<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY [ ], 1997.
REGISTRATION NO. 333-[ ]
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-11
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
--------------------
ASSET SECURITIZATION CORPORATION
(Exact name of registrant as specified in governing instruments)
--------------------
2 WORLD FINANCIAL CENTER
BUILDING B, 21ST FLOOR
NEW YORK, NEW YORK 10281-1198
(Address of principal executive offices)
ROBERT K. ROTTMANN
CHIEF FINANCIAL OFFICER AND TREASURER
ASSET SECURITIZATION CORPORATION
2 WORLD FINANCIAL CENTER
BUILDING B, 21ST FLOOR
NEW YORK, NEW YORK 10281-1198
(Name and address of agent for service)
--------------------
Copies to:
BARRY FUNT, ESQ.
ASSET SECURITIZATION CORPORATION ANNA H. GLICK, ESQ.
2 WORLD FINANCIAL CENTER CADWALADER, WICKERSHAM & TAFT
BUILDING B, 21ST FLOOR 100 MAIDEN LANE
NEW YORK, NEW YORK 10281-1198 NEW YORK, NEW YORK 10038
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
Proposed maximum Proposed maximum
Amount being offering aggregate Amount of registration fee
Title of securities being registered registered price per unit (1) offering price (1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Mortgage Pass-Through
Certificates, Series 1997-D4 $1,000,000 100% $1,000,000 $303.03
================================================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee.
--------------------------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM CAPTION IN PROSPECTUS
- ---- ---------------------
<S> <C> <C>
Item 1. Forepart of the Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus.
Item 2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus.
Item 3. Summary Information, Risk Factors and Executive Summary; Summary of Prospectus; Risk Factors and
Ratio of Earnings to Fixed Charges. Other Special Considerations
Item 4. Determination of Offering Price. *
Item 5. Dilution. *
Item 6. Selling Security Holders. *
Item 7. Plan of Distribution. Method of Distribution
Item 8. Use of Proceeds. Use of Proceeds
Item 9. Selected Financial Data. *
Item 10. Management's Discussion and Analysis of Financial *
Condition and Results of Operations.
Item 11. General Information as to Registrant. The Depositor
Item 12. Policy with Respect to Certain Activities. Outside Front Cover Page; Description of the Offered Certificates
Item 13. Investment Policies of Registrant. Outside Front Cover Page; Description of the Offered
Certificates; Description of the Mortgage Pool
Item 14. Description of Real Estate. Description of the Mortgage Pool
Item 15. Operating Data. *
Item 16. Tax Treatment of Registrant and Its Certain Federal Income Tax Consequences
Security Holders.
Item 17. Market Price of and Dividends on the Registrant's *
Common Equity and Related Stockholder Matters.
Item 18. Description of Registrant's Securities. Outside Front Cover Page; Risk Factors and Other Special
Considerations; Description of the Offered Certificates;
Description of the Mortgage Pool; Certain Federal Income Tax
Consequences
Item 19. Legal Proceedings. *
Item 20. Security Ownership of Certain Beneficial Owners *
and Management.
Item 21. Directors and Executive Officers. *
Item 22. Executive Compensation. *
Item 23. Certain Relationships and Related Transactions. *
Item 24. Selection, Management and Custody of Registrant's Description of the Offered Certificates; Description of the
Investments. Mortgage Pool; The Pooling and Servicing Agreement-Servicing
of the Mortgage Loans
Item 25. Policies with Respect to Certain Transactions. *
Item 26. Limitations of Liability. The Pooling and Servicing Agreement-Certain Matters Regarding
the Depositor, the Servicer and the Special Servicer
Item 27. Financial Statements and Information. Financial Information
Item 28. Interests of Named Experts and Counsel. *
Item 29. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities.
</TABLE>
- --------------
* Not applicable or answer is in the negative.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED FEBRUARY __, 1997
$[ ] (APPROXIMATE)
ASSET SECURITIZATION CORPORATION, DEPOSITOR
NOMURA ASSET CAPITAL CORPORATION, MORTGAGE LOAN SELLER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-D4
The Commercial Mortgage Pass-Through Certificates, Series 1997-D4 (the
"Certificates") will represent beneficial ownership interests in a trust fund
(the "Trust Fund") to be created by Asset Securitization Corporation (the
"Depositor"). The Trust Fund will consist primarily of a pool (the "Mortgage
Pool") of [ ] fixed-rate mortgage loans, with original terms to maturity of
generally not more than thirty years (the "Mortgage Loans"), secured by first
liens on [ ] commercial and multifamily residential properties (the "Mortgaged
Properties"). The Mortgaged Properties consist of multifamily residential
housing, full and limited service hotels, mobile home and recreational vehicle
parks, anchored and unanchored retail properties, nursing homes, office
buildings and industrial properties. The characteristics of the Mortgage Loans
and the Mortgaged Properties are more fully described herein under "Description
of the Mortgage Pool." The Mortgage Loans were either purchased or originated
by Nomura Asset Capital Corporation (the "Mortgage Loan Seller") and will be
sold to the Depositor on or prior to the date of initial issuance of the
Certificates.
(cover page continued)
INITIAL CLASS
CERTIFICATE PASS-THROUGH
BALANCE(1) RATE(2) DESCRIPTION
------------- ------------ -----------
Class B-1......... $ % Variable Rate
Class B-2......... Variable Rate
- --------------
(1) Approximate, subject to adjustment as described herein.
(2) The Pass-Through Rates shown on the table above for the Class B-1 and Class
B-2 Certificates are the rates for the Distribution Date occurring in [ ],
1997. The Pass-Through Rates for such Classes for each subsequent
Distribution Date will be calculated as provided herein. See "Description
of the Offered Certificates--Distributions" herein.
-------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MORTGAGE LOAN SELLER, THE ORIGINATORS, THE SERVICER,
THE SPECIAL SERVICER, THE TRUSTEE, THE FISCAL AGENT OR ANY OF
THEIR RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR
THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------
The Offered Certificates will be purchased by Nomura Securities
International, Inc. (the "Underwriter") from the Depositor and will be offered
by the Underwriter from time to time to the public in negotiated transactions
or otherwise at varying prices to be determined at the time of sale. Proceeds
to the Depositor from the sale of the Offered Certificates will be
approximately [ ]% of the initial aggregate principal balance thereof as of the
date on which the Certificates are issued plus accrued interest from such date
as described herein before deducting expenses payable by the Depositor.
There is currently no secondary market for the Offered Certificates.
The Underwriter currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so. There can be no assurance that
such a market will develop or, if it does develop, that it will continue. See
"Method of Distribution" herein.
The Offered Certificates are offered by the Underwriter subject to
prior sale, when, as and if issued, delivered to and accepted by the
Underwriter. It is expected that delivery of the Offered Certificates will be
made through the facilities of The Depository Trust Company ("DTC") in the
United States and Centrale de Livraison de Valeurs Mobiliers S.A. ("CEDEL") and
The Euroclear System ("Euroclear") in Europe, on or about [ ], 1997.
NOMURA SECURITIES INTERNATIONAL, INC.
<PAGE>
(continuation of cover page)
The Certificates will consist of eighteen classes (each, a "Class"),
designated as the Class A-1A Certificates, Class A-1B Certificates, Class A-1C
Certificates, Class A-CS1 Certificates, Class A-CS2 Certificates, Class A-1D
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates, Class A-5 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class B-3H Certificates, Class V-1
Certificates, Class V-2 Certificates, Class LR Certificates and Class R
Certificates. Only the Class B-1 Certificates and Class B-2 Certificates
(collectively, the "Offered Certificates") are offered hereby; the Class A-1A,
Class A-1B, Class A-1C, Class A-1D, Class A-CS1, Class A-CS2, Class A-2, Class
A-3, Class A-4 and Class A-5 (collectively, the "Senior Certificates") are
being offered concurrently with the Offered Certificates under a separate
prospectus and are not offered hereby; and the Class B-3, Class B-3H
(collectively, the "Private Subordinate Certificates"), Class V-1, Class V-2,
Class R and Class LR Certificates are not offered hereby.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTIONS "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS" HEREIN COMMENCING
ON PAGE [ ].
Distributions on the Offered Certificates will be made, to the extent
of Available Funds, on the 13th day of each month, or, if any such 13th day is
not a business day, on the next succeeding business day, beginning in [ ] 1997
(each, a "Distribution Date"); provided, however, the Distribution Date will be
no earlier than the second business day following the 11th day of each month
and, provided, further, that if the 11th day of any month is not a business
day, the Distribution Date will be the third business day following the 11th
day of such month. Distributions allocable to interest on the Offered
Certificates on each Distribution Date will be based on the pass-through rate
for the respective Class as described herein (the "Pass-Through Rate") and the
aggregate principal balance (the "Certificate Balance") of such Class
outstanding immediately prior to such Distribution Date. Distributions in
respect of principal of the Offered Certificates will be made as described
herein under "Description of the Offered Certificates--Distributions--
Priorities."
THE YIELD TO MATURITY ON EACH CLASS OF THE OFFERED CERTIFICATES WILL
BE SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING BOTH
VOLUNTARY AND INVOLUNTARY PREPAYMENTS, DEFAULTS AND LIQUIDATIONS) ON THE
MORTGAGE LOANS AND PAYMENTS WITH RESPECT TO REPURCHASES THEREOF THAT ARE
APPLIED IN REDUCTION OF THE CERTIFICATE BALANCE OF SUCH CLASS. THE YIELD TO
INVESTORS WILL BE SENSITIVE TO THE TIMING, REPURCHASES OR PURCHASES OF, AND
MAGNITUDE OF LOSSES ON THE MORTGAGE LOANS DUE TO LIQUIDATIONS. NO
REPRESENTATION IS MADE AS TO THE RATE OF PREPAYMENTS ON OR LIQUIDATIONS OF, THE
MORTGAGE LOANS OR AS TO THE ANTICIPATED YIELD TO MATURITY OF ANY OFFERED
CERTIFICATE. SEE "PREPAYMENT AND YIELD CONSIDERATIONS" HEREIN.
[_____________] will act as servicer of the Mortgage Loans (the
"Servicer"). The obligations of the Servicer with respect to the Certificates
will be limited to its contractual servicing obligations and the obligation
under certain circumstances to make Advances in respect of the Mortgage Loans.
See "The Pooling and Servicing Agreement--Advances" herein. The Servicer will
not act as an insurer or credit enhancer of the Mortgage Pool. If the Servicer
fails to make a required Advance, LaSalle National Bank (the "Trustee"),
subject to a recoverability determination, will be required to make such
Advance. If the Trustee fails to make a required Advance, ABN AMRO Bank N.V.,
as the fiscal agent of the Trustee (the "Fiscal Agent"), subject to a
recoverability determination, will be required to make the Advance.
It is a condition to the issuance of the Offered Certificates that (i)
the Senior Certificates are issued and offered and (ii) the Class B-1
Certificates be rated BB by ________ and the Class B-2 Certificates be rated
"B" by ________. For limitations with respect to the ratings of the Offered
Certificates, see "Rating" herein. The Rated Final Distribution Date of each
Class of Offered Certificates is [ ].
Elections will be made to treat designated portions of the Trust Fund,
exclusive of the Reserve Accounts, Lock Box Accounts, Cash Collateral Accounts,
the Excess Interest and the Default Interest (each as defined herein) (such
portions of the Trust Fund, the "Trust REMIC") as two separate "real estate
mortgage investment conduits" (each a "REMIC" or, alternatively, the
"Upper-Tier REMIC" and the "Lower-Tier REMIC," respectively) for federal income
tax purposes. The Class A-1A, Class A-1B, Class A-1C, Class A-CS1, Class A-CS2,
Class A-1D, Class A-2, Class A-3, Class A-4, Class A-5, Class B-1, Class B-2,
Class B-3 and Class B-3H Certificates will constitute "regular interests" in
the Upper-Tier REMIC, and the Class R and Class LR Certificates will constitute
the sole Class of "residual interests" in the Upper-Tier REMIC and Lower-Tier
REMIC, respectively. The Offered Certificates, together with the Class A-CS2,
Class B-1, Class B-2, Class B-3 and Class B-3H Certificates, are sometimes
collectively referred to herein as the "Regular Certificates." The Class V-1
Certificates will represent the right to receive Default Interest and the Class
V-2 Certificates will represent the right to receive Excess Interest, which
portions of the Trust Fund will be treated as a grantor trust for federal
income tax purposes. See "Certain Federal Income Tax Consequences" herein.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS TO
WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The distribution of this Prospectus dated [ ], 1997, and the offer or
sale of Certificates may be restricted by law in certain jurisdictions. Persons
into whose possession this Prospectus or any Certificates come must inform
themselves about, and observe, any such restrictions. In particular, there are
restrictions on the distribution of this Prospectus and the offer or sale of
Certificates in the United Kingdom (see "Method of Distribution" herein).
The Depositor does not intend to register the Certificates under the
Securities and Exchange Law of Japan (the "SEL"). Accordingly, the Certificates
may not be offered or sold directly or indirectly in Japan, and this Prospectus
may not be distributed or circulated in Japan, except in circumstances that do
not constitute an offer to the public within the meaning of the SEL.
The transferability of the Offered Certificates is subject to certain
limitations. See "Description of the Offered Certificates--Transfer
Restrictions"
<PAGE>
EXECUTIVE SUMMARY
Prospective investors are advised to carefully read, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
relating to the Offered Certificates in making their investment decision. The
following Executive Summary does not include all relevant information relating
to the securities and collateral described herein, particularly with respect to
the risks and special considerations involved with an investment in such
securities, and is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Prior to making an
investment decision, a prospective investor should carefully review this
Prospectus. Capitalized terms used and not otherwise defined herein have the
respective meanings assigned to them in this Prospectus. See "Index of
Significant Definitions" in this Prospectus.
<TABLE>
<CAPTION>
Approximate Approximate
Percent of Credit CERTIFICATE SUMMARY
Total Support
-------------------------------------------------------------------------------------
Class A-CS1
$[ ]
(Notional)
<S> <C> <C> <C> <C> <C>
[ ]% [ ]% CLASS A-1A $[ ] ( ) ( )
-------------------------------------------------------------------------------------
[ ]% [ ]% CLASS A-1B $[ ] ( )
---------------------------------------------------------------
[ ]% [ ]% CLASS A-1C $[ ] ( ) Class A-CS2
---------------------------------------------------------------
[ ]% [ ]% CLASS A-1D $[ ] ( ) $[ ]
---------------------------------------------------------------
[ ]% [ ]% CLASS A-2 $[ ] ( ) (Notional)
---------------------------------------------------------------
[ ]% [ ]% CLASS A-3 $[ ] ( )
--------------------------------------------------------------- ( )
[ ]% [ ]% CLASS A-4 $[ ] ( )
[ ]% [ ]% CLASS A-5 $[ ] ( )
-------------------------------------------------------------------------------------
[ ]% [ ]% CLASS B-1 $[ ] ( )
-------------------------------------------------------------------------------------
[ ]% [ ]% CLASS B-2 $[ ] ( )
-------------------------------------------------------------------------------------
[ ]% [ ]% CLASS B-3 $[ ] ( )
AND (approx.)
CLASS B-3H
-------------------------------------------------------------------------------------
-------------------
OFFERED CERTIFICATES Rating Agencies: ( )
-------------------
-------------------
CERTIFICATES NOT OFFERED HEREBY
-------------------
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
INITIAL AGGREGATE % OF PASS-THROUGH AVG. PRINCIPAL
CLASS RATINGS CERTIFICATE PRINCIPAL TOTAL DESCRIPTION RATE AS LIFE* WINDOW*
NOTIONAL AMOUNT OF CUT-OFF DATE (YRS.)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Senior Certificates**
- --------------------------------------------------------------------------------------------------------------------
A-1A $ % [Fixed Rate] %
- --------------------------------------------------------------------------------------------------------------------
A-1B $ % [Fixed Rate] %
- --------------------------------------------------------------------------------------------------------------------
A-1C $ % [Fixed Rate] %
- --------------------------------------------------------------------------------------------------------------------
A-1D $ % [Fixed Rate] %
- --------------------------------------------------------------------------------------------------------------------
A-2 $ % [Weighted Average %
Coupon]
- --------------------------------------------------------------------------------------------------------------------
A-3 $ % [Weighted Average %
Coupon]
- --------------------------------------------------------------------------------------------------------------------
A-4 $ % [Weighted Average %
Coupon]
- --------------------------------------------------------------------------------------------------------------------
A-5 $ % [Weighted Average %
Coupon]
- --------------------------------------------------------------------------------------------------------------------
A-CS1 $ n/a [Interest Only: Weighted % n/a
Average Coupon]
- --------------------------------------------------------------------------------------------------------------------
A-CS2 $ n/a [Interest Only: Weighted % n/a
Average Coupon]
- --------------------------------------------------------------------------------------------------------------------
Offered Certificates
- --------------------------------------------------------------------------------------------------------------------
B-1 $ [ ]% [Weighted Average
Coupon]
- --------------------------------------------------------------------------------------------------------------------
B-2 $ [ ]% [Weighted Average
Coupon]
- --------------------------------------------------------------------------------------------------------------------
Non-Offered Certificates**
- --------------------------------------------------------------------------------------------------------------------
B-3 and B-3H Unrated $ [ ]%
(approx.)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Based on 0% CPR with all ARD Loans prepaying on the related
Anticipated Repayment Date. See " Prepayment and Yield Considerations" herein.
** Not offered hereby.
OVERVIEW OF THE OFFERED CERTIFICATES:
DISTRIBUTION DATE......................... The 13th day of each month, or if
such 13th day is not a business
day, the business day immediately
following such 13th day, commencing
in 1997; provided, that the
Distribution Date will be no
earlier than the second business
day following the 11th day of each
month; provided, further that if
the 11th day of any month is not a
business day, the Distribution Date
will be the third business day
following the 11th day of such
month.
SCHEDULED FINAL DISTRIBUTION DATE......... [ ].
RATED FINAL DISTRIBUTION DATE............. As to each Class of Offered
Certificates, [ ].
-7-
<PAGE>
OPTIONAL TERMINATION...................... The Trust Fund is subject to early
termination if less than 1% of the
Initial Pool Balance remains
outstanding. See "The Pooling and
Servicing Agreement--Optional
Termination" herein.
FEDERAL TAX STATUS........................ Elections will be made to treat
designated portions of the Trust
Fund as two separate "real estate
mortgage investment conduits" (each
a "REMIC"). The Offered
Certificates will be "regular
interests" in one of the REMICs and
generally will be taxed in the same
manner as debt instruments. Those
portions of the Trust Fund
consisting of Excess Interest and
Default Interest will be treated as
a grantor trust for federal income
tax purposes.
ERISA..................................... The Offered Certificates should not
be acquired by, or with the assets
of, employee benefit plans subject
to Title I of ERISA or Section 4975
of the Code, unless the purchaser
is an insurance company using the
assets of its general account under
circumstances whereby the purchase
and subsequent holding of the
Certificates would not constitute
or result in a prohibited
transaction under ERISA or the
Code. See "ERISA Considerations"
and "Description of the Offered
Certificates--Transfer
Restrictions" herein.
SMMEA..................................... None of the Offered Certificates
are mortgage-related securities
pursuant to the Secondary Mortgage
Market Enhancement Act of 1984. See
"Legal Investment" herein.
CLOSING DATE.............................. On or about [ ], 1997.
CUT-OFF DATE.............................. [ ], 1997.
STRUCTURAL SUMMARY:
INTEREST PAYMENTS......................... On each Distribution Date, each
Class of Offered Certificates will
be entitled to receive the Interest
Distribution Amount for such Class
and such Distribution Date,
together with any unpaid Interest
Shortfalls previously allocated to
such Class, in each case to the
extent of Available Funds remaining
after making distributions of
principal and interest to each
outstanding Class of Certificates
more senior to such Class. See
"Description of the Offered
Certificates--Distributions"
herein.
PRINCIPAL PAYMENTS........................ The Principal Distribution Amount
for each Distribution Date will be
distributed, first, to the Senior
Certificates, until each of the
Certificate Balances thereof has
been reduced to zero, and then
sequentially to each of the Classes
of Offered Certificates until their
respective Certificate Balances are
reduced to zero and in
reimbursement of any Realized
Losses previously allocated to such
Class, in each case to the extent
of Available Funds remaining after
making distributions to each
outstanding Class of Certificates
more senior to such Class. See
"Description of the Offered
Certificates--Distributions"
herein.
CREDIT ENHANCEMENT........................ Each Class of Offered Certificates
will be protected by the
subordination offered by the other
Classes of Certificates that bear a
-8-
<PAGE>
later sequential designation. See
"Description of the Offered
Certificates--Subordination"
herein.
ADVANCES.................................. Subject to the limitations
described herein, the Servicer is
required to make advances (each
such amount, a "P&I Advance") in
respect of delinquent Monthly
Payments (but not Balloon Payments)
on the Mortgage Loans. If the
Servicer fails to make an Advance
required to be made, the Trustee
shall then be required to make such
Advance. If both the Servicer and
the Trustee fail to make such
Advance, the Fiscal Agent shall be
required to make such Advance. See
"The Pooling and Servicing
Agreement--Advances" herein.
COLLATERAL OVERVIEW:
THE MORTGAGE POOL......................... The tables below set forth certain
summary information regarding the
Mortgage Loans. See "Description of
the Mortgage Pool" herein for
certain additional information
regarding the Mortgage Loans. See
Annex A hereto for certain
characteristics of Mortgage Loans
on a loan- by-loan basis. All
percentages of Initial Pool
Balances used herein are based upon
the Cut-off Date Principal Balance
of the related Mortgage Loan or,
with respect to Mortgage Loans
secured by more than one Mortgaged
Property (each, a "Pool Loan"), are
based upon the Allocated Loan
Amount (as defined herein) of the
related Mortgaged Property. All
weighted average information
regarding the Mortgage Loans
reflects weighting of the Mortgage
Loans by their Cut-off Date
Principal Balances or, with respect
to Pool Loans, Allocated Loan
Amounts. The "Cut-off Date
Principal Balance" of each Mortgage
Loan is equal to the unpaid
principal balance thereof as of the
Cut-off Date, after application of
all payments of principal due on or
before such date, whether or not
received. All numerical information
provided herein with respect to the
Mortgage Loans is provided on an
approximate basis. Certain
statistical information set forth
herein may change prior to the date
of issuance of the Certificates due
to changes in the composition of
the Mortgage Pool prior to the
Closing Date. No Mortgage Loan
represents more than 5% of the
entire pool of Mortgage Loans. See
"Description of the Mortgage
Pool--Changes in Mortgage Pool
Characteristics" herein.
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
GENERAL CHARACTERISTICS
Initial Pool Balance (1)..................................................................... $
Number of Mortgage Loans.....................................................................
Number of Mortgaged Properties...............................................................
Average Mortgage Loan Balance................................................................ $
Weighted Average Mortgage Rate............................................................... %
Weighted Average Remaining Term to Maturity or Anticipated Repayment Date
Weighted Average DSCR (2)....................................................................
ARD Loans (3)................................................................................ %
Fully Amortizing Loans (other than ARD Loans)................................................ %
Balloon Loans................................................................................ %
</TABLE>
- --------------
(1) Subject to a permitted variance of plus or minus 5%.
(2) Debt Service Coverage Ratio ("DSCR") for any Mortgage Loan is equal to the
Net Cash Flow from the related Mortgaged Property divided by the Annual
Debt Service for such Mortgaged Property (as such terms are defined under
"Description of the Mortgage Pool--Additional Mortgage Loan Information").
(3) "ARD Loans" are Mortgage Loans that substantially fully amortize by their
respective maturity dates but provide for an "Anticipated Repayment Date"
on which a substantial amount of principal will be due if the borrower
elects to prepay the Mortgage Loan in full on such date. Such Mortgage
Loans provide for an increased interest rate after the Anticipated
Repayment Date and require the application of Excess Cash Flow to
amortize principal after the Anticipated Repayment Date. See "Description
of the Mortgage Pool--Certain Terms and Conditions of the Mortgage Loans"
herein.
CUT-OFF DATE PRINCIPAL BALANCES
NUMBER OF
CUT-OFF DATE PRINCIPAL % OF INITIAL MORTGAGE
BALANCE POOL BALANCE LOANS
- ------------------------- ------------ ---------
$ 0- 4,999,999 %
5,000,000- 9,999,999 %
10,000,000- 14,999,999 %
15,000,000- 19,999,999 %
20,000,000- 24,999,999 %
25,000,000- 29,999,999 %
50,000,000- 54,999,999 %
65,000,000- 69,999,999 %
70,000,000- 75,000,000 %
-10-
<PAGE>
SIGNIFICANT GEOGRAPHICAL CONCENTRATION OF MORTGAGED PROPERTIES
NUMBER OF
% OF INITIAL MORTGAGED
STATE POOL BALANCE PROPERTIES
- ----- ------------ ----------
[ ] ................... %
[ ] ................... %
[ ] ................... %
[ ] ................... %
[ ] ................... %
[ ] ................... %
DEBT SERVICE COVERAGE RATIOS (1)
NUMBER OF
RANGE OF DEBT SERVICE COVERAGE % OF INITIAL MORTGAGE
RATIOS POOL BALANCE LOANS
- ------------------------------ ------------ ---------
1.2-1.299.............................. %
1.3-1.399.............................. %
1.4-1.499.............................. %
1.5-1.599.............................. %
1.6-1.699.............................. %
1.7-1.799.............................. %
1.8-1.899.............................. %
1.9-1.999.............................. %
2.0-2.199.............................. %
2.2-2.299.............................. %
- -------------------
(1) Debt Service Coverage Ratio ("DSCR") for any Mortgage Loan is equal to the
Net Cash Flow from the related Mortgaged Property divided by the Annual
Debt Service for such Mortgaged Property (as such terms are defined under
"Description of the Mortgage Pool--Additional Mortgage Loan Information").
LOAN-TO-VALUE RATIOS (1)
NUMBER OF
RANGE OF LOAN TO VALUE % OF INITIAL MORTGAGE
RATIOS POOL BALANCE LOANS
- ---------------------- ------------ ---------
40-44.9................................ %
45-49.9................................ %
50-54.9................................ %
55-59.9................................ %
60-64.9................................ %
65-69.9................................ %
70-74.9................................ %
75-79.9................................ %
- -------------------
(1) The "Loan-to-Value Ratio" for any Mortgage Loan is determined as set forth
in "Description of the Mortgage Pool--Additional Mortgage Loan
Information" herein.
-11-
<PAGE>
PROPERTY TYPES
NUMBER OF
% OF INITIAL MORTGAGED
PROPERTY TYPES POOL BALANCE PROPERTIES
- -------------- ------------ ----------
Multifamily................................ %
Full Service Hotel......................... %
Limited Service Hotel...................... %
Nursing Home............................... %
Mobile Home Park........................... %
Office Building............................ %
Anchored Retail............................ %
Unanchored Retail.......................... %
Industrial................................. %
ANTICIPATED REPAYMENT BY YEAR(1)
NUMBER OF
% OF INITIAL MORTGAGE
YEAR POOL BALANCE LOANS
- ---- ------------ ---------
2003....................................... %
2005....................................... %
2006....................................... %
2008....................................... %
2009....................................... %
2010....................................... %
2011....................................... %
2013....................................... %
2015....................................... %
2016....................................... %
2021....................................... %
- -------------------
(1) For any Mortgage Loan, the year shown is the related Maturity Date or, if
the Mortgage Loan is an ARD Loan, the year in which the related
Anticipated Repayment Date occurs.
DELINQUENCY STATUS AS OF ________ 1, 1997
NUMBER OF
% OF INITIAL MORTGAGE
STATUS POOL BALANCE LOANS
- ------ ------------ ---------
No Delinquencies........................... %
-12-
<PAGE>
PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Executive Summary................................................................................................ 6
Summary of Prospectus............................................................................................16
Risk Factors and Other Special Considerations....................................................................31
The Mortgage Loans...........................................................................................31
The Certificates.............................................................................................43
Description of the Mortgage Pool.................................................................................50
General......................................................................................................50
Security for the Mortgage Loans..............................................................................51
Significant Mortgage Loans...................................................................................52
The Mortgage Loan Program--Underwriting Standards............................................................52
Certain Terms and Conditions of the Mortgage Loans...........................................................53
Additional Mortgage Loan Information.........................................................................57
Changes in Mortgage Pool Characteristics.....................................................................68
Description of the Offered Certificates..........................................................................68
General......................................................................................................68
Distributions................................................................................................69
Subordination................................................................................................80
Appraisal Reductions.........................................................................................80
Delivery, Form and Denomination..............................................................................81
Book-Entry Registration......................................................................................82
Definitive Certificates......................................................................................84
Transfer Restrictions........................................................................................85
Prepayment and Yield Considerations..............................................................................85
Yield........................................................................................................85
Rated Final Distribution Date................................................................................87
Weighted Average Life of Offered Certificates................................................................88
Mortgagor Defaults...........................................................................................90
Effect on Offered Certificates...........................................................................90
The Depositor....................................................................................................91
The Pooling and Servicing Agreement..............................................................................91
General......................................................................................................91
Assignment of the Mortgage Loans.............................................................................91
Representations and Warranties; Repurchase...................................................................92
Servicing of the Mortgage Loans; Collection of Payments......................................................98
Advances.....................................................................................................99
Accounts....................................................................................................101
Withdrawals from the Collection Account.....................................................................102
Enforcement of "Due-on-Sale" and "Due-on-Encumbrance" Clauses...............................................103
Inspections.................................................................................................103
Hazard Insurance Policies...................................................................................103
Evidence as to Compliance...................................................................................105
Certain Matters Regarding the Depositor, the Servicer and the Special Servicer..............................105
Events of Default...........................................................................................106
Rights Upon Event of Default................................................................................107
Amendment...................................................................................................107
Voting Rights...............................................................................................108
Realization Upon Mortgage Loans.............................................................................109
-13-
<PAGE>
PAGE
----
Modifications...............................................................................................114
Termination.................................................................................................115
Optional Termination........................................................................................115
The Trustee.................................................................................................116
Duties of the Trustee.......................................................................................117
The Fiscal Agent............................................................................................117
Duties of the Fiscal Agent..................................................................................117
The Servicer................................................................................................118
Servicing Compensation and Payment of Expenses..............................................................118
The Special Servicer...............................................................ERROR! BOOKMARK NOT DEFINED.
Special Servicing...........................................................................................118
Servicer and Special Servicer Permitted to Buy Certificates.................................................120
Reports to Certificateholders...............................................................................120
Use of Proceeds.................................................................................................122
Certain Legal Aspects of Mortgage Loans.........................................................................122
General.....................................................................................................122
Types of Mortgage Instruments...............................................................................122
Leases and Rents............................................................................................123
Personalty..................................................................................................123
Installment Contracts.......................................................................................123
Subordinate Financing.......................................................................................124
Foreclosure.................................................................................................124
Judicial Foreclosure........................................................................................124
Non-Judicial Foreclosure/Power of Sale......................................................................124
Limitations on Lender's Rights..............................................................................125
Rights of Redemption........................................................................................126
Anti-Deficiency Legislation.................................................................................127
Leasehold Risks.............................................................................................127
Bankruptcy Laws.............................................................................................128
Environmental Legislation...................................................................................130
Due-on-Sale and Due-on-Encumbrance..........................................................................130
Acceleration on Default.....................................................................................131
Default Interest, Prepayment Charges and Prepayments........................................................131
Applicability of Usury Laws.................................................................................131
Alternative Mortgage Instruments............................................................................132
Soldiers' and Sailors' Civil Relief Act of 1940.............................................................132
Forfeitures in Drug and RICO Proceedings....................................................................132
Certain Laws and Regulations................................................................................133
Type of Mortgaged Property..................................................................................133
Americans with Disabilities Act.............................................................................133
Certain Federal Income Tax Consequences.........................................................................133
General.....................................................................................................133
Status of Certificates......................................................................................134
Qualification as a REMIC....................................................................................134
Taxation of Regular Certificates............................................................................136
General..................................................................................................136
Original Issue Discount..................................................................................136
Acquisition Premium......................................................................................138
Market Discount..........................................................................................138
Premium..................................................................................................139
Election to Treat All Interest Under the Constant Yield Method...........................................139
Treatment of Losses......................................................................................139
Sale or Exchange of Regular Certificates.................................................................140
-14-
<PAGE>
PAGE
----
Taxes That May Be Imposed on a REMIC........................................................................141
Liquidation of the REMIC....................................................................................141
Taxation of Certain Foreign Investors.......................................................................141
Backup Withholding..........................................................................................142
Reporting Requirements......................................................................................142
ERISA Considerations............................................................................................143
Legal Investment................................................................................................143
Method of Distribution..........................................................................................144
Legal Matters...................................................................................................145
Financial Information...........................................................................................145
Rating..........................................................................................................145
Available Information...........................................................................................146
Annex A -- Loan Characteristics...................................................................................A
Annex B -- Global Clearance, Settlement and Tax Documentation Procedures..........................................B
Annex C -- Schedule of Weighted Average Net Mortgage Pass-Through Rates...........................................C
INDEX OF TABLES
Range of Debt Service Coverage Ratios............................................................................61
Range of Loan-to-Value Ratios....................................................................................62
Range of Loan-to-Value Ratios at Earlier of Anticipated Repayment Dates or Maturity..............................62
Mortgaged Properties By State....................................................................................63
Range of Year Built..............................................................................................64
Cut-Off Date Loan Amount By Property Type........................................................................64
Types of Mortgaged Properties....................................................................................64
Range of Loan Amounts or Loan Balances...........................................................................65
Range of Anticipated Remaining Term in Months....................................................................65
Range of Remaining Term in Months................................................................................66
Anticipated Repayment By Year....................................................................................66
Range of Mortgage Rates..........................................................................................67
Mortgaged Properties By Originator...............................................................................67
Range of Remaining Lock-Out Period In Months.....................................................................67
</TABLE>
-15-
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in this Summary are defined elsewhere in this
Prospectus. An Index of Significant Definitions included at the end of this
Prospectus sets forth the pages on which the definitions of certain principal
terms appear.
TITLE OF CERTIFICATES..................... Asset Securitization Corporation,
Commercial Mortgage Pass-Through
Certificates, 1997-D4 (the
"Certificates").
CERTIFICATE BALANCE AND NOTIONAL
BALANCE................................. Each Class of Offered Certificates
has the approximate aggregate
initial Certificate Balance set
forth on the cover page of this
Prospectus, subject to a permitted
variance of plus or minus 5%. The
Offered Certificates, together with
the Senior Certificates and the
Private Subordinate Certificates,
will be issued pursuant to a
Pooling and Servicing Agreement to
be dated as of [ ], 1997 (the
"Pooling and Servicing Agreement")
among the Depositor, the Servicer,
the Special Servicer, the Trustee
and the Fiscal Agent.
DEPOSITOR................................. Asset Securitization Corporation, a
Delaware corporation and a wholly
owned subsidiary of Nomura Asset
Capital Corporation (the "Mortgage
Loan Seller"), and an affiliate of
Nomura Securities International,
Inc. (the "Underwriter"). See "The
Depositor" herein.
SERVICER.................................. [________________] (the
"Servicer"). See "The Pooling and
Servicing Agreement--The Servicer"
herein.
SPECIAL SERVICER.......................... [________________].
TRUSTEE................................... LaSalle National Bank, a nationally
chartered bank (the "Trustee"). See
"The Pooling and Servicing
Agreement--The Trustee" herein.
FISCAL AGENT.............................. ABN AMRO Bank N.V., a Netherlands
banking corporation (the "Fiscal
Agent") and the corporate parent of
the Trustee.
THE MORTGAGE LOAN SELLER.................. Nomura Asset Capital Corporation, a
Delaware corporation and the parent
of the Depositor and an affiliate
of the Underwriter.
ORIGINATORS............................... Nomura Asset Capital Corporation, a
Delaware corporation (the "Mortgage
Loan Seller") [and identify
additional originators, if any]
(collectively, the "Originators").
All of the Mortgage Loans were
originated by the Mortgage Loan
Seller or one of the Originators in
accordance with the following table
during the period commencing [ ],
1996 and ending on the Cut-off
Date:
-16-
<PAGE>
ORIGINATORS OF THE MORTGAGE LOANS (1)
% OF
INITIAL NUMBER OF
POOL MORTGAGE
ORIGINATOR BALANCE LOANS
- ---------- ------- ---------
Nomura Asset Capital
Corporation..................... [ ]%
[
]%
- -------------------
(1) All statistical information set forth in this and the following tables
in the Summary regarding the "% of Initial Pool Balance" is based on the
Cut-off Date Principal Balance of the related Mortgage Loan or Loans.
CUT-OFF DATE.............................. [ ], 1997.
CLOSING DATE.............................. On or about [ ], 1997.
DISTRIBUTION DATE......................... The 13th day of each month, or if
such 13th day is not a business
day, the business day immediately
following such 13th day, commencing
in [ ], 1997; provided, however,
that the Distribution Date will be
no earlier than the second business
day following the 11th day of each
month; provided, further, that if
the 11th day of any month is not a
business day, the Distribution Date
will be the third business day
following the 11th day of such
month. A business day is any day
other than a Saturday, a Sunday or
any day on which banking
institutions in the States of
Georgia, Illinois or New York are
authorized or obligated by law,
executive order or governmental
decree to close.
RECORD DATE............................... With respect to each Distribution
Date, the close of business on the
10th day of the month in which such
Distribution Date occurs, or if
such day is not a business day, the
preceding business day; the Record
Date for the Distribution Date
occurring in [ ] 1997 for all
purposes other than the receipt of
distributions is the Closing Date.
INTEREST ACCRUAL PERIOD................... With respect to any Distribution
Date other than the Distribution
Date occurring in [ ] 1997, the
period commencing on and including
the 11th day of the month preceding
the month in which such
Distribution Date occurs and ending
on and including the 10th day of
the month in which such
Distribution Date occurs; the
Interest Accrual Period with
respect to the Distribution Date
occurring in [ ] 1997 is assumed to
consist of ________ days. Each
Interest Accrual Period other than
the Interest Accrual Period with
respect to the Distribution Date
occurring in [ ] 1997 is assumed to
consist of 30 days.
SCHEDULED FINAL DISTRIBUTION DATE......... As to each Class of Offered
Certificates, [ ], the next
Distribution Date occurring after
the latest maturity date of any
Mortgage Loan.
RATED FINAL DISTRIBUTION DATE............. As to each Class of Offered
Certificates, [ ], the Distribution
Date occurring after the latest
Assumed Maturity Date of any of the
Mortgage Loans. The "Assumed
Maturity Date" of (a) any Mortgage
Loan that is not a Balloon Loan is
the maturity date of such Mortgage
Loan and (b) any Balloon Loan is
the date on which such Mortgage
-17-
<PAGE>
Loan would be deemed to mature in
accordance with its original
amortization schedule absent its
Balloon Payment.
COLLECTION PERIOD......................... With respect to a Distribution
Date, the period beginning on the
day after the Due Date in the month
preceding the month in which such
Distribution Date occurs and ending
at the close of business on the Due
Date in the month in which such
Distribution Date occurs.
DUE DATE.................................. With respect to any Distribution
Date and/or any Mortgage Loan, as
the case may be, the 11th (or in
the case of certain of the Mortgage
Loans, if the 11th day is not a
business day, either the next
business day or the first preceding
business day) of the month in which
such Distribution Date occurs.
DENOMINATIONS............................. The Offered Certificates will be
issuable in registered form, in
minimum denominations of
Certificate Balance of [$100,000]
and multiples of [$1] in excess
thereof.
CLEARANCE AND SETTLEMENT.................. Holders of Offered Certificates may
elect to hold their Certificates
through any of The Depository Trust
Company ("DTC") (in the United
States) or Centrale de Livraison de
Valeurs Mobiliers S.A. ("CEDEL") or
The Euroclear System ("Euroclear")
(in Europe). Transfers within DTC,
CEDEL or Euroclear, as the case may
be, will be in accordance with the
usual rules and operating
procedures of the relevant system.
Crossmarket transfers between
persons holding directly or
indirectly through DTC, on the one
hand, and counterparties holding
directly or indirectly through
CEDEL or Euroclear, on the other,
will be effected in DTC through the
relevant Depositaries of CEDEL or
Euroclear. The Depositor may elect
to terminate the book-entry system
through DTC with respect to all or
any portion of any Class of the
Offered Certificates. See
"Description of the Offered
Certificates--Delivery, Form and
Denomination," "--Book-Entry
Registration" and "--Definitive
Certificates" herein.
<PAGE>
THE MORTGAGE LOANS........................ The Mortgage Loan Seller will sell
the Mortgage Loans to the Depositor
and, in connection therewith, will
make certain representations and
warranties, as more fully described
herein. The Depositor will assign
the Mortgage Loans, together with
its rights and remedies in respect
of breaches of the Mortgage Loan
Seller's representations and
warranties to the Trustee for the
benefit of Certificateholders. With
respect to Mortgage Loans acquired
by the Mortgage Loan Seller from a
third party, the Mortgage Loan
Seller will also assign to the
Depositor and the Depositor will
assign to the Trustee for the
benefit of the Certificateholders,
any rights and remedies in respect
of breaches of representations or
warranties made by such third
party. See "The Pooling and
Servicing Agreement--
Representations and Warranties;
Repurchase."
Security for the Mortgage Loans
Each Mortgage Loan is secured by
one or more first priority
mortgages, deeds of trust, or other
similar security instruments on the
borrower's interest (as set forth
below) in certain land used for
commercial or
-18-
<PAGE>
multifamily residential purposes,
all buildings and improvements
thereon and certain personal
property located thereon (each a
"Mortgaged Property").
INTEREST OF % OF INITIAL NUMBER OF
BORROWER POOL MORTGAGED
ENCUMBERED BALANCE (1) PROPERTIES
----------- ------------ ----------
Fee Simple Estate ................. %
Leasehold Estates ................. %
- -------------------
(1) Based on the principal balance of the Mortgage Loan or, for any
Pool Loan, Allocated Loan Amount of the related Mortgaged Property.
Payment Terms
All of the Mortgage Loans provide
for scheduled payments of principal
and interest ("Monthly Payments")
to be due on the 11th day of each
month. Each Mortgage Loan accrues
interest at the per annum rate set
forth for such Mortgage Loan on
Annex A (the "Mortgage Rate") that
is fixed for the entire term of
such loan, except that certain of
the Mortgage Loans (as set forth on
the table below) accrue interest at
a higher rate during a specified
period ending at maturity. As used
herein, the term "Mortgage Rate"
does not include the portion of the
interest rate attributable to the
rate increase; the excess of
interest at such higher rate over
interest at the Mortgage Rate
(together with interest thereon) is
referred to herein as "Excess
Interest". As described below, all
of the Mortgage Loans that provide
for Excess Interest permit the
related borrower to prepay the
related Mortgage Loan without
payment of a Prepayment Premium for
a period beginning on or, in the
case of certain of these Mortgage
Loans, three months prior to, the
date Excess Interest begins
accruing and ending on the related
maturity date. The date that any
such Mortgage Loan begins accruing
Excess Interest is sometimes
referred to herein as the
"Anticipated Repayment Date." The
Anticipated Repayment Date for any
such Mortgage Loan (each, an "ARD
Loan") is set forth on Annex A. The
ARD Loans (other than [identify any
exception]) substantially fully
amortize over their stated terms,
which are at least 60 months longer
than the term to their related
Anticipated Repayment Dates.
[Discuss amortization of exception,
if any]. If the related borrower
elects to prepay an ARD Loan in
full on the related Anticipated
Repayment Date, a substantial
amount of principal will be due.
With respect to any ARD Loan,
payment of Excess Interest will be
deferred until the principal of
such Mortgage Loan has been paid in
full. All of the ARD Loans provide
that a Lock Box be established
generally one year prior to such
date. See "Description of the
Mortgage Pool--Certain Terms and
Conditions of the Mortgage
Loans--Excess Interest" herein. No
Mortgage Loan permits negative
amortization.
<PAGE>
Certain of the Mortgage Loans (as
set forth on the table below)
provide for Monthly Payments based
on amortization schedules at least
60 months longer than the remaining
stated terms of such Mortgage Loans
(such Mortgage Loans, the "Balloon
Loans"), such that substantial
amounts of principal are due and
payable on the respective maturity
dates (each such amount, after
application of all constant Monthly
-19-
<PAGE>
Payments due on or prior to the
respective maturity date, a
"Balloon Payment"), unless prepaid
prior thereto.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
% OF
INITIAL NUMBER OF
POOL MORTGAGE
TYPE OF LOAN BALANCE LOANS
- ------------ ------- ---------
ARD Loans.......................... %
Fully Amortizing Loans (other
than ARD Loans)................. %
Balloon Loans...................... %
Lock-Out Characteristics of the Mortgage Loans
All of the Mortgage Loans prohibit
voluntary prepayment during a
period (each, a "Lock-out Period")
commencing on the date of
origination and ending on the date
that is up to three months prior to
its Anticipated Repayment Date or
maturity date, as applicable.
OVERVIEW OF LOCK-OUT PERIODS
Minimum Lock-out Period at Origination............... months
Minimum Remaining Lock-out Period.................... months
Maximum Remaining Lock-out Period.................... months
Weighted Average Remaining Lock-out Period........... months
From and after the expiration of
the related Lock-out Period, no
Mortgage Loan requires the payment
of a premium or fee (a "Prepayment
Premium") upon the voluntary
prepayment of such Mortgage Loan.
Prepayment Premiums may be due in
connection with certain involuntary
prepayments as described herein.
See "Risk Factors and Other Special
Considerations--The
Certificates--Special Prepayment
and Yield Considerations" and
"Description of the Mortgage
Pool--Certain Terms and Conditions
of the Mortgage Loans--Prepayment
Provisions" and "--Defeasance
Provisions" herein.
LOCK-OUT PERIOD CHARACTERISTICS OF THE MORTGAGE LOANS
% OF NUMBER
INITIAL OF
POOL MORTGAGE
TYPE OF LOAN BALANCE LOANS
- ------------ ------- --------
Lock-out Period Ending on/close to
Anticipated Prepayment Date........ %
Lock-out Period Ending on/close to
Maturity Date...................... %
All of the Mortgage Loans provide
that after a specified period (a
"Defeasance Lock-out Period"), the
applicable borrower may obtain the
release of the related Mortgaged
Property or, in the case of any
Pool Loan, one or more of the
related Mortgaged Properties from
the lien of
-20-
<PAGE>
the related Mortgages (a
"Defeasance Option") upon the
pledge to the Trustee of
noncallable U.S. government
obligations which provide payments
on or prior to all successive
scheduled payment dates upon which
interest and principal payments are
due under the related Note and in
amounts due on such dates and upon
satisfaction of certain other
conditions. The Servicer will
purchase such U.S. government
obligations on behalf of a borrower
exercising a Defeasance Option. The
Pool Loans generally require that
prior to a release of less than all
of the Mortgaged Properties a
specified percentage (generally
125%) of the Allocated Loan Amount
be defeased for each Mortgaged
Property released. The related
borrower will be required to (or in
the case of certain of the Mortgage
Loans, the related borrowers may)
transfer the pledged U.S.
government obligations together
with the related Note or portion
thereof to a successor limited
purpose borrower and such successor
borrower will assume the
obligations under the Mortgage Loan
or portion thereof.
The characteristics of each of the
Mortgage Loans are more
particularly described in Annex A.
None of the Mortgage Loans are
insured or guaranteed by the United
States, any governmental agency or
instrumentality or any private
mortgage insurer. See "Description
of the Mortgage Pool--General."
THE UNDERWRITER HAS MADE AVAILABLE
AN ELECTRONIC VERSION OF THIS
PROSPECTUS ON THE WORLD WIDE WEB AT
"HTTP:// WWW.NOMURANY.COM". THE
PASSWORD FOR ACCESS TO SUCH WEB
SITE IS "CMBS". THE ELECTRONIC
VERSION OF THIS PROSPECTUS MAY ALSO
CONTAIN PHOTOGRAPHS OF CERTAIN OF
THE MORTGAGED PROPERTIES. CERTAIN
STATISTICAL INFORMATION INCLUDED IN
THIS PROSPECTUS CAN BE DOWNLOADED
FROM SUCH WEB SITE.
THE SENIOR CERTIFICATES................... The Class A-1A Certificates will
have an initial Certificate Balance
of $[ ].
The Class A-1B Certificates will
have an initial Certificate Balance
of $[ ].
The Class A-1C Certificates will
have an initial Certificate Balance
of $[ ].
The Class A-1D Certificates will
have an initial Certificate Balance
of $[ ].
The Class A-CS1 Certificates will
have an initial Notional Balance of
$[ ]. The initial Notional Balance
of the Class A-CS1 Certificates is
comprised of one component: the
Class A-1A Component. The Class
A-1A Component will have an initial
Component Balance equal to the
initial Certificate Balance of the
Class A-1A Certificates.
The Class A-CS2 Certificates will
have an initial Notional Balance of
$[ ]. The initial Notional Balance
of the Class A-CS2 Certificates is
comprised of seven components: the
Class A-1B Component,
-21-
<PAGE>
Class A-1C Component, Class A-1D
Component, Class A-2 Component, the
Class A-3 Component, the Class A-4
Component and the Class A-5
Component, which will have initial
Component Balances equal to the
Certificate Balance of the Class
A-1B, Class A-1C, Class A-1D, Class
A-2, Class A-3, Class A-4 and Class
A-5 Certificates, respectively.
The Class A-2 Certificates will
have an initial Certificate Balance
of $[ ].
The Class A-3 Certificates will
have an initial Certificate Balance
of $[ ].
The Class A-4 Certificates will
have an initial Certificate Balance
of $[ ].
The Class A-5 Certificates will
have an initial Certificate Balance
of $[ ].
The Senior Certificates are being
offered concurrently with the
Offered Certificates under a
separate prospectus and are not
offered hereby.
THE OFFERED CERTIFICATES.................. The Class B-1 Certificates will
have an initial Certificate Balance
of $[ ].
The Class B-2 Certificates will
have an initial Certificate Balance
of $[ ].
OTHER NON-OFFERED CERTIFICATES............ The Class B-3 and Class B-3H
Certificates will, in the
aggregate, have initial Certificate
Balances of approximately $[ ].
The Class V-1, Class V-2, Class R
and Class LR Certificates will not
have a Certificate Balance or a
Notional Balance.
The Class B-3, Class B-3H, Class
V-1, Class V-2, Class R and Class
LR Certificates are not offered
hereby.
PASS-THROUGH RATES........................ The per annum rate at which
interest accrues (the "Pass-Through
Rate") on the Class A-1A, Class
A-1B, Class A-1C and Class A-1D
Certificates during any Interest
Accrual Period will be equal to [
]%, [ ]%, [ ]% and [ ]%,
respectively.
The Pass-Through Rate on the Class
A-CS1 Certificates is a per annum
rate equal to the Weighted Average
Net Mortgage Pass-Through Rate
minus [ ]%.
The Pass-Through Rate on the Class
A-CS2 Certificates is a per annum
rate equal to the weighted average
of the Pass-Through Rates on the
Class A-1B Component, Class A-1C
Component, Class A-1D Component,
Class A-2 Component, Class A-3
Component, Class A-4 Component and
the Class A-5 Component weighted on
the basis of the respective
Component Balances (without giving
effect to any Appraisal Reduction
Amounts or Delinquency Reduction
Amounts). The Pass-
-22-
<PAGE>
Through Rate on the Class A-1B
Component is a per annum rate equal
to the Weighted Average Net
Mortgage Pass-Through Rate minus [
]%. The Pass-Through Rate on the
Class A-1C Component is a per annum
rate equal to the Weighted Average
Net Mortgage Pass-Through Rate
minus [ ]%. The Pass-Through Rate
on the Class A-1D Component is a
per annum rate equal to the
Weighted Average Net Mortgage Pass-
Through Rate minus [ ]%. The
Pass-Through Rate on the Class A-2
Component is a per annum rate equal
to [ ]%. The Pass-Through Rate on
the Class A-3 Component is a per
annum rate equal to [ ]%. The
Pass-Through Rate of the Class A-4
Component is a per annum rate equal
to [ ]%. The Pass-Through Rate of
the Class A-5 Component is a per
annum rate equal to [ ]%.
The Pass-Through Rate on the Class
A-2 Certificates is a per annum
rate equal to the Weighted Average
Net Mortgage Pass-Through Rate
minus [ ]%. The Pass-Through Rate
on the Class A-3 Certificates is a
per annum rate equal to the
Weighted Average Net Mortgage
Pass-Through Rate minus [ ]%.
The Pass-Through Rate on the Class
A-4 Certificates is a per annum
rate equal to the Weighted Average
Net Mortgage Pass-Through Rate
minus [ ]%.
The Pass-Through Rate on the Class
A-5 Certificates is a per annum
rate equal to the Weighted Average
Net Mortgage Pass-Through Rate
minus [ ]%.
The Pass-Through Rate on the Class
B-1 and Class B-2 Certificates is a
per annum rate equal to the
Weighted Average Net Mortgage
Pass-Through Rate.
The "Weighted Average Net Mortgage
Pass-Through Rate" with respect to
any Distribution Date is the amount
(expressed as a percentage) (i) the
numerator of which is the sum of
the products of (a) the Net
Mortgage Pass-Through Rate and (b)
the Stated Principal Balance of
each Mortgage Loan and (ii) the
denominator of which is the sum of
the Stated Principal Balances of
the Mortgage Loans as of the Due
Date occurring in the month in
which the related Distribution Date
occurs.
The "Net Mortgage Pass-Through
Rate" with respect to any Mortgage
Loan and any Interest Accrual
Period is a per annum rate equal to
the Mortgage Pass-Through Rate (as
such term is defined below) for
such Mortgage Loan minus the
aggregate of the applicable
Servicing Fee Rate and Additional
Servicing Fee Rate (as such terms
are defined herein).
The "Mortgage Pass-Through Rate"
with respect to the Mortgage Loans
that provide for calculations of
interest based on twelve months of
30 days each for any Interest
Accrual Period is equal to the
Mortgage Rate thereof.
The "Mortgage Pass-Through Rate"
with respect to the Mortgage Loans
that provide for interest based on a
360-day year and the actual number
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<PAGE>
of days elapsed for an Interest
Accrual Period is equal to the
Mortgage Rate thereof multiplied by
a fraction, the numerator of which
is the actual number of days in
such Interest Accrual Period and
the denominator of which is 30.
[Insert Mortgage Pass-Through Rate
info for individual properties, if
necessary]
Notwithstanding the foregoing, the
Mortgage Pass-Through Rate with
respect to each Mortgage Loan
(other than [any exception]) for
the first Interest Accrual Period
is the Mortgage Rate thereof.
[Insert any differing mortgage
Pass-Through Rate for first
Interest Accrual Period for any
properties].
The Mortgage Rate for purposes of
calculating the Weighted Average
Net Mortgage Pass-Through Rate will
be the Mortgage Rate of such
Mortgage Loan without taking into
account any reduction in the
interest rate by a bankruptcy court
pursuant to a plan of
reorganization or pursuant to any
of its equitable powers or any
reduction in the interest rate
resulting from a work-out as
described herein under "The Pooling
and Servicing
Agreement--Modifications."
DISTRIBUTIONS............................. On each Distribution Date, each
Class of Offered Certificates will
be entitled to receive interest
distributions in an amount equal to
the Interest Distribution Amount
(subject to the priorities
described under "Description of the
Offered Certificates--
Distributions") for such Class and
Distribution Date, together with
any Interest Shortfalls remaining
from prior Distribution Dates, in
each case to the extent of
Available Funds, if any, remaining
after (i) payment of the Interest
Distribution Amounts, Interest
Shortfalls, Reduction Interest
Distribution Amounts and Reduction
Interest Shortfalls for each other
outstanding Class of Certificates
(or component of a Class), if any,
bearing an earlier sequential
designation than such Class and
(ii), if applicable, payment of the
Principal Distribution Amount for
such Distribution Date and an
amount equal to the aggregate
unreimbursed Realized Losses
previously allocated to any such
outstanding Classes having an
earlier sequential designation.
References herein to the earlier
(or later) sequential designation
of these Classes of Certificates
(or, with respect to Reduction
Interest Distribution Amounts and
Reduction Interest Shortfalls,
components thereof) means such
Classes (or components) in
alphabetical and numerical order
(or such Classes or components in
reverse alphabetical and numerical
order) (except in respect of the
Class A-CS1, Class A-CS2, Class
A-1A, Class A-1B and Class A-1C
Certificates which will have the
same priority under the
circumstances described herein).
<PAGE>
The Trust Fund will include two
separate real estate mortgage
investment conduits (each, a
"REMIC"). Collections on the
Mortgage Loans will be used to make
payments of principal and interest
on interests (the "Lower- Tier
Interests") in a REMIC (the
"Lower-Tier REMIC"). Those payments
in turn will be used to make
distributions on the Certificates,
which represent interests in a
second REMIC (the "Upper-Tier
REMIC"). The respective components
of the Notional
-24-
<PAGE>
Balances of the Class A-CS1 and
Class A-CS2 Certificates represent
principal balances of Classes of
regular interests in the Lower-Tier
REMIC. For purposes of simplicity,
distributions will generally be
described herein as if made
directly from collections on the
Mortgage Loans to the holders of
the Certificates.
The "Interest Distribution Amount"
with respect to any Distribution
Date and the Class A-1A, Class
A-1B, Class A-1C, Class A-1D, Class
A-2, Class A-3, Class A-4, Class
A-5, Class B-1, Class B-2, Class
B-3 and Class B-3H Certificates is
equal to interest accrued during
the related Interest Accrual Period
at the Pass-Through Rate on such
Class on the Certificate Balance of
such Class.
The "Interest Distribution Amount"
with respect to any Distribution
Date and the Class A-CS1 and Class
A-CS2 Certificates is equal to
interest accrued during the related
Interest Accrual Period at the
Pass-Through Rates on the related
components on the Component
Balances thereof.
For purposes of calculating the
Interest Distribution Amount for
any Class of Offered Certificates
and any Distribution Date, any
distributions in reduction of
Certificate Balance or Component
Balance and reductions in
Certificate Balance or Component
Balance as a result of allocations
of Realized Losses, Appraisal
Reduction Amounts or Delinquency
Amounts (if applicable) on the
Distribution Date occurring in the
related Interest Accrual Period
shall be deemed to have been made
on the first day of such Interest
Accrual Period.
The Principal Distribution Amount
for each Distribution Date (prior
to the Cross-over Date) will be
distributed, first, to the Class
A-1A Certificates, in reduction of
the Certificate Balance thereof,
until the Certificate Balance of
such Class is reduced to zero,
second, to the Class A-1B
Certificates, in reduction of the
Certificate Balance thereof, until
the Certificate Balance thereof is
reduced to zero, third, to the
Class A-1C Certificates, in
reduction of the Certificate
Balance thereof, until the
Certificate Balance of such Class
is reduced to zero, fourth, to the
Class A-1D Certificates, in
reduction of the Certificate
Balance thereof, until the
Certificate Balance of such Class
is reduced to zero, fifth, to the
Class A-1D Certificates for
unreimbursed amounts of Realized
Losses previously allocated to such
Class, sixth, to the Class A-2
Certificates, until the Certificate
Balance thereof is reduced to zero,
seventh, to the Class A-2
Certificates for unreimbursed
amounts of Realized Losses
previously allocated to such Class,
eighth, to the Class A-3
Certificates, until the Certificate
Balance thereof is reduced to zero,
ninth, to the Class A-3
Certificates for unreimbursed
amounts of Realized Losses
previously allocated to such Class,
tenth, to the Class A-4
Certificates, until the Certificate
Balance thereof is reduced to zero,
eleventh, to the Class A-4
Certificates for unreimbursed
amounts of Realized Losses
previously allocated to such Class,
twelfth, to the Class A-5
Certificates, until the Certificate
Balance thereof is reduced to zero,
thirteenth, to the Class A-5
Certificates for unreimbursed
amounts of Realized Losses
previously allocated to such Class,
fourteenth, to the Class B-1
Certificates, until the Certificate
Balance thereof is reduced to zero,
fifteenth, to the Class B-1
Certificates for unreimbursed
amounts
-25-
<PAGE>
of Realized Losses previously
allocated to such Class, sixteenth,
to the Class B-2 Certificates,
until the Certificate Balance
thereof is reduced to zero,
seventeenth, to the Class B-2
Certificates for unreimbursed
amounts of Realized Losses
previously allocated to such Class,
and eighteenth, to the Private
Subordinate Certificates in
accordance with the terms of the
Pooling and Servicing Agreement, in
each case to the extent of
Available Funds remaining after
required distributions of interest
to such Class and after making
principal distributions to any more
senior Class of Certificates. On
each Distribution Date occurring on
and after the Crossover Date, an
amount equal to the Principal
Distribution Amount will be
distributed, first, to the Class
A-1A, Class A-1B and Class A-1C
Certificates, pro rata, based on
their respective Certificate
Balances, in reduction of their
respective Certificate Balances,
until the Certificate Balance of
each such Class is reduced to zero;
and, second, to the Class A-1A,
Class A-1B and Class A-1C
Certificates, pro rata, based on
their respective Certificate
Balances, for unreimbursed amounts
of Realized Losses previously
allocated to such Classes. The
"Cross-over Date" is the
Distribution Date on which the
Certificate Balance of each Class
of Certificates other than the
Class A-1A, Class A-1B and Class
A-1C Certificates have been reduced
to zero.
The Class A-CS1 and Class A-CS2
Certificates will not be entitled
to any distribution of principal.
The "Principal Distribution Amount"
for any Distribution Date is equal
to the sum, for all Mortgage Loans,
of (i) the principal component of
all Monthly Payments (other than
Balloon Payments) due on the
related Due Date (if received or
advanced, including any Subordinate
Class Advance Amounts (as defined
herein) allocable to principal),
(ii) the principal component of all
Minimum Defaulted Monthly Payments
or Assumed Scheduled Payments, as
applicable, deemed to be due on the
related Due Date (if received or
advanced, including, without
duplication, any Subordinate Class
Advance Amounts allocable to
principal), (iii) to the extent not
included in the preceding clause,
the principal component of all
Balloon Payments on any Mortgage
Loan received during the related
Collection Period, (iv) the
principal portion of all
unscheduled collections in respect
of a Mortgage Loan that was
liquidated in the related
Collection Period, (v) the Stated
Principal Balance of each Mortgage
Loan purchased from the Trust Fund
in connection with breaches of
representations or warranties or
the exercise of the rights
described under "--Optional
Termination" below, (vi) to the
extent not included in any
preceding clause, all Principal
Prepayments received in the related
Collection Period and (vii) to the
extent not included in any
preceding clause, any other full or
partial recoveries of principal,
including Net REO Proceeds, net
liquidation proceeds, net
condemnation proceeds and net
insurance proceeds. Amounts
received on any Mortgage Loan that
represent recoveries of any
Subordinate Class Advance Amount
will not be included in the
calculation of "Principal
Distribution Amount."
[Insert any special distribution
information for prepayment of
particular loans, if any].
-26
<PAGE>
Except as described in the next
sentence, the holders of the Class
V-1, Class V-2, Class R and Class
LR Certificates will not be
entitled to distributions of
interest or principal. The Class
V-1 Certificates will be entitled
to distributions of Default
Interest and the Class V-2
Certificates will be entitled to
distributions of Excess Interest,
in each case, to the extent set
forth in the Pooling and Servicing
Agreement. The holders of the Class
R Certificates will be entitled to
receive any Available Funds
remaining in the Upper-Tier
Distribution Account on any
Distribution Date after the
distribution to the holders of the
Regular Certificates of all amounts
which they are entitled to receive
on such Distribution Date. The
Class LR Certificateholders will be
entitled to receive any funds
remaining in the Distribution
Account on any Distribution Date
after all distributions to which
the regular interests in the
Lower-Tier REMIC are entitled on
such Distribution Date have been
made and the proceeds of the
remaining assets in the Trust Fund,
if any, after the Certificate
Balances of the Regular
Certificates have been reduced to
zero and the holders of the Regular
Certificates have received all
other distributions to which they
are entitled. It is not anticipated
that there will be any assets
remaining in the Trust Fund on such
date. In addition, the holders of a
majority Percentage Interest in the
Class LR Certificates will have the
limited right to purchase ARD Loans
under the circumstances described
under "Description of the Mortgage
Pool--Certain Terms and Conditions
of the Mortgage Loans."
ADVANCES.................................. The Servicer is required to make
advances ("P&I Advances") in
respect of delinquent Monthly
Payments on the Mortgage Loans,
subject to the limitations
described herein. P&I Advances will
generally equal the delinquent
portion of the Monthly Payment as
specified in the related Note. If a
borrower defaults on its obligation
to pay amounts due on the maturity
date of the related Mortgage Loan,
the Servicer will be required to
advance only an amount equal to the
principal portion of constant
Monthly Payment or portion thereof
not received that was due prior to
the maturity date (with interest at
the Net Mortgage Pass-Through
Rate). The Servicer will not be
required or permitted to advance
Default Interest or Excess
Interest. The amount required to be
advanced in respect of delinquent
Monthly Payments on a Mortgage Loan
that has been subject to an
Appraisal Reduction Event will
equal the product of (a) the amount
required to be advanced by the
Servicer without giving effect to
the related Appraisal Reduction
Amount and (b) a fraction, the
numerator of which is (i) the
Stated Principal Balance of such
Mortgage Loan minus (ii) any
Appraisal Reduction Amount thereof
and the denominator of which is the
Stated Principal Balance thereof.
In addition, and without
duplication, the Servicer will (i)
make only one P&I Advance with
respect to each Mortgage Loan for
the benefit of the most subordinate
Class of Certificates then
outstanding (unless the related
defaulted Monthly Payment is
received prior to the following Due
Date) and (ii) not make any P&I
Advance in respect of Reduction
Interest Distribution Amounts and
Reduction Interest Shortfalls. On
any Servicer Remittance Date on
which the Servicer is not required
to make a P&I Advance for the
benefit of the most subordinate
Class as described above, the
amount of the P&I Advance with
respect to such Servicer Remittance
Date that the Servicer will not
advance will be equal to amounts
otherwise distributable to the most
-27-
<PAGE>
subordinate Class assuming the
Monthly Payment or Minimum
Defaulted Monthly Payment had beeo
received. For purposes of
determining the most subordinate
Class, (i) the Class A-1A, Class
A-1B, Class A-1C, Class A-CS1 and
Class A-CS2 Certificates
collectively and (ii) the Class B-3
and Class B-3H Certificates
together will, in each case, be
treated as one Class. See
"Description of the Pooling and
Servicing Agreement--Advances"
herein. If the Servicer fails to
make a required P&I Advance, the
Trustee will be required to make
the P&I Advance, and if the Trustee
fails to make a required P&I
Advance, the Fiscal Agent will be
required to make such P&I Advance.
See "The Pooling and Servicing
Agreement--Advances" herein. The
Special Servicer will not be
obligated to make any P&I Advance
except to the extent the Special
Servicer is also the holder of the
most subordinate Class and is
deemed to advance a Subordinate
Class Advance Amount. No interest
will accrue on any outstanding
Subordinate Class Advance Amount.
SUBORDINATION............................. As a means of providing a certain
amount of protection to the holders
of the Senior Certificates against
losses associated with delinquent
and defaulted Mortgage Loans, the
rights of the holders of the
Offered Certificates to receive
distributions of interest and
principal with respect to the
Mortgage Loans will be subordinated
to such rights of the holders of
the Senior Certificates. The rights
of the holders of the Class B-1
Certificates to receive
distributions of interest and
principal will be subordinate to
those of the Senior Certificates;
and the rights of the holders of
the Class B-2 Certificates to
receive distributions of interest
and principal will be subordinate
to those of the Senior Certificates
and Class B-1 Certificates. This
subordination will be effected in
two ways: (i) by the preferential
right of holders of a Class of
Certificates to receive on any
Distribution Date the amounts of
interest and principal
distributable in respect of such
Certificates, on such date prior to
any distribution being made on such
Distribution Date in respect of any
Classes (or components) of
Certificates subordinate thereto
and (ii) by the allocation of
Realized Losses (as defined
herein), first, to the Private
Subordinate Certificates, second,
to the Class B-2 Certificates,
third, to the Class B-1
Certificates, and finally, to the
Senior Certificates in accordance
with the terms of the Pooling and
Servicing Agreement. No other form
of credit enhancement will be
available for the benefit of the
holders of the Offered
Certificates. See "Description of
the Offered Certificates" herein.
Shortfalls in Available Funds
resulting from Servicing
Compensation other than the
Servicing Fee, compensation of the
Special Servicer in excess of the
Additional Servicing Fee, interest
on Advances (to the extent not
covered by Default Interest),
Prepayment Interest Shortfalls in
excess of the Servicing Fee
together with investment income on
the related Principal Prepayment
for the period such amount is held
in the Collection Account during
the related Interest Accrual
Period, extraordinary expenses of
the Trust Fund (other than
indemnification expenses), a
reduction on the interest rate of a
Mortgage Loan by a bankruptcy court
pursuant to a plan of
reorganization or pursuant to any
of its equitable powers, a
reduction in interest rate or a
forgiveness of principal of a
Mortgage Loan as described under
"The Pooling and
-28-
<PAGE>
Servicing Agreement--Modifications"
or otherwise will be allocated in
the same manner as Realized Losses.
Shortfalls in Available Funds
resulting from indemnification
expenses of the Trust Fund required
to be paid pursuant to the Pooling
and Servicing Agreement will be
allocated to, and be deemed
distributed to, each Class of
Certificates, pro rata, based upon
amounts distributable to each such
Class and will be allocated, first,
in respect of interest and, second,
in respect of principal. See
"Description of the Offered
Certificates--Distributions--
Priorities" herein.
OPTIONAL TERMINATION...................... The Depositor, and if the Depositor
does not exercise the option, the
Servicer and, if neither the
Servicer nor the Depositor
exercises the option, the holders
of the Class LR Certificates
representing greater than a 50%
Percentage Interest of the Class LR
Certificates, will have the option
to purchase at the purchase price
specified herein, all of the
Mortgage Loans, and all property
acquired through exercise of
remedies in respect of any Mortgage
Loan, remaining in the Trust Fund,
and thereby effect termination of
the Trust Fund and early retirement
of the then outstanding
Certificates, on any Distribution
Date on which the aggregate Stated
Principal Balance of the Mortgage
Loans remaining in the Trust Fund
is less than 1% of the Initial Pool
Balance. See "The Pooling and
Servicing Agreement--Optional
Termination" herein.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............................ Elections will be made to treat the
Trust REMICs, and the Trust REMICs
will qualify, as two separate real
estate mortgage investment conduits
(each, a "REMIC" or, in the
alternative, the "Upper-Tier REMIC"
and the "Lower-Tier REMIC,"
respectively) for federal income
tax purposes. The Class A-1A, Class
A-1B, Class A-1C, Class A-CS1,
Class A-CS2, Class A-1D, Class A-2,
Class A-3, Class A-4, Class A-5,
Class B-1, Class B-2, Class B-3 and
Class B-3H Certificates
(collectively, the "Regular
Certificates") will constitute
"regular interests" in the Upper-
Tier REMIC, and the Class R and
Class LR Certificates (collectively
the "Residual Certificates") will
be designated as the sole Classes
of "residual interests" in the
Upper-Tier REMIC and Lower-Tier
REMIC, respectively. The Class V-1
Certificates will represent the
right to receive Default Interest
and the Class V-2 Certificates will
represent the right to receive
Excess Interest, which portions of
the Trust Fund will be treated as a
grantor trust for federal income
tax purposes.
The Offered Certificates will be
treated as newly originated debt
instruments for federal income tax
purposes. Beneficial owners of the
Offered Certificates will be
required to report income thereon
in accordance with the accrual
method of accounting. It is
anticipated that the Class B-1 and
Class B-2 Certificates will be
treated as issued with original
issue discount in an amount equal
to all distributions of interest
expected to be received thereon
over their respective issue prices.
See "Certain Federal Income Tax
Consequences" herein. Although not
free from doubt, it is anticipated
that any Prepayment Premiums
allocable to the Offered
Certificates will be ordinary
income to a Certificateholder as
such amounts accrue. See
"Description of the Offered
Certificates--Distributions"
herein.
-29-
<PAGE>
ERISA CONSIDERATIONS...................... THE CLASS B-1 AND CLASS B-2
CERTIFICATES ARE SUBORDINATE TO ONE
OR MORE OTHER CLASSES OF
CERTIFICATES AND, ACCORDINGLY, SUCH
CERTIFICATES SHOULD NOT BE
PURCHASED BY OR TRANSFERRED TO A
PLAN OR PERSON ACTING ON BEHALF OF
ANY PLAN OR USING THE ASSETS OF ANY
SUCH PLAN, UNLESS SUCH PERSON USING
PLAN ASSETS IS AN INSURANCE COMPANY
AND THE PURCHASE AND HOLDING OF ANY
SUCH CERTIFICATE WOULD BE EXEMPT
FROM THE PROHIBITED TRANSACTION
PROVISIONS OF ERISA AND THE CODE
UNDER PROHIBITED TRANSACTION
EXEMPTION 95-60. SEE "DESCRIPTION
OF THE OFFERED CERTIFICATES--
TRANSFER RESTRICTIONS" HEREIN.
RATINGS................................... It is a condition to the issuance
of the Offered Certificates that
(i) the Senior Certificates be
issued and offered, (ii) the Class
B-1 Certificates be rated BB by
________ and (iii) the Class B-2
Certificates be rated "B" by
________. A security rating is not
a recommendation to buy, sell or
hold securities and may be subject
to revision or withdrawal at any
time by the assigning rating
organization. The Rating Agencies
ratings on the Offered Certificates
address the likelihood of the
timely payment of interest and the
ultimate repayment of principal by
the Rated Final Distribution Date.
A security rating does not address
the frequency of prepayments (both
voluntary and involuntary) or the
possibility that Certificateholders
might suffer a lower than
anticipated yield, nor does a
security rating address the
likelihood of receipt of Prepayment
Premiums, Net Default Interest or
Excess Interest. A security rating
does not represent any assessment
of the yield to maturity that
investors may experience. The
ratings do not address the fact
that the Pass-Through Rates of the
Offered Certificates to the extent
that they are based on the Weighted
Average Net Mortgage Pass-Through
Rate will be affected by changes
therein. See "Risk Factors and
Other Special Considerations" and
"Rating" herein.
LEGAL INVESTMENT.......................... The appropriate characterization of
the Offered Certificates under
various legal investment
restrictions, and thus the ability
of investors subject to these
restrictions to purchase the
Offered Certificates, may be
subject to significant
interpretative uncertainties. The
Offered Certificates will not be
"mortgage related securities"
within the meaning of the Secondary
Mortgage Market Enhancement Act of
1984. Accordingly, investors should
consult their own legal advisors to
determine whether and to what
extent the Offered Certificates
constitute legal investments for
them. See "Legal Investment"
herein.
-30-
<PAGE>
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Prospective holders of Offered Certificates should consider, among
other things, the following factors in connection with the purchase of the
Offered Certificates.
THE MORTGAGE LOANS
Borrower Default; Nonrecourse Mortgage Loans. The Mortgage Loans are
not insured or guaranteed by any governmental entity, by any private mortgage
insurer, or by the Depositor, the Mortgage Loan Seller, the Servicer, the
Special Servicer, any Originator, the Trustee, the Fiscal Agent or any of their
respective affiliates. As more fully described under "Description of the
Mortgage Pool--The Mortgage Loan Program--Underwriting Standards;
Representations" and "The Pooling and Servicing Agreement--Representations and
Warranties; Repurchase," the Mortgage Loan Seller and the Originators will each
be obligated to repurchase a Mortgage Loan if certain of their respective
representations or warranties concerning such Mortgage Loan are breached.
However, there can be no assurance that any such entity will be in a financial
position to effect such repurchase.
Each Mortgage Loan is a nonrecourse loan as to which, in the event of
a default under such Mortgage Loan, recourse generally may be had only against
the specific properties and other assets that have been pledged to secure the
Mortgage Loan. Consequently, payment on each Mortgage Loan prior to maturity is
dependent primarily on the sufficiency of the net operating income of the
related Mortgaged Property, and at maturity (whether at scheduled maturity or,
in the event of a default under the related Mortgage Loan, upon the
acceleration of such maturity) upon the then market value of the related
Mortgaged Property or the ability of the related borrower to refinance the
Mortgaged Property.
Commercial and Multifamily Lending Generally. The Mortgage Loans are
secured by multifamily residential properties, full and limited service hotels,
office buildings, anchored and unanchored retail properties, mobile home and
recreational vehicle parks, nursing homes, a design center and industrial
properties. Commercial and multifamily lending is generally viewed as exposing
a lender to a greater risk of loss than residential one-to-four- family
lending. Commercial and multifamily lending typically involves larger loans to
a single obligor than residential one-to-four-family lending.
Commercial and multifamily property values and net operating income
are subject to volatility. The repayment of loans secured by income producing
properties is typically dependent upon the successful operation of the related
real estate project, the business operated by the tenants of such property and
the creditworthiness of such tenants. The net operating income and value of the
Mortgaged Properties may be adversely affected by a number of factors,
including but not limited to the national, regional and local economic
conditions (which may be adversely impacted by plant closings, industry
slowdowns and other factors); local real estate conditions (such as an
oversupply of housing, retail space, office space or hotel rooms); changes or
continued weakness in specific industry segments; changes in applicable
healthcare regulations, including reimbursement requirements; perceptions by
prospective tenants and, in the case of retail properties, retailers and
shoppers, of the safety, convenience, services and attractiveness of the
property; the willingness and ability of the property's owner to provide
capable management and adequate maintenance; demographic factors; retroactive
changes to building or similar codes; increases in operating expenses (such as
energy costs); the number of tenants or, if applicable, the diversity of types
of business operated by such tenants; and laws regulating the maximum rental
permitted to be charged to a tenant. Historical operating results of the
Mortgaged Properties may not be comparable to future operating results. In
addition, other factors may adversely affect the Mortgaged Properties' value
without affecting their current net operating income, including changes in
governmental regulations, zoning or tax laws; potential environmental or other
legal liabilities; the availability of refinancing; and changes in interest
rate levels.
The successful operation of a real estate project, particularly a
project involving a hotel or nursing home, is dependent on the performance and
viability of the property manager of such project. The property manager is
responsible for responding to changes in the local market, planning and
implementing the rental structure, including establishing levels of rent
payments, and advising the borrowers so that maintenance and capital
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improvements are carried out in a timely fashion. There is no assurance
regarding the performance of any operators and/or managers or persons who may
become operators and/or managers upon the expiration or termination of leases
or management agreements or following any default or foreclosure under a
Mortgage Loan. Moreover, certain of the properties secured by the Mortgage
Loans are managed by the same manager, as described below under
"--Concentration of Mortgage Loans, Borrowers and Managers."
The age, construction quality and design of a particular property may
affect the occupancy level as well as the rents that may be charged for
individual leases. The effects of poor construction quality will increase over
time in the form of increased maintenance and capital improvements. Even good
construction will deteriorate over time if the property managers do not
schedule and perform adequate maintenance in a timely fashion. If, during the
terms of the Mortgage Loans, properties of a similar type are built in the
areas where the Mortgaged Properties of such type are located or other similar
properties in such areas are substantially updated and refurbished, the value
and net operating income of such Mortgaged Properties could be reduced. There
is no assurance that the value of any Mortgaged Property during the term of the
related Mortgage Loan will equal or exceed its appraised value at the date of
origination of such Mortgage Loan.
Additionally, some of the Mortgaged Properties may not readily be
converted to alternative uses if such Mortgaged Properties were to become
unprofitable due to competition, age of the improvements, decreased demand or
other factors. The conversion of nursing homes or hotels to alternative uses
would generally require substantial capital expenditures. Thus, if the
operation of any such Mortgaged Properties becomes unprofitable such that the
borrower becomes unable to meet its obligations on the related loan, the
liquidation value of any such property may be substantially less, relative to
the amount owing on the related loan, than would be the case if such property
were readily adaptable to other uses.
Other multifamily residences, hotels, retail properties, office
buildings, mobile home parks, nursing homes and industrial properties located
in the areas of the Mortgaged Properties compete with the Mortgaged Properties
of such types to attract residents, retailers, customers, patients and tenants.
In addition, retailers at the Mortgaged Properties that have retail space face
competition from discount shopping centers and clubs, factory outlet centers,
direct mail and telemarketing. Increased competition could adversely affect
income from and market value of the Mortgaged Properties.
Management. The successful operation of a real estate project is also
dependent on the performance and viability of the property manager of such
project. The property manager is responsible for responding to changes in the
local market, planning and implementing the rental structure, including
establishing levels of rent payments, operating the retail properties and
advising the borrowers so that maintenance and capital improvements can be
carried out in a timely fashion. There is no assurance regarding the
performance of any operators and/or managers or persons who may become
operators and/or managers upon the expiration or termination of leases or
management agreements or following any default or foreclosure under a Mortgage
Loan. In addition, all of the property managers are operating companies and
unlike limited purpose entities, may not be restricted from incurring debt and
other liabilities in the ordinary course of business or otherwise. There can be
no assurance that the property managers will at all times be in a financial
condition to continue to fulfill their management responsibilities under the
related management agreements throughout the terms thereof.
A dispute between the partners or members of a borrower could disrupt
the management of the underlying property which may cause an adverse effect on
cash flow.
Retail and Office Properties. Certain of the Mortgage Loans are
secured by retail properties (both for which there is an anchor tenant and for
which there is not, as set forth on Annex A hereto) and office buildings. See
"Description of the Mortgage Pool--Additional Mortgage Loan Information--Types
of Mortgaged Property" herein. These types of properties generally derive all
or a substantial percentage of their income from lease payments from commercial
tenants.
Income from and the market value of such Mortgaged Properties would be
adversely affected if space in the Mortgaged Properties could not be leased, if
tenants were unable to meet their lease obligations, if a
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significant tenant were to become a debtor in a bankruptcy case under the
United States Bankruptcy Code or if for any other reason rental payments could
not be collected. If tenant sales in the Mortgaged Properties that contain
retail space were to decline, percentage rents may decline and tenants may be
unable to pay their rent or other occupancy costs. Upon the occurrence of an
event of default by a tenant, delays and costs in enforcing the lessor's rights
could be experienced. Repayment of the Mortgage Loans will be affected by the
expiration of space leases and the ability of the respective borrowers to renew
the leases or relet the space on comparable terms. Even if vacated space is
successfully relet, the costs associated with reletting, including tenant
improvements, leasing commissions and free rent, could be substantial and could
reduce cash flow from the Mortgaged Properties.
Anchor tenants in shopping centers traditionally have been a major
factor in the public's perception of a shopping center. The anchors at a
shopping center play an important part in generating customer traffic and
making a center a desirable location for other tenants of the center. The
failure of an anchor tenant to renew its lease, the termination of an anchor
tenant's lease, the bankruptcy or economic decline of an anchor tenant, or the
cessation of the business of an anchor (notwithstanding its continued payment
of rent) can have a material negative effect on the economic performance of a
shopping center property. In addition, the failure of any anchor tenant to
operate from its premises may give certain tenants the right to terminate or
reduce rents under their leases.
Office and industrial properties may also be adversely affected if
there is an economic decline in the business operated by their tenants. The
risk of such an adverse effect is increased if revenue is dependent on a single
tenant or if there is a significant concentration of tenants in a particular
business or industry.
Hotels. Certain of the Mortgage Loans (each, a "Hotel Loan") are
secured by full service hotels, limited service hotels, hotels associated with
national franchise chains, hotels associated with regional franchise chains and
hotels that are not affiliated with any franchise chain but may have their own
brand identity (each, a "Hotel Property"). See "Description of the Mortgage
Pool--Additional Mortgage Loan Information--Types of Mortgaged Property" herein
for certain statistical information on the Hotel Properties and Hotel Loans.
Various factors, including location, quality and franchise affiliation
affect the economic performance of a hotel. Adverse economic conditions, either
local, regional or national, may limit the amount that can be charged for a
room and may result in a reduction in occupancy levels. The construction of
competing hotels can have similar effects. To meet competition in the industry
and to maintain economic values, continuing expenditures must be made for
modernizing, refurbishing, and maintaining existing facilities prior to the
expiration of their anticipated useful lives. Because hotel rooms generally are
rented for short periods of time, hotels tend to respond more quickly to
adverse economic conditions and competition than do other commercial
properties. Furthermore, the financial strength and capabilities of the owner
and operator of a hotel may have an impact on such hotel's quality of service
and economic performance. Additionally, the hotel and lodging industry is
generally seasonal in nature and this seasonality can be expected to cause
periodic fluctuations in room and other revenues, occupancy levels, room rates
and operating expenses. The demand for particular accommodations may also be
affected by changes in travel patterns caused by changes in energy prices,
strikes, relocation of highways, the construction of additional highways and
other factors.
Certain of the Hotel Properties are franchisees of national or
regional hotel chains. The viability of any such Hotel Property depends in part
on the continued existence and financial strength of the franchisor, the public
perception of the franchise service mark and the duration of the franchise
licensing agreements. The transferability of franchise license agreements may
be restricted and, in the event of a foreclosure on any such Hotel Property,
such property would not have the right to use the franchise license without the
franchisor's consent. Conversely, a lender may be unable to remove a franchisor
that it desires to replace following a foreclosure. Further, in the event of a
foreclosure on a Hotel Property, it is unlikely that the Trustee (or Servicer
or Special Servicer) or purchaser of such Hotel Property may be entitled to the
rights under any liquor license for such Hotel Property and such party would be
required to apply in its own right for such license or licenses. There can be
no assurance that a new license could be obtained or that it could be obtained
promptly.
Mobile Home Properties. Certain of the Mortgaged Properties are
operated as mobile home parks, recreational vehicle parks or combinations
thereof. See "Description of the Mortgage Pool--Additional Mortgage
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Loan Information--Types of Mortgaged Property" for certain statistical
information on such loans. Loans secured by liens on properties of these types
pose risks not associated with loans secured by liens on other types of
income-producing real estate. The successful operation of a mobile home park
will generally depend upon the number of competing mobile home parks and other
residential developments in the local market (such as apartment buildings,
other manufactured housing communities and site-built single family homes), as
well as upon other factors such as its age, appearance, reputation, the ability
of management to provide adequate maintenance and insurance, and the types of
services it provides. The Mobile Home Properties are "special purpose"
properties that could not be readily converted to general residential, retail
or office use. Thus, if the operation of any of the Mobile Home Properties
becomes unprofitable due to competition, age of the improvements or other
factors such that the borrower becomes unable to meet its obligations on the
related Mortgage Loan, the liquidation value of that Mobile Home Property may
be substantially less, relative to the amount owing on the Mortgage Loan, than
would be the case if the Mobile Home Property were readily adaptable to other
uses.
Certain states regulate the relationship of a mobile home park owner
and its tenants. Commonly, these laws require a written lease, good cause for
eviction, disclosure of fees, and notification to residents of changed land
use, while prohibiting unreasonable rules, retaliatory evictions, and
restrictions on a resident's choice of unit vendors. Mobile home park owners
have been the subject of suits under state "Unfair and Deceptive Practices
Acts" and other general consumer protection statutes for coercive, abusive or
unconscionable leasing and sales practices. A few states offer more significant
protection. For example, there are provisions that limit the basis on which a
landlord may terminate a mobile home owner's tenancy or increase its rent or
prohibit a landlord from terminating a tenancy solely by reason of the sale of
the owner's mobile home.
Certain states also regulate changes in mobile home park use and
require that the landlord give written notice to its tenants a substantial
period of time prior to the projected change.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on mobile home parks.
These ordinances may limit rent increases to fixed percentages, to percentages
of increases in the consumer price index, to increases set or approved by a
governmental agency, or to increases determined through mediation or binding
arbitration. In many cases, the rent control laws do not permit vacancy
decontrol, or permit vacancy decontrol only in the relatively rare event that
the mobile home is removed from the homesite. Local authority to impose rent
control on mobile home parks is pre-empted by state law in certain states, and
rent control is not imposed at the state level in those states. In some states,
however, local rent control ordinances are not pre-empted for tenants having
short-term or month-to-month leases, and properties there may be subject to
various forms of rent control with respect to those tenants. Any limitations on
a borrower's ability to raise property rents may impair such borrower's ability
to repay its Mortgage Loan from its net operating income or the proceeds of a
sale or refinancing of the related Mortgaged Property.
Senior Housing/Healthcare Properties. Certain of the Mortgaged
Properties are operated as nursing homes. See "Description of the Mortgage
Pool--Additional Mortgage Loan Information--Types of Mortgaged Property" herein
for certain statistical information on such loans. Loans secured by liens on
nursing homes pose risks not associated with loans secured by liens on other
types of income-producing real estate.
Providers of long-term nursing care and other medical services are
subject to federal and state laws that relate to the adequacy of medical care,
distribution of pharmaceuticals, rate setting, equipment, personnel, operating
policies and additions to facilities and services and, to the extent dependent
on patients whose fees are reimbursed by private insurers, to the reimbursement
policies of such insurers. In addition, facilities where such care or other
medical services are provided are subject to periodic inspection by
governmental authorities to determine compliance with various standards
necessary for continued licensing under state law and continued participation
in the Medicaid and Medicare reimbursement programs. The failure of any of such
borrowers to maintain or renew any required license or regulatory approval
could prevent it from continuing operations at a Mortgaged Property (in which
case no revenues would be received from such property or portion thereof
requiring licensing) or, if applicable, bar it from participation in government
reimbursement programs. Furthermore, in the event of foreclosure, there can be
no assurance that the Trustee (or Servicer or Special
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Servicer) or purchaser in a foreclosure sale would be entitled to the rights
under such licenses and such party may have to apply in its own right for such
a license. There can be no assurance that a new license could be obtained.
Under applicable federal and state laws and regulations, Medicare and
Medicaid, only the provider who actually furnished the related medical goods
and services generally may sue for or enforce its rights to reimbursement.
Accordingly, in the event of foreclosure, none of the Trustee, the Servicer,
the Special Servicer or a subsequent lessee or operator of the property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
respective properties prior to such foreclosure.
The operators of such nursing homes are likely to compete on a local
and regional basis with others that operate similar facilities, some of which
competitors may be better capitalized, may offer services not offered by such
operators or may be owned by non-profit organizations or government agencies
supported by endowments, charitable contributions, tax revenues and other
sources not available to such operators. The successful operation of a
Mortgaged Property that is a nursing home will generally depend upon the number
of competing facilities in the local market, as well as upon other factors such
as its age, appearance, reputation and management, the types of services it
provides and, where applicable, the quality of care and the cost of that care.
Nursing facilities may receive a substantial portion of their revenues
from government reimbursement programs, primarily Medicaid and Medicare.
Medicaid and Medicare are subject to statutory and regulatory changes,
retroactive rate adjustments, administrative rulings, policy interpretations,
delays by fiscal intermediaries and government funding restrictions. Moreover,
governmental payors have employed cost-containment measures that limit payments
to health care providers, and there are currently under consideration various
proposals for national health care reform that could further limit those
payments. Accordingly, there can be no assurance that payments under government
reimbursement programs will, in the future, be sufficient to fully reimburse
the cost of caring for program beneficiaries. If not, net operating income of
the Mortgaged Properties that receive revenues from those sources, and
consequently the ability of the related borrowers to meet their Mortgage Loan
obligations, could be adversely affected.
Concentration of Mortgage Loans; Borrowers and Managers. Several of
the Mortgage Loans have Cut-off Date Principal Balances that are substantially
higher than the average Cut-off Date Principal Balance. The largest Mortgage
Loan is secured by one property, the [property name and city, state] and has a
Cut-off Date Principal Balance that represents approximately [ ]% of the
Initial Pool Balance. The ten largest Mortgage Loans have Cut-off Date
Principal Balances that represent, in the aggregate, approximately [ ]% of the
Initial Pool Balance.
[ ] of the Mortgage Loans are Pool Loans secured by more than one
Mortgaged Property. The [ ] largest Pool Loans are set forth in the following
table:
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MORTGAGE LOANS MADE TO ONE BORROWER AND SECURED BY MORE THAN ONE
MORTGAGED PROPERTY
% OF INITIAL POOL
PROPERTY NAME BORROWER BALANCE
- ------------- -------- -----------------
%
%
%
%
%
%
-
TOTAL: %
%
%
%
%
%
%
%
%
-
TOTAL: %
%
%
%
%
TOTAL: %
%
%
%
%
%
%
-
TOTAL: %
The following table sets forth certain information with respect to
those Mortgage Loans made to affiliated borrowers and that represent more than
[ ]% of the Initial Pool Balance. Except as set forth below, none of the groups
of Mortgage Loans made to affiliated borrowers represent, in the aggregate by
group, more than [ ]% of the Initial Pool Balance.
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<PAGE>
MORTGAGE LOANS MADE TO AFFILIATED BORROWERS (1)
% OF
INITIAL
POOL
PROPERTY NAME LOAN POOL BALANCE
- ------------- --------- -------
%
%
%
%
%
-
TOTAL: %
- -------------------
(1) See "--Limitations on the Enforceability of Cross-Collateralization" below
and "Description of the Mortgage Pool--Cross-Collateralization and
Cross-Default of Certain Mortgage Loans" herein.
In general, concentrations in a mortgage pool in which one or more
loans that have outstanding principal balances that are substantially larger
than the other mortgage loans in such pool can result in losses that are more
severe, relative to the size of the pool, than would be the case if the
aggregate balance of such pool were more evenly distributed among the mortgage
loans in such pool. Concentrations of Mortgage Loans with the same borrower or
related borrowers can also pose increased risks. For example, if a person that
owns or controls several Mortgaged Properties experiences financial difficulty
at one Mortgaged Property, or at another income-producing property that it owns
or controls, it could defer maintenance at one Mortgaged Property in order to
satisfy current expenses with respect to another Mortgaged Property or other
income-producing property that it owns or controls, or it could attempt to
avert foreclosure by filing a bankruptcy petition that might have the effect of
interrupting Monthly Payments (subject to the Servicer's obligation to make
Advances) for an indefinite period on all of the related Mortgage Loans.
Limitations on Enforceability of Cross-Collateralization. [ ] of the
Mortgage Loans representing approximately [ ]% of the Initial Pool Balance are
secured by more than one Mortgaged Property. These arrangements seek to reduce
the risk that the inability of a Mortgaged Property securing each such Mortgage
Loan to generate net operating income sufficient to pay debt service will
result in defaults and ultimate losses. See "--Concentration of Mortgage
Loans, Borrowers and Managers" above.
Cross-collateralization arrangements involving more than one borrower,
however, could be challenged as fraudulent conveyances by creditors of a
borrower or by the representative of the bankruptcy estate of a borrower, if a
borrower were to become a debtor in a bankruptcy case. Generally, under federal
and most state fraudulent conveyance statutes, the incurring of an obligation
or the transfer of property by a person will be subject to avoidance under
certain circumstances if the person did not receive fair consideration or
reasonably equivalent value in exchange for such obligation or transfer and (i)
was insolvent or was rendered insolvent by such obligation or transfer, (ii)
was engaged in business or a transaction, or was about to engage in business or
a transaction, for which any property remaining with the person was an
unreasonably small capital or (iii) intended to, or believed that it would,
incur debts that would be beyond the person's ability to pay as such debts
matured. Accordingly, a lien granted by a borrower to secure repayment of
another borrower's Mortgage Loan could be avoided if a court were to determine
that (i) such borrower was insolvent at the time of granting the lien, was
rendered insolvent by the granting of the lien, or was left with inadequate
capital, or was not able to pay its debts as they matured and (ii) the borrower
did not, when it allowed its Mortgaged Property to be encumbered by a lien
securing the entire indebtedness represented by the other Mortgage Loan,
receive fair consideration or reasonably equivalent value for pledging such
Mortgaged Property for the equal benefit of the other borrower.
Other Financing. The Mortgage Loans generally prohibit incurring any
debt that is secured by the related Mortgaged Property. The Mortgage Loans do,
however, generally permit the related borrower to incur indebtedness in limited
circumstances for the purchase of certain items used in the ordinary course of
business,
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such as equipment. The existence of such other indebtedness could adversely
affect the financial viability of the related borrowers or the security
interest of the lender in the equipment or other assets acquired through such
financings. See "Certain Legal Aspects of the Mortgage Loans--Subordinate
Financing" herein. In addition, an affiliate of the Mortgage Loan Seller (the
"Preferred Interest Holder") has acquired a preferred equity interest in
certain of the borrowers or affiliates as set forth on the following table:
PREFERRED EQUITY INVESTMENTS IN BORROWERS AND AFFILIATES
APPROXIMATE AMOUNT
OF PREFERRED EQUITY
MORTGAGE LOAN INVESTMENT(1)
- ------------- -------------------
$
$
$
$
$
$
$
$
- -------------------
(1) As of the Cut-off Date and assuming that only minimum required payments
are made to the Preferred Interest Holder.
The Preferred Interest Holder is not obligated to make any further
capital contributions to any such borrower. In general, with respect to each
such borrower, the Preferred Interest Holder is entitled to receive certain
preferred distributions prior to distributions being made to the other partners
or members. No monthly distribution to the Preferred Interest Holder is
permitted to be made until all required monthly debt service payments, reserve
payments and other payments under the related Mortgage Loan ("Monthly Mortgage
Loan Payments") have been made when due and all monthly operating expenses with
respect to the related Mortgaged Property ("Monthly Operating Expenses") have
been paid. After payment of such amounts, the Preferred Interest Holder is
entitled to receive a distribution of a preferred yield and a monthly return of
capital equal to the greater of a scheduled minimum payment and specified
percentage (if certain breaches have occurred, 100%) of cash flow from the
Mortgaged Property or Properties, after payment of Monthly Mortgage Loan
Payments, Monthly Operating Expenses and the monthly preferred yield to the
Preferred Interest Holder.
Under the related partnership agreement, operating agreement or
similar arrangement, the Preferred Interest Holder has certain specified
rights, including the right to terminate and replace the manager of the related
Mortgaged Property or Properties upon the occurrence of certain specified
breaches or if the Debt Service Coverage Ratio as of certain dates falls below
certain levels generally equal to the Debt Service Coverage Ratio at the time
of the origination of the related Mortgage Loan. However, the right of the
Preferred Interest Holder to terminate any manager is expressly subordinate to
the right of the Servicer to terminate and replace such manager. If the
Preferred Interest Holder is entitled to terminate a manager at a time when the
Servicer does not have such a right, then prior to termination, the Preferred
Interest Holder must receive confirmation from each of the Rating Agencies that
such termination would not cause any Rating Agency to withdraw, qualify or
downgrade any of its then-current ratings on the Certificates. Other than the
increase in the percentage of the cash flow used to calculate the monthly
return of capital and the right to terminate the manager as described above,
the Preferred Interest Holder has no further remedies under the relevant
partnership, operating or similar agreement in the event of nonpayment of its
monthly preferred yield and return of capital.
In general, the Preferred Interest Holder has the right to approve the
annual budget for the Mortgaged Properties, which right is subject to any right
that the Servicer may have to approve such budgets. The Preferred Interest
Holder also has the right to approve certain actions of the related borrowers,
including certain transactions
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with affiliates, prepayment or refinancing of the related Mortgage Loan,
transfer of the related Mortgaged Property, entry into or modification of
substantial leases or improvement of the related Mortgaged Properties to a
materially higher standard than comparable properties in the vicinity of such
Mortgaged Properties (unless approved by the Servicer as described below), and
the dissolution, liquidation or the taking of certain bankruptcy actions with
respect to the borrower. With respect to the entry into or modification of
substantial leases or the making of any capital improvements in addition to
those reserved for under the related Mortgage Loan, the Servicer alone may
approve such leases and improvements without the consent of the Preferred
Interest Holder. In such event, the expenditure of amounts to make such
additional capital improvements, rather than to make the monthly distribution
to the Preferred Interest Holder, will not cause a breach which gives rise to a
right to terminate the related manager.
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or deed in lieu of foreclosure, the Special
Servicer would be required to retain an independent contractor to operate and
manage the Mortgaged Property. Any net income from such operation and
management, other than qualifying "rents from real property," or any rental
income based on the net profits of a tenant or sub-tenant or allocable to a
service that is non-customary in the area and for the type of building
involved, will subject the Trust REMIC to federal (and possibly state or local)
tax on such income at the highest marginal corporate tax rate (currently 35%),
thereby reducing net proceeds available for distribution to Certificateholders.
See "Certain Federal Income Tax Consequences--Federal Income Tax Consequences
for REMIC Certificates" "--Taxes That May Be Imposed on the REMIC Pool--Net
Income From Foreclosure Property" herein.
Risk of Different Timing of Mortgage Loan Amortization. As set forth
on the table below, the different types of Mortgaged Properties securing the
Mortgaged Loans have varying weighted average terms to maturity. If and as
principal payments or prepayments are made on a Mortgage Loan, the remaining
Mortgage Pool will be subject to more concentrated risk with respect to the
diversity of properties, types of properties, geographic concentration (see
"--Geographic Concentration" below) and with respect to the number of
borrowers. Because principal on the Certificates is payable in sequential
order, and no Class receives principal until the Certificate Balance of the
preceding Class or Classes has been reduced to zero, Classes that have a later
sequential designation are more likely to be exposed to the risk of
concentration discussed in the preceding sentence than Classes with higher
sequential priority.
WEIGHTED AVERAGE TERMS TO MATURITY FOR VARIOUS PROPERTY TYPES
WEIGHTED AVERAGE
REMAINING TERM TO
MATURITY OR
ANTICIPATED
% OF INITIAL REPAYMENT DATE (IF
PROPERTY TYPE POOL BALANCE APPLICABLE )
- ------------- ------------ ------------------
Multifamily.............................. %
Hotel (Full Service).....................
Hotel (Limited Service)..................
Office...................................
Retail (Anchored)........................
Retail (Unanchored)......................
Mobile Home/RV Park......................
Industrial Park..........................
Nursing Home.............................
TOTAL: %
Geographic Concentration. The Mortgaged Properties are located in [ ] states.
The table below sets forth the states in which a significant percentage of the
Mortgaged Properties are located. See the table entitled
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"Geographic Distribution of the Mortgaged Properties" for a description of
geographic location of the Mortgaged Properties. Except as set forth below, no
state contains more than 4% (by Cut-off Date Principal Balance or Allocated
Loan Amount) of the Mortgaged Properties.
SIGNIFICANT GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES
NUMBER OF
% OF INITIAL MORTGAGED
STATE POOL BALANCE PROPERTIES
- ----- ------------ ----------
%
Repayments by borrowers and the market value of the Mortgaged
Properties could be adversely affected by economic conditions generally or in
regions where the borrowers and the Mortgaged Properties are located,
conditions in the real estate markets where the Mortgaged Properties are
located, changes in governmental rules and fiscal policies, acts of nature
(which may result in uninsured losses), and other factors which are beyond the
control of the borrowers.
The economy of any state or region in which a Mortgaged Property is
located may be adversely affected to a greater degree than that of other areas
of the country by certain developments affecting industries concentrated in
such state or region. Moreover, in recent periods, several regions of the
United States have experienced significant downturns in the market value of
real estate. To the extent that general economic or other relevant conditions
in states or regions in which concentrations of Mortgaged Properties securing
significant portions of the aggregate principal balance of the Mortgage Loans
are located decline and result in a decrease in commercial property, housing or
consumer demand in the region, the income from and market value of the
Mortgaged Properties may be adversely affected.
Enforceability. The Mortgages generally contain a due-on-sale clause,
which permits the lender to accelerate the maturity of the Mortgage Loan if the
mortgagor sells, transfers or conveys the related Mortgaged Property or its
interest in the Mortgaged Property. [Certain of the ]Mortgages may also include
a debt-acceleration clause, which permits the lender to accelerate the debt
upon a monetary or non-monetary default of the mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default. The equity courts of any state, however, may refuse
the foreclosure of a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust or the circumstances would render
the acceleration unconscionable.
In addition, each of the Mortgage Loans is secured by an assignment of
leases and rents pursuant to which the related mortgagor assigned its right,
title and interest as landlord under the leases on the related Mortgaged
Property and the income derived therefrom to the lender as further security for
the related Mortgage Loan, while retaining a license to collect rents for so
long as there is no default. In the event the mortgagor defaults, the license
terminates and the lender is entitled to collect rents. Such assignments may
not be perfected as security interests prior to actual possession of the cash
flows. Some state laws may require that the lender take possession of the
Mortgaged Property and obtain a judicial appointment of a receiver before
becoming entitled to collect the rents. In addition, if bankruptcy or similar
proceedings are commenced by or in respect of the mortgagor, the lender's
ability to collect the rents may be adversely affected. See "Certain Legal
Aspects of Mortgage Loans--Leases and Rents."
Environmental Law Considerations. Under various federal, state and
local environmental laws, ordinances and regulations, a current or previous
owner or operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under, adjacent to, or in such
property. Such laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such
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hazardous or toxic substances. The cost of any required remediation and the
owner's liability therefor as to any property is generally not limited under
such enactments and could exceed the value of the property and/or the aggregate
assets of the owner. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of
cleanup. In several states such a lien has priority over the lien of an
existing mortgage against such property. In addition, the presence of hazardous
or toxic substances, or the failure to properly remediate such property, may
adversely affect the owner's or operator's ability to refinance using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility. Certain
laws impose liability for release of asbestos containing materials ("ACMs")
into the air or require the removal or containment of ACMs and third parties
may seek recovery from owners or operators of real properties for personal
injury associated with ACMs or other exposure to chemicals or other hazardous
substances.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the Trust
Fund) may be liable, as an "owner" or "operator," for the costs of responding
to a release or threat of a release of hazardous substances on or from a
borrower's property, if (i) agents or employees of a lender are deemed to have
participated in the management of the borrower or (ii) the Trust Fund actually
takes possession of a borrower's property or control of its day-to-day
operations, as for example, through the appointment of a receiver, in either
case, regardless of whether a previous owner caused the environmental damage.
The Trust Fund's potential exposure to liability for cleanup costs pursuant to
CERCLA may increase if the Trust Fund actually takes possession of a borrower's
property, or control of its day-to-day operations, as for example through the
appointment of a receiver.
All of the Mortgaged Properties have been subject to environmental
site assessments within the eighteen months preceding the Cut-off Date. No
assessment revealed any environmental condition or circumstance that the
Depositor believes will have a material adverse impact on the borrower's
ability to pay its debt. [Insert the findings of any Environmental
Assessments]. There can be no assurance that all environmental conditions and
risks have been identified in such environment assessments or studies, as
applicable.
Federal law requires owners of residential housing constructed prior
to 1978 to disclose to potential residents or purchasers any condition on the
property that causes exposure to lead-based paint. In addition, every contract
for the purchase and sale of any interest in residential housing constructed
prior to 1978 must contain a "Lead Warning Statement" that informs the
purchaser of the potential hazards to pregnant women and young children
associated with exposure to lead-based paint. The ingestion of lead-based paint
chips and/or the inhalation of dust particles from lead-based paint by children
can cause permanent injury, even at low levels of exposure. Property owners can
be held liable for injuries to their tenants resulting from exposure to
lead-based paint under various state and local laws and regulations that impose
affirmative obligations on property owners of residential housing containing
lead-based paint. The environmental assessments revealed the existence of
lead-based paint at certain of the multifamily residential properties. In these
cases the borrowers either implemented operations and maintenance programs or
are in the process of removing the lead-based paint. The Depositor believes
that the presence of lead-based paint at these Mortgaged Properties will not
have a material adverse effect on the ability of the related borrowers to repay
their loans.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto on behalf of the Trust Fund or assuming its operation.
Such requirement may effectively preclude enforcement of the security for the
related Note until a satisfactory environmental site assessment is obtained (or
until any required remedial action is thereafter taken), but will decrease the
likelihood that the Trust Fund will become liable under any environmental law.
However, there can be no assurance that the requirements of the Pooling and
Servicing Agreement will effectively insulate the Trust Fund from potential
liability under environmental laws. See "The Pooling and Servicing
Agreement--Servicing of the Mortgage Loans; Collection of Payments" and
"Certain Legal Aspects of Mortgage Loans--Environmental Legislation" herein.
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Balloon Payments. [ ] of the Mortgage Loans are Balloon Loans which
will have substantial payments of principal ("Balloon Payments") due at their
stated maturities unless previously prepaid. [ ] of the Mortgage Loans have
Anticipated Repayment Dates, and which have substantial scheduled principal
balances as of such date. Loans that require Balloon Payments involve a greater
risk to the lender than fully-amortizing loans because the ability of a
borrower to make a Balloon Payment typically will depend upon its ability
either to refinance the loan or to sell the related Mortgaged Property at a
price sufficient to permit the borrower to make the Balloon Payment. Similarly,
the ability of a borrower to repay a loan on the Anticipated Repayment Date
will depend on its ability to either refinance the loan or to sell the related
Mortgaged Property. The ability of a borrower to accomplish either of these
goals will be affected by a number of factors at the time of attempted sale or
refinancing, including the level of available mortgage rates, the fair market
value of the property, the borrower's equity in the related property, the
financial condition of the borrower and operating history of the property, tax
laws, rent control laws (with respect to certain multifamily properties and
mobile home parks), reimbursement rates (with respect to certain hospitals,
nursing homes and convalescent homes), renewability of operating licenses,
prevailing economic conditions and the availability of credit for multifamily
or commercial properties (as the case may be) generally.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
% OF INITIAL NUMBER OF
TYPE OF LOAN POOL BALANCE MORTGAGE LOANS
- ------------ ------------ --------------
<S> <C> <C>
ARD Loans................................................... %
Fully Amortizing Loans (other than the ARD Loans) %
Balloon Mortgage Loans...................................... %
</TABLE>
One Action Considerations. Several states (including California) have
laws that prohibit more than one "judicial action" to enforce a mortgage
obligation, and some courts have construed the term "judicial action" broadly.
Accordingly, the Pooling and Servicing Agreement will require the Servicer to
obtain advice of counsel prior to enforcing any of the Trust Fund's rights
under any of the Mortgage Loans that include properties where the rule could be
applicable. In addition, the Servicer may be required to foreclose first on
properties located in states where such "one action" rules apply (and where
non-judicial foreclosure is permitted) before foreclosing on properties located
in states where judicial foreclosure is the only permitted method of
foreclosure. See "Certain Legal Aspects of Mortgage Loans--Foreclosure" herein.
Limitations of Appraisals. In general, appraisals represent the
analysis and opinion of qualified experts and are not guarantees of present or
future value. Moreover, appraisals seek to establish the amount a typically
motivated buyer would pay a typically motivated seller. Such amount could be
significantly higher than the amount obtained from the sale of a Mortgaged
Property under a distress or liquidation sale. Information regarding the values
of the Mortgaged Properties as of the Cut-off Date is presented under
"Description of the Mortgage Pool" herein for illustrative purposes only.
Ground Leases. [ ] of the Mortgaged Properties, representing security
for approximately [ ]% of the Initial Pool Balance, are leasehold interests. [
] of the Mortgaged Properties, the Allocated Loan Amounts of which represent
approximately [ ]% of the Initial Pool Balance, are leasehold estates in a
portion of the related properties and fee simple interests in the remainder of
the related properties. Those [ ] ground leases cover portions of the related
properties that are not material to the successful ongoing operations of such
properties.
Each of the Mortgage Loans secured by mortgages on leasehold estates
were underwritten taking into account payment of the ground lease rent. On the
bankruptcy of a lessor or a lessee under a ground lease, the debtor entity has
the right to assume (continue) or reject (terminate) the ground lease. Pursuant
to Section 365(h) of the Bankruptcy Code, as it is presently in effect, a
ground lessee whose ground lease is rejected by a debtor ground lessor has the
right to remain in possession of its leased premises under the rent reserved in
the lease for the term (including renewals) of the ground lease. In the event a
ground lessee/borrower in bankruptcy rejects any or all of its ground leases,
the leasehold mortgagee would have the right to succeed to the ground
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lessee/borrower's position under the lease only if the ground lessor had
specifically granted the mortgagee such right. In the event of concurrent
bankruptcy proceedings involving the ground lessor and the ground
lessee/borrower, the Trustee may be unable to enforce the bankrupt ground
lessee/borrower's obligation to refuse to treat a ground lease rejected by a
bankrupt ground lessor as terminated. In such circumstances, a ground lease
could be terminated notwithstanding lender protection provisions contained
therein or in the mortgage.
Zoning Compliance; Inspections. Due to changes in applicable building
and zoning ordinances and codes ("Zoning Laws") affecting certain of the
Mortgaged Properties which have come into effect after the construction of
improvements on such Mortgaged Properties and to other reasons, certain
improvements may not comply fully with current Zoning Laws, including density,
use, parking and set back requirements, but qualify as permitted non-conforming
uses. Such changes may limit the ability of the borrower to rebuild the
premises "as is" in the event of a substantial casualty loss with respect
thereto and may adversely affect the ability of the borrower to meet its
Mortgage Loan obligations from cash flow.
Inspections of the Mortgaged Properties were conducted by licensed
engineers to assess the structure, exterior walls, roofing interior
construction, mechanical and electrical systems and general condition of the
site, buildings and other improvements located on the Mortgaged Properties.
There can be no assurance that all property conditions have been identified in
such inspections.
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. To the extent the Mortgaged Properties do not comply with the
ADA, the borrowers are likely to incur costs of complying with the ADA. In
addition, noncompliance could result in the imposition of fines by the federal
government or an award of damages to private litigants.
Litigation. There may be legal proceedings pending and, from time to
time, threatened against the borrowers and their affiliates relating to the
business of or arising out of the ordinary course of business of the borrowers
and their affiliates. There can be no assurance that such litigation will not
have a material adverse effect on the distributions to Certificateholders.
Obligor Default. In order to maximize recoveries on defaulted Mortgage
Loans, the Special Servicer may, under certain limited circumstances, extend
and/or modify Mortgage Loans that are in default or as to which a payment
default is reasonably foreseeable, including in particular with respect to
balloon payments. While the Special Servicer generally will be required to
determine that any such extension or modification is likely to produce a
greater recovery on a present value basis than liquidation, there can be no
assurance that such flexibility with respect to extensions or modifications
will increase the present value of receipts from or proceeds of Mortgage Loans
that are in default or as to which a default is reasonably foreseeable..
Mortgagor Type. Mortgage Loans made to partnerships, corporations or
other entities may entail risks of loss from delinquency and foreclosure that
are greater than those of Mortgage Loans made to individuals. The mortgagor's
sophistication and form of organization may increase the likelihood of
protracted litigation or bankruptcy in default situations.
THE CERTIFICATES
Subordination. As and to the extent described below under "Description
of the Offered Certificates-- Subordination," the Offered Certificates are
subordinate in right of payment to the Senior Certificates. The rights of the
holders of the Class B-2 Certificates to receive distributions are subordinate
to the rights of the Class B-1 and the Senior Certificates; and the rights of
the holders of the Class B-2 Certificates to receive distributions are
subordinate to the rights of the Class B-1 Certificates and the Senior
Certificates, in each case to the extent described below.
Allocation of Realized Losses on the Mortgage Loans. All Realized
Losses (as defined below under "Description of the Offered
Certificates--Distributions") and other shortfalls in collections on the
Mortgage Loans
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will be allocated in the following order of priority, first, pro rata to the
Class B-3 and Class B-3H Certificates until the Certificate Balances of such
Classes has been reduced to zero, second, to the Class B-2 Certificates until
the Certificate Balance of such Class has been reduced to zero, third, to the
Class B-1 Certificates until the Certificate Balance of such Class has been
reduced to zero, and fourth, to the Senior Certificates as described under
"Description of the Offered Certificates--Distributions." INVESTORS IN THE
OFFERED CERTIFICATES SHOULD CONSIDER THE RISK THAT LOSSES ON THE MORTGAGE LOANS
COULD RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY RECOVER THEIR INITIAL
INVESTMENTS. NO REPRESENTATION IS MADE AS TO THE FREQUENCY OF DELINQUENCIES,
DEFAULTS AND/OR LIQUIDATIONS THAT MAY OCCUR WITH RESPECT TO THE MORTGAGE LOANS,
OR THE MAGNITUDE OF ANY LOSSES THAT MAY OCCUR WITH RESPECT TO THE MORTGAGE
LOANS OR THE LIKELIHOOD OR MAGNITUDE OF ANY EXTRAORDINARY EXPENSES THAT MAY BE
INCURRED WITH RESPECT TO THE TRUST FUND.
Special Prepayment and Yield Considerations. The yield to maturity on
the Offered Certificates will depend on, among other things, the rate and
timing of principal payments (including both voluntary prepayments, in the case
of the Mortgage Loans that permit voluntary prepayment, and involuntary
prepayments, such as prepayments resulting from casualty or condemnation,
defaults and liquidations) on the Mortgage Loans and the allocation thereof to
reduce the Certificate Balances of the Certificates. In addition, in the event
of any repurchase of a Mortgage Loan from the Trust Fund by the Mortgage Loan
Seller or the Depositor under the circumstances described under "The Pooling
and Servicing Agreement--Representations and Warranties--Repurchase" herein or
the purchase by the holder of a majority of the Percentage Interests of the
Class LR Certificates under the circumstances described under "Description of
the Mortgage Pool--Certain Terms and Conditions of the Mortgage Loans--Excess
Interest" herein, the repurchase or purchase price paid would be passed through
to the holders of the Certificates with the same effect as if such Mortgage
Loan had been prepaid in full (except that no Prepayment Premium would be
payable with respect to any such repurchase). No representation is made as to
the anticipated rate of prepayments (voluntary or involuntary) on the Mortgage
Loans or as to the anticipated yield to maturity of any Certificate. See
"Prepayment and Yield Considerations" herein.
Because substantially all principal received on the Mortgage Loans is
first allocated to the Senior Certificates until their respective Certificate
Balances are reduced to zero, before principal is allocated to the Offered
Certificates, the Offered Certificates may not receive any principal for a
substantial period of time.
The investment performance of the Offered Certificates may vary
materially and adversely from the investment expectations of investors due to
prepayments on the Mortgage Loans that are higher or lower than anticipated by
investors. The actual yield to the holder of an Offered Certificate may not be
equal to the yield anticipated at the time of purchase of the Offered
Certificate or, notwithstanding that the actual yield is equal to the yield
anticipated at that time, the total return on investment expected by the
investor or the expected weighted average life of the Offered Certificate may
not be realized. IN DECIDING WHETHER TO PURCHASE ANY OFFERED CERTIFICATES, AN
INVESTOR SHOULD MAKE AN INDEPENDENT DECISION AS TO THE APPROPRIATE PREPAYMENT
ASSUMPTIONS TO BE USED. See "Prepayment and Yield Considerations" herein.
All of the Mortgage Loans provide for a Lock-out Period during which
voluntary prepayment is prohibited. The table below sets forth certain
information regarding the Lock-out Periods. For further statistical information
on a loan-by-loan basis, see Annex A hereto.
OVERVIEW OF LOCK-OUT PERIODS
Minimum Lock-out Period at origination......................... months
Minimum Remaining Lock-out Period.............................. months
Maximum Remaining Lock-out Period.............................. months
Weighted Remaining Average Lock-out Period months
The following table sets forth the number of, and percentages of the
Initial Pool Balance represented by, Mortgage Loans with respect to which the
related Lock-out Period expires (i) on or three months prior to their
respective Anticipated Repayment Dates or (ii) no earlier than the last three
months of their loan term. See
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"Description of the Mortgage Pool--Certain Terms and Conditions of the Mortgage
Loans--Prepayment Provisions" and "--Defeasance Provisions" herein.
LOCK-OUT PERIOD CHARACTERISTICS OF THE MORTGAGE LOANS
% OF
INITIAL NUMBER OF
POOL MORTGAGE
TYPE OF LOAN BALANCE LOANS
- ------------ ------- ---------
Lock-out Period Ending on/or close to Anticipated %
Repayment Date.......................................
Lock-out Period Ending on/or close to Maturity Date
TOTAL: 100%
The rate at which voluntary prepayments occur on the Mortgage Pool
will be affected by a variety of factors, including, without limitation, the
terms of the Mortgage Loans, the level of prevailing interest rates, the
availability of mortgage credit and economic, demographic, tax, legal and other
factors. In general, however, if prevailing interest rates fall significantly
below the Mortgage Rates on the Mortgage Loans, such Mortgage Loans are likely
to be the subject of higher principal prepayments than if prevailing rates
remain at or above the rates borne by such Mortgage Loans. The rate of
principal payments on the Offered Certificates will correspond to the rate of
principal payments on the Mortgage Loans and is likely to be affected by the
Lock-out Periods and Prepayment Premium provisions applicable to the Mortgage
Loans and by the extent to which a Servicer is able to enforce such provisions.
Mortgage Loans with a Lock-out Period or Prepayment Premium provision, to the
extent enforceable, generally would be expected to experience a lower rate of
principal prepayments than otherwise identical mortgage loans without such
provisions, with shorter Lock-out Periods or with lower Prepayment Premiums.
All of the Mortgage Loans provide that after the applicable Defeasance
Lock-out Period, the borrower may obtain the release of the related Mortgaged
Property from the lien of the related Mortgage upon the pledge to the Trustee
of noncallable U.S. Treasury or other noncallable U.S. government obligations
which provide payments on or prior to all successive payment dates through
maturity (or, in the case of the ARD Loans, through the Anticipated Repayment
Date) and the amount of principal that would be due on the maturity date (or,
in the case of the ARD Loans, on the Anticipated Repayment Date as if such date
was the maturity date), and upon which interest and principal payments are due
on and prior to the maturity date (or the related Anticipated Repayment Date,
as applicable) under the related Note in the amounts due on such dates, and
upon the satisfaction of certain other conditions. See "Description of the
Mortgage Pool--Property Releases."
Provisions requiring Prepayment Premiums may not be enforceable in
some states and under federal bankruptcy law, and may constitute interest for
usury purposes. Accordingly, no assurance can be given that the obligation to
pay a Prepayment Premium will be enforceable under applicable state or federal
law or, if enforceable, that the foreclosure proceeds will be sufficient to pay
such Prepayment Premium. Additionally, although the collateral substitution
provisions related to defeasance are not intended to be, and do not have the
same effect on the Certificateholders as, prepayment, there can be no assurance
that a court would not interpret such provisions as requiring a yield
maintenance charge or Prepayment Premium and thus not enforceable under
applicable law or as being usurious.
In general, if an Offered Certificate is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, to the extent that the required Prepayment Premiums are not
received, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if an Offered Certificate is
purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield
to maturity will be lower than assumed at the time of purchase.
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See "Prepayment and Yield Considerations" and "Certain Federal Income
Tax Consequences" herein.
Limited Nature of Ratings. Any rating assigned by a Rating Agency to a
class of Certificates will reflect such Rating Agency's assessment solely of
the likelihood that holders of Certificates of such class will receive payments
to which such Certificateholders are entitled under the Pooling and Servicing
Agreement. Such rating will not constitute an assessment of the likelihood that
principal prepayments on the related Mortgage Loans will be made, the degree to
which the rate of such prepayments might differ from that originally
anticipated or the likelihood of early optional termination of the
Certificates. Such rating will not address the possibility that prepayment at
higher or lower rates than anticipated by an investor may cause such investor
to experience a lower than anticipated yield or that an investor purchasing a
Certificate at a significant premium might fail to recoup its initial
investment under certain prepayment scenarios.
The amount, type and nature of credit support, if any, established
with respect to the Certificates will be determined on the basis of criteria
established by each Rating Agency rating such Certificates. Such criteria are
sometimes based upon an actuarial analysis of the behavior of mortgage loans in
a larger group. Such analysis is often the basis upon which each Rating Agency
determines the amount of credit support required with respect to each such
class. There can be no assurance that the historical data supporting any such
actuarial analysis will accurately reflect future experience nor any assurance
that the data derived from a large pool of mortgage loans accurately predicts
the delinquency, foreclosure or loss experience of the Mortgage Loans. No
assurance can be given that values of any Mortgaged Properties have remained or
will remain at their levels on the respective dates of origination of the
related Mortgage Loans. Moreover, there is no assurance that appreciation of
real estate values generally will limit loss experiences on the Mortgaged
Properties. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans underlying or comprising
the Mortgage Loans in the Trust Fund and any secondary financing on the related
Mortgaged Properties become equal to or greater than the value of the Mortgaged
Properties, the rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced by institutional lenders. In addition,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by mortgagors of scheduled payments of principal
and interest on the Mortgage Loans and, accordingly, the rates of
delinquencies, foreclosures and losses with respect to the Trust Fund. See
"Ratings" herein.
Effect of Mortgagor Defaults. The aggregate amount of distributions on
the Offered Certificates, the yield to maturity of the Offered Certificates,
the rate of principal payments on the Offered Certificates and the weighted
average life of the Offered Certificates will be affected by the rate and the
timing of delinquencies and defaults on the Mortgage Loans. Delinquencies of
payments on the Mortgage Loans may result in shortfalls in distributions of
interest and/or principal to the Offered Certificates for the current month.
Any late payments received on or in respect of the Mortgage Loans will be
distributed to the Certificates in the priorities described more fully herein,
but no interest will accrue on such shortfall during the period of time such
payment is delinquent. Thus, because the Offered Certificates will not accrue
interest on shortfalls, delinquencies may result in losses and shortfalls being
allocated to the Offered Certificates, which will reduce the amounts
distributable to the Offered Certificates and thereby adversely affect the
yield to maturity of such Certificates.
If a purchaser of an Offered Certificate of any Class calculates its
anticipated yield based on an assumed rate of default and amount of losses on
the Mortgage Loans that is lower than the default rate and amount of losses
actually experienced and such additional losses are allocable to such Class of
Certificates, such purchaser's actual yield to maturity will be lower than that
so calculated and could, under certain extreme scenarios, be negative. The
timing of any loss on a liquidated Mortgage Loan will also affect the actual
yield to maturity of the Offered Certificates to which a portion of such loss
is allocable, even if the rate of defaults and severity of losses are
consistent with an investor's expectations. In general, the earlier a loss
borne by an investor occurs, the greater is the effect on such investor's yield
to maturity.
As and to the extent described herein, the Servicer, the Special
Servicer, the Trustee or the Fiscal Agent, as applicable, will be entitled to
receive interest on unreimbursed Advances and unreimbursed servicing expenses
that (a) are recovered out of amounts received on the Mortgage Loan as to which
such Advances were made or such servicing expenses were incurred, which amounts
are in the form of reimbursement from the related
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borrower, liquidation proceeds, insurance proceeds, condemnation proceeds or
amounts paid in connection with the purchase of such Mortgage Loan out of the
Trust Fund or (b) are determined to be nonrecoverable Advances. Such interest
will accrue from (and including) the date on which the related Advance is made
or the related expense incurred to (but excluding) the first Servicer
Remittance Date after (x) in the case of clause (a) above, such amounts are
recovered and (y) in the case of clause (b) above, a determination of
non-recoverability is made to the extent that there are funds available in the
Collection Account for reimbursement of such Advance. The Servicer's, the
Special Servicer's, the Trustee's or the Fiscal Agent's right, as applicable,
to receive such payments of interest is prior to the rights of
Certificateholders to receive distributions on the Offered Certificates and,
consequently, may result in losses being allocated to the Offered Certificates
that would not otherwise have resulted absent the accrual of such interest. In
addition, certain circumstances, including delinquencies in the payment of
principal and interest, result in a Mortgage Loan being specially serviced. The
Special Servicer is entitled to additional compensation for special servicing
activities which may result in losses being allocated to the Offered
Certificates that would not otherwise have resulted absent such compensation.
If the Special Servicer is the owner of the most subordinate Class of
Certificates then outstanding, the Special Servicer will be entitled to
one-half of such special servicing compensation. See "The Pooling and Servicing
Agreement--Special Servicing" herein.
Even if losses on the Mortgage Loans are not borne by an investor in a
particular Class of Offered Certificates, such losses may affect the weighted
average life and yield to maturity of such investor's Certificates. Losses on
the Mortgage Loans, to the extent not allocated to such Class of Offered
Certificates, may result in a higher percentage ownership interest evidenced by
such Certificates than would otherwise have resulted absent such loss. The
consequent effect on the weighted average life and yield to maturity of the
Offered Certificates will depend upon the characteristics of the remaining
Mortgage Loans.
Regardless of whether losses ultimately result, delinquencies and
defaults on the Mortgage Loans may significantly delay the receipt of payments
by the holder of an Offered Certificate, to the extent that Advances or the
subordination of another Class of Certificates does not fully offset the
effects of any such delinquency or default. The Available Funds generally
consist of, as more fully described herein, principal and interest on the
Mortgage Loans actually collected or advanced. The Servicer's, the Trustee's or
the Fiscal Agent's obligation, as applicable, to make Advances in respect of a
Mortgage Loan that is delinquent as to its Balloon Payment is limited to the
extent described under "The Pooling and Servicing Agreement--Advances" herein.
As described under "Description of the Offered
Certificates--Distributions" herein, if the portion of Available Funds
distributable in respect of interest on the Offered Certificates on any
Distribution Date is less than the Interest Distribution Amount then payable
for such class, the shortfall will be distributable to holders of such Class of
Certificates on subsequent Distribution Dates, to the extent of Available
Funds.
Appraisal Reductions and Delinquency Reductions. Upon the occurrence
of each Appraisal Reduction Event, the Special Servicer will calculate and
report to the Servicer, the Paying Agent and the Trustee the Appraisal
Reduction occurring in connection with such Appraisal Reduction Event. As a
result of calculating one or more Appraisal Reductions, the amount of any
required P&I Advance will be reduced to an amount equal to the product of (a)
the amount that would be required to be advanced without giving effect to such
Appraisal Reduction Event and (b) a fraction, the numerator of which is the
Stated Principal Balance of the Mortgage Loan less any Appraisal Reduction
Amounts thereof and the denominator of which is the Stated Principal Balance.
In addition, and without duplication the Servicer will make only one P&I
Advance in respect of each Mortgage Loan for the benefit of the most
subordinate class of Certificates then outstanding unless the related defaulted
Monthly Payment is cured prior to the next Due Date on such Mortgage Loan.
In addition, on or after any Distribution Date on which the Class A-5
Certificates are the most subordinate Class of Certificates outstanding, the
Component Balance of components (other than the Class A-1A Component, Class
A-1B Component and Class A-1C Component) will be reduced on any Distribution
Date to the extent of any Delinquency Reduction Amounts or Appraisal Reduction
Amounts with respect to such Distribution Date as and to the extent described
herein. The Notional Balance of the Class A-CS2 Certificates will be reduced to
reflect the reductions in such Component Balance; however, such Class will
retain the right to receive
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distributions of interest in respect of such reductions at a lower priority.
See "Description of the Offered Certificates -- Appraisal Reductions" herein.
Servicer or Special Servicer May Purchase Certificates. Any purchase
of Certificates by the Servicer or Special Servicer, as the case may be, could
cause a conflict between such entity's duties pursuant to the Pooling and
Servicing Agreement and its interest as a holder of a Certificate, especially
to the extent that certain actions or events have a disproportionate effect on
one or more Classes of Certificates. The Pooling and Servicing Agreement
provides that the Mortgage Loans shall be administered in accordance with the
servicing standard set forth therein without regard to ownership of any
Certificate by the Servicer, Special Servicer, or any affiliate thereof. See
also "The Pooling and Servicing Agreement--Amendment."
Book-Entry Registration. Each Class of Offered Certificates will be
initially represented by one or more certificates registered in the name of
Cede & Co., as the nominee for DTC, and will not be registered in the names of
the related holders of Certificates or their nominees. As a result, holders of
Offered Certificates will not be recognized as "Certificateholders" for certain
purposes. Hence, those beneficial owners will be able to exercise the rights of
holders of Certificates only indirectly through DTC, Centrale de Livraison de
Valeurs Mobiliers S.A. ("CEDEL") or The Euroclear System ("Euroclear") and
their participating organizations. A beneficial owner holding a certificate
through the book-entry system will be entitled to receive the reports described
under "The Pooling and Servicing Agreement--Reports to Certificateholders"
herein and notices only through the facilities of DTC, CEDEL and Euroclear and
their respective participants or from the Trustee (if the Depositor has
provided the name of such beneficial owner to the Certificate Registrar). For
additional information on the book-entry system, see "Description of the
Offered Certificates--Delivery, Form and Denomination" and "--Book-Entry
Registration" herein. Beneficial owners can also receive copies of information
made available on the monthly reports to Certificateholders via facsimile
through LaSalle National Bank's ASAP System by calling (312) 904-2200, and
requesting statement number 210.
Limited Liquidity and Market Value. There is currently no secondary
market for the Offered Certificates. While the Underwriter has advised that it
currently intends to make a secondary market in the Offered Certificates, it is
under no obligation to do so. Accordingly, there can be no assurance that a
secondary market for the Offered Certificates will develop. Moreover, if a
secondary market does develop, there can be no assurance that it will provide
holders of Offered Certificates with liquidity of investment or that it will
continue for the life of the Offered Certificates. The Offered Certificates
will not be listed on any securities exchange. Lack of liquidity could result
in a precipitous drop in the market value of the Offered Certificates. In
addition, market value of the Offered Certificates at any time may be affected
by many factors, including then prevailing interest rates, and no
representation is made by any person or entity as to the market value of any
Offered Certificate at any time.
Consents. Under certain circumstances, the consent or approval of the
holders of specified percentage of the aggregate Certificate Balance of the
outstanding Certificates will be required to direct and will be sufficient to
bind all Certificateholders to, certain actions, including amending the Pooling
and Servicing Agreement in certain circumstances. See "The Pooling and
Servicing Agreement -- Amendment."
Pass-Through Rate Considerations. The Pass-Through Rates on the Class
B-1 and Class B-2 Certificates are based on the Weighted Average Net Mortgage
Pass-Through Rates of the Mortgage Loans. Because certain Mortgage Loans will
amortize their principal more quickly than others, such rate will fluctuate
over the life of the Class B-1 and Class B-2 Certificates. The weighted average
of the Net Mortgage Pass-Through Rates for each Distribution Date, assuming
that each Mortgage Loan with an Anticipated Repayment Date prepays on such date
and that each other Mortgage Loan does not prepay, is set forth in Annex C
hereto. See "Prepayment and Yield Considerations--Yield" herein.
Certain Federal Tax Considerations Regarding Original Issue Discount.
Certain Classes of Certificates may be issued with "original issue discount"
for federal income tax purposes, which generally will result in recognition of
some taxable income in advance of the receipt of cash attributable to such
income. See "Federal Income Tax Consequences--Federal Income Tax Consequences
for REMIC Certificates--Taxation of Regular Certificates."
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ERISA Considerations. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans. Due
to the complexity of regulations which govern such plans, prospective investors
that are subject to ERISA are urged to consult their own counsel regarding
consequences under ERISA of acquisition, ownership and disposition of the
Offered Certificates. See "ERISA Considerations."
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DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of [ ] fixed rate mortgage loans (the
"Mortgage Loans") secured by [ ] multifamily and commercial properties with an
aggregate Cut-off Date Principal Balance of approximately $[ ] (the "Initial
Pool Balance"), subject to a variance of plus or minus 5%. All numerical
information provided herein with respect to the Mortgage Loans is provided on
an approximate basis. All percentages of the Mortgage Pool, or of any specified
sub-group thereof, referred to herein without further description are
approximate percentages by aggregate Cut-off Date Principal Balance.
Descriptions of the terms and provisions of the Mortgage Loans are generalized
descriptions of the terms and provisions of the Mortgage Loans in the
aggregate. Many of the individual Mortgage Loans have specific terms and
provisions that deviate from the general description.
Each Mortgage Loan is evidenced by one or more promissory notes (each,
a "Note") and secured by one or more mortgages, deeds of trust or other similar
security instruments (a "Mortgage"). Each of the Mortgages creates first liens
(except as described below) on the interests of the related borrower in the
related Mortgaged Property, as set forth on the following table:
SECURITY FOR THE MORTGAGE LOANS
% OF NUMBER OF
INITIAL POOL MORTGAGE
INTEREST OF BORROWER ENCUMBERED BALANCE (1) PROPERTIES
- ------------------------------- ------------ ----------
Fee Simple Estate %
Leasehold
TOTAL 100%
- -------------------
(1) Based on the Allocated Loan Amount of the related Mortgaged Property.
Each Mortgaged Property consists of land improved by (i) an apartment
building or complex consisting of five or more rental units (a "Multifamily
Property," and any Mortgage Loan secured thereby, a "Multifamily Loan"), (ii) a
full or limited service hotel property (a "Hotel Property," and any Mortgage
Loan secured thereby, a "Hotel Loan"), (iii) a mobile home community or
recreational vehicle park or a combination thereof (a "Mobile Home Property,"
and any Mortgage Loan secured thereby, a "Mobile Home Loan"), (iv) a retail
property (a "Retail Property," and any Mortgage Loan secured thereby, a "Retail
Loan"), (v) an office building (an "Office Property," and any Mortgage Loan
secured thereby, an "Office Loan"), (vi) a nursing home (each, a "Senior
Housing/Healthcare Property," and any Mortgage Loan secured thereby, a "Senior
Housing/Healthcare Loan"), or (viii) an industrial property (an "Industrial
Property," and any Mortgage Loan secured thereby, an "Industrial Loan").
Certain statistical information relating to the various types of Mortgaged
Properties is set forth under "--Additional Mortgage Information--Types of
Mortgaged Property" herein.
[ ] of the Mortgage Loans are secured by two or more Mortgaged
Properties, either pursuant to cross-collateralization with other Mortgage
Loans in the Mortgage Pool or pursuant to a single Note by a single borrower
secured by multiple Mortgaged Properties, or both. See "Risk Factors and Other
Special Considerations--Concentration of Mortgage Loans; Borrower and
Managers" herein.
None of the Mortgage Loans are insured or guaranteed by the United
States, any governmental agency or instrumentality, any private mortgage
insurer or by the Depositor, the Mortgage Loan Seller, any Originator, the
Servicer, the Special Servicer, the Trustee or the Fiscal Agent or any of their
respective affiliates. All of the Mortgage Loans are non-recourse loans so
that, in the event of a borrower default on any Mortgage Loan, recourse may
generally be had only against the specific Mortgaged Property or Mortgaged
Properties securing
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such Mortgage Loan and such limited other assets as have been pledged to secure
such Mortgage Loan, and not against the borrower's other assets. However,
generally, the Mortgage Loans may become recourse upon the occurrence of
certain events of default under the Mortgage Loans, including, in most cases,
the transfer or voluntary encumbrance of the Mortgaged Property without the
consent of the mortgagee.
The Mortgage Loans were generally underwritten in accordance with the
underwriting criteria described under "The Mortgage Loan Program--Underwriting
Standards; Representations." The Depositor will purchase the Mortgage Loans to
be included in the Mortgage Pool on or before the Closing Date from the
Mortgage Loan Seller pursuant to a Mortgage Loan Purchase and Sale Agreement
(the "Mortgage Loan Purchase and Sale Agreement") to be dated as of the Cut-off
Date between the Mortgage Loan Seller and the Depositor. The Mortgage Loan
Seller will be obligated under the Mortgage Loan Purchase and Sale Agreement to
repurchase a Mortgage Loan in the event of a breach of a representation or
warranty of the Mortgage Loan Seller with respect to such Mortgage Loan as
described under "The Pooling and Servicing Agreement--Representations and
Warranties--Repurchase" herein. The Depositor will assign the Mortgage Loans in
the Mortgage Pool, together with the Depositor's rights and remedies against
the Mortgage Loan Seller in respect of breaches of representations or
warranties regarding the Mortgage Loans, to LaSalle National Bank, as Trustee,
for the benefit of the Certificateholders, pursuant to the Pooling and
Servicing Agreement. [____________________], in its capacity as Servicer, will
service the Mortgage Loans pursuant to the Pooling and Servicing Agreement. The
Depositor will make no representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase or substitute for
Mortgage Loans with deficient documentation or which are otherwise defective.
The Mortgage Loan Seller, as seller of the Mortgage Loans to the Depositor, is
selling such Mortgage Loans without recourse, and, accordingly, in such
capacity, will have no obligations with respect to the Certificates other than
pursuant to the limited representations, warranties and covenants made by it to
the Depositor and assigned by the Depositor to the Trustee for the benefit of
the Certificateholders. See "Description of the Agreements--Representations and
Warranties; Repurchases" in the Prospectus.
The Mortgage Loan Seller or an affiliate has acquired a preferred
equity interest in [ ] borrowers or groups of borrowers, which are the
borrowers with respect to Mortgage Loans representing approximately [ ]% of the
Initial Pool Balance. See "Risk Factors and Other Special Considerations--Other
Financing" herein.
SECURITY FOR THE MORTGAGE LOANS
Each Mortgage Loan is generally non-recourse and is secured by one or
more Mortgages encumbering the related borrower's interest in the related
Mortgaged Property or Properties. Each Mortgage Loan is also secured by an
assignment of the related borrower's interest in the leases, rents, issues and
profits of the related Mortgaged Properties. In certain instances, additional
collateral exists in the nature of partial indemnities or guaranties, or the
establishment and pledge of one or more reserve or escrow accounts for
necessary repairs, replacements and environmental remediation, real estate
taxes and insurance premiums, deferred maintenance and/or scheduled capital
improvements, re-leasing reserves and seasonal working capital reserves (such
accounts, "Reserve Accounts"). All of the Mortgage Loans provide for the
indemnification of the mortgagee by the borrower for the presence of any
hazardous substances affecting the Mortgaged Property. Each Mortgage
constitutes a first lien on a Mortgaged Property, subject generally only to (i)
liens for real estate and other taxes and special assessments, (ii) covenants,
conditions, restrictions, rights of way, easements and other encumbrances
whether or not of public record as of the date of recording of the related
Mortgage, such exceptions having been acceptable to the Mortgage Loan Seller in
connection with the purchase or origination of the related Mortgage Loan, and
(iii) such other exceptions and encumbrances on Mortgaged Properties as are
reflected in the related title insurance policies.
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SIGNIFICANT MORTGAGE LOANS
[insert information]
THE MORTGAGE LOAN PROGRAM--UNDERWRITING STANDARDS
Each Mortgage Loan was originated by the Mortgage Loan Seller or an
unaffiliated Originator, as set forth below under "--Additional Mortgage Loan
Information--Mortgaged Properties by Originator", and is generally consistent
with the underwriting standards applied by the Mortgage Loan Seller in
connection with the purchase or origination of each of the Mortgage Loans.
The Mortgage Loan Seller purchased the Mortgage Loans that it did not
originate pursuant to the purchase and sale agreements with each respective
Originator during a period commencing on [ ] and ending on the Cut-off Date.
The Mortgage Loan Seller's underwriting guidelines generally consist
of the following standards:
UNDERWRITING STANDARDS(1) BY PROPERTY TYPE:
MULTIFAMILY PROPERTIES
Minimum Occupancy Rate................................ 85%
Maximum Loan to Value Ratio........................... 80%
Minimum DSCR.......................................... 1.20
HOTEL
Maximum Annual Occupancy.............................. 80%
Minimum Annual Occupancy Rate......................... 55%
Maximum Loan to Value Ratio........................... 70%
Minimum DSCR.......................................... 1.40
NURSING HOME
Min. Amount of Time in Operation...................... 12 mo.
Minimum Occupancy Rate................................ 85%
Maximum Loan to Value Ratio........................... 75%
Minimum DSCR.......................................... 1.30
MOBILE HOME PARK
Minimum Occupancy Rate................................ 85%
Maximum % of Homes for Sale........................... 15%
Maximum % of Homes Rented by Residents................ 5%
Maximum Loan to Value Ratio........................... 80%
Minimum DSCR.......................................... 1.20
OFFICE
Minimum Occupancy Rate................................ 80%
Maximum Loan to Value Ratio........................... 70%
Minimum DSCR.......................................... 1.25
RETAIL
Minimum Occupancy Rate................................ 85%
Maximum Loan to Value Ratio........................... 75%
Minimum DSCR.......................................... 1.25
INDUSTRIAL
Minimum Occupancy Rate................................ 85%
Maximum Loan to Value Ratio........................... 70%
Minimum DSCR.......................................... 1.25
- -------------------
(1) The underwriting guidelines described herein were generally followed but
were not satisfied in every case. See Annex A hereto for the specific
characteristics of the Mortgage Loans and Mortgaged Properties.
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In underwriting each Mortgage Loan in connection with the origination
or acquisition thereof, income information provided by the related borrower was
examined by the Mortgage Loan Seller. In addition, the operating history of the
property, industry data regarding the local real estate market and the
appraiser's analysis were reviewed and, if conditions warranted, net operating
income with respect to the related Mortgaged Property was adjusted for purposes
of determining whether the Mortgaged Property satisfied the debt service
coverage ratio required by the Mortgage Loan Seller's underwriting guidelines.
In accordance with the underwriting guidelines, net operating income of any
Mortgaged Property may have been adjusted by, among other things, the
adjustments listed in the definition of "Net Cash Flow" described under
"--Additional Loan Information." In connection with the underwriting, net
operating income was based upon information provided by the borrower and
neither the Depositor nor the Mortgage Loan Seller makes any representation as
to the accuracy of such information; provided, however, that, with respect to
certain of the Mortgage Loans, the Mortgage Loan Seller or the borrower engaged
independent accountants to review or perform certain procedures to verify such
information.
Each Originator was required to cause each Mortgaged Property to be
inspected to determine whether it was in acceptable physical condition. The
inspection included a review of ongoing maintenance programs, common area
upkeep, mechanical systems and grounds maintenance. In addition, an engineering
study and an environmental review were prepared by appropriate consultants.
With respect to environmental matters, a Phase I environmental assessment (and,
where appropriate, a Phase II environmental assessment) was conducted for each
Mortgaged Property. A credit investigation was completed for all prospective
borrowers, in connection with which a credit report not more than 30 days old
as of the date of the loan application and current financial statements were
obtained. The borrowers with respect to [ ] of the Mortgaged Properties
representing, in the aggregate, [ ]% of the Initial Pool Balance, provided
audited financial statements, agreed upon procedures or statements certified by
an independent accountant. The cash flow and NOI information presented in Annex
A may not correspond to the comparable information included in the accountants'
reports because of adjustments made by the Mortgage Loan Seller as part of its
underwriting procedures.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Annex A. For a detailed presentation of the characteristics of the
Mortgage Loans, on a loan-by-loan basis, see Annex A hereto.
Due Dates. All of the Mortgage Loans provide for scheduled payments of
principal and/or interest ("Monthly Payments") to be due on the eleventh day of
each month or, in the case of certain of the Mortgage Loans, if the eleventh
day is not a business day, the next business day or the first preceding
business day.
Mortgage Rates; Calculations of Interest. Each of the Mortgage Loans
accrue interest on the basis of a 360- day year consisting of twelve 30-day
months or on the basis of the actual number of days elapsed and a 360 day year.
Each of the Mortgage Loans accrues interest at the per annum rate set forth for
such Mortgage Loan on Annex A (the "Mortgage Rate") that is fixed for the
entire remaining term of such Mortgage Loan; provided, however, as described
below under "--Excess Interest", certain of the Mortgage Loans accrue interest
at a higher rate (the difference between such higher rate and the Mortgage
Rate, the "Excess Rate") after their respective Anticipated Repayment Dates. As
used herein, the term "Mortgage Rate" does not include the Excess Rate.
Excess Interest. [ ] of the Mortgage Loans, representing approximately
[ ]% of the Initial Pool Balance, bear interest at their respective Mortgage
Rates until a specified date (an "Anticipated Repayment Date"). Commencing on
the respective Anticipated Repayment Date, except as described below, each such
Mortgage Loan generally will bear interest at a fixed rate per annum equal to
the greater of (a) the Mortgage Rate plus a specified percentage (of no more
than 2%) and (b) the Treasury Rate (as defined below) plus a specified
percentage (of no more than 2%) (the "Revised Rate"). "Treasury Rate" means, as
of the related Anticipated Repayment Date, the yield on noncallable U.S.
Treasury obligations with terms most nearly approximating the related stated
Maturity Date. Until the principal balance of each such Mortgage Loan has been
reduced to zero, such Mortgage Loan will only be required to pay interest at
the Mortgage Rate and the interest accrued at the excess of the related Revised
Rate over the related Mortgage Rate will be deferred (such accrued and deferred
interest and interest thereon, if any, is "Excess Interest"). Except where
limited by applicable law, Excess Interest
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so accrued will earn interest at the Revised Rate. Prior to the Anticipated
Repayment Date, borrowers under such ARD Loans will be required to enter into a
Lock Box agreement whereby all revenue will be deposited directly into a Lock
Box Account controlled by the Servicer. From and after the Anticipated
Repayment Date, in addition to paying interest (at the Mortgage Rate) and
principal (based on the amortization schedule) (together, the "Monthly Debt
Service Payment"), the related borrower generally will be required to apply all
monthly cash flow from the related Mortgaged Property or Properties to pay the
following amounts in the following order of priority: (i) required payments to
the tax and insurance escrow fund and any ground lease escrow fund, (ii)
payment of Monthly Debt Service, (iii) payments to any other required escrow
funds, (iv) payment of operating expenses pursuant to the terms of an annual
budget approved by the Servicer, (v) payment of approved extraordinary
operating expenses or capital expenses not set forth in the approved annual
budget or allotted for in any escrow fund, (vi) principal on the Mortgage Loan
until such principal is paid in full and (vii) to Excess Interest. The cash
flow from the Mortgaged Property or Properties securing an ARD Loan after
payments of items (i) through (v) above is referred to herein as "Excess Cash
Flow". As described below, ARD Loans generally provide that the related
borrower is prohibited from prepaying the Mortgage Loan until the three month
period prior to the Anticipated Prepayment Date but, upon the commencement of
such period, may prepay the loan, in whole or in part, without payment of a
Prepayment Premium. The Anticipated Repayment Date, if any, for each ARD Loan
is listed in Annex A.
The holders of a majority of the Percentage Interests in the Class LR
Certificates will have the option for up to two months after the Anticipated
Repayment Date for any ARD Loan to purchase such ARD Loan at a price equal to
its outstanding principal balance plus accrued and unpaid interest and
unreimbursed Advances with interest thereon. As a condition to such purchase,
such holders will be required to deliver an opinion of counsel to the effect
that such purchase would not (i) result in a gain which would be subject to the
tax on net income derived from prohibited transactions imposed by Code Section
860F(a)(1) or otherwise result in the imposition of any other tax on the
Lower-Tier REMIC or Upper-Tier REMIC under the REMIC Provisions or (ii) cause
either of the Lower-Tier REMIC or Upper-Tier REMIC to fail to qualify as a
REMIC.
Amortization of Principal. As set forth in the following table,
certain Mortgage Loans (the "Balloon Loans") provide for monthly payments of
principal based on amortization schedules at least 60 months longer than their
original terms thereby leaving substantial principal amounts due and payable
(each such payment, a "Balloon Payment") on their respective maturity dates,
unless previously prepaid. In addition, certain Mortgage Loans have remaining
amortization terms that are the same as their respective remaining terms to
maturity.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
% OF
INITIAL NUMBER OF
POOL MORTGAGE
TYPE OF LOAN BALANCE LOANS
ARD Loans........................................... %
Fully Amortizing Loans (other than ARD Loans) %
Balloon Mortgage Loans.............................. %
Prepayment Provisions. All of the Mortgage Loans have Lock-out Periods from
the date of origination ranging from approximately [ ] months to [ ] months.
The weighted average Lock-out Period from the date of origination for the
Mortgage Loans is approximately [ ] months and the weighted average remaining
Lock-out Period from the Cut-off Date is approximately [ ] months. None of the
Mortgage Loans require the payment of a premium or fee (a "Prepayment Premium")
upon the voluntary prepayment of such Mortgage Loans on or after the expiration
of the related Lock-out Period. The Lock-out Periods for the ARD Loans all
expire on or three months prior to their respective Anticipated Repayment Dates
and the Lock-out Periods for the Balloon and fully amortizing Mortgage Loans
(other than ARD Loans) all expire no earlier than the last three months of
their respective loan terms. Certain of the prepayment terms of each of the
Mortgage Loans are more particularly described in Annex A.
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The Mortgage Loans provide generally that in the event of a
condemnation or casualty, the mortgagee may apply the condemnation award or
insurance proceeds to the repayment of debt, which, in the case of some of the
Mortgage Loans, will require payment of any applicable Prepayment Premium.
However, in the case of most of the Mortgage Loans, if the award or loss is
less than a specified percentage of the original principal balance of the
Mortgage Loan and if in the reasonable judgment of the mortgagee (i) the
Mortgaged Property can be restored within six months prior to the maturity of
the related Note to a property no less valuable or useful than it was prior to
the condemnation or casualty, (ii) after a restoration the Mortgaged Property
would adequately secure the outstanding balance of the Note and (iii) no event
of default has occurred or is continuing, the proceeds or award may be applied
by the borrower to the costs of repairing or replacing the Mortgaged Property.
The Pooling and Servicing Agreement provides that if a Mortgage Loan provides
that the lender may in its discretion apply certain amounts to a prepayment of
principal (e.g., by applying casualty or condemnation proceeds or funds
escrowed for improvements not completed by the required date) prior to the
expiration of the related Lock-out Period, the Special Servicer cannot consent
to such a prepayment unless the Special Servicer has first received the consent
of the Servicer or the holders of 66 2/3% of the Voting Rights of the
Certificates responding within 20 business days to a solicitation of their
consent.
Neither the Depositor nor the Mortgage Loan Seller makes any
representation as to the enforceability of the provision of any Mortgage Loan
requiring the payment of a Prepayment Premium, or of the collectability of any
Prepayment Premium. See "Special Considerations--The Certificates--Special
Prepayment and Yield Considerations" herein and "Certain Legal Aspects of
Mortgage Loans--Default Interest, Prepayment Charges and Prepayments" herein.
Property Releases. All of the Mortgage Loans permit the applicable
borrower at any time after a specified period (the "Defeasance Lock-out
Period"), which is generally the greater of approximately three years from the
date of origination and two years from the Closing Date, provided no event of
default exists, to obtain a release of a Mortgaged Property from the related
Mortgage (a "Defeasance Option"), provided that, among other conditions, the
borrower (a) pays on any Due Date (the "Release Date") (i) all interest accrued
and unpaid on the principal balance of the Note to and including the Release
Date, (ii) all other sums, excluding scheduled interest or principal payments,
due under the Mortgage Loan and all other loan documents executed in connection
therewith, (iii) an amount (the "Collateral Substitution Deposit") equal to the
sum of (x) the remaining principal amount of the Mortgage Loan or, if
applicable, 125% (generally) of the Allocated Loan Amount of the related
Mortgaged Property or Properties sought to be released, (y) the amount, if any,
which, when added to such amount, will be sufficient to purchase direct
non-callable obligations of the United States of America providing payments (1)
on or prior to, but as close as possible to, all successive scheduled payment
dates from the Release Date to the related maturity date, assuming, in the case
of an ARD Loan, that such loan prepays on the related Anticipated Repayment
Date and (2) in amounts equal to the scheduled payments due on such dates under
the Mortgage Loan, and (z) any costs and expenses incurred in connection with
the purchase of such U.S. government obligations and (b) delivers a security
agreement granting the Trust Fund a first priority lien on the Collateral
Substitution Deposit and the U.S. government obligations purchased with the
Collateral Substitution Deposit and an opinion of counsel to such effect. The
Pool Loans generally require that (i) prior to the release of a related
Mortgaged Property, a specified percentage (generally 125%) of the Allocated
Loan Amount for such Mortgaged Property be defeased and (ii) that the Debt
Service Coverage Ratio with respect to the remaining Mortgaged Properties after
the defeasance be no less than the greater of (x) the DSCR at origination and
(y) the DSCR immediately prior to such defeasance. The Servicer will be
responsible for purchasing the U.S. government obligations on behalf of the
borrower at the borrower's expense. Any amount in excess of the amount
necessary to purchase such U.S. government obligations will be returned to the
borrower. Simultaneously with such actions, the related Mortgaged Property will
be released from the lien of the Mortgage Loan and the pledged U.S. government
obligations (together with any Mortgaged Property not released, in the case of
a partial defeasance) will be the collateral securing the Mortgage Loan.
In general, a successor borrower established or designated by the
Mortgage Loan Seller will assume all of the defeased obligations of a borrower
exercising a Defeasance Option under a Mortgage Loan and the borrower will be
relieved of all of the defeased obligations thereunder. If a Mortgage Loan is
partially defeased,
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the related Note will be split and only the defeased portion of the borrower's
obligations will be transferred to the successor borrower.
The Depositor makes no representation as to the enforceability of the
defeasance provisions of any Mortgage Loan. See "Risk Factors and Other Special
Considerations--The Certificates--Special Prepayment and Yield Considerations."
Escrows. All of the Mortgage Loans, other than [any exception],
provide for monthly escrows to cover property taxes and insurance premiums on
the Mortgaged Properties (except in cases where a full year, [six months for
one Mortgage Loan,] of insurance premiums are escrowed). All of the Mortgage
Loans secured by leasehold interests also provide for escrows to make ground
lease payments. [ ] of the Mortgage Loans, which represent approximately [ ]%
of the Initial Pool Balance [(which includes all Mortgage Loans other than
Mobile Home Loans)] also require monthly escrows to cover ongoing replacements
and capital repairs. [ ] of the 35 Hotel Loans provide for monthly escrows to
fund seasonality reserves to cover periodic decreases in revenues.] [ ] of the
thirty-one Retail, Office and Industrial Loans provide for monthly escrows to
cover the costs of reletting retail space.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. The Mortgages
generally contain "due-on-sale" and "due-on-encumbrance" clauses that in each
case permit the holder of the Mortgage to accelerate the maturity of the
related Mortgage Loan if the borrower sells or otherwise transfers or encumbers
the related Mortgaged Property without the consent of the mortgagee. The
Special Servicer will determine, in a manner consistent with the Servicing
Standard, whether to exercise any right the mortgagee may have under any such
clause to accelerate payment of the related Mortgage Loan upon, or to withhold
its consent to, any transfer or further encumbrance of the related Mortgaged
Property. The Mortgages generally provide that the mortgagee may condition an
assumption of the loan on the receipt of an assumption fee, which is in some
cases equal to one percent of the then unpaid principal balance of the
applicable Note, in addition to the payment of all costs and expenses incurred
in connection with such assumption. Certain of the Mortgages provide that such
consent may not be unreasonably withheld provided that (i) no event of default
has occurred, (ii) the proposed transferee is creditworthy and has sufficient
experience in the ownership and management of properties similar to the
Mortgaged Property, (iii) the Rating Agencies have confirmed in writing that
such transfer will not result in a qualification, reduction or withdrawal of
any rating of the Certificates, (iv) the transferee has executed and delivered
an assumption agreement evidencing its agreement to abide by the terms of the
Mortgage Loan together with legal opinions and title insurance endorsements and
(v) the assumption fee has been received (which assumption fee will be paid to
the Special Servicer and will not be paid to the Certificateholders). See
"Certain Legal Aspects of Mortgage Loans--Due-on-Sale and Due-on-Encumbrance"
herein. The Depositor makes no representation as to the enforceability of any
due-on-sale or due-on-encumbrance provision in any Mortgage Loan.
Mortgage Provisions Relating to Servicer's Right to Terminate
Management Agreements. Certain of the Mortgage Loans permit the Special
Servicer to cause the related borrowers to terminate the related management
agreements upon the occurrence of certain events. Generally, each Mortgage Loan
where an affiliate of the borrower manages the related Mortgaged Property or
Properties provides that if the Debt Service Coverage Ratio for such Mortgaged
Loan falls below a certain level, the Special Servicer will have the right to
cause the termination of the related management agreement and replace the
manager with a manager acceptable to the Special Servicer. All of the Mortgage
Loans generally allow the Special Servicer to terminate the related management
agreements upon the occurrence of certain events of default under the related
loan agreements or mortgage documents. In addition, the Special Servicer is
generally permitted to cause the termination of a management agreement if the
manager breaches certain provisions of the management agreement which would
permit the termination of such agreement thereunder.
Cross-Collateralization and Cross-Default of Certain Mortgage Loans.
[ ] of the Mortgage Loans (the "Pool Loans") are secured by more than one
Mortgaged Property. [However, because certain states (including Florida)
require the payment of a documentary stamp tax based upon the principal amount
of debt secured by a mortgage, the Mortgaged Property identified as [ ] on
Annex A secures only [ ]% of the Allocated Loan Amount of such Mortgaged
Property (rather than the entire initial principal balance of the related
Note).] See
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"Risk Factors and Other Special Considerations--Limitations on Enforceability
of Cross-Collateralization" and "Loan Characteristics" on Annex A.
Hazard, Liability and Other Insurance. The Mortgage Loans generally
require that each Mortgaged Property be insured by a hazard insurance policy in
an amount equal to the greatest of (i) the full replacement cost of the
improvements and equipment without deduction for physical depreciation, (ii)
the outstanding principal balance of the Mortgage Loan (or, with respect to
certain Mortgage Loans, the full insurable value of the Mortgaged Property) and
(iii) such amount that the insurer would not deem the borrower a co-insurer, or
in an amount satisfying other similar standards and by a flood insurance policy
if any part of the Mortgaged Property is located in an area identified by the
Federal Emergency Management Agency as an area having special flood hazards and
for which flood insurance has been made available under the National Flood
Insurance Program in an amount at least equal to the outstanding principal
amount of the Mortgage Loan (or with respect to Mortgage Loans, the full
insurable value of the Mortgaged Property) or the maximum limit of coverage
available, whichever is less, or in an amount satisfying other similar
standards. With respect to Mortgaged Properties located in earthquake risk
areas, certain of the related Mortgaged Properties are insured by earthquake
insurance in amounts less than the outstanding principal balance of such
Mortgage Loans. With respect to Mortgaged Properties located in areas having
special hurricane hazards, certain of the related Mortgaged Properties are
insured by hurricane insurance in amounts less than the outstanding principal
balance of such Mortgage Loans. The hazard insurance policy is required to
cover loss or damage by fire and lightning or other risks and hazards covered
by a standard extended coverage insurance policy including, but not limited to,
riot and civil commotion, vandalism, malicious mischief, burglary and theft.
Mobile Home Properties located in earthquake risk areas or areas having special
hurricane hazards are not insured against earthquake or hurricane damage.
The Mortgage Loans also generally require that the borrower obtain and
maintain during the entire term of the Mortgage Loan (i) comprehensive public
liability insurance, including broad form property damage, blanket contractual
and personal injuries coverages and containing minimum limits per occurrence as
specified in the related Mortgage, (ii) rent loss and/or business interruption
insurance in an amount equal to the greater of (x) estimated annual (or a
specified longer period) gross revenues from the operations of the Mortgaged
Property and (y) projected annual (or a specified longer period) operating
expense (including debt service) for the maintenance and operation of the
Mortgaged Property, or in an amount satisfying other similar standards, (iii)
except with respect to certain of the Mobile Home Loans, insurance against loss
or damage from leakage of sprinkler systems and explosion of steam boilers, air
conditioning equipment, high pressure piping, machinery and equipment, and
pressure vessels, (iv) if the Mortgaged Property is a commercial property,
worker's compensation insurance, (v) during any period of repair or
restoration, builders "all risk" insurance, and (vi) such other insurance as
may from time to time be reasonably required by the mortgagee in order to
protect its interests. In the case of certain of the Mortgage Loans, hurricane
and earthquake insurance was obtained in an amount less than the principal
balance of such Mortgage Loans.
ADDITIONAL MORTGAGE LOAN INFORMATION
As of the Cut-off Date, the Mortgage Loans had the characteristics set
forth in the following table:
MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
<S> <C>
Range of Mortgage Rates.......................................................... [ ]% - [ ]%
Weighted Average Mortgage Rate................................................... [ ]%
Range of Allocated Principal Balances by Property ............................... $[ ] - $[ ]
Average Allocated Principal Balance by Property ................................. $[ ]
Range of Original Terms to Scheduled Maturity.................................... -
Range of Remaining Terms to Scheduled Maturity .................................. -
Weighted Average Remaining Terms to Scheduled Maturity ..........................
Range of Remaining Terms to Stated Maturity or Anticipated Repayment Date ....... -
Weighted Average Remaining Terms to Stated Maturity or Anticipated ..............
Repayment Date................................................................
-57-
<PAGE>
Range of Cut-off Date Loan-to-Value ("LTV") Ratios .............................. % - %
Weighted Average of Cut-off Date LTV Ratio....................................... %
Range of Cut-off Date Debt Service Coverage Ratios .............................. -
Weighted Average Cut-off Date Debt Service Coverage Ratios ......................
</TABLE>
The following tables and Annex A set forth certain information with
respect to the Mortgage Loans and Mortgaged Properties. The statistics in the
following tables and Annex A were primarily derived from information provided
to the Depositor by the respective Originators or the Mortgage Loan Seller,
which information may have been obtained from the borrowers without independent
verification except as noted. For purposes of the tables and Annex A:
(1) "Net Cash Flow" as used herein with respect to a given Mortgage
Loan or Mortgaged Property means cash flow available for debt service, as
determined by the Mortgage Loan Seller based upon borrower supplied information
for a recent period that is generally the twelve months prior to the
origination of such Mortgage Loan, adjusted for stabilization and, in the case
of certain Mortgage Loans, may have been updated to reflect a more recent
operating period. Net Cash Flow does not reflect debt service, non-cash items
such as depreciation or amortization, and does not reflect actual capital
expenditures and may have been adjusted by, among other things, (i) assuming
the occupancy rate for the Mortgaged Property was less than the actual
occupancy rate, (ii) subtracting from net operating income replacement or
capital expenditure reserves, (iii) assuming that a 4% to 5% management fee and
a 4% to 8% franchise fee (for Hotel Properties only) was payable with respect
to the Mortgaged Property, (iv) in certain cases, assuming that operating
and/or capital expenses with respect to the Mortgaged Property were greater
than actual expenses, (v) in the case of the Retail Properties, excluding
certain percentage rent, (vi) in the case of the Retail Properties and Office
Properties, subtracting from net operating income an assumed allowance for
tenant improvements and leasing commissions, (vii) in the case of the
Multifamily Properties and Mobile Home Properties, rental revenue shown on a
recent rent roll was annualized before applying a vacancy factor without
further regard to the terms (including expiration dates) of the leases shown
thereon, (viii) excluding certain non-recurring income and/or expenses, (ix) in
the case of certain Office Properties, Industrial Properties and Retail
Properties, determining current revenues from leases in place, (x) in the case
of certain of the Hotel Properties, assuming the occupancy rate was less than
the actual occupancy rate to account for a high occupancy rate or to reflect
new construction in the market and (xi) to take into account new tax
assessments and utility savings from the installation of new energy efficient
equipment.
"Net Cash Flow" reflects the calculations and adjustments used by the
Mortgage Loan Seller for its underwriting process and may or may not reflect
the amounts calculated and adjusted by the Rating Agencies for their own
analysis. In addition, "Net Cash Flow" and the Debt Service Coverage Ratios
derived therefrom are not a substitute for cash flow as determined in
accordance with generally accepted accounting principles as a measure of the
results of the property's operations or a substitute for cash flows from
operating activities determined in accordance with generally accepted
accounting principles as a measure of liquidity.
Reletting costs and capital expenditures are crucial to the operation
of commercial and multifamily properties. Each investor should make its own
assessment of the level of reletting costs and capital expenditures of the
Mortgaged Properties, and the consequent effect of such costs and expenditures
on the actual net operating income, Net Cash Flow and debt service coverage
ratios of the Mortgage Loans.
No representation is made as to the future net cash flow of the
properties, nor is "Net Cash Flow" set forth herein intended to represent such
future net cash flow.
(2) "1993 NOI," "1994 NOI", "1995 NOI" and "1996 NOI" (which is for
the period ending as of the date specified in Annex A) is the net operating
income for a Mortgaged Property as established by information provided by the
borrowers, except that in certain cases such net operating income has been
adjusted by removing certain non-recurring expenses and revenue or by certain
other normalizations. 1993 NOI, 1994 NOI, 1995 NOI and 1996 NOI do not
necessarily reflect accrual of certain costs such as taxes and capital
expenditures and do not reflect non-cash items such as depreciation or
amortization. In some cases, capital expenditures may have been treated by a
borrower as an expense or expenses treated as capital expenditures. The
Depositor has not made any
-58-
<PAGE>
attempt to verify the accuracy of any information provided by each borrower or
to reflect changes in net operating income that may have occurred since the
date of the information provided by each borrower for the related Mortgaged
Property. 1993 NOI, 1994 NOI, 1995 NOI and 1996 NOI were not necessarily
determined in accordance with generally accepted accounting principles.
Moreover, 1993 NOI, 1994 NOI, 1995 NOI and 1996 NOI are not a substitute for
net income determined in accordance with generally accepted accounting
principles as a measure of the results of a property's operations or a
substitute for cash flows from operating activities determined in accordance
with generally accepted accounting principles as a measure of liquidity and in
certain cases may reflect partial-year annualizations.
For purposes of determining 1996 NOI as set forth on Annex A:
"YE" means for the twelve-month period ended December 31, 1996;
"YTD" means for the period commencing on January 1, 1996 and ending on
date indicated;
"Ann." means an annualized NOI which reflects the number of months in
the period that was annualized, generally beginning on January 1, 1996;
"T-11" means NOI calculated for the trailing eleven months ending on
the date indicated; and
"TTM" means NOI calculated for the trailing twelve months ending on
the date indicated.
(2) "Allocated Loan Amount" means, for each Mortgaged Property, the
portion of the principal amount of the related Mortgage Loan allocated to such
Mortgaged Property for certain purposes (including, without limitation,
determining the release prices of properties, if the Mortgage Loan permits such
releases) under such Mortgage Loan. The Allocated Loan Amount for each
Mortgaged Property securing a Mortgage Loan was determined generally based on
the ratio of the Net Cash Flow or net operating income (calculated as provided
in the related Mortgaged Loan) or appraised value, or some combination thereof,
of such Mortgaged Property to the aggregate Net Cash Flow or appraised value,
or some combination thereof, of all the Mortgaged Properties securing such
Mortgage Loan. The Allocated Loan Amount for each Mortgaged Property may be
adjusted upon the payment of principal of the related Mortgage Loan, whether
upon amortization, prepayment, or otherwise. "Cut-off Date Allocated Loan
Amount" means for each Mortgaged Property the Allocated Loan Amount of such
property as of the Cut-off Date.
(3) "Original Principal Loan Balance" means the principal balance of
the Mortgage Loan as of the date of origination.
(4) "Cut-off Date Principal Balance" means the principal balance of
the Mortgage Loan as of the Cut-off Date.
(5) "Cut-off Date Principal Balance/Unit" means the principal balance
per unit of measure as of the Cut-off Date.
(6) "Annual Debt Service" means for any Mortgage Loan the current
annual debt service payable during the twelve month period commencing on [ ],
1996 on the related Mortgage Loan.
(7) "DSCR" or "Debt Service Coverage Ratio" means, with respect to any
Mortgage Loan, (a) the Net Cash Flow for the related Mortgaged Property,
divided by (b) the Annual Debt Service for such Mortgaged Property. The
calculation of "DSCR" may differ from the calculation of the debt service
coverage ratios referred to under "--The Mortgage Loan Program--Underwriting
Standards; Representations."
(8) "Stated Maturity Date" means the maturity date of the Mortgage
Loan as stated in the related Note or Loan Agreement.
-59-
<PAGE>
(9) "Anticipated Repayment Date" means for ARD Mortgage Loans, the
date on which interest begins accruing at the Revised Rate and excess cash flow
is retained pursuant to the related Lock-box Agreements to application to
payment of principal and Excess Interest.
(10) "Anticipated Remaining Term" means the term of the Mortgage Loan
from the Cut-off Date to the earlier of the Anticipated Repayment Date, if
applicable, and the stated maturity date.
(11) "Remaining Lock-out" means the period of the term of the related
Mortgage Loan from the Cut-off Date during which the Mortgage Loan may not be
prepaid.
(12) "Value" means for each of the Mortgaged Properties, the appraised
value of such property as determined by an appraisal thereof and in accordance
with MAI standards made not more than 18 months prior to the origination date
of the related Mortgage Loan.
(13) "Loan-to-Value Ratio" or "LTV" means, with respect to any
Mortgage Loan, the principal balance of such Mortgage Loan as of the Cut-off
Date divided by the Appraised Value of the Mortgaged Property or Properties
securing such Mortgage Loan.
(14) "Balloon Payment/Anticipated Repayment Date LTV" for any Mortgage
Loan is calculated in the same manner as Cut-off Date LTV, except that the
Mortgage Loan Cut-off Date principal balance used to calculate the Cut-off Date
LTV has been adjusted to give effect to the amortization of the applicable
Mortgage Loan as of its maturity date or, in the case of a Mortgage Loan that
has an Anticipated Repayment Date, as of its Anticipated Repayment Date. Such
calculation thus assumes that the appraised value of the Mortgaged Property or
Properties securing a Mortgage Loan on the maturity date or Anticipated
Repayment Date, as applicable, is the same as the Appraised Value as of the
Cut-off Date. There can be no assurance that the value of any particular
Mortgaged Property will not have declined from the Appraised Value.
(15) "Amortization" means the number of months, based on the constant
Monthly Payment as stated in the related Note or Loan Agreement, that would be
necessary to reduce the principal balance of the related Note to zero if
interest on such Note was calculated based on twelve 30-day months and a
360-day year.
(16) "Year Built/Renovated" means the year in which the respective
Mortgaged Property was built and/or renovated.
(17) "Unit" and "Unit of Measure" mean the number of units in the
respective Mortgaged Property.
(18) "Occupancy" means the percentage of gross leaseable area, rooms,
units, beds or sites of the property that are leased. Occupancy rates are
calculated within a recent period and in certain cases reflect the average
occupancy rate over a period of time.
(19) "Anchor" means, with respect to the Retail Properties, the
largest and second largest anchors, if any.
(20) "Major Tenants" mean the largest tenants for office, industrial
and unanchored retail properties.
(21) "Franchise" means the regional or national franchise affiliation
of a Hotel Property.
(22) "Audit/Agreed Upon Procedures/Review" indicates Mortgaged
Properties for which independent accountants performed audits, reviews or
specified procedures upon financial information provided by the borrower at the
request of the Mortgage Loan Seller or the borrower. The cash flow and NOI
information presented in Annex A may not correspond to the comparable
information included in the accountants' reports because of adjustments made by
the Mortgage Loan Seller as part of its underwriting procedures.
-60-
<PAGE>
(23) "Identified Deferred Maintenance" is the estimated amount of
deferred maintenance in the respective Mortgaged Property's structural
engineering report.
(24) "Reserve for Deferred Maintenance" is the actual dollars escrowed
at the loan origination for deferred maintenance repairs.
(25) "Actual On-going Capital Reserves" means the annual reserves, as
indicated, per unit of measure or as a percentage of gross revenue and escrowed
on a monthly basis.
Due to rounding, percentages may not add to 100% and amounts may not
add to indicated total or subtotal.
Mortgaged Properties secured, or partially secured, by a leasehold
estate are indicated on Annex A under the heading "Property Name" with an
asterisk. Mortgage Loans accruing interest on the basis of the actual number of
days elapsed and a 360-day year are indicated on Annex A under the heading
"Mortgage Rate" with an asterisk. The borrowers under the Mortgage Loans having
a capital letter under the column "Asset #" on Annex A are related to borrowers
under the Mortgage Loans with the same letter designation, but such Mortgage
Loans are not cross- collateralized with each other.
RANGE OF DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
PERCENT BY
CUT-OFF NUMBER AGGREGATE
DATE DEBT OF CUT-OFF WEIGHTED
SERVICE LOANS/ CUT-OFF DATE DATE AVERAGE WEIGHTED WEIGHTED
COVERAGE NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
RATIO PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
--------- ---------- ------ ------------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1.2-1.299... $ % % %
1.3-1.399...
1.4-1.499...
1.5-1.599...
1.6-1.699...
1.7-1.799...
1.8-1.899...
1.9-1.999...
2-2.099...
2.2-2.299...
---------- ------ ------------ ---------- -------- -------- --------
Total... $ % % %
========== ====== ============ ========== ======== ======== ========
</TABLE>
-61-
<PAGE>
RANGE OF LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENT BY
NUMBER AGGREGATE
OF CUT-OFF WEIGHTED
LOANS/ CUT-OFF DATE DATE AVERAGE WEIGHTED WEIGHTED
LOAN TO NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
VALUE RATIO PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
----------- ---------- ------ ------------ --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
40%-44.9% $ % % %
45%-49.9%
50%-54.9%
55%-59.9%
60%-64.9%
65%-69.9%
70%-74.9%
75%-79.9%
---------- ------ ------------ --------- -------- -------- ---------
Total... $ % % %
========== ====== ============ ========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
RANGE OF LOAN-TO-VALUE RATIOS AT EARLIER OF ANTICIPATED REPAYMENT DATES OR MATURITY
PERCENT BY
AGGREGATE
NUMBER CUT-OFF WEIGHTED
OF CUT-OFF DATE DATE AVERAGE WEIGHTED WEIGHTED
LOAN TO NUMBER OF LOANS/LO PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
VALUE RATIO PROPERTIES AN POOLS BALANCE BALANCE RATE DSCR LTV
----------- ---------- -------- ------------ --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
0%-9.9%.. $ % % %
10%-19.9%..
20%-29.9%..
30%-39.9%..
40%-49.9%..
50%-59.9%..
60%-69.9%..
---------- -------- ------------ --------- -------- -------- ---------
Total.. $ 100% % %
========== ======== ============ ========= ======== ======== =========
</TABLE>
-62-
<PAGE>
MORTGAGED PROPERTIES BY STATE
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE PERCENT BY
CUT-OFF AGGREGATE
CUT-OFF DATE DATE SUM OF
NUMBER OF PRINCIPAL PRINCIPAL SUM OF APPRAISED
STATE PROPERTIES BALANCE BALANCE APPRAISED VALUE VALUE
- ------------------------------- ---------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
[ ]..................... $ % $ %
---------- ------------ ---------- --------------- ----------
Total........................ $ 100% $ 100%
========== ============ ========== =============== ==========
</TABLE>
-63-
<PAGE>
RANGE OF YEAR BUILT
<TABLE>
<CAPTION>
PERCENT BY PERCENT BY
AGGREGATE AGGREGATE
CUT-OFF DATE CUT-OFF SUM OF SUM OF
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL APPRAISED APPRAISED
YEAR BUILT PROPERTIES BALANCE BALANCE VALUE VALUE
- ------------------------------ ---------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
1919-1928...................... $ % $ %
1939-1948......................
1949-1958......................
1959-1968......................
1969-1978......................
1979-1988......................
1989-1996......................
---------- ------------ ---------- --------- ----------
Total........................ $ 100% $ 100%
========== ============ ========== ========= ==========
</TABLE>
CUT-OFF DATE LOAN AMOUNT BY PROPERTY TYPE
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
WTD.
WTD. AVG.
PERCENT BY AVG. TERM
AGGREGATE WTD. BAL TO
CUT-OFF AVG. LOON/ ANT.
CUT-OFF DATE DATE MORT- WTD. WTD. REPAY REPAY/
NUMBER OF PRINCIPAL PRINCIPAL GAGE AVG. AVG. MENT MATU
PROPERTY TYPE PROPERTIES BALANCE BALANCE RATE DSCR LTV LTV RITY
- ------------------------ ---------- ------------ ---------- ---- ---- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Multifamily............. $ % % % %
Hotel-Full Service .....
Office..................
Anchored Retail.........
Hotel-Limited Service...
Unanchored Retail ......
Mobile Home Park .......
Industrial..............
Nursing.................
---------- ------------ ---------- ---- ---- ---- ----- ------
Total................. $ 100% % % %
========== ============ ========== ==== ==== ==== ===== ======
</TABLE>
-64-
<PAGE>
RANGE OF LOAN AMOUNTS OR LOAN BALANCES
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE
NUMBER CUT-OFF CUT-OFF WEIGHTED
OF LOANS/ DATE DATE AVERAGE WEIGHTED WEIGHTED
RANGE OF CUT-OFF LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
DATE LOAN AMOUNTS POOLS BALANCE BALANCE RATE DSCR LTV
- ------------------------------- --------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 0-4,999,999...... $ % % %
5,000,000-9,999,999......
10,000,000-14,999,999......
15,000,000-19,999,999......
20,000,000-24,999,999......
25,000,000-29,999,999......
50,000,000-54,999,999......
65,000,000-69,999,999......
70,000,000-74,999,999......
--------- --------- ---------- -------- -------- --------
Total........................ $ 100% % %
========= ========= ========== ======== ======== ========
</TABLE>
RANGE OF ANTICIPATED REMAINING TERM IN MONTHS
<TABLE>
<CAPTION>
NUMBER PERCENT BY
OF CUT-OFF AGGREGATE WTD. AVG. WEIGHTED
RANGE OF LOANS/ DATE CUT-OFF TERM TO AVERAGE WEIGHTED WEIGHTED
ANTICIPATED LOAN PRINCIPAL PRINCIPAL ANT. REPAY/ MORTGAGE AVERAGE AVERAGE
REMAINING TERM POOLS BALANCE BALANCE MATURITY RATE DSCR LTV
- ---------------------- ------ --------- ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
72-83................. $ % % %
84-95.................
108-119...............
120-131...............
132-143...............
144-155...............
168-179...............
180-191...............
192-203...............
228-239...............
288-300...............
------ --------- ---------- ----------- -------- -------- --------
Total............... $ 100% % %
====== ========= ========== =========== ======== ======== ========
</TABLE>
-65-
<PAGE>
RANGE OF REMAINING TERM IN MONTHS
<TABLE>
<CAPTION>
NUMBER PERCENT BY
OF CUT-OFF AGGREGATE WEIGHTED WEIGHTED
LOANS/ DATE CUT-OFF AVERAGE AVERAGE WEIGHTED WEIGHTED
RANGE OF LOAN PRINCIPAL PRINCIPAL REMAINING MORTGAGE AVERAGE AVERAGE
REMAINING TERM POOLS BALANCE BALANCE TERM RATE DSCR LTV
- ---------------------- ------ --------- ---------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
72-83................. $ % % %
108-119...............
168-179...............
192-203...............
228-239...............
252-263...............
264-275...............
288-299...............
300-311...............
324-335...............
348-359...............
------ --------- ---------- --------- -------- -------- --------
Total............... $ 100% % %
====== ========= ========== ========= ======== ======== ========
</TABLE>
ANTICIPATED REPAYMENT BY YEAR
<TABLE>
<CAPTION>
PERCENT BY
NUMBER AGGREGATE
OF CUT-OFF CUT-OFF WEIGHTED
LOANS/ DATE DATE AVERAGE WEIGHTED WEIGHTED
NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
YEAR PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
- ---------------------- ---------- ------ --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
2003.................. $ % % %
2005..................
2006..................
2008..................
2009..................
2010..................
2011..................
2013..................
2015..................
2016..................
2021..................
---------- ------ --------- ---------- -------- -------- --------
Total............... $ 100% % %
========== ====== ========= ========== ======== ======== ========
</TABLE>
-66-
<PAGE>
RANGE OF MORTGAGE RATES
<TABLE>
<CAPTION>
PERCENT BY
NUMBER AGGREGATE
OF CUT-OFF CUT-OFF WEIGHTED
LOANS/ DATE DATE AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
MORTGAGE RATES PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
- ---------------------- ---------- ------ --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7.50%-7.999%.......... $ % % %
8.00%-8.4999%.........
8.50%-8.999%..........
9.00%-9.499%..........
9.50%-9.999%..........
10.00%-10.499%........
10.50%-10.999%........
---------- ------ --------- --------- -------- -------- --------
Total............... $ 100% % %
========== ====== ========= ========= ======== ======== ========
</TABLE>
MORTGAGED PROPERTIES BY ORIGINATOR
<TABLE>
<CAPTION>
PERCENT BY
NUMBER AGGREGATE
OF CUT-OFF CUT-OFF WEIGHTED
LOANS/ DATE DATE AVERAGE WEIGHTED WEIGHTED
NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
ORIGINATOR PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
- ---------------------- ---------- ------ --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Nomura Asset
Capital
Corporation......... $ % % %
[ ]...
---------- ------ --------- --------- -------- -------- --------
Total............... $ 100% % %
========== ====== ========= ========= ======== ======== ========
</TABLE>
RANGE OF REMAINING LOCK-OUT PERIOD IN MONTHS
<TABLE>
<CAPTION>
PERCENT
NUMBER BY AGGRE
NUMBER OF CUT-OFF GATE CUT- WEIGHTED WEIGHTED
LOCK-OUT OF LOANS/ DATE OFF DATE AVERAGE WEIGHTED WEIGHTED AVERAGE
PERIOD IN PROPER- LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE REMAINING
MONTHS TIES POOLS BALANCE BALANCE RATE DSCR LTV LOCKOUT
- ------------- ------- ------ --------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
72-83........ $ % % %
108-119......
132-143......
144-155......
168-179......
192-203......
216-227......
228-239......
288-299......
------- ------ --------- --------- -------- -------- -------- ---------
Total...... $ 100% % %
======= ====== ========= ========= ======== ======== ======== =========
</TABLE>
-67-
<PAGE>
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the close of business on the Cut-off Date, as adjusted for the
scheduled principal payments due on the Mortgage Loans on or before the Cut-off
Date. Prior to the issuance of the Offered Certificates, a Mortgage Loan may be
removed from the Mortgage Pool if the Depositor deems such removal necessary or
appropriate or if it is prepaid. This may cause the range of Mortgage Rates and
maturities as well as the other characteristics of the Mortgage Loans to vary
from those described herein.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates and will be filed by the Depositor,
together with the Pooling and Servicing Agreement with the Securities and
Exchange Commission within fifteen days after the initial issuance of the
Offered Certificates. In the event Mortgage Loans are removed from the Mortgage
Pool as set forth in the preceding paragraph, such removal will be noted in the
Form 8-K.
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of eighteen Classes to be designated as the Class
A-1A Certificates, the Class A-1B Certificates, the Class A-1C Certificates,
the Class A-1D Certificates, the Class A-CS1 Certificates, the Class A-CS2
Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the Class
A-4 Certificates, the Class A-5 Certificates, the Class B-1 Certificates, the
Class B-2 Certificates, the Class B-3 Certificates, the Class B-3H
Certificates, the Class V-1 Certificates, the Class V-2 Certificates, the Class
R Certificates and the Class LR Certificates. Only Class B-1 and Class B-2
Certificates (the "Offered Certificates") are offered hereby. The Class A-1A,
Class A-1B, Class A-1C, Class A-1D, Class A-CS1, Class A-CS2, Class A-2, Class
A-3, Class A-4, Class A-5 (collectively, the "Senior Certificates") are being
offered concurrently with the Offered Certificates under a separate prospectus
and are not offered hereby. The Class B-3, Class B-3H (the "Private Subordinate
Certificates"), Class V-1, Class V-2, Class R and Class LR Certificates are not
offered hereby. The Class A-CS1 and Class A-CS2 Certificates are sometimes
referred to herein as the "Coupon Strip Certificates."
The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting of: (i) the Mortgage Loans and
all payments under and proceeds of the Mortgage Loans due after the Cut-
off Date; (ii) any Mortgaged Property acquired by the Special Servicer on
behalf of the Trust Fund through foreclosure or deed in lieu of foreclosure
(upon acquisition, an "REO Property" such funds or assets as from time to time
are deposited in the Collection Account, the Distribution Account, Upper-Tier
Distribution Account, Interest Reserve Account, the Excess Interest
Distribution Account, the Default Interest Distribution Account and any account
established in connection with REO Properties (an "REO Account"; (iv) the
rights of the mortgagee under all insurance policies with respect to the
Mortgage Loans; (v) the Depositor's rights and remedies under the Mortgage Loan
Purchase and Sale Agreement and Original Purchase Agreements; and (vi) all of
the mortgagee's right, title and interest in the Reserve Accounts, the Cash
Collateral Accounts and Lock Box Accounts.
The Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-2, Class
A-3, Class A-4 and Class A-5 Certificates will have initial Certificate
Balances of $[ ], $[ ], $[ ], $[ ], $[ ], $[ ], $[ ] and $[ ], respectively.
The Class B-1 Certificates will have an initial Certificate Balance of $[ ].
The Class B-2 Certificates will have an initial Certificate Balance of $[ ].
The Class B-3 and Class B-3H Certificates will have initial Certificate
Balances, in the aggregate, of approximately $[ ]. The Class A-CS1
Certificates will have an initial Notional Balance equal to the initial
Component Balance of the Class A-1A Component. The Class A-CS2 Certificates
are comprised of seven components: the Class A-1B Component, the Class A-1C
Component, the Class A-1D Component, the Class A-2 Component, the Class A-3
Component, the Class A-4 Component and the Class A-5 Component, which will
have initial Component Balances equal to $[ ] (which is equal to the initial
Certificate Balance of the Class A-1B Certificates), $[ ] (which is equal to
the initial Certificate Balance of the Class A-1C Certificates),
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$[ ] (which is equal to the initial Certificate Balance of the Class A-1D
Certificates), $[ ] (which is equal to the initial Certificate Balance of the
Class A-2 Certificates), $[ ] (which is equal to the initial Certificate
Balance of the Class A-3 Certificates), $[ ] (which is equal to the initial
Certificate Balance of the Class A-4 Certificates) and $[ ] (which is equal to
the initial Certificate Balance of the Class A-5 Certificates), respectively.
The Class A-CS2 Certificates will have an initial Notional Balance equal to $[
], the sum of the initial Component Balances of the Class A-1B, Class A-1C,
Class A-1D, Class A-2, Class A-3, Class A-4 and Class A-5 Components. Each of
the Class A-1A Component, Class A-1B Component, Class A-1C Component, Class
A-1D Component, Class A-2 Component, Class A-3 Component, Class A-4 Component
and Class A-5 Component is sometimes referred to herein as a "component".
The initial Certificate Balance of each of the Class R, Class LR,
Class V-1 and Class V-2 Certificates will be zero. Additionally, the Class R,
Class LR, Class V-1 and Class V-2 Certificates will not have a Notional
Balance.
The Certificate Balance of any Class of Certificates outstanding at
any time represents the maximum amount which the holders thereof are entitled
to receive as distributions allocable to principal from the cash flow on the
Mortgage Loans and the other assets in the Trust Fund; provided, however, that
in the event that amounts previously allocated to a Class of Certificates in
reduction of the Certificate Balance thereof are recovered subsequent to the
reduction of the Certificate Balance of such Class to zero, such Class may
receive distributions in respect of such recoveries in accordance with the
priorities set forth under "--Distributions--Priorities" herein.
The respective Certificate Balance of each Class of Certificates
(other than the Coupon Strip Certificates, the Class V-1, Class V-2, Class R
and Class LR Certificates) will in each case be reduced by amounts actually
distributed thereon that are allocable to principal and by any Realized Losses
(as defined herein) allocated to such Class of Certificates. The Component
Balances of the Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-2,
Class A-3, Class A-4 and Class A-5 Components (and therefore the Notional
Balance of the Class A-CS1 and Class A-CS2 Certificates) will be reduced in
accordance with distributions of principal in reduction of, and allocations of
Realized Losses on, the Certificate Balances of the Class A-1A, Class A-1B,
Class A-1C, Class A-1D, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates, as applicable. The Notional Balance of the Class A-CS1
Certificates will at all times equal the Component Balance of the Class A-1A
Component. The Notional Balance of the Class A-CS2 Certificates will at all
times equal the sum of the Component Balances of the Class A-1B Component, the
Class A-1C Component, the Class A-1D Component, the Class A-2 Component, the
Class A-3 Component, the Class A-4 Component and the Class A-5 Component. The
Component Balances of the Class A-1A Component, Class A-1B Component and Class
A-1C Component will at all times equal the Certificate Balances of the Class
A-1A, Class A-1B and Class A-1C Certificates, respectively. Except as
described below under "-- Delinquency Reduction Amounts and Appraisal
Reduction Amounts," the Component Balances of the Class A-1D Component, the
Class A-2 Component, the Class A-3 Component, the Class A-4 Component the
Class A-5 Component will at all times equal the Certificates Balances of the
Class A-1D, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates,
respectively.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be
made on the 13th day of each month or, if such 13th day is not a business day,
then on the next succeeding business day, commencing in [ ] 1997 (each, a
"Distribution Date"); provided, however, that in any month, the Distribution
Date will be no earlier than the second business day following the 11th day of
each month; provided, further, that if the 11th day of a month is not a
business day, then the Distribution Date shall be the third business day
following such 11th day. All distributions (other than the final distribution
on any Certificate) will be made by the Trustee to the persons in whose names
the Certificates are registered at the close of business on the 10th day of the
month in which the related Distribution Date occurs, or if such day is not a
business day, the preceding business day (the "Record Date"); the Record Date
for the Distribution Date occurring in [________] 1997 for all purposes other
than the receipt of distributions is the Closing Date. Such distributions will
be made (a) by wire transfer in immediately available funds to the account
specified by the Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder provides the Trustee with wiring
instructions no less than
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five business days prior to the related Record Date and is the registered
owner of Certificates the aggregate Certificate Balance of which is at least
$5,000,000, or otherwise (b) by check mailed to such Certificateholder. The
final distribution on any Offered Certificates will be made in like manner,
but only upon presentment or surrender (for notation that the Certificate
Balance thereof has been reduced to zero) of such Certificate at the location
specified in the notice to the holder thereof of such final distribution. All
distributions made with respect to a Class of Certificates on each
Distribution Date will be allocated pro rata among the outstanding
Certificates of such Class based on their respective Percentage Interests. The
"Percentage Interest" evidenced by any Offered Certificate is equal to the
initial denomination thereof as of the Closing Date divided by the initial
Certificate Balance or Notional Balance, as applicable, of the related class.
The aggregate distribution to be made on the Certificates on any
Distribution Date will equal the Available Funds. The "Available Funds" for a
Distribution Date will be the sum of all previously undistributed Monthly
Payments or other receipts on account of principal and interest on or in
respect of the Mortgage Loans (including Unscheduled Payments and Net REO
Proceeds, if any) received by the Servicer in the related Collection Period,
plus (i) all P&I Advances (except Subordinate Class Advance Amount) made by the
Servicer, the Trustee or the Fiscal Agent, as applicable, in respect of such
Distribution Date, (ii) for the Distribution Date occurring in each March, the
"Withheld Amounts" as described under "--The Pooling and Servicing
Agreement--Accounts--Interest Reserve Account" and required to be deposited in
the Distribution Account pursuant to the Pooling and Servicing Agreement and
(iii) all other amounts required to be deposited in the Collection Account by
the Servicer pursuant to the Pooling and Servicing Agreement allocable to the
Mortgage Loans, but excluding the following:
(a) amounts permitted to be used to reimburse the Servicer, the
Special Servicer, the Trustee or the Fiscal Agent, as applicable, for
previously unreimbursed Advances and interest thereon as described herein
under "The Pooling and Servicing Agreement--Advances";
(b) the aggregate amount of the Servicing Fee (as defined herein
and which includes the fees for both the Trustee and the Servicer) and
the other Servicing Compensation (e.g., late fees, loan modification
fees, extension fees, loan service transaction fees, demand fees,
beneficiary statement charges, and similar fees) payable to the Servicer
and the Special Servicing Fee, Additional Servicing Fee and other amounts
payable to the Special Servicer described under "The Pooling and
Servicing Agreement--Special Servicing" herein), and reinvestment
earnings on payments received with respect to the Mortgage Loans which
the Servicer or Special Servicer is entitled to receive as additional
servicing compensation, in each case in respect of such Distribution
Date;
(c) all amounts representing scheduled Monthly Payments due after
the related Due Date;
(d) to the extent permitted by the Pooling and Servicing Agreement,
that portion of liquidation proceeds, insurance proceeds and condemnation
proceeds with respect to a Mortgage Loan which represents
any unpaid Servicing Compensation together with interest thereon as
described herein, to which the Servicer, the Special Servicer or the
Trustee is entitled;
(e) all amounts representing certain expenses reimbursable or
payable to the Servicer, Special Servicer, the Trustee or Fiscal Agent
and other amounts permitted to be retained by the Servicer or withdrawn
pursuant to the Pooling and Servicing Agreement in respect of various
items, including interest thereon as provided in the Pooling and
Servicing Agreement;
(f) Prepayment Premiums;
(g) Default Interest;
(h) Excess Interest;
(i) [interest required to be deposited into an Interest Reserve
Account];
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(j) all amounts received with respect to each Mortgage Loan
previously purchased or repurchased pursuant to the Pooling and Servicing
Agreement during the related Collection Period and subsequent to the date
as of which the amount required to effect such purchase or repurchase was
determined;
(k) the amount reasonably determined by the Trustee to be necessary
to pay any applicable federal, state or local taxes imposed on the
Upper-Tier REMIC or the Lower-Tier REMIC under the circumstances and to
the extent described in the Pooling and Servicing Agreement; and
(l) the amounts distributed on the Special Distribution Date (as
described under "--Special Distribution Date" below).
The "Monthly Payment" with respect to any Mortgage Loan (other than
any REO Mortgage Loan) and any Due Date is the scheduled Monthly Payment of
principal (if any) and interest at the Net Mortgage Rate, excluding any Balloon
Payment (but not excluding any constant Monthly Payment), which is payable by
the related borrower on the related Due Date. The Monthly Payment with respect
to an REO Mortgage Loan for any Distribution Date is the monthly payment that
would otherwise have been payable on the related Due Date had the related Note
not been discharged, determined as set forth in the Pooling and Servicing
Agreement.
"Unscheduled Payments" are all net liquidation proceeds, net insurance
proceeds and net condemnation proceeds payable under the Mortgage Loans, the
repurchase price of any Mortgage Loan repurchased by the Mortgage Loan Seller
or the other Originators due to a breach of a representation or warranty made
by them or the purchase price paid by the parties described under "The Pooling
and Servicing Agreement--Optional Termination", and any other payments under or
with respect to the Mortgage Loans not scheduled to be made, including
Principal Prepayments, but excluding Prepayment Premiums.
"Net REO Proceeds" with respect to any REO Property and any related
REO Mortgage Loan (as defined herein) are all revenues received by the Special
Servicer with respect to such REO Property or REO Mortgage Loan net of any
insurance premiums, taxes, assessments and other costs and expenses permitted
to be paid therefrom pursuant to the Pooling and Servicing Agreement.
"Principal Prepayments" are payments of principal made by a borrower
on a Mortgage Loan which are received in advance of the scheduled Due Date for
such payments and which are not accompanied by an amount of interest
representing the full amount of scheduled interest due on any date or dates in
any month or months subsequent to the month of prepayment, other than any
amount paid in connection with the release of the related Mortgaged Property
through defeasance.
The "Collection Period" with respect to a Distribution Date is the
period beginning on the day after the Due Date in the month preceding the
month in which such Distribution Date occurs and ending on the Due Date in the
month in which such Distribution Date occurs.
"Net Default Interest" with respect to any Mortgage Loan is any
Default Interest accrued on such Mortgage Loan less amounts required to pay the
Servicer, the Trustee or Fiscal Agent, as applicable, interest on Advances at
the Advance Rate.
"Default Interest" with respect to any Mortgage Loan is interest
accrued on such Mortgage Loan at the excess of (i) the Default Rate over (ii)
the Mortgage Rate (plus the Excess Rate if required by the applicable Mortgage
Loan).
The "Default Rate" with respect to any Mortgage Loan is the per annum
rate at which interest accrues on such Mortgage Loan following any event of
default on such Mortgage Loan including a default in the payment of a Monthly
Payment or a Balloon Payment.
"Excess Interest" with respect to each of the Mortgage Loans that has
a Revised Rate, interest accrued on such Mortgage Loan allocable to the Excess
Rate.
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"Excess Rate" with respect to each of the Mortgage Loans that has a
Revised Rate, the difference between (a) the applicable Revised Rate and (b)
the applicable Mortgage Rate.
Priorities. As used below in describing the priorities of distribution
of Available Funds for each Distribution Date, the terms set forth below will
have the following meanings.
The "Interest Accrual Amount" with respect to any Distribution Date
and any Class of Certificates (other than the Class A-CS2, Class V-1, Class
V-2, Class R and Class LR Certificates), is equal to interest for the related
Interest Accrual Period at the Pass-Through Rate for such Class on the related
Certificate Balance or Notional Balance, as applicable (provided, that for
interest accrual purposes any distributions in reduction of Certificate Balance
or reductions in Certificate Balance as a result of allocations of Realized
Losses on the Distribution Date occurring in an Interest Accrual Period will be
deemed to have been made on the first day of such Interest Accrual Period). The
"Interest Accrual Amount" with respect to any Distribution Date and the Class
A-CS2 Certificates is equal to the sum of the Interest Accrual Amount of its
components. The "Interest Accrual Amount" with respect to any Distribution Date
and each of the Class A-1A, Class A-1B and Class A-1C Components is equal to
interest for the related Interest Accrual Period at the Pass-Through Rate for
such component for such Interest Accrual Period on the Component Balance of
such component (provided, that any reductions in Component Balances of the
Class A-1A, Class A-1B and Class A-1C Components as a result of distributions
in reduction of the Certificate Balance of the Class A-1A Certificate, Class
A-1B Certificates or Class A-1C Certificates, respectively, or allocations of
Realized Losses to the Certificate Balance of the Class A-1A Certificates,
Class A-1B Certificates or Class A-1C Certificates, respectively, in each case,
on the Distribution Date occurring in an Interest Accrual Period, will be
deemed to have occurred on the first day of such Interest Accrual Period). The
"Interest Accrual Amount" with respect to any Distribution Date and each of the
Class A-1D, Class A-2, Class A-3, Class A-4 and Class A-5 Components is equal
to interest for the related Interest Accrual Period at the Pass-Through Rate
for such component for such Interest Accrual Period on the Component Balance of
such component (provided, that (i) any reductions in Component Balance as a
result of (A) distributions of principal to the related Class of Certificates,
(B) allocations of Realized Losses to the Certificate Balance of the related
Class of Certificates or (C) allocations of Appraisal Reduction Amounts or
Delinquency Reduction Amounts to such Component Balance and (ii) any increases
in Component Balance as a result of reversals of reductions resulting from
Appraisal Reduction Events and Delinquencies, in each case, on the Distribution
Date occurring in such Interest Accrual Period, will be deemed to have occurred
on the first day of such Interest Accrual Period).
The "Interest Distribution Amount" with respect to any Distribution
Date and the Class A-CS2 Certificates is the sum of the Interest Accrual
Amounts of the related components of such class.
The "Interest Distribution Amount" with respect to any Distribution
Date and the Class B-1 and Class B-2 Certificates is equal to the Interest
Accrual Amount thereof. Likewise, the "Interest Distribution Amount" with
respect to any Distribution Date and the Class B-3 and Class B-3H Certificates
is equal to the Interest Accrual Amount thereof/
The "Interest Distribution Amount" with respect to any Distribution
Date and the Class A-1A, Class A-1B, Class A-1C, Class A-CS1, Class A-1D, Class
A-2, Class A-3, Class A-4 and Class A-5 Certificates will equal the Interest
Accrual Amount thereof.
The "Reduction Interest Distribution Amount" with respect to any
Distribution Date for any component (other than the Class A-1A Component, Class
A-1B Component and Class A-1C Component) is the amount of interest accrued for
the Interest Accrual Period at the Pass-Through Rate on such component for such
Interest Accrual Period on the aggregate amount of Appraisal Reduction Amounts
and Delinquency Reduction Amounts allocated to such component as of such
Distribution Date set forth herein.
The "Reduction Interest Shortfalls" with respect to any Distribution
Date, for any component (other than the Class A-1A Component, Class A-1B
Component and Class A-1C Component) is any shortfall in the amount of
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Reduction Interest Distribution Amount required to be distributed to the Class
A-CS2 Certificates on such Distribution Date.
"Appraisal Reduction Amount" is the amount described under
"--Appraisal Reductions."
"Delinquency Reduction Amount" is in connection with a Delinquency an
amount equal to the scheduled payment due on the related Due Date (adjusted to
the applicable Net Mortgage Pass-Through Rate with respect to the interest
portion) and not received from a borrower under any Mortgage Loan.
"Delinquency" means any failure of the borrower to make a scheduled
payment on a Due Date.
The "Interest Accrual Period" with respect to any Distribution Date
commences on the eleventh day of the month preceding the month in which such
Distribution Date occurs and ends on the tenth day of the month in which such
Distribution Date occurs provided that the first Interest Accrual Period is
assumed to consist of nineteen days. Except for the first Interest Accrual
Period, each Interest Accrual Period is assumed to consist of 30 days.
An "Interest Shortfall" with respect to any Distribution Date for any
Class of Offered Certificates is any shortfall in the amount of interest
required to be distributed on such Class on such Distribution Date.
The "Prepayment Interest Shortfall" with respect to any Distribution
Date is equal to the amount of any shortfall in collections of interest
(adjusted to the applicable Net Mortgage Pass-Through Rate) resulting from a
Principal Prepayment on such Mortgage Loan during the related Collection Period
and prior to the related Due Date. Such shortfall may result because interest
on a Principal Prepayment in full is paid by the related borrower only to the
date of prepayment.
The "Pass-Through Rate" for any Class of Offered Certificates or
component is the per annum rate at which interest accrues on the Certificates
of such Class or component during any Interest Accrual Period. The Pass-
Through Rate on the Class B-1 and Class B-2 Certificates is a per annum rate
equal to the Weighted Average Net Mortgage Pass-Through Rate.
The Pass-Through Rate on the Class A-1A, Class A-1B, Class A-1C
Certificates is a per annum rate equal to [__], [__] and [__], respectively.
The Pass-Through Rate on the A-1A Component is a per annum rate equal to
Weighted Average Net Mortgage Pass-Through Rate minus [ ]. The Pass-Through
Rate on the Class A-CS1 Certificates is a per annum rate equal to the
Pass-Through Rate on the Class A-1A Component. The Pass-Through Rate on the
Class A-1B Component is a per annum rate equal to the Weighted Average Net
Mortgage Pass-Through Rate minus [ ]. The Pass-Through Rate on the Class A-1C
Component is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]. The Pass-Through Rate on the Class A-1D Component
is a per annum rate equal to the Weighted Average Net Mortgage Pass-Through
Rate minus [ ]. The Pass-Through Rate on the Class A-2 Component is a per
annum rate equal to [ ]. The Pass-Through Rate on the Class A-3 Component is a
per annum rate equal to [ ]. The Pass-Through Rate on the Class A-4 Component
is a per annum rate equal to [ ]. The Pass-Through Rate on the Class A-5
Component is a per annum rate equal to [ ]. The Pass-Through Rate on the Class
A-CS2 Certificates is a per annum rate equal to the weighted average of the
Pass-Through Rates on the Class A-1B Component, Class A-1C Component, Class
A-1D Component, Class A-2 Component, Class A-3 Component, Class A-4 Component
and Class A-5 Component, weighted on the basis of the Component Balances of
such components (without giving effect to any Appraisal Reduction Amounts or
Delinquency Reduction Amounts). The Pass-Through Rate on the Class A-1D
Certificates is a per annum rate equal to [ ]. The Pass-Through Rate on the
Class A-2 Certificates is a per annum rate equal to the Weighted Average Net
Mortgage Pass-Through Rate minus [ ]. The Pass-Through Rate on the Class A-3
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]. The Pass-Through Rate on the Class A-4
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]. The Pass-Through Rate on the Class A-5
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus [ ].
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The Pass-Through Rate on the Class B-3 and the Class B-3H Certificates
is a per annum rate equal to the Weighted Average Net Mortgage Pass-Through
Rate.
With respect to any Distribution Date, the "Weighted Average Net
Mortgage Pass-Through Rate" is the amount (expressed as a percentage) the
numerator of which is the sum of the products of (i) the Net Mortgage Pass-
Through Rate and (ii) the Stated Principal Balance of each Mortgage Loan and
the denominator of which is the sum of the Stated Principal Balances of each
Mortgage Loan as of the Due Date occurring in the month preceding the month in
which such Distribution Date occurs.
The "Net Mortgage Pass-Through Rate" with respect to any Mortgage Loan
and any Distribution Date is the Mortgage Pass-Through Rate for such Mortgage
Loan for the related Interest Accrual Period minus the aggregate of the
applicable Servicing Fee Rate and Additional Servicing Fee Rate (as such terms
are defined herein).
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loans
that provide for calculations of interest based on twelve months of 30 days
each, is equal to the Mortgage Rate thereof.
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loans
(other than [list exceptions, if any]) that provide for interest based on a
360-day year and the actual number of days elapsed for any Interest Accrual
Period, is equal to the Mortgage Rate thereof multiplied by a fraction the
numerator of which is the actual number of days in such Interest Accrual Period
and the denominator of which is 30.
[insert Mortgage Pass-Through Rates for properties that are exception
to the above]
Notwithstanding the foregoing, the Mortgage Pass-Through Rate with
respect to each Mortgage Loan (other than the [list exceptions]) for the first
Interest Accrual Period is the Mortgage Rate thereof. The Mortgage Pass-
Through Rate for the first Interest Accrual Period with respect to the
[exceptions] is [ ].
The "Mortgage Rate" with respect to each Mortgage Loan is the annual
rate, not including any Excess Rate, at which interest accrues on such Mortgage
Loan (in the absence of a default), as set forth in the related Note and on
Annex A. The Mortgage Rate for purposes of calculating the Weighted Average Net
Mortgage Pass-Through Rate will be the Mortgage Rate of such Mortgage Loan
without taking into account any reduction in the interest rate by a bankruptcy
court pursuant to a plan of reorganization or pursuant to any of its equitable
powers or a reduction on interest or principal due to a modification as
described under "The Pooling and Servicing Agreement-- Modifications".
The "Principal Distribution Amount" for any Distribution Date will be
equal to the sum of:
(i) the principal component of all scheduled Monthly Payments (other
than Balloon Payments) which become due (if received or advanced, including
any Subordinate Class Advance Amounts allocable to principal) on the Mortgage
Loans on the related Due Date;
(ii) the principal component of all Assumed Scheduled Payments or
Minimum Defaulted Monthly Payments, as applicable, deemed to become due (if
received or advanced, including, without duplication, any Subordinate Class
Advance Amounts allocable to principal) on the related Due Date with respect to
any Mortgage Loan that is delinquent in respect of its Balloon Payment;
(iii) the Stated Principal Balance of each Mortgage Loan that was,
during the related Collection Period, repurchased from the Trust Fund in
connection with the breach of a representation or warranty or purchased from
the Trust Fund as described herein under "The Pooling and Servicing
Agreement--Optional Termination";
(iv) the portion of Unscheduled Payments allocable to principal of any
Mortgage Loan which was liquidated during the related Collection Period;
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(v) the principal component of all Balloon Payments and, to the extent
not included in the preceding clauses, any additional principal payments due on
or after the maturity of the related Mortgage Loan, in each case to the extent
received during the related Collection Period;
(vi) to the extent not included in the preceding clause (iii) or (iv),
all other Principal Prepayments received in the related Collection Period other
than amounts distributed on the Special Distribution Date; and
(vii) to the extent not included in the preceding clauses, any other
full or partial recoveries in respect of principal, including net insurance
proceeds, net liquidation proceeds, net condemnation proceeds and Net REO
Proceeds; provided, that, amounts received on any Mortgage Loan that represent
recoveries of Subordinate Class Advance Amounts will not be included in the
calculation of Principal Distribution Amount.
The "Assumed Scheduled Payment" with respect to any Mortgage Loan that
is delinquent in respect of its Balloon Payment (including any REO Mortgage
Loan as to which the Balloon Payment would have been past due) is an amount
equal to the sum of (a) the principal portion of the Monthly Payment that would
have been due on such Mortgage Loan on the related Due Date based on the
constant payment required by the related Note or the original amortization
schedule thereof (as calculated with interest at the related Mortgage Rate), if
applicable, assuming such Balloon Payment has not become due after giving
effect to any modification, and (b) interest at the applicable Net Mortgage
Pass-Through Rate. .
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
On each Distribution Date prior to the Cross-over Date, the Available
Funds for such Distribution Date will be distributed in the following amounts
and order of priority:
(i) First, pro rata, in respect of interest, to the Class A-1A, Class
A-1B, Class A-1C, Class A-CS1 and Class A-CS2 Certificates, up to an amount
equal to the aggregate Interest Distribution Amounts of such Classes;
(ii) Second, pro rata, to the Class A-1A, Class A-1B, Class A-1C,
Class A-CS1 and Class A-CS2 Certificates, in respect of interest, up to an
amount equal to the aggregate unpaid Interest Shortfalls previously allocated
to such Classes;
(iii) Third, to the Class A-1A Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount until the Certificate Balance thereof is reduced to zero;
(iv) Fourth, to the Class A-1B Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance thereof is reduced to zero;
(v) Fifth, to the Class A-1C Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance thereof is reduced to zero;
(vi) Sixth, to the Class A-1D Certificates, in respect of interest,
up to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(vii) Seventh, pro rata, (A) to the Class A-1D Certificates, in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such class, (B) to the Class A-CS2
Certificates in respect of the Reduction Interest Distribution Amount of the
Class A-1D Component, up to an amount equal to the aggregate Reduction Interest
Distribution Amount of the Class A-1D Component and (C) to the Class A-CS2
Certificates, up to an amount equal to the aggregate unpaid Reduction Interest
Shortfalls previously allocated to the Class A-1D Component;
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(viii) Eighth, to the Class A-1D Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(ix) Ninth, to the Class A-1D Certificates, for the unreimbursed
amounts of Realized Losses, if any, up to an amount equal to the Principal
Distribution Amount less amounts of Principal Distribution Amount distributed
pursuant to all prior clauses, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(x) Tenth, to the Class A-2 Certificates in respect of interest, up
to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(xi) Eleventh, pro rata, (A) to the Class A-2 Certificates in respect
of interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such Class, (B) to the Class A-CS2 Certificates in
respect of interest, up to an amount equal to the aggregate Reduction Interest
Distribution Amount of the Class A-2 Component and (C) to the Class A-CS2
Certificates in respect of interest, up to an amount equal to the aggregate
unpaid Reduction Interest Shortfalls previously allocated to the Class A-2
Component;
(xii) Twelfth, to the Class A-2 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xiii) Thirteenth, to the Class A-2 Certificates, for the unreimbursed
amounts of Realized Losses, if any, up to an amount equal to the Principal
Distribution Amount less amounts of Principal Distribution Amount distributed
pursuant to all prior clauses, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xiv) Fourteenth, to the Class A-3 Certificates in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
(xv) Fifteenth, pro rata, (A) to the Class A-3 Certificates in respect
of interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such Class, (B) to the Class A-CS2 Certificates in
respect of interest, up to an amount equal to the aggregate Reduction Interest
Distribution Amount of the Class A-3 Component and (C) to the Class A-CS2
Certificates in respect of interest, up to an amount equal to the aggregate
unpaid Reduction Interest Shortfalls previously allocated to the Class A-3
Component;
(xvi) Sixteenth, to the Class A-3 Certificates in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount, less the amount of the Principal Distribution Amount distributed
pursuant to all prior clauses, until the Certificate Balance of such Class is
reduced to zero;
(xvii) Seventeenth, to the Class A-3 Certificates, for the
unreimbursed amounts of Realized Losses, if any, up to an amount equal to the
Principal Distribution Amount less amounts of Principal Distribution Amount
distributed pursuant to all prior clauses, up to an amount equal to the
aggregate of such unreimbursed Realized Losses previously allocated to such
Class;
(xiii) Eighteenth, to the Class A-4 Certificates in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
(xix) Nineteenth, pro rata, (A) to the Class A-4 Certificates in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class A-CS2
Certificates in respect of interest, up to an amount equal to the aggregate
Reduction Interest Distribution Amount of the Class A-4 Component and (C) to
the Class A-CS2 Certificates in respect of interest, up to an amount equal to
the aggregate unpaid Reduction Interest Shortfalls previously allocated to the
Class A-4 Component;
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(xx) Twentieth, to the Class A-4 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xxi) Twenty-first, to the Class A-4 Certificates, for the
unreimbursed amounts of Realized Losses, if any, up to an amount equal to the
Principal Distribution Amount less amounts of Principal Distribution Amount
distributed pursuant to all prior clauses, an amount equal to the aggregate of
such unreimbursed Realized Losses previously allocated to such Class;
(xxii) Twenty-second, to the Class A-5 Certificates in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
(xxiii) Twenty-third, pro rata, (A) to the Class A-5 Certificates in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class A-CS2
Certificates in respect of interest, up to an amount equal to the aggregate
Reduction Interest Distribution Amount of the Class A-5 Component and (C) to
the Class A-CS2 Certificates in respect of interest, up to an amount equal to
the aggregate unpaid Reduction Interest Shortfalls previously allocated to such
component;
(xxiv) Twenty-fourth, to the Class A-5 Certificates in reduction of
the Certificate Balance thereof, an amount equal to the Principal Distribution
Amount, less the amount of the Principal Distribution Amount distributed
pursuant to all prior clauses, until the Certificate Balance of such Class is
reduced to zero;
(xxv) Twenty-fifth, to the Class A-5 Certificates, for the
unreimbursed amounts of Realized Losses, if any, up to an amount equal to the
Principal Distribution Amount less amounts of Principal Distribution Amount
distributed pursuant to all prior clauses, an amount equal to the aggregate of
such unreimbursed Realized Losses previously allocated to such Class;
(xxvi) Twenty-sixth, to the Class B-1 Certificates, in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such class;
(xxvii) Twenty-seventh, to the Class B-1 Certificates, in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such class;
(xxviii) Twenty-eighth, to the Class B-1 Certificates, in reduction of
the Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
prior clauses, until the Certificate Balance of such class is reduced to zero;
(xvix) Twenty-ninth, to the Class B-1 Certificates, for the
unreimbursed amounts of Realized Losses, if any, up to an amount equal to the
Principal Distribution Amount less amounts of Principal Distribution Amount
distributed pursuant to all prior clauses, an amount equal to the aggregate of
such unreimbursed Realized Losses previously allocated to such class;
(xxx) Thirtieth, to the Class B-2 Certificates, in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such class;
(xxxi) Thirty-first, to the Class B-2 Certificates, in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such class;
(xxxii) Thirty-second, to the Class B-2 Certificates, in reduction of
the Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
prior clauses, until the Certificate Balance of such class is reduced to zero;
(xxxiii) Thirty-third, to the Class B-2 Certificates, for the
unreimbursed amounts of Realized Losses, if any, up to an amount equal to the
Principal Distribution Amount less amounts of Principal Distribution Amount
distributed
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pursuant to all prior clauses, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such class;
(xxxiv) Thirty-fourth, to the Private Subordinate Certificates, in
accordance with the priorities set forth in the Pooling and Servicing
Agreement; and
(xxxv) Thirty-fifth, to the Class R and Class LR Certificates, in
accordance with the priorities set forth in the Pooling and Servicing
Agreement.
All references to "pro rata" in the preceding clauses mean pro rata
based upon the amount distributable pursuant to such clause.
Notwithstanding the foregoing, on each Distribution Date occurring on
or after the Cross-over Date, the Principal Distribution Amount will be
distributed, first, to the Class A-1A, Class A-1B and Class A-1C Certificates,
pro rata, based on their respective Certificate Balances, in reduction of their
respective Certificate Balances, until the Certificate Balance of each such
Class is reduced to zero; and, second, to the Class A-1A, Class A-1B and Class
A-1C Certificates, pro rata, based on their respective Certificate Balances,
for unreimbursed amounts of Realized Losses previously allocated to such
Classes. The "Cross-over Date" is the Distribution Date on which the
Certificate Balance of each Class of Certificates other than the Class A-1A,
Class A-1B and Class A-1C Certificates have been reduced to zero. The Class
A-CS1 and Class A-CS2 Certificates will not be entitled to any distribution of
principal.
Prepayment Premiums. On each Distribution Date, Prepayment Premiums
with respect to any Unscheduled Payments (including voluntary and involuntary
prepayments) received in the related Collection Period shall be distributed to
the holders of the Senior Certificates outstanding on such Distribution Date,
but will not be applied to reduce the outstanding Certificate Balance of any
such Class. Prepayment Premiums will not be distributed to holders of the
Offered Certificates.
On each Distribution Date, Net Default Interest and Excess Interest
received in the related Collection Period with respect to a default on a
Mortgage Loan will be distributed solely to the Class V-1 and Class V-2
Certificates, respectively, to the extent set forth in the Pooling and
Servicing Agreement, and will not be available for distribution to holders of
the Offered Certificates. The Class V-1 and Class V-2 Certificates are not
entitled to any other distributions of interest, principal or Prepayment
Premiums. The holders of a majority Percentage Interest of the Class LR
Certificates will have the limited right to purchase the ARD Loans on their
related Anticipated Repayment Dates under the circumstances described under
"Description of the Mortgage Pool--Certain Terms and Conditions of the Mortgage
Loans--Excess Interest" herein.
Realized Losses. The Certificate Balance of the Certificates will be
reduced without distribution on any Distribution Date as a write-off to the
extent of any Realized Loss with respect to such Distribution Date. As
referred to herein, the "Realized Loss" with respect to any Distribution Date
shall mean the amount, if any, by which the aggregate Certificate Balance of
the Certificates after giving effect to distributions made on such
Distribution Date exceeds the aggregate Stated Principal Balance of the
Mortgage Loans as of the Due Date occurring in the month in which such
Distribution Date occurs. Except as described in the next sentence, any such
write-offs will be applied to the Classes of Certificates in the following
order, until each is reduced to zero: first, to the Private Subordinate
Certificates in accordance with the priorities set forth in the Pooling and
Servicing Agreement, second, to the Class B-2 Certificates, third, to the
Class B-1 Certificates, fourth, to the Class A-5 Certificates, fifth, to the
Class A-4 Certificates, sixth, to the Class A-3 Certificates, seventh, to the
Class A-2 Certificates, eighth, to the Class A-1D Certificates, and finally,
to the Class A-C, Class A-1B and Class A-1A Certificates, pro rata, based on
their respective Certificate Balances. Any amounts recovered in respect of any
amounts previously written-off as Realized Losses will be distributed to the
Classes of Certificates in reverse order of allocation of Realized Losses
thereto. Shortfalls in Available Funds resulting from Servicing Compensation
(other than the Servicing Fee), interest on Advances not covered by Default
Interest, Prepayment Interest Shortfalls in excess of the Servicing Fee plus
investment income on such Principal Prepayment for the period such amount is
held in the Collection Account, compensation payable to the Special Servicer
in excess of
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the Additional Servicing Fee, extraordinary expenses of the Trust
Fund or otherwise, will be allocated in the same manner as Realized Losses.
Shortfalls in Available Funds resulting from indemnification expenses of the
Trust Fund required to be paid pursuant to the Pooling and Servicing Agreement
will be allocated to, and be deemed distributed to, each Class of
Certificates, pro rata, based upon amounts distributable to each Class and
will be allocated, first, in respect of interest and, second, in respect of
principal (if any). The Notional Balance of the Class A-C51 Certificates will
be reduced to reflect reductions in the Component Balance of the Class A-1A
Component resulting from allocations of Realized Losses; the Notional Balance
of the Class A-CS2 Certificates will be reduced to reflect reductions in the
Component Balances of the Class A-1B Component, Class A-1C Component, Class
A-1D Component, Class A-2 Component, Class A-3 Component, Class A-4 Component
and Class A-5 Component resulting from allocations of Realized Losses.
The "Stated Principal Balance" of any Mortgage Loan at any date of
determination will equal (a) the principal balance as of the Cut-off Date of
such Mortgage Loan, minus (b) the sum of (i) the principal portion of each
Monthly Payment due on such Mortgage Loan after the Cut-off Date up to such
date of determination, if received from the borrower or advanced by the
Servicer, Trustee or Fiscal Agent (including any Subordinate Class Advance
Amount), (ii) all voluntary and involuntary principal prepayments and other
unscheduled collections of principal received with respect to such Mortgage
Loan, to the extent distributed to holders of the Certificates before such date
of determination and (iii) any principal forgiven by the Special Servicer or
Interest Shortfalls resulting from reductions or deferrals of interest, each as
described herein under "The Pooling and Servicing Agreement--Modifications."
The Stated Principal Balance of a Mortgage Loan with respect to which title to
the related Mortgaged Property has been acquired is equal to the principal
balance thereof outstanding on the date on which such title is acquired less
any Net REO Proceeds allocated to principal on such Mortgage Loan. The Stated
Principal Balance of a Specially Serviced Mortgage Loan with respect to which
the Servicer or Special Servicer has determined that it has received all
payments and recoveries which the Servicer or the Special Servicer, as
applicable, expects to be finally recoverable on such Mortgage Loan is zero.
Delinquency Reduction Amounts and Appraisal Reduction Amounts. On or
after any Distribution Date on which the Class A-5 Certificates are the most
subordinate Class of Certificates outstanding, the Component Balance of
components (other than the Class A-1A Component, Class A-1B Component and Class
A-1C Component) will be reduced on any Distribution Date to the extent of any
Delinquency Reduction Amounts or Appraisal Reduction Amounts with respect to
such Distribution Date; provided that (i) if a Delinquency and an Appraisal
Reduction Event occur on the same Distribution Date with respect to the same
Mortgage Loan, the reduction will equal the greater of the related Delinquency
Reduction Amount and the Appraisal Reduction Amount, (ii) for any Distribution
Date, the aggregate of the Delinquency Reduction Amounts may not exceed the
Component Balance of the most junior component then outstanding and (iii)
except as described in clause (i), on any Distribution Date, Appraisal
Reduction Amounts will be allocated to the applicable Component Balances prior
to Delinquency Reduction Amounts. Any such reductions will be applied to the
components in the following order, until the Component Balance of each is
reduced to zero: first, to the Class A-5 Component, second, to the Class A-4
Component, third, to the Class A-3 Component, fourth, to the Class A-2
Component and fifth, to the Class A-1D Component. The Notional Balance of
the Class A-CS2 Certificates will be reduced to reflect reductions in the
Component Balance of the Class A-1D Component, Class A-2 Component, Class A-3
Component, Class A-4 Component and Class A-5 Component resulting from
Delinquency Reduction Amounts and Appraisal Reduction Amounts; however, such
Class will retain the right to receive distributions of interest in respects of
such reductions at a lower priority. Any reduction of the Component Balance of
a component as a result of any Delinquency or Appraisal Reduction Event will be
reversed to the extent there is a recovery of any or all of the Delinquency
Amounts or a Realized Loss (which results in the reduction of the Certificate
Balance of the related Class and therefore the reduction of the Component
Balance of such component). Additionally, a reversal or additional reduction
will occur to the extent that the Servicer's Appraisal Estimate is less than or
greater than the Appraisal Reduction as adjusted to take into account a
subsequent independent MAI Appraisal. For purposes of calculating Interest
Accrual Amounts, any such reversal or additional reductions made on the
Distribution Date occurring in an Interest Accrual Period will be deemed to
have been made on the first day of such Interest Accrual Period.
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Prepayment Interest Shortfalls. The Servicer will deposit from its own
funds any Prepayment Interest Shortfalls into the Collection Account on the
Servicer Remittance Date to the extent such Prepayment Interest Shortfalls do
not exceed the aggregate of the Servicing Fee due the Servicer and the
investment income accruing on the related Principal Prepayment for the related
Due Period. Any Prepayment Interest Shortfalls in excess of the Servicing
Compensation due to the Servicer for such period will be allocated as Realized
Losses as provided above under "----Realized Losses." Any interest that accrues
on a prepayment on a Mortgage Loan after the Due Date and before the following
Servicer Remittance Date will be paid to the Servicer.
SUBORDINATION
As a means of providing a certain amount of protection to the holders
of the Senior Certificates (except as set forth below) against losses
associated with delinquent and defaulted Mortgage Loans, the rights of the
holders of the Offered Certificates and the Private Subordinate Certificates to
receive distributions of interest and principal with respect to the Mortgage
Loans, as applicable, will be subordinated to such rights of the holders of the
Senior Certificates. The rights of the holders of the Class B-1 Certificates to
receive distributions of interest and principal will be subordinate to those of
the Senior Certificates; and the rights of the holders of the Class B-2
Certificates to receive distributions of interest and principal will be
subordinate to those of the Senior Certificates and Class B-1 Certificates.
This subordination will be effected in two ways: (i) by the preferential right
of the holders of a Class of Certificates to receive on any Distribution Date
the amounts of interest and principal, distributable in respect of such
Certificates on such date prior to any distribution being made on such
Distribution Date in respect of any Classes of Certificates subordinate thereto
and (ii) by the allocation of Realized Losses (as defined herein), first, to
the Private Subordinate Certificates, second, to the Class B-2 Certificates,
third, to the Class B-1 Certificates, and finally, to the Senior Certificates
in accordance with the terms of the Pooling and Servicing Agreement. No other
form of credit enhancement will be available for the benefit of the holders of
the Offered Certificates. Because of the subordination of the Subordinate
Certificates, the yield of the Subordinate Certificates will be extremely
sensitive and the timing and magnitude of losses on the Mortgage Loans due to
liquidations.
APPRAISAL REDUCTIONS
On the earliest of (i) the third anniversary of the date on which an
extension of the maturity date of a Mortgage Loan becomes effective as a
result of a modification of such Mortgage Loan by the Special Servicer, which
extension does not change the amount of Monthly Payments on the Mortgage Loan,
(ii) 90 days after an uncured delinquency occurs in respect of a Mortgage
Loan, (iii) immediately after the date on which a reduction in the amount of
Monthly Payments on a Mortgage Loan, or a change in any other material
economic term of the Mortgage Loan, becomes effective as a result of a
modification of such Mortgage Loan by the Special Servicer, (iv) immediately
after a receiver has been appointed, (v) immediately after a borrower declares
bankruptcy, (vi) immediately after a Mortgage Loan becomes an REO Mortgage
Loan, (vii) immediately after the occurrence of an event that materially and
adversely affects or impairs the security of a Mortgage Loan and (viii) upon a
default in the payment of a Balloon Payment ((i), (ii), (iii), (iv), (v),
(vi), (vii) and (viii), collectively, an "Appraisal Reduction Event"), an
Appraisal Reduction Amount will be calculated. The "Appraisal Reduction
Amount" for any Distribution Date and for any Mortgage Loan as to which any
Appraisal Reduction Event has occurred will be an amount equal to the excess
of (a) the outstanding Stated Principal Balance of such Mortgage Loan over (b)
the excess of (i) 90% of the sum of the appraised values of the related
Mortgaged Properties as determined by independent MAI appraisals (the costs of
which shall be paid by the Servicer as an Advance) over (ii) the sum of (A) to
the extent not previously advanced by the Servicer, the Trustee or the Fiscal
Agent, all unpaid interest on such Mortgage Loan at a per annum rate equal to
the Mortgage Rate, (B) all unreimbursed Advances and interest thereon at the
Advance Rate in respect of such Mortgage Loan and (C) all currently due and
unpaid real estate taxes, ground rents and assessments and insurance premiums
and all other amounts due and unpaid under the Mortgage Loan (which tax,
premiums and other amounts have not been the subject of an Advance by the
Servicer). If no independent MAI appraisal has been obtained within twelve
months prior to the first Distribution Date on or after an Appraisal Reduction
Event has occurred, the Servicer will be required to estimate the value of the
related Mortgaged Properties (the "Servicer's Appraisal Estimate") and such
estimate will be used for purposes of the Appraisal Reduction Amount. Within
30 days after the Appraisal Reduction Event, the Servicer will be required to
obtain an independent MAI appraisal. On the first Distribution Date occurring
on or after the
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delivery of such independent MAI appraisal, the Servicer will be required to
adjust the Appraisal Reduction Amount to take into account such appraisal
(regardless of whether the independent MAI Appraisal is higher or lower than
the Servicer's Appraisal Estimate). Appraisal Reduction Amounts will be
recalculated annually based on Updated Appraisals.
DELIVERY, FORM AND DENOMINATION
The Offered Certificates will be issued, maintained and transferred in
the book-entry form only in denominations of $[100,000] initial Certificate
Balance and in multiples of $[1] Certificate Balance in excess thereof.
The Offered Certificates will initially be represented by one or more
global Certificates for each such Class registered in the name of the nominee
of DTC. The Depositor has been informed by DTC that DTC's nominee will be Cede
& Co. No holder of an Offered Certificate will be entitled to receive a
certificate issued in fully registered, certificated form (each, a "Definitive
Certificate") representing its interest in such class, except under the limited
circumstances described under "--Definitive Certificates." Unless and until
Definitive Certificates are issued, all references to actions by holders of the
Offered Certificates will refer to actions taken by DTC upon instructions
received from holders of Offered Certificates through its participating
organizations (together with CEDEL and Euroclear participating organizations,
the "Participants", and all references herein to payments, notices, reports,
statements and other information to holders of Offered Certificates will refer
to payments, notices, reports and statements to DTC or Cede & Co., as the
registered holder of the Offered Certificates, for distribution to holders of
Offered Certificates through its Participants in accordance with DTC
procedures; provided, however, that to the extent that the party responsible
for distributing any report, statement or other information has been provided
with the name of the beneficial owner of a Certificate (or the prospective
transferee of such beneficial owner), such report, statement or other
information will be provided to such beneficial owner (or prospective
transferee).
Until Definitive Certificates are issued in respect of the Offered
Certificates, interests in the Offered Certificates will be transferred on the
book-entry records of DTC and its Participants. The Trustee will initially
serve as certificate registrar (in such capacity, the "Certificate Registrar")
for purposes of recording and otherwise providing for the registration of the
Offered Certificates.
A "Certificateholder" under the Pooling and Servicing Agreement will
be the person in whose name a Certificate is registered in the certificate
register maintained pursuant to the Pooling and Servicing Agreement, except
that solely for the purpose of giving any consent or taking any action
pursuant to the Pooling and Servicing Agreement, any Certificate registered in
the name of the Depositor, the Servicer, the Special Servicer, the Trustee, a
manager of a Mortgaged Property, a Mortgagor or any person affiliated with the
Depositor, the Servicer, the Special Servicer, the Trustee, such manager or a
Mortgagor will be deemed not to be outstanding and the Voting Rights to which
it is entitled will 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; provided, however, that for purposes
of obtaining the consent of Certificateholders to an amendment to the Pooling
and Servicing Agreement, any Certificates beneficially owned by the Servicer
or Special Servicer or an affiliate will be deemed to be outstanding, provided
that such amendment does not relate to compensation of the Servicer or Special
Servicer or otherwise benefit the Servicer or the Special Servicer in any
material respect; and, provided, further, that for purposes of obtaining the
consent of Certificateholders to any action proposed to be taken by the
Special Servicer with respect to a Specially Serviced Mortgage Loan, any
Certificates beneficially owned by the Servicer or an affiliate will be deemed
to be outstanding, provided that, the Special Servicer is not the Servicer.
Notwithstanding the foregoing, solely for purposes of providing or
distributing any reports, statements or other information pursuant to the
Pooling and Servicing Agreement, a Certificateholder will include any
beneficial owner (or prospective transferee of a beneficial owner) to the
extent that the party required or permitted to provide or distribute such
report, statement or other information has been provided with the name of such
beneficial owner (or prospective transferee). The Percentage Interest of any
Class of Offered Certificate will be equal to the percentage obtained by
dividing the denomination of such Certificate by the aggregate initial
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Certificate Balance of such Class of Certificates. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates" in the
Prospectus.
BOOK-ENTRY REGISTRATION
Holders of Offered Certificates may hold their Certificates through
DTC (in the United States) or CEDEL or Euroclear (in Europe) if they are
Participants of such system, or indirectly through organizations that are
participants in such systems. CEDEL and Euroclear will hold omnibus positions
on behalf of the CEDEL Participants and the Euroclear Participants,
respectively, through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositaries (collectively, the
"Depositaries") which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC. DTC is a limited
purpose trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
computerized book-entries, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing system
by its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in such system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC,
and making or receiving payment in accordance with normal procedures for same-
day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
CEDEL Participant or Euroclear Participant on such business day. Cash received
in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following
settlement in DTC. For additional information regarding clearance and
settlement procedures for the Offered Certificates and for information with
respect to tax documentation procedures relating to the Offered Certificates,
see Exhibit B hereto.
The holders of Offered Certificates that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Offered Certificates may do so only
through Participants and Indirect Participants. In addition, holders of
Offered Certificates will receive all distributions of principal and interest
from the Trustee through the Participants who in turn will receive them from
DTC. Similarly, reports distributed to Certificateholders pursuant to the
Pooling and Servicing Agreement and requests for the consent of
Certificateholders will be delivered to beneficial owners only through DTC,
Euroclear,
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CEDEL and their respective participants. Under a book-entry format, holders of
Offered Certificates may experience some delay in their receipt of payments,
reports and notices, since such payments, reports and notices will be
forwarded by the Trustee to Cede & Co., as nominee for DTC. DTC will forward
such payments, reports and notices to its Participants, which thereafter will
forward them to Indirect Participants, CEDEL, Euroclear or holders of Offered
Certificates, as applicable.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Offered Certificates among Participants on whose behalf it acts with respect
to the Offered Certificates and to receive and transmit distributions of
principal of, and interest on, the Offered Certificates. Participants and
Indirect Participants with which the holders of Offered Certificates have
accounts with respect to the Offered Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective holders of Offered Certificates. Accordingly, although the
holders of Offered Certificates will not possess the Offered Certificates, the
Rules provide a mechanism by which Participants will receive payments on
Offered Certificates and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a holder of
Offered Certificates to pledge such Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC has advised the Depositor that it will take any action permitted
to be taken by a holder of an Offered Certificate under the Pooling and
Servicing Agreement only at the direction of one or more Participants to whose
accounts with DTC the Offered Certificates are credited. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings include
such undivided interests.
Except as required by law, neither the Depositor, the Servicer, the
Fiscal Agent nor the Trustee will have any liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Offered Certificates held by Cede & Co., as nominee for DTC,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriter. Indirect access to CEDEL is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a CEDEL Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
the Euroclear system ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 27 currencies,
including United States dollars. The Euroclear system includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. Euroclear is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator"), under contract with Euroclear Clearance System, S.C., a
Belgian cooperative corporation (the "Cooperative"). All operations are
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conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for the Euroclear
system on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the Underwriter.
Indirect access to the Euroclear system is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear system,
withdrawal of securities and cash from the Euroclear system, and receipts of
payments with respect to securities in the Euroclear system. All securities in
the Euroclear system are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants and has no record of or relationship with persons holding through
Euroclear Participants.
The information herein concerning DTC, CEDEL and Euroclear and their
book-entry systems has been obtained from sources believed to be reliable, but
the Depositor takes no responsibility for the accuracy or completeness thereof.
DEFINITIVE CERTIFICATES
Offered Certificates issued in fully registered, certificated form
("Definitive Certificates" will be delivered to Certificate Owners (or their
nominees) only if (i) DTC is no longer willing or able properly to discharge
its responsibilities as depository with respect to the Book-Entry Certificates,
and the Trustee is unable to locate a qualified successor, (ii) the Depositor
or the Trustee, at its sole option, elects to terminate the book-entry system
through DTC with respect to some or all of any Class or Classes of
Certificates, or (iii) after the occurrence of an Event of Default under the
Pooling and Servicing Agreement, Certificate Owners representing a majority in
principal amount of the Book-Entry Certificates then outstanding advise DTC
through DTC Participants in writing that the continuation of a book-entry
system through DTC (or a successor thereto) is no longer in the best interest
of Certificate Owners.
Upon the occurrence of any of the events described in clauses (i)
through (iii) in the immediately preceding paragraph, the Trustee is required
to notify all affected Certificateholders (through DTC and related DTC
Participants) of the availability through DTC of Definitive Certificates. Upon
delivery of Definitive Certificates, the Trustee, Certificate Registrar, and
Servicer will recognize the holders of such Definitive Certificates as holders
under the Pooling and Servicing Agreement ("Holders"). Distributions of
principal and interest on the Definitive Certificates will be made by the
Trustee directly to Holders of Definitive Certificates in accordance with the
procedures set forth in the Prospectus and the Pooling and Servicing Agreement.
Upon the occurrence of any of the events described in clauses (i)
through (iii) of the second preceding paragraph, requests for transfer of
Definitive Certificates will be required to be submitted directly to the
Certificate Registrar in a form acceptable to the Certificate Registrar (such
as the forms which will appear on the back of the certificate representing a
Definitive Certificate), signed by the Holder or such Holder's legal
representative and accompanied by the Definitive Certificate or Certificates
for which transfer is being requested. The Trustee will be appointed as the
initial Certificate Registrar.
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TRANSFER RESTRICTIONS
Each Class B-1 and Class B-2 Certificate will bear a legend
substantially to the effect that such Certificate may not be purchased by a
transferee that is (A) an employee benefit plan or other retirement
arrangement, including an individual retirement account of a Keogh Plan, which
is subject to Title I of ERISA, Section 4975 of the Code, or any Similar Law
(each as defined herein) (each, a "Plan")), or (B) a collective investment fund
in which Plans are invested, an insurance company using assets of separate
accounts or general accounts which include assets of Plans (or which are deemed
pursuant to ERISA or any Similar Law to include assets of Plans) or other
person acting on behalf of any such Plan or using the assets of any such Plan,
other than an insurance company using the assets of its general account under
circumstances whereby such purchase and the subsequent holding of such
Certificate by such insurance company would not constitute or result in a
prohibited transaction within the meaning of Section 406 or 407 or ERISA,
Section 4975 of the Code, or a materially similar characterization under any
Similar Law. The purchaser or transferee of any interest in a Class B-1 or
Class B-2 Certificate that is not a Definitive Certificate shall be deemed to
represent that it is not a person or entity referred to in clause (A) or (B) of
the legend.
In the event that holders of the Class B-1 or Class B-2 Certificates
become entitled to receive Definitive Certificates under the circumstances
described under "--Definitive Certificates" each prospective transferee of a
Class B-1 or Class B-2 Certificate that is a Definitive Certificate will be
required to deliver to the Depositor, the Certificate Registrar and the Trustee
a representation letter substantially in the form set forth as an exhibit to
the Pooling and Servicing Agreement stating that such transferee is not a
person or entity referred to in clause (A) or (B) of the legend. Any transfer
of a Class B-1 or Class B-2 Certificate that would result in a prohibited
transaction under ERISA, Section 4975 of the Code or any Similar Law will be
deemed absolutely null and void ab initio.
PREPAYMENT AND YIELD CONSIDERATIONS
YIELD
The yield to maturity on the Offered Certificates will depend upon the
price paid by the Certificateholder, the rate and timing of the distributions
in reduction of Certificate Balance of such Certificates and the rate, timing
and severity of Realized Losses on the Mortgage Loans and the extent to which
such losses are allocable in reduction of the Certificate Balance of such
Certificates, as well as prevailing interest rates at the time of prepayment or
default.
The rate of distributions in reduction of the Certificate Balance or
Notional Balance, as applicable of any Class of Offered Certificates, the
aggregate amount of distributions on any Class of Offered Certificates and the
yield to maturity of any Class of Offered Certificates will be directly related
to the rate of payments of principal (both scheduled and unscheduled) on the
Mortgage Loans and the amount and timing of borrower defaults. In addition,
such distributions in reduction of Certificate Balance or Notional Balance, as
applicable may result from repurchases by the Mortgage Loan Seller due to
breaches of representations and warranties with respect to the Mortgage Loans
as described herein under "The Pooling and Servicing Agreement--Representations
and Warranties; Repurchase," purchases of the Mortgage Loans in the manner
described under "The Pooling and Servicing Agreement--Optional Termination" or
purchases of ARD Loans by Class LR Certificateholders as described under
"Description of the Mortgage Pool--Certain Terms and Conditions of the Mortgage
Loans."
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Disproportionate principal payments (whether resulting from
differences in amortization terms, prepayments following expirations of the
respective Lock-out Periods or otherwise) on the Mortgage Loans having Net
Mortgage Pass Through Rates that are higher or lower than the current Weighted
Average Net Mortgage Pass- Through Rate will affect the Weighted Average Net
Mortgage Pass-Through Rate and accordingly the Pass-Through Rate on the Class
B-1 and Class B-2 Certificates for future periods and therefore the yield on
such Classes. The weighted average of the Net Mortgage Pass-Through Rates for
each Distribution Date, assuming that each Mortgage Loan with an Anticipated
Repayment Date prepays on such date and that each other Mortgage Loan does not
prepay, is set forth on Annex C hereto.
The Certificate Balance of any Class of Offered Certificates may be
reduced without distributions thereon as a result of the allocation of Realized
Losses to such Class (or the related Classes), reducing the maximum amount
distributable to such Class in respect of Certificate Balance, as well as the
amount of interest that would have accrued thereon in the absence of such
reduction. In general, a Realized Loss occurs when the aggregate principal
balance of a Mortgage Loan is reduced without an equal distribution to
Certificateholders in reduction of the Certificate Balances of the
Certificates. Realized Losses are likely to occur only in connection with a
default on a Mortgage Loan and the liquidation of the related Mortgaged
Properties or a reduction in the principal balance of a Mortgage Loan by a
bankruptcy court.
Because the ability of a borrower to make a Balloon Payment will
depend upon its ability either to refinance the Mortgage Loan or to sell the
related Mortgaged Properties, there is a risk that a borrower may default at
the maturity date. In connection with a default on the Balloon Payment, the
Servicer may agree to extend the maturity date thereof as described under "The
Pooling and Servicing Agreement--Realization Upon Mortgage Loans". In the case
of any such default, recovery of proceeds may be delayed by and until, among
other things, work-outs are negotiated, foreclosures are completed or
bankruptcy proceedings are resolved. In addition, the Directing Holders (as
defined below) may instruct to delay the commencement of any foreclosure
proceedings under certain conditions described herein. Certificateholders are
not entitled to receive distributions of Monthly Payments or the Balloon
Payment when due except to the extent they are either covered by an Advance or
actually received. Consequently, any defaulted Monthly Payment for which no
such Advance is made and a defaulted Balloon Payment will tend to extend the
weighted average lives of the Certificates, whether or not a permitted
extension of the due date of the related Mortgage Loan has been effected.
The rate of payments (including voluntary and involuntary prepayments)
on pools of Mortgage Loans is influenced by a variety of economic, demographic,
geographic, social, tax, legal and other factors, including the level of
mortgage interest rates and the rate at which borrowers default on their
mortgage loans.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage Loans,
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Certificate offered at a premium calculates its
anticipated yield to maturity based on an assumed rate of distributions or
principal that is slower than that actually experienced on the Mortgage Loans,
the actual yield to maturity will be lower than that so calculated. In either
case, the effect of voluntary and involuntary prepayments of the Mortgage Loans
on the yield of one or more classes of the Certificates may be mitigated or
exacerbated by any provisions for sequential or selective distribution of
principal to such classes.
The timing of changes in the rate of prepayment on the Mortgage Loans
may significantly affect the actual yield to maturity experienced by an
investor even if the average rate of principal payments experienced over time
is consistent with such investor's expectation. In general, the earlier a
prepayment of principal on the Mortgage Loans, the greater the effect on such
investor's yield to maturity. As a result, the effect on such investor's yield
of principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Offered Certificates would not be fully offset by a subsequent
like reduction (or increase) in the rate of principal payments.
The rate of principal payments on the Mortgage Loans is affected by
the existence of Lock-out Periods and Prepayment Premium provisions of the
Mortgage Loans, and by the extent to which the Servicer is able to enforce
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such provisions. Mortgage Loans with a Lock-out Period or a Prepayment Premium
provision, to the extent enforceable, generally would be expected to
experience a lower rate of principal prepayments than otherwise identical
Mortgage Loans without such provisions, with shorter Lock-out Periods or with
lower Prepayment Premiums. All of the Mortgage Loans have Lock-out Periods
ranging from [ ] months to [ ] months following origination. The weighted
average Lock-out Period for the Mortgage Loans is approximately [ ] months.
All Mortgage Loans are locked out until no earlier than three months preceding
their Anticipated Repayment Date or maturity date, as applicable. See
"Description of the Mortgage Pool--Certain Terms and Conditions of the
Mortgage Loans--Prepayment Provisions" herein.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Class of Offered
Certificates. In addition, although Excess Cash Flow is applied to reduce the
principal of the ARD Loans after their respective Anticipated Repayment Dates,
there can be no assurance that any of such Mortgage Loans will be prepaid on
that date or any date prior to maturity. An investor is urged to make an
investment decision with respect to any Class of Offered Certificates based on
the anticipated yield to maturity of such Class of Offered Certificates
resulting from its purchase price and such investor's own determination as to
anticipated Mortgage Loan prepayment rates under a variety of scenarios. The
extent to which any Class of Offered Certificates is purchased at a discount
or a premium and the degree to which the timing of payments on such Class of
Offered Certificates is sensitive to prepayments will determine the extent to
which the yield to maturity of such Class of Offered Certificates may vary
from the anticipated yield. An investor should carefully consider the
associated risks, including, in the case of any Offered Certificates purchased
at a discount, the risk that a slower than anticipated rate of principal
payments on the Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of any
Offered Certificates purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield to such
investor that is lower than the anticipated yield.
An investor should consider the risk that rapid rates of prepayments
on the Mortgage Loans, and therefore of amounts distributable in reduction of
principal balance of the Offered Certificates may coincide with periods of low
prevailing interest rates. During such periods, the effective interest rates
on securities in which an investor may choose to reinvest amounts distributed
in reduction of the principal balance of such investor's Offered Certificate
may be lower than the Pass-Through Rate. Conversely, slower rates of
prepayments on the Mortgage Loans, and therefore of amounts distributable in
reduction of principal balance of the Offered Certificates, may coincide with
periods of high prevailing interest rates. During such periods, the amount of
principal distributions available to an investor for reinvestment at such high
prevailing interest rates may be relatively small.
The effective yield to holders of Offered Certificates will be lower
than the yield otherwise produced by the Pass-Through Rate and applicable
purchase prices because while interest will accrue from the eleventh day of
each month, the distribution of such interest will not be made until the
Distribution Date occurring in such month, and principal paid on any
Distribution Date will not bear interest during the period after the interest
is paid and before the Distribution Date occurs. Additionally, as described
under "Description of the Offered Certificates--Distributions" herein, if the
portion of the Available Funds distributable in respect of interest on any
Class of Offered Certificates on any Distribution Date is less than the amount
of interest required to be paid to the holders of such class, the shortfall
will be distributable to holders of such Class of Certificates on subsequent
Distribution Dates, to the extent of Available Funds on such Distribution
Dates. Any such shortfall will not bear interest, however, and will therefore
negatively affect the yield to maturity of such Class of Certificates for so
long as it is outstanding.
RATED FINAL DISTRIBUTION DATE
The "Rated Final Distribution Date," [____ 13, ___], is the
Distribution Date after the latest Assumed Maturity Date of any of the
Mortgage Loans. Because certain of the Mortgage Loans have maturity dates that
occur earlier than the latest maturity date, and because certain of the
Mortgage Loans may be prepaid prior to maturity, it is possible that the
Certificate Balance of each Class of Offered Certificates will be reduced to
zero significantly earlier than the Rated Final Distribution Date.
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WEIGHTED AVERAGE LIFE OF OFFERED CERTIFICATES
Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution to the
investor of each dollar in reduction of Certificate Balance that is distributed
or allocated, respectively. The weighted average lives of the Offered
Certificates will be influenced by, among other things, the rate at which
principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, Balloon Payments, voluntary or involuntary prepayments or
liquidations.
Other Factors Affecting Weighted Average Life. The weighted average
lives of the Offered Certificates may also be affected to the extent that
additional distributions in reduction of the Certificate Balance of such
Certificates occur as a result of the repurchase or purchase of Mortgage Loans
from the Trust Fund as described under "The Pooling and Servicing
Agreement--Representations and Warranties; Repurchase" or "--Optional
Termination" herein. Such a repurchase or purchase from the Trust Fund will
have the same effect on distributions to the holders of Certificates as if the
related Mortgage Loans had prepaid in full, except that no Prepayment Premiums
are made in respect thereof.
A number of Mortgage Loans have Balloon Payments due at maturity, and
because the ability of a mortgagor to make a Balloon Payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
Balloon Payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the mortgagor or adverse conditions in the market where the
property is located. Any defaulted Balloon Payment or modification that extends
the maturity of a Mortgage Loan will tend to extend the weighted average life
of the Certificates, thereby lengthening the period of time elapsed from the
date of issuance of a Certificate until it is retired.
The number of foreclosures and the principal amount of the Mortgage
Loans that are foreclosed in relation to the number of Mortgage Loans that are
repaid in accordance with their terms will affect the weighted average life of
the Mortgage Loans and that of the Certificates. Servicing decisions made with
respect to the Mortgage Loans, including the use of payment plans prior to a
demand for acceleration and the restructuring of Mortgage Loans in bankruptcy
proceedings, may also have an effect upon the payment patterns of particular
Mortgage Loans and thus the weighted average life of the Certificates.
Acceleration of mortgage payments as a result of certain transfers of
or the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates. A number of the Mortgage Loans may include
"due-on-sale" clauses or "due-on-encumbrance" clauses that allow the holder of
the Mortgage Loans to demand payment in full of the remaining principal balance
of the Mortgage Loans upon sale or certain other transfers of or the creation
of encumbrances upon the related Mortgaged Property. See "Certain Legal Aspects
of Mortgage Loans--Due-on-Sale and Due-on-Encumbrance" and "Description of the
Agreements--Due-on-Sale and Due-on-Encumbrance Provisions".
The tables of "Percentages of Initial Certificate Balance Outstanding
for the Offered Certificates" set forth below indicate the weighted average
life of each Class of Offered Certificates and set forth the percentage of the
initial Certificate Balance of such Offered Certificates that would be
outstanding after each of the dates shown at the various CPRs and based on the
Prepayment Assumptions. The tables have also been prepared on the basis of the
Mortgage Loan Assumptions. The Mortgage Loan Assumptions made in preparing the
following tables are expected to vary from the actual performance of the
Mortgage Loans. It is highly unlikely that principal of the Mortgage Loans will
be repaid consistent with assumptions underlying any one of the Scenarios.
Investors are urged to conduct their own analysis concerning the likelihood
that the Mortgage Loans may pay or prepay on any particular date.
Based on the Mortgage Loan Assumptions, the Prepayment Assumptions and
the various CPRs, the tables indicate the weighted average life of the Offered
Certificates and set forth the percentages of the initial Certificate Balance
of the Offered Certificates that would be outstanding after the Distribution
Date in October of each of the years indicated, at the indicated CPRs.
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PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS B-1
----------------------------------------------------------------------
DISTRIBUTION DATE (1) 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- ------------------------------------------------ -------------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage.............................. 100% 100% 100% 100% 100%
[ ] 13, 1997.........................
[ ] 13, 1998.........................
[ ] 13, 1999.........................
[ ] 13, 2000.........................
[ ] 13, 2001.........................
[ ] 13, 2002.........................
[ ] 13, 2003.........................
[ ] 13, 2004.........................
[ ] 13, 2005.........................
[ ] 13, 2006.........................
[ ] 13, 2007.........................
[ ] 13, 2008.........................
[ ] 13, 2009.........................
[ ] 13, 2010.........................
[ ] 13, 2011.........................
[ ] 13, 2012.........................
[ ] 13, 2013.........................
[ ] 13, 2014.........................
[ ] 13, 2015.........................
[ ] 13, 2016.........................
[ ] 13, 2017.........................
[ ] 13, 2018.........................
[ ] 13, 2019.........................
[ ] 13, 2020.........................
[ ] 13, 2021.........................
[ ] 13, 2022.........................
[ ] 13, 2023.........................
[ ] 13, 2024.........................
[ ] 13, 2025.........................
[ ] 13, 2026.........................
Weighted Average Life (years) (2)
</TABLE>
- ----------
(1) Assuming that the 13th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class B-1 Certificates is determined by
(i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date of
determination to the related Distribution Date, (ii) adding the results
and (iii) dividing the sum by the aggregate distributions in reduction of
Certificate Balance referred to in clause (i).
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PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS B-2
-------------------------------------------------------------------------
DISTRIBUTION DATE (1) 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- ------------------------------------------------ -------------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage.............................. 100% 100% 100% 100% 100%
[ ] 13, 1997.........................
[ ] 13, 1998.........................
[ ] 13, 1999.........................
[ ] 13, 2000.........................
[ ] 13, 2001.........................
[ ] 13, 2002.........................
[ ] 13, 2003.........................
[ ] 13, 2004.........................
[ ] 13, 2005.........................
[ ] 13, 2006.........................
[ ] 13, 2007.........................
[ ] 13, 2008.........................
[ ] 13, 2009.........................
[ ] 13, 2010.........................
[ ] 13, 2011.........................
[ ] 13, 2012.........................
[ ] 13, 2013.........................
[ ] 13, 2014.........................
[ ] 13, 2015.........................
[ ] 13, 2016.........................
[ ] 13, 2017.........................
[ ] 13, 2018.........................
[ ] 13, 2019.........................
[ ] 13, 2020.........................
[ ] 13, 2021.........................
[ ] 13, 2022.........................
[ ] 13, 2023.........................
[ ] 13, 2024.........................
[ ] 13, 2025.........................
[ ] 13, 2026.........................
Weighted Average Life (years) (2)
</TABLE>
- ----------
(1) Assuming that the 13th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class B-2 Certificates is determined by
(i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date of
determination to the related Distribution Date, (ii) adding the results
and (iii) dividing the sum by the aggregate distributions in reduction of
Certificate Balance referred to in clause (i).
MORTGAGOR DEFAULTS
Effect on Offered Certificates. The aggregate amount of distributions on the
Offered Certificates offered hereby, the yield to maturity of such Offered
Certificates, the rate of principal payments on such Offered Certificates and
the weighted average life of such Offered Certificates will be affected by the
rate and the timing of delinquencies and defaults on the Mortgage Loans. If a
purchaser of an Offered Certificate of any class calculates its anticipated
yield based on an assumed rate of default and amount of losses on the Mortgage
Loans that is lower than the default rate and amount of losses actually
experienced and such additional losses are allocable to such class of
Certificates, such purchaser's actual yield to maturity will be lower than that
so calculated and could be negative. The timing of any
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loss on a liquidated Mortgage Loan will also affect the actual yield to maturity
of the Offered Certificates to which a portion of such loss is allocable, even
if the rate of defaults and severity of losses are consistent with an
investor's expectations. In general, the earlier a loss borne by an investor
occurs, the greater is the effect on such investor's yield to maturity.
The yield to investors in the Offered Certificates will be very sensitive to
the timing and magnitude of losses on the Mortgage Loans due to liquidations
following a default, and will also be very sensitive to delinquencies in
payment. MOREOVER, BECAUSE THE OFFERED CERTIFICATES AND THE PRIVATE
SUBORDINATE CERTIFICATES ARE SUBORDINATED TO THE SENIOR CERTIFICATES, REALIZED
LOSSES WILL BE ALLOCATED, FIRST, TO THE CLASS B-3 AND CLASS B-3H CERTIFICATES,
PRO RATA, UNTIL THEIR CERTIFICATE BALANCES ARE REDUCED TO ZERO, SECOND, TO THE
CLASS B-2 CERTIFICATES, UNTIL THEIR CERTIFICATE BALANCE IS REDUCED TO ZERO,
THIRD, TO THE CLASS B-1 CERTIFICATES, UNTIL THEIR CERTIFICATE BALANCE IS
REDUCED TO ZERO, AND FOURTH, TO THE SENIOR CERTIFICATES IN THE ORDER SET FORTH
IN THE POOLING AND SERVICING AGREEMENT. AS A RESULT, LOSSES ON THE MORTGAGE
LOANS COULD RESULT IN A SIGNIFICANT LOSS, OR IN SOME CASES A COMPLETE LOSS, OF
AN INVESTOR'S INVESTMENT IN THE OFFERED CERTIFICATES. CONSEQUENTLY,
PROSPECTIVE INVESTORS SHOULD PERFORM THEIR OWN ANALYSIS OF THE EXPECTED TIMING
AND SEVERITY OF REALIZED LOSSES PRIOR TO INVESTING IN THE OFFERED
CERTIFICATES.
THE DEPOSITOR
Asset Securitization Corporation, the Depositor, is a Delaware
corporation organized on June 23, 1992 for the purpose of acquiring Mortgage
Loans and selling interests therein or bonds secured thereby. It is a wholly
owned subsidiary of Nomura Asset Capital Corporation, which is in turn a wholly
owned subsidiary of Nomura Holding America Inc., a United States-based holding
company, incorporated in Delaware, which is wholly owned by The Nomura
Securities Co., Ltd., a Japanese corporation. The Nomura Securities Co., Ltd.
is engaged in the domestic and international securities business. The Depositor
maintains its principal office at Two World Financial Center--Building B, 21st
Floor, New York, New York 10281-1198. Its telephone number is (212) 667-9300.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of [ ] 1, 1997 (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Servicer, the Special Servicer,
the Trustee and the Fiscal Agent.
The Depositor will provide to a prospective or actual holder of an
Offered Certificate without charge, upon written request, a copy (without
exhibits) of the Pooling and Servicing Agreement. Requests should be addressed
to Asset Securitization Corporation, 2 World Financial Center, Building B, New
York, New York 10281-1198.
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date, the Depositor will sell, transfer or otherwise
convey, assign or cause the assignment of the Mortgage Loans, without
recourse, to the Trustee for the benefit of the holders of Certificates. On or
prior to the Closing Date, the Depositor will deliver to the Trustee, with
respect to each Mortgage Loan (i) the original Mortgage Note endorsed without
recourse to the order of the Trustee, as trustee; (ii) the original mortgage
or counterpart thereof; (iii) the assignment of the mortgage in recordable
form in favor of the Trustee; (iv) if applicable, preceding assignments of
mortgages; (v) to the extent not contained in the Mortgages, the
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original assignments of leases and rents or counterpart thereof; (vi) if
applicable, the original assignments of assignments of leases and rents to the
Trustee; (vii) if applicable, preceding assignments of assignments of leases
and rents; (viii) where applicable, a certified copy of the UCC-1 Financing
Statements, if any, including UCC-3 continuation statements and UCC-3
assignments; and (ix) the original lender's title insurance policy (or marked
commitments to insure). The Trustee will hold such documents in trust for the
benefit of the holders of Certificates. The Depositor will promptly cause the
assignment of each Mortgage Loan to be recorded in the appropriate public
office for real property records, except in the State of California or in other
states where, in the opinion of counsel acceptable to the Trustee, such
recording is not required to protect the Trustee's interest in the Mortgage
Loan against the claim of any subsequent transferee or any successor to or
creditor of the Depositor, the Servicer, the relevant Mortgage Loan Seller or
any other prior holder of the Mortgage Loan.
The Trustee is obligated to review such documents for each Mortgage
Loan within 45 days after the later of delivery or the Cut-off Date and report
any missing documents or certain types of defects therein to the Depositor. If
any such document is found to be missing or defective in any material respect,
the Trustee (or such custodian) shall take such action as required in the
Pooling and Servicing Agreement, which may include immediately notifying the
Servicer and the Depositor. If the Mortgage Loan Seller, upon notification,
cannot cure the omission or defect within a specified number of days after
receipt of such notice, the Mortgage Loan Seller will be obligated, within a
specified number of days of receipt of such notice, to repurchase the related
Mortgage Loan from the Trustee at the Purchase Price or substitute for such
Mortgage Loan. There can be no assurance that a Mortgage Loan Seller will
fulfill this repurchase or substitution obligation. Although the Servicer is
obligated to use its best efforts to enforce such obligation, neither the
Servicer nor the Depositor will be obligated to repurchase or substitute for
such Mortgage Loan if the Mortgage Loan Seller defaults on its obligation. This
repurchase or substitution obligation may constitute the sole remedy available
to the Certificateholders or the Trustee for omission of, or a material defect
in, a constituent document.
REPRESENTATIONS AND WARRANTIES; REPURCHASE
In the Pooling and Servicing Agreement, the Depositor will assign the
representations and warranties made by the Mortgage Loan Seller to the
Depositor in the Mortgage Loan Purchase and Sale Agreement to the Trustee for
the benefit of Certificateholders. In the Mortgage Loan Purchase and Sale
Agreement, the Mortgage Loan Seller will represent and warrant, among other
things, that (subject to certain exceptions specified in the Mortgage Loan
Purchase and Sale Agreement), as of the Closing Date (unless otherwise
specified):
(i) immediately prior to the sale, transfer and assignment to the
Depositor, each related Note and Mortgage were not subject to an
assignment or pledge, and the Mortgage Loan Seller has good title to, and
is the sole owner of, each Mortgage Loan;
(ii) the Mortgage Loan Seller has full right and the authority to
sell, assign and transfer such Mortgage Loan;
(iii) the Mortgage Loan Seller 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;
(iv) each related Note, Mortgage, Assignment of Leases and Rents
(if any) and other agreement executed in connection with such Mortgage
Loan are legal, valid and binding obligations of the related borrower,
enforceable in accordance with their terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors rights generally, or by
general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law);
(v) each related Assignment of Leases and Rents, if any, creates a
valid, collateral or first priority assignment of, or a valid first
priority security interest in, certain rights under the related leases,
subject only to a license granted to the related borrower to exercise
certain rights and to perform certain obligations of the lessor under
such leases, including the right to operate the related Mortgaged
Property; no person other than
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the related borrower owns any interest in any payments due under such
leases that is superior to or of equal priority with the mortgagee's
interest therein;
(vi) each related assignment of Mortgage from the Mortgage Loan
Seller to the Depositor, and any related Reassignment of Assignment of
Leases and Rents, if any, or assignment of any other agreement
executed in connection with such Mortgage Loan, from the Mortgage Loan
Seller to the Depositor constitutes the legal, valid and binding
assignment from the Mortgage Loan Seller to the Depositor except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
liquidation, receivership, moratorium or other laws relating to or
affecting creditor's rights generally, or by general principles or equity
(regardless of whether such enforcement is considered in a proceeding in
equity or law);
(vii) since origination, and except as set forth in the related
mortgage file, such Mortgage Loan has not been waived, modified, altered,
satisfied, canceled, subordinated or rescinded and, each related
Mortgaged Property has not been released from the lien of the related
Mortgage in any manner which materially interferes with the security
intended to be provided by such Mortgage;
(viii) each related Mortgage is a valid and enforceable first lien
on the related Mortgaged Property, and such Mortgaged Property (subject
to the matters discussed in clause (xi) below) is free and clear of any
mechanics' and materialmen's liens which are prior to or equal with the
lien of the related Mortgage, except those which are insured against by a
lender's title insurance policy (as set forth in the Mortgage Loan
Purchase and Sale Agreement);
(ix) the Mortgage Loan Seller has not taken any action that would
cause the representations and warranties made by each related borrower in
the Mortgage Loan not to be true;
(x) the Mortgage Loan Seller has no knowledge that the
representations and warranties made by each related borrower in such
Mortgage Loan are not true in any material respect;
(xi) the lien of each related Mortgage is insured by an ALTA
lender's title insurance policy (or a binding commitment therefor), or
its equivalent as adopted in the applicable jurisdiction, insuring the
Mortgage Loan Seller, its successors and assigns, as to a valid and
perfected first priority security interest in the related Mortgaged
Property and the first priority lien of the Mortgage in the original
principal of such Mortgage Loan (as set forth on the Mortgage Loan
Schedule which is an exhibit to the Pooling and Servicing Agreement)
after all advances of principal, subject only to (a) the lien of current
real property taxes, ground rents, water charges, sewer rents and
assessments not yet due and payable, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public
record, none of which, individually or in the aggregate, materially
interferes with the current use of the Mortgaged Property or the security
intended to be provided by such Mortgage or with the borrower's ability
to pay its obligations when they become due or the value of the Mortgaged
Property and (c) the exceptions (general and specific) set forth in such
policy, none of which, individually or in the aggregate, materially
interferes with the security intended to be provided by such Mortgage or
with the borrower's ability to pay its obligations when they become due
or the value of the Mortgaged Property; the Mortgage Loan Seller or its
successors or assigns is the sole named insured of such policy; such
policy is assignable to the Depositor without the consent of or any
notification to the insurer, and is in full force and effect upon the
consummation of the transactions contemplated by the Mortgage Loan
Purchase and Sale Agreement; no claims have been made under such policy
and the Mortgage Loan Seller has not done anything, by act or omission,
and the Mortgage Loan Seller has no knowledge of any matter, which would
impair or diminish the coverage of such policy; to the extent required by
applicable law the insurer issuing such policy is qualified to do
business in the jurisdiction in which the related Mortgaged Properties
are located;
(xii) the proceeds of such Mortgage Loan have been fully disbursed
and there is no requirement for future advances thereunder and it
covenants that it will not make any future advances under the Mortgage
Loan to the related borrower;
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(xiii) each related Mortgaged Property is free of any material
damage that would affect materially and adversely the value of such
Mortgaged Property as security for the Mortgage Loan and is in good
repair and there is no proceeding pending for the total or partial
condemnation of such Mortgaged Property;
(xiv) each of the related borrowers (and in the case of certain
loans, each of the operators of the senior housing/healthcare facility)
is in possession of all material licenses, permits and other
authorizations necessary and required by all applicable laws for the
conduct of its business; all such licenses, permits and authorizations
are valid and in full force and effect; and if a related Mortgaged
Property is improved by a senior housing or healthcare facility, the
most recent inspection or survey by governmental authorities having
jurisdiction in connection with such licenses, permits and authorizations
did not cite such Mortgaged Property for material violations (which shall
include only "Level A" violations, in the case of skilled nursing
facilities, that have not been cured);
(xv) the Mortgage Loan Seller or the applicable Originator has
inspected or caused to be inspected each related Mortgaged Property
within the past twelve months preceding the Cut-off Date or within one
month of origination of the Mortgage Loan;
(xvi) such Mortgage Loan does not have a shared appreciation
feature, other contingent interest feature or negative amortization;
(xvii) such Mortgage Loan is a whole loan and no other party holds
a participation interest in the Mortgage Loan;
(xviii) (A) the Mortgage Rate (exclusive of any default interest or
yield maintenance charges) of such Mortgage Loan complied as of the date
of origination with, or is exempt from, applicable state or federal laws,
regulations and other requirements pertaining to usury; any and all other
requirements of any federal, state or local laws, including, without
limitation, truth-in-lending, real estate settlement procedures, equal
credit opportunity or disclosure laws, applicable to such Mortgage Loan
have been complied with as of the date of origination of such Mortgage
Loan or (B) the Mortgage Loan Seller has received an opinion to such
effect;
(xix) no fraudulent acts were committed by the Mortgage Loan Seller
or the other Originators during the origination process of such Mortgage
Loan;
(xx) all taxes and governmental assessments that prior to the
Closing Date became due and owing in respect of each related Mortgaged
Property have been paid, or an escrow of funds in an amount sufficient to
cover such payments has been established;
(xxi) all escrow deposits and payments required pursuant to the
Mortgage Loan are in the possession, or under the control, of the
Mortgage Loan Seller or its agent and there are no deficiencies in
connection therewith;
(xxii) to the extent required under applicable law, as of the
Cut-off Date, the Mortgage Loan Seller was authorized to transact and do
business in the jurisdiction in which each related Mortgaged Property is
located at all times when it held the Mortgage Loan;
(xxiii) each related Mortgaged Property is insured by a fire and
extended perils insurance policy, issued by an insurer meeting the
requirements of the Mortgage Loans, in an amount not less than the
replacement cost and the amount necessary to avoid the operation of any
co-insurance provisions with respect to the Mortgaged Property; each
related Mortgaged Property is also covered by business interruption
insurance and comprehensive general liability insurance in amounts
generally required by institutional lenders for similar properties; all
premiums on such insurance policies required to be paid as of the date
hereof have been paid; such insurance policies require prior notice to
the insured of termination or cancellation, and no such notice has been
received; each related Mortgage obligates the related borrower to
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maintain all such insurance and, at such borrower's failure to do so,
authorizes the mortgagee to maintain such insurance at the borrower's
cost and expense and to seek reimbursement therefor from such borrower;
(xxiv) there is no default, breach, violation or event of
acceleration existing under the related Mortgage or the related Note and
no 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 and does constitute a default, breach, violation or
event of acceleration;
(xxv) such Mortgage Loan has not been 30 or more days delinquent
since origination and as of the Cut-off Date was not 30 or more days
delinquent;
(xxvi) each 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 Mortgaged Property of
the benefits of the security, including realization by judicial or, if
applicable, non-judicial foreclosure, and there is no exemption available
to the borrower which would interfere with such right to foreclose;
(xxvii) in each related Mortgage or Loan Agreement, the related
borrower represents and warrants that it has not used, caused or
permitted to exist and will not use, cause or permit to exist on the
related Mortgaged Property any Hazardous Materials in any manner which
violates federal, state or local laws, ordinances, regulations, orders,
directives or policies governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials; the related borrower agrees to
indemnify, defend and hold the mortgagee and its successors and assigns
harmless from and against any and all losses, liabilities, damages,
injuries, penalties, fines, expenses, and claims of any kind whatsoever
(including attorneys' fees and costs) paid, incurred or suffered by, or
asserted against, any such party resulting from a breach of any
representation, warranty or covenant given by the borrower in such
Mortgage or Loan Agreement. A Phase I environmental report was conducted
by a reputable environmental engineer in connection with such Mortgage
Loan, which report, except as otherwise disclosed herein did not
indicate any material non-compliance or material existence of Hazardous
Materials. To the best of the Mortgage Loan Seller's knowledge, each
related Mortgaged Property is in material compliance with all applicable
federal, state and local laws pertaining to environmental hazards, and
no notice of violation of such laws has been issued by any governmental
agency or authority; the Mortgage Loan Seller has not taken any action
which would cause the related Mortgaged Property not to be in compliance
with all federal, state and local laws pertaining to environmental
hazards;
(xxviii) each related Mortgage or Loan Agreement contains
provisions for the acceleration of the payment of the unpaid principal
balance of such Mortgage Loan if, without the prior written consent of
the mortgagee or the satisfaction of certain conditions, the related
Mortgaged Property, or any interest therein, is directly or indirectly
transferred or sold, or encumbered in connection with subordinate
financing;
(xxix) (1) the Mortgage Loan is directly secured by a Mortgage on a
commercial property or multifamily residential property, and (2) the fair
market value of such real property, as evidenced by an MAI appraisal
conducted within 12 months of the origination of the Mortgage Loan, was
at least equal to 80% of the principal amount of the Mortgage Loan (a) at
origination (or if the Mortgage Loan has been modified in a manner that
constituted a deemed exchange under Section 1001 of the Code at a time
when the Mortgage Loan was not in default or default with respect thereto
was not reasonably foreseeable, the date of the last such modification)
or (b) at the Closing Date; provided that the fair market value of the
real property interest must first be reduced by (A) the amount of any
lien on the real property interest that is senior to the Mortgage Loan
(unless such senior lien also secures a Mortgage Loan, in which event the
computation described in (a) and (b) shall be made on an aggregated
basis) and (B) a proportionate amount of any lien that is in parity with
the Mortgage Loan (unless such other lien secures a Mortgage Loan that is
cross-collateralized with such Mortgage Loan, in which event the
computation described in (a) and (b) shall be made on an aggregate
basis);
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(xxx) neither the Mortgage Loan Seller nor any affiliate thereof
has any obligation or right to make any capital contribution to any
borrower under a Mortgage Loan, other than contributions made on or prior
to the Closing Date; and
(xxxi) with respect to each Mortgaged Property where the entire
estate of the related borrower therein is a leasehold estate, that
(A) The ground lease or a memorandum regarding it has been
duly recorded. The ground lease permits the interest of the lessee
to be encumbered by the related Mortgage and does not restrict the
use of the related Mortgaged Property by such lessee, its
successors or assigns in a manner that would adversely affect the
security provided by the related Mortgage. There has been no
material change in the terms of such ground lease since its
recordation, except by written instruments, all of which are
included in the related Mortgage File;
(B) The lessor under such ground lease has agreed in writing
and included in the related Mortgage File that the ground lease may
not be amended, modified, canceled or terminated without the prior
written consent of the mortgagee and that any such action without
such consent is not binding on the mortgagee, its successors or
assigns;
(C) The ground lease has an original term (or an original
term plus one or more optional renewal terms, which, under all
circumstances, may be exercised, and will be enforceable, by the
mortgagee) that extends not less than 10 years beyond the stated
maturity of the related Mortgage Loan;
(D) The ground lease is not subject to any liens or
encumbrances superior to, or of equal priority with, the Mortgage.
The ground lease is, and provides that it shall remain prior to any
Mortgage or other lien upon the related fee interest;
(E) The ground lease is assignable to the mortgagee under
the lease hold estate and its assigns without the consent of the
lessor thereunder;
(F) As of the date of execution and delivery, the ground
lease is in full force and effect and no default has occurred, nor
is there any existing condition which, but for the passage of time
or giving of notice, would result in a default under the terms of
the ground lease;
(G) The ground lease or ancillary agreement between the
lessor and the lessee requires the lessor to give notice of any
default by the lessee to the mortgagee. The ground lease or
ancillary agreement further provides that no notice given is
effective against the mortgagee unless a copy has been given to the
mortgagee in a manner described in the ground lease or ancillary
agreement;
(H) A mortgagee is permitted a reasonable opportunity
(including, where necessary, sufficient time to gain possession of
the interest of the lessee under the ground lease through legal
proceedings, or to take other action so long as the mortgagee is
proceeding diligently) to cure any default under the ground lease
which is curable after the receipt of notice of any default before
the lessor may terminate the ground lease. All rights of the
mortgagee under the ground lease and the related Mortgage (insofar
as it relates to the ground lease) may be exercised by or on behalf
of the mortgagee;
(I) The ground lease does not impose any restrictions on
subletting that would be viewed as commercially unreasonable by an
institutional investor. The lessor is not permitted to disturb the
possession, interest or quiet enjoyment of any subtenant of the
lessee in the relevant portion of the Mortgaged Property subject to
the ground lease for any reason, or in any manner, which would
adversely affect the security provided by the related Mortgage;
(J) Any related insurance proceeds or condemnation award
(other than in respect of a total or substantially total loss or
taking) will be applied either to the repair or restoration of all
or part of the
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related Mortgaged Property, with the mortgagee or a trustee
appointed by it having the right to hold and disburse such proceeds
as repair or restoration progresses, or to the payment of the
outstanding principal balance of the Mortgage Loan, together
with any accrued interest; and
(K) Under the terms of the ground lease and the related
Mortgage, any related insurance proceeds, or condemnation award in
respect of a total or substantially total loss or taking of the
related Mortgaged Property will be applied first to the payment of
the outstanding principal balance of the Mortgage Loan, together
with any accrued interest (except where contrary to applicable law
or in cases where a different allocation would not be viewed as
commercially unreasonable by any institutional investor, taking
into account the relative duration of the ground lease and the
related Mortgage and the ratio of the market value of the related
Mortgage property to the outstanding principal balance of such
Mortgage Loan). Until the principal balance and accrued interest
rate are paid in full, neither the lessee nor the lessor under the
ground lease will have the option to terminate or modify the ground
lease without prior written consent of the mortgagee as a result of
any casualty or partial condemnation, except to provide for an
abatement of the rent.
The Pooling and Servicing Agreement requires that the Servicer, the
Special Servicer or the Trustee notify the Mortgage Loan Seller and the
Depositor upon its becoming aware of (a) any breach of any representation or
warranty contained in clauses (i), (ii), (iii), (iv), (v), (vi), (vii),
(viii), (ix), (xi), (xii), (xv), (xvi), (xvii), (xviii), (xix), (xx), (xxiv)
or (xxix) and (b) any breach of any representation or warranty contained in
clauses (x), (xiii), (xiv), (xxi), (xxii), (xxiii), (xxv), (xxvi), (xxvii),
(xxviii), (xxx) or (xxxi) that materially and adversely affects the value of
such Mortgage Loan or the interests of the holders of the Certificates
therein. The Mortgage Loan Purchase and Sale Agreement provides that, with
respect to any such Mortgage Loan, within 90 days after notice from the
Servicer, the Special Servicer or the Trustee, the Mortgage Loan Seller shall
either (a) repurchase such Mortgage Loan at an amount equal to (i) the
outstanding principal balance of the Mortgage Loan as of the Due Date as to
which a payment was last made by the borrower (less any P&I Advances
previously made on account of principal), (ii) accrued interest up to the Due
Date in the month following the month in which such repurchase occurs (less
P&I Advances previously made on account of interest), (iii) the amount of any
unreimbursed Advances (with interest thereon) and any unreimbursed servicing
compensation relating to such Mortgage Loan and (iv) any expenses reasonably
incurred or to be incurred by the 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 (such price the "Repurchase Price") or (b) promptly cure
such breach in all material respects, provided, however, that in the event
that such breach is capable of being cured but not within such 90-day period
and the Mortgage Loan Seller as determined by the Servicer has commenced and
is diligently proceeding with the cure of such breach, the Mortgage Loan
Seller will have an additional 90 days to complete such cure; provided,
further, that with respect to such additional 90-day period the Mortgage Loan
Seller shall have delivered an officer's certificate to the Trustee and the
Servicer setting forth the reason such breach is not capable of being cured
within the initial 90-day period and what actions the Mortgage Loan Seller is
pursuing in connection with the cure thereof and stating that the Mortgage
Loan Seller anticipates that such breach will be cured within the additional
90-day period; and, provided, further, that in the event the Mortgage Loan
Seller fails to cure such breach within such additional 90-day period, the
Repurchase Price shall include interest on any Advances made in respect of the
related Mortgage Loan during such period.
Notwithstanding the foregoing, upon discovery by the Trustee, the
Custodian, the Servicer or Special Servicer of a breach of a representation or
warranty that causes any Mortgage Loan not to be a "qualified mortgage" within
the meaning of the REMIC provisions of the Code, such person shall give prompt
notice thereof to the Depositor and within 90 days after such discovery, if
such breach cannot be cured within such period, the Depositor shall purchase,
or cause the Mortgage Loan Seller to purchase, such Mortgage Loan from the
Trust Fund at the Repurchase Price.
The obligations of the Mortgage Loan Seller to repurchase or cure
constitute the sole remedies available to holders of Certificates or the
Trustee for a breach of a representation or warranty by the Mortgage Loan
Seller. None of the Depositor (except as described in the previous paragraph),
the Servicer, the Special Servicer, the Trustee or the Fiscal Agent will be
obligated to purchase a Mortgage Loan if the Mortgage Loan Seller defaults
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on its obligation to repurchase or cure, and no assurance can be given that the
Mortgage Loan Seller will fulfill such obligations. If such obligation is not
met, as to a Mortgage Loan that is not a "qualified mortgage," the Upper-Tier
REMIC and Lower-Tier REMIC may be disqualified. However, with respect to the
Mortgage Loans acquired by the Mortgage Loan Seller from the Originators, the
Mortgage Loan Seller will also assign to the Depositor, and the Depositor will
further assign to the Trustee, the Mortgage Loan Seller's rights and remedies
against such Originators in respect of the representations and warranties made
by each of them in their respective purchase and sale agreement with the
Mortgage Loan Seller, except that the Trustee will be required to reassign such
rights and remedies to the Mortgage Loan Seller as to individual Mortgage Loans
repurchased by the Mortgage Loan Seller.
SERVICING OF THE MORTGAGE LOANS; COLLECTION OF PAYMENTS
The Pooling and Servicing Agreement requires the Servicer and Special
Servicer to service and administer the Mortgage Loans on behalf of the Trust
Fund solely in the best interests of and for the benefit of all of the holders
of Certificates (as determined by the Servicer or Special Servicer in the
exercise of its reasonable judgment) in accordance with applicable law, the
terms of the Pooling and Servicing Agreement and the Mortgage Loans and to the
extent not inconsistent with the foregoing, in the same manner in which, and
with the same care, skill, prudence and diligence with which, it (a) services
and administers similar mortgage loans comparable to the Mortgage Loans and
held for other third party portfolios or (b) administers mortgage loans for its
own account, whichever standard is higher, but without regard to (i) any other
relationship that the Servicer or Special Servicer, or an affiliate of the
Servicer or Special Servicer, may have with the borrowers; (ii) the ownership
of any Certificate by the Servicer or Special Servicer or any affiliate of the
Servicer or Special Servicer, as applicable; (iii) the Servicer's or Special
Servicer's obligation to make Advances or to incur servicing expenses with
respect to the Mortgage Loans; (iv) the Servicer's or Special Servicer's right
to receive compensation for its services under the Pooling and Servicing
Agreement or with respect to any particular transaction; or (v) the ownership,
or servicing or management for others, by the Servicer or Special Servicer of
any other mortgage loans or property (the "Servicing Standard"). The Servicer
and the Special Servicer are permitted, at their own expense, to employ
subservicers, agents or attorneys in performing any of their respective
obligations under the Pooling and Servicing Agreement, but will not thereby be
relieved of any such obligation, and will be responsible for the acts and
omissions of any such subservicers, agents or attorneys. The Pooling and
Servicing Agreement provides, however, that neither the Servicer, the Special
Servicer nor any of their respective directors, officers, employees or agents
shall have any liability to the Trust Fund or the Certificateholders for taking
any action or refraining from taking an action in good faith, or for errors in
judgment. The foregoing provision would not protect the Servicer or the Special
Servicer for the breach of its representations or warranties in the Pooling and
Servicing Agreement, the breach of certain specified covenants therein or any
liability by reason of willful misfeasance, bad faith, fraud, gross negligence
or a breach of the Servicing Standard in the performance of its duties or by
reason of its reckless disregard of obligations or duties under the Pooling and
Servicing Agreement.
The Pooling and Servicing Agreement requires the Servicer or the
Special Servicer, as applicable, to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
to the extent such procedures shall be consistent with the Servicing Standard.
Consistent with the above, the Servicer or Special Servicer may, in its
discretion, waive any late payment charge in connection with any delinquent
Monthly Payment or Balloon Payment with respect to any Mortgage Loan. With
respect to the ARD Loans, the Servicer and Special Servicer will be directed in
the Pooling and Servicing Agreement not to take any enforcement action with
respect to payment of Excess Interest or principal in excess of the principal
component of the constant Monthly Payment prior to the final maturity date. The
Pooling and Servicing Agreement provides that if a Mortgage Loan provides that
the lender may in its direction apply certain amounts to a prepayment of
principal (e.g., by applying casualty or condemnation proceeds or funds
escrowed improvements not completed by the required date) prior to the
expiration of the related Lock-out Period, the Special Servicer cannot consent
to such a prepayment unless the Special Servicer has first received the consent
of the Servicer or the holders of 66 2/3% of the Voting Rights of the
Certificates responding to a solicitation of their consent. With respect to any
Defaulted Mortgage Loan, subject to the restrictions set forth below under
"--Realization on Mortgage Loans," the Special Servicer will be entitled to
pursue any of the remedies set forth in the related Mortgage, including the
right to acquire, through foreclosure, all or any of the Mortgaged Properties
securing such Mortgage Loan. The
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Servicer or Special Servicer may elect to extend a Mortgage Loan (subject to
conditions described herein) notwithstanding its decision to foreclose on
certain of the Mortgaged Properties.
ADVANCES
The Servicer will be obligated to advance, on the business day
immediately preceding a Distribution Date (the "Servicer Remittance Date") an
amount (each such amount, a "P&I Advance") equal to the total or any portion
of the Monthly Payment or Minimum Defaulted Monthly Payment on a Mortgage Loan
(with interest at the Mortgage Pass-Through Rate) not received that was
delinquent as of the close of business on the immediately preceding Due Date
(and which delinquent payment has not been cured as of the Servicer Remittance
Date), or, in the event of a default in the payment of amounts due on the
maturity date of a Mortgage Loan, the amount equal to the Monthly Payment or
portion thereof not received that was due prior to the maturity date provided,
however, the Servicer will not be required to make an Advance to the extent it
determines that such advance would not be recoverable. Advances are intended
to maintain a regular flow of scheduled interest and principal payments to
holders of the Certificates entitled thereto, rather than to guarantee or
insure against losses. The Servicer will not be required or permitted to make
a P&I Advance for Excess Interest or Default Interest. The amount required to
be advanced in respect of delinquent Monthly Payments, Assumed Scheduled
Payments or Minimum Defaulted Monthly Payments on a Mortgaged Loan that has
been subject to an Appraisal Reduction Event will equal the product of (a) the
amount that would be required to be advanced by the Servicer without giving
effect to such Appraisal Reduction Event and (b) a fraction, the numerator of
which is the Stated Principal Balance of the Mortgage Loan less any Appraisal
Reduction Amounts thereof and the denominator of which is the Stated Principal
Balance. In addition, and without duplication the Servicer will (i) make only
one P&I Advance in respect of each Mortgage Loan for the benefit of the most
subordinate Class of Certificates then outstanding unless the related
defaulted Monthly Payment is cured prior to following Due Date and (ii) not
make any P&I Advance in respect of Reduction Interest Distribution Amounts or
Reduction Interest Shortfalls. On any Servicer Remittance Date on which the
Servicer is not required to make a P&I Advance for the benefit of the most
subordinate Class, the amount of the P&I Advance with respect to such Servicer
Remittance Date that the Servicer will not advance will be equal to the
amounts otherwise distributable to such most subordinate Class assuming the
related Monthly Payment or Minimum Defaulted Monthly Payment had been
received. In addition, on any Servicer Remittance Date on which the Servicer
is not required to make a P&I Advance for the benefit of the most subordinate
Class as described in the preceding sentence, the Servicer may, immediately
subsequent to the making of the P&I Advance (which includes amounts allocable
to the most subordinate Class) on such Servicer Remittance Date, reimburse
itself (without interest) for the portion of such P&I Advance allocable to the
most subordinate Class from amounts otherwise distributable to such most
subordinate class on the related Distribution Date (such amount of
reimbursement, the "Subordinate Class Advance Amount").
The Class that made an advance of a Subordinate Class Advance Amount
will be entitled to reimbursement therefor, without interest, only out of
recoveries from the related Mortgage Loan and only after making distributions
therefrom to all more senior Classes of Certificates.
The Trustee will provide to the Servicer written statements prior to
the Servicer Remittance Date listing (i) the aggregate Reduction Interest
Distribution Amounts and Reduction Interest Shortfalls for such Distribution
Date and (ii) the distribution due to the Holders of the most subordinate Class
of Certificates. For purposes of determining the most subordinate Class, (i)
the Class A-1A, Class A-1B, Class A-1C, Class A-CS1 and Class A-CS2
Certificates collectively and (ii) the Class B-3 and Class B-3H Certificates
together will, in each case, be treated as one Class.
In addition to P&I Advances, the Servicer (and in limited
circumstances, the Special Servicer) will also be obligated (subject to the
limitations described herein) to make cash advances ("Property Advances," and
together with P&I Advances, "Advances") to pay delinquent real estate taxes,
assessments and hazard insurance premiums and to cover other similar costs and
expenses necessary to preserve the priority of the related Mortgage, enforce
the terms of any Mortgage Loan or to maintain such Mortgaged Property. The
obligation of the Special Servicer to make Property Advances will be limited to
obtaining insurance with respect to REO Properties and obtaining Updated
Appraisals.
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To the extent the Servicer fails to make an Advance it is required to
make under the Pooling and Servicing Agreement, the Trustee, subject to a
determination of recoverability, will make such required Advance or, in the
event the Trustee fails to make such Advance, the Fiscal Agent, subject to a
determination of recoverability, will make such Advance, in each case pursuant
to the terms of the Pooling and Servicing Agreement. To the extent the Special
Servicer fails to make an Advance it is required to make under the Pooling and
Servicing Agreement, the Servicer, subject to a determination of
recoverability, will make such an Advance. Both the Trustee and the Fiscal
Agent will be entitled to rely conclusively on any non-recoverability
determination of the Servicer or the Special Servicer, as the case may be. See
"--Trustee" and "--Fiscal Agent" below.
The Servicer, the Special Servicer, the Trustee or the Fiscal Agent,
as applicable, will be entitled to reimbursement for any Advance made by it
equal to the amount of such Advance and interest accrued thereon at the
Advance Rate (i) from late payments on the Mortgage Loan by the Mortgagor,
(ii) from insurance proceeds, condemnation proceeds, liquidation proceeds from
the sale of the Defaulted Mortgage Loan or the related Mortgaged Property or
other collections relating to the Mortgage Loan or (iii) upon determining in
good faith that such Advance or interest is not recoverable in the manner
described in the preceding two clauses, from any other amounts from time to
time on deposit in the Collection Account.
The Servicer, the Special Servicer, the Trustee and the Fiscal Agent
will each be entitled to receive interest on Advances at a per annum rate equal
to the sum of (i) the Prime Rate (as defined herein) plus (ii) 1% (the "Advance
Rate"), compounded monthly, as of each Servicer Remittance Date and the
Servicer will be authorized to pay itself, the Special Servicer, the Trustee or
the Fiscal Agent, as applicable, such interest monthly from general collections
with respect to all of the Mortgage Loans prior to any payment to holders of
Certificates. To the extent that the payment of such interest at the Advance
Rate results in a shortfall in amounts otherwise payable on one or more Classes
of Certificates on the next Distribution Date, the Servicer, the Trustee or the
Fiscal Agent, as applicable, will be obligated to make a cash advance to cover
such shortfall, but only to the extent the Servicer, the Trustee or the Fiscal
Agent, as applicable, concludes that, with respect to each such Advance, such
Advance can be recovered from amounts payable on or in respect of the Mortgage
Loan to which the Advance is related. If the interest on such Advance is not
recovered from Default Interest on such Mortgage Loan, a shortfall will result
which will have the same effect as a Realized Loss. The "Prime Rate" is the
rate, for any day, set forth as such in the "Money Rates" section of The Wall
Street Journal, Eastern Edition.
The obligation of the Servicer, the Special Servicer, the Trustee or
the Fiscal Agent, as applicable, to make Advances with respect to any Mortgage
Loan pursuant to the Pooling and Servicing Agreement continues through the
foreclosure of such Mortgage Loan and until the liquidation of the Mortgage
Loan or related Mortgaged Properties. Advances are intended to provide a
limited amount of liquidity, not to guarantee or insure against losses. None of
the Servicer, the Special Servicer, the Trustee or the Fiscal Agent will be
required to make any Advance that it determines in its good faith business
judgment will not be recoverable by the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, out of related late payments, net
insurance proceeds, net condemnation proceeds, net liquidation proceeds and
certain other collections with respect to the Mortgage Loan as to which such
Advances were made. In addition, if the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, determines in its good faith
business judgment that any Advance previously made will not be recoverable from
the foregoing sources, then the Servicer, the Special Servicer, the Trustee or
the Fiscal Agent, as applicable, will be entitled to reimburse itself for such
Advance, plus interest thereon, out of amounts payable on or in respect of all
of the Mortgage Loans prior to distributions on the Certificates. Any such
judgment or determination with respect to the recoverability of Advances must
be evidenced by an officers' certificate delivered to the Trustee, in the case
of the Servicer, the Servicer, in the case of the Special Servicer, and the
Depositor, in the case of the Trustee or the Fiscal Agent, setting forth such
judgment or determination of nonrecoverability and the considerations of the
Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as applicable,
forming the basis of such determination (including but not limited to
information selected by the person making such determination in its good faith
discretion such as related income and expense statements, rent rolls, occupancy
status, property inspections, inquiries by the Servicer, the Special Servicer,
the Trustee or the Fiscal Agent, as applicable, and an independent appraisal
performed in accordance with MAI standards conducted within the past twelve
months on the applicable Mortgaged Property).
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ACCOUNTS
Lock Box Accounts. With respect to [ ] Mortgage Loans, which represent
in the aggregate [ ]% of the Initial Pool Balance, one or more accounts in the
name of the related Borrower (the "Lock Box Accounts") have been established
into which rents or other revenues from the related Mortgaged Properties are
deposited by the related tenants or manager. Any Lock Box which does not
require the related borrower to instruct tenants to deposit rents directly into
such account will instead require the borrower or the related property manager
to deposit rents and other revenues in the related Lock Box Account. Agreements
governing the Lock Box Accounts provide that the borrower has no withdrawal or
transfer rights with respect thereto and that all funds on deposit in the Lock
Box Accounts are periodically swept into the Cash Collateral Accounts (as
defined below). Additionally, the Mortgage Loans that have Anticipated
Repayment Dates require that a Lock Box Account be established prior to their
respective Anticipated Repayment Dates. The Lock Box Accounts will not be an
asset of the Trust REMICs.
Cash Collateral Accounts. With respect to each Mortgage Loan that has
a Lock Box Account, one or more accounts in the name of the Servicer (the
"Cash Collateral Accounts") have been established into which funds in the
related Lock Box Accounts will be swept on a regular basis. The Reserve
Accounts will be sub-accounts of the Cash Collateral Accounts. Any excess over
the amount necessary to fund the Monthly Payment, the Reserve Accounts and any
other amounts due under the Mortgage Loans will be returned to or retained by
the related borrower provided no event of default of which the Servicer is
aware of has occurred and is continuing with respect to such Mortgage Loan.
However, as described under "Description of the Mortgage Pool--Certain Terms
and Conditions of the Mortgage Loans--Excess Interest," after the respective
Anticipated Repayment Date, if applicable, all amounts in the related Cash
Collateral Account in excess of the amount necessary to fund the Monthly
Payment and Reserve Accounts will be applied to (i) operating and capital
expenses, (ii) the reduction of the principal balance of the related Mortgage
Loan until such principal is paid in full and (iii) Excess Interest, in that
order. The Cash Collateral Accounts will not be an asset of the Trust REMICs.
Collection Account. The Servicer will, on each Due Date withdraw from
each Cash Collateral Account an amount equal to the Monthly Payment on the
related Mortgage Loan and deposit such amount into a segregated account (the
"Collection Account") established pursuant to the Pooling and Servicing
Agreement for application towards the Monthly Payment (including servicing
fees) due on the related Mortgage Loan. The Servicer shall also deposit into
the Collection Account within one business day of receipt all other payments in
respect of the Mortgage Loans, other than amounts to be deposited into any
Reserve Account.
Distribution Accounts. The Trustee will establish and maintain one or
more segregated accounts (the "Distribution Account") in the name of the
Trustee for the benefit of the holders of Certificates. With respect to each
Distribution Date, the Servicer will deposit in the Distribution Account, to
the extent of funds on deposit in the Collection Account, on the Servicer
Remittance Date an aggregate amount of immediately available funds equal to the
sum of (i) the Available Funds and (ii) the portion of the Servicing
Compensation representing the Trustee's Fee. The Servicer will deposit all P&I
Advances into the Distribution Account on the related Servicer Remittance Date.
To the extent the Servicer fails to do so, the Trustee or the Fiscal Agent will
deposit all P&I Advances into the Distribution Account as described herein. See
"Description of the Offered Certificates--Distributions" herein.
[Interest Reserve Account. The Trustee will establish and maintain an
Interest Reserve Account ("Interest Reserve Account") in the name of the
Trustee for the benefit of the holders of the Certificates. On each Servicer
Remittance Date occurring in January and on any Servicer Remittance Date
occurring in any December which occurs in a year immediately preceding a year
which is not a leap year, the Servicer will be required to deposit, in respect
of the Mortgage Loan known as the [_____________] loan, into the Interest
Reserve Account, an amount equal to one day's interest collected on the Stated
Principal Balance of such Mortgage Loan as of the Due Date occurring in the
month preceding the month in which such Servicer Remittance Date occurs at the
related Mortgage Rate, to the extent a full Monthly Payment or P&I Advance is
made in respect thereof (all amounts so deposited in any consecutive January
and February, "Withheld Amounts"). On each Servicer Remittance Date occurring
in March, the Servicer will be required to withdraw from the Interest Reserve
Account an amount equal
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to the Withheld Amounts from the preceding January and December, if any, and
deposit such amount into the Distribution Account.]
The Trustee will also establish and maintain one or more segregated
accounts for each of the "Upper-Tier Distribution Account", the "Default
Interest Distribution Account" and the "Excess Interest Distribution Account",
each in the name of the Trustee for the benefit of the holders of the
Certificates.
The Cash Collateral Accounts, Collection Account, the Distribution
Account, the Upper-Tier Distribution Account, the Interest Reserve Account,
the Excess Interest Distribution Account and the Default Interest Distribution
Account will be held in the name of the Trustee (or the Servicer on behalf of
the Trustee) on behalf of the holders of Certificates and the Servicer will be
authorized to make withdrawals from the Cash Collateral Accounts and the
Collection Account. Each of the Cash Collateral Account, Collection Account,
any REO Account, the Distribution Account, the Upper-Tier Distribution
Account, the Interest Reserve Account, the Excess Interest Distribution
Account and the Default Interest Distribution Account will be either (i) (A)
an account maintained with either a federal or state chartered depository
institution or trust company the long term unsecured debt obligations or
commercial paper of which are rated by each of the Rating Agencies in its
highest rating category at all times (or in the case of the REO Account,
Collection Account, Interest Reserve Account and Escrow Account, the long term
unsecured debt obligations of which are rated at least "AA" by Fitch and DCR
and "Aa2" by Moody's) or (B) as to which the Trustee has received written
confirmation from each of the Rating Agencies that holding funds in such
account would not cause any Rating Agency to requalify, withdraw or downgrade
any of its ratings on the Certificates, or (ii) a segregated trust account or
accounts maintained with a federal or state chartered depository institution
or trust company acting in its fiduciary capacity (an "Eligible Bank").
Amounts on deposit in the Collection Account, Cash Collateral Account, any REO
Account and the Interest Reserve Account may be invested in certain United
States government securities and other high-quality investments specified in
the Pooling and Servicing Agreement ("Permitted Investments"). Interest or
other income earned on funds in the Collection Account and Cash Collateral
Accounts will be paid to the Servicer (except to the extent required to be
paid to the related borrower) as additional servicing compensation and
interest or other income earned on funds in any REO Account will be payable to
the Special Servicer. Interest or other income earned on funds in the Interest
Reserve Account will be paid to the Underwriter as compensation for arranging
for on-going monitoring and surveillance of the Offered Certificates by the
Rating Agencies.
WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Servicer may make withdrawals from the Collection Account for the
following purposes, to the extent permitted and in the priorities provided in
the Pooling and Servicing Agreement: (i) to remit on or before each Servicer
Remittance Date (A) to the Distribution Account an amount equal to the sum of
(I) Available Funds and any Prepayment Premiums and (II) the Trustee Fee for
such Distribution Date, (B) to the Default Interest Distribution Account an
amount equal to the Net Default Interest received in the related Collection
Period, (C) to the Excess Interest Distribution Account an amount equal to the
Excess Interest received in the related Collection Period, if any, and (D) to
the Interest Reserve Account an amount required to be withheld as described
under "--Accounts-- Interest Reserve Account"; (ii) to pay or reimburse the
Servicer, the Special Servicer, the Trustee, the Fiscal Agent or the holders of
the most subordinate Class of Certificates, as applicable, for Advances made by
any of them and, if applicable, interest on Advances (provided, that the
Trustee and Fiscal Agent will have priority with respect to such payment or
reimbursement), the Servicer and the most subordinate Certificateholder's right
to reimbursement for items described in this clause (ii) being limited as
described herein under "--Advances"; (iii) to pay on or before each Servicer
Remittance Date to the Servicer and the Special Servicer as compensation, the
aggregate unpaid Servicing Compensation (not including the portion of the
Servicing Fee representing the Trustee's Fee) in respect of the immediately
preceding calendar month; (iv) to pay on or before each Distribution Date to
the Depositor, Mortgage Loan Seller or other Originator with respect to each
Mortgage Loan or REO Property that has previously been purchased or repurchased
by it pursuant to the Pooling and Servicing Agreement, all amounts received
thereon during the related Collection Period and subsequent to the date as of
which the amount required to effect such purchase or repurchase was determined;
(v) to the extent not reimbursed or paid pursuant to any of the above clauses,
to reimburse or pay the Servicer, the Special Servicer, the Trustee, the Fiscal
Agent and/or the Depositor for unpaid Servicing Compensation (in the
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case of the Servicer, the Special Servicer or the Trustee) and certain other
unreimbursed expenses incurred by such person pursuant to and to the extent
reimbursable under the Pooling and Servicing Agreement and to satisfy any
indemnification obligations of the Trust Fund under the Pooling and Servicing
Agreement; (vi) to pay to the Trustee amounts requested by it to pay taxes on
certain net income with respect to REO Properties; (vii) to withdraw any
amount deposited into the Collection Account that was not required to be
deposited therein; and (viii) to clear and terminate the Collection Account
pursuant to a plan for termination and liquidation of the Trust Fund.
ENFORCEMENT OF "DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" CLAUSES
The Servicer or Special Servicer, as applicable, will be obligated to
exercise the Trustee's rights under the "due-on-sale" or "due-on-encumbrance"
clause in the related Mortgage to accelerate the maturity of the related
Mortgage Loan, unless prohibited by law from doing so. A "due-on-sale" or
"due-on-encumbrance" clause may, under certain circumstances, be unenforceable
against a borrower which is a debtor in a case under the Bankruptcy Code.
If applicable law prohibits the enforcement of a "due-on-sale" clause
or if the Servicer or Special Servicer, acting in accordance with the
servicing standard, determines that such enforcement would not be in the best
interests of the Trust Fund, and, as a consequence, a Mortgage Loan is
assumed, the original mortgagor may be released from liability for the unpaid
principal balance of the related Mortgage Loan and interest thereon at the
applicable Mortgage Rate during the remaining term of such Mortgage Loan and
the Servicer or Special Servicer, as applicable, may accept payments in
respect of the Mortgage Loan from the new owner of the Mortgaged Property and
the Servicer or Special Servicer, as applicable, may enter into an assumption
agreement with a new purchaser whereby the new owner of the Mortgaged Property
will be substituted as the mortgagor and the original mortgagor released so
long as (i) the credit status of the prospective new borrower is in compliance
with the underwriting requirements customarily imposed by the Servicer and the
terms of the related Mortgage Loan and (ii) each Rating Agency has confirmed
in writing that such substitution will not, in and of itself, cause a
qualification, withdrawal or downgrading of the then-current ratings assigned
to the Certificates. In the event a Mortgage Loan is assumed or encumbered as
described in the preceding sentences, none of the Trustee, the Servicer or
Special Servicer shall permit any modification of such Mortgage Loan other
than as described above under "--Servicing of the Mortgage Loans; Collection
of Payments." The Servicer or Special Servicer, as applicable, shall be
entitled to retain as additional servicing compensation assumption fees paid
by the original mortgagor or the new owner in connection with such assumption.
See "Certain Legal Aspects of the Mortgage Loans--Due-on-Sale and
Due-on-Encumbrance" in the Prospectus.
INSPECTIONS
The Servicer (or with respect to any Specially Serviced Mortgage Loan,
the Special Servicer) is required to inspect each Mortgaged Property at such
times and in such manner as are consistent with the servicing standards
described herein, but in any event (i) is required to inspect each Mortgaged
Property securing a Note, with a Stated Principal Balance (or in the case of a
Note secured by more than one Mortgaged Property, having an Allocated Loan
Amount) of (a) $2,000,000 or more at least once every twelve months and (b)
less than $2,000,000 at least once every 24 months, in each case commencing in
[ ] 1997 (or at such lesser frequency, provided each Rating Agency has
confirmed in writing to the Servicer that such schedule will not result in the
withdrawal, downgrading or qualification of the then-current ratings assigned
to the Certificates) and (ii) if the Mortgage Loan (a) becomes a "Specially
Serviced Mortgage Loan," (b) is delinquent for 60 days or (c) has a debt
service coverage ratio of less than 1.0, the Special Servicer is required to
inspect the related Mortgaged Properties as soon as practicable and thereafter
at least every twelve months.
INSURANCE POLICIES
The Pooling and Servicing Agreement requires the Servicer (or the
Special Servicer in the case of an REO Property) to obtain or cause the
mortgagor on each Mortgage Loan to maintain fire and hazard insurance with
extended coverage on the related Mortgaged Property in an amount which is at
least equal to the lesser of (A) one
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hundred percent (100%) of the then "full replacement cost" of the improvements
and equipment, and (B) the outstanding principal balance of the related
Mortgage Loan, or such greater amount as is necessary to prevent any
reduction, by reason of the application of co-insurance. The Pooling and
Servicing Agreement also requires the Servicer (or the Special Servicer in the
case of an REO Property) to obtain or cause the Mortgagor on each Mortgaged
Property to maintain insurance providing coverage against at least 12 months
of rent interruptions (24 months with respect to an REO Property) and any
other insurance as is required in the related Mortgage Loan. In the case of an
REO Property, if the Special Servicer fails to maintain fire and hazard
insurance as described above or flood insurance as described below, the
Servicer shall maintain such insurance, and if the Servicer does not maintain
such insurance, the Trustee shall maintain such insurance and if the Trustee
does not maintain such insurance, the Fiscal Agent shall do so, subject to
issues concerning Nonrecoverable Advances. Any cost incurred by the Servicer
or the Special Servicer in maintaining any such insurance shall not, for the
purpose of calculating distributions to Certificateholders, be added to the
unpaid principal balance of the related Mortgage Loan, notwithstanding that
the terms of such Mortgage Loan so permit.
In general, the standard form of fire and hazard extended coverage
policy covers physical damage to or destruction of the improvements of the
property by fire, lightning, explosion, smoke windstorm, hail, riot, strike
and civil commotion, subject to certain conditions and exclusions in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers in different states and therefore will not
contain identical terms and conditions, most such policies will not cover any
physical damage resulting from war, revolution, governmental actions, floods
and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), wet or dry rot, vermin, domestic animals and certain
other kinds of uninsured risks. Nonetheless, certain of the Mortgage Loans
require insurance coverage for floods and other water-related causes and earth
movement. When a Mortgaged Property is located in a federally designated flood
area, the Pooling and Servicing Agreement requires the Servicer to use its
best efforts to cause the related Borrower to maintain, or if not maintained,
to itself obtain (subject to the issues concerning Nonrecoverable Advances)
flood insurance. Such flood insurance shall be in an amount equal to the
lesser of (i) the unpaid principal balance of the related Mortgage Loan and
(ii) the maximum amount of such insurance required by the terms of the related
Mortgage and as is available for the related property under the national flood
insurance program, if available. If an REO Property (i) is located in a
federally designated special flood hazard area or (ii) is related to a
Mortgage Loan pursuant to which earthquake insurance was in place at the time
of origination and continues to be available at commercially reasonable rates,
the Pooling and Servicing Agreement requires that the Special Servicer obtain
(subject to the issues concerning Nonrecoverable Advances) flood insurance
and/or earthquake insurance. If a recovery due to a flood or earthquake is not
available for an REO Property but would have been available if such insurance
were maintained, the Special Servicer will be required (subject to issues
concerning Nonrecoverable Advances) to (i) immediately deposit into the
Collection Account from its own funds the amount that would have been
recovered or (ii) apply to the restoration and repair of the property from its
own funds the amount that would have been recovered, if such application is
consistent with the Servicing Standard; provided, however, that the Special
Servicer shall not be responsible for any shortfall in insurance proceeds
resulting from an insurer's refusal or inability to pay a claim.
The Servicer or the Special Servicer may obtain and maintain a blanket
insurance policy insuring against fire and hazard losses on all of the
Mortgaged Properties (other than REO Properties) to which the related Borrower
has not maintained insurance to satisfy its obligations concerning the
maintenance of insurance coverage. Any such blanket insurance policy shall be
maintained with a Qualified Insurer. Additionally, the Servicer or the Special
Servicer may obtain a master force placed insurance policy, as long as such
policy is issued by a Qualified Insurer and provides no less coverage in scope
and amount than the insurance required.
The ability of the Servicer to assure that fire and hazard, flood or
earthquake insurance proceeds are appropriately applied may be dependent upon
its being named as an additional insured under such policy, or upon the extent
to which information in this regard is furnished by mortgagors.
Under the terms of the Mortgage Loans, the Borrowers will be required
to present claims to insurers under hazard insurance policies maintained on the
related Mortgaged Properties. The Servicer, on behalf of the Trustee and
Certificateholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on Mortgaged
Properties securing the Mortgage Loans. However, the ability of the Servicer to
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present or cause to be presented such claims is dependent upon the extent to
which information in this regard is furnished to the Servicer by the Borrowers.
All insurance policies required shall name the Trustee or the Servicer
or the Special Servicer, on behalf of the Trustee as the mortgagee, as loss
payee.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement requires the Servicer to cause a
nationally recognized firm of independent public accountants, which is a member
of the American Institute of Certified Public Accountants, to furnish to the
Trustee on or before March 15 of each year, beginning March 15, 1998, a
statement to the effect that such firm has examined certain documents and
records relating to the servicing of similar mortgage loans for the preceding
twelve months and that their examination, conducted substantially in compliance
with generally accepted auditing standards and the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC, disclosed no exceptions or errors in records relating to the servicing
of similar mortgage loans in accordance with the terms of the Pooling and
Servicing Agreement that in their opinion are material, except for such
exceptions as are set forth in their statement.
The Pooling and Servicing Agreement also requires the Servicer to
deliver to the Trustee, on or before March 15 of each year, beginning March
15, 1998, an officer's certificate of the Servicer stating that, to the best
of such officer's knowledge, the Servicer has fulfilled its obligations under
the Pooling and Servicing Agreement throughout the preceding year or, if there
has been a default, specifying each default known to such officer.
CERTAIN MATTERS REGARDING THE DEPOSITOR, THE SERVICER AND THE SPECIAL SERVICER
The Servicer may assign its rights and delegate its duties and
obligations under the Pooling and Servicing Agreement in connection with the
sale or transfer of a substantial portion of its mortgage servicing or asset
management portfolio, provided that certain conditions are satisfied including
obtaining the consent of the Trustee and written confirmation of each Rating
Agencies that such assignment or delegation will not cause a qualification,
withdrawal or downgrading of the then-current ratings assigned to the
Certificates. The Pooling and Servicing Agreement provides that the Servicer
may not otherwise resign from its obligations and duties as Servicer
thereunder, except upon the determination that performance of its duties is no
longer permissible under applicable law and provided that such determination is
evidenced by an opinion of counsel delivered to the Trustee. The holders of
Certificates evidencing aggregate Voting Rights of at least 51% may remove the
Servicer upon the occurrence of an Event of Default under the Pooling and
Servicing Agreement and upon written notice to the Servicer, the Depositor and
the Trustee; provided that each Rating Agency has provided written confirmation
that such removal will not cause a qualification, withdrawal or downgrading of
the ratings assigned to the Certificates; and provided, further, that the
Servicer will be entitled to payment of its portion of unpaid Servicing Fees,
unreimbursed Advances (with interest thereon) and other amounts to which the
Servicer is entitled, in each case which accrued prior to its termination. No
such resignation or removal may become effective until a successor Servicer has
assumed the obligations of the Servicer under the Pooling and Servicing
Agreement. The Trustee or any other successor Servicer assuming the obligations
of the Servicer under the Pooling and Servicing Agreement will be entitled to
the compensation to which the Servicer would have been entitled. If no
successor Servicer can be obtained to perform such obligations for such
compensation, additional amounts payable to such successor Servicer will be
treated as Realized Losses.
The Pooling and Servicing Agreement also provides that neither the
Depositor, the Servicer, the Special Servicer, nor any director, officer,
employee or agent of the Depositor, the Servicer or the Special Servicer will
be under any liability to the Trust Fund or the holders of Certificates for any
action taken or for refraining from the taking of any action in good faith
pursuant to the Pooling and Servicing Agreement, or for errors in judgment;
provided, however, that neither the Depositor, the Servicer, the Special
Servicer nor any such person will be protected against any liability which
would otherwise be imposed by reason of willful misconduct, bad faith, fraud or
gross negligence (or in the case of the Servicer, by reason of any specific
liability imposed for a breach of the Servicing Standard) in the performance of
duties thereunder or by reason of reckless disregard of obligations and
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duties thereunder. The Pooling and Servicing Agreement further provides that
the Depositor, the Servicer, the Special Servicer and any director, officer,
employee or agent of the Depositor, the Servicer and the Special Servicer will
be entitled to indemnification by the Trust Fund for any loss, liability or
expense incurred in connection with any legal action relating to the Pooling
and Servicing Agreement or the Certificates, other than any loss, liability or
expense incurred by reason of willful misconduct, bad faith, fraud or
negligence (or in the case of the Servicer, by reason of any specific
liability imposed for a breach of the Servicing Standard) in the performance
of duties thereunder or by reason of reckless disregard of obligations and
duties thereunder.
In addition, the Pooling and Servicing Agreement provides that neither
the Depositor, the Servicer, nor the Special Servicer will be under any
obligation to appear in, prosecute or defend any legal action unless such
action is related to its duties under the Pooling and Servicing Agreement and
which in its opinion does not expose it to any expense or liability. The
Depositor, the Servicer or the Special Servicer may, however, in its discretion
undertake any such action which it may deem necessary or desirable with respect
to the Pooling and Servicing Agreement and the rights and duties of the parties
thereto and the interests of the holders of Certificates thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust Fund, and the
Depositor, the Servicer and the Special Servicer will be entitled to be
reimbursed therefor and to charge the Collection Account.
The Depositor is not obligated to monitor or supervise the
performance of the Servicer, the Special Servicer or the Trustee under the
Pooling and Servicing Agreement. The Depositor may, but is not obligated to,
enforce the obligations of the Servicer or the Special Servicer under the
Pooling and Servicing Agreement and may, but is not obligated to, perform or
cause a designee to perform any defaulted obligation of the Servicer or the
Special Servicer or exercise any right of the Servicer or the Special Servicer
under the Pooling and Servicing Agreement. In the event the Depositor
undertakes any such action, it will be reimbursed by the Trust Fund in
accordance with the standard set forth above. Any such action by the Depositor
will not relieve the Servicer or the Special Servicer of its obligations under
the Pooling and Servicing Agreement.
Any person into which the Servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the Servicer is
a party, or any person succeeding to the business of the Servicer, will be the
successor of the Servicer under the Pooling and Servicing Agreement, and shall
be deemed to have assumed all of the liabilities and obligations of the
Servicer under the Pooling and Servicing Agreement.
EVENTS OF DEFAULT
Events of default of the Servicer (each, an "Event of Default") under
the Pooling and Servicing Agreement consist, among other things, of (i) any
failure by the Servicer to remit to the Collection Account or any failure by
the Servicer to remit to the Trustee for deposit into the Upper-Tier
Distribution Account, Distribution Account, Excess Interest Distribution
Account, Interest Reserve Account or Default Interest Distribution Account any
amount required to be so remitted pursuant to the Pooling and Servicing
Agreement or (ii) any failure by the Servicer duly to observe or perform in any
material respect any of its other covenants or agreements or the breach of its
representations or warranties under the Pooling and Servicing Agreement which
continues unremedied for thirty (30) days after the giving of written notice of
such failure to the Servicer by the Depositor or the Trustee, or to the
Servicer and to the Depositor and the Trustee by the holders of Certificates
evidencing Percentage Interests of at least 25% of any affected class; or (iii)
any failure by the Servicer to make any Advances as required pursuant to the
Pooling and Servicing Agreement; or (iv) confirmation in writing by any Rating
Agency that not terminating the Servicer would, in and of itself, cause the
then-current rating assigned to any Class of Certificates to be qualified,
withdrawn or downgraded; or (v) certain events of insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceedings and certain
actions by, on behalf of or against the Servicer indicating its insolvency or
inability to pay its obligations.
Events of Default of the Special Servicer under the Pooling and
Servicing Agreement include the items specified in clauses (i), (ii), (iii),
(iv) and (v) above with respect to, and to the extent applicable to, the
Special Servicer.
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RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Servicer occurs, then the
Trustee may, and at the direction of the holders of Certificates evidencing at
least 25% of the aggregate Voting Rights of all Certificateholders, the Trustee
will, terminate all of the rights and obligations of the Servicer as servicer
under the Pooling and Servicing Agreement and in and to the Trust Fund.
Notwithstanding the foregoing, upon any termination of the Servicer under the
Pooling and Servicing Agreement the Servicer will continue to be entitled to
receive all accrued and unpaid servicing compensation through the date of
termination plus all Advances and interest thereon as provided in the Pooling
and Servicing Agreement. In the event that the Servicer is also the Special
Servicer and the Servicer is terminated, the Servicer will also be terminated
as Special Servicer.
On and after the date of termination following an Event of Default by
the Servicer, the Trustee will succeed to all authority and power of the
Servicer (and the Special Servicer if the Special Servicer is also the
Servicer) under the Pooling and Servicing Agreement and will be entitled to
the compensation arrangements to which the Servicer (and the Special Servicer
if the Servicer is also the Special Servicer) would have been entitled. If the
Trustee is unwilling or unable so to act, or if the holders of Certificates
evidencing at least 25% of the aggregate Voting Rights of all
Certificateholders so request, or if the long-term unsecured debt rating of
the Trustee or the Fiscal Agent is not at least "AA" by DCR and Fitch and
"Aa2" by Moody's or if the Rating Agencies do not provide written confirmation
that the succession of the Trustee as Servicer, will not cause a
qualification, withdrawal or downgrading of the then-current ratings assigned
to the Certificates, the Trustee must appoint, or petition a court of
competent jurisdiction for the appointment of, a mortgage loan servicing
institution the appointment of which will not result in the downgrading,
qualification or withdrawal of the rating or ratings then assigned to any
Class of Certificates as evidenced in writing by each Rating Agency to act as
successor to the Servicer under the Pooling and Servicing Agreement. Pending
such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid.
If the Special Servicer is not the Servicer and an Event of Default
with respect to the Special Servicer occurs, the Trustee will terminate the
Special Servicer and the Servicer will succeed to all the power and authority
of the Special Servicer under the Pooling and Servicing Agreement (provided
that such termination would not result in the downgrading, qualification or
withdrawal of the rating or ratings assigned to any Class of Certificates as
evidenced in writing by each Rating Agency) and will be entitled to the
compensation to which the Special Servicer would have been entitled.
No Certificateholder will have any right under the Pooling and
Servicing Agreement to institute any proceeding with respect to the Pooling and
Servicing Agreement or the Mortgage Loans, unless, with respect to the Pooling
and Servicing Agreement, such holder previously shall have given to the Trustee
a written notice of a default under the Pooling and Servicing Agreement, and of
the continuance thereof, and unless also the holders of Certificates of any
Class affected thereby evidencing Percentage Interests of at least 25% of such
Class shall have made written request of the Trustee to institute such
proceeding in its own name as Trustee under the Pooling and Servicing Agreement
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and the Trustee, for 60 days after its receipt of such notice, request
and offer of indemnity, shall have neglected or refused to institute such
proceeding.
The Trustee will have no obligation to make any investigation of
matters arising under the Pooling and Servicing Agreement or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the holders of Certificates, unless such
holders of Certificates shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
AMENDMENT
The Pooling and Servicing Agreement may be amended at any time by the
Depositor, the Servicer, the Special Servicer, the Trustee and the Fiscal Agent
without the consent of any of the holders of Certificates (i) to cure any
ambiguity; (ii) to correct or supplement any provisions therein which may be
defective or inconsistent
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with any other provisions therein; (iii) to amend any provision thereof to the
extent necessary or desirable to maintain the status of each of the Upper-Tier
REMIC and Lower-Tier REMIC as a REMIC; (iv) to amend or supplement a provision
which will not adversely affect in any material respect the interests of any
Certificateholder not consenting thereto, as evidenced in writing by an
opinion of counsel or confirmation in writing from each Rating Agency that
such amendment will not result in a qualification, withdrawal or downgrading
of the then-current ratings assigned to the Certificates; and (v) to amend or
supplement any provisions therein to the extent necessary or desirable to
maintain the rating assigned to each of the Classes of Certificates by each
Rating Agency. No such amendment shall cause either of the Upper-Tier REMIC or
Lower-Tier REMIC to fail to qualify as a REMIC or shall adversely affect in
any material respect the interests of any holder of the Certificates, and, if
requested by the Servicer or the Trustee, as evidenced by an opinion of
counsel.
The Pooling and Servicing Agreement may also be amended from time to
time by the Depositor, the Servicer, the Special Servicer, the Trustee and the
Fiscal Agent with the consent of the holders of Certificates evidencing at
least 66 2/3% of the Percentage Interests of each Class of Certificates
affected thereby for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or modifying in any manner the rights of the holders of
Certificates; provided, however, that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, payments received on the
Mortgage Loans which are required to be distributed on any Certificate without
the consent of each holder of such Certificate; (ii) alter the obligations of
the Servicer, the Special Servicer, the Trustee or the Fiscal Agent to make a
P&I Advance or Property Advance or alter the servicing standards set forth in
the Pooling and Servicing Agreement; (iii) change the percentages of Voting
Rights of holders of Certificates which are required to consent to any action
or inaction under the Pooling and Servicing Agreement; or (iv) amend the
section in the Pooling and Servicing Agreement relating to the amendment of
the Pooling and Servicing Agreement, in each without the consent of the
holders of all Certificates representing all the Percentage Interests of the
Class or Classes affected thereby.
VOTING RIGHTS
The "Voting Rights" assigned to each Class shall be (a) 0% in the case
of the Class V-1, Class V-2, Class R and Class LR Certificates, (b) [0.4]% in
the case of the Class A-CS1 Certificates and [8]% in the case of the Class
A-CS2 Certificates (the sum of such percentages for each such Class outstanding
is the "Fixed Voting Rights Percentage"), (c) in the case of the Class A-1A,
Class A-1B, Class A-1C, Class A-1D, Class A-2, Class A-3, Class A-4, Class A-5,
Class B-1, Class B-2, Class B-3 and Class B-3H Certificates, a percentage equal
to the product of (i) 100% minus the Fixed Voting Rights Percentage multiplied
by (ii) a fraction, the numerator of which is equal to the aggregate
outstanding Certificate Balance of any such Class and the denominator of which
is equal to the aggregate outstanding Certificate Balances of all Classes of
Certificates. The Coupon Strip Certificates will not be entitled to vote with
respect to proposed extensions of a Specially Serviced Mortgage Loan. The
Voting Rights of any Class of Certificates shall be allocated among holders of
Certificates of such Class in proportion to their respective Percentage
Interests, except that any Certificate beneficially owned by the Depositor, the
Servicer, the Special Servicer, any mortgagor, the Trustee, a manager, or any
of their respective affiliates will be deemed not to be outstanding; provided,
however, that for purposes of obtaining the consent of Certificateholders to an
amendment to the Pooling and Servicing Agreement, any Certificates beneficially
owned by the Servicer or Special Servicer or an affiliate thereof will be
deemed to be outstanding, provided that such amendment does not relate to
compensation of the Servicer, Special Servicer or otherwise benefit such entity
or an affiliate; and, provided, further, that for purposes of obtaining the
consent of Certificateholders to any action proposed to be taken by the Special
Servicer with respect to a Specially Serviced Mortgage Loan, any Certificates
beneficially owned by the Servicer or an affiliate will be deemed to be
outstanding if the Special Servicer is not the Servicer or any affiliate. The
Certificates beneficially owned by the Special Servicer or an affiliate thereof
shall be deemed outstanding for purposes of determining who the Directing
Holders (as defined below) are and for purposes of issuing Instructions (as
defined below). The Voting Rights of each Class of Certificates will be deemed
to be reduced on any day on which an Appraisal Reduction Amount is allocated to
such Class. The Fixed Voting Right Percentage of the Class A-CS1 and Class
A-CS2 Certificates will be proportionally reduced upon the allocation of
Appraisal Reduction Amounts with respect to any component of such Classes based
on the amount of such reduction.
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REALIZATION UPON MORTGAGE LOANS
Specially Serviced Mortgage Loans; Appraisals; Extensions.
Contemporaneously with the earliest of (i) the effective date of any
modification of the stated maturity, Mortgage Rate, principal balance or
amortization terms of any Mortgage Loan, any extension of the Maturity Date of
a Mortgage Loan or consent to the release of any Mortgaged Property from the
lien of the related Mortgage or (ii) the occurrence of an Appraisal Reduction
Event, the Servicer (after consultation with the Special Servicer) will obtain
an appraisal (or a letter update from an existing appraisal which is less than
three years old) of the Mortgaged Property or REO Property, as the case may be,
from an independent appraiser who is a member of the American Institute of Real
Estate Appraisers (an "Updated Appraisal") provided, that, the Servicer will
not be required to obtain an Updated Appraisal of any Mortgaged Property with
respect to which there exists an appraisal which is less than twelve months
old.
Following a default on a Mortgage Loan at maturity, the Special
Servicer may either foreclose or elect to grant a one-year extension of the
Specially Serviced Mortgage Loan; provided that the Special Servicer may only
extend such Mortgage Loan if (i) immediately prior to the default on the
Balloon Payment the related borrower had made twelve consecutive Monthly
Payments on or prior to their Due Dates, (ii) the Special Servicer determines
in its reasonable judgment that such borrower has attempted in good faith to
refinance such Mortgaged Loan or Mortgaged Property, (iii) the Special Servicer
determines that (A) extension of such Mortgage Loan is consistent with the
Servicing Standard and (B) extension of such Mortgage Loan is likely to result
in a recovery which on a net present value basis would be greater than the
recovery that would result from a foreclosure, (iv) such extension requires
that all cash flow on all related Mortgage Properties in excess of amounts
required to operate and maintain such Mortgaged Properties be applied to
payments of principal and interest on such Mortgage Loan and (v) the Special
Servicer terminates the related Manager unless the Special Servicer determines
that retaining such Manager is conducive to maintaining the value of such
Mortgaged Properties; provided, further, that, if, after notice to all
Certificateholders, holders of Certificates evidencing at least 66 2/3% of the
Voting Rights of each Class of Certificates entitled to vote direct the Special
Servicer not to extend, the Special Servicer will not extend; provided,
further, that, if the Special Servicer is not the Servicer and the Servicer
would not elect to extend, holders of Certificates evidencing greater than (a)
50% of the aggregate Voting Rights of all Certificateholders entitled to vote
and (b) 66 2/3% of the aggregate Voting Rights of all Certificateholders
entitled to vote who respond to such notice, may direct the Special Servicer
not to extend. Notwithstanding the foregoing, the Special Servicer may extend
pursuant to the Instructions of the Directing Holders (as described and defined
below). The holders of the Class A-CS1 and Class A-CS2 Certificates will not be
entitled to vote with respect to proposed extensions of a Specially Serviced
Mortgage Loan.
The Special Servicer may, after presenting a proposal to and
consulting with the Servicer (if the Special Servicer is not the Servicer), and
taking into account the LTV of a Specially Serviced Mortgage Loan as indicated
in the Updated Appraisal, grant subsequent one-year extensions of such
Specially Serviced Mortgage Loan if (i) the related borrower has made twelve
consecutive monthly payments in an amount equal to or greater than the Minimum
Defaulted Monthly Payments and (ii) the requirements set forth in clauses
(ii)--(iv) of the preceding paragraph are satisfied; provided, however, that,
if, after notice to all Certificateholders, holders of Certificates evidencing
at least 66 2/3% of the aggregate Percentage Interests of each Class of
Certificates direct the Special Servicer not to extend, the Special Servicer
will not extend; provided, further, that, if the Special Servicer is not the
Servicer and the Servicer would not elect to extend, holders of Certificates
evidencing greater than (a) 50% of the aggregate Voting Rights of all
Certificateholders and (b) 66 2/3% of the aggregate Voting Rights of all
Certificateholders who respond to such notice, may direct the Special Servicer
not to extend. Notwithstanding the foregoing, the Special Servicer may extend
pursuant to the Instructions of the Directing Holders. The Special Servicer
will not agree to any extension of a Mortgage Loan beyond the Rated Final
Distribution Date. If such borrower fails to make a Minimum Defaulted Monthly
Payment during an extension period, no further extensions will be granted
(provided, however, that the Special Servicer may grant such extension if the
borrower has been delinquent on no more than one such Minimum Defaulted Monthly
Payment within a 24-month period and the requirements set forth in clauses (ii)
through (iv) of the preceding paragraph are satisfied).
Any extension pursuant to the two preceding paragraphs will require
monthly payments in an amount equal to or greater than the Minimum Defaulted
Monthly Payment.
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The "Minimum Defaulted Monthly Payment" with respect to any extension
of a Mortgage Loan that is delinquent in respect of its Balloon Payment, is
equal to (a) the principal portion of the Monthly Payment that would have been
due on such Mortgage Loan on the related Due Date based on the original
amortization schedule thereof (or, if there is no amortization schedule, the
principal portion of the constant Monthly Payment that would have been due),
assuming such Balloon Payment had not become due, after giving effect to any
modification, and (b) interest at the applicable Default Rate; provided,
however, that the Special Servicer may agree that the Minimum Defaulted Monthly
Payments may include interest at a rate lower than the related Default Rate
(but in no event lower than the related Mortgage Rate) (the "Lower Rate")
provided that if, after notice to all Certificateholders, holders of
Certificates evidencing at least 66 2/3% of the Voting Rights of each Class
direct (or, in the event that the Special Servicer is not the Servicer and the
Servicer would not agree to the Lower Rate, Certificateholders representing
greater than (a) 50% of the aggregate Voting Rights of all Certificateholders
and (b) 66 2/3% of the aggregate Voting Rights of all Certificateholders who
respond to such notice) the Special Servicer not to agree to permit payments to
include interest at the Lower Rate, the Special Servicer shall not agree to
payments with interest at the Lower Rate; provided, further, that if the
Minimum Defaulted Monthly Payment is to include interest at the Lower Rate, the
Special Servicer may agree that interest on such Mortgage Loan accrues at the
Lower Rate; and provided that if, after notice to all Certificateholders,
holders of Certificates evidencing at least 66 2/3% of the Voting Rights of
each Class direct the Special Servicer that such Mortgage Loan shall accrue
interest at the related Default Rate, then such Mortgage Loan will continue to
accrue interest at the Default Rate thereof and the excess of interest accrued
on such Mortgage Loan over the amount included in the Minimum Defaulted Monthly
Payments (i.e., interest at the Lower Rate) will be added to the outstanding
principal balance of such Mortgage Loan. Notwithstanding the foregoing, if the
Directing Holders have given Instructions to the Special Servicer to extend, the
Special Servicer will be required to follow the Directing Holders' Instructions
with respect to interest so long as the Minimum Defaulted Monthly Payment is at
least equal to the Lower Rate.
The Special Servicer will only be permitted to extend pursuant to the
preceding paragraphs or pursuant to instructions from Directing Holders.
Under certain circumstances the Special Servicer may modify the terms
of Specially Serviced Mortgage Loans as described below under
"--Modifications."
Foreclosure Proceedings; Action of Directing Holders. The Special
Servicer may be given revocable instructions ("Instructions") to extend a
Specially Serviced Mortgage Loan serviced by it that has defaulted on the
Balloon Payment (which extension will be restricted to the actions that the
Special Servicer could have otherwise taken with respect to such Mortgage Loan
except that (a) the actions of the Directing Holders will not be subject to the
rejection of the holders of the Certificates and (b) the related borrower will
not have had to make twelve consecutive Monthly Payments on or prior to their
Due Dates) by the holders of a majority in Percentage Interest of the most
subordinate Class of Certificates then outstanding (determined as provided
below) having an aggregate initial Certificate Balance representing a minimum
of 2.5% of the aggregate initial Certificate Balances of all Classes of
Certificates (or if the Certificate Balance of such Class or Classes has been
reduced to less than 40% of the initial Certificate Balances thereof, the
holders of such Class or Classes together with the holders of the next most
subordinate Class) (the "Directing Holders") under the following circumstance:
if the Special Servicer has determined to commence foreclosure or acquisition
proceedings, the Special Servicer will notify the Trustee (who will, in turn,
notify the Directing Holders), the Servicer and the Depositor of its proposed
action. If the Special Servicer receives contrary Instructions within seven
days from the Directing Holders, the Special Servicer will delay such
proceedings, and the procedures described below shall apply to the servicing of
such Mortgage Loan. In the event that the Special Servicer does not receive
such Instructions within such seven-day period, the Special Servicer may
proceed with the foreclosure or acquisition. If the Directing Holders revoke
their Instructions to extend the Mortgage Loan, the Special Servicer will
service the Mortgage Loan without regard to such original Instructions;
provided, however, that the Directing Holders will be required to maintain the
Collateral Account (as described below) unless and until the Mortgage Loan is
no longer a Specially Serviced Mortgage Loan for nine consecutive months or has
been liquidated. For purposes of determining the Directing Holders with respect
to any Mortgage Loan, the Class A-1A, Class A-1B, Class A-1C, Class A-CS1 and
Class A-CS2 Certificates collectively, and the Class B-3 and Class B-3H
Certificates together, will, in each case, be treated as one class.
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Deposits by Directing Holders. If the Special Servicer receives
Instructions and has not otherwise been required to obtain an Updated Appraisal
as described above, the Servicer (after consultation with the Special Servicer)
will obtain an Updated Appraisal as soon as reasonably practicable to determine
the fair market value of each related Mortgaged Property, after accounting for
the estimated liquidation and carrying costs (the "Fair Market Value" of such
Mortgaged Property). Within two Business Days after the Special Servicer's
receipt of Instructions, the Directing Holders are required to deposit (in
proportion to their respective Percentage Interests) into a segregated account
(the "Collateral Account") established and maintained by the Special Servicer
(or if the Special Servicer is a Directing Holder, the Servicer) an amount
equal to the lesser of (a) 125% of the Fair Market Value of the related
Mortgaged Property and (b) the outstanding principal balance of the Mortgage
Loan plus unreimbursed Advances (with interest thereon) and unpaid accrued
interest (the "Deposit"). If no Updated Appraisal has yet been obtained, the
amount of the Deposit will be determined based on the Special Servicer's (or if
the Special Servicer is a Directing Holder, the Servicer's) estimate of the
Fair Market Value of the Mortgaged Property, in which case, upon the Special
Servicer's receipt of such Updated Appraisal, the Special Servicer (or if the
Special Servicer is a Directing Holder, the Servicer) will remit any excess
deposit to the Directing Holders, or the Directing Holders will deposit in the
Collateral Account any shortfall, as the case may be. In the event that the
Directing Holders do not make the required deposit within two business days of
the Special Servicer's receipt of Instructions, the Special Servicer will
disregard such Instructions. The Directing Holders will be deemed to have
granted to the Special Servicer (or the Servicer, if applicable) for the
benefit of Certificateholders a first priority security interest in the
Collateral Account, as security for the obligations of the Directing Holders.
If the Special Servicer is acting pursuant to Instructions, the
Special Servicer or the Servicer, as applicable, shall withdraw from the
Collateral Account and remit to the Servicer for deposit into the Collection
Account on or prior to the Business Day preceding each Servicer Remittance
Date a sum equal to the P&I Advances and Property Advances for the related
Mortgage Loan which in the absence of Instructions would be made by the
Servicer (and the obligation to make such advances shall not be subject to a
non-recoverability standard) and the Directing Holders shall, upon request
therefor by the Special Servicer (or if the Special Servicer is a Directing
Holder, the Servicer), deposit from their own funds into the Collateral
Account the amount of such P&I Advances or Property Advances. If the Directing
Holders fail to make such Deposit within one Business Day after receipt of the
Special Servicer's or Servicer's, as applicable, request, the Special Servicer
will no longer be required to follow such Instructions and will specially
service such Mortgage Loan as though no Instructions had been given; provided,
however, that the Directing Holders will be required to maintain the
Collateral Account unless and until the related Mortgage Loan is no longer a
Specially Serviced Mortgage Loan for nine consecutive months or has been
liquidated. The Special Servicer or Servicer, as applicable, will invest
amounts on deposit in the Collateral Account in Permitted Investments upon
direction by the Directing Holders. Directing Holders will be entitled to
reinvestment income as received, and will reimburse the Collateral Account for
any losses incurred.
Settlement. If the Specially Serviced Mortgage Loan or Mortgaged
Property is liquidated or disposed of, the Special Servicer or Servicer, as
applicable, will withdraw from the Collateral Account, and deposit into the
Collection Account as additional liquidation proceeds for distribution to
Certificateholders in accordance with the priorities described herein, the
lesser of (a) the amount by which 125% of the Fair Market Value (determined at
the time of the Deposit) exceeds the net sales proceeds, and (b) the amount by
which the outstanding principal balance of the related Mortgage Loan plus
unreimbursed Advances (with interest thereon) and unpaid accrued interest
exceeds the net sales proceeds.
The Special Servicer or Servicer, as applicable, will deposit the
amount realized upon disposition of the Mortgage Loan or Mortgaged Property in
the Collection Account. If the Mortgage Loan has not been realized upon on or
before the third anniversary of the Instructions (or such earlier date so that
the Trust Fund owns the Mortgaged Property for no more than two years), the
Directing Holders will be required to purchase the Mortgage Loan for a purchase
price equal to the Fair Market Value (determined at the time of the Deposit).
Amounts on deposit in the Collateral Account will be applied toward the
purchase price.
If at any time following the establishment of a Collateral Account and
prior to the disposition of a Specially Serviced Mortgage Loan or Mortgaged
Property, the Mortgaged Property suffers a hazard loss that results in the
Mortgaged Property not being rebuilt and payments to the Trustee under the
related hazard insurance
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policy, the Special Servicer or Servicer, as applicable, will pay all amounts
on deposit in the Collateral Account to the Directing Holders. In addition,
after amounts required to be deposited in the Collection Account have been
withdrawn from the Collateral Account, as described above, following
foreclosure, liquidation, disposition, purchase by Directing Holders or, if
the related Mortgage Loan is no longer a Specially Serviced Mortgage Loan for
nine consecutive months, any related remaining amounts in the Collateral
Account will be released to the Directing Holders.
No Advances. Until the disposition of the Specially Serviced Mortgage
Loan or Mortgaged Property, as to which Directing Holders have provided
Instructions, or the cure of such default, no P&I Advances will be made in
respect of amounts distributable to the Class of the Directing Holders in
respect of such Mortgage Loan.
Standards for Conduct Generally in Effecting Foreclosure or the Sale
of Defaulted Loans. In connection with any foreclosure or other acquisition,
the cost and expenses of any such proceeding shall be paid by the Special
Servicer as a Property Advance.
If the Special Servicer elects to proceed with a non-judicial
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 Mortgagor, if available, or any other
liable party if the laws of the state do not permit such a deficiency judgment
after a non-judicial foreclosure or if the Special Servicer determines, in its
best judgment, that the likely recovery if a deficiency judgment is obtained
will not be sufficient to warrant the cost, time, expense and/or exposure of
pursuing the deficiency judgment and such determination is evidenced by an
officers' certificate delivered to the Trustee.
Notwithstanding any provision to the contrary, 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, for the Trust Fund
or the holders of Certificates, would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of, such
Mortgaged Property within the meaning of CERCLA or any comparable law, unless
the Special Servicer has previously determined, based on an environmental
assessment report prepared by an independent person who regularly conducts
environmental audits, that: (i) such Mortgaged Property is in compliance with
applicable environmental laws or, if not, after consultation with an
environmental consultant that it would be in the best economic interest of the
Trust Fund to take such actions as are necessary to bring such Mortgaged
Property in compliance therewith and (ii) there are no circumstances present
at such Mortgaged Property relating to the use, management or disposal of any
hazardous materials for which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any currently effective
federal, state or local law or regulation, or that, if any such hazardous
materials are present for which such action could be required, after
consultation with an environmental consultant it would be in the best economic
interest of the Trust Fund to take such actions with respect to the affected
Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee, or to its nominee, on behalf of holders of
Certificates. Notwithstanding any such acquisition of title and cancellation of
the related Mortgage Loan, such Mortgage Loan shall be considered to be an REO
Mortgage Loan held in the Trust Fund until such time as the related REO
Property shall be sold by the Trust Fund and shall be reduced only by
collections net of expenses.
If the Trust Fund acquires a Mortgaged Property by foreclosure or
deed-in-lieu of foreclosure upon a default of a Mortgage Loan, the Pooling and
Servicing Agreement provides that the Trustee (or the Special Servicer, on
behalf of the Trustee), must administer such Mortgaged Property so that it
qualifies at all times as "foreclosure property" within the meaning of Code
Section 860G(a)(8). The Pooling and Servicing Agreement also requires that any
such Mortgaged Property be managed and operated by an "independent contractor,"
within the meaning of applicable Treasury regulations, who furnishes or renders
services to the tenants of such Mortgaged Property. Generally, the REMIC will
not be taxable on income received with respect to the Mortgaged Property to the
extent that it constitutes "rents from real property," within the meaning of
Code Section 856(c)(3)(A) and Treasury regulations thereunder. "Rents from real
property" do not include the portion of any
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rental based on the net income or gain of any tenant or sub-tenant. No
determination has been made whether rent on any of the Mortgaged Properties
meets this requirement. "Rents from real property" include charges for
services customarily furnished or rendered in connection with the rental of
real property, whether or not the charges are separately stated. Services
furnished to the tenants of a particular building will be considered as
customary if, in the geographic market in which the building is located,
tenants in buildings which are of similar Class are customarily provided with
the service. No determination has been made whether the services furnished to
the tenants of the Mortgaged Properties are "customary" within the meaning of
applicable regulations. It is therefore possible that a portion of the rental
income with respect to a Mortgaged Property owned by the Trust Fund,
presumably allocated based on the value of any non-qualifying services, would
not constitute "rents from real property." In addition to the foregoing, any
net income from a trade or business operated or managed by an independent
contractor on a Mortgaged Property owned by the REMIC, including but not
limited to a hotel or skilled nursing care business, will not constitute
"rents from real property." Any of the foregoing types of income may instead
constitute "net income from foreclosure property," which would be taxable to
the REMIC at the highest marginal federal corporate rate (currently 35%) and
may also be subject to state or local taxes. Any such taxes would be
chargeable against the related income for purposes of determining the Net REO
Proceeds available for distribution to holders of Certificates. See "Certain
Federal Income Tax Consequences--Federal Income Tax Consequences for REMIC
Certificates" and "--Taxes That May Be Imposed on the REMIC Pool--Net Income
from Foreclosure Property" in the Prospectus.
If title to any Mortgaged Property is acquired by the Trust Fund, the
Special Servicer, pursuant to the Pooling and Servicing Agreement and on behalf
of the Trust Fund, will be required to sell the Mortgaged Property within two
years of acquisition, unless the Trustee receives (i) an opinion of independent
counsel to the effect that the holding of the property by the Trust Fund
subsequent to two years after its acquisition will not result in the imposition
of a tax on the Trust Fund or cause the Trust Fund to fail to qualify as a
REMIC under the Code at any time that any Certificate is outstanding or (ii) an
extension from the Internal Revenue Service.
The limitations imposed by the Agreement and the REMIC provisions of
the Code on the operations and ownership of any Mortgaged Property acquired on
behalf of the Trust Fund may result in the recovery of an amount less than the
amount that would otherwise be recovered. See "Certain Legal Aspects of
Mortgage Loans--Foreclosure".
The Special Servicer may offer to sell to any person any Defaulted
Mortgage Loan or any REO Property, or may offer to purchase any Specially
Serviced Mortgage Loan or any REO Property (in each case at the repurchase
price set forth in the Pooling and Servicing Agreement, which includes unpaid
principal and interest thereon), if and when the Special Servicer determines,
consistent with the servicing standard set forth in the Pooling and Servicing
Agreement, that no satisfactory arrangements can be made for collection of
delinquent payments thereon and such a sale would be in the best economic
interests of the Trust Fund, but 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 within the period
specified in the Pooling and Servicing Agreement, including extensions thereof.
The Special Servicer shall give the Trustee not less than ten days' prior
written notice of its intention to sell any Specially Serviced Mortgage Loan or
REO Property, in which case the Special Servicer shall accept the highest offer
received from any person for any Specially Serviced Mortgage Loan or any REO
Property in an amount at least equal to the Repurchase Price or, at its option,
if it has received no offer at least equal to the Repurchase Price therefor,
purchase the Specially Serviced Mortgage Loan or REO Property at such
Repurchase Price. In addition, holders of subordinate Classes of Certificates
may purchase Specially Serviced Mortgage Loans, or may direct the Special
Servicer to delay any foreclosure proceedings, subject to certain limitations.
See "--Realization on Mortgage Loans."
In the absence of any such offer (or purchase by the Special
Servicer), the Special Servicer shall accept the highest offer received from
any person that is determined by the Special Servicer to be a fair price for
such Specially Serviced Mortgage Loan or REO Property, if the highest offeror
is a person not affiliated with the Special Servicer, the Servicer or the
Depositor or is determined to be a fair price by the Trustee (after
consultation with an independent appraiser if the highest offeror is an
interested party). Notwithstanding anything
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to the contrary herein, neither the Trustee, in its individual capacity, nor
any of its affiliates may make an offer for or purchase any Specially Serviced
Mortgage Loan or any REO Property.
The Special Servicer shall not be obligated by either of the foregoing
paragraphs or otherwise to accept the highest offer if the Special Servicer
determines, in accordance with the Servicing Standard, that rejection of such
offer would be in the best interests of the holders of Certificates. In
addition, the Special Servicer may accept a lower offer if it determines, in
accordance with the Servicing Standard, that acceptance of such offer would be
in the best interests of the holders of Certificates (for example, if the
prospective buyer making the lower offer is more likely to perform its
obligations, or the terms offered by the prospective buyer making the lower
offer are more favorable), provided that the offeror is not a person affiliated
with the Special Servicer. The Special Servicer is required to use its best
efforts to sell all Specially Serviced Mortgage Loans and REO Property prior to
the Rated Final Distribution Date.
MODIFICATIONS
The Special Servicer may, consistent with the Servicing Standard,
agree to any modification, waiver or amendment of any term of, forgive or
defer interest on and principal of, and/or add collateral for, any Mortgage
Loan with the consent of Certificateholders representing 100% of the
Percentage Interests of the most subordinate Class of Certificates then
outstanding determined as provided below, subject, however, to each of the
following limitations, conditions and restrictions: (i) a material default on
such Mortgage Loan has occurred or, in the Special Servicer's reasonable and
good faith judgment, a default in respect of payment on such Mortgage Loan is
reasonably foreseeable, and such modification, waiver, amendment or other
action is reasonably likely to produce a greater recovery to
Certificateholders on a present value basis (the relevant discounting of
anticipated collections that will be distributable to Certificateholders will
be done at the related Mortgage Rate), than would liquidation; (ii) the
Special Servicer may not extend the date on which any Balloon Payment is
scheduled to be due on any Specially Serviced Mortgage Loan except as
described under "Realization Upon Mortgage Loans"; (iii) no reduction of any
scheduled monthly payment of principal and/or interest on any Specially
Serviced Mortgage Loan may result in a debt service coverage ratio for such
Mortgage Loan of greater than 1.10 to 1, and the Special Servicer may only
agree to reductions lasting a period of no more than twelve months and, in the
aggregate, no more than three consecutive reductions of twelve months or less
each; (iv) the Special Servicer may not release or substitute collateral or
release mortgagors or guarantors except in accordance with the provisions of
the related Loan Documents; (v) the Special Servicer may not reduce any
Prepayment Premium or Lock-out Period unless the Special Servicer has received
the prior consent of the Servicer; (vi) the Special Servicer may not forgive
an aggregate amount of principal of the Mortgage Loans in excess of the
Certificate Balance of most the subordinate Class of Certificates; and (vii)
the Special Servicer will not permit any borrower to add any collateral unless
the Special Servicer has first determined in accordance with the servicing
standard, based upon an environmental assessment prepared by an independent
person who regularly conducts environmental assessments, at the expense of the
borrower, that such additional collateral is in compliance with applicable
environmental laws and regulations and that there are no circumstances or
conditions present with respect to such new collateral relating to the use,
management or disposal of any hazardous materials for which investigation,
testing, monitoring, containment, clean-up or remediation would be required
under any then applicable environmental laws and/or regulations. For purposes
of obtaining the consent of the most subordinate Class of Certificates
outstanding to any modification described above, (i) the Class A-1A. Class
A-1B, Class A-1C, Class A-CS1, and Class A-CS2 Certificates collectively and
(ii) the Class B-3 and Class B-3H Certificates together, will, in each case,
be treated as one class. For purposes of determining the amount of principal
which the Special Servicer may forgive pursuant to clause (vi) above, the most
subordinate Class will include the next subordinate Class (determined as
provided in the preceding sentence) provided that Certificateholders
evidencing 100% of the Percentage Interests of such Class consent to such
forgiveness. Notwithstanding the foregoing, the Special Servicer will not be
required to oppose the confirmation of a plan in any bankruptcy or similar
proceeding involving a borrower if in its reasonable and good faith judgment
such opposition would not ultimately prevent the confirmation of such plan or
one substantially similar.
The Special Servicer will have no liability to the Trust Fund, the
Certificateholders or any other person if its analysis and determination that
the modification, waiver, amendment or other action described herein is
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reasonably likely to produce a greater recovery to Certificateholders on a
present value basis than would liquidation, should prove to be wrong or
incorrect, so long as the analysis and determination were made on a reasonable
basis in good faith by the Special Servicer.
Any payment of interest, which is deferred as described herein will
not, for purposes, including, without limitation, calculating monthly
distributions to Certificateholders, be added to the unpaid principal balance
of the related Mortgage Loan, notwithstanding that the terms of such Mortgage
Loan so permit or that such interest may actually be capitalized.
Following the execution of any modification, waiver or amendment
agreed to by the Special Servicer pursuant to clause (i) above, the Special
Servicer must deliver to the Trustee an officer's certificate setting forth in
reasonable detail the basis of the determination made by it pursuant to clause
(i) above.
Except as otherwise provided above under "Realization Upon Mortgage
Loans" and "Modifications", the Special Servicer or the Servicer may not modify
any term of a Mortgage Loan unless such modification (i) would not be
"significant" as such term is defined in Code Section 1001 or Treasury
Regulation Section 1.860G-2(b)(3), as evidenced by an opinion of counsel and
(ii) would be in accordance with the servicing standard set forth in the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement will
require the Servicer or Special Servicer, as applicable, to provide copies of
any modifications or extensions to each Rating Agency.
TERMINATION
The obligations created by the Pooling and Servicing Agreement for
the Certificates will terminate upon the payment to Certificateholders of all
amounts held in the Collection Account or by the Servicer, if any, or the
Trustee and required to be paid to them pursuant to the Pooling and Servicing
Agreement following the earlier of (i) the final payment or other liquidation
of the last Mortgage Loan subject thereto or the disposition of all property
acquired upon foreclosure of any Mortgage Loan subject thereto and (ii) the
purchase of all of the assets of the Trust Fund by the party entitled to
effect such termination. In no event, however, will the trust created by the
Pooling and Servicing Agreement 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 United Kingdom,
living on the date hereof. Written notice of termination of the Pooling and
Servicing Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee, which will be
specified in the notice of termination.
OPTIONAL TERMINATION
The Depositor or the Servicer and, if neither the Depositor nor the
Servicer exercises its option, the holders of the Class LR Certificates
representing greater than a 50% Percentage Interest of the Class LR
Certificates will have the option to purchase all of the Mortgage Loans and all
property acquired in respect of any Mortgage Loan remaining in the Trust Fund,
and thereby effect termination of the Trust Fund and early retirement of the
then outstanding Certificates, on any Distribution Date on which the aggregate
Stated Principal Balance of the Mortgage Loans remaining in the Trust Fund is
less than 1% of the aggregate principal balance of such Mortgage Loans as of
the Cut-off Date. The purchase price payable upon the exercise of such option
on such a Distribution Date will be an amount equal to the greater of (i) the
sum of (A) 100% of the outstanding principal balance of each Mortgage Loan
included in the Trust Fund as of the last day of the month preceding such
Distribution Date; (B) the fair market value of all other property included in
the Trust Fund as of the last day of the month preceding such Distribution
Date, as determined by an independent appraiser as of a date not more than 30
days prior to the last day of the month preceding such Distribution Date; (C)
all unpaid interest accrued on such principal balance of each such Mortgage
Loan (including any Mortgage Loans as to which title to the related Mortgaged
Property has been acquired) at the Mortgage Rate (plus the Excess Rate, to the
extent applicable) to the last day of the month preceding such Distribution
Date, and (D) unreimbursed Advances (with interest thereon) and unpaid Trust
Fund expenses and (ii) the aggregate fair market value of the Mortgage Loans
and all other property acquired in respect of any Mortgage Loan in the Trust
Fund, on the last day of the month preceding such Distribution Date, as
determined by an independent appraiser acceptable to the Servicer, together
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with one month's interest thereon at the Mortgage Rate. See "Description of
the Certificates--Termination" in the Prospectus.
THE TRUSTEE
LaSalle National Bank, a nationally chartered bank with its principal
offices in Chicago, Illinois, will act as Trustee pursuant to the Pooling and
Servicing Agreement. The Trustee's corporate trust office is located at 135
South LaSalle Street, Suite 1740, Chicago, Illinois 60603, Attention: Asset
Backed Securities Trust Services, Nomura-D3.
The Trustee may resign at any time by giving written notice to the
Depositor, the Servicer and the Rating Agencies, provided that no such
resignation shall be effective until a successor has been appointed. Upon such
notice, the Servicer will appoint a successor trustee. If no successor trustee
is appointed within one month after the giving of such notice of resignation,
the resigning Trustee may petition the court for appointment of a successor
trustee.
The Servicer or the Depositor may remove the Trustee and the Fiscal
Agent if, among other things, the Trustee ceases to be eligible to continue as
such under the Pooling and Servicing Agreement or if at any time the Trustee
becomes incapable of acting, or is adjudged bankrupt or insolvent, or a
receiver of the Trustee or its property is appointed or any public officer
takes charge or control of the Trustee or of its property. The holders of
Certificates evidencing aggregate Voting Rights of at least 50% of all
Certificateholders may remove the Trustee and the Fiscal Agent upon written
notice to the Depositor, the Servicer, the Trustee and the Fiscal Agent. Any
resignation or removal of the Trustee and the Fiscal Agent and appointment of a
successor trustee and, if such trustee is not rated at least "AA" by each
Rating Agency, fiscal agent, will not become effective until acceptance of the
appointment by the successor trustee and, if necessary, fiscal agent.
Notwithstanding the foregoing, upon any termination of the Trustee and Fiscal
Agent under the Pooling and Servicing Agreement, the Trustee and Fiscal Agent
will continue to be entitled to receive all accrued and unpaid compensation
through the date of termination plus all Advances and interest thereon as
provided in the Pooling and Servicing Agreement. Any successor trustee must
have a combined capital and surplus of at least $50,000,000 and such
appointment must not result in the downgrade, qualification or withdrawal of
the then-current ratings assigned to the Certificates, as evidenced in writing
by the Rating Agencies.
Pursuant to the Pooling and Servicing Agreement, the Trustee will be
entitled to withdraw from the Distribution Account a monthly fee (the "Trustee
Fee"), which constitutes a portion of the Servicing Fee.
The Trust Fund will indemnify the Trustee and the Fiscal Agent against
any and all losses, liabilities, damages, claims or unanticipated expenses
(including reasonable attorneys' fees) arising in respect of the Pooling and
Servicing Agreement or the Certificates other than those resulting from the
negligence, bad faith or willful misconduct of the Trustee or the Fiscal Agent,
as applicable. Neither the Trustee nor the Fiscal Agent will be required to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties under the Pooling and Servicing Agreement, or
in the exercise of any of its rights or powers, if in the Trustee's or the
Fiscal Agent's opinion, as applicable, the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it. Each
of the Servicer, the Special Servicer, the Depositor, the Paying Agent, the
Certificate Registrar and the Custodian will indemnify the Trustee, the Fiscal
Agent, and certain related parties for similar losses incurred related to the
willful misconduct, bad faith, fraud and/or negligence in the performance of
each such party's respective duties under the Pooling and Servicing Agreement
or by reason of reckless disregard of its obligations and duties under the
Pooling and Servicing Agreement.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
is located, the Depositor and the Trustee acting jointly will have the power to
appoint one or more persons or entities approved by the Trustee to act (at the
expense of the Trustee) as co-trustee or co-trustees, jointly with the Trustee,
or separate trustee or separate trustees, of all or any part of the Trust Fund,
and to vest in such co-trustee or separate trustee such powers, duties,
obligations, rights and trusts as the Depositor and the Trustee may consider
necessary or desirable. Except as required by applicable law, the
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appointment of a co-trustee or separate trustee will not relieve the Trustee
of its responsibilities, obligations and liabilities under the Pooling and
Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee (except for the information under the first paragraph of
"--The Trustee") and Servicer (except for the information under "--The
Servicer") will make no representation as to the validity or sufficiency of the
Pooling and Servicing Agreement, the Certificates or the Mortgage Loans, this
Prospectus or related documents. The Trustee will not be accountable for the
use or application by the Depositor, the Servicer or the Special Servicer of
any Certificates issued to it or of the proceeds of such Certificates, or for
the use of or application of any funds paid to the Depositor, the Servicer or
the Special Servicer in respect of the assignment of the Mortgage Loans to the
Trust Fund, or any funds deposited in or withdrawn from the Lock Box Accounts,
Cash Collateral Accounts, Reserve Accounts, Collection Account, Upper-Tier
Distribution Account, Distribution Account, Excess Interest Distribution
Account, Interest Reserve Account and Default Interest Distribution Account or
any other account maintained by or on behalf of the Servicer or Special
Servicer, nor will the Trustee be required to perform, or be responsible for
the manner of performance of, any of the obligations of the Servicer or Special
Servicer under the Pooling and Servicing Agreement.
In the event that the Servicer fails to make a required Advance, the
Trustee will make such Advance, provided that the Trustee shall not be
obligated to make any Advance it deems to be nonrecoverable. The Trustee shall
be entitled to rely conclusively on any determination by the Servicer or the
Special Servicer that an Advance, if made, would not be recoverable. The
Trustee will be entitled to reimbursement for each Advance made by it in the
same manner and to same extent as the Servicer or the Special Servicer.
If no Event of Default has occurred, and after the curing of all
Events of Default which may have occurred, the Trustee is required to perform
only those duties specifically required under the Pooling and Servicing
Agreement. Upon receipt of the various certificates, reports or other
instruments required to be furnished to it, the Trustee is required to examine
such documents and to determine whether they conform on their face to the
requirements of the Pooling and Servicing Agreement.
THE FISCAL AGENT
ABN AMRO Bank N.V., a banking corporation organized under the laws of
The Netherlands, will act as Fiscal Agent pursuant to the Pooling and Servicing
Agreement. The Fiscal Agent's office is located at 135 South LaSalle Street,
Chicago, Illinois 60603. The Fiscal Agent will be deemed to have been removed
in the event of the resignation or removal of the Trustee.
DUTIES OF THE FISCAL AGENT
The Fiscal Agent will make no representation as to the validity or
sufficiency of the Pooling and Servicing Agreement, the Certificates, the
Mortgage Loan, this Prospectus (except for the information above, see "--The
Fiscal Agent") or related documents. The duties and obligations of the Fiscal
Agent consist only of making Advances as described below and in "--Advances"
above; the Fiscal Agent shall not be liable except for the performance of such
duties and obligations.
In the event that the Servicer and the Trustee fail to make a required
Advance, the Fiscal Agent will make such Advance, provided that the Fiscal
Agent will not be obligated to make any Advance that it deems to be
nonrecoverable. The Fiscal Agent shall be entitled to rely conclusively on any
determination by the Servicer or the Trustee, as applicable, that an Advance,
if made, would not be recoverable. The Fiscal Agent will be entitled to
reimbursement for each Advance made by it in the same manner and to the same
extent as the Trustee and the Servicer.
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THE SERVICER
[____________], a [_____] corporation, will be the Servicer and in
such capacity will be responsible for servicing the Mortgage Loans.
[description and address of Servicer].
[Financial information of Servicer]
The information concerning the Servicer set forth herein has been
provided by the Servicer, and none of the Mortgage Loan Seller, the Special
Servicer, the Depositor, the Trustee, the Fiscal Agent or the Underwriter makes
any representation or warranty as to the accuracy thereof.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
entitled to withdraw monthly from the Collection Account its portion of the
Servicing Fee. The monthly servicing fee (the "Servicing Fee") for any
Distribution Date is an amount per Interest Accrual Period equal to the product
of (i) a per annum rate of [0.058]% (the "Servicing Fee Rate") and (ii) the
Stated Principal Balance of such Mortgage Loan as of the Due Date and includes
the compensation payable to the Servicer and the Trustee Fee. Notwithstanding
the foregoing, upon the occurrence of a defeasance with respect to the Mortgage
Loan known as the Pinnacle Retail Portfolio Loan, the Servicing Fee Rate of the
Servicer shall be reduced to 0.0% with respect to the defeased portion of such
loan. The Servicer's portion of the Servicing Fee relating to each Mortgage
Loan will be retained by the Servicer from payments and collections (including
insurance proceeds, condemnation proceeds and liquidation proceeds) in respect
of such Mortgage Loan. The Servicer will also be entitled to retain as
additional servicing compensation (together with the Servicer's portion of the
Servicing Fee, "Servicing Compensation") (i) all investment income earned on
amounts on deposit in the Collection Account and certain Reserve Accounts (to
the extent consistent with the related Mortgage Loan) and (ii) to the extent
permitted by applicable law and the related Mortgage Loans, any late payment
charges, one-half of any loan modification or extension fees (payable in
connection with a modification for which review by the Servicer is required),
loan service transaction fees, beneficiary statement changes, or similar items
(but not including Prepayment Premiums). If a review by the Servicer is not
required, the Special Servicer will be entitled to the full amount of any
modification fees.
If the Servicer accepts a voluntary prepayment on a Mortgage Loan
after the related Lock-out Period with respect to such loan which results in a
Prepayment Interest Shortfall, the Servicer will be obligated to reduce its
Servicing Compensation as provided above under "Description of the Offered
Certificates--Distributions--Prepayment Interest Shortfalls."
The Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to
reimbursement as described herein), including all fees of any subservicers
retained by it. The Trustee will withdraw monthly from the Distribution Account
the portion of the Servicing Fee representing the Trustee Fee.
SPECIAL SERVICING
[_______________] will initially be appointed as special servicer (the
"Special Servicer") to, among other things, oversee the resolution of
non-performing Mortgage Loans and act as disposition manager of REO Properties.
The Pooling and Servicing Agreement will provide that more than one Special
Servicer may be appointed, but only one Special Servicer may specially service
any Mortgage Loan.
[Insert financial information of Special Servicer]
The Special Servicer will, among other things, oversee the resolution
of non-performing Mortgage Loans and act as disposition manager of REO
Properties. The Pooling and Servicing Agreement provides that holders of
Certificates evidencing 51% of the Percentage Interests of the most subordinate
Class of Certificates then outstanding (provided, however, that for purposes of
determining the most subordinate class, the Class A-1A,
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Class A-1B, Class A-1C, Class A-CS1 and Class A-CS2 Certificates collectively,
and the Class B-3 and Class B-3H Certificates together, will, in each case, be
treated as one Class) may replace the Special Servicer, provided that each
Rating Agency confirms to the Trustee in writing that such replacement, in and
of itself, will not cause a qualification, withdrawal or downgrading of the
then-current ratings assigned to any Class of Certificates. In the event that
a Mortgage Loan secured by a senior housing/healthcare facility or a hotel or
motel becomes a Specially Serviced Mortgage Loan, the Special Servicer will be
required to hire a consultant which is experienced in the operation of such
facilities.
The duties of the Special Servicer relate to Specially Serviced
Mortgage Loans and to any REO Property. The Pooling and Servicing Agreement
will define a "Specially Serviced Mortgage Loan" to include any Mortgage Loan
with respect to which: (i) the related borrower has not made two consecutive
Monthly Payments (and has not cured at least one such delinquency by the next
due date under the related Mortgage Loan) or (ii) the Servicer, the Trustee
and/or the Fiscal Agent has made four consecutive P&I Advances (regardless of
whether such P&I Advances have been reimbursed); (iii) the borrower under
which has expressed to the Servicer an inability to pay or a hardship in
paying the Mortgage Loan in accordance with its terms; (iv) the Servicer has
received notice that the borrower has become the subject of any bankruptcy,
insolvency or similar proceeding, admitted in writing the inability to pay its
debts as they come due or made an assignment for the benefit of creditors; (v)
the Servicer has received notice of a foreclosure or threatened foreclosure of
any lien on the Mortgaged Property securing the Mortgage Loan; (vi) a default
of which the Servicer has notice (other than a failure by the borrower to pay
principal or interest) and which materially and adversely affects the
interests of the Certificateholders has occurred and remained unremedied for
the applicable grace period specified in the Mortgage Loan (or, if no grace
period is specified, 60 days); provided, that a default requiring a Property
Advance will be deemed to materially and adversely affect the interests of
Certificateholders; (vii) the Special Servicer proposes to commence
foreclosure or other workout arrangements; or (viii) such borrower has failed
to make a Balloon Payment as and when due; provided, however, that a Mortgage
Loan will cease to be a Specially Serviced Mortgage Loan (i) with respect to
the circumstances described in clauses (i), (ii), and (viii) above, when the
borrower thereunder has brought the Mortgage Loan current (or, with respect to
the circumstances described in clause (viii), pursuant to a work-out
implemented by the Special Servicer) and thereafter made three consecutive
full and timely monthly payments, including pursuant to any workout of the
Mortgage Loan, (ii) with respect to the circumstances described in clause
(iii), (iv), (v) and (vii) above, when such circumstances cease to exist in
the good faith judgment of the Servicer, or (iii) with respect to the
circumstances described in clause (vi) above, when such default is cured;
provided, in either case, that at that time no circumstance exists (as
described above) that would cause the Mortgage Loan to continue to be
characterized as a Specially Serviced Mortgage Loan.
Pursuant to the Pooling and Servicing Agreement, the Special Servicer
will be entitled to certain fees including a special servicing fee, payable
with respect to each Interest Accrual Period, equal to 1/12 of [0.50]% of the
Stated Principal Balance of each related Specially Serviced Mortgage Loan (the
"Special Servicing Fee"). The Special Servicer will be entitled, in addition to
the Special Servicing Fee, to a "Principal Recovery Fee" with respect to each
Specially Serviced Mortgage Loan or REO Property which Principal Recovery Fee
generally will be in an amount equal to [1]% of all amounts received in respect
thereof and allocable as a recovery of principal which will be payable when the
Mortgage Loan or REO Property is sold or liquidated or when the Specially
Serviced Mortgage Loan ceases to be a Specially Serviced Mortgage Loan.
However, no Principal Recovery Fee will be payable in connection with, or out
of Liquidation Proceeds resulting from, the purchase of any Specially Serviced
Mortgage Loan or REO Property (i) by the Mortgage Loan Seller or other
Originator as described herein under "Pooling and Servicing Agreement--
Representations and Warranties; Repurchase"; (ii) by the Servicer, the
Depositor or the Certificateholders as described herein under "The Pooling and
Servicing Agreement--Optional Termination" or (iii) in certain other limited
circumstances. In addition, the Special Servicer will be entitled to receive
(i) any assumption fees and loan modification fees related to the Specially
Serviced Mortgage Loans and (ii) any income earned on deposits in the REO
Accounts. Notwithstanding the foregoing, in the event that the Special
Servicer is, or is an affiliate of, the holder of Certificates representing
greater than [50]% of the Percentage Interests of the most subordinate Class of
Certificates then outstanding (determined as provided below), the Special
Servicer will be entitled to receive a Special Servicing Fee equal to 1/12 of
[0.25]% of the Stated Principal Balance of each Specially Serviced Mortgage
Loan and one-half of the Principal Recovery Fee it would otherwise be entitled
to.
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For purposes of determining whether the Special Servicer is entitled
to full compensation, with respect to any Mortgage Loan, the Class A-1A, Class
A-1B, Class A-1C, Class A-CS1 and Class A-CS2 Certificates collectively, and
the Class B-3 and Class B-3H Certificates together, will in each case, be
treated as one class.
SERVICER AND SPECIAL SERVICER PERMITTED TO BUY CERTIFICATES
The Servicer and Special Servicer will be permitted to purchase any
Class of Certificates. Such a purchase by the Servicer or Special Servicer
could cause a conflict relating to the Servicer's or Special Servicer's duties
pursuant to the Pooling and Servicing Agreement and the Servicer's or Special
Servicer's interest as a holder of Certificates, especially to the extent that
certain actions or events have a disproportionate effect on one or more Classes
of Certificates. The Pooling and Servicing Agreement provides that the Servicer
or Special Servicer shall administer the Mortgage Loans in accordance with the
servicing standard set forth therein without regard to ownership of any
Certificate by the Servicer or Special Servicer or any affiliate thereof.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee is obligated to furnish to each
Certificateholder, to the Depositor, the Paying Agent, the Servicer, the
Special Servicer and the Rating Agencies a statement setting forth certain
information as to such distribution setting forth for each Class, in each case
to the extent applicable and available, including among other things:
(i) The Principal Distribution Amount and the amount
of Available Funds allocable to principal included therein;
(ii) The Interest Distribution Amount distributable
on such Class and any related component and the amount of Available
Funds allocable thereto, together with any Interest Shortfall
allocable to such Class and any related component;
(iii) The amount of any P&I Advances by the Servicer,
the Trustee or the Fiscal Agent included in the amounts distributed to
Certificateholders not reimbursed since the last Distribution Date;
(iv) The Certificate Balance or Notional Balance, as
applicable, of each Class or component after giving effect to the
distribution of amounts in respect of the Principal Distribution
Amount on such Distribution Date;
(v) Realized Losses (for such month and on a
cumulative basis) and their allocation to the Certificate Balance of
any Class of Certificates;
(vi) The Stated Principal Balance of the Mortgage
Loans as of the Due Date preceding such Distribution Date;
(vii) The number and aggregate principal balance of
Mortgage Loans (and the identity of each related Borrower) (A)
delinquent one month, (B) delinquent two months, (C) delinquent three
or more months, (D) as to which foreclosure proceedings have been
commenced and (E) that otherwise constitute Specially Serviced
Mortgage Loans, and, with respect to each Specially Serviced Mortgage
Loan, the amount of Property Advances made during the related
Collection Period, the amount of the P&I Advance made on such
Distribution Date, the aggregate amount of Property Advances
theretofore made that remain unreimbursed and the aggregate amount of
P&I Advances theretofore made that remain unreimbursed;
(viii) With respect to any Mortgage Loan that became an
REO Property during the preceding calendar month, the principal
balance and appraised value (based on the most recent Updated
Appraisal) of such Mortgage Loan as of the date it became an REO
Mortgage Loan;
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(ix) As of the Due Date preceding such Distribution
Date (A) for any REO Property sold during the related Collection
Period, the amount of the proceeds of such sale deposited into the
Collection Account and (B) the aggregate amount of other revenues
collected by the Special Servicer with respect to each REO Property
during the related Collection Period and credited to the Collection
Account, in each case identifying such REO Property by name;
(x) The appraised value as determined by the most
recent Updated Appraisal (or annual letter update thereof) of any REO
Property;
(xi) The amount of the Servicing Fee, Trustee Fee and
special servicing compensation paid with respect to such Distribution
Date, and the amount of the additional servicing compensation that was
received during the related Collection Period;
(xii) (A) The amount of Prepayment Premiums, if any,
received during the related Collection Period, (B) the amount of
Default Interest received during the related Collection Period and the
Net Default Interest for such Distribution Date and (C) the amount of
Excess Interest, if any, received during the related Collection
Period;
(xiii) The outstanding principal balance and repurchase
price of any Mortgage Loan purchased or repurchased in accordance with
the terms of the Pooling and Servicing Agreement;
(xiv) The amount of Prepayment Interest Shortfalls
with respect to such Distribution Date; and
(xv) The account balance contained in the Reserve
Accounts as of the related Due Date relating to the preceding
Distribution Date for each Mortgage Loan.
In the case of information furnished pursuant to subclauses (i), (ii),
(iii), (iv), (v) and (xiii) above, the amounts shall be expressed as a dollar
amount in the aggregate for all Certificates of each applicable Class and for
each Class of Certificates with a denomination of $1,000 initial Certificate
Balance.
Certain information made available on the monthly reports to
Certificateholders can be retrieved via facsimile through LaSalle National
Bank's ASAP System by calling (312) 904-2200, and requesting statement No. [
]. In addition, to the extent provided to it by the Servicer and the Special
Servicer, the Trustee shall provide to each Certificateholder and Rating
Agency a quarterly report and an annual summary of quarterly reports setting
forth the information with respect to the borrowers and the Mortgaged
Properties substantially in the form of Exhibit A. Such quarterly reports and
annual summaries will be prepared by the Servicer, solely from information
provided to the Servicer by the Special Servicer and to the Special Servicer
pursuant to the Mortgage Loans, without modification, interpretation or
analysis (except that the Special Servicer will use its best efforts to
isolate management fees and funded reserves from borrower reported expenses,
if necessary) and the Servicer and Special Servicer will not be responsible
for the completeness or accuracy of such information. Such monthly and
quarterly reports and annual summaries as well as certain other loan level
information may also be obtained electronically for a fee by calling the
Trustee.
The Servicer, on behalf of the Trust Fund, will (i) mail to the
Depositor and the Trustee (who will copy each Certificateholder upon written
request (provided that each Certificateholder may only make one request per
month and will be required to pay any expenses incurred by the Trustee in
connection with the provision of such information)) and (ii) prepare, sign and
file with the Securities and Exchange Commission as a Current Report on Form
8-K, copies of all quarterly and annual summaries as well as notice of certain
events with respect to the Mortgage Loans which may affect Certificateholders,
such as amendments, modifications and waivers, imminent or actual defaults and
proposed prepayments. Additionally, the Servicer shall make available (to the
extent not inconsistent with the related borrower's rights under the Mortgage
Loan or applicable law) to the Rating Agencies and to the Trustee, which shall
make available to the Certificateholders upon written request (provided that
each Certificateholder may only make one request per month and will be required
to pay any expenses incurred by the
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Trustee in connection with the provision of such information), any information
relating to the Mortgaged Properties or the borrowers which has been provided
to the Servicer pursuant to the Mortgage Loans, including financial and
operating statements provided to the Servicer pursuant to the Mortgage Loans.
USE OF PROCEEDS
The net proceeds from the sale of Offered Certificates will be used by
the Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans.
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, or deeds to secure debt, depending upon the
prevailing practice and law in the state in which the Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the
instrument in the appropriate public recording office. However, recording does
not generally establish priority over governmental claims for real estate taxes
and assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance
of real property between two parties--a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a deed to secure debt.
Under a deed of trust, the mortgagor grants the property, irrevocably until the
debt is paid, in trust, generally with a power of sale as security for the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties. By executing a deed to secure debt, the grantor conveys title to,
as opposed to merely creating a lien upon, the subject property to the grantee
until such time as the underlying debt is repaid, generally with a power of
sale as security for the indebtedness evidenced by the related mortgage note.
As used in this Prospectus, unless the context otherwise requires, the term
"mortgagee" means the lender and, in the case of the deed of trust, the trustee
thereunder in certain cases. In case the mortgagor under a mortgage is a land
trust, there would be an additional party because legal title to the property
is held by a land trustee under a land trust agreement for the benefit of the
mortgagor. At origination of a mortgage loan involving a land trust, the
mortgagor executes a separate undertaking to make payments on the mortgage
note. The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the mortgage, the law of the state in
which the real property is located, certain federal laws (including, without
limitation, the Soldiers' and Sailor's Civil Relief Act of 1940) and, in some
cases, in deed of trust transactions, the directions of the beneficiary.
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LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no unremedied default. If the
mortgagor defaults and such default is not remedied by the mortgagor within the
cure period, if any, the license terminates and the lender is entitled to
collect the rents. Local law may require that the lender take possession of the
property and/or obtain a court-appointed receiver before becoming entitled to
collect the rents. In most States, hotel and motel room rates are considered
accounts receivable under the Uniform Commercial Code ("UCC"); generally these
rates are either assigned by the mortgagor, which remains entitled to collect
such rates absent a default, or pledged by the mortgagor, as security for the
loans. In general, the lender must file financing statements in order to
perfect its security interest in the rates and must file continuation
statements, generally every five years, to maintain perfection of such security
interest. Even if the lender's security interest in room rates is perfected
under the UCC, the lender will generally be required to commence a foreclosure
or otherwise take possession of the property in order to collect the room rates
after a default.
Even after a foreclosure, the potential rent payments from the
property may be less than the periodic payments that had been due under the
mortgage. For instance, the net income that would otherwise be generated from
the property may be less than the amount that would have been needed to service
the mortgage debt if the leases on the property are at below-market rents, or
as the result of excessive maintenance, repair or other obligations which a
lender succeeds to as landlord.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law, and hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender
generally must file UCC financing statements and, to maintain perfection of
such security interest, file continuation statements generally every five
years.
INSTALLMENT CONTRACTS
The Mortgage Loans included in a Trust Fund may also consist of
Installment Contracts. Under an Installment Contract the seller (hereinafter
referred to in this Section as the "lender") retains legal title to the
property and enters into an agreement with the purchaser (hereinafter referred
to in this Section as the "borrower") for the payment of the purchase price,
plus interest, over the term of such contract. Only after full performance by
the borrower of the contract is the lender obligated to convey title to the
real estate to the borrower. As with mortgage or deed of trust financing,
during the effective period of the Installment Contract, the borrower is
generally responsible for maintaining the property in good condition and for
paying real estate taxes, assessments and hazard insurance premiums associated
with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender in
such a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the borrower
may be granted some grace period during which the contract
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may be reinstated upon full payment of the default amount and the borrower may
have a post-foreclosure statutory redemption right. In other states, courts in
equity may permit a borrower with significant investment in the property under
an Installment Contract for the sale of real estate to share in the proceeds
of sale of the property after the indebtedness is repaid or may otherwise
refuse to enforce the forfeiture clause. Nevertheless, generally speaking, the
lender's procedures for obtaining possession and clear title under an
Installment Contract for the sale of real estate in a given state are simpler
and less time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a mortgaged property.
SUBORDINATE FINANCING
Where the mortgagor encumbers mortgaged property with one or more
junior liens, the senior lender is subjected to additional risk. First, the
mortgagor may have difficulty servicing and repaying multiple loans. In
addition, if the junior loan permits recourse to the mortgagor (as junior loans
often do) and the senior loan does not, a mortgagor may be more likely to repay
sums due on the junior loan than those on the senior loan. Second, acts of the
senior lender that prejudice the junior lender or impair the junior lender's
security may create a superior equity in favor of the junior lender. For
example, if the mortgagor and the senior lender agree to an increase in the
principal amount of or the interest rate payable on the senior loan, the senior
lender may lose its priority to the extent any existing junior lender is harmed
or the mortgagor is additionally burdened. Third, if the mortgagor defaults on
the senior loan and/or any junior loan or loans, the existence of junior loans
and actions taken by junior lenders can impair the security available to the
senior lender and can interfere with or delay the taking of action by the
senior lender. Moreover, the bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage and, by reason thereof, the indebtedness
has been accelerated, the mortgagee has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are other foreclosure procedures
available in some states that are either infrequently used or available only
in certain limited circumstances, such as strict foreclosure.
JUDICIAL FORECLOSURE
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest
of record in the real property and all parties in possession of the property,
under leases or otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclosure is
contested, the legal proceedings can be costly and time-consuming. Upon
successful completion of a judicial foreclosure proceeding, the court generally
issues a judgment of foreclosure and appoints a referee or other officer to
conduct a public sale of the mortgaged property, the proceeds of which are used
to satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
NON-JUDICIAL FORECLOSURE/POWER OF SALE
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale pursuant to the power of sale granted in the deed
of trust. A power of sale is typically granted in a deed of trust. It may also
be contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
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mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such
sale, the trustee under a deed of trust must record a notice of default and
notice of sale and send a copy to the mortgagor and to any other party who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, in some states the trustee must provide notice to any other party
having an interest of record in the real property, including junior
lienholders. A notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers. The
mortgagor or junior lienholder may then have the right, during a reinstatement
period required in some states, to cure the default by paying the entire actual
amount in arrears (without acceleration) plus the expenses incurred in
enforcing the obligation. In other states, the mortgagor or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Generally,
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods are governed by state law and
vary among the states. Foreclosure of a deed to secure debt is also generally
accomplished by a non-judicial sale similar to that required by a deed of
trust, except that the lender or its agent, rather than a trustee, is typically
empowered to perform the sale in accordance with the terms of the deed to
secure debt and applicable law.
LIMITATIONS ON LENDER'S RIGHTS
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent an injustice, undue oppression or overreaching, or may require the
lender to undertake affirmative and expensive actions to determine the cause of
the mortgagor's default and the likelihood that the mortgagor will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate mortgagors who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g.,
the mortgagor failed to maintain the mortgaged property adequately or the
mortgagor executed a junior mortgage on the mortgaged property. The exercise by
the court of its equity powers will depend on the individual circumstances of
each case presented to it. Finally, some courts have been faced with the issue
of whether federal or state constitutional provisions reflecting due process
concerns for adequate notice require that a mortgagor receive notice in
addition to statutorily-prescribed minimum notice. For the most part, these
cases have upheld the reasonableness of the notice provisions or have found
that a public sale under a mortgage providing for a power of sale does not
involve sufficient state action to afford constitutional protections to the
mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete.
Also, a third party may be unwilling to purchase a mortgaged property
at a public sale because of the difficulty in determining the value of such
property at the time of sale, due to, among other things, redemption rights
which may exist and the possibility of physical deterioration of the property
during the foreclosure proceedings. Potential buyers may be reluctant to
purchase property at a foreclosure sale as a result of the 1980 decision of the
United States Court of Appeals for the Fifth Circuit in Durrett v. Washington
National Insurance Company and other decisions that have followed its
reasoning. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under the federal
Bankruptcy Code, as amended from time to time (11 U.S.C.) and, therefore, could
be rescinded in favor of the bankrupt's estate, if (i) the foreclosure sale was
held while the debtor was insolvent and not more than one year prior to the
filing of the bankruptcy petition and (ii) the price paid for the foreclosed
property did not represent "fair consideration" ("reasonably equivalent value"
under the Bankruptcy Code). Although the reasoning and result of Durrett in
respect of the Bankruptcy Code was rejected by the United States Supreme Court
in May 1994, the case could nonetheless be persuasive to a court applying a
state fraudulent conveyance law which has provisions similar to those construed
in Durrett. For these reasons, it is common for the lender to purchase the
mortgaged property for an amount equal to the lesser of fair market value and
the underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's
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right in some states to remain in possession during a redemption period, if
applicable, the lender will become the owner of the property and have both the
benefits and burdens of ownership of the mortgaged property. For example, the
lender will have the obligation to pay debt service on any senior mortgages,
to pay taxes, obtain casualty insurance and to make such repairs at its own
expense as are necessary to render the property suitable for sale. Frequently,
the lender employs a third party management company to manage and operate the
property. The costs of operating and maintaining a commercial or multifamily
residential property may be significant and may be greater than the income
derived from that property. The costs of management and operation of those
mortgaged properties which are hotels, motels or restaurants or nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's
and the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or bankruptcy
proceedings. Furthermore, a few states require that any environmental
contamination at certain types of properties be cleaned up before a property
may be resold. In addition, a lender may be responsible under federal or state
law for the cost of cleaning up a mortgaged property that is environmentally
contaminated. See "--Environmental Legislation". Generally state law controls
the amount of foreclosure expenses and costs, including attorneys' fees, that
may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the
junior mortgage unless it forecloses subject to senior mortgages and any other
prior liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly, with respect to those Mortgage Loans which are junior mortgage
loans, if the lender purchases the property the lender's title will be subject
to all senior mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
generally applied first to the costs, fees and expenses of sale, to unpaid real
estate taxes and assessments and then in satisfaction of the indebtedness
secured by the mortgage under which the sale was conducted. Any proceeds
remaining after satisfaction of senior mortgage debt are generally payable to
the holders of junior mortgages and other liens and claims in order of their
priority, whether or not the mortgagor is in default. Any additional proceeds
are generally payable to the mortgagor. The payment of the proceeds to the
holders of junior mortgages may occur in the foreclosure action of the senior
mortgage or a subsequent ancillary proceeding or may require the institution of
separate legal proceedings by such holders.
In connection with Certificates for which an election is made to
qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Regulations and the Pooling and Servicing Agreement may require the Special
Servicer to hire an independent contractor to operate any REO Property.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption". The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having an interest which is subordinate to that of the foreclosing
mortgagee have an equity of redemption and may redeem the property by paying
the entire debt with interest. In addition, in some states, when a foreclosure
action has been commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must generally be made parties and
joined in the foreclosure proceeding in order for their equity of redemption to
be cut off and terminated.
The equity of redemption is generally a common-law (non-statutory)
right which exists prior to completion of the foreclosure, is not waivable by
the mortgagor, must be exercised prior to foreclosure sale and should be
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distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale
price. In other states, redemption may be authorized if the former mortgagor
pays only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The exercise of a right of redemption would defeat the title of any
purchaser from a foreclosure sale or sale under a deed of trust. Consequently,
the practical effect of the redemption right is to force the lender to
maintain the property and pay the expenses of ownership until the redemption
period has expired. In some states, a post-sale statutory right of redemption
may exist following a judicial foreclosure, but not following a trustee's sale
under a deed of trust.
Under the REMIC Regulations currently in effect, property acquired by
foreclosure generally must not be held for more than two years. With respect to
Certificates for which an election is made to qualify the Trust Fund or a part
thereof as a REMIC, the Pooling and Servicing Agreement will permit foreclosed
property to be held for more than two years if the Trustee receives (i) an
extension from the Internal Revenue Service or (ii) an opinion of counsel to
the effect that holding such property for such period is permissible under the
REMIC Regulations.
ANTI-DEFICIENCY LEGISLATION
Some or all of the Mortgage Loans may be nonrecourse loans, as to
which recourse may be had only against the specific property securing the
related Mortgage Loan and a personal money judgment may not be obtained against
the mortgagor. Even if a mortgage loan by its terms provides for recourse to
the mortgagor, some states impose prohibitions or limitations on such recourse.
For example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the mortgagor. In certain other states, the lender has the
option of bringing a personal action against the mortgagor on the debt without
first exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the former
mortgagor as a result of low or no bids at the judicial sale.
LEASEHOLD RISKS
Mortgage Loans may be secured by a mortgage on a ground lease.
Leasehold mortgages are subject to certain risks not associated with mortgage
loans secured by the fee estate of the mortgagor. The most significant of these
risks is that the ground lease creating the leasehold estate could terminate,
leaving the leasehold mortgagee without its security. The ground lease may
terminate if, among other reasons, the ground lessee breaches or defaults in
its obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground leases
that secure Mortgage Loans may not contain some of these protective provisions,
and mortgages may not contain the other protections discussed in the next
paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults
by the mortgagor; the right to cure such defaults, with adequate cure periods;
if a default is not susceptible of cure by the leasehold mortgagee, the right
to acquire the leasehold estate through foreclosure or otherwise; the ability
of the ground lease to be assigned to and by the leasehold mortgagee or
purchaser at a foreclosure sale and for the concomitant release of the ground
lessee's
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liabilities thereunder; and the right of the leasehold mortgagee to enter into
a new ground lease with the ground lessor on the same terms and conditions as
the old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground
lessor's bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (11
U.S.C.) (the "Bankruptcy Code"), although the enforceability of such clause has
not been established. Without the protections described in the foregoing
paragraph, a leasehold mortgagee may lose the collateral securing its leasehold
mortgage. In addition, terms and conditions of a leasehold mortgage are subject
to the terms and conditions of the ground lease. Although certain rights given
to a ground lessee can be limited by the terms of a leasehold mortgage, the
rights of a ground lessee or a leasehold mortgagee with respect to, among other
things, insurance, casualty and condemnation will be governed by the provisions
of the ground lease.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or
affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances. The
outstanding amount of the loan secured by the real property may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, which reduction may result from a reduction in the rate of interest
and/or the alteration of the repayment schedule (with or without affecting the
unpaid principal balance of the loan), and/or an extension (or reduction) of
the final maturity date. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the reorganization case, that
effected the curing of a mortgage loan default by paying arrearages over a
number of years. Also, under federal bankruptcy law, a bankruptcy court may
permit a debtor through its rehabilitative plan to de- accelerate a secured
loan and to reinstate the loan even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered in state court
(provided no sale of the property had yet occurred) prior to the filing of the
debtor's petition. This may be done even if the full amount due under the
original loan is never repaid.
The Bankruptcy Code has been amended to provide that a lender's
perfected pre-petition security interest in leases, rents and hotel revenues
continues in the post-petition leases, rents and hotel revenues, unless a
bankruptcy court orders to the contrary "based on the equities of the case."
Thus, unless a court orders otherwise, revenues from a Mortgaged Property
generated after the date the bankruptcy petition is filed will constitute
"cash collateral" under the Bankruptcy Code. Debtors may only use cash
collateral upon obtaining the lender's consent or a prior court order finding
that the lender's interest in the Mortgaged Properties and the cash collateral
is "adequately protected" as such term is defined and interpreted under the
Bankruptcy Code. It should be noted, however, that the court may find that the
lender has no security interest in either pre-petition or post-petition
revenues if the court finds that the loan documents do not contain language
covering accounts, room rents, or other forms of personalty necessary for a
security interest to attach to hotel revenues.
To the extent that a mortgagor's ability to make payment on a mortgage
loan is dependent on its receipt of payments of rent under a lease of the
related property, such ability may be impaired by the commencement of a
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bankruptcy proceeding relating to a lessee under such lease. Under the
Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a
lessee results in a stay in bankruptcy against the commencement or
continuation of any state court proceeding for past due rent, for accelerated
rent, for damages or for a summary eviction order with respect to a default
under the lease that occurred prior to the filing of the lessee's petition.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee or debtor in possession (or assignee, if
applicable) must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, however, as the lessor may be
forced to continue under the lease with a lessee that is a poor credit risk or
an unfamiliar tenant if the lease was assigned, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured credit or with respect to its claim for damages
for termination of the lease. In addition, pursuant to Section 502(b)(6) of the
Bankruptcy Code, a lessor's damages for lease rejection in respect of future
rent installments are limited to the rent reserved by the lease, without
acceleration, for the greater of one year, or 15%, not to exceed three years,
of the remaining term of the lease.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor under
the related Mortgage Loan to the Trust Fund. Payments on long-term debt may be
protected from recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course of business.
Whether any particular payment would be protected depends upon the facts
specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
Pursuant to the federal doctrine of "substantive consolidation" or to
the (predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity impaired
in the fashion set forth above in the discussion of ordinary bankruptcy
principles. Depending on facts and circumstances not wholly in existence at the
time a loan is originated or transferred to the Trust Fund, the application of
any of these doctrines to one or more of the mortgagors in the context of the
bankruptcy of one or more of their affiliates could result in material
impairment of the rights of the Certificateholders.
For each mortgagor that is described as a "special purpose entity",
"single purpose entity" or "bankruptcy- remote entity" in this Prospectus, the
activities that may be conducted by such mortgagor and its ability to incur
debt are restricted by the applicable Mortgage or the organizational documents
of such mortgagor in such manner as is intended to make the likelihood of a
bankruptcy proceeding being commenced by or against such mortgagor remote, and
such mortgagor has been organized and is designed to operate in a manner such
that its separate existence should be respected notwithstanding a bankruptcy
proceeding in respect of one or more affiliated entities of such mortgagor.
However, the Depositor makes no representation as to the likelihood of the
institution of a bankruptcy proceeding by or in respect of any mortgagor or
the likelihood that the separate existence of any mortgagor would be respected
if there were to be a bankruptcy proceeding in respect of any affiliated
entity of a mortgagor.
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ENVIRONMENTAL LEGISLATION
A lender may be subject to unforeseen environmental risks when taking
a security interest in real or personal property.
Under the laws of many states, contamination on a property may give
rise to a lien on the property for cleanup costs. In several states, such a
lien has priority over all existing liens (a "superlien") including those of
existing mortgages; in those states, the lien of a mortgage contemplated by
this transaction may lose its priority to such a superlien.
CERCLA imposes strict, as well as joint and several, liability on
several classes of potentially responsible parties, including current owners
and operators of the property, regardless of whether they caused or contributed
to the contamination. Many states have laws similar to CERCLA. CERCLA excludes
from the definition of "owner or operator" any person "who, without
participating in the management of . . . [the] facility, holds indicia of
ownership primarily to protect his security interest" ("secured-creditor
exemption").
A lender may lose its secured-creditor exemption and be held liable
under CERCLA as an owner or operator, if such lender or its employees or agents
participate in management of the property. Also, if the lender takes title to
or possession of the property, the secured-creditor exemption may be deemed to
be unavailable, and the lender may be liable to the government or private
parties for clean-up or other remedial costs pursuant to CERCLA.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly
construed the CERCLA secured-creditor exemption. The Court held that a
mortgagee need not have involved itself in the day-to-day operations of the
mortgaged property or in decisions relating to hazardous waste in order to be
liable under CERCLA; rather, liability could attach to a mortgagee if its
involvement in the management of the property is sufficiently broad to support
the inference that it had the capacity to influence the mortgagor's treatment
of hazardous waste. Such capacity to influence could be inferred from the
extent of the mortgagee's involvement in the mortgagor's financial management.
A subsequent decision by the United States Court of Appeals for the Ninth
Circuit in In re Bergsoe Metal Corp. disagreed with the Fleet Factors opinion,
ruling that a secured lender had no liability absent "some actual management of
the facility" on the part of the lender. The scope of the secured-creditor
exemption is thus unclear.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental
contamination, but that person or entity may be bankrupt or otherwise judgment
proof. It is possible that cleanup costs could become a liability of the Trust
Fund and occasion a loss to Certificateholders in certain circumstances
described above if such remedial costs were incurred.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender
may accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the mortgagor of an
otherwise non-recourse loan, the mortgagor becomes personally liable for the
mortgage debt. The enforceability of due-on-sale clauses has been the subject
of legislation or litigation in many states and, in some cases, the
enforceability of these clauses was limited or denied. However, with respect
to certain loans the Garn-St Germain Depository Institutions Act of 1982
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these
clauses in accordance with their terms subject to certain limited exceptions.
The Servicer, on behalf of the Trust Fund, will determine whether to exercise
any right the Trustee may have as mortgagee to accelerate payment of any such
Mortgage Loan or to withhold its consent to any transfer or further
encumbrance in accordance with the general servicing standard described
herein.
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ACCELERATION ON DEFAULT
Some of the Mortgage Loans included in a Trust Fund will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the borrower. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of any state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the borrower may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
State courts also are known to apply various legal and equitable
principles to avoid enforcement of the forfeiture provisions of Installment
Contracts. For example, a lender's practice of accepting late payments from the
borrower may be deemed a waiver of the forfeiture clause. State courts also may
impose equitable grace periods for payment of arrearages or otherwise permit
reinstatement of the contract following a default. Not infrequently, if a
borrower under an Installment Contract has significant equity in the property,
equitable principles will be applied to reform or reinstate the contract or to
permit the borrower to share the proceeds upon a foreclosure sale of the
property if the sale price exceeds the debt.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid prior
to maturity or prohibit such prepayment for a specified period. In certain
states, there are or may be specific limitations upon the late charges which a
lender may collect from a mortgagor for delinquent payments. Certain states
also limit the amounts that a lender may collect from a mortgagor as an
additional charge if the loan is prepaid. The enforceability, under the laws of
a number of states of provisions providing for prepayment fees or penalties
upon, or prohibition of, an involuntary prepayment is unclear, and no assurance
can be given that, at the time a Prepayment Premium is required to be made on a
Mortgage Loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any such prohibition, will be
enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher Mortgage
Rates, may increase the likelihood of refinancing or other early retirements of
the Mortgage Loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that first mortgage loans secured by primarily residential
properties that are originated on or after January 1, 1980 are subject to
federal preemption. Therefore, in a state that has not taken the requisite
action to reject application of Title V or to adopt a provision limiting
discount points or other charges prior to origination of such mortgage loans,
any such limitation under such state's usury law would not apply to such
mortgage loans.
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ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans, originated by non-federally chartered lenders have historically been
subjected to a variety of restrictions. Such restrictions differed from state
to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the Garn-St Germain
Act ("Title VIII"). Title VIII provides that, notwithstanding any state law to
the contrary, state-chartered banks may originate alternative mortgage
instruments in accordance with regulations promulgated by the Comptroller of
the Currency with respect to origination of alternative mortgage instruments by
national banks, state-chartered credit unions may originate alternative
mortgage instruments in accordance with regulations promulgated by the National
Credit Union Administration (the "NCUA") with respect to origination of
alternative mortgage instruments by federal credit unions, and all other
non-federally chartered housing creditors, including state-chartered savings
and loan associations, state-chartered savings banks and mortgage banking
companies, may originate alternative mortgage instruments in accordance with
the regulations promulgated by the Federal Home Loan Bank Board (now the Office
of Thrift Supervision) with respect to origination of alternative mortgage
instruments by federal savings and loan associations. Title VIII provides that
any state may reject applicability of the provision of Title VIII by adopting,
prior to October 15, 1985, a law or constitutional provision expressly
rejecting the applicability of such provisions. Certain states have taken such
action.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), a mortgagor who enters military service
after the origination of such mortgagor's Mortgage Loan (including a mortgagor
who was in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such mortgagor's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to mortgagors who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
mortgagors who enter military service (including reservists who are called to
active duty) after origination of the related Mortgage Loan, no information can
be provided as to the number of loans that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of any servicer to collect full amounts of interest
on certain of the Mortgage Loans. Any shortfalls in interest collections
resulting from the application of the Relief Act would result in a reduction of
the amounts distributable to the holders of the Certificates and would not be
covered by advances or any form of Credit Support (if any) provided in
connection with such Certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the servicer to foreclose on an
affected Mortgage Loan during the mortgagor's period of active duty status,
and, under certain circumstances, during an additional three month period
thereafter. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction.
The government must publish notice of the forfeiture proceeding and may give
notice to all parties "known to have an alleged interest in the property",
including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type
and use of the Mortgaged Property in question. For instance, Mortgaged
Properties which are hospitals, nursing homes or convalescent homes may present
special risks to lenders in large part due to significant governmental
regulation of the operation, maintenance, control and financing of health care
institutions. Mortgages on Mortgaged Properties which are owned by the borrower
under a condominium form of ownership are subject to the declaration, by-laws
and other rules and regulations of the condominium association. Mortgaged
Properties which are hotels or motels may present additional risk to the lender
in that: (i) hotels and motels are typically operated pursuant to franchise,
management and operating agreements which may be terminable by the operator and
(ii) the transferability of the hotel's operating, liquor and other licenses to
the entity acquiring the hotel either through purchase or foreclosure is
subject to the vagaries of local law requirements. In addition, Mortgaged
Properties which are multifamily residential properties or cooperatively owned
multifamily properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and
rules promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Offered Certificates and is based on the advice of Cadwalader, Wickersham
& Taft. The discussion below does not purport to address all federal income
tax consequences that may be applicable to particular categories of investors,
some of which may be subject to special rules. In addition, this discussion
does not address state, local or foreign tax issues with respect to the
acquisition, ownership or disposition of the Offered Certificates. The
authorities on which this discussion is based are subject to change or
differing interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the applicable provisions of the Code,
as well as regulations (the "REMIC Regulations") promulgated by the U.S.
Department of the Treasury. Investors should consult their own tax advisors in
determining the federal, state, local, foreign or any other tax consequences
to them of the purchase, ownership and disposition of Certificates.
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Elections will be made to treat the Trust Fund exclusive of the
Reserve Accounts, the Lock Box Accounts, the Cash Collateral Accounts, the
Excess Interest and the Default Interest in respect of the Mortgage Loans (such
portion of the Trust Fund, the "Trust REMICs"), as two separate REMICs (the
"Upper-Tier REMIC" and the "Lower-Tier REMIC," respectively) within the meaning
of Code Section 860D. The Lower-Tier REMIC will hold the Mortgage Loans,
proceeds therefrom, the Collection Account, the Lower-Tier Distribution Account
[undefined term] and any REO Property, and will issue (i) certain
uncertificated classes of regular interests (the "Lower-Tier Regular
Interests") to the Upper-Tier REMIC and (ii) the Class LR Certificates, which
will represent the sole class of residual interests in the Lower-Tier REMIC.
The Upper-Tier REMIC will hold the Lower-Tier Regular Interests and the
Upper-Tier Distribution Account in which distributions thereon will be
deposited, and will issue the Class A-1A, Class A-1B, Class A-1C, Class A-CS1,
Class A-CS2, Class A-1D, Class A-2, Class A-3, Class A-4, Class A-5, Class B-1,
Class B-2, Class B-3 and Class B-3H Certificates (the "Regular Certificates"),
as classes of regular interests and the Class R Certificates as the sole class
of residual interests in the Upper-Tier REMIC. Qualification as a REMIC
requires ongoing compliance with certain conditions. Assuming (i) the making of
appropriate elections, (ii) compliance with the Pooling and Servicing Agreement
and (iii) compliance with any changes in the law, including any amendments to
the Code or applicable temporary or final regulations of the United States
Department of the Treasury ("Treasury Regulations") thereunder, in the opinion
of Cadwalader, Wickersham & Taft, the Trust Fund will qualify as two separate
REMICs. References in this discussion to the "REMIC" will, unless the context
dictates otherwise, refer to each of the Upper-Tier REMIC and the Lower-Tier
REMIC. The Class V-1 and Class V- 2 Certificates will represent pro rata
undivided beneficial interests in the portion of the Trust Fund consisting of
Excess Interest and Default Interest in respect of the Mortgage Loans,
respectively, and such portions will be treated as a grantor trust for federal
income tax purposes.
STATUS OF OFFERED CERTIFICATES
Offered Certificates held by a mutual savings bank or a domestic
building and loan association will constitute "qualifying real property loans"
within the meaning of Code Section 593(d)(1) in the same proportion that the
assets of the related REMIC would be so treated. Offered Certificates held by a
real estate investment trust will constitute "real estate assets" within the
meaning of Code Sections 856(c)(5)(A) and 856(c)(6) and interest on the Offered
Certificates and income with respect to Residual Certificates will be
considered "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Code Section 856(c)(3)(B) in
the same proportion that, for both purposes, the assets of the related REMIC
would be so treated. If at all times 95% or more of the assets of the related
REMIC qualify for each of the foregoing treatments, the Offered Certificates
will qualify for the corresponding status in their entirety. Offered
Certificates held by a domestic building and loan association will be treated
as "regular or residual interests in a REMIC" under Code Section
7701(a)(19)(C)(xi), but only in the proportion that the REMIC holds "loans . .
. secured by an interest in real property which is . . . residential real
property" within the meaning of Code Section 7701(a)(19)(C)(v), such as
Mortgage Loans secured by multifamily dwellings or congregate care facilities
(initially approximately ____% by Initial Pool Balance). For purposes of Code
Sections 593(d)(1) and 856(c)(5)(A), payments of principal and interest on a
Mortgage Loan that are reinvested pending distribution to holders of Offered
Certificates qualify for such treatment. Offered Certificates held by a
regulated investment company will not constitute "government securities" within
the meaning of Code Section 851(b)(4)(A)(i). Offered Certificates held by
certain financial institutions will constitute an "evidence of indebtedness"
within the meaning of Code Section 582(c)(1).
QUALIFICATION AS A REMIC
In order for each of the Upper-Tier REMIC and the Lower-Tier REMIC to
qualify as a REMIC, there must be ongoing compliance on the part of the
applicable portions of the Trust Fund with the requirements set forth in the
Code. Each of the Upper-Tier REMIC and the Lower-Tier REMIC must fulfill an
asset test, which requires that no more than a de minimis portion of the
assets of each REMIC, as of the close of the third calendar month beginning
after the "Startup Day" (which for purposes of this discussion is the date of
the issuance of the Certificates) and at all times thereafter, may consist of
assets other than "qualified mortgages" and "permitted investments." The REMIC
Regulations provide a safe harbor pursuant to which the de minimis
requirements will
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be met if at all times the aggregate adjusted basis of the nonqualified assets
is less than one percent of the aggregate adjusted basis of all the REMIC's
assets. Each REMIC also must provide "reasonable arrangements" to prevent its
residual interests from being held by "disqualified organizations" or agents
thereof and must furnish applicable tax information to transferors or agents
that violate this requirement. The Pooling and Servicing Agreement will
provide that no legal or beneficial interest in the Class R or Class LR
Certificate may be transferred or registered unless certain conditions,
designed to prevent violation of this requirement, are met.
A qualified mortgage is any obligation that is principally secured by
an interest in real property and that is either transferred to the REMIC on the
Startup Day or is purchased by the REMIC within a three-month period thereafter
pursuant to a fixed price contract in effect on the Startup Day. Qualified
mortgages include whole mortgage loans, such as the Mortgage Loans, and regular
interests in another REMIC, such as the Lower-Tier Regular Interests that will
be held by the Upper-Tier REMIC, provided, in general, (i) the fair market
value of the real property security (including buildings and structural
components thereof) is at least 80% of the principal balance of the related
Mortgage Loan [or mortgage loan underlying the Mortgage Certificate] either at
origination or as of the Startup Day (an original loan-to-value ratio of not
more than 125% with respect to the real property security) or (ii)
substantially all the proceeds of the Mortgage Loan or the underlying mortgage
were used to acquire, improve or protect an interest in real property that, at
the origination date, was the only security for the Mortgage Loan [or
underlying mortgage loan]. If the Mortgage Loan has been substantially modified
other than in connection with a default or reasonably foreseeable default, it
must meet the loan-to-value test in (i) of the preceding sentence as of the
date of the last such modification. A mortgage loan that was not in fact
principally secured by real property or is otherwise not a qualified mortgage
must be disposed of within 90 days of discovery of such defect, or otherwise
ceases to be a qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified reserve
assets and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC. The
Upper-Tier REMIC and Lower-Tier REMIC will not hold any reserve funds.
Foreclosure property is real property acquired by the Lower-Tier REMIC in
connection with the default or imminent default of a qualified mortgage,
provided the Depositor had no knowledge or reason to know as of the Startup Day
that such a default had occurred or would occur. Foreclosure property may
generally be held for not more than two years, with extensions granted by the
Internal Revenue Service.
In addition to the foregoing requirements, the various interests in a
REMIC also must meet certain requirements. All of the interests in a REMIC must
be either of the following: (i) one or more classes of regular interests or
(ii) a single class of residual interests on which distributions, if any, are
made pro rata. A regular interest is an interest in a REMIC that is issued on
the Startup Day with fixed terms, is designated as a regular interest, and
unconditionally entitles the holder to receive a specified principal amount (or
other similar amount), and provides that interest payments (or other similar
amounts), if any, at or before maturity either are payable based on a fixed
rate or a qualified variable rate, or consist of a specified, nonvarying
portion of the interest payments on the qualified mortgages. Such a specified
portion may consist, among other things, of one qualified variable rate on some
or all of the qualified mortgages in excess of a different qualified variable
rate on some or all of the qualified mortgages. The specified principal amount
of a regular interest that provides for interest payments consisting of a
specified, nonvarying portion of interest payments on qualified mortgages may
be zero. A residual interest is an interest in a REMIC other than a regular
interest that is issued on the Startup Day that is designated as a residual
interest. An interest in a REMIC may be treated as a regular interest even if
payments of principal with respect to such interest are subordinated to
payments on other regular interests or the residual interest in the REMIC, and
are dependent on the absence of defaults or delinquencies on qualified
mortgages or permitted investments, lower than reasonably expected returns on
permitted investments, expenses incurred by the REMIC or prepayment interest
shortfalls. Accordingly, in the opinion of Cadwalader, Wickersham & Taft, the
Regular Certificates will constitute classes of regular interests in the
Upper-Tier REMIC, the Lower-Tier Regular Interests will constitute classes of
regular interests in the Lower-Tier REMIC and the Class R Certificates and
Class LR Certificates will represent the sole classes of residual interests in
the Upper-Tier REMIC and Lower-Tier REMIC, respectively.
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If an entity fails to comply with one or more of the ongoing
requirements of the Code for status as one or more REMICs during any taxable
year, the Code provides that the entity or applicable portion thereof will not
be treated as a REMIC for such year and thereafter. In this event, any entity
with debt obligations with two or more maturities, such as the Trust Fund, may
be treated as a separate association taxable as a corporation under Treasury
Regulations, and the Certificates may be treated as equity interests therein.
The Code, however, authorizes the Treasury Department to issue regulations
that address situations where failure to meet one or more of the requirements
for REMIC status occurs inadvertently and in good faith. Investors should be
aware, however, that the Conference Committee Report to the Tax Reform Act of
1986 (the "1986 Act") indicates that the relief may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of
the Trust Fund's income for the period of time in which the requirements for
REMIC status are not satisfied.
TAXATION OF OFFERED CERTIFICATES
GENERAL
The Offered Certificates generally will be treated for federal income
tax purposes as newly-originated debt instruments. In general, interest,
original issue discount ("OID") and market discount on an Offered Certificate
will be treated as ordinary income to the holder of an Offered Certificate, and
principal payments (other than partial principal payments that do not exceed
accrued market discount) on an Offered Certificate will be treated as a return
of capital to the extent of the Certificateholder's basis allocable thereto.
Certificateholders must use the accrual method of accounting with respect to
Offered Certificates, regardless of the method of accounting otherwise used by
such Certificateholders.
ORIGINAL ISSUE DISCOUNT
Holders of debt instruments issued with OID generally must include
original issue discount in ordinary income for federal income tax purposes as
it accrues, in accordance with a constant interest method that takes into
account the compounding of interest, in advance of receipt of the cash
attributable to such income. The following discussion is based in part on
Treasury Regulations issued on February 2, 1994, and amended on June 14, 1996,
under Code Sections 1271 through 1273 and 1275 (the "OID Regulations") and in
part on the provisions of the 1986 Act. Holders of the Offered Certificates
should be aware, however, that the OID Regulations adequately address certain
issues relevant to prepayable securities, such as the Offered Certificates. To
the extent such issues are not addressed in such Regulations, the Depositor
intends to apply the principles of such regulations and the methodology
described in the Conference Committee Report to the 1986 Act. No assurance can
be provided that the Internal Revenue Service will not take a different
position as to those matters not currently addressed by the OID Regulations.
Moreover, the OID Regulations include an anti-abuse rule allowing the Internal
Revenue Service to apply or depart from the OID Regulations where necessary or
appropriate to ensure a reasonable tax result in light of the applicable
statutory provisions. A tax result will not be considered unreasonable under
the anti-abuse rule in the absence of a substantial effect on the present value
of a taxpayer's tax liability. Investors are advised to consult their own tax
advisors as to the discussion herein and the appropriate method for reporting
interest and original issue discount with respect to the Offered Certificates.
The total amount of OID on an Offered Certificate is the excess of the
"stated redemption price at maturity" of the Offered Certificate over its
"issue price." The issue price of a Class of Offered Certificates is the price
at which a substantial amount of such Class of Offered Certificates is first
sold to investors (other than bond houses, brokers or underwriters). As
provided in the REMIC Regulations (although not in the OID Regulations), the
issue price of a Class as to which there is no substantial sale as of the
Startup Day will be the offer price of such Class as of the pricing date of
such Class. The issue price will also include any accrued interest attributable
to the period prior to the issue date of the Offered Certificates, unless the
holder elects on its federal income tax return to exclude such amounts from the
issue price and to recover it on the first Distribution Date. The stated
redemption price at maturity of an Offered Certificate is the sum of all
payments provided by the debt instrument other than qualified stated interest
payments. Under the OID Regulations, qualified stated interest generally
includes interest payable at a single fixed rate or a qualified variable rate
if such interest payments are unconditionally payable at intervals of one year
or less during the entire term of the obligation. [Thus, qualified
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stated interest does not include the portion of interest payable on the first
Distribution Date that exceeds interest for the number of days between the
Startup Date and the first Distribution Date.] Accordingly, the Trustee
intends to treat all payments of interest on the Class A-1A, Class A-1B, Class
A-1C, Class A-CS1, Class A-CS2, Class A-1D, Class A-2, Class A-3, Class A-4,
Class A-5, Class B-2, Class B-3 and Class B-3H Certificates [(other than ___
days of interest payable at the Pass-Through Rates thereon payable on the
first Distribution Date)] as qualified stated interest and consequently as not
includible in the stated redemption price at maturity of such Classes. Based
on the foregoing, it is anticipated that the Class __ Certificates will be
issued with OID in an amount equal to the excess of their initial Certificate
Balance [(plus ___ days of interest at the Pass-Through Rate thereon)] over
their issue price (including accrued interest).
Under a de minimis rule, OID on an Offered Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the Offered Certificate multiplied by the weighted average
maturity of the Offered Certificate. For this purpose, the weighted average
maturity of the Offered Certificate is computed as the sum of the amounts
determined by multiplying the number of full years (i.e., rounding down partial
years) from the issue date until each distribution in reduction of stated
redemption price at maturity is scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the Offered Certificate and the denominator of
which is the stated redemption price at maturity of the Offered Certificate.
The Conference Committee Report to the 1986 Act provides that the schedule of
such distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Loans (the "Assumed Rate of Prepayment") and the
anticipated reinvestment rate, if any, relating to the Offered Certificates.
The Assumed Rate of Prepayment with respect to the Offered Certificates is [a
___% constant prepayment rate and assumes an extension of the maturity of each
Mortgage Loan ___ years beyond its stated maturity.] No representation is made
that the Mortgage Loans will prepay at such rate or any other rate [or that any
Mortgage Loan will be extended for that period or any other period.] Holders
generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the Offered Certificate is
held as a capital asset. Under the OID Regulations, however, holders of Offered
Certificates may elect to accrue all de minimis OID, as well as market discount
and market premium, under the constant yield method. See "Election to Treat All
Interest Under the Constant Yield Method." Based on the foregoing, it is
anticipated that [the Class ____] [none of the Offered] Certificates will be
issued with de minimis OID.
A Certificateholder of an Offered Certificate issued with OID
generally must include in gross income for any taxable year the sum of the
"daily portions," as defined below, of the OID, if any, on the Offered
Certificate accrued during an accrual period for each day on which it holds the
Offered Certificate, including the date of purchase but excluding the date of
disposition. With respect to an Offered Certificate determined to be issued
with OID, a calculation will be made of the OID that accrues during each
successive full accrual period (or shorter period from the date of original
issue) that ends on the day prior to each Distribution Date with respect to the
Offered Certificate. Each accrual period with respect to the Offered
Certificates will begin on each Distribution Date (or the Startup Day in the
case of the first accrual period) and end on the day preceding the next
Distribution Date. Under Code Section 1272(a)(6), OID is to be calculated
initially based on a principal payment schedule that takes into account
expected prepayment behavior and an anticipated reinvestment rate in the manner
to be specified in Treasury Regulations. The Conference Committee Report to the
1986 Act indicates that such schedule is intended to be based on the Assumed
Rate of Prepayment with no assumed reinvestment rate. The OID accruing in a
full accrual period will be the excess, if any, of (i) the sum of (a) the
present value of all of the remaining distributions to be made on the Offered
Certificate as of the end of that accrual period and (b) the distributions made
on the Offered Certificate during the accrual period that are included in the
Offered Certificate's stated redemption price at maturity over (ii) the
adjusted issue price of the Offered Certificate at the beginning of the accrual
period. The present value of the remaining distributions referred to in the
preceding sentence is calculated based on (i) the yield to maturity of the
Offered Certificate as of the Startup Day, (ii) events (including actual
prepayments, if any) that have occurred prior to the end of the accrual period
and (iii) the Assumed Rate of Prepayment. For these purposes, the adjusted
issue price of an Offered Certificate at the beginning of any accrual period
equals the issue price of the Offered Certificate, increased by the aggregate
amount of original issue discount with respect to the Offered Certificate that
accrued in all prior accrual periods and reduced by the amount of distributions
included in the Offered Certificate's stated redemption price at maturity that
were made on the
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Offered Certificate that were attributable to such prior periods. In addition,
the original yield to maturity of an Offered Certificate should be calculated
based on its issue price, assuming that the Certificate will be paid in all
periods in accordance with the Assumed Rate of Prepayment, and with
compounding at the end of each accrual period used in the formula. [Investors
should be aware that the Internal Revenue Service could assert that the
Assumed Rate of Prepayment should not take into account extensions of Mortgage
Loans beyond their stated maturity dates. In that event, holders of Offered
Certificates could be required to accrue original issue discount at a faster
rate than if the Assumed Rate of Prepayment applied. The Trustee intends to
prepare tax reports based on the Assumed Rate of Prepayment.] The OID accruing
during any accrual period (as determined in this paragraph) will be divided by
the number of days in the period to determine the daily portion of OID for
each day in the period. OID for the first short accrual period between the
Startup Day and the first Distribution Date will be determined using the exact
method.
ACQUISITION PREMIUM
A subsequent purchaser of an Offered Certificate issued with OID at a
price greater than its adjusted issue price and less than its remaining stated
redemption price at maturity will be required to include in gross income the
daily portions of the OID on the Offered Certificate reduced pro rata by a
fraction, the numerator of which is the excess of its purchase price over such
adjusted issue price and the denominator of which is the excess of the
remaining stated redemption price at maturity over the adjusted issue price.
Alternatively, such a subsequent purchaser may elect to treat all such
acquisition premium under the constant yield method, as described below under
the heading "Election to Treat All Interest Under the Constant Yield Method."
MARKET DISCOUNT
A purchaser of an Offered Certificate after original issuance may be
subject to the market discount rules of Code Sections 1276 through 1278. Under
these Code sections and the principles applied by the OID Regulations in the
context of OID, "market discount" is the amount by which the purchaser's
original basis in the Offered Certificate is exceeded by the Certificate
Balance of the Offered Certificate or, if the Offered Certificate is issued
with OID, by the adjusted issue price of such Offered Certificate at the time
of purchase. Such purchaser generally will be required to recognize ordinary
income to the extent of accrued market discount on such Offered Certificate as
distributions includible in the stated redemption price at maturity thereof
are received, in an amount not exceeding any such distribution. Such market
discount would accrue in a manner to be provided in Treasury Regulations and
should take into account the Assumed Rate of Prepayment. The Conference
Committee Report to the 1986 Act provides that until such regulations are
issued, such market discount would accrue either (i) on the basis of a
constant interest rate or (ii) either in the ratio of interest accrued for the
relevant period to the sum of interest accrued for such period plus the
remaining interest as of the end of such period or in the ratio of OID accrued
for the relevant period to the sum of the OID accrued for such period plus the
remaining OID as of the end of such period. Such purchaser also generally will
be required to treat a portion of any gain on a sale or exchange of the
Offered Certificate as ordinary income to the extent of the market discount
accrued to the date of disposition under one of the foregoing methods, less
any accrued market discount previously reported as ordinary income as partial
distributions in reduction of the stated redemption price at maturity were
received. Such purchaser will be required to defer deduction of a portion of
the excess of the interest paid or accrued on indebtedness incurred to
purchase or carry the Offered Certificate over the interest (including OID)
distributable thereon. The deferred portion of such interest expense in any
taxable year generally will not exceed the accrued market discount on the
Offered Certificate for such year. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which the related
market discount income is recognized or the Offered Certificate is disposed
of. As an alternative to the inclusion of market discount in income on the
foregoing basis, the Certificateholder may elect to include market discount in
income currently as it accrues on all market discount instruments acquired by
such Certificateholder in that taxable year or thereafter, in which case the
interest deferral rule will not apply. See "Election to Treat All Interest
Under the Constant Yield Method" below regarding an alternative manner in
which such election may be deemed to be made.
Market discount with respect to an Offered Certificate will be
considered to be zero if such market discount is less than 0.25% of the
remaining stated redemption price at maturity of such Offered Certificate
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multiplied by the weighted average maturity of the Offered Certificate
remaining after the date of purchase, rounding down the date each payment
included in the stated redemption price at maturity is expected to be made to
the next lowest number of whole years. Such de minimis market discount should
be reportable in the same manner as de minimis OID as determined above under
"Original Issue Discount." Treasury Regulations implementing the market
discount rules have not yet been issued, and investors should therefore
consult their own tax advisors regarding the application of these rules as
well as the advisability of making any of the elections with respect thereto.
Investors should also consult Revenue Procedure 92-67 concerning the elections
to include market discount in income currently and to accrue market discount
on the basis of a constant interest rate.
[PREMIUM
It is anticipated that the Class [___] and Class [___] Certificates
will be issued at a premium for federal income tax purposes, i.e., at a cost
greater than their remaining stated redemption price at maturity. Offered
Certificates may also be purchased at a premium subsequent to initial issuance.
If the Certificateholder holds such an Offered Certificate as a "capital asset"
within the meaning of Code Section 1221, the Certificateholder may elect under
Code Section 171 to amortize such premium under the constant interest method.
Such election applies to all debt instruments held by the Certificateholders at
the beginning of the taxable year as to which the election is made or acquired
thereafter and is irrevocable except with the consent of the Internal Revenue
Service. The Conference Committee Report to the 1986 Act indicates a
Congressional intent that the same rules that will apply to the accrual of
market discount on installment obligations will also apply to amortizing bond
premium under Code Section 171 on installment obligations such as the Offered
Certificates, although it is unclear whether the alternatives to the constant
interest method described above under "Market Discount" are available.
Amortizable bond premium will be treated as an offset to interest income on an
Offered Certificate rather than as a separate deduction item. See "Election to
Treat All Interest Under the Constant Yield Method" below regarding an
alternative manner in which the Code Section 171 election may be deemed to be
made.]
ELECTION TO TREAT ALL INTEREST UNDER THE CONSTANT YIELD METHOD
A holder of a debt instrument such as an Offered Certificate may elect
to treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to such an election, (i) "interest" includes stated interest, original issue
discount, de minimis OID, market discount and de minimis market discount, as
adjusted by any amortizable bond premium or acquisition premium and (ii) the
debt instrument is treated as if the instrument were issued on the holder's
acquisition date in the amount of the holder's adjusted basis immediately after
acquisition. A holder generally may make such an election on an instrument by
instrument basis or for a class or group of debt instruments. However, if the
holder makes such an election with respect to a debt instrument with
amortizable bond premium or with market discount, the holder is deemed to have
made elections to amortize bond premium or to report market discount income
currently as it accrues under the constant yield method, respectively, for all
debt instruments acquired by the holder in the same taxable year or thereafter.
The election is made on the holder's federal income tax return for the year in
which the debt instrument is acquired and is irrevocable except with the
approval of the Internal Revenue Service. Investors should consult their own
tax advisors regarding the advisability of making such an election.
TREATMENT OF LOSSES
Certificateholders will be required to report income with respect to
the Offered Certificates on the accrual method of accounting, without giving
effect to delays or reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loan, except to the extent it can be established
that such losses are uncollectible. Accordingly, the holder of an Offered
Certificate may have income, or may incur a diminution in cash flow as a result
of a default or delinquency, but may not be able to take a deduction (subject
to the discussion below) for the corresponding loss until a subsequent taxable
year. In this regard, investors are cautioned that while they may generally
cease to accrue interest income if it reasonably appears that the interest will
be uncollectible, the Internal Revenue Service may take the position that
original issue discount must continue to be accrued in spite
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of its uncollectability until the debt instrument is disposed of in a taxable
transaction or becomes worthless in accordance with the rules of Code Section
166.
To the extent the rules of Code Section 166 regarding bad debts are
applicable, it appears that Certificateholders that are corporations or that
otherwise hold the Offered Certificates in connection with a trade or business
should in general be allowed to deduct as an ordinary loss such loss with
respect to principal sustained during the taxable year on account of any such
Offered Certificates becoming wholly or partially worthless, and that, in
general, Certificateholders that are not corporations and that do not hold the
Offered Certificates in connection with a trade or business will be allowed to
deduct as a loss, which may be a short-term capital loss, any loss sustained
during the taxable year on account of any such Offered Certificates becoming
wholly worthless. The Internal Revenue Service could assert, however, that
losses on the Offered Certificates are deductible based on some other method
that may defer such deductions for all holders, such as reducing future cash
flow for purposes of computing original issue discount. This may have the
effect of creating "negative" OID which would be deductible only against
future positive OID or otherwise upon termination of the Class.
Certificateholders are urged to consult their own tax advisors regarding the
appropriate timing, amount and character of any loss sustained with respect to
such Offered Certificates. While losses attributable to interest previously
reported as income should be deductible as ordinary losses by both corporate
and non-corporate holders, the Internal Revenue Service may take the position
that losses attributable to accrued original issue discount may only be
deducted as short-term capital losses by non-corporate holders not engaged in
a trade or business. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
Offered Certificates.
SALE OR EXCHANGE OF OFFERED CERTIFICATES
If a Certificateholder sells or exchanges an Offered Certificate, the
Certificateholder will recognize gain or loss equal to the difference, if any,
between the amount received and its adjusted basis in the Offered Certificate.
The adjusted basis of an Offered Certificate generally will equal the cost of
the Offered Certificate to the seller, increased by any OID or market discount
previously included in the seller's gross income with respect to the Offered
Certificate and reduced by amounts included in the stated redemption price at
maturity of the Offered Certificate that were previously received by the
seller, by any amortized premium, and by any recognized losses.
Except as described above with respect to market discount, and except
as provided in this paragraph, any gain or loss on the sale or exchange of an
Offered Certificate realized by an investor who holds the Offered Certificate
as a capital asset will be capital gain or loss and will be long-term or
short-term depending on whether the Offered Certificate has been held for the
long-term capital gain holding period (more than one year). Such gain will be
treated as ordinary income (i) if an Offered Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the holder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate under
Code Section 1274(d) in effect at the time the holder entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as a part of such
transaction, (ii) in the case of an non-corporate taxpayer, to the extent such
taxpayer has made an election under Code Section 163(d)(4) to have net capital
gains taxed as investment income at ordinary income rates, or (iii) to the
extent that such gain does not exceed the excess, if any, of (a) the amount
that would have been includible in the gross income of the holder if its yield
on such Offered Certificate were 110% of the applicable Federal rate as of the
date of purchase, over (b) the amount of income actually includible in the
gross income of such holder with respect to such Offered Certificate. In
addition, gain or loss recognized from the sale of an Offered Certificate by
certain banks or thrift institutions will be treated as ordinary income or loss
pursuant to Code Section 582(c). Capital gains of certain non-corporate
taxpayers are subject to a lower tax rate than ordinary income of such
taxpayers. The maximum tax rate for corporations is the same with respect to
both ordinary income and capital gains.
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TAXES THAT MAY BE IMPOSED ON A REMIC
Prohibited Transactions. Income from certain transactions by a REMIC,
called prohibited transactions, will not be part of the calculation of income
or loss includible in the federal income tax returns of Holders of Class R and
Class LR Certificates, but rather will be taxed directly to the related REMIC
at a 100% rate. Prohibited transactions generally include (i) the disposition
of a qualified mortgage other than for (a) substitution within two years of
the Startup Day for a defective (including a defaulted) obligation (or
repurchase in lieu of substitution of a defective (including a defaulted)
obligation at any time) or for any qualified mortgage within three months of
the Startup Day, (b) foreclosure, default, or imminent default of a qualified
mortgage, (c) bankruptcy or insolvency of the REMIC, or (d) a qualified
(complete) liquidation, (ii) the receipt of income from assets that are not
the type of mortgages or investments that the REMIC is permitted to hold,
(iii) the receipt of compensation for services, or (iv) the receipt of gain
from disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC property to prevent a default on regular interests as a result
of a default on qualified mortgages or to facilitate a qualified liquidation
or a clean-up call. The REMIC Regulations indicate that the modification of a
Mortgage Loan generally will not be treated as a disposition if it is
occasioned by a default or reasonably foreseeable default, an assumption of
the Mortgage Loan, or the waiver of a due-on-sale or due-on encumbrance
clause. It is not anticipated that either REMIC will engage in any prohibited
transaction.
Contributions to a REMIC After the Startup Day. In general, a REMIC
will be subject to a tax at a 100% rate on the value of any property
contributed to the REMIC after the Startup Day. Exceptions are provided for
cash contributions to the REMIC (i) during the three months following the
Startup Day, (ii) made to a qualified reserve fund by a holder of a Residual
Certificate, (iii) in the nature of a guarantee, (iv) made to facilitate a
qualified liquidation or clean-up call, and (v) as otherwise permitted in
Treasury Regulations yet to be issued. It is not anticipated that there will be
any taxable contributions to either REMIC.
Net Income from Foreclosure Property. The Lower-Tier REMIC will be
subject to federal income tax at the highest corporate rate on "net income from
foreclosure property," determined by reference to the rules applicable to real
estate investment trusts. Generally, property acquired by foreclosure or deed
in lieu of foreclosure would be treated as "foreclosure property" for a period
of two years, with possible extensions. Net income from foreclosure property
generally means gain from the sale of a foreclosure property that is inventory
property and gross income from foreclosure property other than qualifying rents
and other qualifying income for a real estate investment trust. Examples of
taxable net income from foreclosure property include net income received as a
result of the operation and management of a trade or business on the
foreclosure property (within the meaning of the rules applicable to real estate
investment trusts), income from the furnishing or rendering of services to the
tenants of such foreclosure property by such independent contractor, to the
extent that such services are not customarily furnished to tenants in
properties of a similar class in the geographic market in which the property is
located, and rental income based on the net profits of a tenant.
LIQUIDATION OF THE REMIC
If a REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC will not be taxable on any gain on the sale of its
assets, provided that the REMIC credits or distributes in liquidation all of
the sale proceeds plus its cash (other than amounts retained to meet claims) to
holders of regular and residual interests within the 90-day period.
TAXATION OF CERTAIN FOREIGN INVESTORS
Interest, including OID, distributable to holders of Offered
Certificates who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (i.e., any person who is not a "U.S. Person," as defined
below), will be considered "portfolio interest" and, therefore, generally will
not be subject to a 30% United States withholding tax, provided that such
Non-U.S. Person (i) is not a "10-percent shareholder" within the meaning of
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Code Section 871(h)(3)(B) or a controlled foreign corporation described in
Code Section 881(c)(3)(C) and (ii) provides the Trustee, or the person who
would otherwise be required to withhold tax from such distributions under Code
Section 1441 or 1442, with an appropriate statement, signed under penalties of
perjury, identifying the beneficial owner and stating, among other things,
that the beneficial owner of the Offered Certificate is a Non-U.S. Person. If
such statement, or any other required statement, is not provided, 30%
withholding will apply unless reduced or eliminated pursuant to an applicable
tax treaty or unless the interest on the Offered Certificate is effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Person. In the latter case, such Non-U.S. Person will be subject
to United States federal income tax at regular rates. Investors who are
Non-U.S. Persons should consult their own tax advisors regarding the specific
tax consequences to them of owning a Certificate. The term "U.S. Person" means
a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, or an estate that is subject to U.S.
federal income tax regardless of the source of its income.
BACKUP WITHHOLDING
Distributions made on the Offered Certificates, and proceeds from the
sale of the Offered Certificates to or through certain brokers, may be subject
to a "backup" withholding tax under Code Section 3406 at the rate of 31% on
"reportable payments" (including interest distributions, original issue
discount, and, under certain circumstances, principal distributions) unless the
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Offered
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from distribution
on the Offered Certificates would be refunded by the Internal Revenue Service
or allowed as a credit against the Certificateholder's federal income tax
liability.
REPORTING REQUIREMENTS
Each of the Upper-Tier REMIC and the Lower-Tier REMIC will be required
to maintain its books on a calendar year basis and to file federal income tax
returns in a manner similar to a partnership. The form for such returns is Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign each REMIC's returns.
Reports of accrued interest, original issue discount, if any, and
information necessary to compute the accrual of any market discount on the
Offered Certificates will be made annually to the Internal Revenue Service and
to individuals, estates, non-exempt and non-charitable trusts, and partnerships
who are either holders of record of Offered Certificates or beneficial owners
who own Offered Certificates through a broker or middleman as nominee. All
brokers, nominees and all other non-exempt holders of record of Offered
Certificates (including corporations, non-calendar year taxpayers, securities
or commodities dealers, real estate investment trusts, investment companies,
common trust funds, thrift institutions and charitable trusts) may request such
information for any calendar quarter by telephone or in writing by contacting
the person designated in Internal Revenue Service Publication 938 with respect
to the Upper-Tier REMIC and Lower-Tier REMIC. Holders through nominees must
request such information from the nominee.
Treasury Regulations require that, in addition to the foregoing
requirements, information must be furnished annually to holders of Offered
Certificates and filed annually with the Internal Revenue Service concerning
the percentage of each REMIC's assets meeting the qualified asset tests
described above under "Status of Certificates."
DUE TO THE COMPLEXITY OF THESE RULES AND THE CURRENT UNCERTAINTY AS TO
THE MANNER TO THEIR APPLICATION TO THE TRUST FUND AND CERTIFICATEHOLDERS, IT IS
PARTICULARLY IMPORTANT THAT POTENTIAL INVESTORS CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX TREATMENT OF THEIR ACQUISITION, OWNERSHIP AND DISPOSITION OF
THE CERTIFICATES.
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ERISA CONSIDERATIONS
The purchase by or transfer to an employee benefit plan or other
retirement arrangement, including an individual retirement account or a Keogh
plan, which is subject to Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Section 4975 of the Code, or a
governmental plan (as defined in Section 3(32) of ERISA) that is subject to
any federal, state or local law ("Similar Law") which is, to a material
extent, similar to the foregoing provisions of ERISA or the Code (each, a
"Plan"), or a collective investment fund in which such Plans are invested, an
insurance company using the assets of separate accounts or general accounts
which include assets of Plans (or which are deemed pursuant to ERISA or any
Similar Law to include assets of Plans) or other Persons acting on behalf of
any such Plan or using the assets of any such Plan of the Class B-1 or Class
B-2 Certificates is restricted. See "Description of the Offered
Certificates--Transfer Restrictions."
No transfer of an Offered Certificate shall be made to (i) an employee
benefit plan subject to the fiduciary responsibility provisions of ERISA, or
Section 4975 of the Code, or a governmental plan subject to any federal, state
or local law ("Similar Law"), which is to a material extent similar to the
foregoing provisions of ERISA or the Code (collectively, a "Plan") or (ii) a
collective investment fund in which such Plans are invested, an insurance
company using assets of separate accounts or general accounts which include
assets of Plans (or which are deemed pursuant to ERISA or any similar law to
include assets of Plans) or other person acting on behalf of any such Plan or
using the assets of any such Plan, other than an insurance company using the
assets of its general account under circumstances whereby such purchase and the
subsequent holding of such Certificate by such insurance company would not
constitute or result in a prohibited transaction within the meaning of Section
406 or 407 of ERISA, Section 4975 of the Code, or a materially similar
characterization under any similar law. In the event that any transfer is
contemplated of an Offered Certificate which is an Definitive Certificate, (a)
the Certificate Registrar shall require, in order to verify that the transferee
is not a Person specified in clauses (i) or (ii) above, that the prospective
transferee execute a transfer or representation letter, substantially in the
form of Exhibit D-2 to the Pooling and Servicing Agreement, stating that the
prospective transferee is not a person referred to in (i) or (ii) above or (b)
if the prospective transferee is such a person, the Certificate Registrar shall
require that the Certificateholder desiring to transfer its Certificates
provide to the Certificate Registrar an opinion of counsel which establishes to
the satisfaction of the Certificate Registrar that the purchase or holding of
the Offered Certificate will not result in the assets of the Trust Fund being
deemed to be "plan assets" and subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of the Code, will
not constitute or result in a prohibited transaction within the meaning of
Section 406 or Section 407 of ERISA or Section 4975 of the Code, and will not
subject the Certificate Registrar to any obligation or liability (including
obligations or liabilities under ERISA or Section 4975 of the Code), which
opinion of counsel shall not be an expense of the Trustee, the Servicer or the
Certificate Registrar.
THE CLASS B-1 AND CLASS B-2 CERTIFICATES ARE SUBORDINATE TO ONE OR
MORE OTHER CLASSES OF CERTIFICATES AND, ACCORDINGLY, SUCH CERTIFICATES SHOULD
NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN OR PERSON ACTING ON BEHALF OF ANY
PLAN OR USING THE ASSETS OF ANY SUCH PLAN, UNLESS SUCH PERSON USING PLAN ASSETS
IS AN INSURANCE COMPANY AND THE PURCHASE AND HOLDING OF ANY SUCH CERTIFICATE
WOULD BE EXEMPT FROM THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE
CODE UNDER PROHIBITED TRANSACTION EXCEPTION 95-60. See "Description of the
Offered Certificates--Transfer Restrictions" herein.
The sale of Certificates to a Plan is in no respect a representation
by the Depositor or the Underwriter that this investment meets all relevant
legal requirements with respect to investments by Plans generally or any
particular Plan, or that this investment is appropriate for Plans generally or
any particular Plan.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). The appropriate characterization of the Offered
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Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Offered
Certificates may be subject to significant interpretive uncertainties.
The Depositor makes no representations as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase the Offered Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Offered Certificates. Accordingly, all
institutions whose investment activities are subject to legal investment laws
and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining
whether and to what extent the Offered Certificates constitute a legal
investment or are subject to investment, capital or other restrictions.
All depository institutions considering an investment in the
Certificates should review the "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as revised April 15, 1994 (the "Policy
Statement") of the Federal Financial Institutions Examination Council. The
Policy Statement, which has been adopted by the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the OCC and
the Office of Thrift Supervision, and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Classes
or subclasses of the Certificates), except under limited circumstances, and
sets forth certain investment practices deemed to be unsuitable for regulated
institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Classes or subclasses may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Certificates issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
No representation is made as to the proper characterization of the
Certificates for legal investment purposes, financial institution regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Certificates) may adversely affect the liquidity of the Certificates.
Investors should consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriter, the Offered Certificates
will be purchased from the Depositor by the Underwriter, an affiliate of the
Depositor, upon issuance. Distribution of the Offered Certificates will be made
by the Underwriter from time to time to the public in negotiated transactions
or otherwise at varying prices to be determined at the time of sale. Proceeds
to the Depositor from the sale of the Offered Certificates will be
approximately [ ]% of the initial principal balance thereof as of the Cut-off
Date, plus accrued interest from the Cut-off Date, before deducting expenses
payable by the Depositor.
In connection with the purchase and sale of the Offered Certificates,
the Underwriter may be deemed to have received compensation from the Depositor
in the form of underwriting discounts. The Underwriter has agreed to arrange
for on-going Rating Agency monitoring and surveillance of the Offered
Certificates and will
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receive as compensation for such services the reinvestment income earned from
amounts on deposit in the Interest Reserve Account. The Mortgage Loan Seller
[and the Underwriter] are wholly owned subsidiaries of Nomura Holding America
Inc. The Depositor is a wholly owned subsidiary of the Mortgage Loan Seller.
[The Mortgage Loan Seller or an affiliate has acquired a preferred equity
interest in [ ] of the borrowers, which are the borrowers with respect to
Mortgage Loans representing approximately [ ]% of the Initial Pool Balance.]
The Depositor or an affiliate may, in the future, enter into other financing
arrangements with affiliates of the borrowers. Certain officers and directors
of the Depositor and its affiliates own publicly traded equity interests in
affiliates of the borrowers.
The Depositor also has been advised by the Underwriter that it
currently expects to make a market in the Offered Certificates, however, it has
no obligation to do so. Any market making may be discontinued at any time, and
there can be no assurance that an active public market for the Offered
Certificates will develop.
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the
Underwriter will be obligated to purchase all of the Offered Certificates if
any are purchased. The Depositor has agreed to indemnify the Underwriter
against, or make contributions to the Underwriter with respect to, certain
liabilities, including liabilities under the Securities Act of 1933.
This Prospectus dated [ ], 1997 may only be issued or passed on in the
United Kingdom to a person who is of a kind described in Article 9(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988
or is a person to whom this Prospectus may otherwise lawfully be issued or
passed on.
The Trust Fund described in this Prospectus may only be promoted
(whether by the issuing or passing on of documents as referred to in the
foregoing restriction or otherwise) by an authorized person under Chapter III
of the Financial Services Act 1986 of the United Kingdom ("FSA") to a person in
the United Kingdom if that person is of a kind described in section 76(2) of
the FSA or as permitted by the Financial Services (Promotion of Unregulated
Schemes) Regulations 1991.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and for
the Underwriter by Cadwalader, Wickersham & Taft, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund is being formed with respect to the Certificates and
the Trust Fund will not engage in any business activities or have any assets or
obligations prior to the issuance of the Certificates. Accordingly, no
financial statements with respect to the Trust Fund will be included in this
Prospectus.
RATING
It is a condition to the issuance of the Offered Certificates that (i)
the Senior Certificates be issued and offered, (ii) the Class B-1 Certificates
be rated BB by [________] and (iii) the Class B-2 Certificates be rated "B" by
[________].
The Rating Agencies' ratings on mortgage pass-through certificates
address the likelihood of the timely payment of interest and the ultimate
repayment of principal by the Rated Final Distribution Date. The Rating
Agencies' ratings take into consideration the credit quality of the Mortgage
Pool, structural and legal aspects associated with the Certificates, and the
extent to which the payment stream in the Mortgage Pool is adequate to make
payments required under the Certificates. Ratings on mortgage pass-through
certificates do not, however, represent an assessment of the likelihood, timing
or frequency of principal prepayments (both voluntary and involuntary) by
mortgagors, or the degree to which such prepayments might differ from those
originally anticipated. The security ratings do not address the possibility
that Certificateholders might suffer a lower than anticipated yield. In
addition, ratings on mortgage pass-through certificates do not address the
likelihood of receipt
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of Prepayment Premiums, Net Default Interest or Excess Interest or the timing
or frequency of the receipt thereof. In general, the ratings thus address
credit risk and not prepayment risk. Also, a security rating does not
represent any assessment of the yield to maturity that investors may
experience. The ratings do not address the fact that the Pass-Through Rates of
the Offered Certificates to the extent that they are based on the Weighted
Average Net Mortgage Pass-Through Rate may be affected by changes thereon.
There can be no assurance as to whether any rating agency not
requested to rate the Offered Certificates will nonetheless issue a rating and,
if so, what such rating would be. A rating assigned to the Offered Certificates
by a rating agency that has not been requested by the Depositor to do so may be
lower than the rating assigned by the Rating Agencies pursuant to the
Depositor's request.
The rating of the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement (of which this Prospectus forms a
part) under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus contains summaries of the material terms of the
documents referred to herein, but does not contain all of the information set
forth in the Registration Statement pursuant to the rules and regulations of
the Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits
can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at its Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices located
as follows: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison, Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 75
Park Place, 14th Floor, New York, New York 10007. The Commission also maintains
a site on the World Wide Web (the "Web") at "http://www.sec.gov" at which users
can view and download copies of reports, proxy and information statements and
other information filed electronically through the Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities other than the Offered Certificates or an offer of the
Offered Certificates to any person in any state or other jurisdiction in which
such offer would be unlawful. The delivery of this Prospectus at any time does
not imply that information herein is correct as of any time subsequent to its
date; however, if any material change occurs while this Prospectus is required
by law to be delivered, this Prospectus will be amended or supplemented
accordingly.
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- --A--
ACMs.....................................................................41
ADA......................................................................43
Advance Rate............................................................100
Advances.................................................................99
Allocated Loan Amount....................................................59
Amortization.............................................................60
Annual Debt Service......................................................59
Anticipated Repayment Date...........................................53, 60
Appraisal Reduction Amount...............................................73
Appraisal Reduction Event................................................80
ARD Loan.................................................................19
Assumed Maturity Date....................................................17
Assumed Scheduled Payment................................................75
Available Funds..........................................................70
- --B--
Balloon Loans........................................................19, 54
Balloon Payment......................................................20, 54
- --C--
Cash Collateral Accounts................................................101
CEDEL.............................................................4, 18, 48
CEDEL Participants.......................................................83
CERCLA...................................................................41
Certificate Balance.......................................................5
Certificate Registrar....................................................81
Certificateholder........................................................81
Certificates..........................................................4, 16
Class.....................................................................5
Code.....................................................134, 136, 140, 142
Collateral Account......................................................111
Collateral Substitution Deposit..........................................55
Collection Account......................................................101
Collection Period........................................................71
Cooperative..............................................................83
Coupon Strip Certificates................................................68
Cross-over Date......................................................26, 78
Cut-off Date Allocated Loan Amount.......................................59
Cut-off Date Principal Balance........................................9, 59
- --D--
Debt Service Coverage Ratio..............................................59
Default Interest.........................................................71
Default Interest Distribution Account...................................102
Default Rate.............................................................71
Defeasance Lock-out Period...........................................20, 55
Defeasance Option....................................................21, 55
Definitive Certificate...................................................81
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Delinquency..............................................................73
Delinquency Reduction Amount.............................................73
Deposit.................................................................111
Depositaries.............................................................82
Depositor.................................................................4
Directing Holders.......................................................110
Distribution Account....................................................101
Distribution Date................................................5, 69, 136
DSCR.............................................................10, 11, 59
DTC..............................................................4, 18, 152
- --E--
Eligible Bank...........................................................102
ERISA...................................................................143
Euroclear.........................................................4, 18, 48
Euroclear Operator.......................................................83
Euroclear Participants...................................................83
Event of Default........................................................106
Excess Cash Flow.........................................................54
Excess Interest......................................................19, 71
Excess Interest Distribution Account....................................102
Excess Rate..............................................................53
- --F--
Fair Market Value.......................................................111
Fiscal Agent..........................................................5, 16
Fixed Voting Rights Percentage..........................................108
Form 8-K.................................................................68
Franchise................................................................60
FSA.....................................................................145
- --G--
Global Securities.......................................................152
- --H--
Holders..................................................................84
Hotel Loan...........................................................33, 50
Hotel Property.......................................................33, 50
- --I--
Indirect Participants....................................................82
Industrial Loan..........................................................50
Industrial Property......................................................50
Initial Pool Balance................................................50, 134
Instructions............................................................110
Interest Accrual Amount..................................................72
Interest Accrual Period..................................................73
Interest Distribution Amount.............................................25
Interest Reserve Account................................................101
Interest Shortfall.......................................................73
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- --L--
Loan-to-Value Ratio......................................................60
Lock Box Accounts.......................................................101
Lock-out Period..........................................................20
Lower Rate..............................................................110
Lower-Tier Interests.....................................................24
Lower-Tier REMIC.................................24, 29, 134, 135, 141, 142
LTV......................................................................60
- --M--
Minimum Defaulted Monthly Payment.......................................110
Mobile Home Loan.........................................................50
Mobile Home Property.....................................................50
Monthly Debt Service Payment.............................................54
Monthly Mortgage Loan Payments...........................................38
Monthly Operating Expenses...............................................38
Monthly Payments.....................................................19, 53
Mortgage.................................................................50
Mortgage Loan Purchase and Sale Agreement................................51
Mortgage Loan Seller..................................................4, 16
Mortgage Loans...................................................4, 50, 134
Mortgage Pass-Through Rate...............................................23
Mortgage Pool.............................................................4
Mortgage Rate........................................................19, 53
Mortgaged Properties......................................................4
Mortgaged Property.......................................................19
Multifamily Loan.........................................................50
Multifamily Property.....................................................50
- --N--
Net Cash Flow............................................................58
Net Default Interest.....................................................71
Net Mortgage Pass-Through Rate...........................................74
Net REO Proceeds.........................................................71
Note.....................................................................50
- --O--
Occupancy................................................................60
Offered Certificates....................................................134
Office Loan..............................................................50
Office Property..........................................................50
OID.....................................................................136
Original Principal Loan Balance..........................................59
Originators..............................................................16
- --P--
P&I Advance...........................................................9, 99
Participants.............................................................81
Pass-Through Rate.....................................................5, 22
Percentage Interest......................................................70
Permitted Investments...................................................102
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Plan................................................................85, 143
Pool Loan.................................................................9
Pooling Agreement.......................................................135
Pooling and Servicing Agreement......................................16, 91
Preferred Interest Holder................................................38
Prepayment Premium.......................................................20
Prime Rate..............................................................100
Principal Distribution Amount............................................26
Principal Prepayments....................................................71
Principal Recovery Fee..................................................119
Private Certificates......................................................5
Property Advances........................................................99
- --R--
Rated Final Distribution Date............................................87
Realized Loss............................................................78
Record Date..............................................................69
Reduction Interest Distribution Amount...................................72
Reduction Interest Shortfalls............................................72
Regular Certificates.....................................................29
Release Date.............................................................55
Remaining Lock-out.......................................................60
REMIC.......................................5, 133, 134, 135, 136, 141, 142
REO Account..............................................................68
REO Mortgage Loan........................................................75
REO Property.............................................................68
Repurchase Price.........................................................97
Reserve Accounts.........................................................51
Retail Loan..............................................................50
Retail Property..........................................................50
Revised Rate.............................................................53
Rules....................................................................83
- --S--
SEL.......................................................................5
Senior Certificates......................................................68
Senior Housing/Healthcare Loan...........................................50
Senior Housing/Healthcare Property.......................................50
Servicer..............................................................5, 16
Servicer Remittance Date.................................................99
Servicer's Appraisal Estimate............................................80
Servicing Compensation..................................................118
Servicing Fee...........................................................118
Servicing Fee Rate......................................................118
Servicing Standard.......................................................98
SMMEA...................................................................143
Special Servicer........................................................118
Special Servicing Fee...................................................119
Specially Serviced Mortgage Loan........................................119
Stated Maturity Date.....................................................59
Subordinate Class Advance Amount.........................................99
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- --T--
Terms and Conditions.....................................................84
Treasury Rate............................................................53
Trust Fund......................................................4, 134, 136
Trust REMICs............................................................134
Trustee..........................................................5, 16, 142
Trustee Fee.............................................................116
- --U--
U.S. Person.............................................................155
Underwriter...............................................................4
Unscheduled Payments.....................................................71
Updated Appraisal.......................................................109
Upper-Tier Distribution Account.........................................102
Upper-Tier REMIC..............................................134, 135, 142
- --V--
Voting Rights...........................................................108
- --W--
Weighted Average Net Mortgage Pass-Through Rate..........................23
Withheld Amounts........................................................101
- --Z--
Zoning Laws..............................................................43
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ANNEX B
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Asset
Securitization Corporation, Commercial Mortgage Pass-Through Certificates,
Series 1997-D4 (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of The Depository Trust Company ("DTC"), CEDEL or Euroclear. The
Global Securities will be tradable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional Eurobond practice (i.e., seven calendar days settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Offered Certificates will be effected on a delivery
against payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations of their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of CEDE & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
-152-
<PAGE>
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional Eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a CEDEL Participant or a Euroclear Participant, the
purchaser will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. CEDEL or Euroclear will instruct the respective Depositary, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, calculated on the
basis of a year of 360 days consisting of twelve 30-day months. Payment will
then be made by the respective Depositary to the DTC Participant's account
against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the CEDEL Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debit will be
back-valued to, and the interest on the Global Securities will accrue from,
the value date (which would be the preceding day when settlement occurred in
New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the CEDEL or Euroclear cash debit will be valued instead as
of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants can elect not to pre-position funds and allow that
credit line to be drawn upon to finance settlement. Under this procedure, CEDEL
Participants or Euroclear Participants purchasing Global Securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Global Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many cases
the investment income on the Global Securities earned during that one day
period may substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each CEDEL Participant's or Euroclear
Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective Depositary for the benefit of CEDEL Participants
or Euroclear Participants. The sale proceeds will be available to the DTC
seller on the settlement date. Thus, to the DTC Participant a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the bonds to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, calculated on
the basis of a year of 360 days consisting of 12 30-day months. The payment
will then be reflected in the account of the CEDEL Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the
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<PAGE>
back-valuation will extinguish any overdraft charges incurred over the one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails) receipt of the cash proceeds in the CEDEL Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined herein), unless (i) each clearing system,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain or intermediaries between
such beneficial owner and the U.S. entity required to withhold tax complies
with applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate.
Exceptions for non-U.S. Persons (Form W-8): Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exception for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on
Income Effectively Connected with the Conduct of a Trade or Business in the
United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of a
Certificate and reside in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the treaty
terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate).
If the treaty provides only for a reduced rate, withholding tax will be imposed
at that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the holder of a Certificate or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom
-154-
<PAGE>
it holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof or (iii) an estate or
trust the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all
aspects of U.S. federal income tax withholding that may be relevant to foreign
holders of the Global Securities. Investors are advised to consult their own
tax advisors for specific tax advice concerning their holding and disposing of
the Global Securities.
-155-
<PAGE>
ANNEX C
WEIGHTED AVERAGE NET MORTGAGE PASS-THROUGH RATES
DISTRIBUTION DATE WAC
(ASSUMING THAT THE 13TH DAY OF
EACH MONTH IS THE DISTRIBUTION
DATE)
March 13, 1997 =
April 13, 1997 =
May 13, 1997 =
June 13, 1997 =
July 13, 1997 =
August 13, 1997 =
September 13, 1997 =
October 13, 1997 =
November 13, 1997 =
December 13, 1997 =
January 13, 1998 =
February 13, 1998 =
March 13, 1998 =
April 13, 1998 =
May 13, 1998 =
June 13, 1998 =
July 13, 1998 =
August 13, 1998 =
September 13, 1998 =
October 13, 1998 =
November 13, 1998 =
December 13, 1998 =
January 13, 1999 =
February 13, 1999 =
March 13, 1999 =
April 13, 1999 =
May 13, 1999 =
June 13, 1999 =
July 13, 1999 =
August 13, 1999 =
September 13, 1999 =
October 13, 1999 =
November 13, 1999 =
December 13, 1999 =
January 13, 2000 =
February 13, 2000 =
March 13, 2000 =
April 13, 2000 =
May 13, 2000 =
June 13, 2000 =
July 13, 2000 =
August 13, 2000 =
September 13, 2000 =
October 13, 2000 =
November 13, 2000 =
December 13, 2000 =
January 13, 2001 =
February 13, 2001 =
March 13, 2001 =
April 13, 2001 =
May 13, 2001 =
June 13, 2001 =
July 13, 2001 =
August 13, 2001 =
September 13, 2001 =
October 13, 2001 =
November 13, 2001 =
December 13, 2001 =
January 13, 2002 =
February 13, 2002 =
March 13, 2002 =
April 13, 2002 =
May 13, 2002 =
June 13, 2002 =
July 13, 2002 =
August 13, 2002 =
September 13, 2002 =
October 13, 2002 =
November 13, 2002 =
December 13, 2002 =
January 13, 2003 =
February 13, 2003 =
March 13, 2003 =
April 13, 2003 =
May 13, 2003 =
June 13, 2003 =
July 13, 2003 =
August 13, 2003 =
September 13, 2003 =
October 13, 2003 =
November 13, 2003 =
December 13, 2003 =
January 13, 2004 =
February 13, 2004 =
March 13, 2004 =
April 13, 2004 =
May 13, 2004 =
June 13, 2004 =
July 13, 2004 =
August 13, 2004 =
September 13, 2004 =
October 13, 2004 =
-156-
<PAGE>
DISTRIBUTION DATE WAC
(ASSUMING THAT THE 13TH DAY OF
EACH MONTH IS THE DISTRIBUTION
DATE)
November 13, 2004 =
December 13, 2004 =
January 13, 2005 =
February 13, 2005 =
March 13, 2005 =
April 13, 2005 =
May 13, 2005 =
June 13, 2005 =
July 13, 2005 =
August 13, 2005 =
September 13, 2005 =
October 13, 2005 =
November 13, 2005 =
December 13, 2005 =
January 13, 2006 =
February 13, 2006 =
March 13, 2006 =
April 13, 2006 =
May 13, 2006 =
June 13, 2006 =
July 13, 2006 =
August 13, 2006 =
September 13, 2006 =
October 13, 2006 =
November 13, 2006 =
December 13, 2006 =
January 13, 2007 =
February 13, 2007 =
March 13, 2007 =
April 13, 2007 =
May 13, 2007 =
June 13, 2007 =
July 13, 2007 =
August 13, 2007 =
September 13, 2007 =
October 13, 2007 =
November 13, 2007 =
December 13, 2007 =
January 13, 2008 =
February 13, 2008 =
March 13, 2008 =
April 13, 2008 =
May 13, 2008 =
June 13, 2008 =
July 13, 2008 =
August 13, 2008 =
September 13, 2008 =
October 13, 2008 =
November 13, 2008 =
December 13, 2008 =
January 13, 2009 =
February 13, 2009 =
March 13, 2009 =
April 13, 2009 =
May 13, 2009 =
June 13, 2009 =
July 13, 2009 =
August 13, 2009 =
September 13, 2009 =
October 13, 2009 =
November 13, 2009 =
December 13, 2009 =
January 13, 2010 =
February 13, 2010 =
March 13, 2010 =
April 13, 2010 =
May 13, 2010 =
June 13, 2010 =
July 13, 2010 =
August 13, 2010 =
September 13, 2010 =
October 13, 2010 =
November 13, 2010 =
December 13, 2010 =
January 13, 2011 =
February 13, 2011 =
March 13, 2011 =
April 13, 2011 =
May 13, 2011 =
June 13, 2011 =
July 13, 2011 =
August 13, 2011 =
September 13, 2011 =
October 13, 2011 =
November 13, 2011 =
December 13, 2011 =
January 13, 2012 =
February 13, 2012 =
March 13, 2012 =
April 13, 2012 =
May 13, 2012 =
June 13, 2012 =
July 13, 2012 =
August 13, 2012 =
September 13, 2012 =
October 13, 2012 =
November 13, 2012 =
December 13, 2012 =
-157-
<PAGE>
DISTRIBUTION DATE WAC
(ASSUMING THAT THE 13TH DAY OF
EACH MONTH IS THE DISTRIBUTION
DATE)
January 13, 2013 =
February 13, 2013 =
March 13, 2013 =
April 13, 2013 =
May 13, 2013 =
June 13, 2013 =
July 13, 2013 =
August 13, 2013 =
September 13, 2013 =
October 13, 2013 =
November 13, 2013 =
December 13, 2013 =
January 13, 2014 =
February 13, 2014 =
March 13, 2014 =
April 13, 2014 =
May 13, 2014 =
June 13, 2014 =
July 13, 2014 =
August 13, 2014 =
September 13, 2014 =
October 13, 2014 =
November 13, 2014 =
December 13, 2014 =
January 13, 2015 =
February 13, 2015 =
March 13, 2015 =
April 13, 2015 =
May 13, 2015 =
June 13, 2015 =
July 13, 2015 =
August 13, 2015 =
September 13, 2015 =
October 13, 2015 =
November 13, 2015 =
December 13, 2015 =
January 13, 2016 =
February 13, 2016 =
March 13, 2016 =
April 13, 2016 =
May 13, 2016 =
June 13, 2016 =
July 13, 2016 =
August 13, 2016 =
September 13, 2016 =
October 13, 2016 =
November 13, 2016 =
December 13, 2016 =
January 13, 2017 =
February 13, 2017 =
March 13, 2017 =
April 13, 2017 =
May 13, 2017 =
June 13, 2017 =
July 13, 2017 =
August 13, 2017 =
September 13, 2017 =
October 13, 2017 =
November 13, 2017 =
December 13, 2017 =
January 13, 2018 =
February 13, 2018 =
March 13, 2018 =
April 13, 2018 =
May 13, 2018 =
June 13, 2018 =
July 13, 2018 =
August 13, 2018 =
September 13, 2018 =
October 13, 2018 =
November 13, 2018 =
December 13, 2018 =
January 13, 2019 =
February 13, 2019 =
March 13, 2019 =
April 13, 2019 =
May 13, 2019 =
June 13, 2019 =
July 13, 2019 =
August 13, 2019 =
September 13, 2019 =
October 13, 2019 =
November 13, 2019 =
December 13, 2019 =
January 13, 2020 =
February 13, 2020 =
March 13, 2020 =
April 13, 2020 =
May 13, 2020 =
June 13, 2020 =
July 13, 2020 =
August 13, 2020 =
September 13, 2020 =
October 13, 2020 =
November 13, 2020 =
December 13, 2020 =
January 13, 2021 =
February 13, 2021 =
-158-
<PAGE>
DISTRIBUTION DATE WAC
(ASSUMING THAT THE 13TH DAY OF
EACH MONTH IS THE DISTRIBUTION
DATE)
March 13, 2021 =
April 13, 2021 =
May 13, 2021 =
June 13, 2021 =
July 13, 2021 =
August 13, 2021 =
September 13, 2021 =
October 13, 2021 =
November 13, 2021 =
December 13, 2021 =
January 13, 2022 =
February 13, 2022 =
March 13, 2022 =
April 13, 2022 =
May 13, 2022 =
June 13, 2022 =
July 13, 2022 =
August 13, 2022 =
September 13, 2022 =
October 13, 2022 =
November 13, 2022 =
December 13, 2022 =
January 13, 2023 =
February 13, 2023 =
March 13, 2023 =
April 13, 2023 =
May 13, 2023 =
June 13, 2023 =
July 13, 2023 =
August 13, 2023 =
September 13, 2023 =
October 13, 2023 =
November 13, 2023 =
December 13, 2023 =
January 13, 2024 =
February 13, 2024 =
March 13, 2024 =
April 13, 2024 =
May 13, 2024 =
June 13, 2024 =
July 13, 2024 =
August 13, 2024 =
September 13, 2024 =
October 13, 2024 =
November 13, 2024 =
December 13, 2024 =
January 13, 2025 =
February 13, 2025 =
March 13, 2025 =
April 13, 2025 =
May 13, 2025 =
June 13, 2025 =
July 13, 2025 =
August 13, 2025 =
September 13, 2025 =
October 13, 2025 =
November 13, 2025 =
December 13, 2025 =
January 13, 2026 =
February 13, 2026 =
March 13, 2026 =
April 13, 2026 =
May 13, 2026 =
June 13, 2026 =
July 13, 2026 =
August 13, 2026 =
September 13, 2026 =
-159-
<PAGE>
=============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES OFFERED HEREBY NOR AN OFFER OF
SUCH SECURITIES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH
AN OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED
BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED
ACCORDINGLY.
---------------
TABLE OF CONTENTS
PAGE
----
Executive Summary 6
Summary of Prospectus 16
Risk Factors and Other Special Considerations 31
Description of the Mortgage Pool 50
Description of the Offered Certificates 68
Prepayment and Yield Considerations 85
The Depositor 91
The Pooling and Servicing Agreement 91
Use of Proceeds 122
Certain Legal Aspects of Mortgage Loans 122
Certain Federal Income Tax Consequences 133
ERISA Considerations 143
Legal Investment 143
Method of Distribution 144
Legal Matters 145
Rating 145
Annex A -- Loan Characteristics .........................A
Annex B-- Global Clearance, Settlement and Tax
Documentation Procedures..............................B
Annex C -- Schedule of Weighted Average Net
Mortgage Pass-Through Rates...........................C
$[ ]
(APPROXIMATE)
ASSET SECURITIZATION CORPORATION,
DEPOSITOR
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 1997-D-4
----------
PROSPECTUS
----------
NOMURA SECURITIES
INTERNATIONAL, INC.
[ ], 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than underwriting
compensation, are set forth below. All such expenses, except for the filing
fee, are estimated.
ITEM AMOUNT
---- ------
SEC Registration Fee $303.03
Blue Sky Fees and Expenses $ *
Legal Fees and Expenses $ *
Accounting Fees and Expenses $ *
Trustee's Fees and Expenses $ *
Printing and Engraving Fees $ *
Rating Agency Fees $ *
Miscellaneous $ *
=======
-----------
* To be provided by amendment.
ITEM 31. SALES TO SPECIAL PARTIES.
Not applicable.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
To be provided by amendment.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the form of Underwriting Agreement included in the Registration
Statement, the Underwriters are obligated under certain circumstances to
indemnify certain controlling persons of the Depositor against certain
liabilities, including liabilities under the Securities Act of 1933.
The Depositor's By-laws and Certificate of Incorporation provide for
indemnification of directors and officers of the Depositor to the full extent
permitted by Delaware law and the power to purchase and maintain insurance on
behalf of directors and officers against any liability asserted against them
and incurred by them in such capacities. The Certificate of Incorporation
further provides that no director of the Depositor shall be personally liable
to the Depositor or to its stockholders for monetary damages for any breach of
such director's fiduciary duty as a director of the Depositor, provided that
such limitation on a director's liability shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Depositor or its stockholders, (ii) for
II-1
<PAGE>
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are
or were such directors, officers, employees or agents, against expenses
incurred in any such action, suit or proceeding.
The Pooling and Servicing Agreement provides that no director,
officer, employee or agent of the Depositor is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad faith
or gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreement provides further
than, with the exceptions stated above, a director, officer, employee or agent
of the Depositor is entitled to be indemnified against any loss, liability or
expenses incurred in connection with legal actions relating to the Pooling and
Servicing Agreement and the Certificates, other than such expenses relating to
particular Mortgage Loans.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of Asset Securitization
Corporation as currently in effect
3.2** Bylaws of Asset Securitization Corporation as
currently in effect
4.1* Form of Pooling and Servicing Agreement
5.1* Opinion of Cadwalader, Wickersham & Taft as to
legality (including the consent of such firm)
8.1* Opinion of Cadwalader, Wickersham & Taft as to
certain tax matters (including the consent
of such firm)
24.1 Consent of Cadwalader, Wickersham & Taft (included
as part of Exhibits 5.1 and 8.1)
25.1 Power of Attorney (located on the signature page of
this Registration Statement)
- ----------
* To be provided by amendment.
** Previously filed in connection with Registration Statement No. 33-89494
and incorporated by reference herein.
II-2
<PAGE>
ITEM 36. UNDERTAKINGS.
A. Undertaking in Respect of Indemnification
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant, as
the case may be, will, unless in the opinion of its counsel that the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the act and will be governed by the final
adjudication of such issue.
B. Undertaking pursuant to Rule 430A.
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of New York, State of New York, on
February __, 1997.
ASSET SECURITIZATION CORPORATION
By: ________________________
Ethan Penner
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael Berman and Ethan Penner, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for and in his name, place and stead, in
any and all capacities to sign any or all amendments (including post-effective
amendments) to this Registration Statement and any or all other documents in
connection therewith, and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as might or could be done in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
SIGNATURE POSITION
________________________ President and Director
Ethan Penner
________________________ Chief Executive Officer and Director
Michael Berman
________________________ Chief Financial Officer and Treasurer
Robert Rottmann (Principal Accounting Officer)
________________________ Director
William Wraith
________________________ Director
Richard Ader
________________________ Director
Hiroshi Tsujimura
________________________ Chairman and Director
Max C. Chapman, Jr.
________________________ Director
Mark W. McGauley
<PAGE>
EXHIBITS INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
- -------------- ---------------------- ----------------------
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of Asset
Securitization Corporation as currently
in effect
3.2** Bylaws of Asset Securitization
Corporation as currently in effect
4.1* Form of Pooling and Servicing Agreement
5.1* Opinion of Cadwalader, Wickersham &
Taft as to legality (including the consent
of such firm)
8.1* Opinion of Cadwalader, Wickersham & Taft
as to certain tax matters (including the
consent of such firm)
24.1 Consent of Cadwalader, Wickersham & Taft
(included as part of Exhibits 5.1 and 8.1)
25.1 Power of Attorney
(located on the signature page of this
Registration Statement)
- ----------
* To be provided by amendment.
** Previously filed in connection with Registration Statement No. 33-89494 and
incorporated by reference herein.
II-4
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ASSET SECURITIZATION CORPORATION
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
ARTICLE I
The name of the Corporation is Asset Securitization Corporation
(the "Corporation").
ARTICLE II
The address of the registered office of the Corporation in the
State of Delaware is 15 East North Street, in the City of Dover, County of
Kent. The name of the Corporation's registered agent at such registered office
is Vanguard Corporate Services, Ltd.
ARTICLE III
The purposes for which the Corporation is organized is to engage
in only the following activities:
(a) to acquire, own, hold, sell, transfer, assign, pledge,
finance, refinance, and otherwise deal with (i) loans secured by first or
second mortgages, deeds of trust or similar liens on residential, including
single-family and multi-family, commercial or mixed commercial and residential
properties, shares issued by private non-profit housing corporations, or
manufactured housing contracts, (ii) any participation interest in, security
(in bond or pass-through form) or funding agreement based on, backed or
collateralized by, directly or indirectly, any of the foregoing (the loans
described in clause (a)(i) and the participation interests, securities and
funding agreements described in clause (a)(ii), collectively, "Mortgage
Loans"), (iii) receivables and loan obligations, whether secured or unsecured,
including, but not limited to, retail automotive, truck or manufactured
housing installment sale contracts or loans or automotive, truck or
manufactured housing leases, consumer or commercial loans or leases, credit
card accounts, accounts receivable, corporate receivables, trade receivables,
trade bills, boat and recreational vehicle loans, computer or other equipment
loans or leases, mobile home loans and pads, construction equipment, dealer
<PAGE>
and floor plan financing notes, insurance policy loans, medical and health
care receivables, municipal and other governmental leases, short-term notes
secured by a lien on a small business or all or part of its assets, and loans
to lesser-developed countries, (iv) any participation interest in, security
(in bond or pass-through form) or funding agreement based on, backed or
collateralized by, directly or indirectly, any of the foregoing (the
receivables and loans described in clause (a)(iii) and the participation
interests, securities and funding agreements described in clause (a)(iv),
collectively, "Receivables");
(b) to authorize and issue one or more series (each, a
"Pass-Through Series") of pass-through securities ("Certificates") pursuant to
pooling and servicing agreements (each, a "Pooling and Servicing Agreement"),
each of which Pass-Through Series (i) represents an ownership interest in
Mortgage Loans or Receivables, related property and/or collections in respect
thereof and (ii) may be structured to contain one or more classes or
Certificates, each class having the characteristics specified in the related
Pooling and Servicing Agreement, and to acquire, own, hold, sell, transfer,
assign, pledge, finance or refinance one or more Certificates or classes of
Certificates of any Pass-Through Series;
(c) to establish one or more trusts ("Trusts") to issue, acquire,
own, and hold one or more series (each, a "Bond Series") of debt obligations
("Bonds"), each issued pursuant to an indenture ("Indenture"), each of which
Bond Series (i) is collateralized by Mortgage Loans, Receivables and any
supplement collateral (the "Supplement Collateral"; Mortgage Loans,
Receivables and Supplemental Collateral, collectively, the "Collateral")
and/or related property and/or collections in respect thereof and (ii) may be
structured to contain one or more classes of Bonds, each class having the
characteristics specified in the related Indenture, and to acquire, own, hold,
sell, transfer, assign, pledge, finance or refinance one or more Bonds or
classes of Bonds of any Bond Series; provided, however, that the Bonds of any
Bond Series have been rated in one of the two highest rating categories by one
or more nationally recognized statistical rating agencies and, provided
further, that the Bonds of any Bond Series other than the initial Bond Series
issued by a Trust have been rated in the same or a higher rating category by
the nationally recognized statistical rating agency or agencies that rated the
initial Bond Series issued by such Trust;
(d) to issue, acquire, assume, own, hold, sell, transfer, assign,
pledge and finance indebtedness that (i) is subordinated to the Bonds; (ii) is
nonrecourse to the Corporation and the related Trust other than to cash flow
on the Collateral securing a Bond Series issued by the related Trust in excess
of amounts necessary to pay holders of Bonds ("Bondholders") of such Bond
Series; (iii) does not constitute a claim against the Corporation to the
extent that funds are insufficient to pay such indebtedness; and (iv) does not
result in a lowering or withdrawal of the rating or ratings then assigned to
the Bonds of any Bond Series issued by the Trust issuing such subordinated
indebtedness, as confirmed in writing by the nationally recognized statistical
rating agency or agencies rating such Bond Series;
(e) (i) to establish one or more Trusts to engage in any one or
more of the activities described in (a) and (d) above, each of which Trusts
and any Trust formed to engage in one or more of the activities described in
(c) above may deliver to the Corporation
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<PAGE>
certificates ("Trust Certificates") representing the ownership interest in the
assets of such Trust, (ii) to acquire, own, hold, sell, transfer, assign,
pledge, finance, and otherwise deal with any or all of the Trust Certificates
in any Trust that it establishes and (iii) to act as settlor or depositor of
such Trusts and to invest in or sell Trust Certificates; and
(f) to engage in any other acts and activities and to exercise any
powers permitted to corporations under the laws of the State of Delaware which
are incidental to, or connected with the foregoing, and necessary, suitable or
convenient to accomplish any of the foregoing.
ARTICLE IV
The total number of shares of stock which the Corporation shall
have authority to issue is 1,000 shares of Common Stock, par value $1.00 per
share.
ARTICLE V
In furtherance and not in limitation of the power conferred upon
the Board of Directors by law, the Board of Directors shall have power to
adopt, amend, alter, add to or repeal from time to time the By-Laws of the
Corporation without the assent or vote of the stockholders.
ARTICLE VI
Elections of directors need not be by ballot unless the By-Laws of
the Corporation shall so provide.
ARTICLE VII
(a) The Corporation shall not take any of the following actions at
any time that the Corporation is a holder of a class of Certificates of any
Pass-Through Series that has rights subordinate to the rights of holders of
Certificates of any other class of the same Pass-Through Series: (i) dissolve,
liquidate, in whole or in part, or merge or consolidate with, or transfer
substantially all of its assets to, any entity; provided, however, that the
Corporation may dissolve and liquidate in whole to, or may merge or
consolidate with, or transfer substantially all of its assets to, any entity
if (A) such liquidation, merger, consolidation or transfer is for the purpose
of changing the State of incorporation of the Corporation or changing the form
of organization through which the business of the Corporation is carried out,
and (B) such entity has provisions in its governing instruments identical in
substance to the provisions of this Article VII; (ii) incur or assume any
indebtedness, except such indebtedness which may be incurred or assumed in the
ordinary course of conducting its activities in accordance with this Article
VII or as permitted by Article III; or (iii) alter in any
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<PAGE>
material manner or delete clause (a) of this Article VII without the consent
of each rating organization rating any class of Certificates then outstanding.
(b) Subject to the provision in clause (b)(iii) of this Article
VII, the Corporation shall not, for so long as the Corporation owns more than
50% of the Trust Certificates relating to a Trust which has issued Bonds,
without the prior written consent of Bondholders holding in the aggregate a
majority of the outstanding principal amount of the Bonds of each Bond Series
issued by such Trust, do any of the following:
(i) dissolve or liquidate, in whole or in part;
(ii) merge, consolidate with, or transfer substantially all
of its assets to any other entity other than an entity having a
certificate of incorporation or other organizational document
containing provisions identical to the provisions of Article III
hereof and clause (b) of this Article VII, except that the
reference in clause (f) of Article III to Delaware may be changed
to refer to another state of the United States; or
(iii) amend, alter in any manner or delete Article III;
provided, however, that (A) the Corporation may amend or alter Article III
hereof or this Article VII without obtaining such consent of such Bondholders
in order to clarify the provisions of such Articles, if such amendment or
alteration will not materially adversely affect the rights of the holders of
the Bonds of any Bond Series issued by such Trust, (B) the Corporation may
amend or alter Article III hereof for any reason without obtaining such
consent of Bondholders if such amendment or alteration will not result in a
lowering or withdrawal of the rating or ratings then assigned to the Bonds of
any Bond Series issued by such Trust, as confirmed in writing by the
nationally recognized statistical rating agency or agencies rating such Bond
Series, and (C) notwithstanding the receipt of such consent of Bondholders,
the Corporation may not amend or alter this Article VII (except pursuant to
subclause (A) of this clause (iii)), unless such amendment or alteration will
not result in a lowering or withdrawal of the rating or ratings then assigned
to the Bonds of any Bond Series issued by such Trust, as confirmed in writing
by the nationally recognized statistical rating agency or agencies rating such
Bond Series.
ARTICLE VIII
Subject to the limitations in Article VII of this Certificate of
Incorporation, the Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights and powers
conferred upon stockholders, directors and officers herein are granted subject
to this reservation.
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<PAGE>
ARTICLE IX
No director of the Corporation shall be personally liable to the
Corporation or to its stockholders for monetary damages for any breach of such
director's fiduciary duty as a director of the Corporation, provided that this
Article IX shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit.
ARTICLE X
The Corporation shall, to the full extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as amended from time
to time, indemnify all persons whom it may indemnify pursuant thereto.
ARTICLE XI
The Incorporator of the Corporation is Anna H. Glick, Esq., whose
mailing address is c/o Cadwalader, Wickersham & Taft, 100 Maiden Lane, New
York, New York 10038.
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<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation law
of Delaware, do make this certificate, hereby declaring and certifying that
this is my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 23rd day of June, 1992.
/s/ _____________________________
Anna H. Glick
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ASSET SECURITIZATION CORPORATION
ASSET SECURITIZATION CORPORATION, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST, that resolutions were duly adopted by the Board of Directors
of the Corporation setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation, filed in the Office of the Secretary of
State of Delaware on June 23, 1992, declaring said amendment to be advisable
and that the written consent of the sole stockholder of the Corporation should
be sought with thereto. The resolution setting forth the proposed amendment is
as follows:
RESOLVED, that Section VII of the Certificate of Incorporation of the
Corporation be amended by adding the following clauses (c), (d), (e),
(f) and (g) at the end thereof:
(c) So long as any Certificate remains outstanding, the
Corporation:
(1) will (A) maintain and prepare financial reports,
financial statements, books and records and bank
accounts separate from those of its affiliates and any
other person or entity and (B) will not permit any
affiliate or any other person or entity independent
access to its bank accounts;
(2) will not commingle the funds and other assets of the
Corporation with those of any affiliate, any guarantor
of any of the obligations of the Corporation (each, a
"Guarantor"), or any affiliate of any affiliate of any
Guarantor, or any other person or entity;
(3) shall conduct its own business and hold all of its
assets in its own name;
(4) shall remain solvent and pay its debts and liabilities
(including employment and overhead expenses) from its
assets as the same shall become due;
(5) shall do all things necessary to observe corporate and
other organizational formalities and preserve its
existence as a single-purpose, bankruptcy-remote entity
in accordance with the
<PAGE>
standards of the statistical rating organizations
providings ratings on any Certificates, as such
standards are in effect on the date of issuance of
such Certificates;
(6) shall enter into transactions with affiliates only if
each such transaction is commercially reasonable and on
substantially similar terms as a transaction that would
be entered into on an arm's-length basis with a person
or entity other than an affiliate of the Corporation;
(7) shall compensate each of its consultants and agents
from its own funds for services provided to it;
(8) shall not guarantee, become obligated for, or hold
itself or its credit out to be responsible for, or
available to satisfy, the debts or obligations of any
other person or entity or the decisions or actions
respecting the daily business or affairs of any other
person or entity;
(9) shall not (A) acquire obligations or securities of any
affiliate or any of the stockholders of the Corporation
or (B) buy or hold any evidence of indebtedness issued
by any other person or entity, other than cash,
investment-grade securities, Receivables and notes
evidencing the indebtedness of a borrower under the
related Mortgage Loan;
(10) will allocate fairly and reasonably and pay from its
own funds the cost of (A) any overhead expenses
(including the cost of any office space) shared with
any affiliate of the Corporation and (B) any services
(such as asset management, legal and accounting) that
are provided jointly to the Corporation and one or more
of its affiliates;
(11) will maintain and utilize separate stationery and
invoices bearing its own name and allocate separate
office space (which may be a separately identified area
in office space shared with one or more affiliates) and
maintain a separate sign in the office directory of the
building in which the Corporation maintains its
principal place of business;
(12) shall not make any loans or advances to, or pledge its
assets for the benefit of, any other person or entity,
including, without limitation, any affiliate, Guarantor
or any affiliate of any Guarantor;
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<PAGE>
(13) will be, and at all times will hold itself out to the
public as, a legal entity separate and distinct from
any other person or entity;
(14) shall, in the event that any authorized officer knows
of any misunderstanding regarding the separate identity
of the Corporation, correct such misunderstanding;
(15) shall not identify itself or any of its affiliates as
a division or part of any other person or entity;
(16) will maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its
size and character and in light of its contemplated
business operations;
(17) shall maintain its assets in such a manner that it will
not be costly or difficult to segregate, ascertain or
identify its individual assets from those of any
affiliate, any Guarantor, or any affiliate of any
Guarantor, or any other person or entity;
(18) shall not incur any indebtedness, other than
indebtedness incurred in the ordinary course of the
Corporation's business, or grant a security interest of
any nature whatsoever in the Corporation's assets,
other than pursuant to, or as set forth in, any
documents relating to the issuance of any Certificates
or Bonds; and
(19) shall not (A) transfer, lease or sell, in one
transaction or any combination of transactions, all or
substantially all of the properties or assets of the
Corporation other than the transfer of Mortgage Loans
or Receivables to a trust in connection with the
issuance of Certificates or Bonds or in connection with
a sale of Receivables, Mortgage Loans or other
securities in the ordinary course of the Corporation's
business, (B) merge or consolidate with or into any
other business entity, (C) dissolve, wind up or
liquidate or take any act or omission as a result of
which the Corporation would be dissolved, wound up or
liquidated, in whole or in part, (D) engage in any
business activity not described in Article III hereof,
or (E) amend, modify, terminate or waive the
Certificate of Incorporation or bylaws of the
Corporation unless, with respect to the foregoing
clauses (A) through (E), the Corporation shall have
received written confirmation from each of the
statistical rating organizations providing ratings on
any Certificates or Bonds on the date of issuance of
such Certificates or Bonds (each, a "Rating Agency")
that such action, in and of itself, will not cause such
Rating Agency to qualify, downgrade or withdraw any of
its then-current rating for any Certificate or Bond.
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<PAGE>
(d) The Board of Directors of the Corporation shall have at least
one duly Independent Director. For the purposes hereof, the term
"Independent Director" means a director of the Corporation who is not at
the time of initial appointment and has not been at any time during the
preceding five (5) years: (i) a stockholder, director, officer, employee
or partner of the Corporation or any of its affiliates; (ii) a customer,
supplier or other person who derives more than 10% of its purchases or
revenues from its activities with the Corporation or any affiliate of
the Corporation; (iii) a person or other entity controlling or under
common control with any such stockholder, partner, customer, supplier or
other person; or (iv) a member of the immediate family of any such
stockholder, director, officer, employee, partner, customer, supplier or
other person. As used herein, the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a person or entity, whether through
ownership of voting securities, by contract or otherwise.
(e) A unanimous affirmative vote of all of the Directors of the
Corporation, including the affirmative vote of an Independent Director,
shall be necessary to approve the taking of any Bankruptcy Action. For
the purposes hereof, "Bankruptcy Action" means:
(1) taking any action that might cause the Corporation to
become insolvent;
(2) commencing any case, proceeding or other action on
behalf of the Corporation under any existing or future
law of any jurisdiction relating to bankruptcy,
insolvency, reorganization or relief of debtors;
(3) instituting proceedings to have the Corporation
adjudicated a bankrupt or insolvent;
(4) consenting to, or acquiescing in, the institution of
bankruptcy or insolvency proceedings against the
Corporation;
(5) filing a petition or consenting to a petition seeking
reorganization, arrangement, adjustment, or other
relief on behalf of the Corporation of its debts under
federal or state law relating to bankruptcy;
(6) seeking or consenting to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator, custodian
or any similar official for the Corporation or a
substantial portion of its properties or assets;
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<PAGE>
(7) making any assignment for the benefit of the
Corporation's creditors; or
(8) taking any action in furtherance of any of the
foregoing.
(f) The Board of Directors shall not cause or permit the
Corporation to take any action which, under the terms of the Certificate
of Incorporation, by-laws or any voting trust agreement with respect to
any common stock, requires the unanimous written consent or affirmative
vote of the Board of Directors of the Corporation unless at the time of
such action there shall be at least one member who is an Independent
Director.
(g) The Corporation shall not cause or permit the transfer of any
direct or indirect ownership interest in the Corporation such that the
transferee owns more than a 49% interest in the Corporation, unless such
transfer is conditioned upon the delivery of an acceptable
non-consolidation opinion, concerning, as applicable, the Corporation,
the transferee and/or their respective owners, to each trustee with
respect to any Certificates or Bonds that are then outstanding and each
Rating Agency providing ratings on any Certificates or Bonds that are
then-outstanding.
SECOND, that, thereafter, pursuant to a resolution of its Board
of Directors, the written consent of the sole stockholder of the
Corporation to said amendment was obtained on the 12th day of December,
1996.
THIRD, that said amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment of its Certificate of Incorporation to be executed by its
duly authorized officer this 12th day of December, 1996.
ASSET SECURITIZATION CORPORATION
By: /s/
--------------------------------
Name: Perry Gershon
Title: Director
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