and what action it proposes to
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take with respect thereto, (iii) that, to the best of such officer's knowledge,
each subservicer retained by it has fulfilled its obligations under its
subservicing 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 thereof, and (iv)
whether it has received any notice regarding qualification, or challenging the
status, of either the Upper-Tier REMIC or Lower-Tier REMIC as a REMIC from the
Internal Revenue Service or any other governmental agency or body.
SECTION 3.15 Annual Independent Public Accountants' Servicing Report.
-------------------------------------------------------
On or before April 30 of each year, beginning April 30, 1997, each of
the Master Servicer and the Special Servicer at its expense shall cause a firm
of Independent public accountants (who may also render other services to the
Master Servicer or the Special Servicer, as the case may be) which is a member
of the American Institute of Certified Public Accountants to furnish a statement
to the Trustee, to the Depositor and to the Special Servicer or the Master
Servicer, as applicable, to the effect that such firm has examined certain
documents and records relating to the servicing of mortgage loans comparable to
the Mortgage Loans in the case of the Master Servicer, and has examined certain
documents and records relating to the servicing of the Mortgage Loans in the
case of the Special Servicer and that, on the basis of such examination
conducted substantially in compliance with generally accepted auditing standards
and the Uniform Single Audit Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FHLMC, such servicing has been conducted in
compliance with agreements substantially similar to this Agreement in the case
of the Master Servicer, and such servicing has been conducted in compliance with
the Agreement in the case of the Special Servicer except for such significant
exceptions or errors in records that, in the opinion of such firm, generally
accepted auditing standards and the Uniform Single Audit 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.
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SECTION 3.16 [RESERVED]
---------------------------------
SECTION 3.17 Title and Management of REO Properties and REO
Account Properties.
----------------------------------------------
(a) In the event that title to any Mortgaged Property is acquired for
the benefit of Certificateholders, by 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,
on behalf of the Trust Fund. The Special Servicer, on behalf of the Trust Fund,
shall dispose of any REO Property within two years or such other period
permitted by the Code 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 period pursuant to Code Sections 856(e)(3) and 860G(a)(8)(A),
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 within such period permitted by the Code, at the expense of the Trust
Fund, an Opinion of Counsel, addressed to the Trustee and the Special Servicer,
to the effect that the holding by the Trust Fund of such REO Property subsequent
to two years after its acquisition or other period permitted by the Code will
not result in the imposition of taxes on "prohibited transactions" of the Upper-
Tier REMIC or Lower-Tier REMIC as defined in Section 860F of the Code or cause
the Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify as a REMIC at any
time that any Certificates or uncertificated Lower-Tier Interests are
outstanding. The Special Servicer shall manage, conserve, protect and operate
each REO Property for the Certificateholders solely for the purpose of its
prompt 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) of the Code) or result in the receipt by the
REMIC of any "income from nonpermitted assets" within the meaning of Section
860F(a)(2)(B) of the Code or any "net income from foreclosure property" under
Section 860G(c) of the Code, which is subject to taxation under the REMIC
Provisions (other than income from the operation and
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management of an REO Property in a trade or business conducted by the Trust Fund
through an Independent Contractor).
(b) The Special Servicer shall segregate and hold all funds collected
and received in connection with the operation of any REO Account Property
(including among other things, rent, insurance proceeds and liquidation
proceeds) separate and apart from its own funds and general assets and shall
establish and maintain with respect to any REO Account Properties an account
held in trust for the Trust Fund for the benefit of the Certificateholders (the
"REO Account"), which shall be an Eligible Account, and will account separately
for funds received or expended with respect to each REO Account Property. The
Special Servicer shall notify the Trustee and the Master Servicer in writing of
the location and account number of the REO Account and shall notify the Trustee
and Master Servicer prior to any subsequent change thereof. Amounts on deposit
in the REO Account shall be invested in Permitted Investments in accordance with
the provisions of Section 3.7.
(c) 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 Account 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. In connection therewith, the Special
Servicer shall deposit or cause to be deposited on a daily basis in the REO
Account all revenues received by it with respect to any REO Account Property and
any related REO Account Mortgage Loan, and shall withdraw therefrom funds
necessary for the proper operation, management and maintenance of any REO
Account Property and for other Property Protection Expenses, including:
(i) all insurance premiums due and payable in respect of any REO
Account Property;
(ii) all real estate taxes and assessments in respect of any REO
Account Property that may result in the imposition of a lien thereon; and
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(iii) all costs and expenses necessary to maintain, manage or
operate any REO Account Property.
To the extent that amounts on deposit in the REO Account are insufficient for
the purposes set forth in clauses (i) through (iii) above, the Master Servicer
shall advance such insufficiency unless the Master Servicer makes a
determination, in its reasonable business judgment, that such advance is not
reasonably recoverable from future payments and collections on the related
Mortgage Loan (or the related Mortgaged Property) out of Insurance Proceeds,
Liquidation Proceeds or otherwise. The Master Servicer shall be entitled to
reimbursement of advances made pursuant to the preceding sentence, together with
interest thereon at the Advance Rate, until paid, from (i) future payments and
collections on the related REO Account Property and (ii) upon a determination
that any such advance is a Nonrecoverable Advance, from amounts on deposit in
the Collection Account.
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;
(iii) authorize or permit any construction on any REO Account
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) to the extent possible, allow any Person to Directly Operate any
REO Property on any date more than 90 days after its date of acquisition by
the Trust Fund, unless such Person is an Independent Contractor;
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unless, in any such case, the Special Servicer has requested and received an
Opinion of Counsel at the expense of the Trust Fund to the effect that such
action will not cause such REO Account 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 Lower-Tier REMIC, in
which case the Special Servicer may take such actions as are specified in such
Opinion of Counsel.
The Special Servicer shall use its best efforts to (and to the extent
required by the REMIC Provisions shall) contract with any Independent Contractor
for the operation and management of any REO Account Property, provided that:
(i) the terms and conditions of any such contract shall not be
inconsistent herewith;
(ii) any such contract shall require that the Independent Contractor
pay all costs and expenses incurred in connection with the operation and
management of such REO Account Property, including those listed above, and
return all related revenues (net of such costs and expenses);
(iii) none of the provisions of this Section 3.17(c) 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, the Master Servicer or the Trustee on behalf
of the Certificateholders with respect to the operation and management of
any such REO Account Property; and
(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 Account
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
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shall be deemed to limit or modify such indemnification. Fees owed by the
Special Servicer to any Independent Contractor other than the Special Servicer
or an Affiliate of the Special Servicer shall be payable from amounts on deposit
in the REO Account or, if the amount on deposit therein is insufficient
therefor, provided in each case that the Special Servicer determines that such
fees are reasonable and customary in the area where such REO Account Property is
located for independent contractors providing services similar to those being
provided by such Independent Contractor, the Master Servicer shall advance such
fees unless the Master Servicer makes a determination, in its reasonable
business judgment, that such advance is not reasonably recoverable from the
operation or sale of the related REO Account Property. The Master Servicer
shall be entitled to reimbursement of such advances plus interest thereon at the
Advance Rate until paid from (i) future proceeds from the operation or sale of
the related REO Account Property and (ii) upon a determination that any such
advance is a Nonrecoverable Advance, from amounts on deposit in the Collection
Account.
(d) At least two Business Days before each Master Servicer Remittance
Date, the Special Servicer shall withdraw from the REO Account and deposit into
the Collection Account the proceeds and collections received or collected during
the related Prepayment Period and reinvestment income thereon, net of expenses;
provided, however, the Special Servicer may retain in the REO Account such
- - -------- -------
portion of such proceeds and collections as may be necessary to maintain in the
REO Account sufficient funds for the proper operation, management and
maintenance of the REO Account Properties, including without limitation the
creation of reasonable reserves for repairs, replacements and necessary capital
improvements and other related expenses. On the first Business Day prior to
each Determination Date, the Special Servicer shall notify the Master Servicer
of the amount of all such deposits (and the REO Account Mortgage Loans to which
the deposits relate) to be made into the Collection Account prior to the related
Master Servicer Remittance Date.
(e) Promptly following any acquisition by the Trust Fund of an REO
Property, the Special Servicer shall determine the fair market value of such REO
Property based on an appraisal, conducted within sixty days of such acquisition
by an MAI appraiser; provided, however that if
-------- -------
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an appraisal with respect to such REO Property as been conducted within six
months of such acquisition by the Trust Fund, then no appraisal shall be
required. The cost of such appraisal shall be an expense of the Trust Fund.
The appraisal shall be conducted by an Independent appraiser familiar with the
area in which such REO Property is located, and shall notify the other parties
hereto of such fair market value.
SECTION 3.18 Sale of Defaulted Mortgage Loans and REO Properties.
---------------------------------------------------
(a) The Special Servicer may offer to sell to any Person (including the
Special Servicer) any Defaulted Mortgage Loan or any REO Property, if and when
the Special Servicer determines, consistent with the servicing standard set
forth in Section 3.1(a), that such a sale would be in the best economic
interests of the Trust Fund, but shall, 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 on or prior to the date
specified in Section 3.17(a). The Special Servicer shall give the Trustee and
the Master Servicer not less than five days' prior written notice of its
intention to (i) purchase any Defaulted Mortgage Loan or REO Property at the
Repurchase Price therefor or (ii) sell any Defaulted Mortgage Loan or REO
Property, in which case the Special Servicer shall accept the highest bid
received from any Person for any Defaulted Mortgage Loan or any REO Property in
an amount at least equal to the Repurchase Price therefor.
In the absence of any such bid, the Special Servicer shall accept the
highest bid received from any Person that is determined by the Special Servicer
to be a fair price for such Defaulted Mortgage Loan or REO Property, if the
highest bidder is a Person other than an Interested Person, or is determined to
be such a price by the Trustee, if the highest bidder is an Interested Person.
Notwithstanding anything to the contrary herein, neither the Trustee, in its
individual capacity, nor any of its Affiliates may bid for or purchase any
Defaulted Mortgage Loan or any REO Property pursuant hereto.
The Special Servicer shall not be obligated by either of the foregoing
paragraphs or otherwise to accept the highest bid if the Special Servicer
determines, in
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accordance with the servicing standard stated in Section 3.1(a), that rejection
of such bid would be in the best interests of the Certificateholders. In
addition, the Special Servicer may accept a lower bid if it determines, in
accordance with the servicing standard stated in Section 3.1(a), that acceptance
of such bid would be in the best interests of the Certificateholders (for
example, if the prospective buyer making the lower bid is more likely to perform
its obligations, or the terms offered by the prospective buyer making the lower
bid are more favorable). In the event that the Special Servicer determines with
respect to any REO Property that the bids being made with respect thereto are
not in the best interests of the Certificateholders and that the end of the two-
year period or such other period permitted by the Code referred to in Section
3.17(a) with respect to such REO Property is approaching, the Special Servicer
shall seek an extension of such period in the manner described in Section
3.17(a).
(b) In determining whether any bid received from an Interested Person
represents a fair price for any Defaulted Mortgage Loan or any REO Property, the
Trustee may conclusively rely on the opinion of an Independent appraiser or
other expert in real estate matters retained by the Trustee at the expense of
the Trust Fund. In determining whether any bid constitutes a fair price for any
Defaulted 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,
as applicable, among other factors, the period and amount of any delinquency on
the affected Defaulted Mortgage Loan, the physical 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 and
the Trustee 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
Defaulted Mortgage Loan or REO Property, including the collection of all amounts
payable in connection therewith. Any sale of a Defaulted Mortgage Loan or any
REO Property shall be without recourse to, or representation or warranty by, the
Trustee, the Depositor, the Master Servicer, the
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Special Servicer, the Originator 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 consummated in accordance with the terms of this Agreement, none of the
Master Servicer, the Special Servicer, the Depositor or the Trustee 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.
(d) The proceeds of any sale after deduction of the expenses of such
sale incurred in connection therewith shall be promptly deposited in the
Collection Account in accordance with Section 3.5(a)(iii).
SECTION 3.19 Inspections.
-----------
The Master Servicer shall, at its own expense, inspect or cause to be
inspected each Mortgaged Property other than those related to Specially Serviced
Mortgage Loans, and the Special Servicer shall, at its own expense, inspect or
cause to be inspected each Mortgaged Property related to a Specially Serviced
Mortgage Loan, at such times and in such manner as are consistent with the
servicing standard set forth in Section 3.1(a), provided that (i) in each case,
at least one half of the Mortgaged Properties securing Mortgage Loans having
outstanding principal balances of $1,000,000 or higher shall be inspected each
calendar year beginning in 1997 and at least once every two years thereafter,
(ii) in each case all Mortgage Loans not inspected pursuant to clause (i) above
shall be inspected in 1998 and at least once every two years thereafter and
(iii) if any Monthly Payment or Balloon Payment becomes more than 60 days
delinquent or the Debt Service Coverage Ratio falls below 1.0 times, the related
Mortgaged Property shall be inspected by the Special Servicer as soon as
practicable thereafter.
SECTION 20 Modifications, Waivers, Amendments and Consents.
-----------------------------------------------
(a) The Special Servicer shall have no right to agree to any
modification, waiver or amendment of any term of any Mortgage Loan, or to any
substitution of collateral, except as provided in this Section 3.20. The
Special Servicer may agree to any modification, waiver or amendment
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of any term of any Defaulted Mortgage Loan, or to any substitution of collateral
securing a Defaulted Mortgage Loan, without the consent of the Trustee, Master
Servicer or any Certificateholder, to the extent permitted by paragraphs (b)
through (j) of this Section 3.20, and in each case, subject to subparagraph (g)
of this Section 3.20. All modifications, waivers or amendments of any such
Mortgage Loan shall (i) be in writing and shall be consistent with the servicing
standard set forth in Section 3.1 and (ii) the Special Servicer shall have
received the written confirmation by the Rating Agencies that such substitution
will not result in the downgrade or withdrawal of the then current ratings
assigned to the Certificates.
(b) The Special Servicer shall not agree to any modification, waiver
(other than a waiver referred to in Section 3.3 or Section 3.9, which waiver, if
any, shall be governed by Section 3.3 or Section 3.9, as applicable) or
amendment of any term of any Mortgage Loan if such modification, waiver or
amendment would:
(i) affect the amount or timing of any related payment of principal,
interest or other amount payable thereunder; or
(ii) result in a release of the lien of the Mortgage on any material
portion of the related Mortgaged Property without a corresponding
principal prepayment in an amount not less than the fair market
value (as determined by an appraisal delivered to the Special
Servicer) of the property to be released, or would in the Special
Servicer's judgment, otherwise materially impair the security for
such Mortgage Loan or reduce the likelihood of timely payment of
amounts due thereon,
unless, in any such case, and subject to paragraphs (c) and (d) of this Section
3.20, in the Special Servicer's judgment, as evidenced by an Officer's
Certificate , a material default on such Mortgage Loan has occurred or a default
in respect of payment on such Mortgage Loan is imminent, and in either case,
such modification, waiver or amendment will, in the Special Servicer's judgment,
be in the best interests of the Certificateholders and has determined it
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would maximize the net present value of recoveries on the related Mortgage Loan.
(c) Subject to subsection (b) above, the Special Servicer may extend the
date on which any Balloon Payment is scheduled to be due, without the consent of
the Trustee, the Master Servicer, or any Certificateholder if, but only if:
(i) any such extension shall be for a period not later than the
Optimal Wind-Down Date and each Modified Monthly Payment shall be
in an amount at least sufficient to pay interest accrued and
principal payments sufficient to meet the amortization schedule
on the related Mortgage Loan since the immediately preceding Due
Date;
(ii) not more than two delinquencies of 30 days or more (without
regard to any grace period provided for in the related Note) in
respect of any Monthly Payment on such Mortgage Loan (other than
the Balloon Payment) shall have occurred within the preceding 12
months, and any such delinquency shall have been cured; and
(iii) the Special Servicer has previously determined in its reasonable
business judgment that (A) such extension is reasonably likely to
produce a greater recovery than liquidation of the related
Mortgage Loan, (B) no material damage or deferred maintenance
exists at the related Mortgaged Property and (C) the Borrower is
in material compliance with all applicable federal and state
regulations governing the operation of the related Mortgaged
Property.
(d) The Special Servicer must provide that any interest deferred shall
be added to the principal balance of the related Mortgage Loan (and shall be due
on the Maturity Date of such Mortgage Loan, or such earlier date as the Special
Servicer may deem appropriate), and such deferred interest shall accrue interest
at the related Mortgage Interest Rate.
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(e) The Special Servicer may, as a condition to granting any request by
a Borrower for consent, modification, waiver or indulgence or any other matter
or thing, the granting of which is not prohibited by the terms of this
Agreement, require that such Borrower pay to the Special Servicer, as additional
servicing compensation, a reasonable or customary fee for the additional
services performed in connection with such request, together with any related
costs and expenses incurred by the Special Servicer, and shall require that the
Borrower reimburse, with Advance Interest, any Servicing Advances made in
connection with such Mortgage Loan. The Special Servicer may collect any such
fee from the Borrower only to the extent the collection of such fee shall not
cause the related consent, modification, waiver or indulgence to be treated as a
"significant modification" of the related Mortgage Note that would be treated as
an exchange under Treas. Reg sec. 1.860g-2(b).
(f) The Special Servicer shall notify the Trustee, the Rating Agencies
and the Master Servicer of any modification, waiver or amendment of any term of
any Mortgage Loan and the date thereof, and shall deliver to the Custodian for
deposit in the related Mortgage File, an original counterpart of the agreement
relating to such modification, waiver or amendment, promptly following the
execution thereof.
(g) Notwithstanding anything to the contrary contained in this
Agreement, the Special Servicer shall not agree to any modification, waiver or
amendment of any term of any Mortgage Loan or any substitution of collateral
unless (x) it has first obtained and delivered to the Trustee and the Master
Servicer an Opinion of Counsel, which shall be obtained at the expense of the
Borrower requesting the modification, and which may be applicable to more than
one transaction or generally to a class or classes of transactions described
therein, to the effect that the proposed modification, waiver, amendment or
substitution will not cause (i) a loss of REMIC status with respect to either
the Upper-Tier REMIC or Lower-Tier REMIC, or (ii) a gain on the disposition of a
Qualified Mortgage which would be subject to the 100% tax on prohibited
transactions imposed by Section 860F(a) of the Code (or equivalent provision of
federal, state or local law or ordinance) or (iii) the Upper-Tier REMIC or
Lower-Tier REMIC to be subject to any tax under the REMIC Provisions
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or equivalent provisions of federal, state or local law or ordinance or (y) the
Trustee and Special Servicer have received a Nondisqualification Opinion or
ruling from the Internal Revenue Service (at the expense of the party making the
request that the Special Servicer modify the Mortgage Loan or a Specially
Serviced Mortgage Loan) to the effect that such modification would not be
treated as an exchange pursuant to Section 1001 of the Code (of, if it would be
so treated, would not be treated as a "significant modification" for purposes of
Treas. Reg. Sec. 1.860G-2(b) of the Code); provided however, that no such
-------- -------
Opinion of Counsel shall be required for a modification, waiver, amendment or
substitution made pursuant to Section 3.20(c).
(h) The Special Servicer may from time to time permit a Borrower to
substitute collateral for all or a portion of the related Mortgaged Property or
pledge additional collateral for the related Mortgage Loan, or may release part
of the related Mortgaged Property from the lien of the related Mortgage;
provided, however, that the Special Servicer shall have requested and received
- - -------- -------
an Opinion of Counsel addressed to the Trustee (obtained at the expense of the
Borrower requesting the modification) to the effect that any such substitution,
additional pledge or release of collateral is permitted hereby and will not
cause the related Mortgage Loan to cease to be a Qualified Mortgage, will not
result in the loss of REMIC status with respect to, or the imposition of any tax
upon either the Upper-Tier or the Lower-Tier REMIC and will not cause the Trust
Fund to be required to be registered under the Investment Company Act of 1940,
as amended; and provided further that (i) if such release is not in accordance
-------- -------
with the related Mortgage Loan the Special Servicer shall obtain the prior
written confirmation from the Rating Agencies that such release shall not result
in the downgrade, qualification or withdrawal of the ratings then assigned to
the Certificates and (ii) the Special Servicer shall not permit the Borrower to
substitute any collateral pursuant to this Section 3.20 unless the Special
Servicer shall have first determined in accordance with the servicing standard
set forth in Section 3.1(a), based upon an Environmental Assessment prepared by
an Independent Person satisfying the requirements set forth in the first
sentence of Section 3.10(d), at the expense of the Borrower, that such
substitute collateral is in compliance with applicable environmental laws and
that there are no circumstances present at such substitute collateral relating
to the use, management
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or disposal of any Hazardous Materials for which investigation, testing,
monitoring, containment, clean-up or remediation would be required under any
then effective federal, state or local law or regulation, or, if any such
containment, clean-up or remediation is required, that adequate funds therefor
have been placed in escrow with the Special Servicer by or on behalf of the
Borrower. In the event the Special Servicer intends to permit a Borrower to
substitute collateral for all or any portion of a Mortgaged Property or pledge
additional collateral for the related Mortgage Loan as permitted hereunder, if
the security interest of the Trust Fund in such collateral would be perfected by
possession, or if such collateral requires special care or protection, then
prior to agreeing to such substitution or addition of collateral, the Special
Servicer shall make arrangements for such possession, care or protection, and
prior to agreeing to such substitution or addition of collateral (or such
arrangement for possession, care or protection) shall obtain the prior written
consent of the Trustee, the Master Servicer (which consent shall not be
unreasonably withheld, delayed or conditioned) and the written confirmation by
the Rating Agencies with respect thereto such written confirmation shall state
that such substitution or addition of collateral shall not result in the
downgrade, qualification or withdrawal of the ratings then assigned to the
Certificates.
(i) The Special Servicer shall have no liability to the Trust Fund, the
Certificateholders or any other Person if its analysis and determination that
the modification, waiver or amendment is reasonably likely to produce a greater
recovery on a present-value basis than liquidation proves to be wrong or
incorrect, so long as the analysis and determination was made in the good faith
reasonable business judgment of the Special Servicer.
(j) Notwithstanding any other provision of this Agreement (other than
Section 3.20(f) and the last paragraph of Section 10.7), if either the Special
Servicer, the Master Servicer or Certificateholders representing at least 25% of
the Voting Rights submit to the Trustee a proposed amendment of the provisions
of Section 3.20(c) (subject to the written confirmation by the Rating Agencies
that such modification, waiver or amendment will not result in the downgrade or
withdrawal of the rating then assigned to any Class of Certificates), the
Trustee shall submit such proposal to a vote of the Certificateholders. If
submitted
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to a vote of the Certificateholders, such proposal shall be deemed to be
adopted, and the provisions of Sections 3.20(c) and 3.20(d) shall be amended
accordingly, if such proposal receives the affirmative vote of
Certificateholders representing 100% of the Voting Rights and the Person
submitting such proposal shall have obtained at its own expense and delivered to
the Trustee an Opinion of Counsel that neither the proposed amendments nor the
operation of the Trust Fund in accordance therewith could cause a loss of REMIC
status with respect to the Upper-Tier or Lower-Tier REMIC or any imposition of
tax on the Upper-Tier REMIC or Lower-Tier REMIC under the REMIC Provisions or
equivalent provisions of federal, state or local law or ordinance.
SECTION 3.21 Transfer of Servicing Between Master Servicer and
Special Servicer; Record Keeping.
-------------------------------------------------
(a) Upon determining that a Servicing Transfer Event has occurred with
respect to any Mortgage Loan, and, to the extent practicable prior to
acceleration of any related Note or commencement of any foreclosure or similar
proceedings, the Master Servicer shall use its best efforts to provide the
Special Servicer with all information, documents (but excluding the original
documents constituting the related Mortgage File) and records (including records
stored electronically on computer tapes, magnetic discs and the like) in its
possession relating to such Mortgage Loan and reasonably requested by the
Special Servicer to enable it to assume its duties hereunder with respect
thereto. The Master Servicer shall use its best efforts to comply with the
preceding sentence within five Business Days of the occurrence of each related
Servicing Transfer Event and in any event shall continue to act as Master
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. Notwithstanding anything herein to the
contrary, the Special Servicer shall accept for servicing any Mortgage Loan
transferred to it by the Master Servicer pursuant to this Section 3.21. With
respect to each Mortgage Loan that becomes a Specially Serviced Mortgage Loan,
the Master Servicer shall also instruct the related Borrower to remit all
payments in respect of such Mortgage Loan to the
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Special Servicer, provided that the payee in respect of such payments shall
remain the Master Servicer.
Upon determining that the Servicing Transfer Event that caused a
Mortgage Loan to become a Specially Serviced Mortgage Loan (other than an REO
Mortgage Loan) has been remedied and has remained remedied for three consecutive
months and no other Servicing Transfer Event has occurred and is continuing with
respect thereto, the Special Servicer shall immediately give notice thereof to
the Master Servicer and upon giving such notice, such Mortgage Loan shall cease
to be a Specially Serviced Mortgage Loan, the Special Servicer's obligation to
service such Mortgage Loan, and its right to receive the Workout Fee shall
terminate and the obligations of the Master Servicer to service and administer
such Mortgage Loan shall resume. In addition, upon such determination, the
Special Servicer shall instruct the related Borrower to remit all payments in
respect of such Specially Serviced Mortgage Loan directly to the Master
Servicer.
(b) In servicing any Specially Serviced Mortgage Loan, the Special
Servicer shall provide to the Custodian originals, and to the Master Servicer
copies, of documents included within the definition of "Mortgage File" for
inclusion in the related Mortgage File (with a copy of each such original to the
Master Servicer), and copies of any additional related Mortgage Loan
information, including correspondence with the related Borrower.
(c) On or before each Determination Date, the Special Servicer shall
deliver to the Master Servicer a written statement describing, on a Mortgage
Loan by Mortgage Loan basis, (l) the information described in clauses (v) (c),
(vi), (vii), (xi), (xiv), (xv) and (xviii) of Section 4.3 as to each Specially
Serviced Mortgage Loan, (2) 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, received on each
Specially Serviced Mortgage Loan, and the amount of Insurance Proceeds and
Liquidation Proceeds received with respect to each Specially Serviced Mortgage
Loan, (3) the amount of net income or net loss, as determined for federal income
tax purposes, resulting from the operation or management of a trade or business
on, or the furnishing or rendering of a non-customary service to the tenants of,
the REO Property
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relating to each applicable Specially Serviced Mortgage Loan, in each case in
accordance with Section 3.17(a); and (4) such additional information relating to
the Specially Serviced Mortgage Loans as the Master Servicer reasonably requests
to enable it to perform its duties under this Agreement.
(d) Notwithstanding the provisions of the preceding subsection (c), the
Master 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 in its possession reasonably required by the Special
Servicer to perform its duties under this Agreement.
SECTION 3.22 P&I Advances.
------------
(a) With respect to any Mortgage Loan (other than a Mortgage Loan which
only has an overdue Balloon Payment), if on any Determination Date the Special
Servicer or the Master Servicer, as applicable, shall not have received all or
any part of the Monthly Payment (or Modified Monthly Payment, in the case of a
Modified Mortgage Loan) for the related Due Period with respect to such Mortgage
Loan (after application of all payments and collections on such Mortgage Loan
pursuant to Section 1.2), then, on the Master Servicer Remittance Date, the
Master Servicer shall advance, subject to subsection (c) of this Section, the
amount of such shortfall with respect to each such Mortgage Loan, unless the
Master Servicer makes a determination, in its reasonable business judgment, that
such P&I Advance (plus interest accrued thereon at the Advance Rate) if made,
would be a Nonrecoverable Advance.
(b) With respect to any Mortgage Loan (including a Modified Mortgage
Loan which pursuant to its modified terms provides for a Balloon Payment) which
has an overdue Balloon Payment, if on any Determination Date the Special
Servicer or the Master Servicer, as applicable, shall not have received all or
any part of the Assumed Scheduled Payment for the related Due Period with
respect to such Mortgage Loan (after application of all payments and collections
on such Mortgage Loan pursuant to Section 1.2), then, on the Master Servicer
Remittance Date, the Master Servicer shall, subject to subsection (c) of this
Section, advance the amount of such shortfall with respect to each such Mortgage
Loan, unless the Master Servicer makes a
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determination, in its reasonable business judgment, that such P&I Advance (plus
interest accrued thereon at the Advance Rate) if made, would be a Nonrecoverable
Advance.
(c) On each Determination Date, the Master Servicer shall calculate the
amount that would be the P&I Advance for the related Distribution Date if the
P&I Advance were not limited by this section 3.22(c) (the "Tentative P&I Advance
Amount") and shall notify the Trustee of such amount. Based on information
provided to the Trustee pursuant to Section 3.13(b) of this Agreement, the
Trustee shall calculate the amount that would be distributed on the related
Distribution Date to each Class of holders of Interests if the P&I Advance for
such Distribution Date were equal to the Tentative P&I Advance Amount. The
Tentative P&I Advance Amount shall be reduced, but not below zero, by the amount
of distributions that would, based on the foregoing calculation by the Trustee,
be distributed to the holders of the Class GL Interest (or the most subordinate
Class of Interests having a Certificate Principal Amount that are then
outstanding), the Class X-1L Interest, or to the Class AL, Class AR-L, Class BL,
Class CL or Class DL Interest pursuant to clause (xxii) of Section 4.1, and the
remainder shall be the "P&I Advance" for the related Distribution Date. The
Trustee shall notify the Master Servicer of the amount of the P&I Advance no
later than the Business Day preceding the Servicer Remittance Date.
(d) P&I Advances shall be deposited in the Distribution Account by the
Master Servicer not later than the Master Servicer Remittance Date.
(e) The Master Servicer shall be entitled to reimbursement for any P&I
Advances made pursuant to this Section 3.22, plus interest thereon at the
Advance Rate from the date the P&I Advance is made to the date the P&I Advance
is reimbursed.
(f) With respect to any Distribution Date and each Mortgage Loan, the
Available Advance Reimbursement Amount shall equal the lesser of (i) the sum of
all Monthly Payments due in prior periods with respect to such Mortgage Loan
that were included in the calculation of the Tentative P&I Advance Amount with
respect to prior Distribution Dates that have yet to be recovered with respect
to the Mortgage Loan, plus an amount that would have been the outstanding
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<PAGE>
Advance Interest thereon if such amounts had been advanced and (ii) the amount
collected and applied as recoveries of principal and interest (or treated as
recovery of a cost that is or otherwise is an amount that is available to fund
the payment of Advance Interest) due in a Due Period prior to the Due Period
relating to such Distribution Date with respect to such Mortgage Loan, whether
paid by the Mortgagor or otherwise recovered from Late Collections, Net
Liquidation Proceeds, Insurance Proceeds, Condemnation Proceeds, or Net Income
from the related REO Property, or otherwise collected with respect to the
Mortgage Loan or REO Property and applied as a recovery of overdue principal or
interest or reimbursement of the costs of the lender on the Mortgage Loan or REO
Property or, upon a Final Recovery Determination, from amounts on deposit in the
Collection Account.
On each Determination Date, the Master Servicer shall calculate the
outstanding unreimbursed P&I Advance Amount and the Available Advance
Reimbursement Amount for such Determination Date and the related Distribution
Date. On each Distribution Date, the Master Servicer shall be reimbursed in an
amount up to aggregate outstanding unreimbursed P&I Advances and Advance
Interest to the extent of the sum of the Available Advance Reimbursement Amount
for all Mortgage Loans.
(g) Subject to determining that an Advance is a Nonrecoverable Advance,
the Master Servicer, the Trustee or the Fiscal Agent shall make P&I Advances or
Servicing Advances required by this Agreement irrespective of any bankruptcy,
insolvency or similar proceedings affecting the Borrower under the related
Mortgage Loan and irrespective of whether such Mortgage Loan has been foreclosed
upon and has become REO Property. Any determination made by the Master Servicer
pursuant to this Section 3.22 that an advance is a Nonrecoverable Advance shall
be evidenced by an Officer's Certificate delivered to the Trustee and the Fiscal
Agent two Business Days prior to the related Distribution Date setting forth the
determination of nonrecoverability and the procedure and considerations of the
Master Servicer forming the basis of such determination.
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SECTION 3.23 Access to Certain Documentation.
-------------------------------
The Master 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 Master Servicer. Nothing in this Section
3.23 shall detract from the obligation of the Master Servicer to observe any
applicable law prohibiting disclosure of information with respect to the
Borrowers, and the failure of the Master Servicer to provide access as provided
in this Section 3.23 as a result of such obligation shall not constitute a
breach of this Section 3.23.
SECTION 3.24 Authenticating Agent.
--------------------
The Trustee shall appoint an Authenticating Agent to execute and to
authenticate Certificates. The Authenticating Agent must be acceptable to the
Depositor and the Master 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 Master Servicer, having a combined capital and surplus of at
least $15,000,000, authorized under such laws to do a trust business and subject
to supervision or examination by federal or state authorities. The Trustee
hereby appoints itself as the initial Authenticating Agent.
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.
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<PAGE>
The Authenticating Agent may at any time resign by giving at least 30
days' advance written notice of resignation to the Trustee, the Depositor and
the Master 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 and the Master 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 3.24, the Trustee promptly shall appoint a successor
Authenticating Agent, which shall be acceptable to the Master 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 3.24.
The Authenticating Agent shall have no responsibility or liability for
any action taken by it as such at the direction of the Trustee. Any reasonable
compensation paid to the Authenticating Agent shall be an unreimbursable expense
of the Trustee and shall not be payable out of the Trust Fund.
SECTION 3.25 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. LaSalle National Bank shall
serve in the capacity of Custodian hereunder upon the terms set forth hereby or
in a Custodial Agreement and is hereby appointed as the initial Custodian. The
Custodian shall segregate and maintain continuous custody of all documents
constituting the Custodian's Mortgage File received in secure and fire resistant
facilities located in the State of Illinois in accordance with customary
standards for such custody. The Trustee agrees to comply with the terms of this
Agreement and any 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
$10,000,000, shall have a long-term
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<PAGE>
debt rating of at least "BBB" from each Rating Agency, or shall be otherwise
acceptable to each Rating Agency (as confirmed in writing), 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.
Any reasonable compensation paid to the Custodian shall be an unreimbursable
expense of the Trustee and shall not be payable out of the Trust Fund.
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ARTICLE IV
DISTRIBUTIONS TO CERTIFICATEHOLDERS
SECTION 4.1 Distributions from Lower-Tier REMIC.
-----------------------------------
(a) On each Distribution Date, the Trustee shall calculate the
Available Distribution Amount, and the Paying Agent shall distribute such amount
from the Distribution Account (after deducting and paying to the Trustee the
Trustee Fee from amounts on deposit therein) in payment of each Class of Lower-
Tier Interests, subject to Sections 4.1(b), 4.1(c), 4.1(d) and 4.1(e), in the
amounts (to the extent sufficient therefor), and in the order of priority, set
forth below:
(i) to the Class AL and Class AR-L Interests, the Accrued
Certificate Interest for each such Class, pro rata, based on
the respective Accrued Certificate Interest for each such
Class for such Distribution Date;
(ii) to the Class AL and Class AR-L Interests, pro rata, based on
the respective Outstanding Class Interest Shortfall for such
Distribution Date, interest equal to the Outstanding Class
Interest Shortfall for each such Class (for the purpose of
this clause, such amounts shall not include interest at the
Class A Spread Rate on the Certificate Principal Amounts of
the Class AL Interests);
(iii) except as set forth in clause (iv) below, to the Class AR-L
Interests, pro rata, the Class AR-L Principal Distribution
Amount for such Distribution Date;
(iv) to the Class AL Interest, principal equal to the Remaining
Principal Distribution Amount for such Distribution Date,
until the Certificate Principal Amount of the Class AL
Interest has
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<PAGE>
been reduced to zero; provided, however, that if the
-------- -------
Available Distribution Amount remaining after distributions
pursuant to clauses (i) and (ii) is less than the Principal
Distribution Amount, then payments made pursuant to this
clause (iv) and clause (iii) shall be pro rata;
(v) until the Certificate Principal Amounts of the Class AL and
Class AR-L Interests have been reduced to zero, to the Class
AL and Class AR-L Interests, pro rata, to reimburse the
Holders of such Certificates for the unreimbursed amounts of
Realized Losses, if any, previously allocated thereto,
together with interest thereon at the applicable Pass-
Through Rate from the date such Realized Loss was allocated
thereto through the close of the Interest Accrual Period
related to the Distribution Date on which such Realized Loss
is reimbursed (for the purpose of this clause, such amounts
shall not include interest at the Class A Spread Rate on the
unreimbursed amounts of such Realized Losses previously
allocated to the Class AL and Class AR-L Interests,
respectively);
(vi) to the Class BL Interest, interest equal to the Accrued
Certificate Interest thereon;
(vii) to the Class BL Interest, interest equal to the Outstanding
Class Interest Shortfall of such Class (for the purpose of
this clause, such amount shall not include interest at the
Class B Spread Rate on the Certificate Principal Amount of
the Class BL Interest);
(viii) after the aggregate Certificate Principal Amount of the
Class AL Interest
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<PAGE>
has been reduced to zero, to the Class BL Interest,
principal equal to the Remaining Principal Distribution
Amount for such Distribution Date (less the portion thereof
distributed on such Distribution Date pursuant to any
preceding clause) until the Certificate Principal Amount of
the Class BL Interest has been reduced to zero;
(ix) until the Certificate Principal Amount thereof has been
reduced to zero, to the Class BL Interest, to reimburse the
Holder of the Class BL Interest for the unreimbursed amounts
of Realized Losses, if any, previously allocated thereto,
together with interest thereon at the applicable Pass-
Through Rate from the date such Realized Loss was allocated
thereto through the close of the Interest Accrual Period
related to the Distribution Date on which such Realized Loss
is reimbursed (for the purpose of this clause, such amount
shall not include interest at the Class B Spread Rate on the
unreimbursed amounts of such Realized Losses previously
allocated to the Class BL Interest);
(x) to the Class CL Interest, interest equal to the Accrued
Certificate Interest for such Distribution Date;
(xi) to the Class CL Interest, interest equal to the Outstanding
Class Interest Shortfall of such Class (for the purpose of
this clause, such amount shall not include interest at the
Class C Spread Rate on the Certificate Principal Amount of
the Class CL Interest);
(xii) after the aggregate Certificate Principal Amount of the
Class AL and Class BL Interest have been reduced to zero, to
the Class CL Interest, principal
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<PAGE>
equal to the Remaining Principal Distribution Amount for
such Distribution Date (less the portion thereof distributed
on such Distribution Date pursuant to any preceding clause)
until the Certificate Principal Amount of the Class CL
Interest has been reduced to zero;
(xiii) until the Certificate Principal Amount thereof has been
reduced to zero, to the Class CL Interest, to reimburse the
Holder of the Class CL Interest for the unreimbursed amounts
of Realized Losses, if any, previously allocated thereto,
together with interest thereon at the applicable Pass-
Through Rate from the date such Realized Loss was allocated
thereto through the close of the Interest Accrual Period
related to the Distribution Date on which such Realized Loss
is reimbursed (for the purpose of this clause, such amount
shall not include interest at the Class C Spread Rate on the
unreimbursed amounts of such Realized Losses previously
allocated to the Class CL Interest);
(xiv) to the Class DL Interest, interest equal to the Accrued
Certificate Interest for such Distribution Date;
(xv) to the Class DL Interest, interest equal to the Outstanding
Class Interest Shortfall of such Class (for the purpose of
this clause, such amount shall not include interest at the
Class D Spread Rate on the Certificate Principal Amount of
the Class DL Interest);
(xvi) after the aggregate Certificate Principal Amount of the
Class AL, Class BL and Class CL Interests have been reduced
to zero, to the Class DL Interest, principal equal to the
Remaining
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<PAGE>
Principal Distribution Amount for such Distribution Date
(less the portion thereof distributed on such Distribution
Date pursuant to any preceding clause) until the Certificate
Principal Amount of the Class DL Interest has been reduced
to zero;
(xvii) until the Certificate Principal Amount thereof has been
reduced to zero, to the Class DL Interest, to reimburse the
Holder of the Class DL Interest for the unreimbursed amounts
of Realized Losses, if any, previously allocated thereto,
together with interest thereon at the applicable Pass-
Through Rate from the date such Realized Loss was allocated
thereto through the close of the Interest Accrual Period
related to the Distribution Date on which such Realized Loss
is reimbursed (for the purpose of this clause, such amount
shall not include interest at the Class D Spread Rate on the
unreimbursed amounts of such Realized Losses previously
allocated to the Class DL Interest);
(xviii) to the Class EL Interest, interest equal to the Accrued
Certificate Interest for such Distribution Date;
(xix) to the Class EL Interest, interest equal to the Outstanding
Class Interest Shortfall of such Class;
(xx) after the aggregate Certificate Principal Amount of the
Class AL, Class BL, Class CL and Class DL Interests have
been reduced to zero, to the Class EL Interest, principal
equal to the Remaining Principal Distribution Amount for
such Distribution Date (less the portion thereof distributed
on such Distribution Date pursuant to any preceding clause)
until the Cer-
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<PAGE>
tificate Principal Amount of the Class EL Interest has been
reduced to zero;
(xxi) until the Certificate Principal Amount thereof has been
reduced to zero, to the Class EL Interest, to reimburse the
Holder of the Class EL Interest for the unreimbursed amounts
of Realized Losses, if any, previously allocated thereto,
together with interest thereon at the applicable Pass-
Through Rate from the date such Realized Loss was allocated
thereto through the close of the Interest Accrual Period
related to the Distribution Date on which such Realized Loss
is reimbursed;
(xxii) to the Class FL Interest, interest equal to the Accrued
Certificate Interest of such Distribution Date and to the
Class AL, Class BL, Class CL and Class DL Interests an
amount of accrued interest equal to the applicable Spread
Rate times the Certificate Principal Amount of such
Certificates, pro rata, for such Distribution Date;
(xxiii) to the Class FL Interest, interest equal to the Outstanding
Class Interest Shortfall of such Class and to the Class AL,
Class BL, Class CL and Class DL Interests, interest equal
to the portion of the Outstanding Class Interest Shortfall
equal to the applicable Spread Rate times the Certificate
Principal Amount of such Certificates, pro rata;
(xxiv) after the aggregate Certificate Principal Amount of the
Class AL, Class BL, Class CL, Class DL and Class EL
Interests have been reduced to zero, to the Class FL
Interest, principal equal to the Remaining Principal
Distribution Amount for such Distribution Date (less the
portion thereof dis-
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<PAGE>
tributed on such Distribution Date pursuant to any preceding
clause) until the Certificate Principal Amount of the Class
FL Interest has been reduced to zero;
(xxv) until the Certificate Principal Amount thereof has been
reduced to zero, to the Class FL Interests, to reimburse
Holders of the Class FL Interests for the unreimbursed
amounts of Realized Losses, if any, previously allocated
thereto, together with interest thereon at the applicable
Pass-Through Rate from the date such Realized Loss was
allocated thereto through the close of the Interest Accrual
Period related to the Distribution Date on which such
Realized Loss is reimbursed and to the Class AL, Class AR-L,
Class BL, Class CL, Class DL and Class EL Interests,
interest equal to the portion of the interest accrued on
amounts of Realized Losses reimbursed pursuant to clauses
(v), (ix), (xiii), (xvii) and (xxi) (at the applicable
Spread Rates of such Certificates from the date such
Realized Loss was allocated thereto through the close of the
Interest Accrual Period related to the Distribution Date on
which such Realized Loss was reimbursed), pro rata; and
(xxvi) to the Class GL and Class X-1L Interests, interest equal to
the Accrued Certificate Interest of such Distribution Date
and to the Class AL, Class BL, Class CL and Class DL
Interests an amount of accrued interest equal to the
applicable Spread Rate times the Certificate Principal
Amount of such Certificates, pro rata, for such Distribution
Date;
(xxvii) to the Class GL and Class X-1L Interests, interest equal to
the Outstand-
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<PAGE>
ing Class Interest Shortfall of such Classes and to the
Class AL, Class BL, Class CL, Class DL and Class EL
Interests, interest equal to the portion of the Outstanding
Class Interest Shortfall equal to the applicable Spread Rate
times the Certificate Principal Amount of such Certificates,
pro rata;
(xxviii) after the aggregate Certificate Principal Amount of the
Class AL, Class BL, Class CL, Class DL, Class EL and Class
FL Interests have been reduced to zero, to the Class GL
Interest, principal equal to the Remaining Principal
Distribution Amount for such Distribution Date (less the
portion thereof distributed on such Distribution Date
pursuant to any preceding clause) until the Certificate
Principal Amount of the Class GL Interest has been reduced
to zero;
(xxix) until the Certificate Principal Amount thereof has been
reduced to zero, to the Class GL Interests, to reimburse
Holders of the Class GL Interests for the unreimbursed
amount of Realized Losses, if any, previously allocated
thereto, together with interest thereon at the applicable
Pass-Through Rate from the date such Realized Loss was
allocated thereto through the close of the Interest Accrual
Period related to the Distribution Date on which such
Realized Loss is reimbursed and to the Class AL, Class AR-L,
Class BL, Class CL and Class DL Interests, interest equal to
the portion of the interest accrued on amounts of Realized
Losses reimbursed pursuant to clauses (v), (ix), (xiii),
(xvii) and (xxi) (at the applicable Spread Rates of such
Certificates from the date such Realized Loss was allocated
thereto through the close of the Interest Accrual Period
related to the Distribution Date on
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<PAGE>
which such Realized Loss was reimbursed), pro rata; and
(xxx) to the extent of any remaining funds, to the Class AL and
Class AR-L Interests and the Class LR Certificates, pro rata
and then to the Class BL, Class CL, Class DL, Class EL,
Class FL and Class GL Interests, in that order of priority,
in payment of any amounts remaining due thereon.
(b) The Holders of the Class LR Certificates will be entitled to
receive distributions, pro rata, on each Distribution Date, equal to the sum of
(i) interest at the Class LR Pass-Through Rate on the Class LR Certificate
Principal Amount as of the close of the preceding Distribution Date, (ii)
interest equal to the Outstanding Class Interest Shortfall for such Class, (iii)
the Class LR Principal Distribution Amount for such Distribution Date, (iv)
until the Certificate Principal Amount thereof has been reduced to zero, to the
Class LR Certificates, to reimburse the Holders of the Class LR Certificates for
the unreimbursed amounts of Realized Losses, if any, previously allocated
thereto, together with interest thereon at the applicable Pass-Through Rate from
the date such Realized Loss was applied to reduce the Certificate Principal
Amount through the close of the Interest Accrual Period related to the
Distribution Date on which such Realized Loss is reimbursed and (v) any funds
remaining in the Distribution Account after payment in full of the other Classes
of Lower-Tier Interests. Amounts payable to the Holders of the Class LR
Certificates pursuant to clauses (i), (ii), (iii) and (iv) of the preceding
sentence shall rank pari passu with distributions to the Holder of the Class AL
and Class AR-L Interests. Accordingly, in the case of any shortfall in amounts
available to make payments to all such classes the Holder of the Class AL
Interest will share on a pari passu basis with both the Class LR Certificates
and the Class AR-L Interest.
(c) On each Distribution Date, the Paying Agent shall, from funds on
deposit in the Distribution Account, (i) deposit, in immediately available
funds, by wire transfer or otherwise, into the Upper-Tier Distribution Account
the Lower-Tier distribution amount (other than amounts distributable to the
Holders of the Class LR
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<PAGE>
Certificates) and (ii) distribute to the Holders of the Class LR Certificates
(other than as provided in Section 9.1 respecting the final distributions to
Certificateholders) by check mailed to such Holders at the addresses of such
Holders appearing in the Certificate Register, the amount distributable with
respect to the Class LR Certificates pursuant to Section 4.1(b). All amounts
distributable to Holders of the Class LR Certificates pursuant to clause (ii) of
the preceding sentence on each Distribution date shall be allocated pro rata
among the outstanding Certificates of such Class based on the Percentage
Interests of each Holder of Class LR Certificates.
(d) On any Distribution Date on which there is a Net Prepayment Interest
Shortfall or a Realized Loss of interest, such Net Prepayment Interest Shortfall
or Realized Loss of interest shall be allocated, in each case to the extent of
amounts otherwise distributable thereon on such Distribution Date, first, to the
Class GL and Class X-1L Interests, then to the Class FL Interest (but only to
the extent of the Spread Rate thereon), then to the Class EL Interest (but only
to the extent of the Spread Rate thereon), then to the Class DL Interest (but
only to the extent of the Spread Rate thereon), then to the Class CL Interest
(but only to the extent of the Spread Rate thereon), then to the Class BL
Interest (but only to the extent of the Spread Rate thereon), pro rata, in
proportion to the related Accrued Certificate Interest otherwise payable
thereon; second, to the Class EL Interest (to the extent of the remaining
related Accrued Certificate Interest); third, to the Class DL Interest (to the
extent of the remaining related Accrued Certificate Interest); fourth, to the
Class CL Interest (to the extent of the remaining related Accrued Certificate
Interest); fifth, to the Class BL Interest (to the extent of the remaining
related Accrued Certificate Interest); and sixth, to the Class AL and Class AR-L
Interests and the Class LR Certificates, pro rata in proportion to the remaining
related Accrued Certificate Interest otherwise payable thereon.
(e) On each Distribution Date, Realized Losses of principal shall be
allocated, after giving effect to subparagraph 4.1(d) above, in the following
order of priority:
(i) to reduce the interest payable on such Distribution Date to the
Class GL and Class
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<PAGE>
X-1L Interests and to reduce the interest payable on such
Distribution Date to the Class DL, Class CL, Class BL and Class
AL Interests (but only to the extent of the applicable Spread
Rate thereon), pro rata, in proportion to the related Accrued
Certificate Interest otherwise payable thereon, and then to the
extent of remaining Realized Losses of principal, to reduce the
Certificate Principal Amount of the Class GL Interest;
(ii) to reduce the remaining interest payable on such Distribution
Date to the Class FL Interest and then to the extent of remaining
Realized Losses of principal, to reduce the Certificate Principal
Amount of the Class FL Interest;
(iii) to reduce the remaining interest payable on such Distribution
Date to the Class EL Interest and then to the extent of remaining
Realized Losses of principal, to reduce the Certificate Principal
Amount of the Class EL Interest;
(iv) to reduce the remaining interest payable on such Distribution
Date to the Class DL Interest and then to the extent of remaining
Realized Losses of principal, to reduce the Certificate Principal
Amount of the Class DL Interest;
(v) to reduce the remaining interest payable on such Distribution
Date to the Class CL Interest and then to the extent of remaining
Realized Losses of principal, to reduce the Certificate Principal
Amount of the Class CL Interest;
(vi) to reduce the remaining interest payable on such Distribution
Date to the Class BL Interest and then to the extent of remaining
Realized Losses of principal, to reduce the Certificate Principal
Amount of the Class BL Interest; and
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<PAGE>
(vii) to reduce the remaining interest payable on such
Distribution Date to the Class AL and AR-L Interests and the
Class LR Certificates and then to the extent of remaining
Realized Losses of principal, to reduce the Certificate Principal
Amount of the Class AL and Class AR-L Interests and the Class LR
Certificates, pro rata in proportion to their original
Certificate Principal Amounts, to the extent thereof.
(f) Any Realized Losses or Net Prepayment Interest Shortfalls
allocated to a Class of Lower-Tier Interests pursuant to Section 4.1(d) or
4.1(e) shall reduce the amount payable to such Class pursuant to Section 4.1(a)
or 4.1(b). As of any date, the Certificate Principal Amount of each Lower-Tier
Interest is intended to equal the Certificate Principal Amount of the respective
Corresponding Upper-Tier Class, and it is intended that allocations of Realized
Losses of principal shall cause such Certificate Principal Amounts to remain
equal.
SECTION 4.2 Distributions from Upper-Tier REMIC.
-------------------------------------
(a) On each Distribution Date, the amounts distributed on the Lower-
Tier Interests (other than the Class LR Certificates) will be distributed by the
Paying Agent to the holders of the Upper-Tier Certificates, subject to Sections
4.2(d), 4.2(e), 4.2(f) and 4.2(g), in respect of each Class of Certificates in
the amounts (to the extent sufficient therefor), and in the order of priority,
set forth below:
(i) to the Class A and Class R Certificates, the Accrued
Certificate Interest for each such Class, pro rata, based
on the respective Accrued Certificate Interest for each
such Class for such Distribution Date;
(ii) to the Class A and Class R Certificates, pro rata, based
on the respective Outstanding Class Interest Shortfall for
such Distribution Date, interest equal to the Outstanding
Class Interest Shortfall for each such Class;
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<PAGE>
(iii) except as set forth in clause (iv) below, to the Class R
Certificates, pro rata, the Class R Principal Distribution
Amount for such Distribution Date;
(iv) to the Class A Certificates, principal equal to the
Remaining Principal Distribution Amount for such
Distribution Date, until the Certificate Principal Amount
of the Class A Certificates has been reduced to zero;
provided, however, that if the Available Distribution
-------- -------
Amount remaining after distributions pursuant to clauses
(i) and (ii) is less than the Principal Distribution
Amount, then payments made pursuant to this clause (iv) and
clause (iii) shall be pro rata;
(v) until the Certificate Principal Amount of the Class A and
Class R Certificates have been reduced to zero, to the
Class A Certificates and Class R Certificates, pro rata, to
reimburse the Holders of such Certificates for the
unreimbursed amounts of Realized Losses, if any, previously
allocated thereto, together with interest thereon at the
applicable Pass-Through Rate from the date such Realized
Loss was allocated thereto through the close of the
Interest Accrual Period related to the Distribution Date on
which such Realized Loss is reimbursed;
(vi) to the Class B Certificates, interest equal to the Accrued
Certificate Interest thereon;
(vii) to the Class B Certificates, interest equal to the
Outstanding Class Interest Shortfall of such Class;
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<PAGE>
(viii) after the aggregate Certificate Principal Amount of the
Class A Certificates has been reduced to zero, to the Class
B Certificates, principal equal to the Remaining Principal
Distribution Amount for such Distribution Date (less the
portion thereof distributed on such Distribution Date
pursuant to any preceding clause) until the Certificate
Principal Amount of the Class B Certificates has been
reduced to zero;
(ix) until the Certificate Principal Amount thereof has been
reduced to zero, to the Class B Certificates, to reimburse
the Holders of the Class B Certificates for the
unreimbursed amounts of Realized Losses, if any, previously
allocated thereto, together with interest thereon at the
applicable Pass-Through Rate from the date such Realized
Loss was allocated thereto through the close of the
Interest Accrual Period related to the Distribution Date on
which such Realized Loss is reimbursed;
(x) to the Class C Certificates, interest equal to the Accrued
Certificate Interest for such Distribution Date;
(xi) to the Class C Certificates, interest equal to the
Outstanding Class Interest Shortfall of such Class;
(xii) after the aggregate Certificate Principal Amount of the
Class A and Class B Certificates have been reduced to zero,
to the Class C Certificates, principal equal to the
Remaining Principal Distribution Amount for such
Distribution Date (less the portion thereof distributed on
such Distribution Date pursuant to any preceding clause)
until the Certificate Principal Amount of the Class C
IV-14
<PAGE>
Certificates has been reduced to zero;
(xiii) until the Certificate Principal Amount thereof has been
reduced to zero, to the Class C Certificates, to reimburse
Holders of the Class C Certificates for the unreimbursed
amounts of Realized Losses, if any, previously allocated
thereto, together with interest thereon at the applicable
Pass-Through Rate from the date such Realized Loss was
allocated thereto through the close of the Interest Accrual
Period related to the Distribution Date on which such
Realized Loss is reimbursed;
(xiv) to the Class D Certificates, interest equal to the Accrued
Certificate Interest for such Distribution Date;
(xv) to the Class D Certificates, interest equal to the
Outstanding Class Interest Shortfall of such Class;
(xvi) after the aggregate Certificate Principal Amount of the
Class A, Class B and Class C Certificates have been reduced
to zero, to the Class D Certificates, principal equal to
the Remaining Principal Distribution Amount for such
Distribution Date (less the portion thereof distributed on
such Distribution Date pursuant to any preceding clause)
until the Certificate Principal Amount of the Class D
Certificates has been reduced to zero;
(xvii) until the Certificate Principal Amount thereof has
previously been reduced to zero, to the Class D
Certificates, to reimburse Holders of the Class D
Certificates for the unreimbursed amounts of Realized
Losses, if any, previously allocated
IV-15
<PAGE>
thereto, together with interest thereon at the applicable
Pass-Through Rate from the date such Realized Loss was
allocated thereto through the close of the Interest Accrual
Period related to the Distribution Date on which such
Realized Loss is reimbursed;
(xviii) to the Class E Certificates, interest equal to the Accrued
Certificate Interest for such Distribution Date;
(xix) to the Class E Certificates, interest equal to the
Outstanding Class Interest Shortfall of such Class;
(xx) after the aggregate Certificate Principal Amount of the
Class A, Class B, Class C and Class D Certificates have
been reduced to zero, to the Class E Certificates,
principal equal to the Remaining Principal Distribution
Amount for such Distribution Date (less the portion thereof
distributed on such Distribution Date pursuant to any
preceding clause) until the Certificate Principal Amount of
the Class E Certificates has been reduced to zero;
(xxi) until the Certificate Principal Amount thereof has been
reduced to zero, to the Class E Certificates, to reimburse
Holders of the Class E Certificates for the unreimbursed
amounts of Realized Losses, if any, previously allocated
thereto, together with interest thereon at the applicable
Pass-Through Rate from the date such Realized Loss was
allocated thereto through the close of the Interest Accrual
Period related to the Distribution Date on which such
Realized Loss is reimbursed;
IV-16
<PAGE>
(xxii) to the Class F Certificates, interest equal to the Accrued
Certificate Interest for such Distribution Date;
(xxiii) to the Class F Certificates, interest equal to the
Outstanding Class Interest Shortfall of such Class;
(xxiv) after the aggregate Certificate Principal Amount of the
Class A, Class B, Class C, Class D and Class E Certificates
have been reduced to zero, to the Class F Certificates,
principal equal to the Remaining Principal Distribution
Amount for such Distribution Date (less the portion thereof
distributed on such Distribution Date pursuant to any
preceding clause) until the Certificate Principal Amount of
the Class F Certificates has been reduced to zero;
(xxv) until the Certificate Principal Amount of the Class F
Certificates has been reduced to zero, to the Class F
Certificates, to reimburse Holders of the Class F
Certificates for the unreimbursed amounts of Realized
Losses, if any, previously allocated thereto, together with
interest thereon at the applicable Pass-Through Rate from
the date such Realized Loss was allocated thereto through
the close of the Interest Accrual Period related to the
Distribution Date on which such Realized Loss is
reimbursed;
(xxvi) to the Class G, Class X-1 and Class X-2 Certificates
interest equal to the Accrued Certificate Interest, pro
rata, for such Distribution Date;
(xxvii) to the Class G, Class X-1 and Class X-2 Certificates,
interest equal to the Outstanding Class Interest Shortfall
of such Class;
IV-17
<PAGE>
(xxviii) after the aggregate Certificate Principal Amount of the
Class A, Class B, Class C, Class D, Class E and Class F
Certificates have been reduced to zero, to the Class G
Certificates, principal equal to the Remaining Principal
Distribution Amount of such Distribution Date (less the
portion thereof distributed on such Distribution Date
pursuant to any preceding clause) until the Certificate
Principal Amount of the Class G Certificates has been
reduced to zero;
(xxix) until the Certificate Principal Amount of the Class G
Certificates has been reduced to zero, to the Class G,
Class X-1 and Class X-2 Certificates, pro rata, to
reimburse Holders of the Class G, Class X-1 and Class X-2
Certificates for the unreimbursed amounts of Realized
Losses, if any, previously allocated thereto, together with
interest thereon at the applicable Pass-Through Rate from
the date such Realized Loss was allocated thereto through
the close of the Interest Accrual Period related to the
Distribution Date on which such Realized Loss is
reimbursed;
(xxx) to the extent of any remaining funds, to the Class A and
Class R Certificates pro rata, and then to the Class B,
--- ----
Class C, Class D, Class E, Class F and Class G
Certificates, in that order of priority, in payment of any
amounts remaining due thereon; and
(xxxi) to the extent of any remaining funds, to the Class R
Certificates, pro rata, any funds remaining in the Upper-
Tier Distribution Account.
IV-18
<PAGE>
(b) On each Distribution Date, the Paying Agent shall, from funds
available on deposit in the Upper-Tier Distribution Account, distribute to each
Certificateholder of record (other than the Holders of Class LR Certificates) on
the preceding Record Date such Holder's pro rata share (based on the aggregate
of the Percentage Interests represented by Certificates held by such Holder) of
the amount distributable with respect to such Certificates. Any amount
remaining in the Upper-Tier Distribution Account on a Distribution Date after
all other distributions to the Holders of the Upper-Tier Certificates have been
made shall be distributed on a pro rata basis to the Holders of the Class R
Certificates.
All amounts distributable to a Class of Certificates pursuant to this
Section 4.2(b) on each Distribution Date shall be allocated pro rata among the
outstanding Certificates of 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 the aggregate denomination of which exceeds $5,000,000 and
has provided the Paying Agent with wire instructions in writing at least five
Business Days prior to the related Record Date, by wire 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 Corporate Trust
Office or such other location specified in the notice to Certificateholders of
such final distribution. The Trustee or its agent may clear and terminate the
Upper-Tier Distribution Account pursuant to Section 9.1.
(c) Notwithstanding the foregoing, in no event shall distributions of
principal be made to the Holders of Class A, Class R, Class B, Class C, Class D,
Class E, Class F and Class G Certificates after the respective Certificate
Principal Amounts thereof have been reduced to zero, unless such reduction
resulted from the allocation of Realized Losses, in which case principal
distributions shall continue to be made to the applicable Class or
IV-19
<PAGE>
Classes of Certificates until such Realized Losses have been reimbursed.
(d) Except as otherwise provided in Section 9.1(f) with respect to an
Anticipated Termination Date, the Trustee shall, no later than the fifth
Business Day following the Determination Date in the month preceding the month
in which the final distribution with respect to any Class of Certificates is
expected to be made, mail to each Holder of such Class of Certificates and the
Rating Agencies on such date 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 or agency 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 the end of the
Interest Accrual Period immediately preceding such Distribution Date.
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 date, be set aside and held in trust
for the benefit of the appropriate nontendering Holder or Holders. If any
Certificates as to which notice has been given pursuant to this Section 4.2(d)
shall not have been surrendered for cancellation within six months after the
date specified in such notice, the Trustee shall mail a second notice to the
remaining nontendering Certificateholders to surrender their Certificates for
cancellation to receive the final distribution with respect thereto. The costs
and expenses of holding such funds in trust and of contacting such
Certificateholders shall be paid out of such funds. If after the second notice
any such Certificates shall not have been surrendered for cancellation, the
Trustee shall continue to 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 or (ii) the termination of the Trust
Fund, which termination shall
IV-20
<PAGE>
occur six months after the mailing of the second notice (or such later time as
might be required by applicable state law). Any funds not distributed to
Certificateholders pursuant to this Section 4.2(d) upon the termination of the
Trust Fund shall become the property of the Class R Certificateholder. No
interest shall accrue or be payable to any Certificateholder on any amount held
in trust hereunder as a result of such Certificateholder's failure to surrender
its Certificate(s) for final payment thereof in accordance with this Section
4.2(d). Any such amounts held by the Trustee shall not be invested.
(e) On any Distribution Date on which there is a Net Prepayment
Interest Shortfall or Realized Loss of interest allocated to any Class of Lower-
Tier Interests, such Net Prepayment Interest Shortfall or Realized Loss of
interest shall be allocated to the Corresponding Class or Classes of Upper-Tier
Certificates, in each case to the extent of amounts otherwise distributable
thereon on such Distribution Date. For purposes of such calculation the Class
X-2 Certificates shall be the "Corresponding Class" to the Class AL, Class BL,
Class CL and Class DL Interests to the extent of the portion of the Accrued
Certificate Interest equal to the applicable Spread Rate times the Certificate
Principal Amount of such Certificates.
(f) On any Distribution Date on which there is a Realized Loss of
principal allocated to any Class of Lower-Tier Interests, such Realized Loss of
principal shall be allocated to the Corresponding Class or Classes of Upper-Tier
Certificates to the extent of amounts otherwise distributable thereon on such
Distribution Date and to the extent of the Certificate Principal Amount of such
Class. For purposes of such calculation the Class X-2 Certificates shall be the
"Corresponding Class" to the Class AL, Class BL, Class CL and Class DL Interests
to the extent of the portion of the Accrued Certificate Interest equal to the
applicable Spread Rate times the Certificate Principal Amount of such
Certificates.
(g) Any Realized Losses or Net Prepayment Interest Shortfalls
allocated to a Class of Upper-Tier Certificates pursuant to Section 4.2(e) or
4.2(f) shall reduce the amount payable to such Class pursuant to Section 4.2(a).
As of any date, the Certificate Principal Amount of each Upper-Tier Certificate
is intended to equal the Certificate Principal Amount of the respective Corre-
IV-21
<PAGE>
sponding Lower-Tier Interest, and it is intended that allocations of Realized
Losses and Net Prepayment Interest Shortfalls cause such Certificate Principal
Amounts to remain equal.
(h) On each Distribution Date, the Trustee (or the Paying Agent on
behalf of the Trustee) shall withdraw from the Upper-Tier Distribution Account
all amounts then on deposit therein that represent Prepayment Premiums collected
on Mortgage Loans during the Prepayment Period for such Distribution Date, and
shall distribute such Prepayment Premiums, in addition to the Available
Distribution Amount for such Distribution Date, pro rata to the Holders of the
Class A and Class X-1 and Class X-2 Certificates in proportion to the PV Yield
Loss Amount for each such Class of Certificates up to the PV Yield Loss Amount
for such Class.
SECTION 4.3 Statements to Certificateholders.
---------------------------------
On each Distribution Date, the Trustee shall, based upon the
information set forth in the report prepared by the Master Servicer and Special
Servicer with respect to such Distribution Date, prepare and forward by mail to
each Holder of a Certificate, with copies to the Depositor, the Special
Servicer, the Fiscal Agent, the Paying Agent and the Initial Purchaser, a
statement as to such distribution setting forth:
(i) the amount, if any, of such distribution to the Holders of Class
A, Class R, Class LR, Class B, Class C, Class D, Class E, Class F and Class G
Certificates applied to reduce the respective Certificate Principal Amounts
thereof and the amount, if any, of Realized Losses allocated to the Holders of
each such Class and applied to reduce the respective Certificate Principal
Amounts thereof;
(ii) the amount of such distribution to Holders of Certificates of
each Class, allocable to (a) Accrued Certificate Interest and (b) any
Outstanding Class Interest Shortfall for each such Class;
(iii) the amount of Realized Losses and Net Prepayment Interest
Shortfalls, if any, allocated to each Class;
IV-22
<PAGE>
(iv) the aggregate Scheduled Principal Balance of the Mortgage Loans
as of the Determination Date preceding such Distribution Date;
(v) the number and aggregate Scheduled Principal Balance of Mortgage
Loans as of the Determination Date preceding such Distribution Date (a)
delinquent one month, (b) delinquent two or more months and (c) as to which
foreclosure proceedings have been commenced;
(vi) with respect to any Mortgage Loan that became an REO Mortgage
Loan during the related Prepayment Period, the principal balance of such
Mortgage Loan as of the date it became an REO Mortgage Loan;
(vii) as of the Determination Date preceding such Distribution Date
(a) the book value of any REO Account Property, (b) as to any REO Property sold
during the related Prepayment Period, the date of the related Final Recovery
Determination, the amount of the proceeds of such sale deposited into the REO
Account and the amount of Net REO Proceeds from such sale deposited to the
Collection Account, and (c) the aggregate amount of other revenues collected by
the Special Servicer with respect to each REO Account Property during the
related Prepayment Period and credited to the REO Account and Collection Account
for each such REO Account Property, in each case identifying such REO Property
by the Loan Number of the related Mortgage Loan;
(viii) the aggregate Certificate Principal Amounts of the Class A,
Class R, Class LR, Class B, Class C, Class D, Class E, Class F and Class G
Certificates, before and after giving effect to the distribution in respect of
principal and allocation of Realized Losses in reduction of Certificate
Principal Amounts on such Distribution Date;
(ix) the aggregate amount of Principal Prepayments received during
the related Prepayment Period;
(x) the Certificate Factor with respect to each Class of Certificates
applicable to such Distribution Date;
(xi) a description prepared by the Special Servicer and forwarded to
the Master Servicer of any modifications, waivers, amendments or consents with
respect
IV-23
<PAGE>
to the Mortgage Loans during the related Prepayment Period and the bases
therefor, including descriptions for any Balloon Mortgage Loan whose maturity
date has been extended;
(xii) the number of outstanding Mortgage Loans as of the related
Determination Date;
(xiii) the aggregate amount of Servicing Fees retained by or paid to
the Master Servicer in respect of the related Due Period;
(xiv) the aggregate amount of the Special Servicer Fee retained by or
paid to the Special Servicer in respect of the related Due Period as the Basic
Fee and as the Workout Fee, as the case may be;
(xv) the amount of Realized Losses, if any, incurred during the
related Prepayment Period with respect to the Mortgage Loans;
(xvi) the aggregate Outstanding Class Interest Shortfall, if any, for
each Class of Certificates after giving effect to the distributions made on such
Distribution Date for each Class of Certificates;
(xvii) with respect to each Mortgage Loan that is a Specially
Serviced Mortgage Loan, the Loan Number, the name of the related Mortgaged
Property; and
(xviii) the amount of any Appraisal Reductions effected during the
related Due Period and the total Appraisal Reductions as of such Distribution
Date on a Mortgage Loan-by-Mortgage Loan basis identifying each such Mortgage
Loan by Loan Number.
In the case of information furnished pursuant to subclauses (i), (ii),
(iii), (viii) and (xvi) above, the amounts shall be expressed as a dollar amount
in the aggregate for all Certificates of each applicable Class and for each
Class A, Class R, Class LR, Class B, Class C, Class D, Class E, Class F or Class
G Certificate with an initial Certificate Principal Amount (or notional
principal amount) of $1,000.
On or prior to the second Business Day preceding each Distribution
Date occurring in January, April, July
IV-24
<PAGE>
and October of each year beginning with July 1996, the Master Servicer shall
prepare and forward to the Trustee and on such Distribution Date the Trustee
shall forward by mail to each Holder, the Depositor and the Initial Purchaser, a
completed "Quarterly Mortgage Loan Characteristics Summary," in the Form of
Exhibit K, providing information with respect to the Mortgage Loans as of the
second preceding Determination Date. The Master Servicer may rely conclusively
on data provided by the Special Servicer used in preparing each Quarterly
Mortgage Loan Characteristics Summary and shall have no duty to determine the
accuracy of such data and shall incur no liability for relying thereon absent
manifest error. The Master Servicer shall make calculations in connection with
the preparation of each Quarterly Mortgage Loan Characteristics Summary in its
sole judgment. Compliance with its obligations in conformity with the
requirements of this paragraph shall entitle the Master Servicer to the
protection afforded by the provisions of Section 6.3 (but subject to the
limitations set forth in such Section) in respect of matters arising out of the
preparation of each Quarterly Mortgage Loan Characteristics Summary.
Within 90 days 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 A, Class R, Class LR, Class B, Class C, Class D, Class E, Class F, Class
G or Class X Certificate a statement containing the information set forth in
subclauses (i), (ii), (iii) and (xvi) above, in addition to information
contained in Exhibit B updated for such period, 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 substantially comparable information shall be
provided by the Trustee 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 R or Class LR Certificate and to the Master Servicer and the Special
Servicer a copy of the reports forwarded to the Class A, Class B, Class C, Class
D, Class E, Class F, Class G and Class X Certificateholders on such Distribution
Date and a statement setting forth the amounts, if any, actually distributed
with respect to the Class R or Class LR Certificates on such Distribution Date.
IV-25
<PAGE>
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 R or Class LR 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 holding such Certificate.
SECTION 4.4 Compliance with Withholding Requirements.
----------------------------------------
Notwithstanding any other provision of this Agreement, the Trustee
shall comply with all federal withholding requirements with respect to payments
to Certificateholders of interest or original issue discount that the Trustee
reasonably believes are applicable under the Code. The consent of
Certificateholders shall not be required for any such withholding. Without
limiting the foregoing, the Trustee agrees that it will not withhold with
respect to payments of interest or original issue discount in the case of a
Certificateholder that has furnished or caused to be furnished an effective Form
W-8 or an acceptable substitute form or a successor form and who is not, as
evidenced by a written certification from such Certificateholder to the Trustee,
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 Upper-Tier REMIC, the Lower-Tier REMIC, the Trust Fund or the
Depositor. In the event the Paying 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.
SECTION 4.5 REMIC Compliance.
----------------
(a) The parties intend that each of the Upper-Tier REMIC and Lower-
Tier REMIC shall constitute, and that the affairs of each of the Upper-Tier
REMIC and 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,
IV-26
<PAGE>
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 Lower
Tier REMIC: (i) prepare or cause to be prepared and file all required federal
and state tax and information returns for each of the Upper-Tier REMIC and
Lower-Tier REMIC, including, but not limited to, Form 1066, using a calendar
year as the taxable year for each of the Upper-Tier REMIC and Lower-Tier REMIC
when and as required by the REMIC Provisions and other applicable federal 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 and any similar state or
local laws or ordinances; (iii) prepare and forward, or cause to be prepared and
forwarded, to the Certificateholders and the Internal Revenue Service (and other
governmental agencies) all information reports as and when required to be
provided to them in accordance with the REMIC Provisions and any similar state
or local laws or ordinances; (iv) if the filing or distribution of any documents
of an administrative nature not addressed in clauses (i) through (iii) of this
Section 4.5(a) is then required by (or is considered helpful to satisfying) the
REMIC Provisions in order to maintain the status of each of the Upper-Tier REMIC
and Lower-Tier REMIC as a REMIC or is otherwise required, prepare, file and sign
or distribute, or cause to be prepared and filed and signed or distributed, such
documents with or to such Persons when and as required by (or is considered
helpful to satisfying) the REMIC Provisions; (v) within thirty 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,
address, and telephone number 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 the Upper-Tier REMIC and 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 (vi) maintain such records relating to each of the
Upper-Tier REMIC and Lower-Tier REMIC as may be necessary to prepare the
foregoing returns, schedules, statements or information. The "tax matters
person" for the Upper-Tier REMIC, pursuant to Treasury Regulation Section
1.860F-4(d), shall be the Holder of the largest Percentage Interest of the Class
R Certificates or,
IV-27
<PAGE>
if two or more Holders have the same largest Percentage Interest, the first of
such Holders to have acquired such Class R Certificates. The tax matters person
for the Lower-Tier REMIC, pursuant to Treasury Regulation Section 1.860F-4(d)
shall be the Holder of the largest Percentage Interest of Class LR Certificates
or, if two or more Holders have the same largest Percentage Interest, the first
of such Holders to have acquired such Class LR Certificates. The Trustee shall
serve as attorney-in-fact and agent for any Person that is the tax matters
person of the Upper-Tier REMIC or Lower-Tier REMIC. The Holder of any
Certificate, by purchasing such Certificate, (A) shall be deemed to consent to
the appointment of the Trustee as attorney-in-fact and agent for any Person that
is the tax matters person of the Upper-Tier REMIC or Lower-Tier REMIC, and (B)
agrees to execute any documents required to give effect to (A) above.
Notwithstanding any other provision of this Agreement, none of the Master
Servicer or the Trustee shall intentionally take any action or intentionally
omit to take any action in connection with its obligations under this Agreement
if, in taking or omitting to take such action, such Person 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 Lower-Tier REMIC or subject the Upper-Tier
REMIC or Lower-Tier REMIC to tax; provided, however, that such Person shall not
-------- -------
be required to take any action in this regard that such Person in good faith
believes to be inconsistent with any other provision of this Agreement. The
Depositor, the Master Servicer and the Special Servicer shall cooperate in a
timely manner with the Trustee in supplying any information within the
Depositor's, the Master Servicer's or the Special Servicer's control that is
reasonably necessary to enable the Trustee to perform its duties under this
Section 4.5.
(b) Anything herein to the contrary notwithstanding, if at any time
the Master Servicer, the Special Servicer or a Responsible Officer of the
Trustee has actual knowledge that any Mortgage Loan is not a Qualified Mortgage
within the meaning of the REMIC Provisions, the party making such discovery
shall promptly so notify the Originator and the Depositor and furnish the
Originator and the Depositor with an Opinion of Counsel (at the expense of the
Depositor) to such effect, and pursuant to the Transfer Agreement, the
Originator shall not later than 90 days after such discovery, (i) repurchase
such Mortgage Loan at
IV-28
<PAGE>
a price equal to the Repurchase Price or (ii) if within two years of the Start-
up Day, at the Originator's option, substitute such Mortgage Loan with a new
Mortgage Loan, in each case, in the manner described in, and subject to the
conditions set forth in Section 2.2(b). Notwithstanding anything herein to the
contrary, the Master Servicer, Special Servicer and Trustee have no obligation
to determine whether or not a Mortgage Loan is a Qualified Mortgage.
(c) Except as otherwise provided herein, the Trustee shall not sell or
modify (if such modification would constitute a deemed disposition of the
modified loan for federal income tax purposes) any Mortgage Loan (including REO
Property) or any other asset of either the Upper-Tier REMIC or Lower-Tier REMIC
unless it has received an Opinion of Counsel, at the expense of the Trust Fund,
to the effect that such sale will not result in the imposition of taxes on
prohibited transactions on the Upper-Tier REMIC or Lower-Tier REMIC and will not
cause a loss of REMIC status with respect to the Upper-Tier REMIC or Lower-Tier
REMIC.
(d) In order to enable the Trustee to perform its duties as set forth
herein, the Depositor shall provide, or cause to be provided to the Trustee,
within ten (10) days after the Closing Date, all information or data that the
Trustee determines to be relevant for tax purposes to the valuations and
offering prices of the Certificates, including, without limitation, the price,
yield, prepayment assumption and projected cash flows of the Certificates and
the Mortgage Loans.
(e) In the event that the Trust Fund fails to qualify as a REMIC or
loses its status as a REMIC as a result of the negligent performance by the
Trustee of its duties herein the Trustee shall be liable to the Trust Fund for
any damages, including any tax related liabilities, resulting therefrom;
provided, however, that the Trustee shall not be liable for such liabilities
- - -------- -------
attributable to the action or inaction of the Depositor, the Master Servicer,
the Special Servicer, any subservicer, the Holders of the Class R and Class LR
Certificates or for any liability resulting from misinformation provided by the
Master Servicer, the Special Servicer, any subservicer, the Holders of the Class
R or the Class LR Certificates on which the Trustee has relied.
IV-29
<PAGE>
SECTION 4.6 Imposition of Tax on the Upper-Tier REMIC or Lower-Tier
REMIC.
-------------------------------------------------------
Except as provided in Section 1.2(iii)(B), 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 Lower-Tier REMIC, such tax shall be
charged against amounts otherwise distributable to the Holders of the Class R
Certificates (in the case of any tax imposed on the Upper-Tier REMIC) or the
Class LR Certificates (in the case of any tax imposed on the Lower-Tier REMIC)
on a pro rata basis; provided that any taxes imposed on any "net income from
foreclosure property" received in accordance with the exception in the last
sentence of Section 3.17(a) shall instead be charged against the related
revenues with respect to each REO Property and shall be paid therefrom (until
such taxes are paid, the Trustee being permitted to withdraw amounts in respect
of such taxes from the Collection Account from time to time and segregated by
the Trustee in a separate non-interest bearing account, to the extent necessary
to pay such taxes, and to remit to the Collection Account the excess from time
to time of the amount in such separate account over the amount necessary to pay
such taxes). The Paying Agent is hereby authorized to and shall retain from
amounts otherwise distributable to the Holders of the Class R or Class LR
Certificates, as the case may be, 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 Lower-Tier REMIC (but such authorization shall not prevent the Trustee
from contesting any such tax in appropriate proceedings and withholding payment
of such tax, if permitted by law, pending the outcome of such proceedings). To
the extent that sufficient amounts cannot be so retained to pay or provide for
the payment of such tax, the Trustee is hereby authorized to and shall
segregate, into a separate non-interest bearing account, the net income from any
"prohibited transaction" and use such income, to the extent necessary, to pay
such tax, provided that, to the extent that any such income is paid to the
Internal Revenue Service, the Trustee shall retain an equal amount from future
amounts otherwise distributable to the Holders of Class R or Class LR
Certificates and shall distribute such retained amounts to the Holders of Class
A, Class B, Class C, Class D, Class E, Class F, Class G and Class X
Certificates, as applicable, to the extent they are fully reimbursed and then to
the Holders of Class R or Class LR
IV-30
<PAGE>
Certificates, as the case may be. The Master Servicer or the Special Servicer
shall not be responsible for any taxes imposed on the Upper-Tier REMIC or Lower-
Tier REMIC provided that it acts in accordance with the servicing standards and
requirements of this Agreement; provided, that the Master Servicer or the
Special Servicer, as the case may be, shall reimburse to the Holder of the Class
R or Class LR Certificates the amount of any such taxes retained from such
Holders, or shall deposit to the Collection Account any such amount not so
retained, imposed on the Upper-Tier REMIC or Lower-Tier REMIC as a result of its
acting other than in accordance with the servicing standards and requirements of
this Agreement.
SECTION 4.7 Appraisal Reductions.
---------------------
(a) On the earliest of (i) the effective date of any modification of
the stated maturity (excluding an extension of the stated maturity on any
Mortgage Loan that has not been more than 30 days delinquent more than once
during the preceding 12 months), Payment Rate, Mortgage Interest Rate, principal
balance or amortization terms (each, a "Payment Term" of any Mortgage Loan),
(ii) 60 days after the occurrence of any delinquency in any payment with respect
to a Mortgage Loan if such delinquency continues uncured for such 60 day period
or remained uncured immediately prior to modification of a Payment Term of such
Mortgage Loan, (iii) the date 60 days after a receiver is appointed in respect
of such Mortgaged Property or (iv) the date a Mortgaged Property becomes an REO
Account Property, the Special Servicer(in the case of a Mortgage Property
relating to a Specially Serviced Mortgage Loan, except with respect to Mortgage
Loans #95, #135, #136, #137, #138 and #139, for which the Master Servicer will
act as Special Servicer) or the Master Servicer (in the case of any other
Mortgaged Property) will, within 45 days after an event described in clause (i),
(ii), (iii) or (iv) above has occurred, obtain an appraisal of the related
Mortgage Property or REO Account Property from an Independent appraiser who is a
member of the American Institute of Real Estate Appraisers. Such appraisal
shall be on an "as is" basis and shall be prepared in accordance with the Code
of Ethics and Standards of Professional Practice of the Appraisal Institute and
the Uniform Standards of Professional Appraisal Practice. Such appraisal shall
be updated annually by the Independent Appraiser for so long as the Mortgage
Loan or REO Mortgage Loan is outstanding; provid-
IV-31
<PAGE>
ed, that, such update may be in the form of a letter from an Independent
appraiser. The cost of any such appraisal or update thereof shall be an expense
of the Trust Fund. If no such appraisal has been obtained prior to the later of
(x) the first Distribution Date on or after the date on which an event described
in clause (i), (ii), (iii) or (iv) above has occurred and (y) 30 days after the
date on which such an event has occurred, the Master Servicer or Special
Servicer, as applicable, shall be required to estimate the value of such
Mortgaged Properties or REO Account Properties (such estimate, the "Appraisal
Reduction Estimate") and such estimate shall be used for purposes of the
Appraisal Reduction. The Appraisal Reduction Estimate shall be based on the
income approach calculated using the formula in the most recent appraisal of the
related Mortgaged Property and the most recent operating statements provided by
the Borrower discounted by a capitalization rate of 16%. On the first
Distribution Date occurring on or after the delivery of such appraisal, the
Master Servicer or Special Servicer, as applicable, shall be required to adjust
the Appraisal Reduction to take into account such appraisal (regardless of
whether such appraisal is higher or lower than the Appraisal Reduction
Estimate).
(b) The Class ASER Amount shall be allocated first to the Class G
Certificates, second to the Class F Certificates, third to the Class E
Certificates, fourth to the Class D Certificates, fifth to the Class C
Certificates and sixth to the Class B Certificates, in reduction of the Accrued
Certificate Interest of such Classes.
(c) On each Distribution Date, the Certificate Principal Amount of
each of the Class B, Class C, Class D, Class E, Class F and Class G Certificates
shall be increased by the amount of any Class ASER Amount for such Class with
respect to such Distribution Date.
SECTION 4.8 Adjustment of Servicing Fees.
-----------------------------
The total Servicing Fee payable to the Servicer for any Due Period
shall be increased or reduced, as the case may be, by the Servicing Fee
Adjustment for such Due Period. In the event that the Servicing Fee Adjustment
for any Due Period exceeds the Servicing Fee for such Due Period, the Servicer
shall advance the shortfall.
IV-32
<PAGE>
ARTICLE V
THE CERTIFICATES
SECTION 5.1 The Certificates.
-----------------
The Certificates consist of the Class A 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 X-1
Certificates, the Class X-2 Certificates, the Class R Certificates and the Class
LR Certificates. The Class A, Class B, Class C, Class D, Class E, Class F,
Class G, Class X-1, Class X-2, Class R and Class LR Certificates will be
substantially in the forms annexed hereto as Exhibits A-1, A-2, A-3, A-4, A-5,
A-6, A-7, A-8, A-9, A-10 and A-11, respectively. Except as otherwise expressly
provided herein, the Certificates of each Class will be issuable in registered
form only in dollar denominations as described in the following three
paragraphs. Each Certificate will share ratably in all rights of the related
Class.
The Class A, Class B, Class C and Class D Certificates shall be issued
as one or more certificates registered in the name of a nominee designated by
the Depository, and Beneficial Owners will hold interests in the Class A, Class
B, Class C and Class D Certificates through the book-entry facilities of the
Depository in one or more registered, definitive physical certificates, the
minimum denominations, integral multiples in excess thereof and aggregate
denominations (expressed in each case in terms of initial Certificate Principal
Amount) as set forth in the following table.
The Class R, Class LR, Class E, Class F and Class G Certificates shall
be issued in one or more registered, definitive physical certificates in the
minimum denominations, integral multiples in excess thereof and aggregate
denominations per Class (expressed in each case in terms of initial Certificate
Principal Amount) as set forth in the following table.
V-1
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Integral Denominations
Multiples of all
Minimum in Excess of Certificates
Class Denomination* Minumum of Class
- - ----------------------------------------------------------
<S> <C> <C> <C>
A $500,000 $1,000 $69,177,000
B $500,000 $1,000 $ 8,718,000
C $500,000 $1,000 $ 7,593,000
D $500,000 $1,000 $ 5,062,000
E $500,000 $1,000 $11,811,000
F $500,000 $1,000 $ 4,500,000
G $500,000 $1,000 $ 5,624,255
R $ 1,000 $1,000 $ 1,000
LR $ 1,000 $1,000 $ 1,000
</TABLE>
* Except that one Certificate for each Class may be issued in a different
denomination to accommodate the remainder of the initial Certificate
Principal Amount.
The Class X Certificates shall each be issuable in one or more
registered, definitive physical certificates in minimum Percentage
Interests of 1% and integral multiples thereof, aggregating the entire 100%
Percentage Interest in each such Class.
The rights of Beneficial Owners with respect to Class A
Certificates shall be limited to those established by law and agreements
between such Beneficial Owners and the Depository and Depository
Participants. Except under the circumstances set forth below, Beneficial
Owners of Class A Certificates shall not be entitled to physical
certificates for such Certificates as to which they are the Beneficial
Owners. Requests and directions from, and votes of, the Depository as the
authorized representative of the Beneficial Owners with respect to the
Class A Certificates shall not be deemed inconsistent if they are made with
respect to different Beneficial Owners. The Certificate Registrar may
establish a reasonable record date in connection with solicitations of
consents from or voting by Certificateholders and give notice to the
Depository of such record date. Without the written consent of the
Depositor and the Certificate Registrar, no Class A Certificates may be
transferred by the Depository except to a successor Depository
V-2
<PAGE>
that agrees to hold such Certificate for the account of the Beneficial Owners.
In the event The Depository Trust Company resigns or is removed as
Depository, the Trustee, with the approval of the Depositor, may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to definitive physical certificates
representing the Class A Certificates it beneficially owns.
No owner of a beneficial interest in a Class A Certificate will be
entitled to receive a certificate representing such owner's interest in such
Certificate except in the event that definitive certificates are issued for the
Class A Certificates only as provided herein. Class A Certificates initially
issued in book-entry form will be issued in fully registered, certificated form
to Certificateholders or their nominees ("definitive certificates") (subject to
the minimum denominations set forth in the table in this Section 5.1 and the
wire transfer restrictions set forth in Section 4.2(b)) rather than to the
Depository or its nominee, if (i) the Depositor advises the Certificate
Registrar in writing that the Depository is no longer willing or able to
properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
the Depository.
Upon the occurrence of either of the events described in clause (i) or
(ii) of the immediately preceding paragraph, the Depository pursuant to its
rules is required to notify all participants of the availability through the
Depository of definitive certificates for the Certificateholders. Upon
surrender by the Depository of the certificate or certificates representing the
Class A Certificates, together with instructions for re-registration, the
Trustee will issue (or cause to be issued) to the Certificateholders identified
in such instructions the definitive certificates to which they are entitled, and
thereafter the Trustee, the Paying Agent and the Certificate Registrar will
recognize the Holders of such definitive certificates as Certificateholders
under this Agreement.
V-3
<PAGE>
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 or upon the order of
the Depositor. All Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee or the Authenticating Agent by an authorized
officer or signatory. Certificates bearing the signatures of individuals who
were at any time the proper officers or signatories of the Trustee or the
Authenticating Agent shall bind the Trustee or the Authenticating Agent
notwithstanding that such individuals or any of them have ceased to hold such
offices or positions prior to the delivery of such Certificates or did not hold
such offices or positions 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, A-2, A-3, A-4, A-5, A-6,
A-7, A-8, A-9, A-10 and A-11 executed by the Trustee or 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 Certificate Registrar.
----------------------
The Trustee shall be the Certificate Registrar.
SECTION 5.3 Registration of Transfer and Exchange of Certificates.
------------------------------------------------------
(a) The Certificate Registrar shall keep a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, it shall
provide for the registration of transfers and exchanges of Certificates as
herein provided.
(b) As a condition to the registration of any transfer, sale, pledge
or other disposition of a Certificate other than the Class A, the prospective
transferee of such a Certificate shall deliver to the Depositor, the Certificate
Registrar and the Trustee an affidavit substantially in the form attached hereto
as Exhibit H-1 (an "ERISA Transfer Affidavit") stating whether such transferee
is a Benefit Plan Investor. No transfer, sale, pledge or other disposi-
V-4
<PAGE>
tion of such a Certificate shall be made to any Benefit Plan Investor, and the
Certificate Registrar shall not register any such transfer, sale, pledge or
other disposition to a Benefit Plan Investor unless the Depositor, the
Certificate Registrar and the Trustee are provided with a certification and
Opinion of Counsel which establish to the satisfaction of the Depositor, the
Certificate Registrar and the Trustee that such disposition will not violate or
result at any time in a prohibited transaction under ERISA or Section 4975 of
the Code or, if the entity to which such transfer, sale, pledge, or other
disposition is to be made is an insurance company, a representation that the
prospective transfer, sale, pledge, or other disposition is to an "insurance
company general account" (as such term is defined in Section V(e) or Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60") and that the acquisition and
holding of such Certificate is covered under PTCE 95-60. For purposes of this
Section 5.3, the term "Benefit Plan Investor" means (A) any employee benefit
plan as defined in Section 3(3) of ERISA, whether or not it is subject to Title
I of ERISA, (B) any plan described in Section 4975(e)(1) of the Code, (C) any
governmental plan, as defined in Section 3(32) of ERISA, subject to any federal,
state or local law which is, to a material extent, similar to the provisions of
ERISA or Section 4975 of the Code or (D) 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 Regulation 29 C.F.R. (S)251.3-101). The costs of
any of the foregoing certifications or Opinions of Counsel shall not be charged
to either the Depositor, the Master Servicer, the Special Servicer, the
Certificate Registrar, the Trustee, the Fiscal Agent or the Trust Fund. Any
transfer, sale, pledge or other disposition of such a Certificate to a Benefit
Plan Investor that would violate or result in a prohibited transaction under
ERISA or Section 4975 of the Code shall be deemed absolutely null and void.
(c) By acceptance of any Certificate, the Holder thereof specifically
agrees with the Depositor, the Certificate Registrar and the Trustee that no
transfer of such Certificate shall be made unless the registration requirements
of the Act and any applicable state securities laws are complied with, or such
transfer is exempt from the registration requirements under the Act because the
transfer satisfies one of the following: (A) if by the Initial Purchaser (1)
such transfer is in compliance with Rule 144A under the Act, to a person who the
transferor reasonably
V-5
<PAGE>
believes is a Qualified Institutional Buyer that is purchasing for its own
account or for the account of a Qualified Institutional Buyer and to whom notice
is given that such transfer is being made in reliance upon Rule 144A under the
Act or (2) after the appropriate holding period, such transfer is pursuant to an
exemption from registration under the Act provided by Rule 144 under the Act (if
available and upon delivery of an Opinion of Counsel in form and substance
satisfactory to the Trustee if requested by the Trustee and the Certificate
Registrar) and (B) if by subsequent investors, as set forth in (A) above and in
addition, to an institutional accredited investor as defined in rule 501(a)(1),
(2), (3) or (7) of Regulation D promulgated under the Act in a transaction
exempt from the registration requirements of the Act and such transfer is in
accordance with any applicable securities laws of any state of the United States
or any other jurisdiction. The Certificate Registrar and Trustee shall require
the transferee referred to in the preceding clause (A) or (B) to execute and
deliver to the Paying Agent an Investment Letter substantially in the form
attached as Exhibit L hereto.
The Trustee shall make available to the prospective transferor and
transferee information requested to satisfy the requirements of paragraph (d)(4)
of Rule 144A (the "Rule 144A Information"). The Rule 144A Information shall
include any or all of the following items requested by the prospective
transferee:
(i) this Agreement and any amendments hereto;
(ii) with respect to the transfer of the Class A, Class B, Class C
and Class R Certificates, the Offering Circular relating to
such Certificates dated March 27, 1996 and any amendments or
supplements thereto;
(iii) all prior Distribution Date statements prepared pursuant to
Section 4.3 hereof;
(iv) all prior Quarterly Mortgage Loan Characteristics Summaries
prepared pursuant to Section 4.3 hereof; and
(v) such other information as is reasonably available to the
Trustee in order to com-
V-6
<PAGE>
ply with requests for information pursuant to Rule 144A under
the Act.
None of the Depositor, the Master Servicer, the Special Servicer, the
Certificate Registrar or the Trustee is under an obligation to register any
Certificate under the Act or any other securities law.
(d) Each Person who has or acquires any Ownership Interest shall be
deemed by the acceptance or acquisition of such Ownership Interest to have
agreed to be bound by the following provisions:
(i) Each Person acquiring or holding any Ownership Interest
shall be a Permitted Transferee and shall not acquire or
hold such Ownership Interest as agent (including 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
owners of such Ownership Interest) as a Permitted
Transferee. Any acquisition described in the first
sentence of this Section 5.3(d)(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 may be Transferred, and no such
Transfer shall be registered by the Certificate Registrar
in the Certificate Register, without the express written
consent of the Certificate Registrar, and the Certificate
Registrar shall not recognize the Transfer, and such
proposed Transfer shall not be effective, with-
V-7
<PAGE>
out such consent with respect thereto. In connection with
any proposed Transfer of any Ownership Interest, the
Certificate Registrar shall, as a condition to such
consent, require delivery to it, in form and substance
satisfactory to it, and the proposed transferee shall
deliver to the Certificate Registrar, an affidavit in
substantially the form attached as Exhibit H-2 (a "Transfer
Affidavit") of the proposed transferee (A) that such
transferee is a Permitted Transferee, (B) setting forth the
statement of the proposed transferee that (i) the proposed
transferee has historically paid its debts as they came due
and intends to pay its debts as they come due in the
future, (ii) the proposed transferee understands that it
may incur tax liabilities in excess of cash flows generated
by the Ownership Interest, (iii) the proposed transferee
intends to pay taxes associated with holding the Ownership
Interest as they become due and (iv) the proposed
transferee will not transfer the Ownership Interest to any
Person who does not provide a similar affidavit, and (C)
containing an express agreement by the proposed transferee
to be bound by and to abide by the provisions of this
Section 5.3, accompanied, except upon initial issuance, by
a letter in substantially the form attached as Exhibit H-3
(a "Transferor Acknowledgement") of the proposed transferor
that the transferor has reviewed the Transfer Affidavit and
has (i) no actual knowledge that such affidavit is not true
and (ii) no reason to know that the transferee has not paid
its debts as they come due or intends not to pay taxes
associated with holding the Class R or Class LR
Certificate, as the case may be, as they come due.
V-8
<PAGE>
(iii) Notwithstanding the delivery of a Transfer 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 or has reason to know that the statement made by
the proposed transferee pursuant to clause (ii)(B) above is
in any respect false, no Transfer to such proposed
transferee shall be effected and such proposed Transfer
shall not be registered on the Certificate Register.
(iv) Each Person holding or acquiring any Ownership Interest
shall agree (A) to require a Transfer Affidavit from any
other Person to whom such Person attempts to Transfer any
Ownership Interest and (B) not to Transfer any Ownership
Interest or to cause the Transfer of any Ownership Interest
to any other Person if it has actual knowledge that such
Person is not a Permitted Transferee or is an agent
(including a broker, nominee or other middleman) for, or
will be holding any Ownership Interest on behalf of, a
Person that is not 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, the Certificate Registrar and the Trustee agree to furnish to the
Internal Revenue Service, the transferor of such Ownership Interest or such
agent 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 inclusion income with respect to a Class R
or Class LR 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
V-9
<PAGE>
information to the transferor or to such agent referred to above; provided,
--------
however, that such persons shall in no event be excused from furnishing such
- - -------
information to the Internal Revenue Service and to the Transferor or agent
thereof.
(e) Upon surrender for registration of transfer of any Certificate
(and, with respect to any Certificate subject to restrictions on transfer
pursuant to this Section 5.3, upon compliance with any provisions of this
Agreement relating to such transfer) held in physical certificate form at the
office of the Certificate Registrar or at the office of its agent in the City of
New York, the Trustee or the Authenticating Agent shall execute and
authenticate, and the Certificate Registrar shall deliver, in the name of the
designated transferee or transferees, one or more new Certificates of authorized
denominations of a like aggregate Percentage Interest and dated the date of
authentication by the Authenticating Agent. The Trustee initially appoints IBJ
Schroder Trust Bank, Stock Transfer Department, One State Street Plaza, New
York, New York 10015, as its presenting agent in New York City for said purpose.
(f) At the option of the Certificateholders, Certificates may be
exchanged for other Certificates of the same class of authorized denominations
of a like aggregate Percentage Interest, upon surrender of the Certificates to
be exchanged at the office of the Certificate Registrar or the office of its
agent in the City of New York. In addition, any Class R or Class LR Certificate
issued on the Closing Date may thereafter be exchanged for a new Class R or
Class LR Certificate respectively upon surrender of such initially issued Class
R or Class LR Certificate at the office of the Certificate Registrar or the
office of its agent in the City of New York. Whenever any Certificates are so
surrendered for exchange, the Trustee or the Authenticating Agent shall execute
and authenticate and the Certificate Registrar shall deliver the Certificates
which the Certificateholder making the exchange is entitled to receive.
(g) The Certificate Registrar shall require that every Certificate
presented or surrendered for registration of transfer or exchange be duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by, the Holder
V-10
<PAGE>
thereof or such Person's attorney duly authorized in writing.
(h) No service charge shall be made to a Certificateholder for any
registration of transfer or exchange of Certificates, but the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Certificates.
(i) The Certificate Registrar shall cancel and retain or destroy, in
accordance with the Certificate Registrar's retention policy then in effect, all
Certificates surrendered for registration of transfer or exchange and shall upon
written request certify to the Master Servicer or the Depositor as to such
retention or destruction.
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 Trustee and the Certificate Registrar such security or indemnity as may
be required by them to save each of them and the Depositor, the Master Servicer,
the Special Servicer and the Originator harmless, then, in the absence of actual
knowledge by a Responsible Officer of the Trustee or 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, 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 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.
V-11
<PAGE>
SECTION 5.5 Persons Deemed Owners.
----------------------
Prior to due presentation of a Certificate for registration of
transfer, the Master Servicer, the Trustee, the Certificate Registrar, the
Paying Agent, the Depositor, the Special Servicer and any agent of any of them
may treat the Person in whose name any Certificate is registered as the owner of
such Certificate for the purpose of receiving distributions pursuant to Sections
4.2 and for all other purposes whatsoever, and neither the Master Servicer, the
Trustee, the Certificate Registrar, any Paying Agent, the Depositor, the Special
Servicer nor any agent of any of them shall be affected by notice to the
contrary.
SECTION 5.6 Appointment of Paying Agent.
----------------------------
The Trustee shall initially be the 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, to execute and deliver
to the Trustee an instrument in which such Paying Agent shall agree with the
Trustee that such Paying Agent will hold all sums held by it for the payment to
Certificateholders in trust for the benefit of the Certificateholders entitled
thereto until such sums have been paid to the Certificateholders or disposed of
as otherwise provided herein. The Trustee hereby accepts its appointment as
Paying Agent and agrees to perform its duties in accordance with the terms of
this Agreement.
SECTION 5.7 Access to Certificateholders' Names and Addresses.
--------------------------------------------------
(a) If any Certificateholder (for purposes of this Section 5.7, 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 ten (10) Business Days after the receipt of
such application, furnish or cause to be furnished to such Applicant a list of
the names and addresses of the Certificateholders as of the most recent
Distribution Date.
V-12
<PAGE>
(b) Every Certificateholder, by receiving and holding such list,
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.
SECTION 5.8 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
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 Master
Servicer or the Special 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 Master
Servicer and the Special 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 or the Master Servicer in reliance thereon,
whether or not notation of such action is made upon such Certificate.
(d) The Trustee may require such additional proof of any matter
referred to in this Section 5.8 as it shall deem necessary.
V-13
<PAGE>
ARTICLE VI
THE DEPOSITOR, THE MASTER SERVICER AND
THE SPECIAL SERVICER
SECTION 6.1 Liability of the Depositor, the Master Servicer and the
Special Servicer.
-------------------------------------------------------
The Depositor, the Master 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 Special Servicer or the
Master Servicer.
------------------------------------------------------
Subject to the following paragraph, each of the Special Servicer and
the Master Servicer will keep in full effect its existence, rights and good
standing as a corporation under the laws of the jurisdiction of its
incorporation and will be in compliance with the laws of each state in which any
Mortgaged Property is located to the extent such compliance is necessary to
perform its obligations in accordance with the terms of this Agreement. Any
successor Special Servicer or Master Servicer will keep in full effect its
existence, rights and good standing under the laws of its jurisdiction or
organization and will not jeopardize its ability to do business in each
jurisdiction in which the Mortgaged Properties are located to the extent such
compliance is necessary to perform its respective duties under this Agreement.
The Special Servicer or the Master Servicer, as the case may be, may,
upon notice to the Rating Agencies and written confirmation as provided below,
be merged into or consolidated with any Person, or transfer all or substantially
all of its assets to any Person; provided, however, that each Rating Agency's
-------- -------
rating or ratings of any outstanding rated Class of Certificates in effect
immediately prior to such merger or consolidation or transfer of assets will not
be qualified, reduced or withdrawn as a result thereof (as evidenced by a letter
to such effect from each Rating Agency delivered to the Trustee). The Master
Servicer or the Special Servicer, as applicable, shall promptly inform
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each other and the Trustee in writing of any such merger, consolidation or
transfer.
SECTION 6.3 Limitation on Liability of the Depositor, the Master
Servicer, the Special Servicer and Others.
----------------------------------------------------
Neither the Depositor, the Master Servicer, the Special Servicer nor
any of the directors, officers, employees or agents of them 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, the Master Servicer or the Special Servicer or
any such Person against any breach of warranties, representations or covenants
made herein, or against any specific liability imposed on the Depositor, the
Master Servicer or the Special Servicer pursuant to Section 3.1 or any other
Section hereof, or against any liability which would otherwise be imposed by
reason of bad faith, willful misfeasance or gross negligence in the performance
of duties or by reason of reckless disregard of obligations or duties hereunder.
The Depositor, the Master Servicer, the Special Servicer and any director,
officer, employee or agent of the Depositor, the Master Servicer or the Special
Servicer may rely in good faith on any document of any kind which, prima facie,
----- -----
is properly executed and submitted by any appropriate Person respecting any
matters arising hereunder. The Trust shall indemnify the Master Servicer and
the Special Servicer and any director, officer, employee or agent of the Master
Servicer and the Special Servicer and hold them harmless against any and all
claims, losses, penalties, fines, forfeitures, legal fees and related costs,
judgments and any other costs, liabilities, fees and expenses incurred in
connection with any pending or threatened legal action relating to (i) this
Agreement, the Mortgage Loans or REO Property, if such legal action is
incidental to, or arises from, the Master Servicer or Special Servicer, as the
case may be, serving in such capacity under this Agreement, (ii) any defect in
any Mortgage Loan or related documents as of the Cut-Off Date, (iii) in the case
of the Master Servicer, any action taken based on information provided by the
Special Servicer, and (iv) any action taken by the Master Servicer or the
Special Servicer, as the case may be, in accordance with instructions delivered
in writing to the Master Servicer or the Special Servicer, as the case may be,
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by the Trustee or, in the case of the Special Servicer or by the Master
Servicer, pursuant to any provision of this Agreement, in each case other than
any loss, liability or expense incurred by reason of the Master Servicer's or
the Special Servicer's, as the case may be, breach of any representation,
warranty or covenant in this Agreement, by reason of the Master Servicer's or
the Special Servicer's, as the case may be, willful misfeasance, bad faith or
negligence in the performance of its obligations and duties under this Agreement
or by reason of the Master Servicer's or the Special Servicer's, as the case may
be, reckless disregard of its obligations and duties under this Agreement.
Neither the Depositor, the Master Servicer nor the Special Servicer shall be
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its respective duties under this Agreement and in its opinion
does not expose it to any material expense or liability for which it is not
entitled to reimbursement hereunder; provided, however, that the Depositor, the
-------- -------
Master Servicer or the Special Servicer, as applicable, may in its sole
discretion undertake any such action which it may reasonably deem necessary or
desirable in order to protect the interests of the Certificateholders hereunder.
In such event, any reasonable legal expenses and costs of such action shall be
expenses, costs and liabilities of the Trust Fund, and the Depositor, the Master
Servicer and the Special Servicer shall be entitled to be reimbursed therefor
from the Collection Account as provided in Section 3.6 of this Agreement;
provided, however, that the Master Servicer shall be under no duty to
- - -------- -------
recalculate or otherwise verify the amount of such reimbursement.
The right of each of the Master Servicer and the Special Servicer to
indemnification and reimbursement pursuant to this Section 6.3 shall survive any
resignation or termination of the Master Servicer or the Special Servicer,
respectively, pursuant to this Agreement.
SECTION 6.4 Limitation on Resignation of the Master Servicer and
the Special Servicer.
-----------------------------------------------------
Each of the Master 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
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portfolio provided that: (i) the purchaser or transferee accepting such
assignment and delegation (A) shall be reasonably satisfactory to the Trustee,
the Master Servicer (in the case of the Special Servicer) and the Depositor, (B)
shall be either (1) an established housing and home finance institution, bank,
real estate investment trust or mortgage servicing institution having a net
worth of not less than $20,000,000 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 (2)
acceptable to each of the Rating Agencies as evidenced by a letter from each of
the Rating Agencies to the Trustee, 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 Master Servicer or the Special Servicer, as the case may be,
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, the
Rating Agency's rating or ratings of any outstanding rated Classes of
Certificates in effect immediately prior to such assignment, sale or transfer
will not be qualified, downgraded or withdrawn as a result of such assignment,
sale or transfer; (iii) the Master Servicer or the Special Servicer, as the case
may be, shall not be released from its obligations under this Agreement that
arose prior to (or out of acts or omissions prior to) the effective date of such
assignment and delegation under this Section 6.4; and (iv) the rate at which the
Servicing Fee and the Special Servicer Fee, (or any component thereof) is
calculated shall not exceed the rate then in effect. Upon acceptance of such
assignment and delegation, the purchaser or transferee shall be the successor
Master Servicer or Special Servicer hereunder.
Except as provided in this Section 6.4, neither the Master Servicer
nor the Special Servicer shall resign from its respective obligations and duties
hereby imposed on it except (i) in the case of the Special Servicer, upon
appointment of a successor Special Servicer and receipt by the Trustee and the
Master Servicer of a letter from each Rating Agency that such resignation and
appointment will not, in and of itself, result in a qualification, downgrading
or withdrawal of the ratings of any outstanding rated Class of Certificates or
(ii) in the case of the Master
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<PAGE>
Servicer or Special Servicer, upon determination that its duties hereunder are
no longer permissible under applicable law and in such case the Trustee, in the
case of the Master Servicer, and the Master Servicer, in the case of the Special
Servicer, will use its best efforts to appoint a successor that will not in and
of itself, result in a qualification, downgrading or withdrawal of the ratings
of any outstanding rated class of Certificates as evidenced in writing. Any
such determination permitting the resignation of the Master Servicer or the
Special Servicer shall be evidenced by an Opinion of Counsel (obtained at the
resigning party's expense) to such effect delivered to the Trustee. No such
resignation shall become effective until the Trustee or a successor Master
Servicer shall have assumed the Master Servicer's or the Special Servicer's, as
applicable, responsibilities, duties, liabilities and obligations hereunder.
SECTION 6.5 Rights of the Depositor and the Trustee in Respect of
the Master Servicer and the Special Servicer.
-----------------------------------------------------
Each of the Master Servicer and the Special Servicer shall afford the
Depositor, the Rating Agencies and the Trustee, upon reasonable notice and
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 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
Master Servicer or the Special Servicer, as the case may be. The Depositor may,
but is not obligated to, enforce the obligations of each of the Master Servicer
and the Special Servicer hereunder and may, but is not obligated to, perform, or
cause a designee to perform, any defaulted obligation of such Person hereunder
or exercise its rights hereunder, provided that the Master Servicer or the
Special Servicer, as the case may be, shall not be relieved of any of its
obligations hereunder by virtue of such performance by the Depositor or its
designee. The Depositor shall not have any responsibility or liability for any
action or failure to act by the Master Servicer or the Special Servicer and is
not obligated to supervise the
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performance of the Master Servicer or the Special Servicer under this Agreement
or otherwise.
SECTION 6.6 Certain Rights of the Master Servicer and Special
Servicer.
-------------------------------------------------
Except as otherwise provided herein:
(a) the Master Servicer and the Special Servicer, and any director,
officer, employee or agent of the Master Servicer or the Special Servicer, may
rely and shall be protected in, and shall not be liable for, acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Originator, the Depositor, the
Master Servicer, the Special Servicer or the Trustee mentioned herein shall be
sufficiently evidenced in writing;
(c) the Master Servicer and the Special Servicer, and any director,
officer, employee or agent of the Master Servicer or the Special Servicer, may
at its own expense consult with counsel, and the advice of such counsel shall be
full and complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reasonable reliance
thereon; and
(d) neither the Master Servicer nor the Special Servicer, nor any of
their respective directors, officers, employees or agents, shall be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, note or other paper or document delivered to it by the
Originator, the Depositor, the Trustee, or the Master Servicer or the Special
Servicer, as applicable, but in its discretion may make such further inquiry or
investigation into such fact or matters as they may see fit.
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<PAGE>
SECTION 6.7 Not Responsible for Recitals or Issuance of
Certificates.
-------------------------------------------
The recitals contained herein and in the Certificates, except any such
recitals relating to the Master Servicer, shall not be taken as statements of
the Master Servicer, and the Master Servicer assumes no responsibility for their
correctness. The Master Servicer makes no representation as to the validity
(other than as against it) or sufficiency of this Agreement or of the
Certificates.
SECTION 6.8 Depositor, Special Servicer, Master Servicer, and
Trustee to Cooperate.
-------------------------------------------------
Each of the Depositor, the Master Servicer, the Special Servicer and
the Trustee shall furnish such reports, certifications and information in its
possession to any other party hereto as such party reasonably requests to enable
it to perform its duties hereunder. Any party (other than the Rating Agencies)
requesting information shall reimburse the party providing such information for
reasonable out-of-pocket costs incurred in providing such information, if such
information is not normally prepared as part of such party's duties under this
Agreement.
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<PAGE>
ARTICLE VII
DEFAULT
SECTION 7.1 Events of Default.
------------------
"Event of Default", wherever used herein, means any one of the
following events:
(i) (a) with respect to the Master Servicer, any failure by the Master
Servicer to deposit in the Distribution Account for distribution to
Certificateholders any amount required to be remitted by the Master
Servicer, including a failure to make a required Servicing Advance or
P&I Advance (other than Nonrecoverable Advances), at least one
Business Day prior to the related Distribution Date, which failure is
not caused by a failure of the Special Servicer, including a failure
specified in clause (b) of this Section 7.1(i), and (b) with respect
to the Special Servicer, any failure by the Special Servicer to remit
to the Master Servicer for deposit in the Collection Account any
remittance required to be made by the Special Servicer on the day such
remittance is required to be made pursuant to this Agreement, and
which failure is not caused by a failure of the Master Servicer,
including a failure specified in clause (a) of this Section 7.1(i); or
(ii) any failure on the part of the Master Servicer or the Special
Servicer, as applicable, duly to observe or perform in any material
respect any other of the covenants or agreements on the part of the
Master Servicer or the Special Servicer, as applicable, contained in
this Agreement which failure continues unremedied for a period of 30
days after the date which written notice of such failure, requiring
the same to be remedied, shall have been given to the Master Servicer
or the Special Servicer, as applicable, by the Depositor or the
Trustee, and in each case, to the Depositor and the Trustee, by the
Holders of Certificates entitled to at least 25% of the Voting Rights
of any Class affected thereby; provided, however, that if the Master
-------- -------
Servicer or the Special
VII-1
<PAGE>
Servicer, as applicable, can demonstrate to the reasonable
satisfaction of the Trustee that the Master Servicer or the Special
Servicer, as applicable, is diligently attempting to cure such breach,
the cure period may be extended by the Trustee for a reasonable amount
of time, which time period shall not exceed 30 days; or
(iii) 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 Master
Servicer or the Special Servicer, as applicable, and such decree or
order shall have remained in force undischarged or unstayed for a
period of 60 days; or
(iv) the Master Servicer or the Special Servicer, as applicable, shall
consent to the appointment of a conservator or receiver or liquidator
in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Master
Servicer or the Special Servicer, as applicable, or of or relating to
all or substantially all of its property; or
(v) the Master Servicer or the Special Servicer, as applicable, 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
(vi) any Event of Default as defined in the last sentence of Section 2.5(c)
or of Section 2.6(c), respectively, shall have occurred and be
continuing; or
VII-2
<PAGE>
(vii) the Master Servicer or Special Servicer is no longer an approved
Servicer by either Rating Agency;
then, (x) in the case of clauses (i) through (vi) above and in each and every
such case, so long as such Event of Default shall not have been remedied (such
cure period not to extend, with respect to clause (i) above only, beyond 10:00
a.m. Central time on the Distribution Date), the Trustee, in the case of an
Event of Default by the Master Servicer or the Special Servicer, may, and at the
written direction of the Holders of Certificates entitled to at least 25% of the
aggregate Voting Rights of all Certificates the Trustee shall, by notice in
writing to the Master Servicer (if it is the defaulting party) or to the Special
Servicer (if it is the defaulting party), terminate all of the rights and
obligations of the Master Servicer or the Special Servicer, as applicable, 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 (or arose out of an action or omission prior
to) the date of such termination (including the right to receive all amounts
accrued or owing to it under this Agreement on or prior to the date of such
termination and the right to the benefits of Section 6.3 notwithstanding any
such termination), and (y) in the case of (A) clause (vii) above, at the written
direction of the Holders of the next senior class of Certificates entitled to at
least 51% of the aggregate Voting Rights of all such Certificates and (B) in the
case of clause (viii) above, at the written direction of the Holders of the next
senior class of Certificates entitled to at least 51% of the aggregate Voting
Rights of all such Certificates, the Master Servicer shall by notice in writing
to the Special Servicer terminate all of the rights and obligations of the
Special Servicer (with a copy to the Trustee), as applicable, 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 (or arose out of an action or omission prior
to) the date of such termination (including the right to receive all amounts
accrued or owing to it under this Agreement on or prior to the date of such
termination and the right to the benefits of Section 6.3 notwithstanding any
such termination). On or after the receipt by the Master Servicer or the
Special Servicer, as the case may be, of such written notice, all of its
authori-
VII-3
<PAGE>
ty 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 in
the case of the Master Servicer and the Trustee or the Master Servicer in the
case of the Special Servicer pursuant to and under this Section, and, without
limitation, the Trustee in the case of the Master Servicer and the Trustee or
the Master Servicer in the case of the Special Servicer is hereby authorized and
empowered to execute and deliver, on behalf of and at the expense of the
defaulting Master Servicer or Special Servicer, as applicable, 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 Master Servicer and the Special Servicer agrees in the
event it is terminated pursuant to this Section 7.1 to promptly (and in any
event no later than ten Business Days subsequent to such notice) provide, at its
own expense, the Trustee, in the case of the Master Servicer, and the Master
Servicer, in the case of the Special Servicer, with all documents and records
requested by the Trustee, in the case of the Master Servicer, and the Trustee or
the Master Servicer, in the case of the Special Servicer, then in its possession
to enable the Trustee in the case of the Master Servicer and the Trustee or the
Master Servicer in the case of the Special Servicer to assume its functions
hereunder, and to cooperate with the Trustee and Master Servicer, as the case
may be, and the successor in effecting the termination of its responsibilities
and rights hereunder, including, without limitation, the transfer to the Master
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 Master
Servicer to the Collection Account (if it is then the defaulting party) and by
the Special Servicer to any REO Account (if it is then the defaulting party) or
thereafter be received with respect to the Mortgage Loans or any REO Account
Property. All reasonable costs and expenses of the successor Master Servicer or
Special Servicer incurred in connection with transferring the Mortgage Files to
the successor Master Servicer or Special Servicer, as the case may be, and
amending this Agreement to reflect such succession as Master Servicer or Special
Servicer, as the case may be, pursuant to this Section 7.1 shall be paid by the
predecessor Master Servicer or Special Servicer, other than
VII-4
<PAGE>
the Trustee as the case may be, upon presentation of reasonable documentation of
such costs and expenses.
SECTION 7.2 Trustee and Master Servicer to Act; Appointment of
Successor.
--------------------------------------------------
On and after the time the Master Servicer or the Special Servicer, as
the case may be, receives a notice of termination pursuant to Section 7.1, the
Trustee or the Master Servicer, as applicable, shall be its successor in all
respects in its capacity as Master Servicer or Special Servicer, as applicable,
under this Agreement and the transactions set forth or provided for herein and
shall be subject to all the responsibilities, duties, limitations on liability
and liabilities relating thereto and arising thereafter placed on the Master
Servicer or Special Servicer by the terms and provisions hereof; provided,
however, that any failure to perform such duties or responsibilities caused by
the terminated party's failure to provide information or monies required by
Section 7.1 shall not be considered a default by such successor hereunder.
Without in any way limiting its other obligations as a successor Master
Servicer, the Trustee hereby acknowledges that, as successor to the Master
Servicer it shall make P&I Advances pursuant to Section 3.22 irrespective of any
bankruptcy, insolvency or similar proceedings affecting the predecessor Master
Servicer or the Borrower under the related Mortgage Loan subject to its
determination that such Advance is not a Nonrecoverable Advance. The appointment
of a successor Master Servicer or Special Servicer shall not affect any
liability of the predecessor Master Servicer or Special Servicer, as applicable,
which may have arisen (or which may relate to an act or omission which occurred)
prior to its termination as Master Servicer or Special Servicer, as applicable.
The Trustee or the Master Servicer, as applicable, shall not be liable for any
of the representations and warranties of the Master Servicer or the Special
Servicer, as applicable, herein or in any related document or agreement or for
any acts or omissions of the predecessor Master Servicer or Special Servicer nor
shall the Trustee or the Master Servicer, as applicable, be required to purchase
any Mortgage Loan hereunder. As compensation therefor, the Trustee as successor
Master Servicer pursuant to this Section 7.2 shall be entitled to the Servicing
Fees and all funds relating to the Mortgage Loans which the Master Servicer
would have been entitled to charge to the Collection Account if the Master
Servicer had continued to act
VII-5
<PAGE>
hereunder, and the Trustee or the Master Servicer, as applicable, as successor
to the Special Servicer shall be entitled to the Special Servicer Fees to which
the Special Servicer would have been entitled if the Special Servicer had
continued to act hereunder. Notwithstanding the above, the Trustee or the
Master Servicer, as applicable, may, if it shall be unwilling to so act, or
shall, if it is unable to so act or if the Holders of Certificates entitled to
at least 66 2/3% of the Voting Rights so request in writing to the Trustee,
promptly appoint, or petition a court of competent jurisdiction to appoint, any
established mortgage loan servicing institution which is not a Disqualified
Organization acceptable to each Rating Agency (such acceptance indicated by the
written confirmation from the Rating Agencies that such appointment will not
result in a downgrade or withdrawal of the rating then assigned to any Class of
Certificates), and, in the case of an appointment of a Special Servicer, the
Trustee or the Master Servicer as the successor to the Master Servicer or the
Special Servicer, as applicable, hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer or the
Special Servicer hereunder. No appointment of a successor to the Master
Servicer or the Special Servicer hereunder shall be effective until the
assumption by the successor to the Master Servicer or the Special Servicer of
all its responsibilities, duties and liabilities hereunder. Pending appointment
of a successor to the Master Servicer or the Special Servicer hereunder, unless
the Trustee or the Master Servicer, as applicable, shall be prohibited by law
from so acting (in which event the outgoing Master Servicer or Special Servicer
shall continue to act as such until a successor is appointed), the Trustee or
the Master Servicer, as applicable, shall act in such capacity as herein
provided above. In connection with such appointment and assumption described
herein, the Trustee or the Master Servicer, as applicable, 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 Custodian, if any, the Master
Servicer or the Special Servicer (whichever is not the terminated party) and
such successor shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession.
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<PAGE>
SECTION 7.3 Notification to Certificateholders.
-----------------------------------
(a) Upon any termination pursuant to Section 7.1 above or appointment
of a successor to the Master Servicer or the Special Servicer, the Trustee shall
give prompt written notice thereof to Certificateholders at their respective
addresses appearing in the Certificate Register.
(b) Within 60 days after the occurrence of any Event of Default known
to a Responsible Officer of the Trustee (five days in the case of an Event of
Default under Section 7.1(i)), the Trustee shall transmit by mail to all Holders
of Certificates 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 protect the interests of,
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).
Except as otherwise expressly provided in this Agreement, no remedy provided for
by this Agreement shall be exclusive of any other remedy and each and every
remedy shall be cumulative and in addition to any other remedy and no delay or
omission or failure 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.
---------------------------------
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 the Special Servicer
in the performance of its obligations hereunder and its consequences, except a
default in making any required deposits to or payments from the Collection
Account in the
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case of the Master Servicer or the REO Account in the case of Special Servicer,
or in remitting payments as received to the Master Servicer by the Special
Servicer, 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.
SECTION 7.6 Effects of Transfer.
--------------------
After the transfer of the duties of the Master Servicer or the Special
Servicer, pursuant to Section 6.2, 6.4, 7.1 or 7.2 of this Agreement, the
replaced Master Servicer or Special Servicer, as the case may be, shall have no
further obligations with respect to the management, administration or collection
of the Mortgage Loans, but shall remain entitled to compensation or other
amounts due under this Agreement to it that had already accrued prior to such
transfer.
SECTION 7.7 Fiscal Agent or Trustee as Maker of Advances.
---------------------------------------------
(a) In the event that the Master Servicer or the Special
Servicer, as the case may be, fails to fulfill its obligations hereunder to make
any P&I Advances or Servicer Advances, the Trustee, or successor Master Servicer
or Special Servicer, as the case may be, shall, subject to a determination of
recoverability as described below, in the case of P&I Advances, perform such
obligations within one Business Day of such failure by the Master Servicer or
the Special Servicer, as the case may be, but in no event later than 12:00 noon
(Eastern Standard Time) on the related Distribution Date, and, in the case of
Servicer Advances, perform such obligations within five Business Days of (i)
receipt of notice of such failure by the Master Servicer or the Special
Servicer, as the case may be or (ii) the date on which a Responsible Officer has
actual knowledge of such an advance not being made and, with respect to any such
P&I Advance or Servicer Advance made by the Trustee, the Trustee shall succeed
to all of the Master Servicer's or the Special Servicer's rights with respect to
P&I Advances and Servicer Advances and the accrued and unpaid interest thereon
at the Advance Rate hereunder, including, without limitation, the Master
Servicer's or the Special Servicer's, as the case may
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<PAGE>
be, rights of reimbursement (without regard to any impairment of any such rights
of reimbursement caused by such Master Servicer's or Special Servicer's default
in its obligations hereunder); provided, however, that if P&I Advances or
-------- -------
Servicer Advances made by the Trustee, the Fiscal Agent, the Master Servicer and
Special Servicer, as the case may be, shall at any time be outstanding, or any
amounts of interest thereon at the Advance Rate shall be accrued and unpaid, all
amounts available to repay such P&I Advances or Servicer Advances and interest
thereon shall be applied entirely to the such P&I Advances or Servicer Advances
outstanding to the Trustee and the Fiscal Agent, until such P&I Advances or
Servicer Advances shall have been repaid in full, together with all amounts of
interest accrued thereon at the Advance Rate. In connection with making any P&I
Advances or Servicer Advances hereunder, the Trustee shall be entitled to
conclusively rely on any Officer's Certificate evidencing a determination by the
Master Servicer or the Special Servicer, as the case may be, that such P&I
Advance or Servicer Advance is a Nonrecoverable Advance or the Trustee may make
its own determination that such P&I Advance or Servicer Advance is a
Nonrecoverable Advance; provided, however, that such determination shall be
evidenced by an Officer's Certificate delivered to the Depositor.
(b) In the event that the Trustee fails to fulfill its obligations
hereunder to make any P&I Advances or Servicer Advances following the failure of
the Master Servicer or the Special Servicer, as the case may be, to make a P&I
Advance or Servicer Advance, the Fiscal Agent shall, subject to a determination
of recoverability as described below, in the case of P&I Advances, perform such
obligations within one Business Day of such failure by the Master Servicer or
the Special Servicer, as the case may be, and on the same day of such Trustee
failure, but in no event later than 1:00 p.m. (Eastern Standard Time) on the
related Distribution Date, in the case of Servicer Advances, perform such
obligations no later than the day on which the Trustee is required to have made
such Servicer Advance and, with respect to any such P&I Advance or Servicer
Advance made by the Fiscal Agent, the Fiscal Agent shall succeed to all of the
Trustee's rights with respect to any such P&I Advance or Servicer Advance
hereunder, including, without limitation, the Trustee's rights of reimbursement
of such P&I Advances and Servicer Advances plus interest thereon at the Advance
Rate (without regard to any impairment of any such rights of
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reimbursement caused by such Trustee's default in its obligations hereunder).
The Fiscal Agent shall be entitled to conclusively rely on any Officer's
Certificate evidencing a determination by the Master Servicer, the Special
Servicer or the Trustee, as the case may be, that such P&I Advance or Servicer
Advance is a Nonrecoverable Advance or the Fiscal Agent may make its own
determination that such P&I Advance or Servicer Advance is a Nonrecoverable
Advance; provided, however, that such determination shall be evidenced by an
Officer's Certificate delivered to the Depositor.
(c) In the event the Trustee, as acting Master Servicer or Special
Servicer, as the case may be, and/or the Fiscal Agent makes any P&I Advance or
Servicer Advance, the successor Master Servicer or Special Servicer, as the case
may be, shall upon the effectiveness of its appointment reimburse the Trustee
and/or the Fiscal Agent for any and all outstanding P&I Advances and Servicer
Advances made thereby, together with any and all accrued and unpaid interest at
the Advance Rate thereon, and the successor Master Servicer or Special Servicer,
as the case may be, shall succeed to all of the rights of reimbursement of the
Trustee and the Fiscal Agent with respect thereto.
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ARTICLE VIII
CONCERNING THE TRUSTEE AND THE FISCAL AGENT
SECTION 8.1 Duties of Trustee.
------------------
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 or been waived,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement. In case of an Event of Default of which a Responsible
Officer of the Trustee has actual knowledge shall have occurred (which has not
been cured or waived), the Trustee, subject to the provisions of Section 7.1,
7.2, 7.4 and 7.5, 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.
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 prior to the occurrence of any Event of Default, the Trustee shall be under
no obligation to recalculate, verify or recompute any information provided to it
hereunder by the Depositor, the Master Servicer, the Special Servicer or others.
If any such instrument is found not to conform to the requirements of this
Agreement in a material manner, the Trustee shall take action as it deems
appropriate to have the instrument corrected and if the instrument is not
corrected to the Trustee's reasonable satisfaction, the Trustee shall provide
notice thereof to the Certificateholders.
Subject to Section 8.2, 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 misconduct; provided, however, that:
-------- -------
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(i) prior to the occurrence of an Event of Default, 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 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 certificates,
reports or opinions furnished to the Trustee that conform to the
requirements of this Agreement;
(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 proved 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 25% of the 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 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
Master Servicer or the Special Servicer to comply with the obligations
of the Master Servicer or the Special Servicer referred to in clause
(i) or clause (ii) of Section 7.1, or of any breach referred to in
clause (vi) of Section 7.1, unless a Responsible Officer of the
Trustee obtains actual knowledge of such failure or breach.
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SECTION 8.2 Certain Matters Affecting the Trustee.
-------------------------------------
(a) Except as otherwise provided in Section 8.1:
(i) the Trustee may request and/or conclusively 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,
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;
(ii) the Trustee may consult with counsel and any written advice
or 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 advice or opinion of counsel;
(iii) the Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Agreement or 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; 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; nothing
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<PAGE>
contained herein shall, however, relieve the Trustee of the
obligations, upon the occurrence of an Event of Default of
which a Responsible Officer of the Trustee has actual
knowledge (which has not been cured or waived), 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) neither the Trustee nor any of its directors, officers,
employees, Affiliates or agents shall be personally liable
for any action taken, suffered or omitted by the Trustee in
good faith and reasonably determined by the Trustee to be
authorized or within the discretion or rights or powers
conferred upon the Trustee by this Agreement;
(v) prior to the occurrence of an Event of Default hereunder and
after the curing or waiver of all Events of Default which
may have occurred, 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 51% (or
such other percentage as is specified herein) of the 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
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<PAGE>
Agreement, the Trustee may require reasonable indemnity
against such expense or liability as a condition to taking
any such action. The reasonable expense of every such
examination shall be paid by the Master Servicer if an Event
of Default shall have occurred and be continuing relating to
the Master Servicer, and by the Special Servicer, if an
Event of Default shall have occurred and be continuing
relating to the Special Servicer, 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 or a custodian other than
the Originator or the Depositor. The Trustee shall not be
liable or responsible for the misconduct or negligence of
any of the Trustee's agents or attorneys or a custodian
appointed with due care by the Trustee hereunder consistent
with the preceding sentence or the actions of the Master
Servicer, the Special Servicer, any Subservicer or the
Depositor.
(b) Following the Startup Day, the Trustee shall not, except as expressly
required by any provision of this Agreement, accept any contribution of assets
to the Trust Fund, the Upper-Tier REMIC or the Lower-Tier REMIC unless the
Trustee shall have received an Opinion of Counsel, at the expense of the
contributor of such assets to the Trust Fund, to the effect that the inclusion
of such assets in the Upper-Tier REMIC or Lower-Tier REMIC will not cause the
Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify as a REMIC at any time
that any Certificates or Uncertificated Lower-Tier Interests are outstanding or
subject the Upper-Tier REMIC or Lower-Tier REMIC to any tax under the REMIC
Provisions or other applicable provisions of federal, state and local law or
ordinances.
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<PAGE>
(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 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 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
Master Servicer or the Special Servicer under this Agreement, except 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 Master Servicer or the Special
Servicer in accordance with the terms of this Agreement. Notwithstanding
anything contained herein, the Trustee shall not be responsible and shall have
no liability in connection with duties assumed by the Paying Agent, the
Custodian, the Authenticating Agent and the Certificate Registrar hereunder,
unless the Trustee is acting in any such capacity hereunder.
The Trustee shall have no duty to conduct any affirmative investigation as
to the occurrence of any condition requiring the repurchase or substitution of
any Mortgage Loan by the Originator pursuant to this Agreement or the Transfer
Agreement or the eligibility of any Mortgage Loan for purposes of this
Agreement.
SECTION 8.3 Trustee and Fiscal Agent Not Liable for Certificates,
Mortgage Loans.
----------------------------------------------------
The recitals contained herein and in the Certificates (other than the
signature, if any, of the Trustee on the Certificates) and information contained
in any offering document for the Certificates, except to the extent provided by
the Trustee or the Fiscal Agent, shall not be taken as the statements of the
Trustee or the Fiscal Agent, and
VIII-6
<PAGE>
neither the Trustee nor the Fiscal Agent assumes any responsibility for their
correctness. Neither the Trustee nor the Fiscal Agent makes any representations
or warranties as to the validity or sufficiency of this Agreement or of the
Certificates (other than the signature, if any, of the Trustee on the
Certificates) or of any Mortgage Loan or related document. Neither the Trustee
nor the Fiscal Agent shall at any 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, including, without
limitation: the existence, condition and ownership of any Mortgaged Property;
the existence and enforceability of any hazard or other insurance thereon (other
than if the Trustee shall assume the duties of the Master Servicer or the
Special Servicer pursuant to Section 7.2); the existence of any Mortgage Loan or
the contents of the related Mortgage File on any computer or other record
thereof (other than if the Trustee shall assume the duties of the Master
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 if the Trustee shall assume the duties of the Master
Servicer or the Special Servicer pursuant to Section 7.2); the compliance by the
Depositor, the Master 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 or the
Fiscal Agent 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 Master Servicer or any loss resulting therefrom, it being understood that
the Trustee or Fiscal Agent 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 Master Servicer (other than if the Trustee shall assume the
duties of the Master Servicer pursuant to Section 7.2), the Special Servicer
(other than if the Trustee shall assume the duties of the Special Servicer
pursuant to Section 7.2), any subservicer or any Borrower; any action of the
Master Servicer (other than if the Trustee shall assume the duties of the Master
Servicer pursuant to Section 7.2), or any
VIII-7
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other action taken by the Master Servicer in the name of the Trustee, except to
the extent such action is taken at the express written direction of the Trustee;
the failure of the Master Servicer, the Special Servicer or any subservicer to
act or perform any duties required of it as agent of the Trustee hereunder; or
any action by the Trustee taken at the instruction of the Master Servicer (other
than if the Trustee shall assume the duties of the Master Servicer pursuant to
Section 7.2) or the Special Servicer (other than if the Trustee shall assume the
duties of 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 of its obligation to
- - -------
perform its duties under this Agreement. Neither the Trustee nor the Fiscal
Agent shall be accountable for the use or application by the Depositor or the
Master 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 Master Servicer or the Special Servicer in respect of the Mortgage Loans or
deposited in or withdrawn from the Collection Account by the Depositor, the
Master Servicer or the Special Servicer, other than any funds held by the
Trustee in accordance with Section 3.5(b). Neither the Trustee nor the Fiscal
Agent shall have any responsibility for 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 (unless
the Trustee shall have become the successor Master Servicer) or to record this
Agreement. 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 to the effect, that such
payment is not permitted by applicable law.
The Trustee may request, and conclusively rely upon, an Officer's
Certificate of the Master Servicer or the Special Servicer, as to whether any
breach of a representation and warranty of the Master Servicer or the Special
Servicer in Section 2.5 or 2.6, as the case may be, is susceptible to cure in
all material respects.
VIII-8
<PAGE>
SECTION 8.4 Trustee and Fiscal Agent May Own Certificates.
---------------------------------------------
The Trustee and the Fiscal Agent in its individual capacity or any other
capacity may become the owner or pledgee of Certificates, and may deal with the
Depositor, the Master Servicer and the Special Servicer in banking transactions,
with the same rights it would have if it were not Trustee or Fiscal Agent as
applicable.
SECTION 8.5 Limitation on Liability of Trustee.
----------------------------------
(a) The Trustee and the Fiscal Agent, their affiliates and each of their
respective directors, officers, employees and agents in their corporate
capacity, shall be indemnified by amounts on deposit in the Collection Account
and Distribution Account and held harmless against any and all losses,
liabilities, damages, claims, penalties, fines, forfeitures or expenses
(including reasonable attorneys' fees) arising in respect of this Agreement
(including, with respect to the Trustee, performance under Section 8.1 hereof)
or the Certificates other than those resulting from bad faith or intentional
misconduct, or negligence in the performance of its duties.
(b) The Master Servicer agrees to indemnify each of the Trustee and the
Fiscal Agent, its affiliates and each of their directors, officers, employees
and agents (each an "Indemnified Party") in its corporate capacity from, and
hold it harmless against, any and all losses, liabilities, damages, claims,
penalties, fines, forfeitures or expenses (including reasonable attorneys' fees)
resulting from the Master Servicer's negligence, bad faith or intentional
misconduct in the performance of its duties under this Agreement except to the
extent the Indemnified Party's own bad faith, willful misconduct or negligence
is the cause of the loss, liability, damage, claim or expense.
(c) The Special Servicer agrees to indemnify each of the Trustee and the
Fiscal Agent, its affiliates and each of their directors, officers, employees
and agents in its corporate capacity from, and hold it harmless against, any and
all losses, liabilities, damages, claims, penalties, fines, forfeitures or
expenses (including reasonable attorneys' fees) arising in respect of the
Special Servicer's acts or omissions in connection with this Agreement or the
Certificates except to the extent the
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Trustee's own bad faith, willful misconduct or negligence is the cause of the
loss, liability, damage, claim or expense.
(d) This Section 8.5 shall survive the termination or maturity of this
Agreement or the resignation or removal of the Trustee and the Fiscal Agent as
regards rights accrued prior to such resignation or removal.
SECTION 8.6 Eligibility Requirements for Trustee and Fiscal Agent.
-----------------------------------------------------
Each of the Trustee and Fiscal Agent hereunder shall at all times (i) in
the case of the Trustee only be a corporation or association organized and doing
business under the laws of any state of the United States of America or a
nationally chartered bank, (ii) in the case of the Trustee only, be authorized
under such laws to exercise corporate trust powers and to accept the trust
conferred under this Agreement, (iii) have a combined capital and surplus of at
least $50,000,000 and be subject to supervision or examination by federal or
state authority, (iv) not be an Affiliate of the Originator, the Depositor, the
Master Servicer or the Special Servicer (except during any period when the
Trustee has assumed the duties of the Master Servicer or the Special Servicer
pursuant to Section 7.2) and (v) the Fiscal Agent or if not the Fiscal Agent the
Trustee shall have a long-term unsecured senior debt rating of at least "AA"
from each Rating Agency or be otherwise acceptable to each Rating Agency;
provided however that if the Fiscal Agent or Trustee does not have such long-
- - -------- -------
term unsecured debt rating, either party shall be eligible pursuant to this
Section if the Master Servicer has a long-term unsecured senior debt rating of
at least "AA" from each Rating Agency. Any successor Trustee (or, if
applicable, Fiscal Agent) shall at the time of its appointment have long-term
unsecured senior debt ratings of at least "AA" from each of the Rating Agencies.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the 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
case at any time the Trustee or the Fiscal Agent shall cease to be eligible in
accordance with the provisions of this Section, the Trustee and the Fiscal Agent
shall
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resign immediately in the manner and with the effect specified in Section 8.7.
SECTION 8.7 Resignation and Removal of the Trustee and the Fiscal Agent.
-----------------------------------------------------------
The Trustee and Fiscal Agent may not resign until either (A) the Trust Fund
has been completely liquidated and the proceeds of the liquidation have been
distributed to the security holders of the trust, or (B) a successor trustee or
fiscal agent or custodian, having the qualifications prescribed in Section 8.6,
has been designated and has accepted such trusteeship or custodianship. Subject
to the preceding sentence, the Trustee or Fiscal Agent may resign and be
discharged from the trusts hereby created by giving written notice thereof to
the Depositor, the Master Servicer and the Special Servicer. Upon receiving
such notice of resignation, the Depositor shall, at the expense of the Trust
Fund, promptly remove the Trustee and the Fiscal Agent and promptly appoint a
successor trustee and successor fiscal agent (which may be the same person) by
written instrument, which instrument shall be delivered in original form to the
resigning Trustee, the Fiscal Agent, the Master Servicer, the Special Servicer
and the successor trustee. If no successor trustee or fiscal agent shall have
been so appointed and have accepted appointment within 90 days after the giving
of such notice of resignation, the resigning Trustee or Fiscal Agent may
petition any court of competent jurisdiction for the appointment of a successor
trustee or fiscal agent.
If at any time the Trustee or the Fiscal Agent 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 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 of their property
shall be appointed, or any public officer shall take charge or control of the
Trustee or the Fiscal Agent or of their property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Depositor may remove the
Trustee. If it removes the Trustee under the authority of the immediately
preceding sentence, the Depositor shall promptly remove the Fiscal Agent and
appoint a successor trustee by written instrument, which instrument shall be
delivered in original form to the Trustee so
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removed, to the Master Servicer, to the Special Servicer and to such successor
trustee.
The Holders of Certificates entitled to at least 66-2/3% of the Voting
Rights may at any time remove the Trustee and, in such event, shall promptly
remove the Fiscal Agent and appoint a successor trustee by written instrument or
instruments, in five 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 Master Servicer one complete set to
the Special Servicer, one complete set to the Trustee so removed and one
complete set to the successor so appointed.
Any resignation or removal of the Trustee and the Fiscal Agent and
appointment of a successor trustee and/or fiscal agent pursuant to any of the
provisions of this Section shall not become effective until acceptance of
appointment by the successor trustee or fiscal agent as provided in Section 8.9.
SECTION 8.8 Representations and Warranties of the Trustee and Fiscal
Agent.
--------------------------------------------------------
(a) The Trustee hereby represents and warrants as of the Closing Date
that:
(i) The Trustee is a banking corporation, duly organized, validly
existing and in good standing under the laws governing its creation and
existence and has full corporate power and authority, to own its property,
to carry on its business as presently conducted, and to enter into and
perform its obligations under this Agreement;
(ii) The execution and delivery by the Trustee of this Agreement
have been duly authorized by all necessary corporate action on the part of
the Trustee; neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated in this Agreement, nor
compliance with the provisions of this Agreement, will conflict with or
result in a breach of, or constitute a default under, (i) any of the
provisions of any law, governmental rule, regulation, judgment, decrees or
VIII-12
<PAGE>
order binding on the Trustee or its properties that would materially and
adversely affect the Trustee's ability to perform its obligations under
this Agreement, (ii) the organizational documents of the Trustee, or (iii)
the terms of any material agreement or instrument to which the Trustee is
a party or by which it is bound; the Trustee is not in default with
respect to any order or decree of any court or any order, regulation or
demand of any federal, state, municipal or other governmental agency,
which default would materially and adversely affect its performance under
this Agreement;
(iii) The execution, delivery and performance by the Trustee of
this Agreement and the consummation of the transactions contemplated by
this Agreement do not require the consent, approval, authorization or
order of, the giving of notice to or the registration with any state,
federal or other governmental authority or agency, except such as has been
or will be obtained, given, effected or taken in order for the Trustee to
perform its obligations under this Agreement; provided, however, that to
the extent it may become necessary, the Trustee may act pursuant to
Section 8.11 hereof.
(iv) This Agreement has been duly executed and delivered by the
Trustee and, assuming due authorization, execution and delivery by the
other parties hereto, constitutes a valid and binding obligation of the
Trustee, enforceable against the Trustee in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other similar laws affecting
creditors' rights generally as from time to time in effect, and to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law); and
(v) There are no actions, suits or proceedings pending or, to the
best of the Trustee's knowledge, threatened, against the Trustee that,
either in any one instance or in
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<PAGE>
the aggregate, would draw into question the validity of this Agreement, or
which would be likely to impair materially the ability of the Trustee to
perform under the terms of this Agreement.
(b) The Fiscal Agent hereby represents and warrants as of the
Closing Date that:
(i) The Fiscal Agent is a foreign banking corporation duly
organized, validly existing and in good standing under the laws governing
its creation and existence and has full corporate power and authority to
own its property, to carry on its business as presently conducted, and to
enter into and perform its obligations under this Agreement;
(ii) The execution and delivery by the Fiscal Agent of this
Agreement have been duly authorized by all necessary corporate action on
the part of the Fiscal Agent; neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated in this
Agreement, nor compliance with the provisions of this Agreement, will
conflict with or result in a breach of, or constitute a default under, (i)
any of the provisions of any law, governmental rule, regulation, judgment,
decrees or order binding on the Fiscal Agent or its properties that would
materially and adversely affect the Fiscal Agent's ability to perform its
obligations under this Agreement, (ii) the organizational documents of the
Fiscal Agent, or (iii) the terms of any material agreement or instrument
to which the Fiscal Agent is a party or by which it is bound; the Fiscal
Agent is not in default with respect to any order or decree of any court
or any order, regulation or demand of any federal, state, municipal or
other governmental agency, which default would materially and adversely
affect its performance under this Agreement;
(iii) The execution, delivery and performance by the Fiscal Agent
of this Agreement and the consummation of the transactions contem-
VIII-14
<PAGE>
plated by this Agreement do not require the consent, approval,
authorization or order of, the giving of notice to or the registration
with any state, federal or other governmental authority or agency, except
such as has been obtained, effected or taken prior to the date hereof;
(iv) This Agreement has been duly executed and delivered by the
Fiscal Agent and, assuming due authorization, execution and delivery by
the other parties hereto, constitutes a valid and binding obligation of
the Fiscal Agent, enforceable against the Fiscal Agent in accordance with
its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and other similar laws
affecting creditors' rights generally as from time to time in effect, and
to general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law); and
(v) There are no actions, suits or proceedings pending or, to the
best of the Fiscal Agent's knowledge, threatened, against the Fiscal Agent
that, either in any one instance or in the aggregate, would draw into
question the validity of this Agreement, or which would be likely to
impair materially the ability of the Fiscal Agent to perform under the
terms of this Agreement.
SECTION 8.9 Successor Trustee and Fiscal Agent.
----------------------------------
Any successor trustee or fiscal agent appointed as provided in Section 8.7
shall execute, acknowledge and deliver to the Depositor and to its predecessor
trustee or fiscal agent an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee or fiscal agent
shall become effective and such successor trustee or 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 or fiscal agent herein. The
predecessor
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trustee and fiscal agent shall deliver to the successor trustee all Mortgage
Files and related documents and statements held by it hereunder (other than any
Mortgage Files at the time held by a Custodian, which shall become the agent of
any successor trustee hereunder), and the Depositor and the predecessor trustee
and 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 fiscal agent all such rights, powers,
duties and obligations. No successor trustee or fiscal agent shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor trustee or fiscal agent shall be eligible under the provisions of
Section 8.6.
Upon acceptance of appointment by a successor trustee or fiscal agent as
provided in this Section, the Depositor shall mail notice of the succession of
such trustee hereunder to all Holders of Certificates at their addresses as
shown in the Certificate Register. If the Depositor fails to mail such notice
within 10 days after acceptance of appointment by the successor trustee or
fiscal agent, the successor trustee or fiscal agent shall cause such notice to
be mailed at the expense of the Depositor.
SECTION 8.10 Merger or Consolidation of Trustee or Fiscal Agent.
--------------------------------------------------
Any Person into which the Trustee or the Fiscal 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 Trustee or the Fiscal Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of the Trustee or the Fiscal Agent, shall be the
successor of the Trustee or the Fiscal Agent 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.
SECTION 8.11 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
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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 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 8.11, 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 15 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. 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 8.9 hereof. No appointment
of a co-trustee shall relieve the Trustee of its obligations hereunder.
In the case of any appointment of a co-trustee or separate trustee pursuant
to this Section 8.11, 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 Master
Servicer or the Special 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
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<PAGE>
acting jointly may at any time 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.
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 shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee. The fees and expenses of any co-trustee or separate trustee
shall be paid by the Trustee (other than expenses, disbursements and advances
made by such co-trustees or separate trustees, which shall be paid out of the
Trust Fund to the extent, and in accordance with the procedures, specified in
this Agreement), unless the appointment of such co-trustee or separate trustee
is required due to changes in federal or state law occurring after the Closing
Date, in which case the reasonable compensation of, and expenses, disbursements
and expenses made by, such co-trustee or separate trustee shall be paid out of
the Trust Fund to the extent and in accordance with the standards specified in
this Agreement.
SECTION 8.12 Fiscal Agent Appointed; Concerning the Fiscal Agent.
---------------------------------------------------
(a) The Trustee hereby appoints ABN AMRO Bank N.V. as the initial Fiscal
Agent hereunder for the purposes
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of exercising and performing solely the obligations and duties imposed upon the
Fiscal Agent by Section 7.7(b).
(b) The Fiscal Agent undertakes to perform such duties (and only such
duties) as are specifically set forth in Section 7.7(b) of this Agreement and
the Fiscal Agent shall not be liable except for the performance of such duties
and obligations.
(c) No provision of this Agreement shall be construed to relieve the
Fiscal Agent from liability for its own negligent action, its own negligent
failure to act 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 Section 7.7(b) of this Agreement, 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 Master Servicer or the Special
Servicer and which on their face do not contradict the requirements of this
Agreement, and (ii) the Fiscal Agent shall have the benefit of the provisions of
clauses (ii) and (iii) of Section 8.1.
(d) Except as provided in Section 8.12(c), the Fiscal Agent shall have the
benefit of the provisions of clauses (i), (ii), (iii), (iv) and (v) (but the
obligations of the Trustee under clause (v) shall not be deemed applicable to
the Fiscal Agent) of Section 8.2(a).
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<PAGE>
ARTICLE IX
TERMINATION
SECTION 9.1 Termination.
-----------
(a) The respective obligations and responsibilities of the Master
Servicer, the Depositor, the Special Servicer and the Trustee created hereby
with respect to the Certificates (other than the obligation to make certain
payments, to send certain notices to Certificateholders as hereinafter set forth
and to prepare and file certain tax reports) 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
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no event shall the Trust Fund created hereby continue beyond the expiration of
twenty-one years from the death of the last survivor of the descendants of
Joseph P. Kennedy, the late ambassador of the United States to the Court of
Saint James, living on the date hereof.
(b) The Trust Fund shall be terminated and the assets of the Trust Fund
shall be sold or otherwise disposed of in connection with Section 9.1(c) or
9.1(d), only pursuant to a "plan of complete liquidation" within the meaning of
Section 860F(a)(4) of the Code adopted on behalf of each of the Upper-Tier REMIC
and Lower-Tier REMIC. The plan of complete liquidation shall be adopted by
designating on each REMIC's final federal income tax return a day no more than
90 days prior to the Anticipated Termination Date specified in the Notice of
Termination (such date being deemed the date of adoption of the plan of complete
liquidation).
(c) Each of the Master Servicer, any Holder of a Class LR Certificate and
the Special Servicer may at its option, upon not less than 30 days' prior
notice, given to the Trustee any time on or after the Early Termination Notice
Date, specifying the Anticipated Termination Date, purchase on the Early
Termination Determination Date all, but not less than all, of the Mortgage Loans
then included in the Trust Fund, all property acquired in respect of any
Mortgage Loan and any assets conveyed to the Trust Fund, at a purchase price
(the "Termination Price"), payable in cash, equal to not less than the greater
of:
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(i) the sum of (without duplication of any amount in clauses (A)
through (E) below);
(A) 100% of the unpaid principal balance of each Mortgage Loan
included in the Trust Fund as of such Early Termination
Determination Date; and
(B) all unpaid interest accrued on such principal balance of each
such Mortgage Loan at the related Mortgage Interest Rate to
such Early Termination Determination Date; and
(C) the fair market value of all other property included in the
Trust Fund as of such Early Termination Determination Date;
and
(D) all unreimbursed P&I Advances, unreimbursed Servicing Advances
and interest thereon at the Advance Rate; and
(E) all unreimbursed Servicing Fees, Special Servicing Fees and
Trustee Fees; and
(ii) the aggregate fair market value (determined in accordance with
Section 9.1(d)(ii)(B)) of the Mortgage Loans, and all other
property acquired in respect of any Mortgage Loan in the Trust
Fund, as of the date of purchase.
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. Such party shall deposit the
Termination Price into the Collection Account on or prior to the Early
Termination Determination Date.
(d)If the Trust Fund has not been previously terminated pursuant to
subsection (b) of this Section 9.1:
(i) the Trustee shall determine as soon as practicable the
Distribution Date on which
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<PAGE>
the Trustee reasonably anticipates based on information with
respect to the Mortgage Loans previously provided to it that
the amount of cash on deposit in the Distribution Account will
be sufficient (without giving effect to the sales referred to
in clause (ii) below) to distribute in full the Certificate
Principal Amounts of all the Certificates as of such
Distribution Date, together with all amounts required to be
distributed on such Distribution Date pursuant to Section 4.1;
and
(ii) the Master Servicer shall, at the expense of the Trust Fund,
on the Early Termination Determination Date sell for cash all,
but not less than all, the Mortgage Loans and other property
included in the Trust Fund on such date and deposit such cash
into the Collection Account:
(A) on the terms and to the Persons specified in a notice
given to the Master Servicer by the Holders of 100% of
the Percentage Interests of the Class LR Certificates;
or
(B) if no such notice is timely received, to any Person at
a purchase price equal to the aggregate fair market
value of all the Mortgage Loans and other property
included in the Trust Fund on such date, as determined
by an Independent appraiser acceptable to the Master
Servicer as of a day not more than 30 days prior to
such date.
The costs and expenses of the Master Servicer incurred in connection with
subsection (c) of this Section 9.1 shall be reimbursed by the Trust Fund.
(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
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<PAGE>
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 Class R,
Class B, Class C, Class D, Class E, Class F, Class G and Class X Certificates,
notwithstanding that such distribution may be insufficient to distribute in full
the Certificate Principal Amount, if any, of each such Certificate, together
with amounts required to be distributed on such Distribution Date pursuant to
Section 4.1, or (ii) if no Class R, Class B, Class C, Class D, Class E, Class F,
Class G and Class X Certificates are then outstanding, to the Holders of the
Class LR Certificates, in each 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 at their
addresses shown in the Certificate Register as soon as practicable after the
Trustee shall have received a Notice of Termination but in any event not more
than thirty days, and not less than five days, prior to the Anticipated
Termination Date. The notice mailed by the Trustee to affected
Certificateholders shall:
(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;
(iii) state that the final distribution to Certificateholders
will be made only upon presentation and surrender of
Certificates at the office of the Trustee or Paying
Agent therein specified; and
(iv) if such termination is to be made pursuant to Section
9.1(c), set forth the right of the Holders of the Class
LR Certificates to pur-
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<PAGE>
chase all, but not less than all, the Mortgage Loans
and the other property included in the Trust Fund on
the Early Termination Determination Date specified
therein.
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 uninvested 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 six
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.
The costs and expenses of maintaining such funds and of contacting
Certificateholders shall be paid out of the assets which remain held. If after
the second notice any Certificates shall not have been surrendered for
cancellation, the Class R Certificates shall be entitled to all unclaimed funds
and other assets which remain subject hereto. 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. Any such amounts held by the
Trustee shall not be invested.
IX-5
<PAGE>
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, the Trust Fund or the Upper-Tier REMIC or Lower-Tier
REMIC, 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 by virtue of any provision of
this Agreement to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Agreement, unless 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 over 50% of the 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
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<PAGE>
may require against the costs, expenses and liabilities to be incurred therein
or thereby, and the Trustee, for 15 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.
SECTION 10.3 Governing Law.
-------------
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK 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 (except that notices to Holders
of any Class of Certificates shall be deemed to have been given upon being sent
by first class mail, postage prepaid, to the Holders at the addresses of such
Holders as shown in the Certificate Register) as follows:
If to the Trustee, to:
LaSalle National Bank
135 South LaSalle Street - 17th Floor
Chicago, IL 60674
Attention: Asset-Backed Securities Trust
Services - LTC Series 1996-1
X-2
<PAGE>
With a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Kevin C. Blauch, Esq.
If to the Depositor, to:
LTC REMIC Corporation
300 Esplanade Drive
Suite 1860
Oxnard, California 93030
Attention: James J. Pieczynski
With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Warren T. Buhle, Esq.
If to the Master Servicer, to:
GMAC Commercial Mortgage Corporation
100 South Wacker Drive, Suite 400
Chicago, IL 60606
Attn: LTC Commercial Pass-Through
Certificates, Series 1996-1
With a copy to:
GMAC Commercial Mortgage Corporation
8630 Old York Road
Elkins Park, PA 19027-1590
Attention: General Counsel
If to the Special Servicer, to:
LTC Properties, Inc.
300 Esplanade Drive
Suite 1860
Oxnard, California 93030
Attention: Andre C. Dimitriadis
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<PAGE>
If to the Originator, to:
LTC Properties, Inc.
300 Esplanade Drive
Suite 1860
Oxnard, California 93030
Attention: Andre C. Dimitriadis
If to the Initial Purchaser, to:
Goldman, Sachs & Co.
85 Broad Street, 28th Floor
New York, NY 10004
Attention: Steven Stuart
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. All notices
required to be given from one Person to another Person shall be deemed to have
been given without actually delivering such notice, as long as both parties are
controlled by the same Person.
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 Rating Agencies.
-------------------------
(a) The Master Servicer, the Special Servicer and, in the event that the
Trustee is the only recipient thereof or party hereto who has actual knowledge
thereof, the Trustee shall use its best efforts to promptly provide
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<PAGE>
notice to each Rating Agency with respect to each of the following of which a
Servicing Officer 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 resignation or termination of the Master Servicer,
the Trustee or the Special Servicer;
(iv) the repurchase of Mortgage Loans pursuant to Section
4.5(b);
(v) the final payment to any Class of Certificateholders;
(vi) any change in the location of the Collection Account;
and
(vii) any event that would result in the voluntary or
involuntary termination of any insurance of the
accounts of the Master Servicer or the Special
Servicer.
In addition, the party providing such notice to each Rating Agency shall
promptly furnish to each Rating Agency copies of each notice or report to
Certificateholders.
(b) Each of the Master Servicer and the Special Servicer shall promptly
furnish to each Rating Agency copies of the following:
(i) each of its annual statements as to compliance described in
Section 3.14; and
(ii) each of its annual independent public accountants'
servicing reports described in Section 3.15.
(c) The Depositor hereby requests that the Master Servicer or the Special
Servicer, as the case may be, shall furnish each Rating Agency with such
information with respect to a non-performing or Defaulted Mortgage Loan as
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<PAGE>
such Rating Agency shall reasonably request and which the Master Servicer or the
Special Servicer, as the case may be, can reasonably obtain.
(d) Notices to the Rating Agencies shall be addressed as follows:
Notices to Fitch shall be addressed to:
Fitch Investors Service, L.P.
One State Street Plaza
New York, New York 10004
Attention: Commercial Mortgage Surveillance
Notices to S&P shall be addressed to:
Standard & Poor's Ratings Services
25 Broadway
New York, New York 10004-1010
Attention: Structured Finance -- Commercial Real Estate
Surveillance Group
or, in each case, to such other address as such 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 Master Servicer, the Special Servicer and the
Trustee, without the consent of any of the Certificateholders, to cure any
ambiguity, to correct or supplement any provisions herein or therein that may be
inconsistent with any other provisions herein or therein, to maintain the rating
or ratings assigned to the Class A, Class R, Class LR, Class B, Class C, Class
D, Class E and Class F Certificates by any Rating Agency, or to make any other
provisions with respect to matters or questions arising under this Agreement or
such Custodial Agreement which shall not be inconsistent with the provisions of
this Agreement or such Custodial Agreement; provided, however, that such action
-------- -------
shall not, as evidenced by an Officer's Certificate of the Depositor, which
shall be at the expense of the party requesting such amendment (or,
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<PAGE>
if such amendment is required by any Rating Agency to maintain the rating issued
by it or requested by the Trustee in order to clarify any ambiguity or resolve
any inconsistency, then the related Officer's Certificate shall be an expense of
the Trust Fund), adversely affect in any material respect the interests of any
Certificateholder.
Further, the Depositor, the Master Servicer, the Special Servicer and
the Trustee, at any time and from time to time, without the consent of the
Certificateholders, may amend this Agreement to modify, eliminate or add to any
of its provisions to such extent as shall be necessary or helpful to maintain
the qualification of each of the Upper-Tier REMIC or Lower-Tier REMIC as a
REMIC, or to prevent the imposition of any tax on either entity under the REMIC
Provisions or of any additional material federal, state or local taxes, at all
times that any Certificates or Uncerti ficated Lower-Tier Interests are
outstanding; provided, however, that such action, as evidenced by an Officer's
-------- -------
Certificate of the Depositor (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.
This Agreement or any Custodial Agreement may also be amended from
time to time by the Depositor, the Master Servicer, the Special Servicer and the
Trustee with the consent of the Holders of the Class A, Class R, Class LR, Class
B, Class C, Class D, Class E, Class F, Class G and Class X Certificates
representing not less than 66 2/3% of the Voting Rights allocated to each such
Class of Certificates affected by the amendment (except as otherwise provided in
Section 3.20(c)) 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; or
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<PAGE>
(ii) reduce the aforesaid percentage of Certificates the Holders of
which are required to consent to any such amendment or any
action hereunder, without the consent of the Holders of all
Certificates then outstanding; or
(iii) alter the servicing standard set forth in Section 3.1 without
the consent of the Holders of all Certificates then
outstanding; or
(iv) amend the principal amount of any Certificates, the interest
rate payable on any Certificate or the latest possible
maturity date of the Certificates; or
(v) adversely affect the qualification of either the Upper-Tier
REMIC or the Lower-Tier REMIC as a REMIC.
Any such consent by a Holder shall be conclusive and binding on such Holder
and upon all future Holders whether or not notation is made upon such Holder's
Certificate.
Promptly after the execution of any amendment, the Master Servicer shall
furnish written notification of the substance of such amendment to each
Certificateholder.
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
manner 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.
Notwithstanding any contrary provision of this Agreement, no amendment
shall be made to this Agreement unless the Master 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 in order to clarify any
ambiguity or resolve any inconsistency, then at the expenses of the
X-8
<PAGE>
Trust Fund), to the effect that such amendment will not cause the Trust Fund to
fail to qualify as two separate REMICs at any time that any Certificates or
Uncertificated Lower-Tier interests are outstanding or cause a tax to be imposed
on the Upper-Tier REMIC or Lower-Tier REMIC under the REMIC Provisions. The
placement of an "original issue discount" legend on, or any change required to
correct any such legend previously placed on, Certificate shall not be deemed an
amendment to this Agreement.
Prior to the execution of any amendment to this Agreement, the Trustee and
the Master Servicer shall be entitled to receive and rely 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 in order to clarify any ambiguity or resolve any
inconsistency, 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 Limitation of Liability of Certain Persons.
------------------------------------------
No recourse under or upon any obligation or covenant contained in this
Agreement, or of any Certificate, or for any claim based thereon or otherwise in
respect thereof, shall be had against an incorporator, shareholder, officer or
director, as such, past, present or future, of the Trustee, the Fiscal Agent,
the Originator, the Master Servicer, the Special Servicer or the Depositor or
any successor corporation, either directly or through the Trustee, the Fiscal
Agent, the Originator, the Master Servicer, the Special Servicer or the
Depositor, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Agreement and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever shall attach
to, or is or shall be incurred by the incorporators, shareholders, officers or
directors, as such, of the Trustee, the Fiscal Agent, the Originator, the Master
Servicer, the Special Servicer or the Depositor, or any of them, because of the
creation of the Certificates hereby authorized, or under or by reason of the
obligations or
X-9
<PAGE>
covenants contained in this Agreement or in any of the Certificates or implied
therefrom; and that any and all such personal liability, either at common law or
in equity or by constitution or statute, of, and any and all such rights and
claims against, every such incorporator, shareholder, officer or director, as
such, because of the creation of the Certificates hereby authorized, or under or
by reason of the obligations or covenants contained in this Agreement or in any
of the Certificates or implied therefrom, are hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Agreement and the issuance of the Certificates.
SECTION 10.9 Streit Act.
----------
Any provisions required to be contained in this Agreement by Section 126 of
Article 4-A of the New York Real Property Law and any provisions permitted to be
contained in this Agreement by Section 130-k of such Article 4A that are
necessary in order to permit the Trustee to act in the manner contemplated by
this Agreement are hereby incorporated herein, and such provisions shall be in
addition to those conferred or imposed by this Agreement; provided, however,
-------- -------
that to the extent that such Section 126 and/or Section 130-k shall not have any
effect, and if said Section 126 and/or Section 130-k should at any time be
repealed or cease to apply to this Agreement, or be construed by judicial
decision to be inapplicable, said Section 126 and/or Section 130-k shall cease
to have any further effect upon the provisions of this Agreement. In the case
of a conflict between the provisions of this Agreement and any mandatory
provisions of Article 4-A of the New York Real Property Law, such mandatory
provisions of said Article 4-A shall prevail, provided that if said Article 4-A
shall not apply to this Agreement, should at any time be repealed, or cease to
apply to this Agreement, or be construed by judicial decision to be
inapplicable, such mandatory provisions of such Article 4-A shall cease to have
any further effect upon the provisions of this Agreement.
X-10
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Master Servicer, the Special
Servicer and the Trustee have caused their names to be signed hereto by their
respective officers thereunto duly authorized all as of the day and year first
above written.
LTC REMIC CORPORATION,
as Depositor
By: /s/ Chris Ishikawa
---------------------------------
Name: Chris Ishikawa
--------------------------
Title: Treasurer
--------------------------
GMAC COMMERCIAL MORTGAGE
CORPORATION,
as Master Servicer
By: /s/ Barry A. Moore
---------------------------------
Name: Barry A. Moore
--------------------------
Title: Executive Vice President
--------------------------
LTC PROPERTIES, INC.,
as Special Servicer
By: /s/ James J. Pieczywhi
---------------------------------
Name: James J. Pieczywhi
--------------------------
Title: SVP & CFO
--------------------------
LASALLE NATIONAL BANK,
as Trustee, Custodian, Certificate
Registrar, Authenticating Agent,
and Paying Agent
By: /s/ Russell M. Goldenberg
---------------------------------
Name: Russell M. Goldenberg
--------------------------
Title: Vice President
--------------------------
X-11
<PAGE>
ABN AMRO BANK N.V.
as Fiscal Agent
By: /s/ Irene Pazik
---------------------------------
Name: Irene Pazik
--------------------------
Title: Vice President
--------------------------
By: /s/ Kenneth M. Gonsk
---------------------------------
Name: Kenneth M. Gonsk
--------------------------
Title: Vice President
--------------------------
X-12
<PAGE>
EXHIBIT 10.2
- - --------------------------------------------------------------------------------
TRANSFER AND REPURCHASE AGREEMENT
by and between
LTC Properties, Inc.
and
LTC REMIC Corporation
------------------
Dated as of
March 1, 1996
- - --------------------------------------------------------------------------------
<PAGE>
THIS TRANSFER AND REPURCHASE AGREEMENT, dated as of March 1, 1996, by
and between LTC Properties, Inc., a Maryland corporation ("LTC" or the
"Originator"), and LTC REMIC Corporation, a Delaware corporation (together with
its permitted assigns, the "Company").
WITNESSETH:
----------
WHEREAS, the Company, a corporation organized under the laws of
Delaware, is a wholly owned subsidiary of LTC; and
WHEREAS, LTC will transfer, convey and assign (the "Transfer") to the
Company all of its right, title and interest in, to and under certain mortgage
loans (the "Mortgage Loans") secured by first liens on properties that provide
health care and/or long-term nursing care, listed on the Mortgage Loan Schedule
attached as Exhibit A hereto; and
WHEREAS, LTC, in consideration for the Transfer of the Mortgage Loans
to the Company, will receive $ ; and
----------
WHEREAS, the Company will convey the Mortgage Loans to a trust (the
"Trust") formed pursuant to the Pooling and Servicing Agreement (as defined
below) on or about the date hereof and will retain certain interests in the
Mortgage Loans to the extent provided in the Pooling and Servicing Agreement;
and
WHEREAS, the Trust will issue pass-through certificates (the
"Certificates") which in the aggregate will represent the entire beneficial
ownership interest in the assets of the Trust, which assets will consist of the
Mortgage Loans and certain related assets; and
WHEREAS, it is a condition to the issuance of the Certificates that
LTC shall be required to repurchase the Mortgage Loans under the circumstances
and subject to the conditions set forth herein and in the Pooling and Servicing
Agreement.
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto covenant and agree as
follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms in this
Agreement shall include in the singular number the plural and in the plural
number the singular. Capitalized terms used and not otherwise defined herein
shall have the respective meanings ascribed to such terms in the Pooling and
Servicing Agreement.
"Agreement" shall mean this Transfer and Repurchase Agreement as the
---------
same may from time to time hereafter be modified, supplemented or amended.
"Appraised Value" shall mean with respect to any Mortgaged Property,
---------------
the appraised value thereof based upon the appraisal made or used by LTC in
connection with the origination of the related Mortgage Loan.
"Borrower" shall mean any obligor under a Note.
--------
"Business Day" shall mean any day other than a Saturday, a Sunday or a
------------
day on which banking institutions in the City of Chicago, Illinois (for so long
as LaSalle National Bank is Trustee) or in Philadelphia, Pennsylvania (for so
long as GMAC Commercial Mortgage Corporation is the Master Servicer) are
authorized or obligated by law, executive order or governmental decree to be
closed, or the Master Servicer, the Special Servicer or the Trustee is closed.
"Code" shall mean the Internal Revenue Code of 1986, any successor
----
statute thereto, and any temporary or final regulations of the United States
Department of the Treasury from time to time promulgated thereunder.
2
<PAGE>
"Collateral" shall mean all property (including the real property
----------
listed on Exhibit A hereto) and interests in property now owned or hereafter
acquired in or upon which a lien has been or is purported or intended to have
been granted to the Trust under the Transaction Documents.
"Environmental Condition" shall mean any condition or circumstance
-----------------------
that (i) may pose an imminent or substantial endangerment to the public health
or welfare or the environment, (ii) may result in a release or threatened
release of any Hazardous Materials, or (iii) may give rise to any environmental
claim or demand.
"Mortgage Loan Schedule" shall mean Exhibit A to this Agreement.
----------------------
"Net Lease" shall mean with respect to any Mortgage Loan, a lease
---------
covering substantially all of the related Mortgaged Property pursuant to which
the related tenant is obligated to pay (i) a minimum fixed rental substantially
sufficient, as of the date of origination of such Mortgage Loan, to pay in full
each related Monthly Payment on such Mortgage Loan (other than any Balloon
Payment), and (ii) all other charges commonly associated with the operation and
maintenance of such Mortgaged Property (other than exterior maintenance of
buildings and adjacent land and improvements located thereon), including,
without limitation, real estate taxes and assessments, insurance and structural
and non-structural repairs and maintenance. In the case of any Mortgage Loan
secured by more than one Mortgaged Property, the term "Net Lease" shall refer to
each Net Lease relating to each such Mortgaged Property.
"Person" shall mean any individual, corporation, limited liability
------
company, partnership, joint venture, firm, association, joint-stock company,
trust, unincorporated organization or government or any agency political
subdivision thereof.
"Pooling and Servicing Agreement" shall mean the Pooling and Servicing
-------------------------------
Agreement dated as of March 1, 1996 by and among the Company, as Depositor,
LaSalle National Bank, as Trustee, ABN AMRO Bank N.V., as Fiscal Agent, GMAC
Commercial Mortgage Corporation, as Master Servicer and LTC, as Special
Servicer.
3
<PAGE>
"Qualified Mortgage" A Mortgage Loan that is a "qualified mortgage"
------------------
within the meaning of Code Section 860G(a)(3) (but without regard to the rule in
Treasury Regulation l.860G-2(f)(2) that treats a defective obligation as a
qualified mortgage, or any substantially similar successor provision) and
applicable Treasury Regulations promulgated pursuant thereto.
"Qualified Title Insurer" shall mean any title insurer specified on
-----------------------
Exhibit B hereto.
"Repurchase Price" shall mean, with respect to any Mortgage Loan to be
----------------
purchased or repurchased pursuant to this Agreement and the Pooling and
Servicing Agreement, an amount, calculated by the Special Servicer, or the
Master Servicer on its behalf, as the case may be, equal to (without duplication
of any amount in clauses (i) through (iv) below):
(i) the unpaid principal balance of such Mortgage Loan as of the
Due Date as to which a payment of principal was last made by
the related Borrower; plus
(ii) unpaid accrued interest from the date as to which interest
was last paid by the related Borrower up to the date as of
which the purchase or repurchase is to occur at a rate equal
to the Mortgage Interest Rate applicable from time to time
on the unpaid Principal Balance of such Mortgage Loan; plus
(iii) any unreimbursed P&I Advances and Servicer Advances plus, in
each case, interest thereon at the Advance Rate with respect
to such Mortgage Loan; plus
(iv) expenses reasonably incurred or to be incurred by the Master
Servicer, the Special Servicer or the Trustee in respect of
the breach or defect giving rise to the repurchase
obligation, including any expenses arising
4
<PAGE>
out of the enforcement of the repurchase obligation.
"Transactions" shall mean the transactions contemplated by the
------------
Transaction Documents.
"Transaction Documents" shall mean this Agreement, the Pooling and
---------------------
Servicing Agreement and all other documents to which LTC or the Company is a
party which relate to the transfer of the Mortgage Loans to the Company or the
Trust or to the issuance of the Certificates.
ARTICLE II
ASSIGNMENT; PURCHASE PRICE
(a) LTC concurrently with the execution hereof, does hereby transfer,
assign, set over and otherwise convey to the Company all the right, title and
interest of LTC in and to the Mortgage Loans identified on Exhibit A hereto,
including all rights to payment in respect thereof under the Notes and any and
all related agreements, title insurance policies and any security interest
thereunder (whether in real or personal property or other Collateral and whether
tangible or intangible) and any guaranty or letter of credit relating thereto
without recourse and without warranty of any kind except as specifically set
forth herein. The transfer of the Mortgage Loans accomplished hereby is
absolute and is intended by the parties as a sale or other absolute transfer.
To the extent that a court shall deem the conveyance set forth above not to
constitute a sale or other absolute transfer, then LTC hereby grants to the
Company a first priority security interest in the Mortgage Loans and in the
proceeds thereof of any kind or nature whatsoever, and in the proceeds of any
related insurance policies.
(b) In consideration for the transfer of the Mortgage Loans to the Company,
LTC will receive $112,487,255.
------------
5
<PAGE>
ARTICLE III
CORPORATE REPRESENTATIONS, WARRANTIES AND COVENANTS;
REPURCHASE OR SUBSTITUTION EVENTS
Section 3.1 Corporate Representations, Warranties and Covenants. As
---------------------------------------------------
a condition to the execution and delivery of the Pooling and Servicing Agreement
and the completion of the Transactions contemplated thereby, LTC and the Company
make the following representations and warranties, which shall survive the
execution and delivery of this Agreement and all other Transaction Documents.
(a) LTC represents and warrants that, as of the Closing Date (i) it
is duly authorized to execute and deliver this Agreement, to enter into the
Transactions and to perform its obligations hereunder and has taken all
necessary action to authorize such execution, delivery and performance, (ii) the
Person signing this Agreement on its behalf is duly authorized to do so on its
behalf and this Agreement has been duly executed and delivered by it, (iii) it
has obtained all authorizations of any governmental body required in connection
with this Agreement and the Transactions and such authorizations are in full
force and effect, (iv) the execution, delivery and performance of this Agreement
and the Transactions will not violate any law, ordinance, charter, by-law or
rule applicable to it or any material agreement or order or decree by which it
is bound or by which any of its assets are affected, (v) there is no action,
suit or proceeding against, or investigation of, it pending or threatened,
before any court, administrative agency or other tribunal which, either
individually or in the aggregate, (A) asserts the invalidity of this Agreement,
(B) seeks to prevent the consummation of any of the Transactions or (C) which
would materially and adversely affect the performance by it of its obligations
under, or the validity or enforceability of, this Agreement and (vi) this
Agreement constitutes a legal, valid and binding agreement of it, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial
6
<PAGE>
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in a proceeding in equity or at law).
(b) The Company has ensured and will continue to ensure that: (a) its
funds and other assets are identifiable and are not commingled with those of any
Affiliate and that it maintains bank accounts, corporate records and books of
account separate and apart from those of any Affiliate; (b) it pays from its
assets all obligations and indebtedness of any kind incurred by it; and (c) the
business and affairs of the Company are managed by or under the direction of its
Board of Directors. The assets and liabilities of the Company and its
Affiliates, including LTC, are and will continue to be readily ascertainable and
subject to segregation without requiring substantial time or expense to effect
and account for such segregated assets and liabilities.
(c) The Company conducts and will continue to conduct its business
solely in its own name so as not to mislead others as to the identity of the
company with which those others are concerned; LTC does not conduct its business
in the name of the Company or otherwise act in a manner that would lead others
to believe that they are dealing with the Company or its assets rather than LTC
and its assets. Without limiting the generality of the foregoing, all oral and
written communications including, without limitation, letters, invoices,
purchase orders, contracts, statements and applications, have been and will be
made solely in the name of the Company if they relate to the Company and solely
in the name of LTC if they relate to LTC. The Company and LTC have separate
stationery and other business forms. The Company has and will continue to
conduct its business from an office separate from that of LTC.
(d) The Company and LTC each is adequately capitalized for the
businesses in which it is engaged or in which it may become engaged. The
Company will not declare dividends to LTC if declaring dividends would result in
inadequate capitalization for the Company. Each of the Company and LTC will at
all times ensure that its capitalization is adequate in light of its business
and purpose. The Company will continue to provide for its own operating
expenses and liabilities
7
<PAGE>
from its own funds, and such expenses and liabilities will not be paid by LTC,
except that certain of the organizational expenses of the Company have been paid
by LTC. In addition, from time to time LTC may make capital contributions to
the Company to enable the Company to acquire certain securities; any such
capital contributions will be reflected as such on the books and records of both
LTC and the Company, and will be treated as capital contributions for tax,
accounting and other relevant purposes.
(e) The Company maintains, and will continue to maintain, cash
management systems separate from those of LTC. General overhead and
administrative expenses of LTC will not be charged or otherwise allocated to the
Company and such expenses of the Company will not be charged or otherwise
allocated to LTC (other than the organizational expenses referred to above).
There will be no guarantees made by the Company with respect to obligations of
LTC and there will be no guarantees made by LTC with respect to obligations of
the Company. Accordingly, the separate assets and liabilities of the Company
are and will continue to be readily ascertainable from those of LTC.
(f) The Company maintains corporate records distinct and separately
identifiable from the corporate records of LTC and any other person or entity.
The Company maintains full and complete financial records distinct and
separately identifiable from the financial records of LTC or any Affiliates.
These statements and reports are prepared and maintained in accordance with
generally accepted accounting principles, susceptible to audit and audited, at
least annually, in connection with the audit of LTC by independent public
accountants, in accordance with generally accepted auditing standards. LTC
prepares and files consolidated federal tax returns and combined financial
statements all of which will include the Company. The Company keeps its funds
separate and apart from the funds of LTC and any Affiliates, and its other
assets are separately identifiable and distinguishable from the assets of LTC
and any Affiliates. The Company will prepare and issue to its creditors
financial statements separate from those of LTC.
(g) When necessary, the Company obtains
8
<PAGE>
proper authorization from its directors or stockholders, as appropriate, for
corporate action. The Company acts solely in its name and through its duly
authorized officers or agents in the conduct of its businesses.
(h) The Company and LTC each do not and will not: (a) hold itself out
as having agreed to pay or become liable for the debts of LTC, in the case of
the Company, or the Company, in the case of LTC; (b) fail to correct any known
misrepresentation with respect to the foregoing; (c) operate or purport to
operate as an integrated, single economic unit with LTC, in the case of the
Company, or with the Company, in the case of LTC; (d) seek or obtain credit or
incur any obligation to any third party based upon the assets of LTC, in the
case of the Company, or upon the assets of the Company, in the case of LTC; or
(e) induce any such third party to rely reasonably on the creditworthiness of
LTC, in the case of the Company, or the creditworthiness of the Company, in the
case of LTC. The Company maintains and will continue to maintain an arm's-
length relationship with LTC. The Company maintains and will continue to
maintain management over its daily business affairs independent from that of LTC
and free of any undue or excessive control exercised by LTC; LTC maintains, and
will continue to maintain, management over its daily business affairs
independent from that of the Company and free of any undue or excessive control
exercised by the Company.
(i) The Company, prior to or contemporaneously with the sale of the
Mortgage Loans, will disclose all material transactions associated with its
acquisition of the Mortgage Loans and the transfer of such Mortgage Loans to the
Trust Fund by various means, including, without limitation, the filing of UCC-1
financing statements and other communications.
(j) The annual financial statements of LTC and the Company, including
the consolidated financial statements of LTC, will disclose the effects of the
transactions in accordance with generally accepted accounting principles. The
consolidated financial statements of LTC will contain a footnote stating that
the Mortgage Loans have been sold to the Company and the assets of the Company
are not available to satisfy the obligations of LTC or its other subsidiaries.
The resolutions, agreements and other instruments underlying
9
<PAGE>
the subject transactions will be continuously maintained by LTC and the Company
as official records.
Section 3.2 Repurchase or Substitution Events. LTC agrees to cure the
---------------------------------
defect or to repurchase or substitute a Mortgage Loan upon the determination, as
of the Closing Date and immediately prior to the effectiveness of the transfer
effected hereby or as of such other date specifically provided herein, that one
of the following statements is not true in any respect and such misstatement has
a material adverse effect on the Certificateholders:
(i) LTC is the sole owner and holder of such Mortgage Loan;
(ii) LTC has full right and authority to sell, assign and
transfer such Mortgage Loan;
(iii) The information set forth in the Mortgage Loan Schedule is
correct in all material respects at the date or dates
respecting which such information is furnished as specified
therein (or, if no date is specified, at and as of the
Closing Date);
(iv) Such Mortgage Loan is not a participation interest in a
mortgage loan, but is a whole loan and, except as set forth
in the Mortgage Loan Schedule, such Mortgage Loan does not
contain an equity participation;
(v) Such Mortgage Loan complies, as of the date of origination,
with, or was exempt from, applicable state or federal laws,
regulations and other requirements pertaining to usury, and
the receipt of any amounts payable as interest or otherwise
from revenues derived from the operation of the related
Mortgaged Property or in respect of any equity participation
provision of such Mortgage Loan do not violate any
applicable federal,
10
<PAGE>
state or local law, regulation or other requirement
pertaining to usury; any or all other requirements of any
federal, state or local law, including, without limitation,
truth-in-lending, real estate settlement procedures, equal
credit opportunity or disclosure laws, applicable to such
Mortgage Loan were complied with as of the date of
origination of such Mortgage Loan;
(vi) The origination, servicing and collection practices used by
LTC or any prior holder of such Mortgage Loan have been in
all material respects legal, proper and prudent and have met
customary standards utilized by mortgage lenders in their
commercial mortgage loan origination and servicing business;
(vii) Such Mortgage Loan was originated by LTC or any agent
thereof, and complies with all the material terms,
conditions and requirements of the underwriting policies of
LTC in effect at the time of origination;
(viii) LTC 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 other than the lien
granted pursuant to Article II hereof;
(ix) The proceeds of such Mortgage Loan have been fully disbursed
and there is no requirement for future advances thereunder,
and, with the exception of Mortgage Loans #93 and #128 with
respect to which funds have been escrowed or pledged for
disbursement as improvements are made, any and all
requirements imposed by the mortgagee as to completion of
any on-site or
11
<PAGE>
off-site improvements or as to disbursements of any escrow
funds therefor have been complied with, except for the Blair
Crescent Mortgage Loan which provides for the on-going
retention of $1,119,300 in escrow, to be disbursed, from
time to time, in connection with the completion of certain
repair work, and except for the Milan/Pleasant/Triple
Mortgage Loan which provides for the on-going retention of
$250,000 in a pledged account, to be used for certain
repairs and improvements;
(x) Each of the related Notes, related Mortgages and other
agreements providing security, credit support or other
assurances in connection therewith is a legal, valid and
binding obligation of the maker thereof (subject to any
nonrecourse provisions therein and any laws applicable
thereto of similar effect, such as antideficiency or one-
form-of-action rules), enforceable in accordance with its
terms, except as such enforcement may be limited by
(A) bankruptcy, insolvency, reorganization, fraudulent
conveyance or other similar laws affecting the enforcement
of creditors' rights generally, (B) general principles of
equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law), including without
limitation concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of
specific performance or injunctive relief, and (C) in the
case of certain personal guarantees executed in connection
with certain Mortgage Loans, the community property laws of
the states in which the persons executing such
12
<PAGE>
guarantees are domiciled, and there is no valid offset,
defense, counterclaim or right to rescission with respect to
such Note, Mortgage or other agreements;
(xi) The related Assignment of Mortgage constitutes a legal,
valid and binding assignment of such Mortgage to the
Company, and the related reassignment of Assignment of
leases, rents and Profits, if any, constitutes a legal,
valid and binding assignment thereof to the Company, subject
to applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other similar laws
affecting the enforcement of creditors' rights and remedies
generally, and subject, as to enforceability, to general
principles of equity (regardless of whether such enforcement
is considered in a proceeding in equity or at law) including
principles of commercial reasonableness, good faith and fair
dealing;
(xii) The related Mortgage (including any related security
agreement included in the definition of such term) is a
valid and enforceable first lien on the related Mortgaged
Property, (except for the Mortgage on the Southern Oaks
Mortgaged Property which is a valid and enforceable first
lien securing the related Mortgage Loan and a valid and
enforceable second lien securing the Horizon Health Care
Mortgage Loan, and the Mortgage on the Horizon Health Care
Mortgaged Property, which is a valid and enforceable first
lien securing the related Mortgage Loan and a valid and
enforceable second lien securing the Southern Oaks
13
<PAGE>
Mortgage Loan), which Mortgaged Property is free and clear
of all encumbrances and liens having priority over, or equal
to, the lien of the Mortgage, except as such enforcement may
be limited by (A) bankruptcy, insolvency, reorganization,
fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights and remedies generally,
(B) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at
law), including without limitation concepts of materiality,
reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief,
and subject only to (i) liens for real estate taxes and
special assessments not yet due and payable, (ii) covenants,
conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording
of such Mortgage, such exceptions appearing of record being
acceptable to mortgage lending institutions generally or
specifically reflected in the appraisal made in connection
with the origination of the related Mortgage Loan, none of
which materially impairs the value of the property or
materially interferes with the benefits of the security
intended to be provided by such Mortgage, (iii) exceptions
and exclusions specifically referred to in the lender's
title insurance policy described in clause (xxiii) below,
none of which materially impairs the value of the Mortgaged
Property or interferes with the use and operation of the
premises as currently contemplated or the ability of the
Borrower to make payments of
14
<PAGE>
principal and interest on the related Mortgage Loan when
due, (iv) a lien on the property to ensure the reimbursement
of remedial or response costs incurred by a State or the
United States as a result of an Environmental Condition, or
(v) other matters to which like properties are commonly
subject none of which, individually or in the aggregate,
materially impairs the value of the property or materially
interferes with the use and operation of the premises as
currently contemplated or the ability of the Borrower to
make payments of principal and interest on the related
Mortgage Loan when due; provided, however, that the Borrower
-------- -------
may grant security interests in specific items of personal
property located on the related Mortgaged Property (or all
of the Mortgaged Properties in the case of Mortgage Loans
secured by more than one Mortgaged property) to the lessors
of or purchase-money lenders for said personal property, so
long as such encumbrances secure obligations of the Borrower
in an aggregate amount not in excess of eight thousand
dollars ($8,000) per month;
(xiii) The related Mortgage has not been waived, modified, altered,
satisfied, cancelled or subordinated in any respect or
rescinded, or the related Mortgaged Property has not been
released from the lien or other encumbrance of, and the
related Borrower has not been released from its obligations
under, such Mortgage or the related Mortgage Note, in whole
or in any part, in a manner which materially interferes with
the benefits of the security intended to be provided by such
Mortgage or the use, enjoyment, value or marketabili-
15
<PAGE>
ty of the related Mortgaged Property for the purposes
specified in such Mortgage; no guarantor has been released,
in whole or in part, under the related guaranty (if any);
and no instrument has been executed that would effect any
such cancellation, subordination, rescission or release,
with the exception of the written instruments which are part
of the related Mortgage File;
(xiv) All taxes, governmental assessments or water, sewer and
municipal charges that prior to the Cut-Off Date became due
and owing in respect of, and affect, the related Mortgaged
Property, and that by filing of a notice or other
appropriate instrument by a government agency could become a
lien on such Mortgaged Property, have been paid prior to
becoming delinquent, or a collateral pledge account with an
amount sufficient to cover such payments has been
established;
(xv) Neither the Originator nor any of its agents or Affiliates
has, directly or indirectly, advanced funds, or received any
advance of funds by a party other than the related Borrower,
for the payment of any amount required by the related Note
or the related Mortgage, except for interest accruing from
the date of the Note or date of disbursement of the proceeds
of such Mortgage Loan, whichever is later, to the date which
preceded by 30 days the first Due Date under the related
Note;
(xvi) The proceeds of such Mortgage Loan to the related Borrower
at origination did not exceed the principal amount of such
Mortgage Loan and, taking into account any lien on the
related Mortgaged Property which is senior to
16
<PAGE>
or of equal seniority as such Mortgage Loan, either (A) such
Mortgage Loan is secured by an interest in real property
having a fair market value (i) at least equal to 80% of the
principal balance of such Mortgage Loan at the later of the
date such Mortgage Loan was originated (or, with respect to
those Mortgage Loans between the Originator and its
subsidiaries, at the time the Mortgage Loan will be
transferred to the Trust) or the date upon which a
significant modification (as defined in Treasury Regulation
Section 1.860G-2(b) of the Code) occurred or (ii) at least
equal to 80% of the principal balance of such Mortgage Loan
at the Closing Date; or (B) substantially all the proceeds
of such Mortgage Loan were used to acquire, improve or
protect the real property that served as the only security
for such Mortgage Loan (other than a recourse feature or
other third party credit enhancement within the meaning of
Treasury Regulation Section l.860G-2(a)(1)(ii) and no
significant modification, as defined in Treasury Regulation
Section 1.860G-2(b), has been made to such Mortgage Loan);
provided, however, that the fair market value of the
-------- -------
interest in real property securing such Mortgage Loan shall
be determined in accordance with Section 1.856-3(a) of the
Treasury Regulations; provided, further, with respect to any
-------- -------
Mortgage Loan which provides for a partial release of the
Mortgage Property upon a partial payment of the Mortgage
Loan, the Allocable Loan Amount with respect to each
property independently would meet the 80% test described in
clause (i) of this subparagraph (xvi);
17
<PAGE>
(xvii) There is no proceeding pending for the total or partial
condemnation of the related Mortgaged Property, and such
Mortgaged Property is in good repair and free and clear of
any damage that would affect materially and adversely the
value of such Mortgaged Property as security for such
Mortgage Loan or the use for which the premises were
intended;
(xviii) The related Mortgaged Property is free and clear of any
mechanics' and materialmen's liens, or liens in the nature
thereof, and no rights are outstanding that under law could
give rise to any such liens, any of which liens are or may
be senior to, or of equal priority with, the lien of the
related Mortgage, except those which are insured against by
the lender's title insurance policy referred to in clause
(xxiii) below;
(xix) None of the improvements which were included for the purpose
of determining the Appraised Value of the related Mortgaged
Property in connection with the origination of such Mortgage
Loan lies outside the boundaries and building restriction
lines of such property, no improvements on adjoining
properties materially encroach upon such Mortgaged Property,
and all improvements located on or forming a part of such
Mortgaged Property complied with applicable zoning laws
and/or set-back ordinances in force when such improvements
were placed on such Mortgaged Property except where (i) non-
compliance could not have a foreseeable material adverse
effect on such Mortgaged Property, (ii) the Mortgaged
Property has a variance or special use permit allowing the
non-compliance, or (iii) the improvements on the Mortgaged
Property were made
18
<PAGE>
prior to the effective date of the applicable zoning
ordinance and are therefore grandfathered;
(xx) At the time of origination of such Mortgage Loan, the
related Borrower, lessee and/or operator was in possession
of all material licenses, permits and other authorizations
then necessary and required by applicable law for the use of
the related Mortgaged Property and all such licenses,
permits and authorizations were valid and in full force and
effect;
(xxi) If the related Mortgaged Property is subject to a lease, the
related Borrower is the owner and holder of the landlord's
interest under any lease for use and occupancy of all or any
portion of the related Mortgaged Property; the related
Mortgage and related Assignment of Leases, Rents and Profits
provides for the appointment of a receiver for rents, or
provides for rents to be paid directly to the mortgagee in
the event of default, or allows the mortgagee to enter into
possession to collect the rents; no assignments have been
made of the landlord's interest in any such lease or any
portion of the rents, additional rents, charges, issues or
profits due and payable or to become due and payable under
any such lease, which assignments are presently outstanding
and have priority over the related Mortgage or any related
Assignment of Leases, Rents and Profits given in connection
with the origination of the related Mortgage, other than as
may be disclosed in the related lender's title insurance
policy referred to in clause (xxiii) below; and the related
Borrower is the beneficial owner of the related Mortgaged
Property;
19
<PAGE>
(xxii) Both the Originator and the Depositor were authorized to the
extent required under applicable law to transact and do
business in the jurisdiction in which the related Mortgaged
Property is located at all times when it held such Mortgage
Loan, or any failure to be so qualified has not impaired the
validity of such Mortgage Loan;
(xxiii) The related Mortgage is covered by a lender's title
insurance policy, issued by a Qualified Title Insurer,
insuring that the related Mortgage is a valid first lien
(except for the Mortgage on the Southern Oaks Mortgaged
Property, which is a valid and enforceable first lien
securing the related Mortgage Loan, and a valid and
enforceable second lien securing the Horizon Health Care
Mortgage Loan, and the Mortgage on the Horizon Health Care
Mortgaged Property which is a valid and enforceable first
lien securing the related Mortgage Loan and a valid and
enforceable second lien securing the Southern Oaks Mortgage
Loan) on such Mortgaged Property; such title insurance
policy is in full force and effect, is freely assignable
(subject to obtaining the required assignment endorsement
upon payment of premium therefor if necessary) and (subject
to any required recordation of the appropriate Assignment of
Mortgage, the obtaining of the required assignment
endorsement, if any, and the payment of the required premium
therefor) will inure to the benefit of the Trustee as
mortgagee of record; other than the lender's title insurance
policy covering the Roswell Mortgage Loan (Loan #118) which
contains an exception for the second-lien mortgage in favor
of a third party not affiliated with the
20
<PAGE>
Originator, such policy is not subject to exceptions which
are not acceptable to mortgage lending institutions
generally and which are not specifically referenced in such
title insurance policy, which impairs the value of the
property or materially interferes with the use and operation
of the premises as currently contemplated or the ability of
the Borrower to make payments of principal and interest on
the related Mortgage Loan when due; and neither the
Originator nor any prior mortgagee has done, by act or
omission, anything which would materially impair the value
of the property or materially impair the use and operation
of the premises as currently contemplated or the ability of
the related Borrower to make payments of principal and
interest on the related Mortgage Loan when due;
(xxiv) There is no material default, breach, violation or event of
acceleration existing under the related Mortgage or the
related Note or an event (other than payments due but not
yet delinquent) which, with the passage of time or with
notice and the expiration of any grace or cure period, would
constitute a material default, breach, violation or event of
acceleration; there has been no knowing waiver of any
default, breach, violation or event of acceleration of any
of the foregoing, and no Person other than the holder of
such Note may declare an event of default or accelerate the
related indebtedness under any such Mortgage Loan, Mortgage
or Note;
(xxv) As of the Cut-Off Date, no Mortgage Loan is 30 days or more
delinquent in payment beyond its related Due Date and no
Mortgage Loan has been more
21
<PAGE>
than 30 days delinquent in payment more than once during the
12 months prior to the Cut-Off Date without giving effect to
any grace period permitted by the related Mortgage or Note;
(xxvi) The related Note or the related Mortgage contains customary
and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization
against the related Mortgaged Property of the benefits of
the security (except as may be limited as described in
clause (x) above), including realization by judicial or, if
applicable, nonjudicial foreclosure, and there is no
exemption available to the Borrower which would interfere
with such right to foreclosure other than as described in
clauses (xi) and (xii) above;
(xxvii) The facility located on the related Mortgaged Property and
the operator with respect to such facility has all
certificates, licenses, permits or other authorization
required by applicable law for the operation of such
facility, and, to the extent such facility participates in
Medicaid, Medicare or other similar programs, such facility
and operator holds a valid certification for such
participation, appropriate for the level of care provided at
such facility;
(xxviii) The related Mortgaged Property is insured by a fire and
extended perils insurance policy issued by a Qualified
Insurer (as defined in the Pooling and Servicing Agreement),
providing coverage against loss or damage sustained by
reason of fire, lightning, windstorm, hail, explosion,
22
<PAGE>
aircraft, vehicles and smoke, and, to the extent required as
of the date of origination by LTC consistent with its normal
commercial mortgage lending practices, against other risks
insured against by Persons operating like properties in the
locality of such Mortgaged Property including flood
insurance in the event that the related Mortgaged Property
is located within the 100-year flood zone, in an amount
which is at least equal to the lesser of the current
principal balance of such Mortgage Loan or the replacement
cost of the improvements which are a part of such Mortgaged
Property; all premium installments then due on such
insurance policy have been paid; such insurance policy
requires prior notice to the insured of termination or
cancellation, and no such notice has been received; the
related Mortgage or related Mortgage Loan documents obligate
the related Borrower to maintain all such insurance and
authorizes the mortgagee, upon such Borrower's failure to do
so, to maintain such insurance at the Borrower's cost or
expense and to seek reimbursement therefor from such
Borrower;
(xxix) The related Borrower owns the related Mortgaged Property in
fee simple, except as title may be qualified in the related
lender's title insurance policy referred to in clause
(xxiii) above; there are no Mortgaged Properties with
respect to which the related Borrower's interest is a
leasehold interest;
(xxx) If the related Mortgage is a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in
the
23
<PAGE>
deed of trust or has been substituted in accordance with
applicable law, and no fees or expenses are or will become
payable to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the
related Borrower or in connection with the release of the
related Mortgaged Property or related security for such
Mortgage Loan following the payment of such Mortgage Loan in
full;
(xxxi) The related Note is not secured by any collateral except the
lien of the related Mortgage, any related Assignment of
Leases, Rents and Profits and any related security
agreement, guaranties, debt service reserves or other such
instruments of collateral; and with the exception of the
Roswell Mortgage Loan (Loan #118) on which there is a
second-lien mortgage which is not included in the Trust
Fund, the related Mortgaged Property and the other
collateral for such Mortgage Loan do not secure any mortgage
loan that is not included in the Trust Fund on the Closing
Date;
(xxxii) No Mortgage Loan, Note or Mortgage requires the mortgagee to
release any portion of the Mortgaged Property from the lien
of the Mortgage except upon payment in full of such Mortgage
Loan at maturity or in connection with a Permitted
Prepayment of the Mortgage Loan (or in the case of Mortgage
Loans secured by more than one Mortgaged Property, payment
of a release price in connection with the sale of one or
more (but not all) of the Mortgaged Properties);
(xxxiii) To LTC's knowledge, there was no existing circumstance or
condition with respect to the related Mortgage,
24
<PAGE>
Mortgaged Property, Borrower, tenant or operator of the
Mortgaged Property relating to such Mortgage Loan (giving
effect to any non-recourse provisions therein) that in LTC's
reasonable determination would cause such Mortgage Loan to
be subject to imminent default except such circumstances and
conditions which have been cured prior to the date hereof;
(xxxiv) Each related Mortgaged Property is on a separate tax parcel,
assessed for real estate tax purposes separate and apart
from any other property owned by the related Borrower or any
other Person;
(xxxv) The related Assignment of Leases, Rents and Profits creates
a valid first priority assignment of, or security interest
in, the right to receive all payments due under the related
Net Lease, if any, which right may be exercised by the
mortgagee upon the occurrence of an event of default by the
related Borrower under the terms of the related Mortgage;
(xxxvi) The related Note does not provide for a grace period that
exceeds ten business days during which remittance by the
related Borrower of any scheduled Monthly Payment may be
deferred without the payment of any default interest or late
charge therefor, and there is no difference for any period
between the amount of interest accrued on such Mortgage Loan
and the amount of interest payable thereon;
(xxxvii) In the event of a foreclosure under the related Mortgage,
any related Net Lease, if any, will either (i) be
extinguished by reason of being subordinate to the related
Mortgage, without any non-disturbance or at-
25
<PAGE>
tornment obligations; or (ii) continue in full force and
effect, either because such Net Lease is superior in time
and has not been subordinated, or because non-disturbance
and attornment obligations have been given;
(xxxviii) There is no action pending or, to LTC's knowledge,
threatened, to terminate the related facility's
participation in the Medicaid or Medicare program, and the
execution of any Transaction Documents will not adversely
affect the facility's participation in such programs;
(xxxix) The related Mortgage or the related Note contains no
provision limiting or restricting the right or ability of
LTC to assign, transfer or convey such Mortgage or Note to
any other person or entity;
(xl) Interest with respect to 23 of the Mortgage Loans is accrued
on the basis of a 360-day year consisting of twelve 30-day
months and interest with respect to the remaining 11
Mortgage Loans is accrued on the basis of a 365-day year;
(xli) With the exception of loan #118, no Mortgage Loan or Note
permits the related Borrower to incur or maintain a second
lien on the related Mortgaged Property without the prior
consent of the related mortgagee;
(xlii) As to each Nursing Facility;
(a) To the best of LTC's knowledge, each Nursing Facility
and each Nursing Facility operator complies with all
laws, regulations, quality and safety standards, and
requirements of the applicable state Department of
26
<PAGE>
Health (each a "DOH") and all other state or federal
governmental authorities;
(b) To the best of LTC's knowledge, all governmental
licenses, permits, regulatory agreements or other
approvals or agreements required for the operation of
each Nursing Facility are held by the applicable
Borrower in the name of the Borrower and are in full
force and effect, including without limitation, a
valid certificate of need ("CON") or similar
certificate, license, or approval issued by the DOH
for the requisite number of beds, and approved
provider status in any approved provider payment
program (collectively, the "Licenses");
(c) The Licenses, including without limitation, the CON:
(1) may not, under the terms of the related loan
documents, be, and to the best of LTC's
knowledge, have not been, transferred to any
location other than the Nursing Facility; and
(2) to the best of LTC's knowledge, have not been
pledged as collateral security for any other loan
or indebtedness as of the origination date for
such Mortgage Loan;
(d) So long as the Certificates remain outstanding, the
Originator will not consent to allow any Borrower to:
27
<PAGE>
(1) amend or otherwise reduce a Nursing Facility's
authorized bed capacity and/or the number of beds
approved by the DOH; or
(2) replace or transfer all or any material portion
of any Nursing Facility's beds to another site or
location;
(e) to the best of LTC's knowledge, each Nursing Facility
is not the subject of any pending action by any state
or federal regulatory agency which might result in the
revocation or loss of the Licenses;
(f) To the best of LTC's knowledge, each Nursing Facility
is in compliance with all requirements for
participation in Medicare and Medicaid, including
without limitation, the Medicare and Medicaid Patient
Protection Act of 1987;
(g) To the best of LTC's knowledge, no notice of any
violation has been received from a government agency
that would, directly or indirectly, or with the
passage of time:
(1) have a material adverse impact on any Borrower's
ability to accept and/or retain patients;
(2) modify, limit or annul any Borrower's Licenses;
or
28
<PAGE>
(3) affect any Borrower's continued participation in
the Medicaid or Medicare programs, or any
successor programs thereto;
(h) To the best of LTC's knowledge, no material physical
plant waivers of licensure standards exist at any of
the Nursing Facilities;
(i) To the best of LTC's knowledge, no Nursing Facility
had a Level [A] violation which was not resolved prior
to the origination of the Mortgage Loan; and
(j) To the best of LTC's knowledge, there are no current
or pending Medicaid or Medicare recoupment efforts at
any of the Nursing Facilities;
(xliii) There is no condition or circumstance existing as a result
of, or arising from, the presence of Hazardous Materials on
a Mortgaged Property such that the Mortgage Loan secured by
the affected Mortgaged Property would be ineligible, solely
by reason of such condition, for purchase by FNMA under the
terms of Section 501.04 of the Guide (assuming such Mortgage
Loan were secured by multifamily residential property),
including a condition or circumstance that would constitute,
solely by reason of such condition or circumstance, a
material violation of applicable federal, state or local law
in effect as of the Closing Date; and
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<PAGE>
(xliv) Each Mortgage Loan is a "qualified mortgage" within the
meaning of Section 860(G) of the code (without regard to
Section 1.860G-2(f)(2) of the Treasury Regulations); and
(xlv) Each Prepayment Premium in each Mortgage Loan is reasonable
and customary for similar commercial mortgage loans.
ARTICLE IV
MORTGAGE LOAN REPURCHASES OR SUBSTITUTIONS
Section 4.1 Mortgage Loan Repurchases or Substitutions. (a) If (i)
------------------------------------------
(x) upon the existence of any violation of any representation or warranty
described in Section 3.2 hereof with respect to any Mortgage Loan except for
subsection 3.2(xliii) (referred to herein as an "event") which event materially
and adversely affects the interests of the Certificateholders or (y) any
documentation described in Section 2.1 of the Pooling and Servicing Agreement
relating to any Mortgage Loan shall be missing or defective, as identified in
the Trustee's Exception Report pursuant to the Pooling and Servicing Agreement,
and such absence or defect materially and adversely affects the interests of the
Certificateholders; and (ii) LTC shall not have cured in all material respects
such event, omission or defect within ninety (90) days of discovery of such
event, omission or defect, then (iii) LTC shall, at its option, either
repurchase such Mortgage Loan or substitute a new mortgage loan meeting and
subject to the requirements of Section 2.2(b) of the Pooling and Servicing
Agreement (a "Substitute Mortgage Loan") for the Mortgage Loan to which such
event, omission or defect relates, and in either case, as provided in clause (c)
below, within such ninety (90) day period.
The repurchase or substitution obligation described in this paragraph
will constitute the sole remedy of the Certificateholders or the Trustee, on
behalf of the Certificateholders, with respect to the conditions described in
this paragraph (a).
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<PAGE>
(b) If, as of the Closing Date of a Mortgage Loan, the representation
and warranty contained in Section 3.2(xliii) was not true and correct as to the
related Mortgaged Property LTC shall, within 90 days of receipt from the Master
Servicer, the Special Servicer or the Trustee of a written request and of the
certifications described in (iii) below, at LTC's option, either (x) cure such
Disqualifying Condition or (y) repurchase the affected Mortgage Loan or Mortgage
Loans on a whole loan servicing-released basis at the Repurchase Price in the
manner provided in Section 2.2(b) of the Pooling and Servicing Agreement,
provided that each of the following conditions is satisfied:
(i) Such Mortgage Loan is at least 60 days delinquent and no
action has been taken to initiate foreclosure proceedings or
to accept a deed in lieu of foreclosure and the Special
Servicer has not taken possession of, or taken over the
operation of, the related Mortgaged Property, and the
Special Servicer shall have delivered to LTC a certification
as to the foregoing;
(ii) The Special Servicer shall have delivered to LTC and the
Trustee, at the expense of the Trust Fund, an Environmental
Assessment indicating the presence of a Disqualifying
Condition; and
(iii) The Master Servicer and the Special Servicer shall each
provide a written certification to LTC that the Special
Servicer has acted in compliance with the servicing standard
set forth in Section 3.1 of the Pooling and Servicing
Agreement and has not, by any action, created, caused or
contributed to a Disqualifying Condition.
The repurchase obligation described in this paragraph will constitute
the sole remedy of the Certificateholders or the Trustee, on behalf of the
Certificateholders, with respect to a Disqualifying Condition. LTC
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<PAGE>
shall not be responsible for any Disqualifying Condition which may arise on a
Mortgaged Property after the Closing Date.
(c) If LTC elects to repurchase a Mortgage Loan in accordance with
the terms and conditions set forth herein and in the Pooling and Servicing
Agreement, the repurchase shall be for an amount equal to the Repurchase Price
as of the date of repurchase. If LTC elects to substitute a Substitute Mortgage
Loan hereunder, such substitution shall be effected under the terms and
conditions, and subject to the limitations, provided in Section 2.2(b) of the
Pooling and Servicing Agreement, including (i) the requirement that LTC deliver
to the Company or the Trustee, as the case may be, for each such Mortgage Loan
each of the documents set forth in Section 2.1 of the Pooling and Servicing
Agreement and such documents as are requested by the Company or the Trustee and
(ii) the receipt by the Trustee of the prior written consent from the Rating
Agencies that such substitution of a Mortgage Loan will not result in the
downgrade or withdrawal of a rating then assigned to any class of Certificates.
(d) In the case of a Substitute Mortgage Loan, LTC will provide the
Rating Agencies with substantially the same environmental information which LTC
provided with respect to the Mortgaged Properties securing the Mortgage Loans
originally deposited into the Trust Fund on the Closing Date. In addition, any
substitution of a Mortgage is subject to the receipt by the Trustee of written
confirmation by each Rating Agency that such substitution will not result in a
reduction or withdrawal of the rating of any Class of Certificates then
outstanding.
The Substitute Mortgage Loan shall have characteristics such that the
events set forth in Section 3.2 herein (other than Section 3.2(xxxiv)) do not
exist as of the date of substitution and would not have existed had such
Substitute Mortgage Loan originally been a Mortgage Loan and shall be subject to
the remedies set forth in this Section 4.1.
ARTICLE V
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<PAGE>
MISCELLANEOUS
Section 5.1 Notices. Except as otherwise expressly provided herein,
-------
all notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing and shall be deemed to have been duly given or
made upon receipt at the addresses specified below, or to such other addresses
as may be designated by any party in a written notice to the other parties
hereto.
If to LTC, as follows:
LTC Properties, Inc.
300 Esplanade Drive,
Suite 1860
Oxnard, CA 93030
Attention: Andre C. Dimitriadis
with copies thereof to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Warren T. Buhle
If to the Company, as follows:
LTC REMIC Corporation
300 Esplanade Drive, Suite 1860
Oxnard, CA 93030
Attention: James J. Pieczynski
with copies thereof to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Warren T. Buhle
Section 5.2 Successors and Assigns; Assignments. This Agreement
-----------------------------------
shall be binding upon and inure to the benefit of LTC, the Company and their
respective successors and assigns, except that LTC shall not assign or transfer
(by operation of law or otherwise) any of its rights or obligations under this
Agreement without the prior written consent of the Company and the Trustee and
33
<PAGE>
any assignment hereof by LTC without such prior written consent shall be null
and void for all purposes; provided, however, no such consent shall be required
-------- -------
if such assignment or transfer would not result in the downgrading or withdrawal
of the rating or ratings then assigned by any Rating Agency to the then-rated
Classes of Certificates, as evidenced in writing by the Rating Agencies. LTC
hereby acknowledges and agrees that the Company is assigning to the Trustee all
of its right, title and interest in and to this Agreement for the benefit of the
Certificateholders pursuant to the Pooling and Servicing Agreement. The rights
of the Company hereunder are hereby assigned to the Trustee which shall be
assigned to a third party beneficiary hereof.
Section 5.3 Amendments and Waivers. Neither this Agreement nor any
----------------------
terms hereof or thereof may be amended, supplemented, modified or waived except
by means of written instrument executed by each of the parties hereto and the
Trustee.
Section 5.4 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW).
Section 5.5 Effectiveness. This Agreement shall become effective
-------------
upon the execution and delivery of this Agreement by LTC on the Closing Date.
Section 5.6 Headings Descriptive. The headings of the several
--------------------
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
Section 5.7 Marshalling; Recapture. The Company shall not be under
----------------------
any obligation to marshal any assets in favor of LTC or any other party. To the
extent the Company receives any payment by or on behalf of LTC, which payment or
any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to LTC or its estate, trustee,
receiver, custodian or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such payment
or
34
<PAGE>
repayment, the obligation or part thereof which has been paid, reduced or
satisfied by the amount so repaid shall be reinstated by the amount so repaid
and shall be included within the liabilities of LTC to the Company as of the
date such initial payment, reduction or satisfaction occurred.
Section 5.8 Severability. In case any provision or obligation under
------------
this Agreement or the other Transaction Documents shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
Section 5.9 Capitalization. Capitalized terms used in this Agreement
--------------
that are not defined herein shall have their respective meanings set forth in
the Pooling and Servicing Agreement.
35
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute and deliver this Agreement as of the date
first above written.
LTC PROPERTIES, INC.
By: /s/ James J. Pieczynski
----------------------------
Name: James J. Pieczynski
Title: Senior Vice President &
Chief Financial Officer
LTC REMIC CORPORATION
By: /s/ Chris Ishikawa
----------------------------
Name: Chris Ishikawa
Title: Treasurer
Accepted by:
GMAC COMMERCIAL MORTGAGE CORPORATION
By: /s/ Barry A. Moore
----------------------------
Name: Barry A. Moore
Title: Executive Vice President
36
<PAGE>
EXHIBIT 11.1
LTC PROPERTIES, INC.
COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
(In thousands except per share amount)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
------- -------
<S> <C> <C>
Primary:
Net income applicable to common shares $ 5,455 $ 4,718
======= =======
Applicable common shares:
Weighted average outstanding shares during the period 18,415 17,846
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options using the
treasury stock method) 425 168
------- -------
Total 18,840 18,014
======= =======
Net income per share of common stock $ 0.29 $ 0.26
======= =======
Fully diluted:
Net income $ 5,455 $ 4,718
Add back minority interest -(a) -(a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 9.75% convertible subordinated debentures 52 426
Reduction of interest and amortization expenses resulting from assumed
conversion of 8.5% convertible subordinated debentures -(a) -(a)
Reduction of interest and amortization expenses resulting from assumed
conversion of 8.25% convertible subordinated debentures -(a) -(a)
Reduction of interest and amortization expenses resulting from assumed
conversion of 7.75% convertible subordinated debentures -(a) N/A
Less applicable income taxes - -
------- -------
Adjusted net income applicable to common shares $ 5,507 $ 5,144
======= =======
Applicable common shares:
Weighted average outstanding shares during the period 18,415 17,846
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options using the
treasury stock method) 426 200
Assumed conversion of parnership units -(a) -(a)
Assumed conversion of 9.75% convertible subordinated debentures 207 1,777
Assumed conversion of 8.5% convertible subordinated debentures -(a) -(a)
Assumed conversion of 8.25% convertible subordinated debentures -(a) -(a)
Assumed conversion of 7.75% convertible subordinated debentures -(a) N/A
Less contingent shares - -
------- -------
Total 19,048 19,823
======= =======
Net income per share of common stock $ 0.29 $ 0.26
======= =======
</TABLE>
(a) Conversion would be anti-dilutive and is therefore not assumed in the
computation of fully diluted net income per share of common stock.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,597
<SECURITIES> 92,917
<RECEIVABLES> 117,792
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 158,353
<DEPRECIATION> 6,733
<TOTAL-ASSETS> 378,428
<CURRENT-LIABILITIES> 0
<BONDS> 187,962
0
0
<COMMON> 186
<OTHER-SE> 174,180
<TOTAL-LIABILITY-AND-EQUITY> 378,428
<SALES> 0
<TOTAL-REVENUES> 12,363
<CGS> 0
<TOTAL-COSTS> 6,908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 4,654
<INCOME-PRETAX> 5,455
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,455
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
